The suits filed recently by the FTC against Financial Freedom of America, Debt Professionals of America, and Debt Consultants of America surround a common thread and common practices of many debt relief providers. A wide swatch of debt settlement companies have been guilty of similar marketing practices that the FTC is strongly saying are deceptive, unsupported and unfair to consumers.
The heart of the matter are marketing claims made surrounding performance, expectations, and results. Let’s look at the complaint against Debt Consultants of America, Debt Professionals of America, Robert Creel, Corey Butcher, and Nikki Creel aka Nikki Vrla as an example. Although the same issues apply in the complaint against Financial Freedom of America, Financial Freedom Processing, Corey Butcher, and Brent Butcher in their separate complaint. – Source
The FTC Complaint Allegations
Since at least 2006, and continuing thereafter, Defendants DCA, Robert Creel, Corey Butcher, and Nikki Creel have offered debt relief services to consumers having difficulty with their personal finances. In 2008, Defendants Robert Creel, Corey Butcher, and Nikki Creel started Defendant DP A. Since at least 2008, Defendant DP A has offered debt relief services to consumers having difficulty with their personal finances. Defendants target consumers with substantial amounts of unsecured debt, often claiming that participation in their debt relief services will result in the elimination of 40 to 60 percent of consumers’ debts and that participating consumers will be debt free in 18 to 36 months.
Defendant DCA markets its debt relief services on the Web sites www.4dcoa.com, www.debtconsultantsofamerica.com, and email@example.com, and through national radio and television advertisements.
Defendant DPA markets its debt relief services on the Web sites www.4dpoa.com, www.debtprofessionalsofamerica.com, and firstname.lastname@example.org, and through national radio advertisements.
In both radio and television advertisements, Defendants make or have made claims such as, “You could save thousands of dollars in interest” and “Stop late fees, hidden charges and outrageous interest rates.” Defendants also frequently promise to help consumers “eliminate 30 to 60% of [their] credit card debt” and “avoid bankruptcy, save thousands and get more cash back in [their] pocket every month.” Defendants’ radio and television advertisements urge interested consumers to call a toll-free number for a free consultation and to enroll in their debt relief services.
Defendants’ Web sites represent or have represented that consumers can “Reduce credit card debt 40%-60%” and “Get out of debt in 18-36 months.” Defendants’ Web sites further have represented that “Our programs will lower your monthly payments up to 50% and save you literally thousands of dollars.” On their Web sites, Defendants claim to have “established relationships” with creditors that enable Defendants to obtain the best possible settlements for their clients. Defendants’ Web sites encourage consumers to call a toll-free number to learn more about Defendants’ debt relief services. Although Defendants have recently updated their Web sites, the updates do not substantially change the representations described above.
Consumers who call one of Defendants’ toll-free numbers are connected to a sales representative. Defendants require their sales representatives to follow, and the sales representatives do follow, a script when speaking with consumers. Following the script, Defendants’ sales representatives promise to reduce consumers’ debt by negotiating on their behalf with consumers’ creditors. Defendants’ sales representatives often tell consumers that Defendants’ debt relief services will enable consumers to payoff all of their unsecured debt in 18 to 36 months. Defendants’ scripts instruct sales representatives to tell consumers that Defendants’ negotiations “average around .50 Cents [sic] on the dollar” and will result in a 40 to 60 percent savings of the debt owed.
Defendants’ sales representatives typically tell consumers that creditors will not settle their accounts unless the consumers stop making payments to and cease communications with their creditors. Defendants further represent to consumers that allowing their accounts to become delinquent will motivate creditors to settle with them for a substantially reduced amount. In numerous instances, Defendants tell consumers to rely on Defendants to communicate and negotiate with their creditors.
