{"id":10211,"date":"2008-10-29T18:18:38","date_gmt":"2008-10-29T23:18:38","guid":{"rendered":"http:\/\/blogs.law.harvard.edu\/ethicalesq\/?p=10211"},"modified":"2011-08-05T14:53:17","modified_gmt":"2011-08-05T18:53:17","slug":"ftc-smites-debt-negotiation-firms","status":"publish","type":"post","link":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/2008\/10\/29\/ftc-smites-debt-negotiation-firms\/","title":{"rendered":"FTC smites debt negotiation firms (updated)"},"content":{"rendered":"

<\/strong><\/em>W<\/strong><\/em>e posted a short blurb this morning about the recent WSJ<\/em> article “Debt-Relief Firms Attract Complaints<\/a>” (by Eleanor Laise, Oct. 14, 2008).\u00a0 Such firms claim to \u201cnegotiate\u201d with creditors in order to greatly reduce your overall debt.\u00a0 The article underscores our own concerns about the services and fees of “debt settlement” or “debt negotiation” firms, some of which are run by lawyers.\u00a0 See our comprehensive prior post “doubts over debt-negotiation fees<\/a>” (July 21, 2008), which focused mainly on Net Debt<\/a> and the affiliated Contego Law Firm<\/a>. We dug a little further this afternoon, because a person who represents the industry left a comment yesterday saying that the Federal Trade Commission “endorses what we do.”\u00a0 From my prior research, I doubted that claim.<\/p>\n

update<\/strong><\/em> (Oct. 30, 2008): Overlawyered.com<\/a><\/em> has been covering the sordid story of The Consumer Law Center, a Florida debt settlement firm run by lawyer Laura Hess and Hess Kennedy Chartered LLC. They have been under investigation by the Florida Attorney General and other state regulators, and by the Florida Bar.\u00a0 On October 8, 2008, Laura Hess agreed to disbarment<\/a>.\u00a0 On Oct. 15, 2008, Florida Attorney General Bill McCollum announced an Initiative to Clean Up Florida’s Debt-Relief Industry<\/a> (see Sun-Sentinel<\/em> article<\/a>; ). And see, “Look Out for that Lifeline<\/a>,” Business Week<\/em>, March 6, 2008; and “Insider: Confessions of a Debt-Settlement Company Worker<\/a>,” The Consumerist<\/em> (March 2008)<\/p>\n

update <\/strong><\/em>(May 9, 2009): See “ATTORNEY GENERAL CUOMO ANNOUNCES NATIONWIDE INVESTIGATION INTO DEBT SETTLEMENT INDUSTRY<\/a>: Subpoenas Fourteen Debt Settlement Companies and One Law Firm in Connection with Probe” (Press Release, NYS AG, May 7, 2009);\u00a0 and “Cuomo subpoenas debt settlement companies<\/a>” (Newsday<\/em>, by John Riley, May 7, 2009, which discusses the Allegro Law Firm<\/a>); and Consumer Reports<\/em><\/a> (March 2009), on high-fee debt settlement as a “financial trap”.<\/p>\n

Here’s what I found out about the FTC and Debt Settlement:<\/p>\n

<\/strong><\/em> <\/strong><\/em>\"\"<\/a> I<\/strong><\/em>n September 2006, the Federal Trade Commission got an injunction putting several debt negotiation firms out of business, and announced a continuing investigation. (FTC File No.: 052-3091) Its Sept. 21, 2006 Press Release, titled “FTC Stops Nationwide Debt Negotiation Scheme<\/a>,” notes:<\/p>\n

As requested by the Federal Trade Commission, a federal judge has issued a temporary restraining order against a nationwide operation that claimed it could reduce consumers\u2019 debt by up to 60 percent, leading many people into financial ruin and bankruptcy. The FTC charged five companies, including Homeland Financial Services, National Support Services and Prosper Financial Solutions, and their principals with deceptive and unfair practices in violation of Section 5 of the FTC Act.<\/p>\n

\u201cThese defendants are charged with targeting consumers who were knee deep in debt and luring them with false promises,\u201d said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection. \u201cConsumers should be leery of anyone who says they can eliminate your unsecured debt, or that you can pay it off for pennies on the dollar. Debt negotiation can be very risky.\u201d<\/em><\/p>\n

A month ago, the Commission announced the completion of the investigation, saying Debt-Negotiation Defendants Agree to Settle FTC Charges<\/a> in Nationwide Operation that Led Many Into Financial Ruin.” (Press Release, Sept. 25, 2008)\u00a0 Click here<\/a> for links to the Stipulated Orders and other important materials in FTC v. National Support Services, LLC, Dennis Connelly, et al<\/em>.\u00a0 (US Dist. Ct., CD Cal, Civil Action No.: SA CV 06-701 DOC (RNBx) ; FTC File No.: 052-3091).\u00a0 The Orders prohibit the respondent debt negotiators from continuing many of their claims and practices.<\/p>\n

\"\"<\/a> The banned activities reflect the Commission’s attitude toward the way debt negotiators conduct their business — often amounting to deceptive, misleading or unfair conduct that harms consumers. The points made in the body of the Press Release<\/a> are well worth repeating, and I will leave you with them here and beneath the fold:<\/p>\n