FTC Staff Works with Credit Counseling Agencies

A new policy hammered out by the National Foundation for Consumer Credit (NFCC) with guidance from staff of the Federal Trade Commission will ensure that financially-troubled consumers who seek help from one of NFCC’s 1,100 Consumer Credit Counseling Services offices nationwide will be told that the offices receive the bulk of their funding from creditors. NFCC members also will disclose to consumers that counselors have a dual role in developing debt management plans that address consumers’ needs but that also meet the requirements of the creditors who fund the offices. A third new disclosure requirement means that consumers will be given a reliable estimate of how long it will take to pay off their debts under a consolidated debt management plan set up by an NFCC office. The new disclosure policy goes into effect on June 1, 1997.

The FTC staff said consumers need this information to weigh whether a debt management plan or some other alternative, such as self-help or bankruptcy, is the best for them. NFCC member consumer services include credit education programs, budget counseling services, and development of debt management plans that allow consumers to pay off their debts on a schedule.

But NFCC members also perform services for creditors, including collecting payments on outstanding debts from consumers at risk of filing bankruptcy. In return, creditors make contributions to NFCC members, up to 15 percent of each payment received.

“This new disclosure policy resolves the FTC staff’s concerns without endangering the valuable services that NFCC members offer both consumers and creditors,” said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. “It will address the practices of all 1,100 NFCC member offices and benefit the many consumers who seek their assistance.”

NFCC will include its new funding source disclosure in brochures and other printed materials that its members provide to consumers; on worksheets, contracts or agreements involving debt management plans that are filled out and/or signed by consumers; and in response to any inquiry concerning how NFCC members are funded. The disclosure regarding the dual role of NFCC members will be included in any materials that discuss debt management plans. The disclosures will emphasize that the plan serves the needs of both consumers and creditors and that creditors provide funding to NFCC members for their efforts in establishing the plans.

The third disclosure included in the NFCC policy contemplates implementation of a software program that gives reliable estimates of the length of debt management plans, taking into account interest that continues to accrue on consumers’ accounts even while they make payments. Those offices that cannot implement the software program immediately will give a reliable estimate and also disclose to the consumer that completing the proposed plan can take as long as 48 to 60 months.

NFCC can terminate the membership of offices that do not follow the policy.

A new FTC brochure for consumers titled "Knee Deep in Debt" offers detailed information about various options available to help consumers in financial trouble, including self-help steps, credit counseling services, debt consolidation and bankruptcy. The brochure also cautions consumers against credit repair clinics that promise to clean up credit reports for a fee.

Copies of "Knee Deep," as well as two letters from NFCC laying out the new policy and an FTC staff opinion letter assessing its legality are available on the FTC’s web site at http://www.ftc.gov and also from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. For the latest FTC news as it is announced, call the FTC’s NewsPhone at 202-326-2710.

(FTC File No. 952 3091)