Thanks to a tipster (send in your tips here) we discover that NoteWorld was just hit with a lawsuit on behalf of consumers against Noteworld, LLC (“Noteworld”), claiming the Tacoma, Wash. company has violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”) by engaging in a conspiracy to defraud consumers by extracting exorbitant fees from trust accounts related to useless debt-settlement plans.
According to the lawsuit, Noteworld purports to act as an independent fiduciary, independent from front-end debt settlement companies (“front DSCs”). In reality, the complaint argues, the front-DSCs use predatory tactics to sign up distressed borrowers for debt settlement plans, and then Noteworld conspires with the front DSCs to loot consumers’ settlement accounts through exorbitant fees, leaving little or no money for actual settlements.
The suit was filed in the State of Washington, where NoteWorld and Global Client Solutions already have an unfavorable judicial opinion from the State of Washington Supreme Court against their mutual activities. You can download the suit here.
The racketeering suit filed against NoteWorld makes the following statements and allegations.
From the suit
The following information is excerpts from the 55 page complaint filed on July 26, 2011.
Many Americans suffered – and continue to suffer – extreme financial and emotional hardships as a result of the recent recession. From these difficult times rose a highly profitable industry purporting to provide “debt relief” to financially troubled and over-extended consumers. While there are, no doubt, many companies in the debt-relief industry that provide genuine assistance to consumers, there are also countless bad actors who see a consumer in financial distress as just another mark to be taken. NoteWorld and its network of conspirators and accomplices form a perfect example of the latter. To NoteWorld and its network, the
recession offered not hardship, but windfall profits through exploitation of those suffering financial hardships.
NoteWorld engages and relies upon a network of “front-end” debt settlement companies (“Front DSCs”) that it utilizes to recruit customers. The Front DSCs offer to act as intermediaries between distressed and distraught debtors and their creditors, using inflated claims and misrepresentations about their services to sign up customers, and charging exorbitant and abusive fees once the mark is on the hook. The Front DSCs require customers to set up an escrow account into which the customer makes a monthly deposit, generally via an automatic electronic funds transfer. These accounts are then administered by NoteWorld, which is a “backend” debt settlement company. In theory, once a sufficient balance accumulates in the escrow account, the Front DSCs will approach creditors and utilize the accumulated balance to settle outstanding debts for a lump sum in return for fees that are strictly regulated by law. The reality, however, is very different.
NoteWorld represents to consumers that it is independent and unaffiliated with the Front DSCs and that consumers will at all times have control over their money. These statements are false. In fact, NoteWorld is deeply intertwined with and actively conspires with the Front DSCs. Indeed, for most of the Front DSCs, NoteWorld provides the software through which consumers view their account balances and “approve or decline” the settlement agreements with their creditors. This software in many cases represents the bulk of the “services” that the Front DSC actually provides.
Contrary to NoteWorld’s assurances, it does not act as an independent fiduciary. Instead, together with its network of Front DSCs, it loots customers’ escrow accounts by withdrawing exorbitant and abusive fees pursuant to debt settlement contracts that are wholly fraudulent and known to NoteWorld to be so. Moreover, the contracts, as well as the fees charged by both NoteWorld and the Front DSCs, are illegal under Washington State laws regulating the debt settlement industry. In many cases, as a result of the exorbitant fees charged, it is impossible for the consumer to ever accumulate sufficient funds for his or her debts to be settled as promised.
If consumers discover the fraud and attempt to retrieve the illegally extracted fees, they often find that the Front DSC is nothing more than a shell entity with no real address and no discernable ownership structure. NoteWorld, for its part, stonewalls customers and refuses to refund illegal fees, hiding behind false claims that it “only” provides “payment processing” services; that it is “not a debt settlement company”; and that it is wholly “independent” from the vanishing Front DSCs.
NoteWorld’s claim that it is not a debt settlement or “debt adjusting” company is particularly outrageous, since it clearly meets the statutory definition for such companies. Moreover, the online account management tool that NoteWorld provides for customers specifically has a section entitled “Settlements,” where customers can “get more details about [pending settlement agreements] and … approve or decline the proposed agreement[s].”
Plaintiff brings this action pursuant to the Racketeering Influenced and Corrupt Organizations Act (“RICO”) and Washington state law, to remedy and stop NoteWorld’s illegal conduct. Plaintiff brings this action on behalf of himself and a Class consisting of all persons in the United States who established an account with NoteWorld LLC (or any subsidiary thereof) from which NoteWorld processed any payments related to any debt settlement program.
NoteWorld acted – and continues to act – in concert with the Front DSCs to perpetuate an unfair, deceptive, and fraudulent business scheme injurious to consumers and violative of RICO, Washington’s debt adjusting statute, WASH. REV. CODE § 18.28, and the Washington Consumer Protection Act, WASH. REV. CODE § 19.86.
