I am a bankruptcy attorney who frequently has clients who have been paying credit counseling companies obscene amounts without receiving any relief.
Further, it seems these companies pick-and-choose the creditors to which they will remit payment. What, if any, financial affiliations do these companies have with the creditors?
For example, does CESI have a financial incentive to pay one creditor over another (i.e. does a creditor own CESI and essentially pay itself?)?
You raise a number of interesting issues.
When it comes to CESI (Consumer Education Services, Inc.), they are a non-stock corporation setup as a nonprofit organization and recognized as a tax exempt organization by the Internal Revenue Service.
As a nonprofit corporation there are no “owners” and no equity or stock that can be owned by any entity. Since they are a non-profit corporation you can see their last public tax return online, as you can with other IRS approved nonprofits.
A nonprofit credit counseling group can be either an IRS approved organization or only a state nonprofit company and not recognized by the IRS.
As far as who gets paid first, the reality is it comes down to the commission creditors pay the credit counseling groups. This commission for the return of money is commonly called fairshare.
Fairshare works like this. Let’s say Discover Card gives a 4% fairshare payment to a credit counseling agency. Some creditors will let counseling agencies withhold their commission, some will require to be invoiced and pay later. In this case for every $100 the agency remits they would get $4 in commission, either deducted or invoiced. If it was deducted the credit counseling group would send $96 to the creditor and the creditor would post $100 to the consumer account with that creditor.
A credit counseling organization is more likely to prioritize payment by which creditor provides the most compensation or holds the biggest hammer over their head regarding future funding.
While creditors do not “own” credit counseling groups, they do control them. This is evidenced by the fact they have made the entire credit counseling industry afraid to speak out in support of consumers.
Credit counseling groups are afraid to go against the wishes of creditors in fear of losing the little funding creditors still give them today. What we have today is essentially a weight loss industry that is controlled by the snack food manufactures.
So you see that while there may not be an “ownership” issue there is a substantial influence problem that persists today across the entire credit counseling industry at-large.
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