Where Most Needed

In a move recommended years ago, the IRS is now moving to revoke the 501(c)(3) nonprofit status of credit counseling agencies. This follows on the heels of an FTC settlement with the founder of AmeriDebt. 

The bad news: the credit counseling business is largely based on the tax-exemption of the counseling agencies and the consequence may be to deprive consumers of services.

The IRS was too lenient for years in approving 501(c)(3) status for credit counsellors, yet pulling the rug out from under the industry seems like a poor solution. 

But we can also fault groups like the National Consumer Law Center and the Consumer Federation of America who took a look at this mess back in 2003 and concluded that it could be fixed merely by better IRS enforcement of nonprofit status.  They failed to understand that the IRS has no practical way to fine-tune regulation of one small subsector of the charity industry using the vague standards of nonprofit charity status. 

The problem has to be addressed by the States or by the FTC, both of which have the expertise and means to develop standards for consumer financial businesses.