Finance & Lending Education

Credit Counseling Organizations Q&A

Are credit counseling organizations required to be Licensed by the State of California?

• State law requires only credit counseling organizations that pay debts on your behalf – such as pursuant to a debt management plan or a debt settlement plan – to be Licensed under the Check Sellers, Bill Payers and Proraters Law (Financial Code Sec. 12000 et seq). Qualifying nonprofit organizations, however, may be exempt from the licensing requirements.
• Credit counselors who do not pay your debts or otherwise handle your money are not required to be Licensed by the State of California.
• Credit counseling required under the federal bankruptcy law must be received only from providers approved by the U.S. Trustee Program. Such providers may or may not be Licensed by the Department of Financial Protection and Innovation.

How can credit counseling organizations help me?

Credit counseling organizations can help you develop a personalized plan to help solve your financial problems. The law limits fees charged by Licensed proraters (a person who, for compensation, distributes a debtor’s funds among creditors in payment or partial payment of the obligations of the debtor) and nonprofit exempt companies.

How should I select a credit counseling organization?

To assist you in selecting an approved credit counseling organization, the Federal Trade Commission provides helpful suggestions for finding the best counselor for you.

What kinds of services do credit counseling organizations perform?

Reputable credit counseling organizations advise you on managing your money and debts, help you develop a budget, and usually offer low-cost educational materials and classes.

How do credit counseling organizations provide their services? Do I have to go into an office or can they help me over the phone?

Credit counseling organizations offer their services in a variety of ways: in person through local offices, by mail, over the Internet or on the telephone. You should ask the credit counseling organization how it will provide services before you commit to paying any money.

Is there any way that I can check the status of a particular credit counseling organization?

Check to be sure any company or individual is appropriately Licensed or that they are in fact exempt from licensing regulations. The California Department of Financial Protection and Innovation can help determine licensing status; call us toll-free at 1-866-275-2677. You can also check the U.S. Trustee Program website to view a list of approved credit counseling agencies at: http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm

What are the differences between a Debt Management Plan and a Debt Settlement Plan?

Many credit counseling organizations can arrange for consumers to pay debts through a debt management plan (DMP) or a debt settlement plan (DSP). However, a DMP or DSP may not be appropriate for your particular situation. Make sure your credit counselor thoroughly reviews your circumstances and offers you every available option.
In a DMP, consumers deposit money each month to the credit counseling organization. The organization uses that deposit to pay debts according to a monthly payment schedule the organization develops with you and your creditors. Your creditors may agree to lower your interest rates and waive certain fees, but make sure to check with all of your creditors to be sure they have agreed to the terms described by the credit counseling organization. In a DSP the credit counseling organization negotiates a settlement amount with the consumer’s creditors on a one-time basis. The consumer sends that amount of money to the organization and the organization sends the payment to the creditor in full settlement of that debt.

Who can administer a Debt Management Plan or a Debt Settlement Plan?

In California, Licensed proraters and nonprofit credit counseling organizations that meet the licensing exemption, have filed the appropriate documents, and have agreed to limit monthly fees charged to a debtor for a DMP or DSP may administer a DMP or DSP to California residents. Attorneys and certified public accountants may also provide these services in conjunction with other services so long as they are incidental to other services provided within the scope of their Licensed profession.
Do credit counseling organizations charge fees for their services?
Credit counseling organizations are allowed to charge fees for certain services. Make sure you have a clear understanding of any fees associated with the services in which you’re interested. Get specific details about any fees in writing as well as a written statement detailing your DMP or DSP.

How do I complain about a credit counseling organization?

• If the credit counseling organization is providing DMP or DSP services in California, you can contact the Department to file a complaint at 1-866-275-2677.
• If you are using a credit counseling organization in connection with a bankruptcy program, you should contact the U.S. Trustee Program and the Federal Trade Commission.

How can I check out a Credit Counselor Agency?

The Department publishes a list of Nonprofit Credit Counseling Agencies that have filed those documents required by Financial Code section 12104 in order to rely on the licensing exemption. If an organization is not on the list, it may not administer a debt management plan or a debt settlement plan for residents of California unless it is licensed as a general prorater under the Check Sellers, Bill Payers and Proraters Law.

