MISSISSIPPI STATE -- Recent legislation aims to protect consumers from debt management companies that use their non-profit status to prey on easy victims.

Senate Bill 2414, the Mississippi Nonprofit Debt Management Services Act, requires these nonprofit organizations to apply for a license from the secretary of state's office by July 1. Annual relicensure is also mandatory. Only nonprofit organizations that are exempt from taxation under the United States Internal Revenue Code can apply for the license.

"Deceptive practices are on the rise when it comes to helping consumers get out of debt," said Susan Cosgrove, family resource management agent with Mississippi State University's Extension Service. "Many of these non-bank companies offer improper advice for very excessive fees."

For the estimated 9 million Americans annually who are contacted by consumer credit counseling agencies, Cosgrove offered this advice: avoid the quick-fix solutions frequently offered on television, radio and Internet.

"While there are some credit counseling agencies that are legitimate, unfortunately an increasing number of them are not," she said. "Consumers should always check out the company with the Better Business Bureau to ensure they are dealing with a legitimate business or agency."

Consumers may report unscrupulous business practices to the Better Business Bureau of Mississippi by visiting http://www.bbbmississippi.org or by calling (601) 997-1020. Outside Mississippi, consumers should contact the BBB of the Mid-South Inc. at http://www.midsouth.bbb.org or by phone at (901) 759-1300.

The Better Business Bureau reported in 2002 that complaints against debt management agencies nationwide increased to 1,480, up from 261 in 1998. Complaints typically involved agencies' failure to disclose fees, excessive costs, abuse of nonprofit status and not offering options other than debt consolidation.

Cosgrove said traditional credit counseling agencies offered a range of services, including financial and budget counseling and community education. Newer agencies, in contrast, often steer consumers only into debt management programs, even if they will not benefit.

"Educational options, such as debt counseling, are disappearing fast," she said.

A report by the National Consumer Law Center and the Consumer Federation of America offered consumers seven "red flags," or reasons to reject an agency and look elsewhere for assistance:

• High fees. A set-up fee for a debt management plan should be no more than $75, and monthly fees should not exceed $25.
• Voluntary fees that aren't so voluntary. Always ask agencies if their fees are voluntary, and if the full fee is too high, keep looking for assistance elsewhere.
• The hard sell. If the person at the other end of the line is reading from a script and using aggressive tactics, hang up.
• Employees paid by commission. These employees likely put their own interests before the consumer's.
• They flunk the "20-minute" test. Any agency that offers a debt management plan in less than 20 minutes has not spent enough time looking at the consumer's finances.
• "One-size-fits-all" attitude. The agency should talk to consumers about whether a debt management plan is appropriate rather than assuming it is. The agency should offer educational options like classes or budget counseling.
• Aggressive advertising. Consumers should not respond to television and Internet advertising or telemarketing calls. Get referrals from friends or family, find out which agencies have been subject to complaints and talk to several agencies before making a decision.

"Many consumers could avoid the headache of dealing with debt consolidation agencies by opting out of direct-marketing lists," Cosgrove advised. "Opting out will also prevent companies from renting or selling a consumer's name to other companies."

To opt out of receiving prescreened credit card offers, call (888) 5-OPTOUT. The three major credit bureaus -- Equifax, Experian and TransUnion -- use this same toll-free number to let consumers choose not to receive these offers.

To be removed from many national direct mail lists, write DMA Mail Preference Service, Preference Service Manager, 1120 Avenue of the Americas, New York, NY 10036-6700. To stop unwanted calls from many national marketers, write DMA Telephone Preference Service at the same address.

While debt consolidation companies will face tougher standards after the July 1 sanctions take effect, consumers are still responsible for recognizing and reporting illegal activities.

"This new legislation will help stop agencies that prey on consumers who are already in financial trouble," Cosgrove said. "But consumers need to educate themselves and be on the lookout for those companies that will try to get around the new regulations."

For more complete information regarding Senate Bill 2414 or to read the document in its entirety, visit http://billstatus.ls.state.ms.us/2003/html/History/SB/SB2414.htm.