Beware some agencies offering credit counseling services

That's the unfortunate but unsurprising finding from the National Consumer Law Center and the Consumer Federation of America.

The consumer groups, in a joint report, describe an evolution in the credit counseling industry that is reaching crisis levels.

The previous generation of mostly creditor-funded counseling services have served consumers well. But some newer agencies that cater to the growing number of consumers in debt issue improper advice engage in deceptive practices and charge excessive fees, according to the researchers.

What's more, poor oversight of credit counseling agencies by the IRS and individual states has allowed unscrupulous counseling agencies to grow and prosper, the groups found.

"The credit counseling industry has undergone an alarming transformation in the last decade," said Deanne Loonin, staff attorney for the Consumer Law Center in Washington, D.C. "Aggressive firms masquerading as 'nonprofit organizations' are gouging consumers. More consumers are getting ... access to fewer real counseling options."

Researchers found three types of problems linked to agencies that fall short:

-- Deceptive and misleading practices. Complaints and government investigations have focused on agencies that don't make consumers' payments on time, that deceptively claim fees are voluntary and that don't adequately disclose fees to potential clients.

-- Excessive costs. In an industry that rarely charged for counseling and other services a decade ago, some agencies now charge as much as a full month's consolidated payment simply to establish an account.

-- Abuse of non-profit status. Nearly every agency in the industry has non-profit, tax-exempt status. Nevertheless, some function as virtual for-profit businesses, aggressively advertising and selling a range of services, maintaining close ties to for-profit firms and reaping high revenues.