Feds Continue Cracking Down on Dishonest Debt-Relief Companies

One of the ways in which debt-relief companies serve their clients is by negotiating debt settlement agreements with creditors with the goal of reducing the amount of money owed.

When done honestly and correctly, debt settlement can be a win-win situation: Borrowers pay only a fraction their obligations. Creditors receive at least part of the debt owed (all of which might be lost should the borrower need to declare bankruptcy). And the debt-relief company earns a fee for services rendered.

But not every company performs this service honestly and correctly. In fact, officials with the Consumer Financial Protection Bureau (CFPB), the federal agency in charge regulating consumer protection, say some debt-relief companies swindle the most vulnerable borrowers.

The most recent example stems from a complaint filed in May by the CFPB against American Debt Settlement Solutions, Inc. (ADSS) of Boca Raton, Fla., and its owner Michael DiPanni. The suit alleges ADSS “misled consumers across the country and charged illegal upfront fees for debt-relief services that rarely, if ever, materialized.”

The bureau submitted a proposed consent order that would stop ADSS and DiPanni from operating and providing debt-relief services in the future, as well as levying a $15,000 civil penalty fine, if approved by a judge. A notice on the ADSS website now reads: “American Debt Settlement Solutions is winding down operations and is no longer able to service its clients.” Its phone is disconnected.

“Consumers struggling to pay off a debt are among the most at risk and deserve better,” CFPB Director Richard Cordray said in an agency statement. “We will continue to crack down on this type of harmful behavior.”

Allegations Against American Debt Settlement Solutions

The CFPB filing shows ADSS deceived hundreds of consumers in multiple states by charging approximately $500,000 in fees while making misrepresentations about its debt-relief services.

Since its inception in 2008, ADSS did not provide any debt relief for 89 percent of its enrolled clients, according to the filing.

Although consumers deposited nearly $10 million into accounts designated for debt repayment, the company directed less than $2 million in payments to creditors, according to the complaint filed in a federal district court in West Palm Beach, Fla.

The complaint charges ADSS and DiPanni with “abusive” acts or practices in the consumer-financial marketplace. This is the first time that the CFPB has applied the abusive standard under the CFPA (Title X of the Dodd-Frank Act), and it signals the use of an important new tool in protecting American consumers from financial predation.

Legacy of Accusations 

The May complaint against ADSS leads a trail of earlier accusations made against the debt-relief company.

Minnesota Attorney General Lori Swanson in 2010 filed a lawsuit against ADSS, charging it violated numerous provisions of a 2009 state law that limits the origination and monthly fees that may be charged by licensed debt settlement firms.

In  2011, Oregon’s Department of Consumer and Business Services filed a cease-and-desist order against the company and fined it $55,000 for the same illegal conduct it perpetrated in Minnesota.

The Better Business Bureau (BBB) had already given ADSS an “F” rating, noting 63 complaints filed against the company over the last three years. In January 2013, the BBB requested American Debt Settlement Solutions’ voluntary cooperation in resolving the complaints, but never received a response from DiPanni.

Debt-Relief Agencies Targeted by CFPB

American Debt Settlement Solutions is one of approximately 2,000 debt-relief companies in the United States, and it’s not the only one targeted by the CFPB for its deception of the American public.

  • CFPB officials on May 7 accused Mission Settlement Agency of New York and its principal, Michael Levitis, and Premier Consultant Group LLC of New Jersey, of charging consumers $1.3 million in illegal advance fees for debt settlement services and engaging in other deceptive and unfair practices. The Bureau is currently seeking to halt the operations and obtain penalties and relief for victims.
  • Attorneys General from New Mexico, North Carolina, North Dakota and Wisconsin, and the Hawaii Office of Consumer Protection, in conjunction with the CFPB, filed a similar action in Dec. 2012 against Payday Loan Debt Solution, Inc. (PLDS) and its owner, Sanjeet Parvani. Officials alleged the Miami-based debt-relief firm charged consumers a fee ahead of actually settling their debts, violating the FTC’s Telemarketing Sales Rule, the Dodd-Frank Act and the laws of various states. PLDS paid $100,000 in restitution to consumers who were charged fees, but received no services; and paid the CFPB a $5,000 civil penalty.

Protect Yourself from Debt Relief Scams

Today there is one less dishonest debt-relief company in operation, but that doesn’t mean that there aren’t other dishonest players out there.

