Attorney General Andrew M. Cuomo today announced that his office has won a lawsuit against a national debt settlement company, barring the company from doing business in New York state unless it posts a $500,000 performance bond to protect consumers. The decision also levies nearly $200,000 in penalties against the company for defrauding thousands of New Yorkers who looked to the company to negotiate reductions in their personal debt.
As a result of the lawsuit filed in May, the Hon. Patrick H. NeMoyer in Erie County Supreme Court issued a decision that bars Nationwide Asset Services, Inc. (NAS), based in Phoenix, Arizona, along with its affiliates, from doing business in New York state unless it files a $500,000 performance bond to protect consumers. Additionally, Cuomo’s office obtained a civil penalty of $198,100 after the court determined that nearly 1,981 consumers were defrauded.
The court found that the majority of NAS customers were promised a 25 to 40 percent reduction in their outstanding debt but never saw such reductions. Only one-third of one percent of consumers received such savings. The other customers suffered continued harassment and lawsuits by creditors and had their credit ratings destroyed.
“This company made promises to people who were searching for financial help and trying to turn their lives around,” said Attorney General Cuomo. “But the promises never came true and, in many cases, New Yorkers were left in worse condition than when they started. Thanks to this ruling, the company has to put its money where its mouth is with a performance bond if it wants to do business in New York.”
The court’s decision also orders NAS to compute restitution for 180 consumers who successfully completed the program but actually paid more in fees and settlements than the amount originally due on their debts. NAS has been ordered to compute this consumer restitution and the specific amounts will then be verified by the Attorney General’s Office and the court.
The Attorney General’s investigation and suit determined that NAS and its affiliates, ServiceStar LLP and Universal Debt Reduction, LLC, and its marketer, FGL Clearwater, Inc. d/b/a American Debt Arbitration, based in Florida, engaged in fraudulent and deceptive business practices and false advertising and made significant profits by selling misleading debt settlement plans that very rarely delivered the promised benefits to consumers dealing with debt.
Debt settlement companies represent that they can substantially reduce consumer debt by negotiating directly with creditors, on behalf of their customers, to pay off outstanding balances at less than the amounts owed. However, Attorney General Cuomo’s Office has found that many of these debt settlement plans are often flawed and, based upon complaints, often mislead consumers about the nature of their services. The debt settlement plans are generally premised on consumers’ aggregating savings, over one to three years, from which both the payment of the company’s fees and any negotiated settlement are to be made. Yet most consumers who are targeted by these companies are unable to meet the savings requirements because of their already-precarious financial situation.
In addition, the companies often take their substantial fees up-front and keep these fees even when they do not provide the promised services. As a result, many consumers find themselves worse off financially because of these debt settlement plans.
As part of his broad investigation of the debt settlement industry, Cuomo issued subpoenas to multiple debt settlement companies and affiliated businesses. The investigation has sought to uncover how these companies structure their fees, how many people have actually benefited from their services, and what kinds of relief are the companies actually providing.