A nationally advertised company that claims to be a nonprofit credit-counseling service is defrauding debt-ridden consumers, Missouri Attorney General Jay Nixon charges in a lawsuit. Nixon says AmeriDebt Inc. deceives consumers through excessive, hidden fees and by secretly transferring consumers accounts and money to its affiliated for-profit companies.
Nixon filed suit in St. Louis City Circuit Court against several companies and individuals associated with AmeriDebt, including members of the Pukke family, which owns and operates the various companies named in the lawsuit.
Illinois filed a similar suit earlier this year.
The lawsuit claims the supposedly nonprofit companies have taken in millions of dollars in personal profits for the Pukke family and other officers and directors from consumers needing help with unsecured debt and have violated Missouri consumer protection laws.
Consumers in financial dire straits often will reach out to those offering credit counseling services to keep them afloat, particularly if the services are aggressively advertised on television or on the Web as being nonprofit, Nixon says. Unfortunately, with its high, hidden fees and lack of any significant credit counseling, AmeriDebt has served more as an anchor than a life preserver for many consumers.
In addition to AmeriDebt, the defendants in the lawsuit include
- Debticated Inc., which also claims to be nonprofit;
- Debtworks Inc.,
- Ballenger Group Inc.,
- Ballenger Group Holdings Inc.,
- Infinity Resources Inc. (later renamed F&M; Mortgage Inc. and then Fidelity and Trust Mortgage Inc., also defendants); and
- owners Andris Pukke and his brother, Eriks Pukke.
The Pukkes and their companies are based in Germantown, Md.
Nixon says that while AmeriDebt tells consumers it is a nonprofit organization that operates at cost and does not make money, the company functions like a profit-driven company. Employees referred to as credit counselors or debt professionals actually perform more as salespeople to sell fee-based debt management plans to consumers and are compensated in part on commission, Nixon says.
AmeriDebt aggressively advertises that it charges no upfront fee to consumers, Nixon says. What the company downplays or hides is that the first monthly payment a consumer makes which typically is three percent of the consumers total debt, and averages $327 does not go to the creditors, but is instead pocketed by AmeriDebt and the Pukkes for-profit companies.
This payment is termed a voluntary contribution by AmeriDebt, Nixon says, and results in the consumer going further into debt since the creditors are not paid with it. In addition, AmeriDebt charges consumers fees of up to $70 per month over the life of the consumers debt management plan; the plans generally last between three and five years. Most of those monthly fees also are secretly transferred to the Pukkes for-profit companies.
Those monthly fees, which also are characterized by AmeriDebt as voluntary, add on between $1,000 and $2,000 to how much consumers pay, Nixon says. This is not the kind of help people in debt need.
The lawsuit also says that AmeriDebt falsely advertises that it provides credit counseling. Nixon says the employees with whom consumers consult on the phone are salespeople, not trained credit counselors, and they provide no significant help with budgeting or education and training about personal or household finance.
True credit counseling would help consumers work their way out of debt and stay there, Nixon says. AmeriDebt has salespeople competing for commission and bonuses by selling debt management plans. They are not trained or qualified to know what course of action is going to be best for the individual consumer with whom they are speaking.
Nixon also says the statements AmeriDebt makes that it will negotiate with a consumers creditors to obtain the best terms and lowest interest rate are false as well. The creditors dictate to AmeriDebt, in advance of the consumer contact, what interest rates and terms will be given to consumers who go on a debt management plan.
The lawsuit notes that in September 1996, defendant Andris Pukke pleaded guilty to the federal felony of trying to defraud consumers by falsely promising debt consolidation loans, then not providing them. Pukke and his wife formed AmeriDebt Inc. the same month he pleaded guilty to the federal charge. The defendants do not disclose the conviction information to consumers, yet Pukke companies still entice Missouri consumers by promising debt consolidation loans, Nixon says.
The lawsuit asks the court to void any contract made between Missouri consumers and the defendants, and order consumer restitution of the money not forwarded to creditors. Nixon also is asking that the defendants pay civil penalties of up to $1,000 for each violation of Missouri consumer protection laws, as well as pay all investigative, attorney and court costs to the state.
"As an organization that has worked with many states to fight fraud and deceptive practices by firms in the consumer credit counseling arena, AmeriDebt is both surprised and disappointed to hear about the lawsuit filed today by Attorney General Jay Nixon," AmeriDebt Counsel Rob Herrell said in a statement.
"AmeriDebt has been in operation nationwide for more than six years and has an exemplary record of helping needy debtors negotiate lower interest rates and payments," he said