Why So Much Bad Press for Not-For-Profit Debt Relief Companies?

A lot of negative media attention in recent years has been concentrated on the abuses of non-profit debt relief industry. In practice, non-profit status is almost a requirement in order to conduct operations in the credit counseling arena. There are several reasons for why there are so many non-profit credit card debt relief companies, many of these motivations are not necessarily “charity-based.” As the IRS cautioned in 2003, some non-profit organizations are or were using their position and otherwise “questionable practices” to “circumvent state and federal consumer protection laws.”

One the primary ways that some non-profit debt relief companies abuse their status rests on the manner in which they deceptively market their services. Some claim they are non-profit, “just like a church”, in marketing materials only to charge mandatory fees for educational resources or debt management plans. Another common way some debt relief companies manipulate their non-profit status is by using it as a sign of credibility or government-approval in extreme cases. Equally deceptive, others promote themselves as being about more than profit, while their operations and business practices tell quite a different story.

The purpose of this series, derived largely from the testimony of the National Consumer Law Center (NCLC) before the House Ways and Means Committee in 2003, is to detail the two primary ways some debt reduction companies have historically abused their non-profit status.