Three operations that scammed consumers out of more than $100 million by falsely promising easy debt relief have settled Federal Trade Commission charges that their business practices were illegal.
The companies are the National Consumer Council, Debt Management Foundation Services and Better Budget Financial Services.
According to the FTC, in some cases, consumers debt, interest rates, and penalties increased and some consumers were forced into bankruptcy. The companies and their principals will pay more than $6 million combined in consumer redress and are permanently barred from making deceptive claims about debt-related services.
Two of the operations and their principals also are barred from engaging in abusive telemarketing practices, following FTC charges that they repeatedly called consumers on the National Do Not Call Registry.
"Consumers who want to get out of debt are looking for services to help relieve their financial troubles, not make them worse," said Lydia Parnes, Acting Director of the FTCs Bureau of Consumer Protection. "The FTC is committed to ridding the debt services industry of companies who shatter consumer confidence and hurt legitimate businesses ability to help consumers."
National Consumer Council
In May 2004, the FTC filed a complaint against a group of companies and individual defendants, fronted by National Consumer Council (NCC), a purported nonprofit organization, that solicited customers through an aggressive telemarketing and direct mail advertising campaign that falsely promised free debt counseling.
In fact, NCCs role in the scheme was simply to generate leads for the other defendants, who then charged consumers thousands of dollars in fees to enroll in their debt negotiation programs. The defendants deceptively claimed these programs were an effective way to stop creditors collection efforts and eliminate their debts.
The FTC alleged that the defendants failed to disclose important information to consumers before they enrolled, including the fact that very few people were able to reduce their debts through the debt negotiation programs; consumers would suffer late fees, penalties, and other charges; and that participation in the program might hurt their credit rating. A court-appointed receiver determined that less than two percent of the consumers who enrolled in the defendants debt negotiation programs 638 out of 44,844 consumers actually completed them.
The FTCs complaint also alleged that the defendants violated the Telemarketing Sales Rule (TSR), including the National Do Not Call Registry provisions, by calling consumers who had placed their phone numbers on the Registry and claiming that NCC was a nonprofit organization exempt from the Do Not Call requirements.
The complaint further alleged that some of the defendants violated the Gramm-Leach-Bliley (GLB) Act by failing to inform consumers how their personal financial information would be used.
At the FTCs request, a federal district court appointed a receiver over defendants National Consumer Council and its related corporate entities.
The receiver has returned approximately $24 million in consumer funds held in defendants trust accounts. The receiver also is winding down the corporations business operations.
Debt Management Foundation Services
In July 2004, the FTC charged Debt Management Foundation Services (DMFS), four related corporations, and the three individuals that control them with falsely representing that DMFS and its predecessors provided debt management services and that DMFS is a nonprofit corporation.
The FTC alleged that DMFS and its affiliates falsely represented that they could reduce consumers debts by 50 percent, reduce or eliminate interest on the debts, and provide assistance before consumers next credit card billing cycle.
The FTC charged that the defendants deceived consumers into paying up-front fees as high as $1,000 and monthly fees of $20 to $49. The FTC also alleged that the defendants violated the TSR by calling consumers whose phone numbers were registered on the National Do Not Call Registry.
The stipulated final order provides that the court-appointed receiver who took over DMFS and the four related corporations last summer will liquidate the companies.
Better Budget Financial Services
In November 2004, the FTC charged BBFS and its principals with falsely claiming they could reduce consumer debt by 50 to 70 percent and shorten the time period necessary to pay off the debt, in exchange 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.
The stipulated final order requires Better Budget Financial Services, Inc., John Colon, Jr., and Julie Fabrizio-Colon to turn over assets totaling approximately $1.3 million to a court-appointed receiver.
They are barred from misrepresenting that they can reduce consumers debts; settle with consumers creditors once consumers accumulate a certain percentage of the total debt; and stop creditors from attempting to collect on overdue payments.
According to the FTCs complaint, the defendants advised consumers to stop paying their creditors and save their money in an ordinary bank account from which the defendants withdrew their monthly fee.
The defendants promised to settle consumers debts with their creditors once the consumers accrued a certain amount, such as one-half the debt, in their BBFS account. The defendants further claimed that they would contact consumers creditors and get them to stop collection attempts.
The FTC charged that few consumers had all of their debts settled by the defendants. In fact, consumers debts increased due to the imposition of late fees and penalties onto their accounts. Many consumers were sued by their creditors and many were forced to file for bankruptcy. Despite the defendants promises, collection efforts continued for consumers who followed BBFSs instructions and stopped communicating with their creditors.
The FTC also recently announced a settlement with AmeriDebt, Inc., a Maryland-based credit counseling firm that collected nearly $200 million in hidden fees from consumers across the country. AmeriDebt will shut down its operation and transfer all existing accounts to a reputable third party. For more information on the AmeriDebt case, see the press release dated March 21, 2005.
Three Debt Management Firms Settle Federal Charges...