Debt Relief Industry

FTC Report Revels Significant Rise in Complaints in Debt Management and Credit Counseling Category

In case readers may wonder how I spend my days, while some of it is writing, most of it is researching. And that research is not glamorous stuff. It often consists of reading reams of really boring reports and publications. One such publication just released by the Federal Trade Commission, Consumer Sentinel Network Data Book, seems to indicate a much higher level of consumer complaints associated with debt management and credit counseling programs.

In the latest Consumer Sentinel Network Data Book, which is scheduled to be released in February, 2010, the complaints filed by consumers against debt management and credit counseling organizations is significant. At first I wondered if that category may have been filled with complaints regarding other debt relief categories but according to the definition of debt management and credit counseling complaints, it sure sounds like it fits.

The data book define the category of debt management and credit counseling as: “Unfulfilled promises by credit counseling organizations to provide free services, send payments to creditors in a timely manner, or reduce interest rates on credit card debt, eliminate late and over the-limit fees; etc.”

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The number of complaints in this category has risen dramatically over the past three reporting years.

  • 2007 – 3,421
  • 2008 – 6,758
  • 2009 – 13,401

According to the data provided by the FTC, debt management and credit counseling complaints were number 19 in the top reported complaints. See chart below.

According to the FTC the data is actually skewed and is misleading. Consumers are able to file complaints themselves online through the FTC Complaint Assistant and the reporting categories don’t really allow for a category that relates to other debt related services other than debt management if someone is having a debt relief problem.

According to data sent to me by Mark Guimond from the National Policy Group the data is definitely flawed. In a previous study he conducted after a Freedom of Information Act for 2008 data and his study found:

In the data, there were several hundred complaints that were unable to be identified or classified due to a complete lack of company name or vague references that also caused the identification of the company to not be made. We found:

No designation at all 464
Unable to designate 100
“Account Services” 42
“Card Services” 62
“Credit Card Account Services” 25
“Credit Card Services” 62
“Financial Services” 20
“Unknown” 443

The data also yielded a substantial number of creditor complaints that were not against “debt relief” organizations but rather actual lenders or their servicing partners. For example, the data includes the following complaints:

America’s Servicing Company 47
Capitol One 119
Citi Financial 51
HSBC 1,036
Pay Pal 683
Sears 118
Wells Fargo 16

Within the complaint universe, there were numerous complaints that clearly had no relevancy whatsoever to “debt relief”. These included auto warranties, carpet cleaning services, the Disney movie club, Country Music Television, freight forwarding, gift cards and 8 complaints against government agencies. – Source

I reached out to the National Foundation for Credit Counseling but did not receive a response by the time I published this article.

I’ve made my own FOIA request for the most recent data and will write about it once I receive it and examine it.


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About the author

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.

10 Comments

  • Hello,

    i would not say the BBB bases their information on with whom they are cozy. There are legitimate debt settlement services, and if they provide services as prescribed, they should remain in good standing. If you’ll remember the late 90’s, credit counseling was not looked upon so favorably by the BBB, but many of the bad players went away; thereby, clearing the way for reputable entities to assist consumers as the service was intended. As for complaints, the data from most of the entities I have seen is skewed. All debt relief services are (unfortunately) lumped into one category. With any business, there will be dissatisfied customers. The challenge for any company it to provide value, and service, to best assist consumers — business 101.

  • So long as debt settlement companies ONLY charge fees at settlement, debts will get settled & these statistics do NOT apply. To the companies using the “legal model” in order to continue to charge advance fees, surely the BBB will soon group all law firms with you guys!…

  • So long as debt settlement companies ONLY charge fees at settlement, debts will get settled & these statistics do NOT apply. To the companies using the “legal model” in order to continue to charge advance fees, surely the BBB will soon group all law firms with you guys!…

  • I heard there were more complaints per number of clients in for credit counselors than for debt settlement companies- anyone have any data?

    If so, I bet the BBB will never put credit counseling on there sh-] list like they did debt settlement because they are oo soo cozy with their cousin non-profits.

  • I heard there were more complaints per number of clients in for credit counselors than for debt settlement companies- anyone have any data?

    If so, I bet the BBB will never put credit counseling on there sh-] list like they did debt settlement because they are oo soo cozy with their cousin non-profits.

    • BBB complaints for 2009: http://www.bbb.org/us/storage/16/documents/stats%20pdf/us_complaint.pdf

      A report I wrote to the State of Illinois that I also submitted to the FTC:

      http://www.ftc.gov/os/comments/tsrdebtrelief/543670franklindebtrelief.pdf

      Go to page 33 if you want to see the BBB complaint statistics from the report I wrote to the FTC….my research was based on 2008 complaint statistics though…I wrote the paper in late 2009 so those stats weren’t available yet.

    • Hello,

      i would not say the BBB bases their information on with whom they are cozy. There are legitimate debt settlement services, and if they provide services as prescribed, they should remain in good standing. If you’ll remember the late 90’s, credit counseling was not looked upon so favorably by the BBB, but many of the bad players went away; thereby, clearing the way for reputable entities to assist consumers as the service was intended. As for complaints, the data from most of the entities I have seen is skewed. All debt relief services are (unfortunately) lumped into one category. With any business, there will be dissatisfied customers. The challenge for any company it to provide value, and service, to best assist consumers — business 101.

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