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A federal judge has issued a temporary restraining order against a nationwide operation that claimed it could reduce consumers’ debt by up to 60 percent, leading many people into financial ruin and bankruptcy. The Federal Trade Commission 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.

“These defendants are charged with targeting consumers who were knee deep in debt and luring them with false promises,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection. “Consumers 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.”

According to the FTC’s complaint, the defendants have falsely claimed that, for a non-refundable fee of up to 15 percent 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 percent. To the extent that the defendants initiate negotiations with creditors, they typically have begun only after a consumer has paid 30 to 40 percent of the fee, which could be up to three months after a consumer has stopped making payments to creditors, as the defendants have advised them to do, the complaint stated. The defendants rarely have 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 percent of what they owe.

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

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.

Posted under Finance

The Internal Revenue Service released legal guidance today outlining the protections in place for the new private debt collection program.

The guidance, contained in Announcement 2006-63, describes the limited role private collection agencies (PCAs) may play in collecting back taxes and the legal restrictions and procedures in place to safeguard taxpayer privacy and taxpayer rights.

The IRS will assign delinquent federal tax accounts to three PCAs beginning Sept. 7. An initial 12,500 taxpayers who owe back taxes will be in this group, with the number reaching approximately 40,000 by year’s end.

“We’re going to implement this program very carefully so we have a good program on sound footing,” IRS Commissioner Mark W. Everson said. “We are working hard to protect taxpayer privacy and taxpayer rights.”

In addition to describing the rules that will guide PCA conduct and protect taxpayer rights, Announcement 2006- 63 also describes the type of contacts a PCA may have with a taxpayer and the procedures in place for the IRS to assist in training and monitoring PCAs.

To assist the IRS in its collection of back taxes, the 2004 American Jobs Creation Act authorizes the IRS to hire private firms to collect federal tax debts. This provision was carefully crafted by Congress and includes several limitations to ensure the private firms will be subject to the same stringent taxpayer protection and privacy rules that IRS employees work under. In addition, private firms cannot subcontract the work.

The IRS has also developed its own guidelines for the private firms, including background checks on all private firm personnel associated with the project as well as a mandatory, IRS-directed training program for company personnel.

Private firms are not authorized to take enforcement actions such as filing liens, or making levies or property seizures. In addition, private firms are not authorized to work on technical issues such as offers in compromise, bankruptcies, hardship issues or litigation. Rather, the IRS will assign to the private firms cases in which the taxpayer has not disputed the liability. The private firms will contact taxpayers to make payment arrangements.

“Redirecting relatively simple cases to private firms will permit the IRS to continue to focus its existing collection and enforcement personnel on more complex tax issues,” Everson said.

Posted under Finance

The Federal Trade Commission and the Washington State Attorney General have asked a federal judge to order Debt Solutions Inc. and three other telemarketers in Washington and Florida to stop charging consumers hundreds of dollars for a “debt elimination program” that offers a false promise of substantially reduced interest rates and thousands of dollars in savings.

The agencies jointly filed the action in U. S. District Court in Seattle, seeking an injunction against them and refund of monies paid for violations of Section 5(a) of the FTC Act, the FTC’s Telemarketing Sales Rule (TSR), and Washington’s Consumer Protection Act.

“The defendants’ so-called ‘debt elimination program’ was not the answer for consumers who found themselves in financial hot water,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection. “There are a variety of legitimate options to reduce debt, including more realistic budgeting, credit counseling from reputable organizations, debt consolidation programs, and, if need be, filing for bankruptcy. In every case, though, people should be wary of any business that claims it can negotiate substantially lower interest rates on credit cards and loans.”

According to the FTC and the State of Washington’s complaint, since at least 2002, Debt Solutions Inc., DSI Financial Inc., DSI Direct Inc., Pacific Consolidation Services Inc., Kenneth Schwartz, Jennifer Ruth Whalen, David C. Schwartz, and Greg Moses have telemarketed and sold what they call a debt elimination program by making unsolicited phone calls to consumers nationwide, and by marketing the program on several Internet Web sites, including www.debt2wealth.com and www.acceleratedfinancialinc.com. The complaint alleges that the defendants falsely represented to consumers that they would be assigned a financial consultant whose special relationships with creditors will enable the consultant to negotiate substantially lower interest rates, saving consumers thousands of dollars, reducing their monthly payments, and paying off their debts three to five times faster–all without higher monthly payments. In fact,according to the complaint, consumers who purchase the program typically do not have theirinterest rates lowered at all, and, if they do, the reductions are rarely more than one percentage point.

