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Mandatory Counseling, A Good Idea in Theory

In fact, consumer complaints about this industry got so bad that the Internal Revenue Service, the Federal Trade Commission and state regulators teamed up to warn people about the problems that can occur when using an unscrupulous credit-counseling agency. The IRS has begun auditing such agencies to see whether they deserve tax-exempt status.

The National Consumer Law Center and the Consumer Federation of America found in one study that many debtors end up with worse credit records than before they sought help because the credit-counseling agency they used either didn't pay creditors on time or didn't pay them at all.

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The Better Business Bureau reports that complaints about credit-counseling agencies were up 77 percent from 2002 to 2003.

"Over the past few years the credit-counseling industry has proved problematic," said Edward Johnson, president and chief executive of the Better Business Bureau in the District.

So how will debtors know which agencies are legit?

The law would put the onus on the U.S. Trustee Program, which is part of the Department of Justice and is responsible for overseeing the administration of bankruptcy cases.

"What strikes me as troubling is the capacity of the U.S. Trustee office to thoroughly review the qualifications of nonprofit budget and credit-counseling agencies," said Jeff Morris, the resident scholar at the nonpartisan American Bankruptcy Institute and a University of Dayton law professor.

To be approved by the trustee program, credit-counseling agencies must:

• Have "qualified" counselors.

• Have adequate safeguards for handling the money that debtors send them to pay creditors.

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