Nearly 7,000 victims of a nationwide debt-relief scam that led many consumers into financial ruin and bankruptcy will be receiving refund checks from the Federal Trade Commission.
The defendants, claiming they could reduce debt, rarely provided services promised and usually left customers in even deeper debt, the agency said. The compensation fund represents the available assets of the defendants, about $1.2 million. The amount of each check will vary based on payments to the defendants, averaging about $180 per consumer.
The FTC first took action against the defendants in 2006, when it sued the following companies and individuals for deceptive and unfair practices: Homeland Financial Services, National Support Services LLC, United Debt Recovery LLC, Freedom First Financial LLC, and USA Debt Co., LLC, Financial Liberty Services, LLC, Robina Capital and principals Dennis Connelly, Richard Wade Torkelson, and Joanne Garneau (doing business as Prosper Financial Solutions).
"These defendants are charged with targeting consumers who were knee deep in debt and luring them with false promises," said Lydia Parnes, Director of the FTC's Bureau of Consumer Protection, in a statement. "Consumers should be leery of anyone who says they can eliminate your unsecured debt, or that you can pay it off for pennies on the dollar. Debt negotiation can be very risky."
According to the FTC's complaint, the defendants promised consumers that for a non-refundable fee of up to 15% of their unsecured debt, they could reduce all their debts, including credit card balances and medical bills, by 40 to 60%. But the defendants rarely negotiated settlements with all of a consumer's creditors, and even when successful, the settlement amount was often significantly more than 60% of what they owed.
The defendants also advised consumers to halt payments to creditors, and as a result, many were sued, leading to garnishment of wages, additional interest charged to accounts, interest rate increases, and late fees. In addition, the FTC said, many customers who enrolled in the defendants' programs saw their credit ratings worsen substantially. Most consumers pulled out of the fraudulent programs within six months, and experienced increased debt due to penalties, fees, interest and other charges.
The defendants in this nationwide operation misrepresented how much they could reduce debt, and did not adequately disclose the likelihood consumers would be sued if they stopped paying creditors, the FTC said. The defendants also did not properly disclose that consumers' account balances would grow from interest, interest-rate increases, late fees, and other charges; and falsely advised that negative information that appeared on their credit report as a result of participating in the defendants' program would be removed upon completion.
All the defendants settled with the FTC in 2007 and 2008, which shuttered the fraudulent business and banned the defendants from engaging in a lengthy litany of deceptive activities related to consumer debt reduction services.
Consumers who receive checks should cash them on or before Dec. 24, 2010. Checks are being mailed by the redress claims administrator Gilardi & Co. Consumers with questions should visit www.ftc.gov/refunds or call 1-877-987-3923.
FTC refunds $1.2 million to victims of 'debt-relief' fraud