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Debt counselling is also known under the term credit counselling and comprises all debt help and debt advice procedures. This scheme carried out by specialised, legal and licensed organisations and institutions, whose main aim and purpose is to help and assist a debtor throughout a bad debt situation and the whole repayment process of monetary obligations to a creditor. Such agencies will not only counsel the debtor in different default matters but also protect him from losing further financial assets and prevent legal and court actions (filed by the original creditor), if possible. Once the state of debtor’s liabilities has been determined, the debt counselling agency will negotiate with the lender and prepare a special repayment plan for the subject of debt. Default advice organisations can arrange more convenient reimbursement terms for the consumer in debt, like the interest rate to be lowered or frozen, the instalment period to be reduced, the overall amount to be decreased and even part of the monetary obligations to be forgiven and written off. In South Africa, for example, a debtor has the opportunity not only to search for unofficial debt advice options but also to apply formally and request a debt counsellor.
Fair debt counselling principles
Debt help agencies have to act in accordance with different laws. In the United Kingdom a debt counselling company has to comply mainly with the Office of Fair Trading. The OFT has laid down specific regulations, under the terms of which exact debt counselling principles and practices have been marked as fair and others- as violating and law-breaching:
As every debt advice organisation is formed to help over-indebted borrowers, its main aim is to lead a debtor out of a bad debt situation. Therefore a debt counselling institution must always act in debtor’s best interests, which have to be of paramount significance. These default help companies have to provide only fair and transparent services, informing the subject of debt in full about all details of the debt clearance process. Each debt counsel organisation has to form and carry out personalised debt clearance plans, in accordance with borrower’s individual needs and financial circumstances. They must never take advantage of debtor’s bad debt situation, i.e. of his monetary vulnerability. A counsel debt agency must never request any payment from the borrower prior to the service provided, as a request for payments in advance is considered as illegal in many countries. Debt counselling agencies must never hide their identity. If they fail to inform the debtor about their company’s registration or license; or deliberately conceal details about their business and authorities, this will be marked as a breach of law. Companies, providing professional debt help should always provide clear information about all costs and fees (if the agency’s services require payment by the debtor). As debt counselling companies operate with debtor’s personal information and data, according to different laws, they must keep all individual information completely confidential. If a leak of information appears, the debt help agency will be accused in violation of law and debtor’s rights as an individual, according to the: Privacy in Australian Law Reform Commission (http://www.alrc.gov.au/), the Personal Information Protection and Electronic Documents Act applicable for Canada and its states (http://laws-lois.justice.gc.ca/eng/acts/p-8.6/), the Data Protection Act for United Kingdom and Wales (http://en.wikipedia.org/wiki/Data_Protection_Act_1998), the Data Protection Directive for all European Union (ext. link 6), etc. debt counselling
Avoiding debt counselling scams
Debt counselling scams and deceptive practices include all types of debt help and debt repayment & reduction schemes, such as: wrong budget planner (where the agency prepares a budget scheme for the debtor in return for a payment on his behalf, but the plan is actually not complied with consumer’s monthly income and expenses); misleading consolidation, settlement or even false debt reduction schemes. If a debtor doubts that the advice agency provides false information, false name, or deceptive repayment schemes, he should contact a governmental consumer rights’ protection organisation (e.g. in the U.S. this is the Federal Trade Commission). In order for the consumer to avoid being involved in debt buster’s deceptive practices, he has to pay attention to the signs, which are indicative of debt counselling scams:
- If the agency claims that it acts as part of government’s subdivision and operates on a charity principle, but asks for a fee from the consumer, request non-profit status;
- If the counselling agency refuses to present its registration & legitimisation documents;
- If the debt help company pressures the consumer to sign an agreement for debt reduction plan, without being familiar with debtor’s financial situation first;
- If the advice agency requests prior payment from the debtor;
- If the help agency recommends the consumer NOT to contact the original creditor and promises him it will communicate with the lender instead, and meanwhile providing no written proof that the lender is truly familiar with the debt plan the “debt help” company is offering.
Used literature & external links