Each month, about 9,000 people in financial distress call an office in Bremerton for help. Many of them are confused and upset, having watched...

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Each month, about 9,000 people in financial distress call an office in Bremerton for help.

Many of them are confused and upset, having watched their money drain away because of divorce, illness, lost jobs or overspending.

Answering the phones are approximately 60 credit counselors who work for Seattle-based American Financial Solutions, formed in 1998 to raise money for the North Seattle Community College Foundation.

One of the biggest credit-counseling agencies in the country, with revenue approaching $65 million last year, it is also one of dozens being audited by the Internal Revenue Service to determine whether it deserves its tax-exempt status. And a Senate subcommittee recently cited American Financial Solutions (AFS) as an agency that has its eye more on revenues than on educating consumers.

Robert Ilgenfritz, president and CEO of the agency, said it is working to fix problems pointed out by investigators, though it’s not clear how broad the changes need to be.

Indeed, while some agencies under federal scrutiny have committed obvious fraud, others are being questioned about decades-old practices that they thought were fair for consumers.

“The trouble all of us are having is, we don’t know what the IRS is going to establish as the standard for what constitutes a nonprofit credit-counseling organization. It may be that they’ll say we’re just fine, and it may be they’ll say you’ve got to do this and this, and then you will be fine,” Ilgenfritz said.

However, it is also possible the IRS could revoke the agency’s tax-exempt status, a move that would cut deeply into the agency’s revenue stream and possibly put it out of business.

Like many credit-counseling agencies, American Financial Solutions gets much of its revenue from enrolling consumers in debt-management plans, where they agree to repay creditors at newly negotiated rates. AFS gets a cut of those payments, along with contributions from consumers, who benefit from lower interest rates on their debts.

The revenue from each source is about equal, Ilgenfritz said.

Much of AFS’s revenue goes to a for-profit company called Amerix that handles its advertising, negotiations with creditors and disbursement of clients’ payments to creditors.

Ilgenfritz declined to say what the agency pays Amerix, but the foundation’s tax return shows it paid $47 million last year for “processing fees” and $4.3 million for marketing.

Only about $4 million has gone to the college foundation from AFS since the agency began.

If AFS loses its tax-exempt status, creditors would probably stop giving AFS a portion of the debts it retrieves. Most creditors will work only with agencies that have tax-exempt status.

The North Seattle Community College Foundation, like some other college organizations, got into credit counseling after being approached by Maryland-based Amerix.

The idea was for the new agencies to work with financially strapped consumers and put some of them into debt-management programs, which Amerix would service for a fee. Amerix also pays for commercials and other advertising that carries the toll-free numbers for AFS and other credit-counseling agencies.

But a Senate subcommittee report this spring said AFS and other agencies that Amerix helped set up are not providing adequate counseling and education, instead concentrating on steering consumers into debt-management plans.

Ilgenfritz said the agency is adding more consumer-education presentations to its Web site, and is changing its advertising to reflect its desire to do more for clients than sign them up for debt-management plans.

“In the past, a lot of the ads have been, ‘Come on in and sign up for a DMP,’ ” he said.

Currently about 30 percent of the people who call are enrolled in debt management plans. The agency cannot negotiate lower interest rates for mortgages or car loans, and some people have such high debt that credit counselors recommend they see a bankruptcy attorney.

Ilgenfritz defended debt-management plans as helpful for some of the agency’s clients. He said they are a way to generate revenue, so AFS can continue helping large numbers of people.

“You’ve got to have some income,” he said. “Maybe in the old days you could get a grant and do this, but when you’re national and using the Internet and taking phone calls, you’ve got big expenses that aren’t going away.”

Some smaller agencies operate by charging modest fees for lengthy, face-to-face meetings.

But if big players such as AFS switched to that way of doing business, Ilgenfritz said, “there’d be a whole bunch of people who wouldn’t get served.”

Melissa Allison: 206-464-3312 or mallison@seattletimes.com