Recently the National Foundation for Credit Counseling (“NFCC”), the nonprofit franchise operation for credit counseling outfits, filed a public statement in which they were winging about the amount of funding they get from creditors.
Historically, a significant amount of support for those activities came from creditors in the form of “fair share.” In recent times, however, and due in a large part to the economic turmoil in the financial services industry, the amount of creditor support and “fair share” payments to nonprofit agencies has dropped precipitously. Many nonprofit agencies have been forced to merge, or worse, to curtail or cease operations because of the lack of funding. – Source
NFCC also calls out for “the need find sustainable means to support nonprofit agencies.”
I have no issue with the existence of nonprofit credit counseling groups. I founded and ran one myself.
It’s a big world and ethical debt relief providers come in different tax statuses. Some are for-profit, and pay income tax on the profits they make, and some are non-profit and don’t pay income tax on their profits.
Consumers are perpetually ill-informed when it comes to nonprofits. The designation of nonprofit does not mean the companies don’t make a profit, it is in reference to the free pass on taxes the companies get. They are not taxed on their profit, thus considered non-profit. Nonprofits can make a lot of money, tax free and in return for that they make a commitment to additional IRS regulations, then, now, and in the future.
The NFCC makes the argument they should be regulated differently than other debt relief providers, they cite the tough IRS codes they have to follow, but it was the choice of nonprofit credit counseling groups to elect to become nonprofit. Being nonprofit in my eyes should not preclude any nonprofit debt relief agency from having to also comply with the laws of the land that are in place to protect consumers from wrongdoing and deception.
A nonprofit 501(c)(3) credit counseling agency is, at a minimum, subject to Section 501(c)(3) of the Internal Revenue Code; the IRS Core Analysis Tool and the IRS Chief Counsel’s Memoranda; Section 501(q) of the Internal Revenue Code; and other oversight and regulation by the IRS. If the nonprofit agency is approved by the EOUST to provide bankruptcy-related counseling, it is also subject to EOUST oversight and regulation. If the agency is a NFCC Member Agency, it is also subject to the COA standards for obtaining and maintaining accreditation, and the NFCC Member Quality Standards, the most stringent standards in the sector.
But you get a total tax break and don’t pay any tax on your profit
If nonprofit credit counseling groups don’t like the tax status they elected, they can always become for-profit entities.
They Are Charities. Shouldn’t We Count on Them to Do Everything They Can to Protect Disadvantaged Consumers?
You would naturally assume these charitable nonprofit agencies would be fully in support of such legislation. But from the testimony they provided it appears they want to be considered differently.
Consequently, the NFCC strongly encourages the CFPB to include for-profit debt settlement companies as a “larger participant” [and then regulated by the CFPB] in consumer financial products and services, and to promulgate comprehensive regulations to protect consumers from abusive and predatory debt settlement practices.
But what they don’t say in their statement for-profit debt relief companies should be regulated by the CFPB is, but not us because we are non-profit. It is a statement of omission.
While the NFCC is crying and whining over their precipitously falling funding from creditors, it reminds me of proposed legislation a couple of years ago that was to be introduced under the urging of Mark Guimond at AADMO, for mandatory fairshare funding. I am told NFCC would not support such legislation. I can’t think of any NFCC member agency that came forward publicly to protect their funding in this way.
The legislation to be put forward was to be called the Consumer Debt Management Protection Act. Under that proposed legislation nonprofit funding of credit counseling would be about 300% higher than where it stands today.
A creditor that accepts a payment on behalf of a consumer by a debt management organization, pursuant to the terms of a debt management plan, shall make payment to the debt management organization in an amount equal to fifteen percentum of the payment received by the creditor. – Source
So here is what I find disingenuous about the NFCC position to the CFPB. On one hand they appear to make the argument they can’t shoulder any more consumer protection obligations because creditors have cut back on their funding, but at the same time they appear to have done nothing to require creditors to fund them at appropriate levels.
You can’t have it both ways.
If you want to not make an effort to require mandatory funding and creditors continue to reduce the funding they provide, then it is what it is. Creditor devaluation of the credit counseling services is no reason to not protect consumers by regulation from the CFPB.
Not to be cynical but it could be said the reason credit counseling did not want to support mandatory funding in 2009 is because they did not want to irritate the creditors. It doesn’t look like that strategy worked out well. While they didn’t rock the boat, they also did not protect the very funding they now complain they lost and now can’t provide more services to help consumers.
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