New bankruptcy law requires credit counseling
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Approved providers
The U.S. Trustees Program has designed procedures and applications to vet applicants who wish to provide these classes. Nonprofit credit counseling agencies and attorneys are eligible to provide the credit counseling briefing and personal financial education seminar. In addition, certified public accountants, certified financial planners and teacher certificate holders, among others, are also qualified to conduct the personal financial education seminars.

While most consumer credit counseling agencies that will provide these services are qualified as nonprofits by the IRS, Plunkett believes that some agencies shouldn't qualify because they engage in activities outside the scope of traditional nonprofits. What many consumers don't realize, Plunkett says, is that the consumer credit counseling industry was founded by companies and banks issuing credit cards and still receives a good deal of funding from that industry.

Because the credit card industry is anxious to recoup as much money as possible from consumers experiencing financial difficulties, credit counseling agencies are rewarded financially for steering consumers into debt-management plans, he says. These programs consolidate consumers' unsecured debt and may offer a sweetener in the form of a reduction in interest rates. Unfortunately, secured debt -- including mortgages and car loans -- aren't part of these plans and are usually what force consumers to consider filing for bankruptcy.

In April 2003, the Consumer Federation of America, or CFA, and the National Consumer Law Center, or NCLC, issued a report, "Credit Counseling in Crisis: the Impact on Consumers of Funding Cuts, Higher Fees and Aggressive New Market Entrants." This report charged that many consumers were being ill-served by the credit counseling industry and that for some consumers, these agencies were making their problems worse rather than better.

Congress also got involved, holding hearings that resulted in a U.S. Senate report titled, "Profiteering in a Non-Profit Industry: Abusive Practices in Credit Counseling." The IRS has followed with a crackdown on some of the credit counseling agencies, revoking the nonprofit status of some.

While some things have improved in the past two years, many problems remain, Plunkett says. "Our big fear is that this requirement may make things worse for many consumers," he says. "It's one thing for people to voluntarily seek help from an industry in turmoil, but now the federal government is forcing people into the hands of credit counseling agencies that could actually harm them."

Cunningham says that her agency is doing all they can to help consumers in financial distress. "For the first time in history, financial education is written into federal law," she says. "We're happy about that. We feel that the legislation is thorough and that the Trustees are aware of the industry and are taking steps to maintain high standards in those that are approved."