Thanks to an awesome reader it was pointed out that there have been some interesting developments discovered as a result of the court action by the Consumer Financial Protection Bureau against Freedom Debt Relief.
The reader directed me to a public court document from July of 2017 where Andrew Houser, an afable smart guy in charge of from Freedom Debt Relief, had made the following statement in a deposition.
“Q: Can you tell me why Freedom Debt Relief entered into this agreement with National Litigation Law Group?
A: There are two reasons for — two primary reasons for the relationship with NLLG, [Redacted].
Secondarily, we wanted to test out a law firm as a new tool in the toolbox for a negotiation strategy, you know, our multifaceted negotiation strategy which includes [Redacted] in a minority of cases, coaching, developing creditor relationships and testing them out as a — as a law firm to help represent our client, a test that ultimately proved to be very successful.” – Source
What makes this so surprising is the complaint filed on December 20, 2017 by Dennis Smith and Todd Arnold against NLLG and Freedom Debt Relief.
The lawsuit states Smith and Arnold were both attorneys and Directors of NLLG until they were discharged on October 24, 2017.
Around the same time of the Houser deposition cited above, the complaint states Smith and Arnold learned “the Defendants were engaged in activities that the Plaintiffs reasonably understood to be the unlawful practice of law, part of which involved the use of each Plaintiff’s name and/or bar number without the knowledge and consent of the Plaintiff’s.”
The complaint goes on to allege the former NLLG attorneys had their names and legal identities provided to Freedom Debt Relief “specifically for the purpose of allowing the two entities to utilize the identities of the Plaintiffs for the unauthorized practice of law and to further the economic interests of the entities.”
The attorneys allege both NLLG and Freedom Debt Relief were using their identities “as a matter of business practice multiple times per day.” – Source
The attorneys are only asking for $75,000 each but the suit reads more like a running for cover exercise to extract themselves from what may be to come.
But more court records provided to me seem to give a timeline in the action by the CFPB against Freedom Debt Relief.
January 31, 2017: CFPB issues a civil investigative demand (CID) to Freedom Debt Relief and asks Freedom “to identify creditors having policies against negotiating with Freedom and other debt-settlement companies.”
February 23, 2017: Freedom Debt Relief responds to the CFPB saying Freedom “does not know the corporate policies of creditors with respect to negotiating with debt settlement companies.”
But along the way Freedom produced the following document that was purportedly sent to consumers. In this example it was someone with a Chase account.
July 26, 2017: CFPB conducts an investigational hearing with Andrew Houser from Freedom Debt Relief, “Defendant Housser testified that he was aware of certain creditors that had taken the position that they would not negotiate with debt-settlement companies, including Chase, Macy’s, American Express, and maybe Discover.”
Houser is said that in some instances Freedom needed to get customers on the phone directly with Chase to negotiate settlements of their debts and in such circumstances Freedom provided coaching to the customers.
At the same July hearing the CFPB reports “Housser testified in response to questioning by me:
a. that it was Freedom’s policy to prefer to use National Litigation Law Group (NLLG) or client involvement for certain creditors;
b. that NLLG is a law firm used by Freedom to assist clients in debt-settlement negotiations;
c. that not all consumer accounts with Chase, Discover, and American Express were referred to NLLG for resolution;
d. that client-coached settlements continue, though they amount to an increasingly small minority of all Freedom settlements; and
e. that Freedom has not stopped enrolling consumers having accounts with creditors who have taken the position that they will not negotiate with debt-settlement companies.” – Source
It felt as if Freedom had won a leg up on this case when Mick Mulvaney was named as the head of the CFPB. I assumed Freedom would appeal to the pro-business head to make this case go away with a whimper.
But in an inexplicable move, Freedom Debt Relief on December 12, 2017 filed “a Motion to Stay Proceedings pending the resolution of certain litigation previously filed in the District of Columbia, which litigation asked the court to determine the identity of the rightful Acting Director of Plaintiff, Consumer Financial Protection Bureau (the “CFPB” or the “Bureau”).” Talk about poking the bear. Even the CFPB responded with “Defendants ask for an indefinite stay of this law-enforcement action by suggesting there is “confusion” about whether the President lawfully designated John M. Mulvaney to serve as Acting Director of the Consumer Financial Protection Bureau. There is no such “confusion.” Mr. Mulvaney is the Bureau’s Acting Director, and he has authorized the Bureau to oppose Defendants’ motion.” – Source
It would be a shame to see the case by the CFPB against Freedom take a turn into the far too familiar silo of the use of an attorney identity by non-attorneys in a debt settlement effort. While there is no allegation Freedom Debt Relief utilized this strategy in an effort to charge advanced fees, it sure does feel like the attorney model may have claimed another pound of flesh.
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