Criticism of Credit Counseling - Page 2

The IRS also has weighed in on the subject of credit counseling, and has denied nonprofit 501(c)(3) tax-exempt status to around 30 of the nation's 1000 credit counseling agencies. Those 30 credit counseling agencies account for more than half of the industry's revenue. Audits of non-profit credit counseling agencies by the IRS are ongoing.

The lobby against credit counselors arises from the belief by the collection industry that the not-for-profit status of the credit counselors gives them an unfair financial and market advantage over them. The IRS apparently agrees. The tax exempt revocations seem to be centered around whether a tax exempt credit counselor actually performed their mandated mission by assisting the community at large, other than their whole attention to their own DMP customers in a "collection practice.”

Congress has also investigated the credit counseling industry, and issued a report that said while some agencies are ethical, others charge excessive fees and provide poor service to consumers. The report also stated that NFCC member guidelines, if applied to the entire credit counseling industry, would go a long way toward eliminating the abuses they uncovered in some parts of the industry.

Other organizations have voiced criticisms of the credit counseling industry, often citing the Fair Share funding model as evidence that credit counselors serve the interests of the creditors over the interests of consumers, and that credit counselors are not forthcoming in speaking out about the actions of creditors for fear of losing what little funding remains. Credit counselors respond that their job is not to take sides but to negotiate with all parties equally to help successfully resolve debts. They further argue that the steady decline in Fair Share funding belies the notion that creditors are in control of the credit counseling industry.