On behalf of a client, I recently obtained a judgment for over $56,000 against a group of debt settlement companies, for unfair and deceptive acts.
The details are below, but first some background on the debt settlement industry:
Most of the companies you hear advertising on TV, or see on the internet, are in my view, scams. They convince you that hiring them is better than bankruptcy or getting advice from an attorney. They set you up with a "plan" that involves paying a monthly amount for three years or so. The first several thousand (or up to twelve thousand in one recent case) gets paid to the scammers. Then they attempt to negotiate reduced balances on one or more unsecured debts of yours. Sometimes they actually accomplish a settlement of one or more accounts at a significant discount. But sooner or later (usually after they've made their fee), it becomes apparent that they are not helping you. Often I get called after one of the creditors files a collection law suit, and the settlement company throws in the towel. That's what happened with my client in this case.
So what's wrong with these companies? Well, they overstate what they can do. They promise or strongly imply that they will get settlements on all of your accounts, and that you'll save money by paying the settlement company. They fail to inform you that some creditors have a policy of not working with settlement companies. They often misrepresent what will happen in the event of a collection law suit. Sometimes they falsely claim that they will supply legal representation. For Ohioans, they almost always violate Ohio laws that prohibit certain charges and unfair and deceptive acts and statements.
Not too long ago, the Federal Trade Commission issued a rule restricting the activities of these companies and the way they charge for their "services". You can read the FTC press release here. It's important to note that Ohio already had some consumer protections in place before this new rule.
I believe that debt settlement scams are one of the fastest-growing areas of consumer fraud.
But I also want you to know that there are legitimate credit counseling services out there too. They just don't charge more than a small monthly fee, and they give good advice. I also want you to know that each case is different. If you think you have been victimized by a debt settlement scammer, you might have a good case or you might not, for a variety of reasons. If you're not sure, you should consult with a qualified attorney. While you're at it, you may need some advice on how to deal with the debt at this point.
Ok, so here are the details of this case:
The debt settlement scammers told my client that they could get reductions of her debt of 40 to 60%, and set up a payment schedule based on a 60% reduction. They told her very clearly that she would be provided independent legal services. They lied to her, saying that law suits are "not typical" in the program; they implied that a wage garnishment could be avoided; they told her her credit score would improve through their program; they gave bad information to her about debt collection laws.
After some time in the program, a creditor sued my client on one of the debts in the program. The settlement companies recommended that she "go to court" (whatever that was supposed to mean) and tell the court that she could not afford to pay the debt. This was not good legal advice, and it did not come from a lawyer qualified to give the advice. The settlement companies did not suggest that my client consult with an attorney.
The court entered a judgment against my client in the collection suit, and her wages were garnished. Then a second creditor filed another collection law suit against my client, and she found me shortly thereafter. My client paid over $4,200 to the settlement companies before she realized it was a scam.
We filed a suit against five companies, alleging unfair and deceptive acts, negligent misrepresentations, and civil conspiracy. (These companies tend to hide their identity, and have several related corporate shields set up to try to deflect law suits and government regulation.) Two of the companies immediately wanted to settle the claims, and we worked out a reasonable settlement. The three remaining companies failed to respond in a proper, timely manner, and the court entered a default judgment against them for actual damages, punitive damages, and my client's attorney fees -- a total of $56,534.94, plus court costs and interest.
Here are the companies we have a judgment against:
Accredited Financial, Inc, a California corporation
Accredited Financial Services LLC, a Delaware company
HPM, Inc., a corporation believed to be based in California.
We'll be attempting to collect this judgment, so if you know where any of the companies bank, or have other assets, please feel free to drop me a line.