Credit Answers and Credit Arbitrators have been on the radar here on the site for a long time. First it was with commercials they were running and later it was with an approach they were taking by mailing a catalog of services in what appeared to be an attempt to circumvent the Federal Trade Commission Telemarketing Sales Rules (TSR) designed to protect consumers.
Yesterday, New Mexico Attorney General Gary King filed suit against CreditArbitrators and CreditAnswers in Federal Court and alleged a number of issues and asked for “restitution, damages, civil penalties, and other equitable relief for Defendants’ violations of the TSR and the UPA (Unfair Practices Act).”
The suit makes the following allegations:
Defendants advertise their services by mailing consumers a solicitation in which they offer consumers the opportunity to “activate a debt mediation plan that will reduce your debt balances to less than what you owe.”
In their solicitation, Defendants provide a number for consumers to call to enroll in the debt settlement program.
In late 2011 New Mexico resident Robert Martinez received a solicitation from Defendants in the mail and a subsequent follow-up letter reminding him about the original solicitation.
In January 2011, Mr. Martinez called Defendants in response to their written solicitations and after receiving further information about the program over the telephone, enrolled in Defendants’ debt settlement program.
At that time, Mr. Martinez had approximately $20,000 in credit card debt. His creditors included Discover, Chase, and Target (which was eventually sold to Capital One).
Defendants represented that by in enrolling in their program, Mr. Martinez would realize a fifty percent reduction in debt from approximately $20,000 to approximately $10,000.
Defendants informed Mr. Martinez that the debt settlement program would take four years to complete.
During the program, Mr. Martinez made monthly payments to an account set up with Global Client Solutions LLC. Global Client Solutions LLC provides account management services to Defendants and the debt settlement industry in general.
Mr. Martinez’s first payment to his Global Client Solutions LLC account was in February 2011 and was for approximately $300. His subsequent monthly payments were for $250.
Certain fees were automatically deducted from his account, including an “account maintenance fee,” a “monthly maintenance fee,” and a “setup fee.”
After enrolling Mr. Martinez in their debt settlement program, Defendants advised Mr. Martinez in a telephone conversation to stop making his credit card payments, to ignore creditors by not answering his phone, and to forward his credit card bills to Defendant.
After enrolling in the program Defendants also mailed Mr. Martinez a thirty page “Welcome Kit” with information about Defendants’ debt settlement program.
Mr. Martinez began receiving numerous calls from his creditors, often times several times a day, some of whom threatened court action if he did not pay them.
After receiving these collection calls, Mr. Martinez contacted Defendants, who told him (a) that there was nothing they could do until he completed the four-year program and (b) to ignore the avalanche of calls from his creditors.
In June 2011, Mr. Martinez terminated his agreement with Defendants.
By that time, Mr. Martinez had already paid his first monthly payment of approximately $300 and four successive payments of $250 each from March through June. In total, he paid approximately $1300 into his Global Client Solutions LLC trust account.
After Mr. Martinez terminated his agreement, Defendants refunded him $334 and retained the balance.
Mr. Martinez then submitted a complaint against Defendants to the New Mexico Attorney General’s Office (“AGO”), Consumer Protection Division.
The AGO then notified Defendants of Mr. Martinez’s complaint, and asked for a response to the matters set forth therein.
In response, Defendants informed the AGO that they contacted Mr. Martinez and “agreed to issue him a refund” and that the “matter has been fully resolved.”
Defendants did not, however, issue Mr. Martinez a full refund; instead, they offered him an additional amount of approximately $450, but not the full remainder of his account balance.
Defendants have thus retained approximately $500 of Mr. Martinez’s payments into his Global Client Solutions LLC account.
Again, a silly and stupid refund policy leads to a complaint and that eventually leads to regulatory action.
You can read the full lawsuit filed, here.
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