Failure of Non-Profit Debt Relief Companies To Provide Educational Resources

The second most widely cited, as noted by the National Consumer Law Center, non-profit debt relief abuse has to do with the failure of many agencies to provide educational resources. The IRS mandates that in order for an organization to qualify for tax benefits their organization must be operated solely for charitable, literary, religious, scientific, or educationalpurposes. While non-profits are allowed to engage in endeavors outside of this arena, it should not make up a substantial portion of their activities.

This being the case, it is fairly obvious why some non-profit debt relief organizations are violating their tax-exempt status. Far from focusing their energy on providing educational resources for consumers, some non-profit debt reduction companies concentrated the majority of their efforts on the sales and marketing of debt management programs (DMPs).

In a DMP, clients pay one monthly payment to the debt counseling agency, who in turn distributes payments to the credit card companies. By using a credit counseling agency, consumers can lower their interest rates and reduce debt. The monthly payment is normally lower than your combined minimum payments and the overall savings can be large because of the interest rate reduction. The average program lasts 4 to 5 years.

For offering these services, creditors contribute between 4 and 15% of the consumer’s monthly payment to the credit counseling organization. These contributions combined with monthly service fees paid by the consumers can prove to be quite lucrative, which explains why some non-profit debt relief agencies abandoned their commitment to providing financial education (if it even existed in the first place). Worse yet, many non-profit supposedly “charitable” debt relief companies were pushing consumers into DMPs even though it would clearly not benefit their situation.