May 5, 2004
A federal court has closed the National Consumer Council debt-counseling firm, after the Federal Trade Commission (FTC) accused the nonprofit firm and its for-profit affiliates of "misrepresentations and omissions."
In a statement, the FTC said National Consumer was "masquerading as a nonprofit debt negotiation organization" and charged that it "has made millions of dollars deceiving consumers into enrolling in their debt negotiation program by promising to reduce their debts" when in fact it did not.
In an April 23 lawsuit, the FTC "alleged that the companies violated the FTC Act by misrepresentations and omissions and violated other regulations and laws," according to a notice posted on the door of the firm's Santa Ana, Calif., offices.
A financial guardian has been appointed to take over the firm's operations. Also covered by the order are National Consumer's affiliates -- London Financial Group, National Consumer Debt Council, Solidium, J.P. Landis and Financial Rescue Services Inc.
National Consumer, which bills itself as an educational organization, advises debt-swamped clients to stop paying creditors. Instead, they make payments to National Consumer affiliates, which supposedly begin to negotiate with creditors after consumers' saved funds total about 25% of what they owe.
Vanessa of Aurora, Colo., fell for the pitch. She had built up large credit card debts while in college but was not behind on her payments. She began paying into the "trust fund" supposedly established for her by an NCCC affiliate. Eight months later, no payments have been made to the credit card companies and Vanessa is in trouble.
"My balances on these accounts are growing my leaps and bounds, one has increased $4000 in 8 months, my credit is horrible and I am being sued by three of four creditors," she said in a complaint to ConsumerAffairs.com.
According to the FTC, the defendants fail to tell consumers that in the debt negotiation program, defendants often will not begin negotiating a consumer's debts for six months or longer, and that creditors' collection efforts not only do not stop, but often become more aggressive.
The FTC also alleges that the defendants fail to disclose other negative consequences, including that:
- consumers' accounts will become delinquent;
- late fees, penalties, and interest may accrue on their debt;
- consumers' creditors may sue to collect on debts, and if a judgment is obtained, may garnish consumers' wages;
- creditors may raise the interest rates applicable to accounts because no one is making minimum monthly payments on the accounts;
- in those instances where defendants negotiate a reduced debt amount, consumers may be liable for federal and state taxes on the amount their debt is reduced; and
- in those instances when defendants negotiate a reduced debt amount, a negative "settled for less than full amount" notation may appear on their credit reports.
The Better Business Bureau says it has received more than 70 complaints from consumers around the country.
The company's unsolicited telemarketing calls have been a pain for consumers. They were also a factor in the Federal Trade Commission's decision to prosecute.
"These defendants demonstrate contempt for consumer privacy and the law," said FTC Chairman Timothy J. Muris. "The National Do Not Call Registry empowers American consumers to control the volume of calls they receive at home. We're pleased that the overwhelming majority of legitimate companies are complying with the Do Not Call Registry. Nonetheless, we will continue to pursue those that ignore consumers' wishes not to be called."
