Over the years DebtPro123 has come up from time-to-time, but not like this. Yesterday the Federal Trade Commission made a bold move in the debt relief space. It surprised me because I thought they’d moved on to other things. Just feels like since the TSR the debt space has been cooling off.
But it probably doesn’t feel like that over in Irvine, California where DebtPro123 is located.
According to the FTC, who accuses the company and their affiliates of selling bogus debt relief services, the company allegedly has been “making deceptive claims that it would provide legal advice, settle consumers’ debts, and repair their credit in three years or less.”
But from the complaint the FTC paints a picture of a very morphed debt relief program that incorporates attorney model debt settlement, debt validation, suing lenders, credit repair, and just about every approach including the crappy customer service model. If the allegations are true, it appears the debt relief enterprise was using every pitch to make sales directly and through affiliates.
The FTC alleged that the DebtPro 123 LLC defendants told consumers to stop paying and communicating with their creditors. As a result, although consumers hired the defendants in hopes of improving their financial situation, their debt often increased, causing them to lose their homes, have their wages garnished, lose their retirement savings, or file for bankruptcy, according to the complaint. Although the defendants promised to refund unsatisfied customers, they rarely did.
“These defendants said they would get consumers out of debt, but instead they bilked them out of thousands of dollars, often leaving them worse off than they were before,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection.
Ringleader Bryan Taylor and three other individuals, along with DebtPro 123 and five other companies marketed their bogus debt relief services through telemarketing calls, website ads, promotional videos and marketing companies that acted as lead generators, according to the complaint. Promising that in as little as 18 months consumers could “become debt free and enjoy financial independence,” the defendants claimed their “Legal Department” would “leverage their existing relationships with all of the major creditors to negotiate the best possible resolution.” The defendants claimed that consumers could reduce the amount they owed by 30 to 70 percent.
The complaint alleges that the defendants violated the Federal Trade Commission Act, the Telemarketing Sales Rule, and the Credit Repair Organizations Act, not only through their false promises, but also by providing their affiliate marketing companies with deceptive materials to deceive consumers and by collecting an advance fee for their bogus debt relief services.
The complaint filed by the FTC names a number of parties including DebtPro 123, Allstar Processing Corp, Allstar Debt Relief, Redwave Management Group, BET Companies, Bryan E. Taylor, Ryan Foland, Stacey Frion, and Kara Taylor.
A look at the actual complaint for permanent injunction and other equitable relief, which you can read here, lays out an alleged effort to defraud consumers.
The complaint says:
“Since at least October 1, 2008, Defendants have engaged in a scheme to defraud consumers by marketing, promoting, and/or selling services that purported to resolve consumer debts. Defendants offered several debt resolution programs that were functionally identical, regardless of the specific Corporate Defendant involved.
Defendants promoted and sold their debt resolution programs to consumers via inbound and outbound telemarketing calls, as well as through promotional materials such as Internet websites, videos, telephone scripts, broker kits, affiliate trainings, flyers, and infonnation packets. Defendants provided these materials to prospective purchasers, as well as to paid third-party sales offices and/or sales representatives (“affiliates”).
The affiliates signed contracts with Defendants, in which they agreed to sell Defendants’ program to the exclusion of any other debt resolution programs.
Defendants provided training, telemarketing scripts, informational packets, as well as other marketing materials to the affiliates. Defendants also gave affiliates access to a centralized consumer records management database.
Affiliates used a variety of methods to connect consumers with Defendants, including but not limited to: speaking with consumers and forwarding their contact infonnation for Defendants to call consumers; disseminating Defendants’ promotional materials to consumers and giving them Defendants’ phone number; and helping consumers complete and submit Defendants’ enrollment forms.
Following enrollment, Defendants communicated directly with consumers. Thereafter, Defendants discouraged their affiliates from continuing to communicate with enrolled consumers about Defendants’ program.
Regardless of the sales method, Defendants promised to provide the relevant services, including, among other things, negotiating settlements with consumers’ creditors, providing customer service, and administering customer accounts.”
The sales pitch in the FTC complaint filed will sound very common to those in the debt relief space.
“Defendants represented that their debt resolution program would completely resolve consumers’ credit card and other unsecured debts (including department store accounts, personal loans, medical bills, student loans, and accounts with collection agencies). Defendants promised to resolve these debts at substantial discounts, claiming they would resolve a typical consumer’s debt for between 30% to 70% of the amount owed within 18, 24, or 36months.
Defendants’ claims include:
a. “In as little as 18 months become debt free and enjoy financial independence.”
b. “Based upon what you are able to pay each month in your settlement account, we can determine how many months you will be part of the program, and ultimately be debt free.”
c. “Okay (client’s name), you’d be looking at resolving your total debt of (see worksheet) for a resolution amount of approximately (see worksheet), you’d be debt free in (see worksheet) months or less.”
d. “On average, Debt Pro will reduce a Client’s total debt by 70 to 80 percent on average including all fees.”
e. “With settlements as low as 10%, this means when all is said and done, a client’s savings could be as much as 20 cents on the dollar including our fees.”
f. “DebtPro123 works diligently and professionally with your creditors on your behalf to reduce your current unsecured debt down 10-30% by arbitrating an agreed settlement amount with your creditors.”
g. “With honest and informative advice, outstanding customer service, and a proven debt settlement process we can ensure our clients become debt free quickly and comfortably and get back on the path of financial freedom.”
