Consumer Credit Counseling Industry under IRS Scrutiny
The Internal Revenue Service (IRS) is launching a widespread “crack-down” on the non-profit status of Consumer Credit Counseling Agencies operating as so-called charitable organizations. According to the IRS Credit Counseling Compliance Project report, dated May 15, 2006, the IRS has uncovered abuses by a large percentage of credit counseling organizations including: failure to provide education, operating as commercial businesses, and serving the private interests of directors, officers and related entities instead of the best interests of the consumers they are supposed to represent.
Per the report, the IRS examined the nonprofit 501(c)(3) tax-exempt status in 63 cases that represent 56% of the credit counseling industry revenues. Of those cases, 9 have had their non-profit status revoked or terminated and 32 have received proposed revocations. This represents 41% of the industry revenues. In addition, 110 applications for non-profit status were evaluated, of which, only 3 were approved. Further audits of nonprofit credit counseling agencies by the IRS are ongoing.
According to Robert Manning, Director of the Center for Consumer Financial Services, the IRS findings conclude that CCCs are essentially debt collectors, not charities. This conclusion is based on the fact that CCCs obtain the bulk of their funding from the creditors and the fact that the creditors benefit from the results of the debt management plans (DMPs) managed by the CCCs.
Congress has conducted their own review of the credit counseling industry over concerns of abuse and complaints from the collection agency industry that the tax-exempt status of CCCs gives them an unfair advantage. The results of Congress’s investigation concluded that while some agencies are ethical, others charge excessive fees and provide poor service to consumers.
These findings support what I have stated in my previous blogs: Consumer Credit Counseling Agencies essentially act as debt collectors, working for the creditors, not you, the consumer. Their non-profit, tax-exempt status benefits them, not you. CCC is not free.
In summary, if you are experiencing financial difficulties and considering credit counseling, you need to give serious consideration to the implications of these findings. With no significant for-profit credit counseling agencies in existence, it is difficult to predict what will happen to the industry as a result of this crackdown. At a minimum, there will certainly be a number of agencies that will shut down and many that will have to undergo a reorganization in order to maintain their status or to convert to a for-profit entity. This shakeup will most likely impact consumers enrolled in what is typically a 5 to 7 year program. Faced with losing their tax-exempt status, who do you think will pay the price to make up the difference for their lower profits?
Before you consider CCC or bankruptcy, which now requires that you enroll in a credit counseling program, you owe it to yourself to see if you qualify for debt settlement.
Per the report, the IRS examined the nonprofit 501(c)(3) tax-exempt status in 63 cases that represent 56% of the credit counseling industry revenues. Of those cases, 9 have had their non-profit status revoked or terminated and 32 have received proposed revocations. This represents 41% of the industry revenues. In addition, 110 applications for non-profit status were evaluated, of which, only 3 were approved. Further audits of nonprofit credit counseling agencies by the IRS are ongoing.
According to Robert Manning, Director of the Center for Consumer Financial Services, the IRS findings conclude that CCCs are essentially debt collectors, not charities. This conclusion is based on the fact that CCCs obtain the bulk of their funding from the creditors and the fact that the creditors benefit from the results of the debt management plans (DMPs) managed by the CCCs.
Congress has conducted their own review of the credit counseling industry over concerns of abuse and complaints from the collection agency industry that the tax-exempt status of CCCs gives them an unfair advantage. The results of Congress’s investigation concluded that while some agencies are ethical, others charge excessive fees and provide poor service to consumers.
These findings support what I have stated in my previous blogs: Consumer Credit Counseling Agencies essentially act as debt collectors, working for the creditors, not you, the consumer. Their non-profit, tax-exempt status benefits them, not you. CCC is not free.
In summary, if you are experiencing financial difficulties and considering credit counseling, you need to give serious consideration to the implications of these findings. With no significant for-profit credit counseling agencies in existence, it is difficult to predict what will happen to the industry as a result of this crackdown. At a minimum, there will certainly be a number of agencies that will shut down and many that will have to undergo a reorganization in order to maintain their status or to convert to a for-profit entity. This shakeup will most likely impact consumers enrolled in what is typically a 5 to 7 year program. Faced with losing their tax-exempt status, who do you think will pay the price to make up the difference for their lower profits?
Before you consider CCC or bankruptcy, which now requires that you enroll in a credit counseling program, you owe it to yourself to see if you qualify for debt settlement.
- Credit counseling typically takes 5 to 7 years to complete and you will be required to pay the entire debt you owe, plus fees.
- Debt settlement typically takes only 3 years and can reduce the debt you owe by an average of 40 to 50% (not including fees). You can obtain a free debt consultation from Credit Card Relief™ by clicking here. They can help you determine the best solution for getting you free of debt. For more information, read my blog dated September 29, 2006.
If you do choose the credit counseling approach, be sure to do your homework.
- Make sure the company is certified by the National Foundation for Consumer Counseling (NFCC).
- Compare fees to make sure you are not paying excessive fees.
- Check with the Better Business Bureau to see if there are any outstanding complaints against them, especially regarding timely payment to creditors.
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