After years of haggling by both sides, the Maryland state Senate voted to eliminate the nonprofit requirement for credit counseling organizations. If approved by the House of Delegates, it will open the gates for companies looking to profit at the expense of Maryland debtors.
Many Maryland residents remember the shock of the AmeriDebt scandal, in which a seemingly nonprofit organization was actually bilking debtors out of tens of millions of dollars. They heard reports of excessive and hidden fees, and of the owner’s excessive compensation. Andris Pukke has been charged with contempt of court over his failure to provide timely restitution to the affected families.
Now that the Internal Revenue Service has cleaned up the nonprofit credit counseling sector, the Maryland legislature apparently is ready to open the doors back up to abuse. This time, it will be perfectly legal for credit counseling organizations serving Maryland to profit at debtors’ expense.
So far, the House of Delegates has not yet voted on the measure. Unless enough opposition is ready to defeat it, the bill will likely become law sometime this year. In fact, it was the House that originally voted for such a shift back in 2005, only to be defeated by the Senate. Therefore, we anticipate that the for-profit lobbyists and the companies that pay them will finally get their way.
Maryland debtors can still get help from tax-exempt nonprofit organizations. There, they can get the help they need as well as objective advice about their financial situation.
Tags: Maryland nonprofit credit counseling
How do you know that for-profits will be abusive? Ameridebt, as many Marylanders may recall were NON-PROFIT. At least the for-profits are upfront about their fees. Non-profits are getting paid by creditors AND taking “voluntary contributions” from consumers. They’re basically acting as collection agents whereas for-profits are representing only the consumer. Your assertions of abuse are clearly not well formed.
Dear Janet, your comments are appreciated. Interestingly enough, many of the so-called nonprofit credit counseling organizations have moved into the for-profit debt management industry. Some voluntarily converted, but most converted following revocations of tax-exempt status by the IRS. AmeriDebt’s tax-exemption was revoked.
A true nonprofit organization is engaged in counseling and educating consumers. Those organizations more interested in selling debt management programs will have to operate as for-profit agencies.
There is nothing wrong with operating as a for-profit entity. In fact, many for-profit debt management agencies provide some of the best payment processing services available.
Consumers that know they need a debt management program can call any agency that can provide them with a DMP. However, a consumer that needs counseling might be better suited contacting a nonprofit organization.
When I was struggling with debt, I called 4 different “non-profit” credit counselors and not a one of them offered counseling or education to me. I’d love to have known who these good agencies are, because I really could have used their help back then. Ironically, I did end up working with a for-profit (although I didn’t even know they were for-profit until recently) who gave me some great advice and I did end up enrolling in their program to repay my debts. It is working well, but knowing what I know now, I’m not sure I even understand the real difference between for-profit and non-profit. Seems like you just need to shop around for somebody who will listen to you and not worry about that stuff. That’s what I did, at least.
Dear Hank, your experience is not unusual. Some of the “nonprofit” organizations that you contacted have likely since been under IRS audit to determine whether they truly deserved tax-exempt status. Unfortunately, the IRS is not publishing a list of nonprofit agencies that have successfully passed their audit.
As a result, you as the consumer must make sure that you feel comfortable working with each agency that you contact. If you don’t feel good about your interaction, contact someone else.
A true nonprofit organization should employ knowledgeable and experienced counselors that provide you with objective feedback based on your unique situation. Thank you for providing information on your experience. We are glad your current plan appears to be working well for you.
Three years ago I became determined to face my untenable financial condition once and forevermore. I began a systematic search and gathered massive data, complete with their copious answers to my dogged questions. I vetted all types of debt relief including CCCSs. I compared the debt strategies each against the others and it took me 3 months to organize the data into a usable form. I am happy to report that I am now entering the final year of my debt plan through a large debt company in San Francisco, California, and I am very satisfied with their process and the outstanding results. I am risk averse, so my analysis of the data that I personally gathered was based almost entirely on the numbers, meaning who could get me the best deal over the shortest time. As to CCCS, I found that the DMPs offered was of very little value to the seriously indebted. If your current income can only afford the minimum payments on the credit card accounts after the monthly payments on true necessities were paid. The DMP requires full payment of principal and the only financial benefit is an average 3 point reduction in interest rates. The banks will “re-age” your account, but that only hurts your credit score in the long run primarily due to starting over the time limit for reporting the account to the bureaus under the federal credit reporting act. The companys that DO educate and counsel are pretty good for that purpose only-the counselors try hard, but I seriously doubt the true depth of their financial knowledge. Their solutions are way too simplistic and rather silly for the seriously indebted. I think CCCS companies that are members of NFCC Foundation are well intentioned-stay away from the others-at least carry out the numbers yourself over time at the interest rate for each account. That is pre-determined by the banks each month-take-it-or-leave-it–there is really NO negotiation for a better rate.
