The Texas Attorney General’s Office has obtained a court order disbursing $3.7 million to Texans and customers in other states who were defrauded by a now bankrupt debt relief firm.
Court documents filed by the State indicate that Debt Relief USA Inc. unlawfully collected millions of dollars from Texans who hired the firm to settle their outstanding debts. Debt Relief collected so-called “set-aside” funds that customers believed would be used to resolve their personal debts. But when the firm filed for bankruptcy in July 2009, it effectively prevented financially strapped Texans and other customers nationwide from accessing their own money.
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In addition to the $3.7 million returned to Texans and consumers nationwide under today’s agreement, an additional $1 million should become available when the bankruptcy case concludes. Under the disbursement order signed today, eligible customers need not request that their set-aside funds be refunded. Each customer’s eligibility, as well as the amount of refund they are owed, has been determined based on Debt Relief’s records.
In June 2009, Debt Relief USA of Addison filed for bankruptcy protection in the Northern District of Texas. As a result, more than 3,000 of its financially distressed customers did not receive the debt relief they were promised. Worse, the victims were denied access to the money they had saved and set aside to pay their debts. Thousands of customers’ financial problems were exacerbated by Debt Relief’s bankruptcy, because the customers received no real financial assistance and were pursued by debt collection agencies while their money was tied up in bankruptcy.
Prior to its bankruptcy, Debt Relief USA marketed a “36-month” debt-free plan. Under their scheme, customers with thousands of dollars in unsecured debt were advised to simply stop paying their bills. Then, they were told to make monthly payments to Debt Relief USA, which promised to hold the money until it negotiated discounted pay-offs with creditors.
Because Debt Relief USA was collecting debt payments that it promised to use to pay off their debts in the future, the firm essentially collected “set-aside” funds from its customers. This practice is prohibited under the Texas Finance Code unless the firm has properly registered and has posted a bond with the Office of Consumer Credit Commissioner.
Debt Relief USA failed to comply with the legally mandated registration and bond requirements imposed upon “debt management services providers.” As a result, the Attorney General’s Office filed a proof of claim in the bankruptcy case seeking restitution for financially harmed debtors and the return of any fees customers paid to Debt Relief USA.
In addition to its other unlawful practices, Debt Relief USA assessed burdensome “administration fees” and monthly “maintenance fees” that worsened its customers’ financial situations. If the company successfully settled a debt, it then charged a “negotiation fee” of 13 percent of the amount of debt saved.
Investigators with the Attorney General’s Office revealed that Debt Relief USA ultimately damaged its customers’ credit ratings and even caused some to face debt collection lawsuits. Debt Relief USA customers were charged late fees, interest, over-limit charges and other fees by their original creditors because they could not afford to make payments on their outstanding accounts. Thus, customers’ debts often significantly increased, which reduced their overall debt settlement savings.
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