October 30, 2003 | Read Time: 1 minute
The Internal Revenue Service, which has spent the past year scrutinizing nonprofit credit-counseling organizations, announced this month that it is cracking down on the groups. The announcement came a few days after the IRS joined the Federal Trade Commission and a group of state charity regulators in issuing an alert warning consumers to be wary when seeking assistance from credit-counseling agencies.
Each year, millions of debt-laden Americans turn to such organizations, which say they educate consumers about managing money. The consumer alert says that while many such groups provide a valuable service, others prey on clients by charging excessive fees and engaging in other questionable practices.
Consumer advocates and a growing chorus of other critics describe many of the credit-counseling groups as debt mills that provide no education to clients and do little more than make money by setting up bill-paying plans (The Chronicle, August 21).
In its written release, the IRS said that credit-counseling groups that enroll clients in repayment plans without also offering a significant amount of financial education and counseling may not be entitled to their tax-exempt status. The agency also expressed concern in the document that the organizations, by virtue of their tax-exempt status, are exempt from many state and federal consumer-protection laws.
The IRS said it is conducting audits of nonprofit credit-counseling groups, and carefully examining any such groups applying for tax exemption.
The National Foundation for Credit Counseling, in Silver Spring, Md., and the Association of Independent Credit Counseling Agencies, in Fairfax, Va., which represent credit groups, said they welcomed the federal action because it will help consumers identify responsible organizations and weed out bad ones.
