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A New Horizon Credit Counseling Agency. Busting 501(q)?

An industry insider sent me an email that A New Horizon Credit Counseling Services is sending out. The tipster (send in your tips here) was curious how A New Horizon could so boldly offer compensation for credit counseling referrals when IRS code and some state regulations prevent that.

IRS SEC. 1220. ADDITIONAL STANDARDS FOR CREDIT COUNSELING ORGANIZATIONS.

(q) SPECIAL RULES FOR CREDIT COUNSELING ORGANIZATIONS.—

(1) IN GENERAL.—An organization with respect to which the provision of credit counseling services is a substantial purpose shall not be exempt from tax under subsection (a) unless such organization is described in paragraph (3) or (4) of subsection (c) and such organization is organized and operated in accordance with the following requirements:

(F) The organization receives no amount for providing referrals to others for debt management plan services, and pays no amount to others for obtaining referrals of consumers.”

It appears that A New Horizon is involved with promoting debt management plans, debt settlement, and credit repair or at the very least is offering compensation for those types of referrals.

The Email

From: melinda digrado [mailto:mdigrado@anewhorizon.org]
Sent: Thursday, November 03, 2011
Subject: A New Horizon

Hi,

My name is Melinda DiGrado and I am the Business Development Coordinator at A New Horizon Credit Counseling Services, Inc.

A New Horizon (ANH) is a credit counseling organization providing a structured debt management program and has been servicing clients nationwide since 1978 and as a non profit since 1995 – Providing a wide array of solution oriented programs and services to assist individuals and families from all walks of life in regaining control of their finances. ANH is fully licensed, bonded and is ISO-9001 certified. ANH maintains an A+ rating by the Better Business Bureau and enjoys an excellent reputation with our clients, creditors, regulators and colleagues in our industry. Our client retention rate far exceeds industry standard due to our outstanding staff of professional Certified Credit Counselors and Customer Service Representatives. These certifications, qualifications, credible service history and the comprehensive range of service offerings all allow ANH to be considered a COMPREHENSIVE ONE STOP FINANCIAL SOLUTIONS RESOURCE!

As fellow members of the Debt Relief Services industry we all share some common goals; we want to serve our clients by providing them with a means to correct their financial imbalance and go forward with the knowledge and tools to maintain a healthy financial future.

ANH is exploring business opportunities with other companies in the Debt Relief Industry.

We are currently offering compensation for referring any clients you may be unable to service in-house. This compensation continues through the lifetime of these referrals and is paid for as long as accounts remain active in any program. In this way, we are able to offer you a secure and steady revenue stream from any number of referrals – Debt Management, Debt Settlement and Credit Repair.

Additionally, should you, or anyone associated in the industry, be contemplating a divestiture of your client base we are open to discussing such opportunities with original and innovative solutions.

Whatever your situation, be assured that we will be happy to discuss any opportunities in a strictly confidential manner.

Contact me today to further explore how we can work together; you can reach me by phone at 800-556-1548 ext. 1120, or by email at mdigrado@anewhorizon.org.

I look forward to hearing from you soon!

Sincerely,

Melinda DiGrado
Business Development Coordinator

No Comment From A New Horizon

Yesterday I emailed Melinda and asked her to comment about the email so I could include it with this story. As of the publication of this today story I had not heard back from her.

Update 11-6-2011

I received the following state regulations on compensation from a reader to share with you.

  • Arizona:
    Not pay any bonus or other consideration to any person for the referral of a debtor to his business, nor accept or receive any bonus, commission or other consideration for referring any debtor to any person for any reason. Arizona Revised Statutes, § 6-710(7).

  • California:
    Not offer, pay, or give any cash, fee, gift, bonus, premium, reward, or other compensation to any person for referring any prospective customer to the prorater or receive any cash, fee, gift, bonus, premium, reward, or other compensation from any person other than the debtor in connection with his activities as a prorater. California Financial Code, § 12324 (as applied to all “proraters” unless the prorater is registered as a nonprofit prorater under Code Section 12104).

