Feds, IRS cracking down on credit counseling groups

[MORTARDUDE]

Feds, IRS cracking down on credit counseling groups

Indianapolis Business Journal

NOVEMBER 3-9, 2003

Focus

Feds, IRS cracking down on credit counseling groups
State's oldest service undertakes name change

By Jo Ellen Meyers Sharp

Confusion among consumers about credit counseling firms has prompted one of Indiana's largest to change its name.

Consumer Credit Counseling Service of Central Indiana is now Momentive Consumer Credit Counseling Service, a name the organization says reflects what it does and one it hopes is memorable.

Momentive's counselors and education programs help clients build positive momentum toward a brighter future, said Barbara Crane, president of the 38-year-old not-for-profit community service agency.

An influx of similarly named organizations the last few years, including some not-for-profits, is what prompted the Momentive change, Crane said.

Her agency--which has 29 locations in Indiana, Kentucky and Illinois--serves more than 10,000 clients. Last year, Momentive helped returrn $22 million to creditors, which include banks, collection agencies, doctors, attorneys, finance companies and retailers.

The name change comes at a time when federal and state agencies have begun investigating some consumer credit counseling agencies for fraud, deceptive practices and outright theft. Many debt-ridden consumers having difficulty paying their bills seek help from credit counselors.

The Federal Trade Commission and the Internal Revenue Service announced i=
n October that they are investigating certain not-for-profits because of increased consumer complaints. Some not-for-profits do not meet the standards for tax-exempt, educational organizations, the agencies said.

Using high-pressure tactics, these groups sometimes force desperate consumers into signing agreements for loans, fixed payments or other debt without assistance in money management, budgeting or other tools to help them succeed, the agencies said.

The FTC and IRS said most complaints have been about high or hidden fees, agencies paying bills late, or worse, not at all.

Two states and the District of Columbia have sued AmeriDebt of Germantown, Md., a not-for-profit that promotes its services heavily in television commercials. The Illinois Attorney General sued AmeriDebt last February, saying consumers complained about excessive up-front costs and monthly fees, causing them to go further into debt.

The company also was not licensed to do business in Illinois, said Attorney General Lisa Madigan. The suit demands AmeriDebt stop doing business without a license and that it repay consumers what's due them.

The company violated Illinois' consumer fraud laws by failing to disclose hidden fees and the fact that the company keeps the first payment consumers make, the suit said.=20

The company is also accused of promising to bring payments up to date forconsumers' creditors, but failing to do so.

In Missouri, Attorney General Jay Nixon sued AmeriDebt in September for many of the same reasons as Illinois, but added that the company secretly transferred consumers' accounts and money to its affiliated for-profit operations.

The Missouri lawsuit was filed against the company and its for-profit corporations: Debtworks Inc., Ballenger Group Inc., Ballenger Group Holdings Inc., Infinity Resources Inc. (formerly F&M Mortgage Inc.), Fidelity and Trust Mortgage Inc., and its owners. All the entities are based in Germantown, Md.

"True credit counseling would help consumers work their way out of debt and stay there," Nixon said. "AmeriDebt has salespeople competing for commission and bonuses by selling debt-management plans. They are not trained or qualified to know what course of action is going to be best for the individual consumer."

Locally, there have been few complaints to the state about consumer debt counseling organizations, said Staci Schneider, spokeswoman for the Indiana Secretary of State's Office.

"We've only had a handful of complaints the last several years," she said. Because the complaints have been so few and far between, there was no visible pattern of bad practices, she said.

The same is true at the Indianapolis office of the Better Business BureauTwo consumer credit counseling organizations are members, said Jamie Shraluka, a business relations assistant at the BBB.

Credit Counselor Corp. has been a member of the BBB since 1994 and has had 15 complaints during the last three years, including four during the last 12 months. All have been resolved, Shraluka said.

Momentive has been a member since 1993 as the Consumer Credit Counseling
Service of Central Indiana. During the last three years, the organization has had two complaints, both resolved, and none in the last year, she said.

Crane said Momentive's employees receive about a year's training in helping consumers manage their money and debt, while some other organizations
provide less than two weeks of training.

The industry also is grappling with creditors that have cut how much they
reward counseling organizations and a changed attitude about working with consumers to reduce their debt, Crane said.

Still, start-ups flock to the market because of the up-front fees, which
still bring money in the door.

Crane said she believes more federal oversight is needed to correct some
of these problems.

Apparently, so does AmeriDebt. Although representatives did not respond to requests for an interview, the company issued a press release Oct. 23 declaring it would focus its efforts on its 92,000 existing customers and
not pursue new clients, effective Nov. 1.

Calling the move extraordinary, the company said it would downsize its staff and office space.=20

"The AmeriDebt that emerges from this process will be leaner, but it will provide an even higher level of assistance to its consumer clients," said Zynda Sellers, AmeriDebt's attorney, in the news release.

"What is needed--for the sake of the industry and of the debtors we serve--is uniform, federal-level regulation," Sellers said.

AmeriDebt was to open a call center in downtown Evansville and had started hiring people, according to The Evansville Courier & Press.

At the time, an AmeriDebt representative told the newspaper the lawsuits
would not deter the opening. However, it is not certain what impact the down-sizing will have on that project because Evansville officials could not be reached.

The trend has been for some credit relief organizations to operate nationally by promoting toll-free numbers in TV commercials without establishing a physical presence in the state, said Linda Carmody, president and CEO of the Better Business Bureau of Central Indiana.

Carmody urges consumers to check with local BBB offices about alternative resources for managing their money and to find out about complaints against credit counseling companies they may be interested in.

For many of the toll-free offers, there is no office where people can sit down with a counselor and work out the problems.

"They are taking advantage of desperate consumers and I think it stinks," she said.