Last week the CFPB raided Orion Processing’s headquarters after obtaining a search warrant. The CFPB filed a complaint last Monday, and obtained a Temporary Restraining Order (TRO) last Tuesday, which was under seal until late yesterday. With the TRO, the CFPB also obtained an asset freeze on all of the defendants’ assets. The defendants include Orion Processing, Derin Scott, David Klein, and Brad Haskins, and two other “World Law” entities owned by Haskins.
Court documents say Derin Scott “has personally taken in over $8 million from the World Law operation, and his companies have received over $20 million.”
I’d suggest you get a fresh refill of your favorite beverage and read this, this, and this to better understand the complexity and allegations that let to this advanced fee attorney model debt settlement company being raided and assets frozen.
These documents have just been unsealed so we can see them now.
But here is the summary of the allegations from the complaint.
Defendants Derin Scott and David Klein have run a debt-relief operation purporting to settle consumers’ debts since at least 2008. They have operated through Scott’s companies, Orion (previously Swift Rock) and FCIAM, and charged consumers up-front fees.
In October 2010, the Federal Trade Commission responded to the proliferation of abusive and deceptive practices in the debt relief sector by amending the TSR to, among other things, prohibit debt relief companies engaged in telemarketing from requesting or receiving advance fees before renegotiating, settling, reducing, or otherwise altering the terms of at least one of a consumer’s debts.
In or around July 2010, right before the TSR’s advance-fee ban went into effect Defendants developed a plan to avoid the advance-fee ban by continuing operations under the guise of providing legal services. To that end, Defendants Scott, Klein, Orion, and FCIAM partnered with Defendant Haskins and WLG. Their agreement provided that WLG would provide “legal representation” and Orion would perform “processing services” for clients seeking debt relief services.
Defendants then began promising consumers both debt relief services and legal representation, including by a local attorney, claiming to employ lawyers in every state. They also touted that consumers would receive the skill and expertise of a licensed lawyer to negotiate with creditors regarding their unsecured debts.
In reality, Defendants do not provide the promised legal representation. Consumers rarely, if ever, communicate with a lawyer and the vast majority of services provided ̶ if services are provided at all ̶ are debt relief services provided by nonlawyers.
Defendants withdraw hundreds of dollars in advance fees from consumers’ accounts each month.
Defendants have charged advance fees to 99% of the consumers enrolled in the World Law program before settling their debts.
Marketing the Program
Defendants market the World Law program through third party marketing companies, using television commercials, radio advertisements, targeted mailers, billboards, search engine optimization programs (SEO’s), and websites.
Defendants’ marketing includes claims that consumers will be assigned a “team of attorneys” and be represented by a “debt relief law firm” and have a local attorney or “personally assigned state attorney.”
Defendants’ advertisements contain toll-free telephone numbers for consumers to call to speak with sales representatives trained to promote Defendants’ debt relief services.
The sales representatives, referred to as “Enrollment Specialists,” work for third-party marketing companies and use pitch materials vetted and approved by Defendants.
During these pitch calls, the Enrollment Specialists tell consumers that Defendants’ network of attorneys will negotiate settlements of their unsecured debts with creditors so consumers will be able to repay the debt for less than what is owed. Enrollment Specialists also promise consumers local attorney representation and consultation.
The Enrollment Specialists instruct consumers to enter all of their outstanding unsecured debts into the World Law Program. They also instruct consumers to immediately stop making payments to creditors on any debt entered in the World Law Program, and instead to begin making a single monthly payment into a special purpose account (SPA), ostensibly so that World Law can use it to settle consumers’ debts.
The Enrollment Specialists obtain detailed information from consumers about the amount and source of their income and the amount and number of their debts. World Law consumers generally enroll multiple debts in the program, totaling tens of thousands of dollars.
The Enrollment Specialist then enters the consumer’s information into World Law’s software program, which automatically generates a contract with a proposed monthly payment and program length (typically 24-48 months).
As the final step of the intake call, the Enrollment Specialist asks consumers with internet access to access a web portal and electronically sign a dense, single-spaced contract called the Client Service Agreement (CSA). At least through August 2014, the Enrollment Specialist also asked consumers to sign a contract to open an SPA, into which consumers will make their payments.
The CSA states that “World Law Group,” “World Law Debt” and/or “World Law Processing” will provide debt negotiation and settlement services on behalf of the consumer. The contract further states that consumers will be assigned a local attorney to represent them with respect to the attempted negotiation and settlement of their debts and in any creditor suits on a debt enrolled in the World Law program.
World Law Charges Advance Fees
Defendants take multiple up-front fees from consumers, listed in the “Legal Program Fee Schedule” attached to the CSA. These fees include:
a. “Initial Fees” in the amount $199 that are usually collected from a consumer’s account over the first three months of the program;
b. “Bundled Legal Service Fees” that range from ten to fifteen percent of the consumer’s combined outstanding debts and are usually collected over the first 13 months of the program; and
c. “Attorney Monthly Service Fees” in the amount of $84.95 that are collected every month a consumer participates in the program.
If consumers attempt to terminate their relationship with World Law and ask for a refund of the money they have paid, World Law typically makes cancelling very difficult or refuses to provide the requested refund.
World Law Does Not Provide Legal Representation
Attorneys rarely, if ever, are involved in World Law’s promised debt relief services, including negotiating consumers’ debts with creditors. And consumers are not assigned or represented by a local attorney, as promised.
In fact, Defendants’ marketing agents and employees, not attorneys, perform virtually all of the debt relief work that occurs on behalf of World Law enrollees, if any. Among other things, non-lawyers:
a. Field phone calls from consumers responding to its advertisements;
b. Perform consumer intake;
c. Analyze consumers’ budgets to determine the potential savings that consumers may realize as a result of enrolling in the debt relief program;
d. Determine consumers’ monthly payments;
e. Obtain paperwork from consumers to process enrolled debts;
f. Set up automatic withdrawals from consumers’ bank accounts;
g. Negotiate with creditors to facilitate debt relief;
h. Determine when to make a settlement offer to creditors;
i. Direct and negotiate the allocation and distribution of consumer funds in SPA accounts to Defendants, creditors, and/or other third parties;
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j. Handle inquiries or complaints from consumers, the Better Business Bureau, and government agencies.
If debt settlement negotiations fail, and a creditor seeks to collect a debt through litigation, consumers are still not assigned a local attorney. In fact, consumers rarely, if ever, communicate with a local lawyer.
Instead, non-attorneys at World law provide consumers with boilerplate pleadings that are not customized for the consumer’s particular case. Consumers are instructed to sign and file such pleadings and to represent themselves pro se at any hearings.
Consumers who stop paying debts as a result of World Law’s advice experience significant harm. Their failure to pay their creditors may result in, among other things, a lowered credit score, collection calls, collection suits, and late fees. Few, if any, consumers become debt free as a result of World Law’s program.
At least 21,000 consumers have enrolled in World Law’s program since October 27, 2010 and have been charged at least $67 million in up-front fees.
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