Consumers are promised a full refund if they do not save at least $2,500, but few consumers have received the guaranteed refund, according to the agencies’ complaint. Before buying the program for $399 to $629, the complaint alleges, consumers are not told that the promised savings may take decades to achieve, or that most of the savings will result from simply paying more money every month, not from reduced interest rates. The defendants also claim the program is endorsed by the Financial Standards Council in Canada and the Registered Financial Planners Institute of North America, but both claims are false, according to the complaint.

The FTC and the State of Washington’s complaint alleges that the defendants violated Section 5(a) of the FTC Act by falsely representing that purchasers will (1) save thousands of dollars in a short time; (2) have credit card and loan interest rates reduced substantially; (3) pay off their debt much faster without higher monthly payments; and (4) reduce their monthly credit card and loan payments. The complaint also alleges that they falsely represent that they have special relationships with credit card companies and lenders, and that their program is endorsed by the two organizations mentioned above. It also alleges that they misrepresented their money-back guarantee.

The complaint further alleges that the defendants violated the TSR and Washington state law by misrepresenting projected savings, failing to disclose the limits of their money-back guarantee, calling phone numbers listed on the Do Not Call Registry, failing to pay the required annual fee for access to DNC-listed numbers, and calling persons who had asked them to stop calling. The defendants also violated Washington state law by engaging in unfair or deceptive acts or practices and unfair methods of competition.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant actually has violated the law. The case will be decided by the court.

Posted under Customer Service

The Internal Revenue Service has awarded contracts to three firms to participate in the first phase of its private debt collection initiative.

The firms are:

The CBE Group Inc., Waterloo, Iowa.
Linebarger Goggan Blair & Sampson, LLP, Austin, Texas.
Pioneer Credit Recovery, Inc., Arcade, N.Y.

A total of 33 firms took part in the competitive bidding process that resulted in today’s contract awards.

“The vast majority of states use private firms to help collect delinquent taxes. The new authority that Congress gave to the federal government allows us to use private firms as well,” said IRS Commissioner Mark W. Everson. “We have carefully considered all of the concerns expressed about this project, which involves work traditionally done by the government. As a result, we are putting tough safeguards in place to protect taxpayer rights and privacy. We will be closely monitoring contractor performance to make sure they’re following the law as well as our own internal standards.”

To assist the IRS in its collection of back taxes, the 2004 American Jobs Creation Act authorizes the IRS to hire private firms to collect federal tax debts. This particular portion of the law was carefully crafted and includes several limitations to ensure the private firms will be subject to the same stringent taxpayer protection and privacy rules that IRS employees work under. In addition, private firms cannot subcontract the work. The IRS expects to assign uncollected liabilities to the firms beginning this summer.

The IRS has also developed its own guidelines for the private firms, including background checks on all private firm personnel associated with the project as well as a mandatory, IRS-directed training program for company personnel.

Private firms will not be authorized to take enforcement actions such as liens, levies or seizures. In addition, private firms will not be authorized to work on technical issues such as offers in compromise, bankruptcies, hardship issues or litigation. Rather, the IRS will assign to the private firms cases in which the taxpayer has not disputed the liability. The private firms will contact taxpayers to make payment arrangements.“Redirecting relatively simple cases to private firms will permit the IRS to focus its existing collection and enforcement personnel on more complex tax issues,” Everson said.

In the second phase of the private debt collection project, scheduled for 2008, the IRS intends to contract with up to 10 firms. Over the course of 10 years, the IRS expects the private firms to help it collect an additional $1.4 billion in outstanding taxes.

Posted under Finance

A group of defendants promising negotiation services that would “drastically” reduce consumers’ debts have settled Federal Trade Commission charges that their deceptive claims violated federal law and harmed consumers who engaged the defendants’ services and stopped contacting creditors. The defendants are barred from advertising or participating in any debt negotiation business in the future.

In February 2004, the FTC filed charges against Todd A. Baker; another individual, who settled with the Commission in February 2004; and two companies they owned or controlled, Innovative Systems Technology, Inc., which did business as Briggs & Baker; and Debt Resolution Specialists, Inc. (DRS). The FTC alleged that, since 1999, the defendants falsely claimed that they could substantially reduce consumers’ debts. According to the FTC, consumers who responded to the defendants’ radio and Internet ads were told that Briggs & Baker and DRS would negotiate with consumers’ creditors and settle their debts for a fraction of the amount owed. The FTC alleged that, once consumers signed up for these programs, Briggs & Baker and DRS told consumers to end all contact with their creditors and stop making payments on those accounts.