Defendants send consumers who agree to enroll in the debt relief services an initial set of enrollment documents. Included in these documents are: (a) a Client Enrollment Agreement (the “Agreement”), (b) a form for consumers to open a special purpose account with a bank selected by Defendants, (c) a form authorizing automatic transfers from consumers’ personal bank accounts into that special purpose account, and (d) a form to identify the amounts owed by consumers to various creditors.
During the telephone sales call, Defendants’ sales representatives encourage consumers to fill out the enrollment documents and return the papers as quickly as possible. Defendants instruct their sales representatives to discourage consumers from carefully reading the Agreement by stating that “[these] two pages cover everything I have gone over with you about this program.”
The Agreement is a single-spaced document in approximately eight-point font. The Agreement contains provisions that are often contrary to the representations made in the sales call or are not addressed in the sales call. For example, the Agreement contains the following statement in an attempt to disclaim the savings claims made to consumers in the advertisements and sales calls: “DCA’s [or DPA’s] expressions about the outcome of any matter are its best professional estimates only, and are limited by present policies, cash advances, balance transfer and Client’s financial resources at the time negotiations are obtained with Client’s Creditors (estimated savings do not include fees).” The Agreement also provides additional infonnation about Defendants’ fees.
As indicated above, consumers open a special purpose bank account into which funds are automatically transferred from the consumer’s personal bank account. The special purpose account, which is maintained at a separate financial institution, is purportedly maintained to accumulate funds for the purpose of repaying consumers’ enrolled debts. However, the fonns completed by the consumer authorize the Defendants to withdraw their fees automatically from this account.
Defendants charge their clients fees, including administrative fees, monthly maintenance fees, negotiation fees, and, in some instances, a cancellation fee. Defendants’ fees are withdrawn automatically from the consumers’ special purpose account each month. From the inception of the business through at least late spring 2009, all fees were non-refundable unless consumers cancelled their enrollment in the debt relief services before the end of the three-day Right of Refusal period provided for in the Agreement. Defendants have collected a $299 cancellation fee from numerous consumers who submitted a cancellation request after the Right of Refusal period.
Defendants charge consumers an up-front administrative fee that is calculated as 10 percent of the amount of debt that consumers owe their unsecured creditors at the time of their enrollment in Defendants’ debt relief services. The administrative fee varies by consumer based on the amount of debt enrolled, but typically ranges from $1000 to $4000.
Defendants also charge a monthly maintenance fee of $29.95 or $39.95 for each month consumers are enrolled in Defendants’ debt relief services.
Defendants also charge a negotiation fee for each account settled. The negotiation fee is calculated as 10 percent of the purported savings the company obtains in a settlement. Many consumers never pay a negotiation fee because Defendants do not settle their debts. Other consumers are surprised to discover that Defendants collect the negotiation fee even when consumers settle their own debts.
After consumers enroll in Defendants’ debt relief services, they receive a packet of documents from Defendants, which Defendants call a “Welcome Kit.” The Welcome Kit provides additional infonnation about how Defendants’ debt relief services work and is delivered to consumers after the Right of Refusal period has ended. In numerous instances, consumers receive their Welcome Kit after their first month’s payment.
The Welcome Kit states that Defendants will not contact creditors until the consumers’ accounts are 120 to 180 days delinquent and the consumers have saved enough money in their special purpose accounts to make a settlement offer of approximately 50 percent of the lowest debt balance enrolled. In addition, the Welcome Kit states that if consumers accept a settlement offer from their creditors while enrolled in the services, Defendants are entitled to collect the negotiation fee, even if the consumers conducted all of the negotiations with the creditor. In numerous instances, Defendants do not disclose this infonnation to consumers prior to their enrollment.
In numerous instances, Defendants do not contact or commence settlement negotiations with consumers’ creditors immediately upon the consumers’ enrollment in their debt relief services. Defendants typically do not contact or initiate negotiations with any creditor until after: (a) consumers have paid the administrative fee in full, and (b) consumers have accumulated enough funds in their special purpose account to settle the debt with that creditor. Often, the first time Defendants mention this fact to consumers is in the Welcome Kit.
