Growing Consumer Debt Requires Reliable Credit Counseling

• The average client seeking help from an NFCC agency has more than $15,700 in unsecured consumer debt and $30,000 in gross income.

Take a moment to reflect on this last fact. Some people are carrying consumer debt (mostly from credit cards) that is just a little more than half their gross pay. Not net, but gross.

So where are folks turning when their good shape goes to pot?

They go looking for help from credit-counseling agencies, many of which have come under scrutiny for deceptive practices, dishonest and poor advice, excessive fees and abuse of nonprofit status.

In fact, the Internal Revenue Service, the Federal Trade Commission and state regulators have teamed up to warn people about the problems that can occur when using an unscrupulous credit-counseling organization. The IRS has begun auditing more such agencies to see whether they deserve tax-exempt status.

A report last year by the National Consumer Law Center and the Consumer Federation of America found that many debtors end up paying high fees to set up a debt-repayment plan. Others end up with worse credit records than before they sought help because their credit-counseling agency doesn't pay clients' bills on time -- or at all.

Keating, who comes to the NFCC after 29 years in consumer banking, admits the credit-counseling industry is in "transition."

"I believe there are agencies out there that are not doing the right thing morally and ethically on the part of consumers and are taking advantage of individuals when they are vulnerable," she said in an interview.

Still, Keating maintains there are a lot of good nonprofit credit-counseling agencies. The question for consumers is how to find one.

The NFCC does provide free or low-cost credit counseling in more than 1,000 locations through its 129 member agencies. Keating said she plans to work with Congress to push for federal legislation to weed out bad credit-counseling agencies.

"NFCC remains committed to ensuring that consumers have access to high-quality, affordable financial-management advice and debt-relief services," she said.

Keating may be just the person to help the NFCC lead the charge to clean up the industry. She certainly isn't new to crisis.

Her last top banking position was as president and chief executive of Allfirst Financial Inc., a bank holding company that became mired in a major $691 million currency-trading scandal.

Keating wasn't one of the executives forced out at the height of the scandal, although she did resign in 2002 shortly after the trading fraud, one of the largest in banking history, was revealed. She left before the banking company, owned by Allied Irish Banks PLC of Dublin, was sold to M&T Bank Corp.

"I've had a very interesting journey that led me to this position," she acknowledged.

It's a position, Keating said, she wants to use to get rid of the quick-fix debt operations that do little if any worthwhile credit counseling. She favors an industry that doesn't push cookie-cutter debt-repayment plans but rather puts more emphasis on financial education and counseling.

Considering the credit crisis so many families find themselves in, I too hope the industry that is supposed to help them recover financially can be shaped up.

Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online at www.npr.org. Readers can write to her in care of The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 , or send e-mail to singletarym@washpost.com.