Credit counseling organizations can mislead you and bring IRS penalties

[ Bookmark this page! ] [ get HTML Version ]





Credit counseling organizations can mislead you and bring IRS penalties
The Internal Revenue Service, the Federal Trade Commission and state regulators have issued a consumer alert for those seeking assistance from tax-exempt credit counseling organizations.

Paying bills is never easy, but job loss, divorce or unexpected medical bills can be devastating to a consumer. Many consumers seek help from non-profit credit counseling organizations in managing their debt or "repairing" damaged credit. The IRS, FTC and state agencies urge consumers to be cautious when choosing a credit counseling organization.

Many credit counseling organizations provide valuable advice, education and assistance to those seeking to better manage their debt. But an increasing number of complaints to federal and state agencies indicates that some organizations are engaging in questionable activities.

Federal and state regulators are concerned that some credit counseling organizations using questionable practices may seek tax-exempt status in order to circumvent state and federal consumer protection laws. State and federal statutes regulating credit counseling agencies often do not apply to Section 501(c)(3) tax-exempt organizations.

"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 W. Everson. "The IRS will work to protect the integrity of the tax law to ensure that tax-exempt organizations understand and comply with the rules. We will work with other federal agencies and state regulators to combat abuse in this area. It is not fair to taxpayers struggling with financial problems to be taken advantage of by credit counseling groups exploiting gaps in the law.

Consumers need to be wary of the "quick fixes" offered by some organizations.

"Consumers who are struggling financially need to be careful not to lose even more money to someone offering a quick and easy way to fix credit problems," said Timothy J. Muris, Chairman of the FTC. "We want all consumers seeking help to take some common sense precautions."

Consumers can help protect themselves from deceptive credit counseling practices by following these tips:

Check that the organization will help you manage your finances better through counseling and education.

Carefully read through any written agreement that a credit counseling organization offers. It should describe in detail the services to be performed; the payment terms for these services, including their total cost; how long it will take to achieve results; any guarantees offered; and the organization's business name and address.

Beware of high fees or required "voluntary contributions" that, with high monthly service charges, may add to your debt and defeat your efforts to pay your bills. It is illegal to represent that negative information, such as bankruptcy, can be removed from your credit report. Promises to "help you get out of debt easily" are a red flag.

Make sure that your creditors are willing to work with the agency you choose. If they are, follow up with those creditors regularly to make sure your debt is being paid off.

Check with state agencies and your local Better Business Bureau to find out about a specific credit counseling organization's record. A list of helpful Web sites appears at the bottom of this release.

"State charity officials are working with other state and federal agencies to remedy abuses in this area, and to assure that nonprofit credit counseling organizations operate in accordance with the charitable trust or non-profit corporation laws under which they are formed," said Mark Pacella, president of the National Association of State Charity Officials (NASCO).

To address some of the concerns, the IRS has stepped up its enforcement efforts to ensure that existing Section 501(c)(3) organizations are complying with the applicable rules and regulations.

Consumers who have been victims of credit improvement fraud can file a complaint with the FTC by calling toll free: 1-877-FTC-HELP, or online at the Federal Trade Commission Web site.

Bookmark this page | Search this site | E-mail to a Friend






Top rated articles for credit counseling organizations
1. Finding Credit Counseling
2. Your 3 worst debt consolidation moves
3. Dealing with creditors
4. How to Choose a not for profit credit counseling agency
5. Credit counseling program

Editors picks: credit counseling organizations
6. Financing Tips
7. Financial assistance tips
8. Before considering debt consolidation and credit counseling
9. A credit counselor checklist Protect yourself from scam artists by being selective
10. Will a free credit counseling service hurt my credit record

Premium articles: credit counseling organizations
11. Try credit counseling software
12. Steps to Financial Freedom
13. Are the credit bureaus really helping you?
14. Solving Your Credit Problems
15. Questions to Ask a Credit or Debt Counseling Agency

Related articles: credit counseling organizations
16. How Do a Credit Counseling Services Work?
17. How to select the best credit counseling company?
18. What is Credit Counselling?
19. Using A Credit Counseling Service
20. The tricks and traps of credit consolidation

Recommended Reading : credit counseling organizations
21. Non profit credit counseling services information and resources
22. When it pays to consolidate your debt
23. Shady credit counseling services may do more harm than good
24. Financial Planning - Basics
25. Are They Really Putting You in the Drivers Seat or Just Taking You for a Ride?

1. Choosing a non profit consumer credit counseling
2. Credit counseling program
3. Creditor predator - how to manage credit - includes related article on mistake on credit reports
4. Tips on using credit cards wisely
5. Finding Credit Counseling
1. Debt problems and consolidation - Is your future bright
2. Car Loans You Can Get With Bad Credit
3. Credit Card Debt Consolidation Loan Service
4. Credit Card Debt Counseling and Bill Consolidation
5. College Debt Consolidation

Credit Counseling and Debt consolidation services in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi,



Credit counseling organizations can mislead you and bring IRS penalties
Debt consolidation services in Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania,

Debt consolidation services in Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Washington DC, West Virginia, Wisconsin and Wyoming.

Add website or submit URL link of your site to 1000 free directory