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AmeriDebt Takes Cover

AmeriDebt • AmeriDebt • Debticated --- • AmeriDebt Founder Settles FTC Charges for $35 Million • AmeriDebt to Close as Part of FTC Settlement • IRS Hits AmeriDebt for $15 Million • FTC, Texas & Minnesota Sue AmeriDebt • AmeriDebt Retreats Under Legal Assault • Missouri Sues AmeriDebt

October 24, 2003
Facing lawsuits from two states, AmeriDebt said it will lay off more than half its 50 employees, vacate some of its office space and stop accepting new debt-counseling clients.

The Germantown, Md., firm faces lawsuits filed by Illinois and Missouri accusing it of charging excessive fees, mismanaging clients' funds and channeling revenue to for-profit businesses.

The company said that the lawsuits and the resulting bad publicity were adversely affecting its ability to help clients.

Tough, said state prosecutors.

"Bad acts lead to bad publicity," said Missouri Attorney General Jeremiah Nixon.

Illinois Attorney General Lisa Madigan said AmeriDebt's retrenching indicates that the state's lawsuit has had "a sobering effect on some of AmeriDebt's practices" and said she would continue to pursue the suit.

An AmeriDebt spokesman said the firm's 92,000 existing clients will experience no disruption in their debt management plans, under which they make a lump sum payment to AmeriDebt, which then distributes payments to individual creditors.

However, consumer advocates questioned whether AmeriDebt would be able to keep that promise and suggested the firm's clients would do well to look elsewhere.

AmeriDebt may face more problems in the future. The Internal Revenue Service says it is investigating many debt counselors for abusing their nonprofit status and the Federal Trade Commission recently warned that not all nonprofit counselors are trustworthy.

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