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Credit Counseling Groups in the Crosshairs With Pay For Performance History

This comes straight from a tipster (send in your tips here) who directed me to the site of Cotchett, Pitre & McCarthy. I reached out to CPM for additional information but as of the time of publication I had not heard back.


Cotchett, Pitre & McCarthy is continuing its investigation into fraudulent “debt counseling” and debt collections in the subprime credit industry. The suit, filed in U.S. District Court in Los Angeles by Cotchett, Pitre & McCarthy and co-counsel, named JP Morgan Chase & Co., Chase Manhattan Bank USA, Money Management International (MMI), also known as Consumer Credit Counseling Service (CCCS), and Money Management By Mail Inc.

The suit and investigation arise out of the relatively new sub-prime credit counseling industry. The industry was created by the nation’s leading creditors (including leading credit card companies) to use third party, allegedly non-profit “credit counseling” organizations, to secretly facilitate their collections from unsuspecting customers who were in financial distress and had turned to what they thought were non-profits for financial help.

The complaint alleges that Money Management International Inc. (MMI) and others advertised and promoted themselves as non-profit credit counseling organizations whose main purpose was to act on behalf of the consumer. These companies were in fact operating as agents of the consumers’ creditors, including Chase, according to the complaint.

These agencies claimed in their advertisements that they would “negotiate” on behalf of consumers with Chase and other credit card companies to whom consumers owed money — however, as alleged in the Complaint, there was no real “negotiation” — instead there were back room deals between the creditors and the “counseling” agencies designed to collect as much money as possible from unsuspecting consumers.

The complaint alleges:

  • MMI and others were nothing more than debt collectors that, even according to Chase’s own documents, “partnered” with Chase to collect its accounts under the guise of “rescuing” consumers drowning in debt;
  • The agencies, in reality, operated as for-profit organizations, distributing monthly payments they collected from consumers to Chase, while keeping a share for themselves — effectively a payment by Chase that was kept hidden from the consumers;
  • and the agencies also failed to provide comprehensive financial counseling that communicated all options open to indebted consumers. For example, the agencies as a matter of practice failed to discuss bankruptcy as a viable option since that would cut off the flow of money to the creditors.

The lawsuit seeks to recover monies wrongfully obtained from consumers (including Chase credit card holders) who were indebted to Chase and/or who contracted for credit repair and debt management plan services from MMI or credit counseling agencies that MMI has taken over. If you feel you have been victimized by subprime credit “counseling,” please contact us at TAKE ACTION to explore your legal rights.

In addition to the current litigation against MMI, Cotchett, Pitre & McCarthy is investigating claims on behalf of consumers who received credit counseling services from the following credit “counselors”:

AFS
American Financial Solutions
American Consumer Credit Counseling
Care One Credit Counseling
Consolidated Credit Counseling Services
Express Consolidation
Family Credit Counseling
Genus Credit Management
Greenpath
InCharge Debt Solutions
Lighthouse Credit Foundation
Novadebt
Take Charge America
Zero Balance Debt Management – Source


While some may view this as yet another frivolous suit and a shakedown, the suit does expose or draw attention to some problematic fundamentals of credit counseling:

  1. There is no real negotiation.
  2. Creditors dictate the terms.
  3. The services are primarily compensated for by the creditor which, no matter how much they may claim, does bastardize the fiduciary role of the agency.
  4. And there may not be adequate disclosure of the alternatives in each consumers situation including bankruptcy, and yes, debt settlement.

This complaint goes back to 2007 but it continues and the roping in of additional agencies is new.

Since Money Management International had taken on clients of Ameridebt, it appears the connection into this case is because of the actions of Ameridebt and in fact the exhibits in this case revel much more about Ameridebt than even I had known before. – Source, Source, Source.

The original complaint reads like a history of the credit counseling industry. You can read the amended complaint here.

Apparently MMI is Settling This Case

I previously wrote about Money Management International intending to settle this case to get out from under it. It is said that MMI is going to settle for $6.5 Million as reported here.

Chase Pay For Performance Credit Counseling

It’s nice to see this 2003 letter from Chase Bank finally reach the light of day. This letter and the policy of Chase was one of the primary reasons I spoke out about the credit counseling industry while in the middle of the credit counseling industry, essentially cutting my own throat.

At the time I felt Chase, and to be fair, others, had gone too far in connecting credit counseling compensation with collection performance and not allowing the agencies to shine as good guys based on the overall work they did, even if that work did not result in a measurement desired by the collection department.

From this case is this letter in the exhibits.

Credit Counseling Groups in the Crosshairs With Pay For Performance History
Credit Counseling Groups in the Crosshairs With Pay For Performance History

While the letter is difficult to read it does lay out that credit counseling agency funding was seemingly now most dependent on how much money they collected from consumers and agencies were ranked and rewarded by their level of collection performance and consumers completing the DMP. The reward to the credit counseling agency was for consumers that “successfully complete the program.”

Credit Counseling Groups in the Crosshairs With Pay For Performance History
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Relief-Reform

    Here is a quote from an email I received earlier this year:

    “The nonprofit debt relief industry is large: A survey of 275 nonprofits’ 990s showed combined revenues of almost $1.5 billion over two years. There’s an estimated 1,000 or so nonprofit providers now existing, so the industry revenue numbers are quite high. “

    I do not know who performed the survey and cannot speak to the accuracy of the quote. The figures do resonate with me though. If the survey only included roughly a quarter of the industry, well…. the numbers represent some valuable turf.

  • Angelo

    Steve, this is no different than the “non profits” that would underwrite a mortgage loan for “free” but gaff the client 4 points on the back. Client never sees those fees and thinks the non profit is really looking out for their best interest. Im sure if consumers knew how much money the Consolidation companies are making off of them behind the scenes, they would think twice about enrolling.

    It’s about time people are aware that non-profits are not here to help consumers….if you look at it in it’s simplest form, they are nothing more than a collection agency for the banks!!

  • Angelo

    Steve, this is no different than the “non profits” that would underwrite a mortgage loan for “free” but gaff the client 4 points on the back. Client never sees those fees and thinks the non profit is really looking out for their best interest. Im sure if consumers knew how much money the Consolidation companies are making off of them behind the scenes, they would think twice about enrolling.

    It’s about time people are aware that non-profits are not here to help consumers….if you look at it in it’s simplest form, they are nothing more than a collection agency for the banks!!

    • Relief-Reform

      Here is a quote from an email I received earlier this year:

      “The nonprofit debt relief industry is large: A survey of 275 nonprofits’ 990s showed combined revenues of almost $1.5 billion over two years. There’s an estimated 1,000 or so nonprofit providers now existing, so the industry revenue numbers are quite high. ”

      I do not know who performed the survey and cannot speak to the accuracy of the quote. The figures do resonate with me though. If the survey only included roughly a quarter of the industry, well…. the numbers represent some valuable turf.

  • Angelo

    Unfortunately Jason, these giants have deep pockets and will just settle and continue to do what they are doing. Meanwhile they create a diversion by trying to eliminate the debt settlement industry all together. I’m curious to see the side by side completion rates of a success based debt settlement program vs. a Credit Counseling program.

  • Jason Taylor

    Praise the Lord this stuff is finally being exposed.

  • Jason Taylor

    Praise the Lord this stuff is finally being exposed.

    • Angelo

      Unfortunately Jason, these giants have deep pockets and will just settle and continue to do what they are doing. Meanwhile they create a diversion by trying to eliminate the debt settlement industry all together. I’m curious to see the side by side completion rates of a success based debt settlement program vs. a Credit Counseling program.

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