The FTC’s complaint charged that the defendants did not negotiate with consumers’ creditors to reduce or eliminate consumers’ debts as advertised, and that consumers who stopped communicating with their creditors found themselves deeper in debt, sometimes forced to pay additional charges and incur further damage to their credit ratings.

The two stipulated final orders announced today resolve the FTC’s charges against all remaining defendants in this matter. The first order, against Baker and DRS, permanently bars them from advertising or selling any debt negotiation services in the future. Baker is currently a debtor in a Chapter 7 bankruptcy case. The Baker-DRS order stipulates that the FTC will hold a general unsecured claim in Baker’s bankruptcy case of $8,959,860, the total estimated amount of consumer injury in this case, and can participate in any distribution on that claim. It also contains standard recordkeeping and reporting requirements to assist the FTC in monitoring compliance. The second stipulated final order prohibits Innovative Systems Technology – already shuttered in another Chapter 7 bankruptcy case – from conducting any further business whatsoever. Both orders bar the defendants from selling any lists of customer data.

The Commission vote to authorize staff to file the stipulated final order was 4-0. The stipulated final order for permanent injunction was filed in the U.S. District Court for the Central District of California on July 13, 2005.

NOTE: These stipulated final orders are for settlement purposes only and do not constitute an admission by the defendants of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

Posted under Customer Service

Three operations that scammed consumers out of more than one hundred million dollars by falsely promising easy debt relief have settled Federal Trade Commission charges that their business practices were illegal. According to the FTC, in some cases, consumers’ debt, interest rates, and penalties increased and some consumers were forced into bankruptcy. The companies and their principals will pay more than $6 million combined in consumer redress and are permanently barred from making deceptive claims about debt-related services. Two of the operations and their principals also are barred from engaging in abusive telemarketing practices, following FTC charges that they repeatedly called consumers on the National Do Not Call Registry.

“Consumers who want to get out of debt are looking for services to help relieve their financial troubles, not make them worse,” said Lydia Parnes, Acting Director of the FTC’s Bureau of Consumer Protection. “The FTC is committed to ridding the debt services industry of companies who shatter consumer confidence and hurt legitimate businesses’ ability to help consumers.”

National Consumer Council Actions

In May 2004, the FTC filed a complaint against a group of companies and individual defendants, fronted by “National Consumer Council” (NCC), a purported nonprofit organization, that solicited customers through an aggressive telemarketing and direct mail advertising campaign that falsely promised free debt counseling. In fact, NCC’s role in the scheme was simply to generate leads for the other defendants, who then charged consumers thousands of dollars in fees to enroll in their debt negotiation programs. The defendants deceptively claimed these programs were an effective way to stop creditors’ collection efforts and eliminate their debts. The FTC alleged that the defendants failed to disclose important information to consumers before they enrolled, including the fact that very few people were able to reduce their debts through the debt negotiation programs; consumers would suffer late fees, penalties, and other charges; and that participation in the program might hurt their credit rating. A court-appointed receiver determined that less than two percent of the consumers who enrolled in the defendants’ debt negotiation programs – 638 out of 44,844 consumers – actually completed them.

The FTC’s complaint also alleged that the defendants violated the Telemarketing Sales Rule (TSR), including the National Do Not Call Registry provisions, by calling consumers who had placed their phone numbers on the Registry and claiming that NCC was a nonprofit organization exempt from the Do Not Call requirements. The complaint further alleged that some of the defendants violated the Gramm-Leach-Bliley (GLB) Act by failing to inform consumers how their personal financial information would be used.

At the FTC’s request, a federal district court appointed a receiver over defendants National Consumer Council, an Arizona corporation; National Consumer Council, a California corporation; National Consumer Council, a Nevada corporation, London Financial Group; National Consumer Debt Council, LLC; Solidium, LLC; J.P. Landis, LLC; Financial Rescue Services, Inc. (FRS); Signature Equities, LLC; M&L Springfield Trust; PC Hailey Trust; Via Lido Trust; and United Consumers Law Group. The receiver has returned approximately $24 million in consumer funds held in defendants’ trust accounts. The receiver also is winding down the corporations’ business operations.

Consumer Help Web Reaction

Consumer Help Web spoke with a consumer advocate who wished to remain nameless about the companies. “I saw them working the crowd at a well known consumer conference,” he said. “They seemed more interested in the public relations aspect of consumer affairs, but I knew something was wrong when they began badmouthing the BBB.” The advocate reported that he later found out the Better Business Bureau had given the National Consumer Council an unsatisfactory rating.

Posted under Customer Service