For many people in debt, debt settlement is a viable method for resolving their financial problems – but only if their debt-relief company does its job honestly and well.

In addition to charging illegal upfront fees, as well as unlawfully keeping money that should be paid to a creditor to settle an account, a dishonest company could also force a debtor into more trouble by suggesting that he or she stop paying a creditor before a debt settlement plan has been negotiated and accepted. This practice can lead to further erosion of a borrower’s credit worthiness, or worse – complete financial ruin and bankruptcy.

If you are in debt and looking for a company to help you negotiate a debt settlement, make sure you do your homework and understand your rights under the law:

  • Check the company’s credentials and references, including its rating with the BBB.
  • Talk to people who have used, and were satisfied with the company’s services.
  • Don’t believe inflated or unrealistic claims about how soon you can get out of debt and how much money the company can save you. Companies can’t claim that they can get you out of debt in any specific time period.
  • Get everything from the company in writing: Exactly what it will do for you, how, and when. This should be in your contract.
  • If you are asked to pay money up front, make sure the money is being used for attorneys who handle debt settlement.
  • Follow up constantly. Ask for a copy of every creditor settlement letter.

If you suspect a debt-relief company of dishonest behavior you have several options. You can contact your local Better Business Bureau, your State Attorney General’s Office, the Federal Trade Commission, and/or the Consumer Financial Protection Bureau.

Author

Al Krulick
Staff Writer

Al is an award-winning journalist with dozens of years of writing experience. He served as a drama critic, high school teacher, arts administrator, theatrical producer and director. He also dabbled in politics, running twice for a seat on the U.S. House of Representatives for Florida. Al is a Certified Debt Specialist with the International Association of Professional Debt Arbitrators and specializes in real estate, credit and bankruptcy advice.

In debt? We can help!

  • Amount
  • Type
  • Contact

How much do you owe?

What can we help you with today?

Related Articles

People sitting at computers and tablets looking up personal loans to submit an application

Personal Loans on the Rise

The loan business is getting personal. We’re talking personal loans, and they are exactly what they sound like. You borrow money from a lending institution and pay it back. The big difference from mortgages or car loans is that you don’t need ...

Continue Reading
Bag of Payday Loan Money Exchanging Hands

Payday Loan Alternative a Good (Or Risky) Thing?

If you’re one of the millions of Americans for whom payday can’t come soon enough, technology is catching up with your dreams. Uber, McDonald’s and Outback Steakhouse are among a growing number of employers that are offering workers an on-demand ...

Continue Reading
American families are having trouble with understanding finance

Financial Literacy a Tough Test for Most Americans

The latest trends in spending and debt indicate that America already has forgotten any lessons we might have learned when the bubble burst on the U.S. economy in 2008. The reputable and renowned Pew Charitable Trust says that 80% of American adults are in ...

Continue Reading
Prepaid Reloadable Card Card

GPR Cards An Alternative To Banks, Credit Cards

If you like the convenience of a credit card, but lack discipline and overspend when using one, a general purpose reloadable (GPR) card could be the way to stabilize your finances. GPR cards, more commonly referred to as pre-paid credit cards, are safer ...

Continue Reading
Tips for banking and their new rules

How Credit Unions And Banks Are “Gamifying” Savings

Nobody wants to play games with their investment dollars, but what if the game was rigged so you couldn’t lose? Credit unions in five states have come up with a savings account – remember them? – that includes a chance to win monthly, quarterly and ...

Continue Reading
Man Filing Papers For Bankruptcy

3 Reasons To File For Bankruptcy

There aren’t many words in the English language less understood and more avoided than bankruptcy. “There definitely is a stigma attached to it,” Jeff Badgley said. “When people hear it, they get really uncomfortable.” Badgley sees the ...

Continue Reading
Couple Stressed out over Finances

Most Americans Still Stressed Over Money

If money is causing stress and anxiety in your house, take it easy. You’ve got company. The same thing is happening in the house next door. And the one across the street. And just about every other home in your neighborhood. The American Psychological ...

Continue Reading
Save money while helping the planet

Save Some Money While Saving The Planet

Most people know their financial footprint in the world, but probably couldn’t tell you their carbon footprint on the planet. Earth Day celebrations, which happen every year on April 22, remind us that we are responsible for keeping the planet clean, ...

Continue Reading
Get Help Now

Overwhelmed with debt? You have options for lower monthly payments!

x