FTC Sues 3 'Debt-Relief' Companies, Alleges Deceptive Claims

Handfull of credit cardsThe Federal Trade Commission has sued three more debt-relief schemes the agency says deceived consumers nationwide into paying thousands of dollars in up-front fees while failing to reduce their credit card debts.

The operation is part of the FTC's continuing crackdown against scams targeting consumers in financial distress.
The defendants in the first of two cases announced Thursday are Financial Freedom of America, Inc., now known as Financial Freedom Processing Inc., and Corey Butcher. The second case names Debt Consultants of America Inc., Debt Professionals of America Inc., Robert Creel, Corey Butcher, Brent Butcher and Nikki Creel, also known as Nikki Vrla. All defendants are based in Dallas, Texas.

According to the FTC's complaints, the defendants made deceptive claims that consumers who enrolled in their programs could eliminate 30% to 60% of their credit card debt and be out of the red in 18 to 36 months. The defendants marketed their services via websites and TV and radio ads that urged consumers to call toll-free numbers for a free consultation and to enroll in their programs.

The complaint against Financial Freedom Processing says the defendants claimed the ability to make use of "secret programs most credit card companies won't tell you about." The complaint against Debt Consultants of America and Debt Professionals of America says the defendants promoted their "established relationships" with creditors and claimed their programs would "save you literally thousands of dollars."

All defendants also charged consumers up-front administrative fees, monthly maintenance fees, negotiation fees and, in some instances, a cancellation fee. Yet, the FTC charges, few consumers received the promised results. Many consumers canceled or dropped out of the programs before their debt was reduced because they couldn't afford to pay the defendants' sizable advance fees and their debts.

The FTC warns consumers looking for help with credit card debt to be wary of anyone who advises them to stop paying their bills, to pay someone other than their creditors or to stop talking to their creditors. Consumers should also be careful about paying for financial assistance before they receive it.

As Consumer Ally reported, the FTC recently announced changes to the Telemarketing Sales Rule that prohibit companies selling debt relief services over the telephone from charging fees before they settle or reduce a customer's credit card or other unsecured debt.

This ban on advance fees protects all consumers who enroll in a debt relief service after Oct. 27, 2010, and specifies that fees for debt relief services may not be collected until:
  • The debt relief service successfully settles or changes the terms of at least one of the consumer's debts.
  • There is a settlement agreement, debt management plan or other agreement between the consumer and the creditor that the consumer has agreed to.
  • The consumer has made at least one payment to the creditor as a result of the agreement negotiated by the debt relief provider.
The new provisions also prevent debt relief providers from front-loading their fees if a consumer has enrolled multiple debts in one debt relief program. They also require debt relief providers to make truthful and substantiated claims about their services. Click here for more information about the advance-fee ban.

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