The Internal Revenue Service is providing a vital public service by rooting out credit-counseling firms that abuse their nonprofit status by exploiting vulnerable clients. The crackdown has exposed a seamy side of the $1 billion nonprofit industry: Some firms charge high fees and profit from it, yet fail to provide any useful counseling.

Targeting non-profits, the IRS audited 63 credit-counseling agencies for two years. This week the IRS said it was revoking the tax-exempt status of every agency whose audit had been completed. The 41 firms cited represent 40 percent of the industry's revenues.

The IRS says it can't identify the 41 firms until all revocations and appeals have been completed. The IRS should make it a priority, however, to make public the names of the nonprofit impostors as soon as possible so that consumers can take appropriate caution.

The potential for abuse is huge. Credit counselors are supposed to help people manage their finances and restructure their debts. Yet complaints about abuses abound. The Federal Trade Commission found that unscrupulous firms dupe people into paying exorbitant fees, which sometimes are funneled to for-profit companies. Some enroll clients into generic "debt management plans" not tailored to the clients' specific needs. Others fail to pay creditors, pushing desperate clients further into debt.

The IRS' scrutiny comes just as Congress has mandated that consumers seek credit counseling before filing for bankruptcy. Millions of people sinking under the weight of their debts make tempting targets. ...

Of course, many nonprofit credit-counseling firms provide services without exploiting clients. Consumers must find those firms that truly look out for their best interest.

-- The Miami Herald

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