Credit counseling: look out for 501(c)(3)s

The New York Times today has an interesting piece about the so-called ghetto tax, the higher prices poor people pay for everything from food to car insurance.  Sadly, it seems the major contribution of nonprofits in this area is a negative one.  One of the prescribed cures is credit counseling and consumer education, but this field seems to have attracted more than its share of phonies and scams.  As the IRS explains, the relevant regulatory scheme (under the Credit Repair Organizations Act) does not cover 501(c)(3) groups, and most states give them a pass also, so the wolves have every incentive to cover themselves in charity clothing.  The IRS has an entire project devoted to weeding out the frauds, but in the meanwhile the only way to make sure of an agency’s legitimacy–or at least that someone other than you is concerning itself with that legitimacy–is to confirm that it’s NOT a 501(c)(3).  [501(c)(4)s are covered by the statute.]

Other than that, what can legitimate credit-counseling groups do to make themselves stand out?  I’d gladly support such an agency if I could be assured of its bona fides.  Funny how the same issues keep coming up . . .


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