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New York Attorney General Wins $200,000 Penalty Against Debt Settlement Company

Steve Rhode — Thu, 15 Oct 2009 18:57:06 +0000

Attorney General Andrew M. Cuomo today announced that his office has won a lawsuit against a national debt settlement company, barring the company from doing business in New York state unless it posts a $500,000 performance bond to protect consumers. The decision also levies nearly $200,000 in penalties against the company for defrauding thousands of New Yorkers who looked to the company to negotiate reductions in their personal debt.

As a result of the lawsuit filed in May, the Hon. Patrick H. NeMoyer in Erie County Supreme Court issued a decision that bars Nationwide Asset Services, Inc. (NAS), based in Phoenix, Arizona, along with its affiliates, from doing business in New York state unless it files a $500,000 performance bond to protect consumers. Additionally, Cuomo’s office obtained a civil penalty of $198,100 after the court determined that nearly 1,981 consumers were defrauded.

The court found that the majority of NAS customers were promised a 25 to 40 percent reduction in their outstanding debt but never saw such reductions. Only one-third of one percent of consumers received such savings. The other customers suffered continued harassment and lawsuits by creditors and had their credit ratings destroyed.

“This company made promises to people who were searching for financial help and trying to turn their lives around,” said Attorney General Cuomo. “But the promises never came true and, in many cases, New Yorkers were left in worse condition than when they started. Thanks to this ruling, the company has to put its money where its mouth is with a performance bond if it wants to do business in New York.”

The court’s decision also orders NAS to compute restitution for 180 consumers who successfully completed the program but actually paid more in fees and settlements than the amount originally due on their debts. NAS has been ordered to compute this consumer restitution and the specific amounts will then be verified by the Attorney General’s Office and the court.

The Attorney General’s investigation and suit determined that NAS and its affiliates, ServiceStar LLP and Universal Debt Reduction, LLC, and its marketer, FGL Clearwater, Inc. d/b/a American Debt Arbitration, based in Florida, engaged in fraudulent and deceptive business practices and false advertising and made significant profits by selling misleading debt settlement plans that very rarely delivered the promised benefits to consumers dealing with debt.

Debt settlement companies represent that they can substantially reduce consumer debt by negotiating directly with creditors, on behalf of their customers, to pay off outstanding balances at less than the amounts owed. However, Attorney General Cuomo’s Office has found that many of these debt settlement plans are often flawed and, based upon complaints, often mislead consumers about the nature of their services. The debt settlement plans are generally premised on consumers’ aggregating savings, over one to three years, from which both the payment of the company’s fees and any negotiated settlement are to be made. Yet most consumers who are targeted by these companies are unable to meet the savings requirements because of their already-precarious financial situation.

In addition, the companies often take their substantial fees up-front and keep these fees even when they do not provide the promised services. As a result, many consumers find themselves worse off financially because of these debt settlement plans.

As part of his broad investigation of the debt settlement industry, Cuomo issued subpoenas to multiple debt settlement companies and affiliated businesses. The investigation has sought to uncover how these companies structure their fees, how many people have actually benefited from their services, and what kinds of relief are the companies actually providing.

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New York Attorney General Sues Two Debt Settlement Firms for Deceiving and Harming Consumers

Steve Rhode — Wed, 20 May 2009 15:49:14 +0000

From How to Get Out of Debt

Attorney General Andrew M. Cuomo today announced a new development in his nationwide investigation into the debt settlement industry, filing suit against two debt settlement companies for fraudulent business practices and false advertising. Cuomo filed suit against CSA-Credit Solutions of America, Inc. (“CSA”), based in Richardson, Texas, which is one of the largest debt settlement companies in the country. He has also filed suit against Nationwide Asset Services, Inc. (“NAS”), based in Phoenix, Arizona, along with its affiliates – ServiceStar LLP and Universal Debt Reduction, LLC – and its marketer, FGL Clearwater, Inc. d/b/a American Debt Arbitration, based in Florida.

Cuomo also today launched a website – www.NYDebtHelp.com – that explains consumer rights, allows victims of debt settlement companies quick access to the Attorney General’s office to file complaints, and outlines the stages of the Attorney General’s investigation. Earlier this month, the Attorney General subpoenaed fourteen debt settlement companies and one law firm as part of his ongoing investigation.

