For some it was only a matter of time before a regulator took a swipe at the attorney model debt settlement approach. Well today the mystery was solved of who it would be. Attorney General Lisa Madigan, a hero of many for standing up for consumers, answered the call and filed suit today against Legal Helpers Debt Resolution, headquartered out of Chicago.
The attorney model of debt settlement has been nothing more than a charade designed to meet the obligations set forth as exemptions of the advanced fee restrictions for debt settlement services.
With the advent of the FTC’s passing of telemarketing sales rules in 2010 that limited up-front or advanced fees, many flocked towards attorney model solutions that were heralded as safe havens to continue front loaded fees for debt settlement services. Frankly it has been an affront against the intended protections put in place to help people with money troubles.
For about half a year now people inside the debt relief industry have wondered when regulators would take action against the pseudo free pass that gave lawyers the comfort to feel that attorney model debt settlement was going to be the golden egg they prayed it would be.
My prediction is this will not be the only case against attorney model firms. Madigan has a good track record of achieving results and with her case she’s also laid out the challenge that attorney model debt settlement, when delivered via affiliate marketers and backend third-party servicer providers, stinks and leaves the attorney exposed and is not exempt from regulation.
The headline in the Chicago Tribune story today about the Legal Helpers Debt Resolution suit read:
“Suit: Lawyers were ‘front’ for debt-settlement service”
Under the Illinois Debt Settlement Consumer Protection Act attorneys were exempted from the regulation and apparently felt they could boldly do whatever they wanted for profit even if it was not good for consumers.
The Illinois Debt Settlement Consumer Protection Act says a debt settlement provider does not include attorneys licensed, or otherwise authorized, to practice in Illinois who are engaged in the practice of law. – Source
But after reading the State of Illinois lawsuit against Legal Helpers Debt Resolution, that “free pass” was laughed at and ignored as it should have been with operations that deliver services without measurable benefit for consumers.
The suit against Legal Helpers Debt Resolution alleges consumers laid out large amounts of non-refundable fees and the services were collectively ineffective. In fact the suit says the attorney firm “rarely, if ever, negotiates settlements with all of consumer’s creditors.”
Legal Helpers Debt Resolution isn’t the only enterprise attempting to drive freight trains through loopholes designed for small operators. But Legal Helpers Debt Resolution is by far the largest enterprise to so blatantly embrace so many non-lawyer entities to try and pull off this ruse.
By bringing this lawsuit Attorney General Madigan and her staff have made it very clear that harming consumers under the guise of delivering legal services in order to find a loophole in the law, is not going to fly.
This suit by Madigan has been whispered about the various state and federal regulators. They knew it was coming. And if the other regulators are going to take similar aim against attorney model debt settlement providers then this case against Legal Helpers Debt Resolution and Attorney General Madigan will help pave the way.
This case may have been filed in Illinois but the arguments the case makes could be made on a federal level as well. If the attorney exemption isn’t going to fly with the courts in Illinois it’s not going to pass muster when reaching for the exemption under the rules put forth by the Federal Trade Commission. All regulators need is a precedent and outline to follow and this case may just give them exactly what they are looking for. It’s the primer.
The Chicago Tribune reported quotes from Jason Searns, general counsel and managing partner with Legal Helpers, who said his firm has done nothing wrong and is providing an alternative for clients who don’t want to declare bankruptcy.
“We’re a bona fide law firm providing legal services,” he said. “Our attorneys review every client’s file to determine what’s appropriate for them.”
Searns said Legal Helpers has a different business model than firms that “rent a lawyer” so they can take advantage of the upfront-fee exemption. His firm provides legal counsel to clients and has a “strategic alliance” with debt-settlement firms to provide debt-management services.
“It’s all under our supervision and our auditing control,” Searns said. “When the facts come out, it will show we’re perfectly fine in what we’re doing with our clients.” – Source
All attorney firms should watch the suit carefully. While it may have the Legal Helpers Debt Resolution name on it it’s aim is to strike at all attorney model firms that are setup to skirt the law designed to protect consumers.
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