Big Credit Counseling Agencies Pay Salaries that Match

Their clients are financially struggling, but many executives at the largest nonprofit credit counseling agencies are pulling down salaries that put them in the top 1% of U.S. earners.

The industry says that the size and complexity of the organizations justifies the paychecks, which are vetted by compensation consultants and approved by the organizations' boards of directors.

But critics say the plush pay reveals a for-profit mentality that conflicts with their mission to benefit the public.

"You want (agencies) to be run by people who are interested in helping people," said Andrew Pizor, staff attorney at the National Consumer Law Center. "If they want to get rich, they should go to Wall Street."

While the agencies receive grants and "fair share" payments from credit card issuers, a major source of their income is the voluntary counseling fee paid by struggling consumers, up to $50 a month. At some agencies, debt management fees are the largest source of income.

CreditCards.com reviewed recent disclosure forms filed annually by nonprofit organizations. Pay for the top officers at the 10 largest credit counseling agencies ranges from about $236,000 to nearly $890,000, according to the reports. The median is about $353,000. The compensation, which includes pay received from any related organizations, can include retirement benefits and other deferred compensation. As a point of reference, the top 1% income threshold for a household was about $344,000 in tax year 2009, according to the National Taxpayers Union, based on Internal Revenue Service statistics.

Pay throughout the nonprofit sector has been under fire recently, with some states moving to cap salaries at all kinds of charities. As a group, the credit counseling executives tend to do about as well as the heads of other nonprofit organizations, according to a 2012 study by Charity Navigator. The median pay for CEOs at charities with revenue of $25 million to $50 million -- a range that fits most of the big credit counseling agencies -- was $245,042. That measure includes bonuses and expense reimbursement as well as salary, but leaves out contributions to future retirement benefits.

The counseling agencies' public disclosure forms list the pay of officers, directors, trustees and key employees. Nonprofits also state the number of employees earning $100,000 or more, whether they are executives or not.

Executive Pay Up as Industry Consolidates

Executive pay has grown along with the organizations. The business of credit counseling is riding a consolidation trend that is swallowing up smaller organizations and swelling the size of the survivors. The number of nonprofit counseling agencies has declined to fewer than 300, from 850 over the past five years, according to industry experts. In addition to counseling debtors in long-term repayment plans, most of the large agencies also have units that handle pre-bankruptcy counseling and housing counseling for other groups of debtors.

"The business model is difficult," said David Jones, president of the Association of Independent Consumer Credit Counseling Agencies (AICCCA). "It requires all the skill of a for-profit company, with the exception of managing equity. The CEO of a credit counseling agency has to be pretty sharp."

High pay for executives divides them from their workers as well as from their debt-burdened clients. Credit counselors, the trained staff at agencies who provide financial advice and help consumers set up debt repayment plans, get median annual pay of $38,430, according to a 2011 report by the U.S. Labor Department.

Topping the nonprofits' salary list is Ivan Hand, CEO of Texas-based Money Management International (MMI), the largest of the credit counseling agencies. His total compensation of $883,839 in 2011 included $232,350 in retirement and deferred compensation and $17,976 of nontaxable benefits. The organization, with its roots in a Houston credit counseling agency, has been one of the most active consolidators of smaller organizations, now with locations in 24 states and revenue that is more than double the size of the next-largest agency.

The job involves managing an organization with revenue of about $100 million a year, and which generates several times that in debt repayments to creditors. But there is more to the job than administering a big operation, said Joanne Kerstetter, vice president for education and MMI's national spokeswoman. The agency also needs the kind of leadership that can respond to economic crises with effective ways of helping consumers cope, she said.

"We've had the bankruptcy crisis, the housing crisis, now student loans. You need a leader of vision to make sure people are served," she said. Being able to open the doors of funding sources is also an important role, she added, as agencies such as Money Management depend on grants for a slice of their support.

The lowest paycheck among the 10 largest agencies went to Diane Chen, chief executive of Consumer Education Services Inc. in Raleigh, N.C., which also operates as CESI Debt Solutions. The organization uses a different model than the others, however, paying a contractor to provide bill payment services that other agencies perform in-house. CESI is appealing an Internal Revenue Service determination to revoke its tax-exempt status, stemming from an audit in 2004. Its contractor, Amerix, was criticized in a congressional report in 2004 for operating a for-profit business through nonprofit agencies that it controlled through service contracts, including CESI. Representatives of CESI were unavailable to comment.

The IRS does not set limits on executive pay at nonprofits. Instead, it calls for the boards that do set pay to be independent from management, and to study pay levels at other, comparable organizations.

When you look at executive pay in terms of its burden on an agency's income, salaries at the largest organizations actually cause less of a hit, because of their greater revenue base. So while Money Management pays the most to executives as a group, at $3.3 million, the compensation amounts to 3.4% of overall revenue, on the lower side for the group. By this measure of executive pay, Take Charge America was the highest of the 10, with pay for executives and key employees consuming 8% of overall revenue. The Phoenix-based agency was in 2010 fighting an IRS effort to repeal its tax-exempt status. The agency dropped its appeals and paid an undisclosed sum late in 2012 to regain its nonprofit status, following the departure of several former officers.

For smaller organizations that did not make the top 10, individual executive paychecks are lower, but executive pay adds up to a greater share of total revenue, sometimes exceeding 10% of the organization's income.

Does high efficiency justify the paychecks at big organizations? To critics of the agencies, the question goes beyond the math involved and gets into underlying values.

"There is an appeal to the consumer for a nonprofit -- the implication is they're doing it for you, they're not trying to make money," said Jonathan Frutkin, a Phoenix bankruptcy attorney and an advocacy leader for the National Association of Bankruptcy Attorneys. "When that is an inherently deceptive marketing tool -- they're all trying to make money."