Texas Attorney General Greg Abbott today charged four debt settlement companies with orchestrating fraudulent debt settlement schemes. The defendants’ Web sites promised that they could eliminate their customers’ unsecured debts – such as credit card accounts – in as little as three years. According to the state’s enforcement action, the defendants unlawfully misrepresented and overstated the nature of their services.
The following debt settlement companies are named in today’s enforcement action: Dallas-area based BC Credit Solution, LLC and FH Financial Service; Scottsdale, Ariz.-based Four Peaks Financial Services; and Louisville, Ky.-based DebtORSolution.
“At a time of economic hardship, these defendants are charged with orchestrating unlawful debt reduction schemes,” Texas Attorney General Abbott said. “Texas law provides important protections that prevent debt settlement firms from misleading customers about their services. Today’s enforcement action cites four defendants for materially misrepresenting the nature of their services – and misleading customers about the protections they are guaranteed by Texas law.”
Court documents filed by the state indicate that the defendants misrepresented the availability and consequences of bankruptcy, made misleading credit repair claims, and misstated the effect of entering a debt settlement program. For example, the defendants misrepresented the time frame within which customers would complete their debt resolution program. Because each debtor’s individual circumstances are unique, it is impossible to honestly guarantee a specific settlement type or time frame.
The state’s enforcement action also cites the defendants for misleading customers about alternative debt relief mechanisms. For example:
- BC Credit Solution stated: “[Ch. 13] force[s] you to pay back the full balance plus any interest that you accrued.” In fact, Chapter 13 of the U.S. Bankruptcy Code allows debtors to reduce the amount they must pay back to unsecured creditors.
- DebtORSolution claimed that Chapter 7 bankruptcies will lead to a debtor’s property being auctioned off. In fact, Chapter 7 allows debtors to keep exempt property.
- FH Financial stated: “You will probably lose your large assets such as cars, home, investment accounts.” In fact, debtors are allowed to keep exempt property, which includes a residence under state homestead laws.
- Four Peaks Financial stated: “[B]ankruptcy. . . destroys your credit for years to come,” whereas their debt settlement program “allow[s] your credit score to dramatically improve.” In fact, debt settlement can also have a negative impact on debtors’ credit.
According to the state’s enforcement action, the defendants failed to clearly disclose the material terms of their debt settlement programs, including potentially negative effects from increased risk of lawsuits, decreased consumers’ credit scores, debt forgiveness-related tax liabilities, increased collection efforts, interest, and late payment fees.
The Office of the Attorney General is seeking restitution for customers harmed by the defendants’ unlawful business practices, civil penalties of up to $20,000 per violation of the Texas Deceptive Trade Practices Act (DTPA) and attorneys’ fees.
Defendants FH Financial and Debtor Solution also are charged with misrepresenting their affiliation, or positive standing with the Better Business Bureau (BBB), which constitute additional DTPA violations.
Four Peaks is accused of exposing its customers’ sensitive personal information, including name and credit card numbers, on its Web site. The state’s enforcement action charges Four Peaks with violating the Texas Identity Theft Enforcement and Protection Act, which carries penalties that range between $2,000 and $50,000 per violation of the act.
Three of the companies have BBB reports. FH Financial and Four Peaks Financial both have an “F” rating while DebtORSolution has a “C-.”
Debtors should carefully research a debt reduction firm before entering into a contract or signing any documents. Multiple options are available to struggling debtors, including credit counseling, debt management, debt settlement or bankruptcy.