Franchise and Business Opportunity Scams

The California Department of Financial Protection and Innovation (DFPI) partners with the Federal Trade Commission (FTC) to bring you practical information on some common business opportunity scams, and how to spot, stop and avoid them.

Ads for Business Opportunities: How to Detect Deception

It’s not hard to see why ads for business opportunities that promote the benefits of being your own boss and making money quickly are appealing. But the Federal Trade Commission (FTC), the government agency that monitors advertising for deception, says that some ads for business opportunities feature empty promises and false claims that potential entrepreneurs could never realize. Promoters of fraudulent business opportunities run ads where their targets are likely to see them: in daily and weekly newspapers, in magazines, and on the Internet. The FTC is asking for your help in finding these ads first. By doing so, you can protect your company and your readers from being left holding the bag. As part of an advertising sales or production staff, you customarily review ad claims for taste and appropriateness. It’s just good sense to take that extra moment to review a business opportunity claim for telltale signs of fraud, too.

• It can protect your company from being known as one that promotes rip-offs. Your readers may believe an offer is legitimate because it’s in your publication or on your website. When the claim turns out to be false, they may well blame you for running the ad.
• It can keep you from getting cheated by those who are making the false claims. There’s a good chance they won’t pay their bills, and will have left town by the time you try to collect.
• It can keep you from harming your readers and your legitimate advertisers.

Spotting False Claims

How can you spot claims for a fraudulent business opportunity? One clue may be the type of opportunity being advertised. Fraud has most often been associated with promotions for vending machine, display rack, pay phone, medical billing, and some Internet-related businesses. Here are several other claims that have made it into the pages of legitimate papers, magazines and websites recently:

• “No risk! Guaranteed!” “Huge Income” “100% return on your investment!” – Ads that promise a big payout with little or no risk are usually a telltale sign of a fraud. Legitimate business ventures involve risks — usually in proportion to the promised return.
• “Quick and Easy!” Start Earning Today” “Prime locations available now” – Successful start-up businesses, including franchises, require a lot of work to get off the ground, let alone manage. Only a few are profitable from the start. If ads promise vending locations, they may not be current or high-traffic; the merchandise also may be out-of-date or of poor quality.
• “Work Part-Time from Home.” “Be Your Own Boss” Own a Dealership Today” – Most scammers promise an ideal work situation — the ability to set your own hours, be your own boss, or work from home. In fact, this rosy scenario is far from reality for most small business owners.
• “Earn $2,000 a month.” “$50K/yr” “Vending route nets $1,700/wk” – If an ad claims buyers can make a certain amount of money, the law says the promoter must give the number and percentage of previous purchasers who earned the income. If an earnings claim is there, but the additional information isn’t, ask for more information: the business opportunity seller may be violating the law.

These are examples of possibly deceptive claims. If you see them, highlight them for the appropriate person in your company. At the same time, know that many fraudulent business opportunity promoters use more subtle language when making promises, guarantees, and claims that they can’t possibly keep. By taking a few moments to review the claims made in business opportunity ads, you can protect the reputation of your company — and the consumers in your community.

For More Information

For information on red flag claims for weight loss products, visit: http://www.ftc.gov/conline/edcams/redflag/index.html. If you see an ad you think is deceptive, you can report it to the FTC using the complaint form at www.ftc.gov. 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 consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. 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.

Your Opportunity to Comment

The National Small Business Ombudsman and 10 Regional Fairness Boards collect comments from small businesses about federal compliance and enforcement activities. Each year, the Ombudsman evaluates the conduct of these activities and rates each agency’s responsiveness to small businesses. Small businesses can comment to the Ombudsman without fear of reprisal. To comment, call toll-free 1-888-REGFAIR (1-888-734-3247) or go to sba.gov/ombudsman.

Ads for Business Opportunities: How To Detect Deception Flyer [pdf]

Investors may contact Business Oversight before they invest to check the registration status of the investment they are considering by calling our toll-free telephone number, 1-866-275-2677.