I used a great debt- settlement company in or near San Francisco. Great, smart people, very well educated in financial and legal problems who deliver on every promise made at first. That is not to say that there were no times when I was totally exasperated-it has been a very hard road. But, they told me it might not be smooth sailing all the way. DS companies are libeled all over the net as shysters, frauds and worse, and believe me, I found plenty who didn’t sound kosher at first. If you find one that’s really good, like I did, the benefits are tremendous. I’m really not sure if there are ANY others as professional as Freedom-there is one in TX that sounded very good.
Dear Stanford B. Davis, thank you for your comments regarding your situation. If there is one absolute fact, it is that there is no solution that is perfect for everyone!
Families that can clear at least $250 in disposable income after paying their debts should get out of debt on their own. There are strategies that they can use to reduce interest, and therefore get out of debt much faster on their own for free.
Families that are at a breaking point and at serious risk of default should work with credit counseling. A credit counselor may be able to help them clear more money in their budget to get out of debt on their own. If not, a debt management plan might work. Average interest rates tend to be in the 8-12% range, although some are much lower, and some are a fair amount higher. It largely depends on WHICH creditors you owe as to how good your benefits can be through a debt management plan.
For someone who has a substantial budget deficit, even a debt management plan may not be feasible. In this case, debt settlement could be a possible solution to avoid judgments or bankruptcy. However, a debt settlement company can do nothing that you cannot do on your own. Their fees tend to total around 25% of the total debt balance. They cannot help you avoid a judgment, especially if you owe large balances to multiple creditors. Still, if you absolutely want help from a debt settlement company, do your research. Like Mr. Davis said, there are some rogue companies out there that you should avoid, while there are others that do a better job. For instance, Debt Shield was honored with the Torch Award for Marketplace Ethics by the Better Business Bureau of Greater Maryland in October, 2007.
There is substantial information about the pros and cons of debt settlement that can help someone understand how debt settlement works, and how it might not work.
Anyone seeking debt relief should do as Mr. Davis did and do their research. Understand that your situation is unique, and you may need to speak with a specialist to find out what options might work. Seek help from qualified counselors that provide objective advice. If you do not feel comfortable with your choices, seek additional input. Thank you for your comments. We would like to hear more about your experiences when you become debt free.
The biggest problem with the debt management/ credit counseling service is their funding source. Well over 70% of their funding comes directly from the banks they assist consumers in repaying. Oddly enough, the “most reputable” CCCS, NFCC, MMI all possess accreditation through the Council on Accreditation for Children and Family Services. The Council or COA, has very clear standards about conflicts of interest. Namely, a non profit agency cannot accept funding from any entity that has a direct financial stake in the services they provide. Up until the late 2001, the NFCC sat on the board of directors of many of the largest credit card issuers. Now, they act in an advisory capacity.
Anyway you dissect this it always comes back to one thing – these non profits will always push the bank’s agendas. They have no choice. And that agenda is a simple one – Keep the consumer a slave to debt.
The recidivism rate for bankruptcy is 50%. While I worked in the non profit debt management industry for 12 years, I noticed a 60% return rate in clients that had liquidated their debts with a debt management plan.
If non profit credit counseling would simply come out and say – DON’T USE UNSECURED CREDIT CARDS, we’d all trust this service slightly more.
Sadly, I can attest to the difficulties these non profits face in securing funding. I personally sent out thousands of grant proposals and requests to the largest foundations on the planet. What I found was that no one is really interested in funding the kind of financial literacy that is long overdue in America.
If you can’t pay for it with your debit card, guess what… you can’t afford it.