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Yet another reason not to use CCCS

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Credit counsel industry in arrears

By Lesley Mitchell and Steven Oberbeck

The Salt Lake Tribune

Consumer Credit Counseling Service of Utah, recognized for decades as the one place Utah consumers overwhelmed by debt could safely go for help, now stands accused of taking advantage of those desperate to turn their lives around.

It is not alone.

Credit counseling companies nationwide are being investigated for questionable practices that are pushing vulnerable families into the bankruptcies they hoped to avoid. Excessive client costs, abuse of nonprofit status and deceptive practices such as leading clients to believe fees are voluntary have led the Federal Trade Commission, the Internal Revenue Service and other state and federal agencies to explore restrictions on a largely unregulated industry.

What sets the investigation of Utah's CCCS apart is the agency's résumé.

CCCS helped found the prestigious National Foundation for Credit Counseling -- an organization that last month expelled it for failing to answer questions about a 2001 audit.

Before CCCS' troubles began, the NFCC certified its counselors and provided accreditation from an affiliate -- credentials consumer advocacy groups long have advised people to look for when choosing a debt-management company.

"The fact that they were NFCC-affiliated -- that's the twist that makes this case so unique," said Deanne Loonin, a National Consumer Law Center attorney and co-author of a report critical of the industry. "It's pretty shocking, actually, to see what has happened."

Connie McGeehan of West Jordan worries she may be forced into bankruptcy if the $4,000 she gave CCCS just before the Utah Division of Consumer Protection shut down the agency Tuesday did not get forwarded to pay her bills.

"I can't take much more of this," she said, choking back tears. "I have creditors calling and yelling at me, and there's nothing I can do about it. I gave every penny I had to CCCS, and if that money didn't get sent on I just don't know what I'll do."

Problems at CCCS, which is accused of mismanaging a trust account set up to pay clients' bills, illustrate just how far the nation's credit counseling industry has fallen, Loonin said.

Credit counseling companies once were mostly small nonprofit organizations that charged just enough to cover their expenses. They helped indebted clients change their spending habits and worked with creditors to lower clients' interest rates, reduce minimum payments or otherwise make their debts easier to pay.

Each month, clients paid the nonprofits what they owed for all their bills. The agencies then forwarded the payments from their trust accounts, eliminating the need for clients to deal with multiple creditors themselves.

In the early 1990s, though, entrepreneurs emerged who saw an opportunity to establish lucrative businesses by helping people with their financial problems.

And they succeeded, even under the nonprofit umbrella most used. Some counseling service operators paid themselves and their managers high salaries and drove fancy company cars. Others channeled money into for-profit affiliates.

Their success drew more entrants into the debt counseling field. Nationwide, more than 1,000 such organizations operate, up from approximately 200 a decade ago. While once about 90 percent of such organizations were affiliated with the NFCC, today the overwhelming majority are not.

Another trend emerged as well -- one that squeezed credit counseling companies as much as the emergence of competitors.

Growing uncertainty over credit counseling industry practices led many creditors to gradually reduce the amount they paid such organizations to help borrowers repay debts. Many developed their own in-house alternatives, forcing the nonprofit organizations to charge higher fees.

The quality of service at many agencies plummeted, according to Loonin's report. Some clients complained their bills were not getting paid on time or at all. Others said they were receiving little or no money management counseling.

Accusations against CCCS echo those Loonin outlines in her report.

Lana Wilkinson of Salt Lake City turned to CCCS earlier this year because of the agency's sterling reputation. Like many clients, Wilkinson didn't know the agency had lost its NFCC affiliation.

She soon discovered bills she expected CCCS to handle on her behalf were paid late or went unpaid. As a result, she racked up $134 in late fees from three creditors and discovered that CCCS never approached one of her creditors with a repayment proposal as promised.

David and Susan Larsen of Cottonwood Heights turned to CCCS in December 2002, and Susan Larsen said their debt management plan worked fine for about six months. Then she also started noticing some creditors were paid late or were not paid at all.

"They always said, 'You can trust us,' " she said. "It was almost like they were the only ones you were supposed to trust."

State investigators are working with a forensic accountant to determine what happened to $64,000 missing from CCCS's trust account. Client complaints continue to deluge the Consumer Protection Division, which said if necessary, it will liquidate the company's assets and distribute the proceeds to those owed money.

Scott McCagno, the agency's chief executive, denies any wrongdoing, blaming the deficit on excess fees -- more than $900 per month -- charged by Bank One, which held the trust account for the past 10 years. Bank One declined to comment and said it continues to work with investigators.

Even before CCCS allegations surfaced, Utah was among state and federal entities acting to clean up the industry.

As of last month, all Utah debt management companies have had to register with the Consumer Protection Division and post a $100,000 bond to comply with a new law passed this year, said Francine Giani, the division's director.

"We are aware of the magnitude of the problem and we're going to be aggressive in addressing it," she said.

The Federal Trade Commission also is probing the industry, and the Internal Revenue Service is under pressure to revoke nonprofit status for debt management companies that abuse their tax-free status.

Meanwhile, consumers can act to protect themselves.

When choosing a company, be wary of high upfront or monthly fees, said Jessica Rich, assistant director of the FTC's Bureau of Consumer Protection.

The Consumer Federation of America says consumers should pay no more than a $50 setup fee and a $20 monthly fee. (CCCS charged only a $20 setup fee and $15 monthly.)

Rich said consumers also need to make sure they are getting counseling. "If they . . . are just hustled into debt management plans, that should set off alarm bells as well."

Like many CCCS clients, though, Corina Lang of Denver felt she was cautious when she chose CCCS.

Lang and her husband Kurt were feeling overwhelmed by their debts but had never made a late payment until she enlisted the help of CCCS in November 2001.

"There was always some excuse about there being a glitch in the system," she said. "They would always blame it on something else."

Lang, who is contacting all her creditors, will watch in the coming weeks as the state completes its investigation.

"The thing that really gets me about all of this is that we could have just filed for bankruptcy," she said. "We have been penalized for actually trying to pay off our debts."

......The "Utah Division of Consumer Protection on Tuesday seized control of Consumer Credit Counseling Service of Utah to investigate why more than $60,000 is missing from a trust account the agency set up to pay bills for clients trying to get out of debt. Acting on a court order, the agents entered the nonprofit credit counseling service's Salt Lake City office and told staff members gathered for a companywide meeting that CCCS was closed and its bank accounts and assets were frozen. ... For four decades, Utahns with too many debts trusted CCCS to help them pay their bills and avoid bankruptcy. Each month, an estimated 1,400 Utahns sent money orders or cashier's checks to the company, which put the money in a trust account before paying clients' bills. Beginning in January, however, checks written on the trust account started bouncing and clients' bills went unpaid. ... Under the court order, (CCCS President Scott) McCagno is forbidden from any contact with CCCS or its bank accounts. He also must return all CCCS assets in his possession, including cell phone, credit cards and a 2000 BMW."

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This just doesn't suprise me at all. I tried the CCCS route myself in 1996-97. They would pay some creditors but not others each month...which left me with a boat load of lates on my CR. The only plus I got out of it was a total forgiveness on a $2000 HFC personal loan. Everything else was a disaster. I quit using it after only 6 months on the program and just resigned myself to the BK.

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