AFSCME 3357-HOF'S BLOG

From New York Times - Not-for-Profit Credit Counselors Targets of IRS inquiry.


Not-for-Profit Credit Counselors Are Targets of an I.R.S. Inquiry

It's about time! I've had several cases where my clients, in an effort to pay bills got involved with various "credit counselors".

What's told the consumer is totally different than what the paperwork says. The consumer is surprised to find out that the first month's payment goes to the counseling service and not to the creditors - therefore accounts that are current go into default, and those that are a little delinquent become very delinquent.

The consumers aren't told - but it's buried in the paperwork - that the counseling service receives a kickback (my word) payment from the creditors in addition to what the consumers pay. They call this a "fair share" payment. I call it double-dipping. I also call it a conflict of interest.

One of the core principles of agency law is that the agent owes a duty of loyalty to the master. The credit counselor has a conflict of interest, being both an escrow agent and advisor for the consumer, and a collection agent for the creditor, a collection agent that gets paid based on how much it can funnel into the creditor's coffers.

Here's an interesting quote from the NYT story regarding the corruption in the industry in these supposedly "not-for-profit" counselors:

Not-for-Profit Credit Counselors Are Targets of an I.R.S. Inquiry

Published: October 14, 2003






Over the last three years, AmeriDebt has paid $75 million to have its customers' accounts managed by companies owned by Andris Pukke, the husband of its founder, Pamela Shuster, and a former officer.

AmeriDebt said "it would cost millions of dollars to invest in the same technology and personnel that are available at less cost from vendors."

Mr. Pukke, 34, left AmeriDebt three years ago, the company said, and has since had no affiliation with it.

Cambridge Credit manages its own accounts. But it pays much of its revenues to for-profit companies owned by its founders, John and Richard Puccio, who are brothers.

Tax returns show that it paid millions during its fiscal year ended July 31, 2002, to a debt-referral company owned by John Puccio.

Cambridge also paid the brothers $984,000 last year toward its $14.1 million purchase of two other for-profit credit counseling companies that the Puccios founded. The sale price, said Cambridge's lawyer, Paul Kaplan, was independently reviewed and approved by the accounting firms BDO Seidman and KPMG. Cambridge said that its executives' salaries had also been reviewed and approved by an outside firm. John and Richard Puccio earn six-figure salaries from either Cambridge or two related companies, adding up to more than $500,000 a year for each, according to tax returns.

Last year, a report by a Massachusetts Senate committee expressed concern about Richard Puccio, noting that the Securities and Exchange Commission barred him for five years from the securities industry in 1996 for "engaging in high-pressure, fraudulent sales tactics in utter disregard of his obligations to customers and their welfare."

If you do some research on credit counselors, here are a few websites to check out in general:

www.bayhouse.com
www.creditcourt.com
www.badbusinessbureau.com