U.S. credit counselling sector has been "poisoned", IRS head says

Community Action, May 22, 2006

"They have poisoned an entire sector of the charitable community," United States Internal Revenue Commissioner Mark W. Everson said as he announced revocation of charitable status for 41 credit-counselling organizations. These agencies appeared to be primarily motivated by profit, not by helping debt-burdened consumers. Another 22 groups are being audited.

The 41 agencies targeted for revocation account for about 40 percent of the industry's annual $1 billion in revenue. Nine firms, mostly small ones, have had their tax-exempt status revoked or have been terminated; the rest have received notice of proposed revocations and some are appealing--a process that can take several months.

The IRS action occurs as the credit counselling agencies has been given a new, important role in the U.S. bankruptcy system. Under a new law, consumers must consult with an approved credit counsellor before they can seek protection from creditors in bankruptcy court.

The agencies, whose charitable status has been revoked, have been accused of steering people into debt-repayment plans that have high fees and often deepen their financial troubles. Some are now subject to criminal investigation.

Credit counselling agencies are supported mainly by contributions from banks and credit companies.