Some of the nation's nonprofit credit-counseling agencies are engaged in abusive marketing practices that funnel millions of dollars from cash-strapped debtors to the agencies' executives in violation of federal tax and fair trade laws, a Senate panel alleges.

Such practices have turned what once was a social-service-oriented industry into a sometimes profit-driven business that hurts debtors "by charging excessive fees, putting marketing before counseling and providing debtors with inadequate educational, counseling and debt management services," the Senate Permanent Subcommittee on Investigations said in a report to be released today during hearings on the issue.

Some of the newer nonprofits, which advertise extensively on television, have been designed to enroll as many debtors as possible into debt-management plans -- which charge exorbitant fees that are siphoned off by affiliated for-profit companies, the report alleges.

"This is abusive, a violation of federal statutes," subcommittee Chairman Norm Coleman (R-Minn.) said yesterday in a briefing with the media. "I want to clean up the industry right away."

He suggested that some of the agencies should lose their tax-exempt status or be fined, or both. Two of the three companies cited by name in the subcommittee's report did not comment on the specific charges while a third challenged the report's accuracy. All have previously denied engaging in any improper or illegal practices.

As consumer debt has increased, so have the number of credit-counseling firms. Previous reports from consumer groups estimate that 9 million Americans contact credit-counseling agencies annually; industry officials estimate that 2 million consumers are on active credit-repair programs at any one time.

The subcommittee said that of the 1,215 credit-counseling agencies that have applied to the Internal Revenue Service for tax-exempt status since 1994, more than two-thirds have filed during the past four years.

Many of these firms are "little more than telemarketing call centers," getting consumers to sign up for costly debt-management plans, said Sen. Carl Levin (D-Mich.), the subcommittee's senior Democrat.

The five-month Senate investigation comes as law enforcement officials have stepped up their scrutiny of the nonprofit groups. The IRS is auditing 50 organizations to see whether they deserve their tax-exempt status.

The Federal Trade Commission and four state attorneys general have sued one Germantown group, AmeriDebt, which had been a vigorous marketer of its services until it stopped accepting new customers in November. The lawsuits accuse AmeriDebt of deceiving consumers by charging high fees and falsely operating as a nonprofit while allegedly operating primarily to make money for its founders, Andris and Pamela Pukke, and their for-profit company, DebtWorks.

Yesterday, Coleman said that Maryland officials also were investigating AmeriDebt.

The Senate subcommittee said it looked at AmeriDebt and two other companies, Baltimore-based Amerix and Massachusetts-based Cambridge Credit Counseling Corp., and it charged that it found "alarming abuses" in their operations and those of their affiliates.

The report alleges, for example, that DebtWorks has provided processing services to 11 nonprofit credit-counseling organizations that managed $2.5 billion in consumer debt. Most of the groups were organized by AmeriDebt employees or by Andris Pukke's friends, the report charges. At least two of these firms received start-up loans from a private lending firm owned and operated by Pukke, the report alleges.

Between 1999 and 2002, DebtWorks had gross revenue of $109 million, the report said. At AmeriDebt, the subcommittee added, employees were given bonuses for enrolling customers in debt-management plans, "a clear conflict of interest" since the employees had a direct financial incentive to enroll consumers in these plans rather than give budgeting advice.

At the end of 2002, in a management buyout, Pukke sold DebtWorks for $43 million, financed by cash and a promissory note to Pukke and DebtWorks, the subcommittee said.

The new owners, who renamed the firm the Ballenger Group, still owe $37 million on the promissory note, the report said. Ballenger spokesman Michael Barnhart said Ballenger is an independent company "focused on quality and pro-consumer business practices."

The subcommittee said Amerix, owned by Bernaldo Dancel, provides processing services to five credit-counseling agencies and had gross revenue of $386.5 million between 1998 and 2002.

Although it does not own any of the five agencies, Amerix exerts its control over them through service agreements, which require each agency to enroll 30 percent of their callers into a debt-consolidation plan, the report alleges. It added that Amerix set up credit-counseling agencies through existing nonprofit colleges and universities, effectively sidestepping any IRS review of these new organizations. Amerix told investigators it approached colleges because they could educate consumers about finances, but the subcommittee said it could not find any such classes.

Amerix President Michael Croxson said company officials were "looking forward to appearing before the committee" to clear up any misconceptions and to discuss its educational and counseling initiatives announced two weeks ago.

The subcommittee faulted the two founders of Cambridge Credit for their high salaries -- $624,000 each in 2001 and an additional $600,000 from related organizations that same year. The report alleges that for-profit companies with which the nonprofit Cambridge does business are so intertwined that they "conduct millions of dollars of business with one another without any written contract."

Cambridge spokesman Monteith M. Illingworth disputed the report, saying there were contracts and that the salaries are within IRS guidelines.

Cambridge chief executive John Puccio had been scheduled to testify at today's hearing, but Illingworth said Puccio, 48, had suffered a stroke.

"This is a direct result in our opinion of the egregious, misleading and blatantly prejudicial process by which this subcommittee has prosecuted this entire affair," Illingworth said.