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Freedom Debt Relief to Return $3.5 Million to Consumers in Settlement

Written by Steve Rhode

New York Attorney General Letitia James today secured a win that will return nearly $3.6 million to thousands of New York consumers who were misled about savings they could achieve through one of the nation’s largest debt settlement companies. A proposed settlement filed in court today with Freedom Debt Relief will require the company to provide nearly $3.6 million in restitution to New Yorkers who were victims of the company’s exaggerated promises, in violation of a 2011 settlement filed with the Office of the Attorney General (OAG).

“Today’s settlement will deliver more than $3.5 million directly into the pockets of struggling consumers, many of whom continue to suffer the devastating economic impacts of COVID-19,” said Attorney General James. “Ten years after this company paid over $1.2 million to my office for its fraudulent and deceptive practices, Freedom Debt Relief is back in hot water for unlawful behavior once again. Today’s settlement will ensure additional restrictions are placed on Freedom Debt Relief so that the company can no longer take advantage of consumers.”

In 2011, the Office of the Attorney General (OAG) previously settled an investigation with Freedom Debt Relief after the company was found to be engaging in illegal, fraudulent, and deceptive practices. Under that previous settlement, Freedom Debt Relief agreed to refund $1.1 million to former customers and offer refunds of hundreds of thousands of dollars to what were current customers at the time, as well as pay $100,000 in penalties. The company also agreed to change a number of its practices to conform with both New York State and federal laws.

Among its many 2011 obligations, Freedom Debt Relief agreed to refrain from advertising certain savings that could be achieved by New Yorkers unless those savings had actually been achieved by a majority of New York consumers in the 36 months preceding the claim. Freedom Debt Relief was, however, permitted to advertise certain savings that had been achieved by a defined group of New York consumers if it clearly disclosed which consumers were in that group and what approximate percentage of the whole group of New York consumers the defined group represented.

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Instead of complying with this explicit requirement in the 2011 settlement, Freedom Debt Relief continued to advertise savings on its website without making the required disclosures. For example, Freedom Debt Relief advertised savings that were achieved only by consumers who made all their monthly program deposits, but the company failed to disclose that this group represented only about one-third of New York consumers. The majority of New York consumers achieved less than half of the savings Freedom Debt Relief advertised.

Today’s settlement would allow the OAG to begin distribution of the nearly $3.6 million in restitution directly to the more than 8,000 New York consumers deceived by the company. Freedom Debt Relief has already paid the State of New York these funds so restitution can begin after the settlement has been approved by the court. Restitution will go to the thousands of New York consumers who signed agreements with Freedom Debt Relief from 2011 until 2019 and meet certain criteria. Consumers do not have to take any action to receive restitution.

Today’s settlement also reinforces the 2011 settlement’s injunctive provisions and ensures they remain in full force and effect, and further contains additional injunctive terms relating to specific savings claims and savings-range claims to prevent misrepresentations in the future. These additional injunctive terms include mandating that Freedom Debt Relief:

  1. Expressly states the percentage of consumers who achieve the high end range of savings claims — where it is more than five percent above what the majority of consumers achieve — so that consumers know that those high savings numbers are not typical, and
  2. Ensures that future savings claims are based on the consumer’s total debt with the Freedom Debt Relief program, not the usually significantly smaller amounts of debts actually settled by Freedom Debt Relief.

    The OAG advises consumers facing significant credit card or other debt to:

    1. Be wary of debt settlement companies that promise to reduce your debt substantially or to make you “debt free.”
    2. Never agree to sign a contract with a debt settlement company that requires the payment of up-front fees, which are generally illegal.
    3. Be cognizant that enrollment in debt settlement plans may not stop creditors from bringing collection lawsuits or prevent enrolled accounts from growing larger by the addition of late fees, interest, or penalties. Also, credit reports will reflect derogatory information — including assessed late charges and non-payment of debt — and consequently credit scores will be adversely affected.
    4. Remember that creditors are under no legal obligation to accept a settlement offer for less than the outstanding balance owed.
    5. Consider that enrollment in a debt settlement plan premised on stopping payments to creditors will likely lead to more frequent and aggressive creditor collection efforts, which often result in judgments, wage garnishments, and freezing of bank accounts.
    6. Attempt to first try to resolve an outstanding account by speaking directly to the credit card issuer. Alternatively, it may be helpful to speak to an attorney or an accredited credit counselor who can help develop a plan of action that best works for your unique situation.
    7. Always check a particular debt settlement company’s Better Business Bureau rating, as well as any customer reviews and complaints filed against the company.

      Consumers who have complaints concerning debt relief services may file a complaint on the OAG’s website or by calling (800) 771-7755 to have a complaint form sent to them via postal mail. – Source

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

7 Comments

  • Steve Rhode, It is my understanding that when FDR makes the settlements, you receive the form IRS 1099-C and you have to include this as income on your tax return. My question is this, since you have to do this and FDR has restructured your settlements to let’s say $40K and you are now paying that for example $1300. a month for the next 3 years, can this go on your tax return? I need help with this. Why should these companies start sending the IRS 1099-C and I have to put this as income on my tax return, but yet I am still paying the debt in another way. I appreciate your help. Looking for a way to make this balance since I have to include as income on my tax return, as a form of credit etc, I am in California.

    • I am not a tax expert and neither is the IRS at times. I can share what I believe to be the answer but when it comes to tax issues I always suggest that people talk to a qualified tax professional.

      The situation you raise is two different issues. The IRS is very clear that the amount of debt forgiven is a canceled debt and I can’t see that offset by anything other than repaying more of the debt owed to the creditor.

      The IRS says, “In general, if you have cancellation of debt income because your debt is canceled, forgiven, or discharged for less than the amount you must pay, the amount of the canceled debt is taxable and you must report the canceled debt on your tax return for the year the cancellation occurs.”

      If you are insolvent for part of or all of the debt cancellation then you need to be familiar with https://www.irs.gov/forms-pubs/about-form-982

      The part you are paying is that part that, in this case, FDR negotiated for you. The creditor must report the forgiven debt when it occurs. These are two completely different issues and don’t have anything to do with each other.

      I would suggest you follow this link https://getoutofdebt.org/tag/form-982 to learn more about Form982 and see if it can help you with some or all of the new tax liability.

      Thanks for the question.

  • Thank you for the article on Freedom Debt Relief. I dealt with them a couple of years ago. I probably won’t see the money that they kept, but I’m glad that they are having to pay money back to others.

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