For numerous consumers, it takes a minimum of four to six months after enrollment to pay Defendants’ administrative fee in full and begin accumulating funds in their special purpose account for the first settlement offer. Throughout this time, Defendants typically do not contact the consumers’ creditors and continue to advise consumers to cease making payments to and communicating with their creditors.
Contrary to Defendants’ representations that consumers will pay off their debts in 18 to 36 months at 40 to 60 percent savings, Defendants rarely negotiate settlements for all accounts entered into the debt relief services by consumers. Moreover, even when Defendants succeed in negotiating a settlement on one or more of the consumers’ several accounts, in numerous instances, consumers’ account balances increase from the time of enrollment to the time of settlement due to creditors’ additional late fees, finance charges, and other charges. Therefore, the total aggregate amount consumers are required to pay is, in numerous instances, higher than 60 percent of the total amount the consumers owed to their creditors at the time of enrollment. In numerous instances, consumers have not obtained the 40 to 60 percent savings on their debt and do not have their debts paid off in 18 to 36 months as promised by Defendants.
Few consumers who enroll in Defendants’ debt relief services ever complete the services and receive the promised results. In numerous instances, consumers cancel or drop out of Defendants’ debt relief services before any debt is negotiated because they cannot afford to pay Defendants’ substantial fees and also accumulate money to payoff their debts. Other consumers cancel or drop out because of harassment and escalating collection attempts by their creditors. Consumers who cancel or drop out before any debts are settled forfeit most or all fees paid to Defendants.
Consumers who purchase Defendants’ debt relief services frequently seek a refund from Defendants. Defendants routinely deny consumers’ refund requests. – Source
The Heart of the FTC Issues are NOT Related to the New Telemarketing Sales Rules
At the center of the Federal Trade Commission concerns with these and other debt relief companies are the issues of deception surrounding advertising and other claims made that are unsubstantiated. Even though these complaints are against debt relief companies, the issues raised are about the basic deception these debt relief companies engaged in while allegedly having no data or support to substantiate the claims they made.
It is alleged the typical consumer did not realize a savings as promoted nor reduced their debt in the time period specified. The kicker here, and the point all debt relief companies needs to focus on, is not if someone was able to reduce their debt by 40 to 60 percent within 18 to 36 months but if the typical and average client was able to do that. If they were not then the claims made are misrepresentations of the average results and therefore deceptive.
These deceptive acts and practices are covered by Section 5(a) of the FTC Act, 15 U.S.C. § 45(a) and don’t need the new telemarketing sales rules (TSR) to wield a heavy hammer.
Financial Freedom of America Had a Different Point of View
It’s interesting to go back and now read the review I wrote about the companies in February, 2010.
In the comments section on that post Financial Freedom of America Said:
To date, FFoA has over 5,000 graduated and active clients, and has settled over $73 million in unsecured debt on behalf of our clients.
To set a standard of excellence for our work, we are an accredited member of the United States Organization for Bankruptcy Alternatives (USOBA), whose mission is to advocate for fair regulation and protection of consumers.
Our President and CEO, Corey Butcher, is a leader in this industry. He serves on the board of USOBA and consults with the organization to develop state-specific agendas.
Furthermore, Financial Freedom of America is certified by BSI Management Systems America, verifying we operate a quality management system that complies with the requirements of USOBA’s best practice standard. Additionally, all of our Negotiators, Managers and Directors are certified through the International Association of Professional Debt Arbitrators.
Based on those comments and the fact Butcher was a “leader in this industry”, “Served on the board of USOBA”, was “certified by BSI Management Systems America”, and had a certified staff through the “International Association of Professional Debt Arbitrators”, you can only wonder how in the world they operated making claims that were deceptive and unsupported.
In the video above you will hear Robert Creel him say they settle debt “for about half of what it is.”
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