Minnesota Attorney General Lori Swanson today filed three lawsuits against separate companies that promised consumers they would lower the interest rates on their credit cards in exchange for payments of up to $1,995 but then failed to provide the promised services. Swanson warned the public to be on guard against fly-by-night companies seeking high payments from consumers in exchange for supposed financial help. She said that many companies are aggressively seeking out struggling citizens to exploit during these tough economic times–in which people face record high levels of credit card debt and high credit card interest rates.; After the citizen pays the money, however, the companies often disappear, fail to return phone calls, file bankruptcy, or go out of business, driving consumers even deeper into debt.
“Many people are struggling to keep up with their bills in this tough economy, and a new cottage industry of debt assistance companies promises to help them. But these companies often do little or nothing to justify their high fees, leaving people in even worse shape,” said Attorney General Swanson.
Attorney General Files Three Lawsuits. Today’s lawsuits were filed against Priority Direct Marketing, a Washington corporation charging consumers fees of up to $1,590, Clear Financial Solutions, a Florida corporation that charged consumers fees of up to $999, and Moneyworks LLC, based in Georgia, which charged consumers fees of up to $1,995.
“These companies charged cash-strapped citizens a lot of money to lower the interest rates on their credit cards, but then often failed to deliver on their promises,” said Swanson.
Each of the lawsuits alleges that the companies aggressively made unsolicited telephone calls to Minnesota consumers promising to help them lower the interest rates on their credit cards. Consumers were often lured in by promises of lower interest rates, guaranteed savings, refunds if the promised savings did not materialize, and the companies’ supposed special expertise in working with credit card companies. One of the companies–Priority Direct Marketing–also lured in some consumers by telling them that it was affiliated with the federal economic stimulus plan. The lawsuits allege that after consumers paid the upfront fees, the companies often provided no or ineffective services in lowering the interest rates, failed to achieve the promised savings, and failed to make the promised refunds to consumers. In some cases, the companies engaged in a “bait and switch,” getting consumers to pay money by telling them on the phone that they would negotiate with the credit card companies to lower their interest rates but then sending them written materials stating that the company’s obligation to the consumer was satisfied if the company told the consumer how to save money by accelerating their payments to the credit card company.
All three lawsuits were filed in Ramsey County District Court; seek injunctive relief, civil penalties, and restitution; and allege violations of the state’s consumer fraud, deceptive trade practices, and credit service organization laws.
Attorney General Issues Warning about Debt Assistance Scams. The Attorney General today also issued a warning to Minnesotans to be on guard against fly-by-night debt assistance companies that seek to take advantage of people who are struggling to pay their bills in the tough economy. Swanson noted that credit card defaults and consumer debt levels are at record-high levels. According to the website www.creditcards.com, the average credit card debt per household was $8,329 at the end of 2008, and penalty fees from credit cards (i.e. late fees, over-the-limit fees, etc.) are expected to reach $20.5 billion in 2009.
The Attorney General said that her office has heard from citizens who have paid upfront fees to debt assistance companies, only to see the company disappear, file bankruptcy, or go out of business, making it difficult to obtain a refund. Swanson noted for example, that Moneyworks LLC appears to have halted operations after her office served a Civil Investigative Demand upon it earlier this year, and that in the last few weeks, Clear Financial Solutions has stopped answering many of its phone lines.
Swanson said that numerous companies have formed to capitalize on the economic struggles of many citizens. As a result, Minnesotans are being deluged with phone calls and advertising campaigns promising to lower credit card interest rates, reduce bills, or repair damaged credit. These companies often charge consumers fees totaling thousands of dollars but provide little or no help in return, driving consumers even deeper into debt. Swanson said that financial assistance often can be obtained for free from legitimate nonprofit organizations.
Swanson said that many citizens report that they have received unsolicited phone calls from telemarketers offering credit card rate reductions or other debt-related assistance and that, in some cases, the callers use names such as “card services” or “customer service department” to dupe consumers into believing that the call originated from their credit card company. Many consumers report that they have attempted to track down the callers at the telephone number given, but the number was answered by a company with a different name or not answered at all. Callers can be difficult to find, in part due to their use of new technology like caller-ID “spoofing,” software that allows the callers to mask their real phone number.
Attorney General Files Comment Letter with FTC. Swanson also today filed a comment letter with the Federal Trade Commission (FTC) asking it to adopt new federal regulations to curb many of these practices. She noted that FTC is currently seeking comment on proposed new federal regulations that would prohibit companies offering “debt relief services” from charging fees until they actually provided services. A “debt relief service” would cover “any service claiming to negotiate, settle or in any way alter the payment terms or other terms of the debt between a consumer and one or more unsecured creditors or debt collectors, including a reduction in the balance, interest rate, or fees owed.”