FTC Wins Restraining Order Against ‘Debt Relief’ Operation

At the request of the Federal Trade Commission, a federal judge in California has issued a temporary restraining order against a nationwide online marketing operation that claimed it could reduce consumers’ debt by up to 60%, which the FTC said led 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.

According to the complaint, they allegedly operated through the following Web sites:

* www.homelandfinancial.net.

* www.prosperfinancial.net.

* www.freedomfinancial.com.

* www.uniteddebtrecovery.com.

* www.uniteddebtservices.com.

* www.united-debt-recovery.com.

* www.usadebtco.com.

The FTC charged that the defendants falsely claimed that, for a non-refundable fee of up to 15% of a consumer’s unsecured debt, they could reduce all of their unsecured debts, including credit card balances and medical bills, by as much as 40% to 60%. To the extent that the defendants initiated negotiations with creditors, they allegedly typically began only after a consumer has paid 30% to 40% of the fee, which could be up to three months after a consumer has stopped making payments to creditors, as the defendants advised them to do.

The defendants rarely negotiated settlements with all of a consumer’s creditors, and even when they have successfully negotiated an account, in many cases, the settlement amount is significantly more than 60% of what they owed, the FTC continued.

In many instances, the defendants have not contacted a consumer’s creditors to offer a settlement, and consumers who have stopped making payments have been sued by creditors or debt collectors, resulting in garnishment of their wages, additional interest charged to their account, interest rate increases, and late fees.

According to the complaint, many consumers who enrolled in the defendants’ program have seen their credit rating worsen substantially, and typically within six months of enrolling, most consumers left the program and found that their debt has grown as a result of penalties, fees, interest, and other charges, the complaint continued.

The FTC charged the defendants with misrepresenting how much they could reduce consumers’ debt; not adequately disclosing the likelihood that consumers would be sued if they took the defendants’ advice and stopped making payments to creditors; not disclosing that consumers’ account balances would grow from interest, interest rate increases, late fees, and other charges; and falsely advising consumers that negative information that appeared on their credit report as a result of participating in the defendants’ program would be removed upon completion of the program.

On Aug. 9, the court issued a temporary restraining order against Homeland, National, United Debt Recovery LLC, Freedom First Financial LLC, and USA Debt Co, LLC, and their principals, Dennis Connelly, Richard Wade Torkelson, and Joanne Garneau (doing business as Prosper Financial Solutions).

The order froze the assets of Connelly and appointed a temporary receiver over the defendants’ businesses. On Aug. 11, the court extended the asset freeze to Torkelson and Garneau. A hearing on the issuance of a preliminary injunction and the appointment of a permanent receiver is set for Oct. 11