Defendants reinforced these claims with their “Debt Calculator.” The Debt Calculator showed an individual consumer’s debt and set forth the amount a consumer must pay to resolve his debts. The Debt Calculator set out a payment schedule and set forth how much of each payment Defendants kept for “fees” and “processing” and how much they promised to put aside in the “Creditor Fund” or a “Settlement Account” to resolve the consumer’s debt. Defendants and their affiliates told consumers that the consumer’s Creditor Fund/Settlement Account was similar to an escrow account.
Defendants told consumers that there were two phases to the program. In “Phase One,” typically the first four months of the program, Defendants represented that the consumer would build up the money in his Creditor Fund/Settlement Account, which Defendants needed prior to any negotiations with the consumer’s creditors. In “Phase Two,” typically the remaining fourteen to thirty-two months, Defendants stated, “this is usually the ‘transitional period’ where the terms and conditions of the creditors are being changed.” Typically, the consumer paid Defendants a smaller monthly payment in Phase Two than in Phase One. In both phases, however, the monthly payment consisted of both fees and money for the consumer’s Creditor Fund/Settlement Account.
The materials Defendants created and distributed to affiliates and consumers represented that Defendants’ program was able to “obtain more aggressive ‘resolutions’ than traditional Debt Settlement companies” because Defendants had attorneys who provided legal services to the consumers. Defendants repeatedly stated that their “Legal Department” and “legal in house counsels” would analyze the consumers’ debts and negotiate the tenns of their resolution. For example:
a. “By working with our organization, you hire the attorneys directly.”
b. “The attorneys will cmmnunicate directly with your creditors and debt collectors via the mail and telephone. They will audit your bills and the collection methods being used by the creditors to determine if your consumer rights have been violated. They will leverage their existing relationships with all of the major creditors to negotiate the best possible resolutions of your enrolled debts. If necessary and applicable, the attorneys will sue your creditors on your behalf should a violation of your consumer rights be identified.”
Defendants also represented that they would improve consumers’
a. “Upon completion of the process, most if not all negative or adverse items are REMOVED from clients all three major reporting credit bureaus.”
b. “Expect some negatives on your credit report for about 18 months. Mark you [sic] calendar 12months ahead, when that day comes, pull a credit report on yourself from all three of the agencies and send them to us. Because we changed the terms and conditions of the contract and made it more favorable for you we are able to get the negatives removed and your credit report cmTected.”
According to the FTC the company collected their fees by front-loading the agreement. “Defendants collected their fees as a portion of the monthly payments, front-loading the fees. For many consumers, more than half of their monthly payment went towards Defendants’ fees. For consumers who were in the program longer than eighteen months, Defendants also charged a $49 monthly “maintenance fee.”
And after all of the sales pitch and promises, the FTC alleges consumers received very little in the way of actual performance.
“To the extent Defendants negotiated a settlement on behalf of a consumer, they rarely, if ever, negotiated settlements with all of a consumer’s creditors.
Even when Defendants succeeded in negotiating a settlement on a consumer’s account, the amount Defendants agreed to pay was, in many instances, significantly higher than 30% to 70% of the amount owed to the creditor at the time the consumer enrolled in Defendants’ program. Instead, Defendants agreed to pay the full amount owed, in installments over the course of a few months. Moreover, because Defendants always instmcted consumers to cease paying their creditors upon enrollment, the total amount of the debt was usually higher than the amount the client owed the creditor at the time he or she enrolled in the program.
Following any such settlement agreement with a creditor, Defendants immediately sent a letter or email to the consumer, infonning him that the account was “resolved.” In many instances, however, Defendants failed to make all of the settlement’s payments to the creditor. In numerous instances, the creditor then sued, or re-sued, the consumer for failure to pay on the “resolved” debt.
When consumers learned that Defendants had not resolved their accounts, they frequently requested a refund. Defendants then created multiple obstacles to prevent and/or delay consumers’ refund requests. Defendants required clients to file a form that cancelled the contract in order to seek the retmn of any money, regardless of whether the consumer had paid all of the money owed as set forth in their Debt Calculator. In addition, the consumers had to file a notarized Revocation of the Power of Attorney form and a notarized Revocation of the Assignment of Debt for for each account enrolled in the program.
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Even after consumers submitted all of these fonns, and Defendants told them in emails and over the phone that a refund was forthcoming, in numerous instances, consumers received no refunds.
After weeks of waiting, without response to their emails or receipt of a refund, some frustrated clients submitted complaints to their states’ attorneys general or the Better Business Bureau, and Defendants again represented to these agencies and organizations that a refund was forthcoming. In numerous instances, however, Defendants failed to return any money to consumers.
Regardless of whether Defendants resolved any of a consumer’s debts, in many instances, Defendants kept all the money given to them by that consumer, including money eannarked for the consumer’s Creditor Fund/Settlement Account.”
Not only did the company allegedly ignore refund requests, they also inflamed matters by providing crap customer service. “Despite Defendants’ promises to provide “honest and informative advice” and “outstanding customer service,” Defendants often failed to answer or even acknowledge consumers’ telephone calls and emails. Instead, consumers who wanted to know which accounts, if any, were resolved and how much money remained in their Creditor Fund/Settlement Account, had difficulty obtaining any accurate information from Defendants.”
In the end, the FTC paints a picture that consumer significantly lost out when working with the enterprise. The FTC says, “As a result of Defendants’ actions, many consumers who retained Defendants’ services for the purpose of improving their financial situation experienced such a substantial increase in their debt that they lost their homes, had their wages garnished, lost their entire retirement savings and/or filed for protection under the bankruptcy laws.”
I’m sure this will end like many other cases, in a settlement where the majority of the judgment will be forgiven because the Defendants will claim to be too broke to pay. Is that too cynical?
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