Attorneys General Mount Debt Relief Offensive

Florida is latest state to take action

October 21, 2009

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The Attorneys General of the 50 United States regularly stay in close contact on major issues, but are acting more and more in concert when it comes to consumer protection these days.

A case in point is what appears to be a coordinated crackdown on abusive debt settlement companies.

Last week New York Attorney General Andrew Cuomo won a lawsuit against against Nationwide Asset Services, barring it from doing business in New York unless its posts a $500,000 performance bond to protect consumers. Over the course of the summer, he took action against a number of New York-based firms that he said were engaging in abusive and illegal debt settlement practices.

Meanwhile, Florida Attorney General Bill McCollum announced his office has filed two lawsuits on behalf of Florida consumers against five debt settlement-related companies. According to the complaints, the businesses promised consumers they could pay off their debts for a fraction of the amount owed, but instead collected large up-front fees and left customers with little or no money to pay creditors.

"These victims were hit with a one-two punch: they paid substantial up-front fees for services not provided as promised, then ended up with increased debt, ruined credit, lawsuits, bankruptcy and more," McCollum said.

One of the lawsuits was filed against Texas-based CSA-Credit Solutions of America, Inc., a self-proclaimed debt settlement industry leader. The lawsuit alleges that CSA unlawfully charges significant advance fees before completing or, in many instances, commencing performance of its debt settlement services. CSA offers to settle consumers’ debts at approximately 50 percent of their balance within 12-36 months and, according to the lawsuit, falsely represents the success rate of its program.

Under the CSA plan, consumers are instructed to stop paying their creditors and start a savings account, supposedly to accumulate enough funds to allow CSA to negotiate a lump sum payoff of the debt. However, for the first three months, CSA allegedly withdraws 85 percent of the funds for its own fees, leaving the consumers with little or no money to negotiate a settlement with their creditors.

Additionally, while the consumer is trying to save enough for the lump sum payoff, he or she may suffer increased penalties for nonpayment to creditors, lawsuits, damage to credit scores, bankruptcy and more. McCollum's office has over 140 complaints, but estimates the company has thousands of Florida victims.

The second lawsuit filed names Clearwater-based ADA of Tampa Bay, Inc., which does business as American Debt Arbitration. The lawsuit also names the company’s principal Glenn P. Stewart, as well as Arizona-based entities Nationwide Asset Services, Inc., Service Star, LLC, and Universal Debt Reduction, LLC.

The lawsuit alleges the defendants promise to help consumers pay off their debts at significant savings, but fail to adequately disclose the true cost of their services. Also allegedly withheld from consumers is the fact that the companies collect at least the first three months’ of payments as fees, in violation of Florida law, before the consumer can start accumulating any funds for settlement and before any services begin. During the “savings” period, consumers are counseled to cease all payments to and communications with their creditors. As a result, consumers suffer great financial harm and can be subject to increased penalties and lawsuits.

Because these companies do business nationwide, its not surprising they have attracted the scrutiny of so many attorneys general. In Illinois, Attorney General Lisa Madigan sued Credit Solutions of America in early October. West Virginia Darrel McGraw sued Able Debt Settlement in August.

Debt settlement firms are not new, but have proliferated in recent months as the economy plunged and more consumers struggled to pay credit card bills.

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