I thought that was a pretty good racket until I read a terrific report by Ames Alexander in the Charlotte Observer about a guy who took this entrepreneurial exercise to the next level.
About eight years ago, John Waskin, 62, founded a charity to help people get out of debt -- aka a credit-counseling agency in Cornelius, N.C. When folks in financial trouble consult outfits like Waskin's, which was called the American Credit Counselors Corporation (ACCC), they all receive the same basic help, a debt-management plan or DMP. A counselor, by phone, Internet or in person, examines their liabilities and incomes, figures out how much they can reasonably repay (without starving) and then negotiates with credit-card companies, banks and department stores for lower payments. Clients then make one monthly payment to the agency which sends the dough to creditors. In exchange, the counseling agencies receive a "fair share" payment from lenders, historically as much as 15% of the money recouped. Many agencies also charge their strapped customers fees, and Waskin's asked for donations of $25 a month. And as charities, counseling agencies can also receive contributions. Bank of America gave ACCC $320,000 in 2002; Citibank, Discover and MBNA also showered the company with money.
Over the years, Waskin collected $218,000 in annual compensation, quite a bit for the head of a small charity. And his wife Cheryl was also on the payroll.
But there's more! For two years, ACCC paid Pinnacle Credit Management $4.2 million to, among other things, send payments to their creditors. Guess who owned Pinnacle? Our friends John and Cheryl Waskin. Another company owned by the Waskins -- Promotional Marketing Concepts -- collected $700,000 in the same two years for sending clients a newsletter. And Cheryl Waskin charged ACCC for office space. Such arrangements are ethical only if the board is independent and makes decisions that don't benefit its own members. Waskin claims that neither he nor his wife sat on the board, but in fact it was composed solely of his and Cheryl's neighbors.
You'd think the Waskins would be thrilled with all the lucre they were collecting. But in 2005, the agency folded and Waskin received a $5.1 million pension, a ridculously fat amount -- and about the same size as ACCC's annual budget. Some $2.8 million came from the sale of its database of debtors to a Florida credit-counseling company.
Waskin closed his money machine just in time. Around 2005, the IRS was cracking down -- revoking the nonprofit status of several debt-counseling agencies whose executives were similarly enriching themselves.
In his defense, Waskin says that he deserves every penny because ACCC helped 50,000 people get out of debt. I doubt it. When I did a report a few years go on credit-counseling companies -- those in which executives were paid modest salaries, I learned that they almost never do any follow-up on their clients, and when they do, they never disclose the results. But I found a confidential survey of 273,473 credit-counseling cases. As it turns out, only 21% successfully completed the program; another 21% decided to repay debts on their own; 4% filed for bankruptcy but a whopping 47% stopped paying and disappeared from view.
See, not only can you take in big bucks by staring a nonprofit, but you don't even have to show results.