Action by the Alabama Attorney General this week further highlights the tough stance that law enforcement is taking against debt settlement companies. In this case it is against a lawyer and his related professional companies. This suit might lead other debt settlement attorneys to exit the debt settlement business to prevent the loss of their professional license. The suits and actions we are currently seeing against debt settlement companies are just the tip of the iceberg I predict.
Here is the official press release from the Alabama Attorney General’s office.
The Attorney General’s Office and the Alabama Securities Commission are suing a Prattville attorney and the companies he is operating in what is alleged to be one of the largest debt settlement schemes in the nation involving approximately 15,000 customers and millions of dollars nationwide. Autauga County Circuit Judge Ben Fuller is considering a request to grant a preliminary injunction against defendants Allegro Law LLC, Allegro Financial Services LLC, and Keith Anderson Nelms.
Keith Anderson “Andy” Nelms
This preliminary injunction would prevent the defendants from continuing to engage in deceptive trade practices and to operate without a license. On June 30, the Attorney General’s Office and the Alabama Securities Commission obtained a temporary restraining order against the defendants’ that stopped the defendants’ conduct, appointed a receiver, and froze the defendants’ assets. A preliminary injunction would ensure that those consumer protections will remain in place.
Nelms is a resident of Montgomery whose law practice and financial services company are located in Prattville.
On its web site, the Allegro law firm offered to negotiate restructured debt plans for clients to pay off its debts, contending that such services provided through an attorney have superior results and are handled in a more ethical and professional manner.
The State’s civil complaint alleges that Allegro promoted a risky practice known as debt settlement, in which consumers stop making monthly payments hoping to encourage creditors to write off the debt, reclassify it as less collectible, and agree to settle for a greatly reduced payment. The complaint states that “defendants are attempting to gain this benefit by purposefully and artificially lowering creditors’ assessments of the quality of the customer debt, thereby inducing creditors to accept less to settle accounts. The consequence of this lowered credit standing is a lower credit rating for the consumer, more fees for the service provider, less money to the creditor, and more overall problems for the consumer.”
Attorney General King said, “Alabamians who are suffering hardship and distress during these severe financial times must be protected from exploitation and false solutions that may cause even greater harm. We contend that these defendants were operating a massive scheme that reached across our nation and unscrupulously targeted frightened and desperate consumers. With Alabama’s unemployment rate now at a record 25-year high of 9.8 percent, and many of our people struggling through no fault of their own, this is a particularly contemptible violation, and we will not tolerate it.”
Alabama Securities Director Joe Borg said, “This is a prime example of the cooperative efforts of agencies to protect the public. It is imperative that we require all companies to abide by the law and do not allow them to take advantage of our citizens. In these hard economic times, with resources scarce, the leveraging of our efforts to help consumers is of the utmost importance.”
According to the complaint, Allegro and Nelms have solicited and obtained clients from all 50 states, many of whom made their selection believing they would be represented by a law firm. However, because Nelms is not licensed to practice law in any state other than Alabama, these consumers were deceived. Furthermore, Alabama consumers who believed they were hiring a law firm to represent them were also deceived, because Nelms and Allegro were actually serving merely as a conduit to refer cases that were handled by a third party, Americorp, which is not a law firm. In addition to these deceptive practices, Nelms and Allegro were not licensed by the Securities Commission, as required to conduct debt payment services in Alabama.
The complaint alleges that defendants have violated the Deceptive Trade Practices Act and the Sale of Checks Act. The Alabama Deceptive Trade Practices Act is designed to protect consumers by prohibiting business from committing a variety of deceptive practices including engaging in any “unconscionable, false, misleading, or deceptive act or practice in the conduct of trade or commerce.” The complaint alleges that the defendants violated the Deceptive Trade Practices Act as a result of various deceptive business practices and various false, misleading, and deceptive representations made to consumers. Under the Sale of Checks Act, any person engaging in a business that receives money as agent for obligors for the purpose of paying such obligors’ bills, invoices, or accounts must obtain a license from the Commission prior to conducting business in Alabama. The complaint alleges that defendants have breached their statutory duty to obtain a license pursuant to the Sale of Checks Act prior to engaging in the debt payment services business from their office.
The Attorney General’s Office and the Alabama Securities Commission are seeking a permanent injunction, civil penalties, and other relief. The Alabama Deceptive Trade Practices Act authorizes civil penalties of up to $2,000 for each act or practice found to be in violation of the Act.