IRS INVESTIGATES CREDIT COUNSELING AGENCIES

October 20, 2003

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Washington — Debtors beware. Consumers who turn to nonprofit credit counseling services could find themselves paying high fees and getting little advice, government agencies said Tuesday in announcing an investigation of the industry.

The Internal Revenue Service and the Federal Trade Commission, pursuing an increasing number of consumer complaints, said some nonprofit credit counselors do not meet the standards for educational, tax-exempt status.

The two agencies said consumers sometimes are pushed into debt repayment plans or consolidation loans — fixed payment plans to help pay off debts — without help in learning how to budget, save and manage debt.

Complaints also have centered on high fees, hidden charges, even late fees when counselors fail to pay a consumer’s creditors on time. In a few cases, counselors have not paid a consumer’s creditors at all, the agencies said.

“Many of these groups provide a valuable service to consumers, but some use the tax code to skirt consumer protection laws,” said IRS Commissioner Mark Everson.