Type "credit counseling" and "Oklahoma" into an Internet yellow pages site and about 99 results pop up.
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"Over $15,000 in debt?" a banner advertisement for one organization asks. "Our solution can cut your debt by 40 percent to 60 percent." Another beckons, "$150,000 loan for $381 per month. Apply online today!"
The ads and multiple listings are telling of booby traps for debt-strapped consumers set by so-called "nonprofits" -- many of which the Internal Revenue Service is trying to disarm.
The IRS in the late spring announced it planned to revoke the tax-exempt or 501(c)(3) status of 41 credit counseling organizations, which represent 41 percent of the industry revenues. Moreover, it approved only three of 110 new applicants for tax-exempt status.
Industry observers in Oklahoma applaud the magnified scrutiny credit counseling services are getting and issue further cautions to consumers.
"A lot of people out there are trying to tell you your debt can be erased and that's not a true statement," said Liz Eccleston, financial education director for Community Action Project of Tulsa County.
Oklahomans have told Eccleston they paid as much as $300 in fees to companies who disputed their debts. Debts may have fallen off their credit reports for a few months, she said, but went back on after credit bureau research.
Other companies want to lump consumers' loans into one big loan, Eccleston said.
"Even if they negotiate a reduction in the total amount owed, they make it up by feeding them into a loan with a lot higher interest rate," she said, "so they're paying more over the long run."
Such companies are the antitheses of nonprofits, said Oklahoma City tax attorney Monica
Hoenshell.
"The purpose of a tax-exempt status is doing something to benefit a relatively large group of people," Hoenshell said, like educating the public on how to manage personal finances. What's more, the income of a tax-exempt organization cannot benefit any individual or private organization, other than the intended beneficiary of the charity.
Through audits, the IRS found many debt consolidation services often are Internet-based and have directors related by family or business ties to for-profit entities that service and market debt management plans.
Debt forgiveness itself may be taxable income, warns Emily Parker, a partner in Dallas' Thompson & Knight law firm and former acting chief counsel for the IRS. With few exceptions, including bankruptcy, the consumer is issued a 1099 statement for the amount of debt reduction, Parker said.
The Senate 2½ years ago uncovered serious problems in the credit counseling industry, and the IRS took notice.
"The exemption from income tax and from consumer protection laws may encourage persons to seek tax-exempt status who are motivated by profit, rather than by charity," IRS Commissioner Mark Everson testified.
A true consumer counseling agency is in the business of getting consumers out of debt versus keeping them in debt, said Jennifer Wallis, vice president of the Consumer Credit Counseling Service of Central Oklahoma.
"A good one will educate you and not pressure you into a repayment plan," Wallis said. "They can teach you about credit reports, practical budgeting tips, rapid debt repayment saving, and offer free or low-cost budget, credit and debt counseling.
"Counselors -- who aren't paid high salaries -- will talk to you with kindness and compassion."
About bankruptcy Oklahoma ranks fifth nationwide in bankruptcy filings: 1 in every 40 households, compared with 1 in 60 nationally.
Of the nearly 43.5 percent of Americans who carry a credit card balance, the median debt is $2,200. The average debt per household with at least one credit card is $9,312.
The Pension Protection Act of 2006, signed by President Bush on Aug. 17, requires tax-exempt organizations to report income from and loans to controlled organizations, as well as transfers between controlled and controlling organizations.
Sources: The American Bankruptcy Institute, Federal Reserve, CardWeb.com
Good counsel Characteristics of charitable credit counseling organizations:
Tax-exempt status. Visit www.irs.gov/eo and click on "Search for Charities" to determine whether an organization has a tax-exempt status.
Accreditation. The most common is the Council on Accreditation, which requires agencies to operate under strict quality guidelines.
Membership in a national industry organization. The National Foundation for Credit Counseling has been the gold standard since the 1960s.
Better Business Bureau approval. Visit www.bbb.org to learn if complaints have been filed against an organization.
United Way agency. They've been deemed charitable by the United Way and most likely are active in the community.
A local office. Consumers can develop personal relationships with financial experts through in-person counseling.