Consumer Finance Insights
November 16, 2016

Four California Residents Jailed and to Pay $7 Million in Restitution for Debt Relief Scheme

On November 14, 2016, the Department of Justice (DOJ) and U.S. Postal Inspection Service announced that four California individual defendants were sentenced for their participation in an allegedly fraudulent debt relief scheme.  The defendants all worked for two companies in Orange County, California that offered to settle credit card debts.  According to the DOJ, instead, those companies took debtors’ payments as undisclosed up-front fees.  All four defendants had previously pled guilty to the charges.

The sentences were issued by U.S. District Court Judge Dale Fischer of the Central District of California in Los Angeles.  The CEO and owner of the two companies, who admitted to overseeing the scheme, was sentenced to 87 months in prison and ordered to pay $4,225,924 in restitution.  Two customer service employees were sentenced to serve 42 and 27 months and ordered to pay $2,340,373 and $408,403 in restitution respectively.  A fourth employee who handled complaints and held herself out as vice president of the legal department was sentenced to serve one month in prison and six months of home confinement; she was also ordered to pay $130,224 in restitution.

According to the DOJ, the debt relief scheme ran from February 2010 through September 2012 .  At times, the companies were portrayed as law firms or attorney-based companies.  Clients were purportedly told that the companies would negotiate settlements with their creditors.  In turn, clients made monthly payments to go towards those settlements.  DOJ asserts that the companies took at least 15 percent of those payments as fees, with the first six months going almost entirely to undisclosed fees.

The Federal Trade Commission (FTC) previously filed civil suit against the CEO and his companies in September 2012.  That suit was settled by consent decree in August 2013.

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