“Consumers who want to get out of debt are looking for services to help relieve their financial troubles, not make them worse,” said Lydia Parnes, Acting Director of the FTC’s Bureau of Consumer Protection. “The FTC is committed to ridding the debt services industry of companies who shatter consumer confidence and hurt legitimate businesses’ ability to help consumers.”
In May 2004, the FTC filed a complaint against a group of companies and individual defendants, fronted by “National Consumer Council” (NCC), a purported nonprofit organization, that solicited customers through an aggressive telemarketing and direct mail advertising campaign that falsely promised free debt counseling. In fact, NCC’s role in the scheme was simply to generate leads for the other defendants, who then charged consumers thousands of dollars in fees to enroll in their debt negotiation programs. The defendants deceptively claimed these programs were an effective way to stop creditors’ collection efforts and eliminate their debts. The FTC alleged that the defendants failed to disclose important information to consumers before they enrolled, including the fact that very few people were able to reduce their debts through the debt negotiation programs; consumers would suffer late fees, penalties, and other charges; and that participation in the program might hurt their credit rating. A court-appointed receiver determined that less than two percent of the consumers who enrolled in the defendants’ debt negotiation programs – 638 out of 44,844 consumers – actually completed them.
The FTC’s complaint also alleged that the defendants violated the Telemarketing Sales Rule (TSR), including the National Do Not Call Registry provisions, by calling consumers who had placed their phone numbers on the Registry and claiming that NCC was a nonprofit organization exempt from the Do Not Call requirements. The complaint further alleged that some of the defendants violated the Gramm-Leach-Bliley (GLB) Act by failing to inform consumers how their personal financial information would be used.
At the FTC’s request, a federal district court appointed a receiver over defendants National Consumer Council, an Arizona corporation; National Consumer Council, a California corporation; National Consumer Council, a Nevada corporation, London Financial Group; National Consumer Debt Council, LLC; Solidium, LLC; J.P. Landis, LLC; Financial Rescue Services, Inc. (FRS); Signature Equities, LLC; M&L Springfield Trust; PC Hailey Trust; Via Lido Trust; and United Consumers Law Group. The receiver has returned approximately $24 million in consumer funds held in defendants’ trust accounts. The receiver also is winding down the corporations’ business operations.
The FTC entered into separate settlements with the receivership defendants and each of the individual defendants. The stipulated settlement orders bar the defendants from making false claims for debt negotiation services or any other product or service. The orders require that, prior to enrolling any consumer in a debt negotiation plan, the defendants must clearly disclose that: (1) late fees, penalties, and interest will continue to accrue on the consumer’s debt until the consumer’s creditors accept and receive a settlement; (2) a consumer’s creditors may still sue to collect on the debts and garnish the consumer’s wages; (3) interest rates applicable to the consumer’s debt may increase; (4) any money a consumer saves in negotiating a settlement with a creditor must be treated as income for tax purposes; and (5) a debt settled for less than the full amount owed may result in a negative notation on the consumer’s credit report. The orders also prohibit the defendants from engaging in abusive telemarketing practices, including violations of the National Do Not Call Registry, and require them to comply with the GLB Act.
In addition, settlements with the corporate receivership defendants require them to pay $1 million in consumer redress. The stipulated orders against defendants Walter Haines, Paul Kardos, and Walter Ledda require them to pay $605,000, $1,860,000, and $1,356,000, respectively. The orders against each of these defendants include a suspended judgment of $84.3 million, the amount of fees these defendants received from consumers. If any of these defendants fail to make their payments within the time allotted in the order, or if it is found that they misrepresented their financial status, they will be held liable for the entire $84.3 million. The stipulated orders against defendants Mary Beth Harper and Martha Levitsky include a suspended monetary judgment of $17.8 million for the fees their company, defendant FRS, received from consumers; they will be liable for the entire $17.8 million if it is found that they misrepresented their financial condition to the FTC. The stipulated order against defendant Harvey Warren includes a suspended monetary judgment of $84.3 million for the fees received from consumers; Warren will be liable for the entire $84.3 million if it is found that he misrepresented his financial condition to the FTC.
Debt Management Foundation Services
In July 2004, the FTC charged Debt Management Foundation Services (DMFS), four related corporations, and the three individuals that control them with falsely representing that DMFS and its predecessors provided debt management services and that DMFS is a nonprofit corporation. The FTC alleged that DMFS and its affiliates falsely represented that they could reduce consumers’ debts by 50 percent, reduce or eliminate interest on the debts, and provide assistance before consumers’ next credit card billing cycle. The FTC charged that the defendants deceived consumers into paying up-front fees as high as $1,000 and monthly fees of $20 to $49. The FTC also alleged that the defendants violated the TSR by calling consumers whose phone numbers were registered on the National Do Not Call Registry.
The stipulated final order provides that the court-appointed receiver who took over DMFS and the four related corporations last summer will liquidate the companies. The order also provides that the individuals who operated DMFS must surrender their interest in these companies, and that two of the individuals must make additional payments. Defendant Dale Buird, Sr., must pay $200,000, and defendant Dale Buird, Jr., must transfer assets in several accounts, totaling an estimated $58,000, to the court-appointed receiver.
The order permanently prohibits the defendants from making false claims about debt management services, including representing that they can reduce consumers’ debt or interest rates, that they provide services before consumers’ next billing cycle, or that they are a nonprofit organization; billing customers without fully disclosing material terms; and failing to provide required privacy notices under the GLB Act. The order also permanently prohibits the defendants from charging advance fees and failing to provide the written contracts and notices of the right to cancel required by the Credit Repair Organizations Act. In addition, the order bars the defendants from selling consumer data and from calling consumers in violation of the National Do Not Call Registry. If the individual defendants ever own or manage a business that uses telemarketing, the order requires that they monitor their telemarketers to ensure that they are not making illegal calls.
The stipulated final order includes a suspended monetary judgment of $11,035,065 in funds that were taken from consumers. If the defendants fail to make the payments required by the order, or if it is found that they misrepresented their finances, the court may enter an order making the entire balance immediately due.
The complaint and stipulated final order name DMFS, One Star Marketing, Inc., Debt Specialist of America, Inc. (a/k/a Debt Management Foundation, Inc.), Ameridebt Group, Inc., Credit Counseling Specialists of America, Inc., Dale Buird, Jr., Dale Buird, Sr., and Shawn Buird as defendants.
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