Illinois Sues Another Debt Settlement Company

Part of a crackdown on 'abusive industry'

By Mark Huffman
ConsumerAffairs.com

October 2, 2009

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Consumers are drowning in debt and unscrupulous "debt settlement" companies, advertising on radio, television and the Internet, are making the situation worse, says Illinois Attorney General Lisa Madigan.

Madigan, like many of her peers in other states, has recently stepped up the pressure on what she calls "an abusive debt settlement industry." She's proposed legislation that would make it harder for the worst players to operate in Illinois and has filed suit against a Dallas company she said was employing deceptive marketing practices and charging excessive fees without effectively improving consumers' financial standing.

"With credit card debt at an all-time high, increasing numbers of families have become prime targets for debt settlement companies who lure consumers in with elaborate, deceptive promises to dramatically reduce consumers' debt," Madigan said. "Based on my office's lawsuits and investigations of this industry, we've learned that consumers seldom, if ever, see their debts settled and often end up owing more than the credit card debt they originally incurred."

The proposed legislation seeks to ban all debt settlement companies from operating in Illinois, unless they meet the following requirements:

• provide true, individualized credit counseling;

• charge no up-front fees;

• obtain a license and a bond;

• disclose to consumers the risks involved in entering into a debt settlement contract; and

• provide a written contract and a right to cancel the contract.

Madigan said her office has seen a sharp rise in debt- and credit-related consumer complaints. Over the last few years, the Attorney General's office has received more than 12,000 complaints regarding debt and credit issues.

Last year, at the height of the economic downturn, consumer debt-related issues surged to the top category of complaints filed with the Attorney General's Consumer Fraud Bureau, including credit card debt, abusive collections and deceptive debt settlement practices.

Consumers with debt settlement complaints typically report that, after they enroll in debt settlement programs, the firms charge excessive upfront fees and advise consumers to stop paying their credit card bills.

All too often, consumers report that after they make many upfront monthly settlement payments, the debt settlers fail to negotiate with consumers' credit card companies. As a result, the credit card companies add interest, fees and penalties to consumers' credit card balances and begin collection efforts to recoup the debt, which in turn negatively impacts consumers' credit reports. In many instances, credit card companies have sued consumers enrolled in debt settlement agreements in an attempt to collect the balance of the consumers' accounts.

The lawsuit was filed against Credit Solutions of America (CSA) and its CEO Douglas Van Arsdale. The Attorney General's complaint alleges that the company falsely claims that its services can help to reduce consumers' credit card debt by 50 percent.

Madigan's lawsuit contends the company continually fails to negotiate with consumers' creditors even though consumers cease to pay their creditors directly and, instead, make months of upfront payments to CSA. As a result of CSA's failure to take any effective debt settlement action on behalf of consumers, according to Madigan's lawsuit, creditors frequently sue consumers to collect on the outstanding balances.

Chris, of Laytonville, Maryland, signed up with Credit Solutions after seeing the company advertised on the Oprah Winfrey Show.

"They told me to stop paying my creditors and to forward all collection calls and notices to them," Chris told ConsumerAffairs.com. "Yeah right! That did nothing! Phone calls night and day from creditors, most of which stated that they don't and will not work with Credit Solutions."

Madigan's lawsuit charges defendants with violating the Illinois Consumer Fraud and Deceptive Business Practices Act by misrepresenting the services that the company can provide to consumers and the effect the services will have on consumers' credit.

The state is seeking a permanent injunction barring the defendants from engaging in debt settlement in Illinois and asking the court to order the defendants to pay restitution for aggrieved consumers, civil penalties of $50,000 for violating the Consumer Fraud Act, and an additional $50,000 for each violation committed with the intent to defraud.

This is the third lawsuit that Madigan has filed this year against debt settlement firms, following complaints against SDS West Corporation and Debt Relief USA.

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