FTC Sues AmeriDebt

$40 Million Allegedly Funneled to For-Profit Firm

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November 19, 2003
The Federal Trade Commission has filed a complaint charging non-profit AmeriDebt with using deceptive practices that masked high fees and hid its connections to for-profit enterprises.

"We're alleging that AmeriDebt misled consumers about who it is, what services it provides, and what it charges," said Howard Beales, director of the FTC's Bureau of Consumer Protection.

The FTC's lawsuit, filed in Federal District Court in Baltimore, charges that AmeriDebt generated large profits by enrolling consumers in payment plans and collecting what it called "voluntary contributions."

It's the first time the agency has gone after a nonprofit credit counseling firm.

The lawsuit seeks refunds for as many as 400,000 past and present AmeriDebt customers who allegedly paid the fees unknowingly or without proper notice of them. AmeriDebt typically charges consumers hundreds of dollars when they enroll plus monthly fees of at least $20.

If the FTC's suit is successful, the firm could be required to pay tens of millions of dollars in damages.

AmeriDebt says it has about 90,000 customers. After it was sued by the states of Illinois and Missouri earlier this year, the firm laid off many of its employees, vacated some of its Maryland office space and stopped accepting new customers.

Besides the FTC action, the states of Texas and Minnesota said they are also filing suit against AmeriDebt.

The company issued a statement saying it will "defend itself vigorously" and says it will show that its counseling and debt management plans have helped thousands of consumers avoid bankruptcy.

Beales said the FTC believes that AmeriDebt paid more than $40 million in fees to accounts-processing firms owned by Andris Pukke, a former officer of AmeriDebt and the husband of its founder, Pamela Shuster.

The FTC says it has reached a settlement with Ballenger Holdings, an accounts processor that the agency charges has ties to Pukke. Ballenger has agreed to cooperate in the suit and to repay $750,000 to AmeriDebt customers whose accounts it processed, the FTC said.

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