I just had a long conversation with an inside party that told me about a massive settlement by the credit counseling company Money Management International to avoid further involvement in a suit that alleged they engaged in improper credit repair services through their debt management plans.
This case seems to clearly go hand-in-hand with a recent ruling that could expose credit counseling providers to similar suits alleging that a debt management plan could be seen as a form of credit repair and as such the credit counseling group would not be able to earn fees prior to the full delivery of those services.
The lawsuit: Janice Abat, Ildiko Nyleen, Jeanne Rossean, Shannon Carreiro, Nancy Wilksen, Erica Hal vs. Chase Bank, Money Management International, and Money Management International Financial Education Foundation (8:07-CV-01476), made the following allegation:
The plaintiffs allege: MMI DMPs included improper credit repair services prohibited by the federal Credit Repair Organizations Act; MMI did not operate like a tax-exempt, not-for-profit; MMI statements that it is a not-for-profit were false; and MMI’s activities improperly benefited Chase Bank. MMI denied all of plaintiffs allegations and asserted defenses including the results of a comprehensive, multi-year audit where the Internal Revenue Service determined MMI has operated as a tax exempt organization. MMI further asserts that by its terms the Credit Repair Organizations Act did not apply to MMI. The case only seeks reimbursement or restitution of fees and contributions. It does not affect payments to creditors. Chase denies all of these claims and other claims made by Plaintiffs. – Source
On October 1, 2010 a filing was made indicating MMI had just entered into a $6.5 Million settlement to extract itself from this case in full settlement of the claims alleged against them. – Source, Source
What makes this case so interesting and why all credit counseling agencies, regardless of 501(c)3 status and NFCC affiliation should take notice is that Money Management International is as mainstream as it gets. You would think that by all appearances Money Management International would be recognized as a fully approved credit counseling organization but here is where the Achilles heel is in my opinion.
Around 2005 the IRS conducted audits of large credit counseling groups in an effort to clean up the credit counseling industry. Those agencies that were audited and continue to operate are said to have entered into agreements with the IRS to change ways they operated to bring them into compliance. The letters are not public information but it appears that by entering into that agreement with the IRS that the agencies who did make changes, at the urging of the IRS, were effectively not operating as true 501(c)3 groups prior to that settlement with the IRS. That creates a huge exposure for any agency, no matter how mainstream they are, if they either entered into such an agreement or have not yet ended the audit process, as many have not yet.
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