April 1, 2004 | Read Time: 1 minute
Congress should consider new legislation to curb abuses by some nonprofit credit-counseling organizations and require the federal government to increase its scrutiny of the industry, recommended a report from an influential Senate panel.
Some of the nation’s 872 tax-exempt credit-counseling organizations illegally profit from their work to educate people about managing their money, said the report, released last week by the U.S. Senate’s Permanent Subcommittee on Investigations.
“Some nonprofit credit-counseling agencies are funneling millions of dollars each year from cash-strapped debtors to insiders and for-profit businesses,” said the report. It summarized the findings of a five-month investigation of credit-counseling groups by the Senate panel.
What’s more, the report said some of these credit organizations charge excessive fees and provide clients with inadequate debt-management services.
To stop the abuses, the report proposed legislation that, among other things, would establish a list of qualified credit-counseling groups that provide services to people who want to declare bankruptcy.
The report also urged the Internal Revenue Service and the Federal Trade Commission to speed up their efforts to investigate questionable activities by the credit-counseling industry.
Last year, IRS Commissioner Mark Everson said his agency was auditing 30 such groups, while the trade commission and five state attorneys general — in Illinois, Maryland, Minnesota, Missouri, and Texas — have sued a nonprofit credit-counseling group over its practices.
The report, “Profiteering in a Non-Profit Industry: Abusive Practices in Credit Counseling,” is available online from the Senate panel’s Web Site at http://govt-aff.senate.gov/_files/032404psistaffreport_creditcounsel.pdf.
