Firms Under Assault For Abusive Practices Find New Lease On Life: For-Profit Credit Counseling

-Consumer Groups Urge Maryland Legislature to Reject For-Profit Legislation-

March 21, 2005
Cheryl Hystad, 410-366-1965
Travis Plunkett, 202-387-6121
Deanne Loonin, 617-542-8010

 Consumer groups today urged Maryland legislators to reject legislation that has been quietly gaining steam allowing for-profit firms to offer credit counseling in the state. If the bill is enacted, Maryland would be the second state in recent months (after Virginia) to amend state law to allow for-profit credit counseling agencies. The proposal would benefit individuals and firms that have been investigated and sanctioned for abusive credit counseling practices.

 "This proposal would undermine positive steps taken by the Maryland Legislature two years ago to root out consumer abuses in the credit counseling industry," said Cheryl Hystad, Executive Director of the Maryland Consumer Rights Coalition. "Profit-oriented firms have been responsible for much of the poor counseling, price gouging and deceptive practices that have been targeted by state and federal regulators."

 Maryland Senate Bill 902 would make a number of positive changes to Maryland's credit counseling law, but it would also allow for-profit credit counseling. The Senate Finance Committee will hold a hearing on the legislation on Tuesday, March 22nd at 1:00 p.m. The House Economic Matters Committee voted in favor of similar legislation, House Bill 753, on March 18th. The full House will consider the bill, with the provision to allow for-profit agencies, early this week.

 Efforts to permit for-profit credit counseling have increased as profiteering in the non-profit credit counseling industry has come under fire from the Internal Revenue Service (IRS) and Congress. The IRS has announced that it is auditing 50 of the largest non-profit credit counseling agencies in the country. If the IRS determines that some of these agencies are not legitimate non-profit organizations, it will move to revoke their non-profit status.

 Last year, the United States Senate Permanent Subcommittee on Investigation issued a report entitled Profiteering in a Non-Profit Industry: Abusive Practices in Credit Counseling that specifically criticized several Maryland-based individuals and firms that support this legislation. The report singled out the web of for-profit businesses and non-profit agencies founded by and affiliated with Bernardo Dencell for a number of abusive practices (such as the for-profit firm Amerix), including excessive fees and inadequate counseling. It also criticized a for-profit firm called The Ballenger Group and the non-profit agencies affiliated with it. The Ballenger Group was fined $750,000 by the Federal Trade Commission in conjunction with a lawsuit against the non-profit firm AmeriDebt.

 The Ballenger Group has been vocal in its support of for-profit credit counseling around the country. Amerix has hired lobbyists in Virginia and Maryland to lobby for legislation authorizing for-profit credit counseling.

 "Phony non-profits and the for-profit firms behind them are under the gun from the IRS and Congress, so they are turning to states like Maryland to allow for-profit credit counseling," said Travis B. Plunkett, legislative director for the Consumer Federation of America. "We want Maryland legislators to know that some of the same individuals and companies that have been investigated, sued or sanctioned by state and federal regulators for abusive credit counseling practices are behind legislation that would allow for-profit firms."

 The profit-oriented credit counseling firms have also come under fire from consumer organizations for aggressively promoting credit card consolidation programs (known as Debt Management Plans) for which they have been compensated by creditors, and not providing meaningful counseling and education to consumers. Non-profit organizations are required to provide counseling and education services under detailed IRS rules. For-profit firms do not have to meet these federal requirements.

"Credit counseling can only help consumers when it includes holistic counseling and education services, something that for-profit credit counseling firms will not have an incentive to provide" said Deanne Loonin, legislative counsel for the National Consumer Law Center. "I've seen too many consumers harmed by unscrupulous credit counseling agencies that simply shoved them into a credit card consolidation plan because that's how the agency made money," she said. "These consumers ended up dropping out of the plan because they couldn't afford it. They were in worse financial shape than before they began," she said.