I’ve bolded the most interesting parts of the article below. But this case may be of significant interest for those staking a future under an attorney model to conduct debt settlement activities.
A Maryland-based company conducting debt settlement activities in Kansas has challenged the authority of the State Bank Commissioner’s cease-and-desist order that would close its operations in the state.
The company, Persels and Associates, is one of two companies accused of violating the state’s Credit Services Organization Act by the Kansas Office of the State Bank Commissioner.
In a suit filed on Sept. 9, Persels sought an injunction in Shawnee County District Court barring the state from restricting the company’s Kansas operations. Persels argued that the Kansas Banking Commissioner was acting outside his authority in attempting to regulate attorneys — an area that is the responsibility of the Kansas Supreme Court, Persels said in its suit.
“It is stunning and, frankly, disappointing that the State Bank Commissioner in Kansas would try to take such a regulatory stretch when clearly the regulation of attorneys lies solely with the Kansas Supreme Court,” said Neil Ruther, founder of Persels and Associates.
“We practice consumer and debtor law in 48 states and have never seen such an action,” Ruther said in a statement. “And what makes it even more troubling is the fact that the Banking Commissioner has not given us the name of a single client who has complained, nor given us the opportunity to resolve any such complaints.”
A ruling on the request for an injunction is still pending from District Court Judge David Bruns.
The Bank Commissioner’s cease-and-desist order alleges that both Persels and Consumer Law Associates, LLC, of Frisco, Texas, engaged in debt settlement activities with Kansas consumers in violation of Kansas laws. Specifically, the agency’s order alleges the companies and owners:
— Delayed payment of consumer’s debt to increase cost, fees, or charges payable by the consumer.
— Misrepresented material facts or made false promises intended to induce consumers to enter into debt services agreements.
— Engaged in fraudulent or deceptive acts or practices in connection with the offer or sale of services of a credit services organization.
— Structured debt management service agreements in a manner resulting in a negative amortization of consumer debts.
The order seeks restitution for consumers and a fine of more than $8 million and seeks to prohibit the companies and their owners from continuing to engage in such business with Kansas consumers.
“We’ve seen this so-called ‘attorney model’ in several of our investigations of illegal debt settlement activity. We believe some companies have attempted to organize themselves in such a fashion to claim an exemption from oversight by our agency, depriving Kansans of the protections in the law”, said Kevin Glendening, Deputy Bank Commissioner.
“Generally in debt settlement schemes, promises are typically made to consumers to help reduce debts, stop collection efforts, improve credit ratings, and so forth. Companies may claim to be exempt from oversight due to the involvement of a local attorney.
“However, our agency believes many of these companies simply ‘rent’ the local attorney’s law license in an attempt to avoid the consumer protections contained in the law, including limits on fees and charges,” Glendening added. “In some instances, consumers never speak to or meet with the attorney. Typically, the attorneys do not appear in court on behalf of the consumer if they are sued by their creditors. It can delay the court process and certainly cause great harm to consumers.”
Ruther said his company sought injunctive relief after attempts to reconcile differences with the Bank Commissioner’s office were unsuccessful.
“Our firm has offered to review individual cases, business practices, any consumer complaints or other specific items of interest to the regulatory body. None of those overtures were accepted,” Ruther said. “Instead, we asked the court for intervention and now the state regulators have responded with this action that puts our clients at risk. It is a very disappointing turn of events.”
Consumers with complaints or concerns about debt settlement companies are encouraged to contact the Office of the State Bank Commissioner at 1-877-387-8523 or at 700 S.W. Jackson, Suite 300, Topeka, Ks. 66603.
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