NoteWorld has conspired and/or currently conspires with scores (if not hundreds) of front-end debt settlement companies (“Front DSCs”), who together with NoteWorld compose the NoteWorld Enterprise. Those Front DSCs include at least the following entities: First Rate Debt Solutions, Expert Settlement Professional, P&E Solutions, Freedom Debt Center, Accredited Financial Corporation, Amber Network Inc., Best Debt Options, Beyond Financial Service, Brite Credit Inc. (d/b/a Brite Credit 123), Century Negotiations Inc., Clear Debt Solution, Coastal Debt Solutions LLC, Consumerwise Debt Solutions Inc., Counsel 4 Debt, Relief, Countrywide Debt Solutions Inc., Credit Care Corporation, CreditCare Pro, Debt Help Center USA, Debt National Relief, Debt Reinvestment, Debt Solutions, Debt Erase Inc., DebtPointer Inc., DebtPro LLC, DTS Financial Group, E.A.C. Financial LLC, FBL Associates, Freedom Debt Solutions, Help Settle LLC, Helpsettle.com, Innovative Debt Solutions, Lifeguard Financial, Maximum Debt Solutions, Morgan Stevens Financial Solutions Company, National Financial Freedom LLC, Nationwide Consumer Advocacy Group, On Track Financial LLC, Personal Debt Systems of America, Princeton Debt Management LLC, Reduce My Debt LLC, Settle A Debt Inc., Settlement Corporation of America, SilverLeaf Debt Solutions, The Debt Answer, The Debt Cure, US Consumer Report, Vision Debt.com and World Debt Solutions.
The Note World Enterprise
In order to vastly grow its customer base, while shielding itself from the scrutiny and complaints of those it defrauds, NoteWorld has created an elaborate network of Front DSCs. NoteWorld utilizes the Front DSC network to sign up consumers who are looking for relief from the stress of their overwhelming indebtedness.
Typically, a consumer will sign up with a Front DSC representing itself as a single company engaged in the business of debt settlement. Front DSCs seek customers through unsolicited phone calls, email, or mail, as well as internet, television and radio advertising claiming to offer debt settlement services for consumers saddled with overwhelming debt.
Only later, if ever, does the consumer discover that there are multiple companies involved in the process, although the relationships between the various companies are purposefully obscured to prevent the consumer from disentangling the complicated scheme.
With NoteWorld’s knowledge and approval, its Front DSCs uniformly and falsely represent to the consumer that NoteWorld is an independent, unbiased “payment processing” company. NoteWorld itself affirms the misrepresentations and uniformly and falsely holds itself out to consumers as completely “independent” from its Front DSCs. In fact, there exist close relationships between NoteWorld and its network of Front DSCs:
- (a) NoteWorld promotes, establishes, maintains, and manages debt settlement accounts on behalf of consumers as an integral component of debt settlement programs marketed by its Front DSCs;
- (b) NoteWorld provides the software through which customers enrolled by the Front DSCs monitor their escrow accounts and approve creditor settlements;
- (c) NoteWorld’s profits are dependent on increasing the number of debt settlement customers acquired by the Front DSCs;
- (d) Despite NoteWorld’s express representation that the Front DSCs do not act as its “agents,” the Front DSCs act under NoteWorld’s direction and control when they provide customers with “Sign-Up Agreements” on its behalf;
- (e) Despite NoteWorld’s express representation that it does not act as an “agent” for its Front DSCs, NoteWorld in fact processes customer payments and distributes unlawful debt settlement fees under the direction and control of the Front DSCs.
The standardized contracts provided to consumers by the Front DSCs contain, at the very least, an agreement for debt settlement services as well as a NoteWorld “Sign-Up Agreement” (and often a myriad of other confusingly worded forms). The Front DSCs present these agreements as part of the same contract, further indicating to customers that they are only engaging a single organization to provide debt settlement services.
The debt settlement programs provided for by these agreements universally involve the following material elements:
- (a) The consumer agrees to pay specified debt settlement fees that, unbeknownst to the consumer, are illegal and per se unfair, but generate large profits for the NoteWorld Enterprise;
- (b) In addition to the debt settlement fees, NoteWorld charges the consumer unlawful fees to maintain and manage the trust account necessary for the operation of the debt settlement program;
- (c) The debt settlement account is established for the purported purpose of accumulating funds with which to pay the settlements ostensibly to be negotiated by the Front DSCs;
- (d) NoteWorld is authorized to automatically transfer periodic (usually monthly) payments from the consumer’s personal bank account into the debt settlement account;
- (e) The program’s success and the consumer’s ability to financially afford the monthly debt settlement program payments generally presupposes that the consumer does not make further payments of his/her own on the outstanding and now further defaulting debt;
- (f) NoteWorld is also authorized to automatically and periodically debit the debt settlement account to pay the exorbitant debt settlement fees specified in the debt settlement agreement and “Sign-Up Agreement;”
- (g) The fees often entirely consume consumers’ monthly debt settlement payments for the first several months of participation in the program, and substantially consume consumers’ monthly payments for the remainder of the debt settlement program;
- (h) In almost all cases, the consumer would be far better off simply directing the monthly payments to his/her creditors directly, thereby saving the fees illegally, unfairly and deceptively extracted by the NoteWorld Enterprise.
NoteWorld knows that the contracts used by its Front DSCs are fraudulent and illegal, but it still continues to process payments according to the terms of those contracts. NoteWorld’s knowledge is self-evident, as
- (a) NoteWorld processes payments pursuant to the contracts used by its Front DSCs, giving it direct knowledge of the fraudulent nature of those contracts; and
- (b) NoteWorld is acutely aware of the enormous volume of consumer complaints regarding these fraudulent contracts and the false claims made to enroll consumers in debt settlement programs offered by the NoteWorld Enterprise. There are scores, if not hundreds of consumer complaints on the Internet involving the scheme perpetrated by NoteWorld and its Front DSCs.
NoteWorld profits from the fees generated by each consumer enrolled by the Front DSC members of the Enterprise, knowing that the fees are generated by fraudulent and deceptive means, and knowing that often the fees charged are flatly illegal.
This case was filed by Harens, Berman, Sobol, Shapiro, LLP
Consumers interested in more information on this case can click here.
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