On May 15th, 2006, the IRS released a scathing report on non-profit credit reporting agencies. The IRS recently completed audits of 41 large credit counseling agencies, resulting in revocation or termination of their tax-exempt status. In the course of these investigations, the IRS discovered that the majority of the agencies were motivated by profit, rather than goodwill. The problem is so widespread that the IRS has changed its application requirements for credit counseling agencies, and only three agencies were granted non-profit status this year.

In many instances, the agencies were affiliated with private businesses, (such as credit card agencies), and worked to serve the interest of their for-profit counterparts. IRS Commissioner, Mark W. Everson, affirmed that these organizations have not been operating for the public good and dont deserve tax-exempt status.

Many consumers seek advice from credit counseling agencies in order to improve their credit rating, or help manage debt. Credit counseling agencies are supposed to provide education, counseling, and financial planning assistance to heavily indebted Americans. The agencies provide relief from bill collectors, and set up manageable payment schedules for worried debtors. However, according to the IRS, many of these counseling agencies do not provide counseling at all, and exist primarily to protect private business interests. Many agencies tack on high fees or monthly service charges for their services.

On May 3rd, 2006, The Federal Trade Commission reached a landmark settlement with Lighthouse Credit Foundation Inc. This credit counseling agency was accused of deceiving thousands of consumers. Lighthouse Credit Foundation promised low interest rate loans and free education to debtors, and then failed to provide these services. The agency operated like a for-profit firm, and generated millions of dollars in revenue from deceptive advertising and fees. According to the settlement agreement, the agency must pay 2.4 million dollars in fines.

It pays to be an educated consumer. The FTC has issued numerous free publications designed to help consumers make educated decisions about credit counseling. The FTC and the United States Trustee Program (USTP) are currently working together in order to better educate consumers about predatory credit counseling agencies. You may obtain a list of USTP-approved counseling agencies on the FTC website. If you feel that you have been a victim of fraud or unethical practices by a credit counseling agency, report the agency to the Federal Trade Commission by calling 1-877-FTC-HELP. You can also file a complaint online at www.ftc.gov.

Sources: The Federal Trade Commission, The Internal Revenue Service