It appears an issue with North Carolina and Consumer Law Group finally came to an end. You can read past stories about Consumer Law Group here.
What was most interesting about the Consumer Law Group action North Carolina took was the definition of what true attorney representation was in a debt settlement program. Not only did North Carolina not buy that the model Consumer Law Group was selling was exempt attorney activity, they even went so far as to label the operation as bogus in their official final statement on the matter.
People in the debt relief and debt settlement community that have been looking for some progress in labeling some attorney model debt relief firms as charades. While this particular case did not go all the way to a court ruling, it is fairly exceptional that a state was able to come out so boldly against an attorney model debt settlement company. In my opinion it sends a clear message to others to be careful what you think will pass as a true attorney relationship.
In the defense of this case Consumer Law Group said their actions should be exempt from North Carolina regulations because they were a law firm. North Carolina persisted in their action anyway.
“Phil Lehman from the State Attorney General’s office represented the State in this matter and said Consumer Law Group had been “perpetrating a debt settlement scam,” misrepresented claims made about the actual performance they could deliver and took advance fees but failed to deliver the actual service.
Lehman said that Consumer Law Group was not a true law firm but essentially operating as a business as a debt adjuster. He said callers to CLG were told they were being represented by a law firm but that was not true.” – Source
The position of North Carolina in the original action was also that Consumer Law Group did not meet the attorney exemption threshold because:
Despite the promises of legal representation, none of the defendants are licensed to practice law in North Carolina. On information and belief, defendants have occasionally referred a few of their North Carolina clients to a North Carolina attorney for purposes of bankruptcy representation or other assistance.
- The North Carolina referral attorney has his own independent North Carolina law firm;
- he has no attorney-cleint relationship with CLG’s customers;
- he does not handle any funds received by CLG from its North Carolina customers;
- he does not meet with, talk with, or have any other contact with any of CLG’s North Carolina customers, except on a very occasional basis;
- he does not negotiate with third party creditors on behalf of CLG’s North Carolina customer;
- and he is not otherwise involved with the operation of CLG’s debt settlement program.
That’s a test that if applied by other states would not allow attorney model loophole outfits to wiggle through an exemption.
Here is the North Carolina press release on the matter.
BOGUS LAW FIRM GIVES UP 1.2 MILLION DOLLARS TAKEN FROM NC CONSUMERS
Release date: 1/24/2012
Debt relief company took consumers’ money but did little to help them, Cooper says
Raleigh: A bogus Florida law firm that falsely claimed it would reduce consumers’ debts by more than half has been barred from debt relief work in North Carolina, Attorney General Roy Cooper announced Tuesday.
“Debt relief scams take advantage of struggling consumers, adding to their burden instead of helping them get out of debt,” Cooper said. “I’m pleased that we’ve been able to win money back for these consumers, money that can hopefully help them pay off bills and get on better financial footing.”
Under a consent judgment approved by Wake County Superior Court Judge Howard Manning and filed today, The Consumer Law Group of Boca Raton, Florida has agreed to pay $600,000 in refunds to North Carolina consumers who paid the company for help getting out of debt. That’s on top of approximately $600,000 worth of charges the company agreed not to collect from North Carolina consumers for a total of $1.2 million in consumer refunds and savings. An additional $50,000 payment will help cover the costs of the state’s work on the case.
The judgment also bars CLG from marketing, soliciting or offering any debt settlement or debt negotiation services in North Carolina. In addition, CLG is prohibited from claiming that its services are government sponsored, performed by attorneys, or provide legal representation for consumers.
Cooper’s office first filed suit against CLG in October 2010 after an investigation determined that more than 650 North Carolina consumers had paid the so-called law firm for debt relief work but gotten little or no help in return.
Under North Carolina law, it’s illegal to charge an upfront fee for debt reduction or debt settlement services. CLG claimed that the debt adjusting law was unconstitutional and that the Attorney General had no jurisdiction over attorney conduct but a Superior Court judge rejected these claims. Some companies promising debt relief including CLG have tried to get around the law by claiming to be law firms.
Cooper contends that CLG deceived consumers by promising to reduce their debts by half and leave them debt-free without bankruptcy. In reality, CLG rarely worked out agreements to settle debts but kept substantial fees anyway. The company also misled consumers to believe that its program was government-affiliated, and claimed that its services were performed by attorneys when they were not.
Among the 16 consumers who’ve complained about CLG to the Attorney General’s Consumer Protection Division were elderly and disabled North Carolinians who believed they could trust CLG because it said attorneys did the work and the program was government-sponsored.
Many of these consumers wound up worse off after seeking CLG’s help because the company told them not to pay their debts or talk to their creditors, and to pay CLG instead. Some CLG customers were sued by their creditors because they didn’t pay their bills and failed to respond to collection notices. Other consumers saw their debts mount significantly due to increased fees and interest charges and had to file for bankruptcy. – Source
A closer look at the actual consent judgment shows:
- The State alleged that the defendants were offering debt adjusting services and collection advance fees for such services in violation of the Debt Adjusting Act.
- Defendants do not admit guilt.
- Defendants included in the agreement are Consumer Law Group, Michael Metzner, American Debt Negotiators, Ran David Barnea, and Daniel Post.
- Defendants are permanently prohibited from, “Directly or indirectly advertising, marketing, soliciting, or offering any debt settlement services, debt negotiation services, or any related debt adjusting services to North Carolina residents, other than continuing to provide services to existing North Carolina customers who enrolled for such services prior to the Court’s entry of the preliminary injunction on 15 October 2010 in compliance with applicable law.
- No fees, directly or indirectly, may be charged to North Carolina consumers, with the exception that for settlement reached on or after October 1, 2011 fees may be charged that are in compliance with the Debt Adjusting Act and Telemarketing Sales Rule.
- They are also prohibited from making statements that “the services provided to the consumer will be directly or indirectly performed, reviewed or monitored by attorneys.”
The Defendants agreed to pay $650,000 in restitution to North Carolina residents. – Source
This action was led by some familiar faces to the meetings we’ve held in our Rally in Raleigh meetings. Both Assistant Attorney General Phillip Lehman and Lynne Weaver handled this particular case.
Defendants were represented by Robby Birnbaum and Richard Epstein from Greenspoon Marder and Frank Hirsch and Ryan Ethridge from Alston + Bird.