A 33-year-old Howard County businessman is turning the nation's mountain of credit card debt into a personal gold mine.
Five years ago, Bernaldo J. Dancel started National Credit Counseling Services (NCCS) on the kitchen table of his Columbia apartment. Today, he makes about $300,000 a year running a $27 million tax-exempt, nonprofit corporation that's about to move into its fifth new and larger office since 1992.
County officials tout Dancel's operation as a prime example of economic development -- even as tax experts warn he is pushing the Internal Revenue Service standard of what it means to be a public-service nonprofit corporation.
One questionable practice: NCCS pays millions of dollars in management fees to a for-profit firm Dancel founded eight months ago.
"They may turn out to be innocent and meet any fairness standards," said Harvey J. Goldschmid, who teaches nonprofit law at the Columbia University School of Law in New York. "But a state official may want to take a look at what has been going on."
What's going on typically starts with nationwide advertisements, such as this one in the back of Popular Science:
"MAXED OUT CREDIT CARDS? Reduce payments and interest. NO FEE. Fast. EZ. Confidential. NCCS nonprofit." The ad ends with a toll-free number.
Working inside a shiny Columbia high-rise, rows and rows of NCCS "producers" in telephone headsets advise callers to consolidate their sometimes staggering credit card bills into a single monthly payment.
NCCS then negotiates with credit card companies, cutting callers' interest loads, on average, in half.
Credit card companies bankroll NCCS and other counseling services because they don't want debtors to file for personal bankruptcy. In the first six months of this year, NCCS received about $8 million from the companies.
NCCS's future may be as big as the nation's mounting credit card debt. Already the largest such counseling service under one roof, NCCS expects to employ between 600 and 700 workers by next summer. Now, it has 55,000 debtor-clients, NCCS officials say.
Dancel, the former sales manager of Kensington Securities, remains the heart and soul of NCCS. And it is his web of business and personal relationships with NCCS that troubles nonprofit experts.
Salary, loan, buyout
Last year, NCCS paid Dancel $331,065, lent him $160,000 and acquired Freedom Network International, a business -- owned in part by Dancel -- that offers discount shopping services to NCCS clients, according to federal tax forms required of all nonprofit organizations. Dancel repaid the loan last year.
In the first half of this year, NCCS paid about $3 million for management services to a for-profit company -- Marketshare Management Inc. -- of which Dancel is the majority owner, according to the forms and Dancel.
Last year and the first half of this year, NCCS had three directors on its board -- all closely linked to Dancel. They are Preston Duppins, an NCCS manager; Lawrence Merwin, general counsel for Marketshare Management; and Dancel. NCCS recently added three board members.
"When you sum it all up," said nonprofit expert Jim Fishman, a professor at Pace University's law school in White Plains, N.Y., "this organization seems to exist for the private benefit of the managers -- particularly the major-domo [Dancel] of the whole project."
Fishman said the IRS should yank the corporation's tax-exempt status and make it pay back taxes.
Dancel and his assistants say they've done nothing wrong and any attention should focus on their clients now working toward financial independence. They say they've taken pains to separate nonprofit public-service activities from for-profit activities within their operations.
Dancel says his NCCS salary equals his private-sector value, his $160,000 loan was provided at market rates and the sale of the shopping club -- a service for NCCS clients -- lost money.
The NCCS president says he makes no money yet from Marketshare Management, which NCCS spun off as a for-profit company in January. He provided The Sun with an audit by an independent accounting firm that shows Marketshare charges NCCS rates that are the same as or lower than market rates.
'Fair and equitable'
"We've done everything we can to make sure everything is fair and equitable to NCCS," Dancel said.
Still, nonprofit experts say the NCCS board needs to be more independent of its operations. They also say if Dancel wanted a loan, he should have gone to a bank.
The debate over the corporation's nonprofit status means nothing to David Hamby, a 36-year-old Baltimore mail carrier whose story reflects those repeated by NCCS callers.
Three years ago, Hamby and his wife, Mary, had racked up $34,730.81 on more than a dozen credit cards. Among their charges: a $5,000 honeymoon to the Bahamas and cash advances from one card to pay off other cards.
The couple was paying $1,500 a month on this debt, David Hamby said. They considered filing for personal bankruptcy.