Consumer Group Warns of BK Explosion if States and Congress Do Not Change Credit Counseling Laws SOURCE: American Bankruptcy Institute Consumers for Responsible Credit Solutions (CRCS), warned in a press release today that there could be an explosion in the number of Bankruptcies filed unless States or Congress change the laws regulating the credit counseling industry. Without access to the services provided by the nation’s credit counseling agencies hundreds of thousands of consumers would have little choice but to declare Bankruptcy, and already rising Bankruptcy rates would explode, said CRCS. But access to those services may soon not be available in the majority of States unless the laws are changed. Currently a majority of States have laws that either ban individuals or taxpaying businesses from providing credit counseling, or which in practice restrict credit counseling services exclusively to tax-exempt organizations. The practice of creditor funding and control of credit counseling agencies has been criticized for decades, most recently in a report published by CRCS, which argues that creditor-controlled agencies typically serve the interests of creditors and profits more than consumers. The report also points out that tax-exempt agencies are, by law, not only exempt from paying taxes but also from basic State and Federal oversight and regulation. Now, a recently released internal IRS memo indicates the Service is preparing a case for revoking the tax-exempt status of large numbers of credit counseling agencies, including traditionally creditor-funded agencies that serve primarily as debt collectors. Should the IRS revoke the tax-exempt status of credit counseling agencies that serve primarily as debt collectors, one or two things would have to happen: (1) Agencies would have to divorce themselves from creditors and creditor funding; or (2) Agencies would have to operate as taxpaying businesses CRCS Executive Director Darrell McKigney said “unless current laws are changed, such an IRS ruling could create a Bankruptcy explosion. Right now, a majority of states effectively prohibit taxpaying financial services providers from helping consumers with credit counseling services. In addition, to maintain their control over the industry, many of the nation's largest creditors refuse to support independent, taxpaying agencies. As a result, in many states there are virtually no taxpaying credit counseling agencies in existence for consumers to turn to at this time.”