The Federal Trade Commission announced yesterday that three consumer debt-service companies have settled charges that they cheated financially strapped customers out of more than $100 million.
The agency said National Consumer Council Inc., of California, Debt Management Foundation Services, of Florida, and Better Budget Financial Services, of Massachusetts, agreed to pay more than $6 million in consumer refunds for falsely promising easy debt relief that left many consumers deeper in debt and sometimes forced them to file for bankruptcy protection.
Lydia Parnes of the Federal Trade Commission's consumer-protection division says "unscrupulous" debt-service firms should "give it up."
(Susan Walsh -- AP)
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"All three lied about who they were, what they could do for consumers and what they charged," said Lydia Parnes, acting director of the FTC's consumer protection division.
The action is part of an ongoing FTC campaign against unscrupulous credit-counseling and debt-management firms. As consumer debt has increased, so have the number of credit-counseling firms. An estimated 9 million Americans contact such firms annually, often after seeing ads on late-night cable television. About 2 million consumers are on active credit-repair programs at any one time.
The commission's action comes as Congress considers a new bankruptcy law that would require consumers to seek credit counseling before they file for bankruptcy. That's one of the reasons the agency is looking at debt-service firms, Parnes said. "We're concerned there are folks out there engaging in unscrupulous practices.
"If there are other companies out there that think they can deceive consumers, we've got three words for them: Give it up."
The Internal Revenue Service has also been investigating nonprofit credit-counseling firms to see whether they are misusing their tax-exempt status. The tax agency is auditing 48 credit-counseling agencies -- accounting for about half of the industry's assets -- and has notified several firms that it intends to revoke their tax-exempt status, according to an industry expert who would speak only on condition of anonymity because of his ties to the industry. One firm has already lost that status.
Last week the FTC settled a lawsuit against AmeriDebt, a Maryland-based credit-counseling firm that it alleged collected nearly $200 million in hidden fees from consumers. The settlement basically reaffirmed the firm's bankruptcy plan, in which it closed and transferred all existing accounts to a third company.
The agency is continuing its suit against AmeriDebt founder Andris Pukke. Last week, the commission sought summary judgment, seeking $170 million from Pukke in consumer redress. John B. Williams, an attorney representing Pukke, said statistical evidence will show that AmeriDebt's "benefits to all consumers far surpassed" that amount. He said the firm was able to reduce clients' interest rates as well as to get rid of late fees and interest charges for manycustomers.
The companies whose settlements were announced yesterday were put under court receivership last year, effectively shutting them down.
The FTC charged last May that National Consumer Council promoted its services nationally to consumers through a telemarketing campaign that violated the agency's do-not-call rules because it was a bogus nonprofit operation. FTC officials said the council collected more than $84 million from 44,000 consumers. According to the settlement, the firm and some defendants have agreed to pay about $5 million in redress. An additional $24 million, held in consumer escrow accounts, has already been returned.
Last July, the agency charged Debt Management and its affiliates with falsely representing that they could reduce consumer debts by 50 percent and reduce or eliminate interest on debts, while deceiving consumers into paying upfront fees as high as $1,000. FTC officials said the firm collected $11 million from 21,000 consumers. The settlement calls for the company's assets to be liquidated and two of its top officials to pay $258,000 to the court-appointed receiver.
Last November, the commission charged Better Budget with falsely claiming it could reduce consumer debt by 50 to 70 percent for a monthly fee of $29.95 to $39.95, plus 25 percent of any money a consumer saved in a settlement with a creditor. FTC officials said nearly 10,000 consumers paid about $12 million to the firm. Its settlement requires the company and its principals to turn over assets totaling about $1.3 million to a court-appointed receiver.