Alert February 05, 2013

FTC Targets Debt Relief Services Companies

The FTC has taken enforcement action in three cases against companies marketing debt reduction consulting services. In one case, the FTC settled with two California automotive debt consulting companies that advertised they could reduce borrowers’ monthly auto loan payments for a fixed up-front charge, with "a 100 percent money back guarantee." The complaint alleged the companies violated the FTC Act by communicating misleading statements on their websites and through telephone operators. As part of the settlement, defendants agreed to cease auto loan assistance business activities and to pay money damages of approximately $280,000.

The second FTC case was filed against a credit card debt consulting company that, according to the FTC, cold-called prospective customers and promised credit card debt reduction in exchange for an up-front payment that would be refunded if the promised debt reduction did not occur. According to the complaint, the company violated the FTC Act by falsely promising interest rate reductions, cost savings, and full refunds, and also by placing unauthorized charges on customers’ credit cards. The FTC further alleged the aforementioned conduct violated the "Telemarketing Sales Rule" and that the TSR was also violated by charging and collecting a fee in advance of providing the debt reduction service. The parties stipulated to a preliminary injunction placing the company in receivership, freezing the assets of the company and three individuals, and prohibiting future business activities.

The third FTC case recently resolved with a stipulated permanent injunction against a tax debt consulting service that permanently barred the company, its leader, and his spouse from providing debt relief services. The Court entering the injunction had previously placed the company in receivership and concluded it violated the FTC Act by misrepresenting both that it had previously secured tax debt reductions for thousands of customers, and that customers did in fact qualify for significant tax debt relief. The injunction prohibits defendants from engaging in any form of telemarketing or debt relief services, and also bans specific representations relating to any good or service. The Court imposed a $103.3 million money judgment against defendants. This sum included an $18.6 million dollar judgment against one defendant’s parents, who are alleged to have profited from, but not participated in, the tax debt relief scheme.