Credit counseling field opened to for-profits

Consumers who need credit counseling and debt management services will be able to choose a for-profit company in addition to nonprofits, and providers must be licensed, under state legislation passed this week.

The House passed the Debt Management Services Act on Wednesday, shortly after the Senate approved it, giving the state Department of Banking oversight over credit counseling agencies that operate in the state.

It sets standards for proper conduct for counseling, including person-to-person counseling, said Johnna Pro, a spokeswoman for Rep. Dwight Evans, D-Philadelphia, the prime sponsor of the bill. Each agency must post a bond to cover fraud or theft, and there are limits placed on fees debtors pay for services.

Steven Piotrowski, chief executive of the nonprofit Advantage Credit Counseling, which has offices on the South Side, in Greensburg and Butler, opposed the legislation. He said Thursday that requiring licensing of counselors and credit counseling agencies is a step in the right direction, but permitting for-profit businesses to offer debt management services is a misstep.

"I don't believe a for-profit company should be counseling people who have debt issues," Piotrowski said. In some instances, counselors may offer advice that's good for the company's business, but not good for the debtor, he said.

The legislation prohibits credit counseling agencies from paying or receiving a fee to refer clients to another business professional, but Piotrowski said that may be difficult to enforce.

Licensing debt counselors will provide consumers with protection, said Rep. Joseph Markosek, D-Monroeville, who voted for the bill.

The legislation would allow corporations such as CareOne Services Inc. of Columbia, Md., to do business in the state, spokeswoman Clarky Davis has said. CareOne is a for-profit credit counseling and debt management company that offers services in Maryland, Vermont, Mississippi, New York and other states. She said Pennsylvania has not changed its rules in 70 years, and since consumers' needs have changed, more choices should be available.

Davis could not be reached for further comment yesterday.

The state is opening up credit counseling and debt management services to competition at a time when demand is rising. Bankruptcies were up 7 percent through Sept. 30 in Western Pennsylvania compared to 2007. Counseling is required for most people who file for bankruptcy.

Advantage Credit Counseling provided bankruptcy counseling to 6,426 clients in the state through Oct. 3. The agency counseled 7,577 in the state in 2007, said spokeswoman Kristen Garrett. In 2006, 6,311 clients were counseled.

"We've had an uptick in bankruptcy counseling," Garrett said. The increases likely are the result of the poor economy and the fact that some people in debt delay getting help, she said.

The whole point of bankruptcy counseling is to see if a person can do anything to keep out of bankruptcy, Garrett said. The agency offers a debt management plan negotiated with a debtor's creditors in an attempt to get them to accept a portion of the debt, Garrett said. The wage earner makes a monthly payment to the agency, which in turn distributes the money to the creditors.