According to the Attorney General’s lawsuits, Credit Solutions of America and Nationwide Asset Services have engaged in fraudulent and deceptive business practices and false advertising in connection with their debt settlement businesses. These companies have made millions of dollars on the backs of New Yorkers by selling misleading debt settlement plans that very rarely deliver the promised benefits to consumers dealing with debt. The lawsuits seek to obtain restitution and damages for consumers and to prevent these companies from engaging in deceptive practices.

“These companies are taking advantage of people in New York and throughout the entire country who are facing tremendous economic hardship,” said Attorney General Cuomo. “These companies claim to be the light at the end of the tunnel, but time after time they have shown that they only add to the burdens of Americans dealing with debt. Today’s lawsuits send a clear message that we are prepared to rein in this unregulated industry and protect New Yorkers who are proactively trying to work their way out of debt.”

Approximately 18,000 New Yorkers signed up as customers of Credit Solutions of America between its inception in January 2003 and September 2008. CSA promised a sixty percent reduction in its consumers’ outstanding debt, but an average of one percent of consumers received that savings. Many consumers have faced continued harassment and lawsuits by their creditors, despite CSA’s promise to intervene on their behalf. CSA has collected approximately $17 million in fees from New York-based consumers.

Approximately 2,000 New Yorkers became customers of Nationwide Asset Services, Inc. between January 2005 and May 2008. NAS promised a twenty-five to forty percent reduction in its consumers’ outstanding debt, but only one-third of one percent of consumers received that savings. Customers suffered continued harassment and lawsuits by creditors and had their credit ratings destroyed.

President & CEO of the Empire Justice Center Anne Erickson said, “We commend Attorney General Cuomo for fighting the fraud and abuse that have become characteristic of the unregulated debt settlement industry. Many of the companies in this industry are simply taking advantage of consumers who are working hard to manage their debt obligations. They prey on desperation, offering false hope and no help, often driving these consumers even further into debt and ruining their credit. The Attorney General’s recent actions should put all bad actors on notice. The time to clean up this industry is long overdue and we applaud the Attorney General for recognizing and responding to this critical need.”

National Consumer Law Center Deputy Director Carolyn Carter said, “Debt settlement companies that are fraudulent leave consumers in worse shape and with less money. I applaud Attorney General Cuomo for taking on this industry and working on behalf of the millions of hard-working Americans who are dealing with debt.”

As part of his broad investigation of the debt settlement industry, earlier this month Cuomo issued subpoenas to fourteen debt settlement companies and one law firm. The subpoenas included requests designed to uncover the companies’ fee structures, how many people have benefitted from the companies’ services, and what kind of relief the companies are actually providing.

The debt settlement plans offered by these companies are often flawed and, based upon consumer complaints, it appears that many consumers are being misled regarding the nature of the services offered by these companies. The debt settlement plans are generally premised on consumers aggregating savings, over one to three years, from which both the payment of the company’s fees and any negotiated settlement are to be made. Yet most consumers who are targeted by these companies are unable to meet the savings requirements because of their precarious financial situation. In addition, the companies often take their fees up front and keep these fees even when they do not provide the promised services.

Some debt settlement companies urge consumers to seek additional sources of funds. Credit Solutions of America suggested that consumers mow lawns, cut down on car insurance, borrow from their neighbors and church, as well as sell their blood plasma to garner additional funds. Even for those consumers who can meet the requirements set out by a plan, their amount of aggregated savings is ordinarily insufficient to settle their debts. As a result, many consumers find themselves worse off financially because of these debt settlement plans.

Many consumers may benefit more from working directly with their creditors, seeking credit counseling, or consulting an attorney about filing for bankruptcy. Additionally, even when enrolled in a debt settlement plan, consumers are often still subjected to collection efforts and lawsuits filed by their creditors. Consumers are even told not to discuss their debt situation with creditors.

Consumers who believe they are being defrauded by a debt settlement company are urged to contact the Attorney General’s office at 800-771-7755 or www.oag.state.ny.us.

The lawsuit against Nationwide Asset Services, Inc. is being handled by Assistant Attorney General James Morrissey of the Attorney General’s Buffalo Regional Office. The lawsuit against Credit Solutions of America, Inc. is being handled by Assistant Attorney General Herbert Israel, Special Assistant Attorney General Stephen Mindell, Senior Enforcement Counsel David Holgado, and Acting Deputy Chief Darcy Goddard, under the supervision of Consumer Frauds Bureau Chief Joy Feigenbaum.

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