Previously, I had mentioned that the banks and credit card companies were paying the non-profit consumer credit counseling companies 15% of what they collected. Then, they reduced the amount to 8% and this caused the non-profit companies to search for a solution to their 45% pay cut.
The first method was to take their new client’s first payment and not send it to their creditors, but to keep it to spend for their overhead. This came up in a Senate Subcommittee investigation in the profiteering of the non-profit consumer credit counseling companies.
However, there were more ways that the non-profit companies figured out to get money so they could make up for their pay cut from the banks and credit card companies.
The second way was this:
2. Charge you a deposit fee that would “be returned to you when you completed the program”.
Remember earlier I mentioned that the success rate of the non-profit companies was around 18%, or 1 out of 5 people completed the program and actually got out of debt?
Well, the non-profit company would have their new client put down a deposit of, say, $500. Since only 1 out of 5 complete the program, the non-profit company knows that the odds are in their favor that they will not have to pay that deposit back. So, they just use the deposit for their overhead knowing that the chances of them having to pay it back is very low.
There’s more, but remember, the problem the non-profit companies were trying to solve came from the actions of the banks and credit card companies – they cut the income of the non-profit companies by about 45%!
Let’s take a look at how else the problem is solved.