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Although credit counseling can provide financially distressed consumers with valuable assistance, according to the Federal Trade Commission, some firms may be misleading consumers about who they are, what they do, or how much they charge. In Commission testimony submitted today before the Senate Committee on Governmental Affairs, the Permanent Subcommittee on Investigations, FTC Commissioner Thomas Leary cautioned that some companies use their non-profit status as a badge of trustworthiness to attract customers, who are then duped into paying large fees. Those fees are sometimes funneled to for-profit companies.

Leary explained that instead of teaching consumers about their finances and how to manage debt as it promised, some credit counseling agencies (CCAs) indiscriminately enroll their clients in “debt management plans” (DMPs) without regard to their particular financial situation. This kind of debt management – under which consumers pay debt managers who then pay their creditors – can be beneficial for some consumers, but not for all. “Along with these changes in the industry have come complaints about troubling practices, including possible deception about the services offered, poor administration of DMPs, and undisclosed fees associated with DMPs,” Leary said.

Leary stated that the FTC’s greatest concern is deception by CCAs about the nature and costs of their services, including the following practices:

  • Failure to pay creditors in a timely manner or at all. Some credit counseling agencies that offer debt management plans may fail to pay creditors in a timely fashion or at all. This can result in serious consumer harm, such as late fees that the creditors impose.

  • Promises of results that cannot be delivered. Some agencies promise that they will lower consumers’ interest rates, monthly payments, or overall debt by an unrealistic amount. Some also make false promises to eliminate accurate negative information from consumers’ credit reports.

  • Failure to abide by telemarketing laws. To the extent that these agencies are not bona fide non-profit organizations, they must comply with the FTC’s Telemarketing Sales Rule, including the National Do-Not-Call Registry.

“The Commission has pursued a vigorous program to halt fraud and deception by those who purport to be able to solve consumers’ financial difficulties,” Leary stated. The testimony listed several Commission actions, including a November 2003 lawsuit against AmeriDebt – a large, Maryland-based credit counseling firm that, according to the FTC’s complaint, aggressively advertises itself as a non-profit dedicated to assisting consumers with their finances. The FTC complaint further alleges that AmeriDebt advertises its services as “free,” when in fact the company retains a consumer’s entire first payment as a “contribution.”

In addition to the AmeriDebt litigation, Leary explained that the FTC’s law enforcement efforts currently include several non-public investigations of credit counseling agencies. The Commission’s testimony also mentions a February 2004 lawsuit against two debt negotiation companies (Innovative Systems Technology, Inc., and Debt Resolution Specialists, Inc.), a September 2002 lawsuit against another debt negotiation company (Jubilee Financial Services, Inc.), and numerous cases under the Credit Repair Organizations Act (CROA), including sweeps like Operation Eraser and Operation New ID-Bad IDea.

Leary explained that the FTC has engaged in extensive consumer education efforts to help protect consumers from credit counseling and credit repair scams. Most recently, the FTC and the Internal Revenue Service (IRS) jointly issued tips for choosing a credit counseling organization. Those tips advise consumers to:

  • Pay careful attention to the fees an agency charges, the nature of the services it offers, and the terms of the contract;

  • Make sure that creditors are willing to work with the agency the consumer plans to choose; and

  • Consider using agencies that offer actual counseling and education, instead of simply enrolling all clients in DMPs.

The testimony stated that credit counseling can provide valuable assistance to consumers in financial distress, and that many, if not most, CCAs operate honestly and fairly. Consumers who fall victim to the types of practices discussed in the testimony, however, “may find themselves in even more dire financial straits than before,” Leary said. He concluded that the FTC remains committed to working with its law enforcement partners to protect consumers against financial fraud and deception.

The Commission vote to approve the testimony was 5-0.

Copies of the testimony are available from the FTC’s Web site at and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to
help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1 877-382-4357), or use the complaint form at The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

(FTC File No. P034804)

Contact Information

Media Contact:
Jennifer Schwartzman,
Office of Public Affairs
202-326-2674 or
Staff Contact:
Jessica Rich
Division of Financial Practices