    Not pay referral fees to consumers or other third parties who refer new clients to the agency. California Financial Code, § 12104 (beginning Jan. 1, 2005, as applied to nonprofit “proraters” including both taxable and tax-exempt nonprofits).

  • Connecticut:
    Not pay any bonus or other consideration to any person for the referral of a debtor to its business or accept or receive any bonus, commission or other consideration for referring any debtor to any person for any reason. General Statutes of Connecticut, §36a-661(4).

  • Illinois:
    Not, directly or indirectly, accept payment or any other consideration, whether in case or in kind, from any entity for referring applicants to that entity. The agency shall not, directly or indirectly, make payments in any form, whether in cash or in kind, to any person, corporation, or other entity for referring applicants or clients to the agency. §205, Illinois Compiled Statutes, 665/13(3).

  • Iowa:
    Not pay any bonus or other consideration to any individual, agency, partnership, unincorporated association or corporation for the referral of a debtor, or to accept or receive any bonus, commission or other consideration or referring any debtor to any individual, partnership, unincorporated association, agency or corporation for any reason. Iowa Code, § 533A.11(5).

  • Maryland:
    Not offer, pay, or give a substantial gift, bonus, premium, reward, or other compensation to a person for referring a prospective customer to the agency. Maryland Code Annotated §12-920(A)(7).

  • Michigan:
    Not offer, pay, or give any cash, fee, gift, bonus, premiums, reward, or other compensation to a person for referring a prospective customer to the agency, or receive any cash, fee, gift, bonus, premium, reward, or other compensation from a person other than the debtor or a person in the debtor’s behalf in connection with the agency’s business of debt management, except a plan approved by order of the department. Michigan Compiled Laws, §451.429(g), (h).

  • Minnesota:
    Not offer, pay, or give any substantial cash fee, gift, bonus, premium, reward or other compensation to any person, other than an employee of the agency for referring any prospective customer to the agency, or receive any cash, fee, gift, bonus, premium, reward or other compensation from any person other than the debtor or a person in the debtor’s behalf in connection with an agency’s activities. Minnesota Statutes, § 332.24(10), (11).

  • Nevada:
    Not pay any bonus or other consideration to any person for the referral of a debtor to its business, nor shall it accept or receive any bonus, commission or other consideration for referring any debtor to any person for any reason. Nevada Revised Statutes § 676.330(5).

  • New Hampshire:
    Not pay any bonus or other consideration to any person for the referral of a debtor to his or her business or accept or receive any bonus, commission, or other consideration for referring any debtor to any person for any reason. New Hampshire Revised Statutes Annotated, §399-D:13.

  • Rhode Island:
    Not pay any bonus or consideration to any person for the referral of a debtor to his or her business or accept or receive any bonus, commission, or consideration for referring any consumer to any person for any reason. General Laws of Rhode Island, § 19-14.7-4(d).

  • Vermont:
    Not pay any bonus or other consideration to any person or entity for the referral of a debtor to its business, or accept or receive any bonus, commission, or other consideration for referring any debtor to any person or entity for any reason. Vermont Statutes Annotated, § 4870b(k).

  • Washington:
    Not offer, pay, or give any cash, gift, bonus, premiums, reward, or other compensation to any person for referring any prospective customer to the debt adjuster, or receive any cash, fee, gift, bonus, premium, reward, or other compensation from any person other than the debtor or a person in the debtor’s behalf in connection with his or her activities as a debt adjuster. Revised Code of Washington, §18.28.120(7), (8).

  • Wisconsin:
    Not pay any compensation or other consideration to any person for the referral of other customers to the agency, or accept or receive any bonus, commission or other consideration for referring any debtor to any person for any reason or for the use of a list of delinquent debtors. Wisconsin Statutes, § 73.04(3), (4).

Update 11-7-2011

I finally got a response from A New Horizon Credit Counseling Services. I’m publishing their response below.


