Credit Counseling Schemes
With the economy in the tank and more and more companies announcing layoffs, the time seems ripe for debt consolidation and credit counseling organizations. But beware, with negative economic times comes an increase in scams by those just itching to take advantage of desperate people. Over the past few years there’s been an increase in oversight attention paid to consumer credit counseling companies. Both the IRS and consumer watchdog agencies warn people to do their homework before signing up for any credit counseling programs.
Just because an organization says it’s non-profit doesn’t mean it’s an automatic for legitimacy. While there are genuine companies out there that do help people with financial counseling and education, at the same time, not every organization meets federal tax-exempt criterion.
Inside the IRS they have a department called the Exempt Organization Office. Their mission is to scrutinize consumer credit counseling organizations to make sure they are operating in a true lawfully tax-exempt way. On their website (www.irs.gov), the IRS cautions consumers to be skeptical of advertised “quick fixes”. These could actually end up causing consumers to go deeper into debt.
Credit Counseling Scam Red Flags
The following claims should raise red flags immediately:
- Credit problems? No problem!
- We can erase your bad credit – 100% guaranteed.
- Create a new credit identity – legally.
- We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!
Remember, it’s easy for someone to make a claim if they don’t intend to follow through on their promises. In the end, you’re still responsible. Luckily, there are even more ways to tell the legitimate credit counselors apart from the rip-off artists..
Even More Credit Counseling Scam Warning Signs:
- Companies that want you to pay for credit repair services before they provide any services.
- Companies that do not tell you your legal rights and what you can do for yourself for free.
- Companies that recommend that you not contact a credit reporting company directly.
- Companies that suggest that you try to invent a “new” credit identity – and then, a new credit report – by applying for an Employer Identification Number to use instead of your Social Security number.
- Companies that advise you to dispute all information in your credit report or take any action that seems illegal, like creating a new credit identity. If you follow illegal advice and commit fraud, you may be subject to prosecution.