Regulators Warn Consumers to be Wary of Costs of Credit Counseling Organizations

WASHINGTON – The Internal Revenue Service, Federal Trade Commission, and state regulators issued a joint advisory warning Oct. 14 advising consumers to be cautious about the total costs when using tax-exempt credit counseling organizations and “to be wary of `quick fixes’ offered by some organizations.” “Many credit counseling organizations provide valuable advice, education and assistance to those seeking to better manage their debt. But an increasing number of complaints to federal and state agencies indicates that some organizations are engaging in questionable activities,” an FTC release read. “Federal and state regulators are concerned that some credit counseling organizations using questionable practices may seek tax-exempt status in order to circumvent state and federal consumer protection laws. State and federal statutes regulating credit counseling agencies often do not apply to Section 501(c)(3) tax-exempt organizations,” the release continued. According to the National Consumer Law Center and the Consumer Federation of America, an estimated nine million people used credit counseling services last year. IRS Commissioner Mark Everson noted that, “many of these groups provide a valuable service to consumers, but some use the tax code to skirt consumer-protection laws. The IRS will work to protect the integrity o the tax law to ensure that tax-exempt organizations understand and comply with the rules. We will work with other federal agencies and state regulators to combat abuse in this area. It is not fair to taxpayers struggling with financial problems to be taken advantage of by credit counseling groups exploiting gaps in the law.” The IRS is currently investigating the business practices of non-profit credit counseling services. The agency said it was auditing a “significant number” of credit counselors and is investigating new ones that apply for tax exemption. The agency is examining the fees charged consumers, the salaries paid to officers, and several transactions with for-profit companies. Among the advice offered consumers by the FTC to protect themselves from deceptive credit counseling practices are: * Check that the organization will help you manage your finances better through counseling and education; * Carefully and thoroughly read any written agreement a credit counseling organization offers. The agreement should describe in detail the services that will be performed, the payment terms for the services including their total cost, how long it will take to achieve results, any guarantees offered, and the organization’s business name and address; * Make sure creditors are willing to work with the agency you choose. If they are, follow up with the creditors regularly to make sure your debt is paid off; * Check with state agencies and the local Better Business Bureau for a specific credit counseling organization’s record; * Beware of high fees or required `voluntary contributions’ that, with high monthly service charges, may wind up adding to the consumer’s debt. [email protected]