Debt Reduction Companies Settle with Feds

Companies falsely claimed they could reduce consumers' debt

February 15, 2008

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Two debt reduction companies have agreed to settle Federal Trade Commission charges that they violated federal law by falsely claiming that they could reduce consumers’ credit card interest rates or the amount of their credit card debt.

According to a complaint filed by the FTC in March 2007, the defendants, Debt-Set, William Riggs, Leo Mangan, Resolve Credit Counseling, Inc., and Michelle Tucker, sold debt reduction services through Web sites and television and radio advertisements with claims such as “Reduce Debt Now” and “Eliminate Harassing Calls.”

When consumers called a toll-free number, the complaint maintains, they were encouraged to enroll in a “debt consolidation program” if their unsecured consumer debt was up to one month overdue, or a “debt settlement program” if overdue longer.

The FTC says the defendants violated the FTC Act by falsely promising to obtain lump-sum settlements, such as “fifty cents on the dollar” or “50 to 60 percent” of consumers’ total unsecured debt, or to negotiate with creditors for lower interest rates.

The complaint also accused them of claiming that they would not charge consumers any up-front fees before obtaining the promised debt relief, and that participation in their program would stop creditors from calling or suing them to collect debt.

The settlement orders prohibit the defendants from engaging in the violations alleged in the complaint, and require them, when making representations about specific debt reductions they can achieve, to disclose truthfully key terms of the program: all fees and costs they charge, including when and how such fees and costs will be paid by consumers; the approximate time period before settlements will be achieved; and the fact that consumers’ balances typically will increase before settlements for all accounts are achieved.

The defendants also agreed to standard compliance and reporting provisions that enable the FTC to monitor future compliance with the orders.

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