November 7, 2011

Dear Mr. Rhode,

My name is Stephen Marcus and I am the President and CEO of A New Horizon Credit Counseling Services, Inc. I am taking this opportunity to respond to a story you published November 4, 2011 on your website entitled, “A New Horizon Credit Counseling Agency. Busting 501 (q)?” In the story you assert, “It appears that A New Horizon is involved with promoting debt management plans, debt settlement, and credit repair or at the very least is offering compensation for those types of referrals”, and that we are in some way violating the IRS Code 501 (q) in doing so.

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

As you very well know, Section 501 (q) of the Internal Revenue Code, and its prohibition of paying or receiving anything of value for referral of clients, is applicable to a non-profit organization that claims exemption from taxation under 501 (c) (3) or 501 (c) (4) of the same code. The fact is that A New Horizon is a Florida State Non Profit Corporation and it does not claim any exemption from taxation under either of those sections of the IRS Code. Therefore, A New Horizon is not “Busting 501 (q)” as you suggest in your story. Furthermore, any compensation that may be paid to acquire a client is done so in strict compliance with the applicable state law of the client’s jurisdiction.

What is most troubling about your story is that it was published based on the information provided by a “tipster (send in your tips here)” and was never verified with A New Horizon before your release, nor did you wait a reasonable time for A New Horizon to reply to the email you purportedly sent to Melinda DiGrado, Business Development Coordinator with A New Horizon. As of this writing, she had not yet received your email. If we had an opportunity to respond before publication, your concerns would have been addressed, making this story unnecessary. Furthermore, my contact information is readily available on our website and it would have been more appropriate to direct any inquiries of such importance to me. Fair, reasonable and ethical reporting standards would oblige that a story of this nature, with its damaging allegations, be confirmed before its publication. We have a fairly good idea who the tipster (send in your tips here) is and it is a shame that he has manipulated you, and your reputable website, that does so much to advocate for the consumer, to promote his own business agenda, when he clearly has no understanding of either the organizational structure of A New Horizon, or the applicable law. People like this have been violating and continue to violate many of the laws and standards of conduct required by the IRS and regulatory agencies for years, while A New Horizon has taken substantial and painful measures to comply with all laws and provide an extraordinary level of service to the consumer.

What seems to be overlooked, and arbitrarily dismissed in the message sent by Ms. DiGrado, is that along with A New Horizon complying with 501 (q) and applicable state regulations, is the fact that A New Horizon has been servicing clients nationwide since 1978, and as a non profit since 1995, is fully licensed, bonded, is ISO-9001 certified, maintains an A+ rating from the Better Business Bureau, maintains an outstanding staff of professional Certified Credit Counselors and Customer Service Representatives, and enjoys an excellent reputation with our clients, creditors, regulators and colleagues in our industry.

I trust that I have provided you with the answers to the question posed in the headline of your story and that you will act in accordance with my request that this story be retracted immediately.

If you would care to discuss this further, I certainly would welcome the opportunity.

Very truly yours,
Steve Marcus
Stephen D. Marcus, President/CEO
Pres@anewhorizon.org 954.545.6160 Ext. 1200

Here is the email I sent to Melinda DiGrado at mdigrado@anewhorizon.org on November 3 at 2:38 PM. The email did not bounce as undeliverable.

Subject: Compensation for Referrals – Story Deadline

Hi Melinda,

I’m working a story about an email you recently sent out that was forwarded to me. I’m on a deadline so a quick response from you for the story would be appreciated to communicate your side of the issue.

It appears that A New Horizon is involved with promoting debt management plans, debt settlement, and credit repair or at the very least is offering compensation for those types of referrals.

A reader pointed out and asked me how you can offer compensation since under 501(q) credit counseling agencies are not permitted to pay for referrals or fee split but the offer you sent out says “We are currently offering compensation for referring any clients you may be unable to service in-house. This compensation continues through the lifetime of these referrals and is paid for as long as accounts remain active in any program. In this way, we are able to offer you a secure and steady revenue stream from any number of referrals – Debt Management, Debt Settlement and Credit Repair.”

Can you please explain how you are able to offer such compensation and how much you are paying. Additionally it appears you are already offering debt settlement and credit repair services. If you’ve come up with a way around 501(q) I’d love to share it with my debt industry readers.

Steve



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