Debt Elimination’ Defendants Settle FTC Charges

[debtcollector`]

Debt Elimination’ Defendants Settle FTC Charges

A group of telemarketers have agreed to settle Federal Trade Commission charges that their “debt elimination program” violated federal and state laws by falsely promising consumers substantially reduced interest rates and thousands of dollars in savings. Under the proposed settlement, two business owners are permanently barred from engaging in any debt negotiation or debt elimination business.

According to a complaint filed by the FTC and the Washington State Attorney General, the defendants made unsolicited phone calls to consumers nationwide and marketed the program on Internet Web sites, including [url]www.debt2wealth.com[/url] and [url]www.acceleratedfinancialinc.com[/url]. The complaint alleges that they falsely told consumers that a financial consultant with special relationships with the consumers’ creditors would negotiate substantially lower interest rates for them, resulting in reduced monthly payments and elimination of debt three to five times faster than otherwise would be possible. Consumers, who paid $399 to $629 for the program, allegedly were not told that the promised savings were based on projected savings that would result from simply paying more than the monthly minimum on their credit card debts over an extended period of time and not from reduced interest rates on the credit card debts. Because the defendants’ financial program almost always showed guaranteed savings of at least $2,500, even though it might take decades to achieve, few consumers received refunds.

The defendants allegedly violated Section 5(a) of the FTC Act by falsely claiming that purchasers would save thousands of dollars in a short time, have credit card and loan interest rates reduced substantially, pay off their debt much faster without higher monthly payments, and have reduced monthly credit card and loan payments. They allegedly violated the FTC’s Telemarketing Sales Rule and Washington state law by misrepresenting projected savings, failing to disclose the limits of their money-back guarantee, calling phone numbers listed on the National Do Not Call Registry, failing to pay the required annual fee for access to DNC-listed numbers, and calling people who asked them to stop calling.

The settlement permanently prohibits the defendants from engaging in the violations alleged in the complaint and imposes a judgment of $23,255,420, which will be suspended due to their inability to pay. The judgment will be imposed if they are found to have misrepresented their financial condition. The defendants are Debt Solutions Inc., DSI Financial Inc., DSI Direct Inc., and Pacific Consolidation Services Inc., and their two owners, Kenneth Schwartz and Jennifer Whalen, who are permanently barred from engaging in any debt negotiation or debtelimination business, and telemarketing sales managers David Schwartz and Greg Moses.

The Commission vote to authorize the staff to file the stipulated order was 5-0. The
order was filed in the U.S. District Court for the Western District of Washington at Seattle on
May 22, 2007.

[Chien]

Seemed like an appropriate addition:
Credit 'repair' could leave you in a fix
We'll repair your credit, guaranteed!
Correct negative information on your reports!
Excellent for late payments!
Credit repair companies, which are rampant on the Internet, appear to be providing a wonderful service. Just imagine — negative items on your credit report could be wiped out with only a few easy payments.
Keep imagining.
Websites that claim to erase bad credit usually are operating outside the law and seldom get tangible results, according to the Federal Trade Commission and other agencies.
Even credit repair companies that stay away from some of the most bogus of claims — including promises that they can wipe out legitimate reports of late payments — break the law as soon as they charge upfront "registration" or "setup" fees.
In all, the FTC has gone after about 70 credit repair companies. Last year it went after 20 of them at once in a crackdown called Project Credit Despair.
Still, that's only a small number of the companies that offer the service, according to the director of the FTC's Midwest region, Steve Baker, who spearheaded the project.
"I remember the head of our consumer protection bureau saying a few years ago [that] she had never seen a legitimate credit repair company," Baker said. "And I don't think we have yet."
Credit repair companies should not be confused with those that do debt counseling, which is a different business (although the FTC and other agencies have gone after some of them too).
The first thing a credit repair company usually does is obtain reports for the client from the major credit reporting bureaus. And for this, they sometimes charge a fee.
If that's all they do, no law has been broken, although they often avoid — at least on their websites — letting clients know that the reports can be easily obtained for free by anyone once a year.
But if the next step for "repair" work involves a payment, then the company is violating federal and California laws.
"They can't charge money until the services they promise have been performed," said Gayle Weller, a government program analyst in the California attorney general's office.
"If all they say is that they're going to write letters of dispute for you to challenge some of the negative items in the report, then they can get paid after they write the letters."
That state law — enacted in 1984, long before the Internet was in general use — applies not only to California-based credit repair companies but also to those that do business with anyone in the state. The 1997 federal law has many of the same provisions, including no payment before work is completed.
But you wouldn't know that by looking at credit repair websites. Almost all of them charge an initial fee that can be as low as $20 and as high as $100. Additional fees usually follow and can amount to several hundred dollars over time.
Then there's the question of what these companies do for their fees. If a credit repair company's main role is to "challenge items on a report that might well be inaccurate, then its service is hardly worth paying for.
The credit reports that come from the free, no-strings website AnnualCreditReport.com (not to be confused with numerous commercial sites that eventually charge for report services) enable consumers to dispute inaccurate information online or by mail.
And those challenges can reap results.
"There are real mix-ups," Baker said. "A charge is made under a wrong name, a bill that was paid is still on there. Under the law, you have the right to have those fixed."
But if dings — late payments, outstanding bills or a bankruptcy — are accurate, there is no legal right to get them removed.
That's where errant credit repair companies cross the line.
Bad Credit B Gone is one company that was charged by the FTC as part of Project Credit Despair. It promised it could deliver "the credit you always dreamed of" by wiping out 80% of the negative information on a report within three months.
"They claim there is some kind of loophole that allows them to get this stuff removed," Baker said.
"What these companies do is dispute all the negative information on the credit report, with no documentation or anything like that saying the information is wrong."
The law requires credit bureaus to verify information that is correct. That's a loophole some credit repair firms say they are able to exploit to their clients' advantage.
There was no loophole for Bad Credit B Gone. It was ordered by a federal court to pay fines and restitution and was barred from claiming that it could remove negative yet accurate information from reports.
But the loophole pitch lives on. DSI Solutions, another online credit repair company, says on its website, at [url]http://www.repairyourbadcredit.com[/url] , that when a credit bureau is challenged on a negative item, "The fact is, either they'll not respond with the right evidence or not bother with our dispute at all.
"Then just like that, the three months of late payments, according to your credit record, never even happened."
Not true, Baker said. A credit bureau doesn't commonly roll over like that. And most negative items can be verified electronically in seconds.
Scott Elhenicky, chief executive of Chicago-area-based DSI Solutions, declined to discuss the company's practices.
The FTC usually doesn't go after a credit repair company unless it receives complaints. And it gets only a relatively small number of these.
"In general," Baker said, "about 92% of people caught up in frauds never complain. And in credit repair, it's much worse.
"They are so embarrassed — they have got themselves in financial trouble and they don't want to talk about it."
The lure of an almost-magical solution is too great to pass up, even for those who are otherwise rational.
"Almost universally," Baker said, "these are people down on their luck. It could be a divorce, major medical bills, losing a job. It could be any of us.
"And that's when you get victimized.”