Attorney General Cuomo Sues Debt Settlement Companies For Deceiving And Harming Consumers
NEW YORK, NY (May 19, 2009) - Attorney General Andrew M. Cuomo today announced a new development in his nationwide investigation into the debt settlement industry, filing suit against two debt settlement companies for fraudulent business practices and false advertising. Cuomo filed suit against CSA-Credit Solutions of America, Inc. (“CSA”), based in Richardson, Texas, which is one of the largest debt settlement companies in the country. He has also filed suit against Nationwide Asset Services, Inc. (“NAS”), based in Phoenix, Arizona, along with its affiliates - ServiceStar LLP and Universal Debt Reduction, LLC - and its marketer, FGL Clearwater, Inc. d/b/a American Debt Arbitration, based in Florida.
Cuomo also today launched a website - www.NYDebtHelp.com - that explains consumer rights, allows victims of debt settlement companies quick access to the Attorney General’s office to file complaints, and outlines the stages of the Attorney General’s investigation. Earlier this month, the Attorney General subpoenaed fourteen debt settlement companies and one law firm as part of his ongoing investigation.
According to the Attorney General’s lawsuits, Credit Solutions of America and Nationwide Asset Services have engaged in fraudulent and deceptive business practices and false advertising in connection with their debt settlement businesses. These companies have made millions of dollars on the backs of New Yorkers by selling misleading debt settlement plans that very rarely deliver the promised benefits to consumers dealing with debt. The lawsuits seek to obtain restitution and damages for consumers and to prevent these companies from engaging in deceptive practices.
“These companies are taking advantage of people in New York and throughout the entire country who are facing tremendous economic hardship,” said Attorney General Cuomo. “These companies claim to be the light at the end of the tunnel, but time after time they have shown that they only add to the burdens of Americans dealing with debt. Today’s lawsuits send a clear message that we are prepared to rein in this unregulated industry and protect New Yorkers who are proactively trying to work their way out of debt.”
Debt settlement companies represent that they can substantially reduce consumer debt by negotiating directly with creditors, on behalf of their customers, to pay off outstanding balances at less than the amounts owed.
Approximately 18,000 New Yorkers signed up as customers of Credit Solutions of America between its inception in January 2003 and September 2008. CSA promised a sixty percent reduction in its consumers’ outstanding debt, but an average of one percent of consumers received that savings. Many consumers have faced continued harassment and lawsuits by their creditors, despite CSA’s promise to intervene on their behalf. CSA has collected approximately $17 million in fees from New York-based consumers.
Approximately 2,000 New Yorkers became customers of Nationwide Asset Services, Inc. between January 2005 and May 2008. NAS promised a twenty-five to forty percent reduction in its consumers’ outstanding debt, but only one-third of one percent of consumers received that savings. Customers suffered continued harassment and lawsuits by creditors and had their credit ratings destroyed.
President & CEO of the Empire Justice Center Anne Erickson said, “We commend Attorney General Cuomo for fighting the fraud and abuse that have become characteristic of the unregulated debt settlement industry. Many of the companies in this industry are simply taking advantage of consumers who are working hard to manage their debt obligations. They prey on desperation, offering false hope and no help, often driving these consumers even further into debt and ruining their credit. The Attorney General’s recent actions should put all bad actors on notice. The time to clean up this industry is long overdue and we applaud the Attorney General for recognizing and responding to this critical need.”
National Consumer Law Center Deputy Director Carolyn Carter said, “Debt settlement companies that are fraudulent leave consumers in worse shape and with less money. I applaud Attorney General Cuomo for taking on this industry and working on behalf of the millions of hard-working Americans who are dealing with debt.”
As part of his broad investigation of the debt settlement industry, earlier this month Cuomo issued subpoenas to fourteen debt settlement companies and one law firm. The subpoenas included requests designed to uncover the companies’ fee structures, how many people have benefitted from the companies’ services, and what kind of relief the companies are actually providing.
The debt settlement plans offered by these companies are often flawed and, based upon consumer complaints, it appears that many consumers are being misled regarding the nature of the services offered by these companies. The debt settlement plans are generally premised on consumers aggregating savings, over one to three years, from which both the payment of the company’s fees and any negotiated settlement are to be made. Yet most consumers who are targeted by these companies are unable to meet the savings requirements because of their precarious financial situation. In addition, the companies often take their fees up front and keep these fees even when they do not provide the promised services.
Some debt settlement companies urge consumers to seek additional sources of funds. Credit Solutions of America suggested that consumers mow lawns, cut down on car insurance, borrow from their neighbors and church, as well as sell their blood plasma to garner additional funds. Even for those consumers who can meet the requirements set out by a plan, their amount of aggregated savings is ordinarily insufficient to settle their debts. As a result, many consumers find themselves worse off financially because of these debt settlement plans.
Many consumers may benefit more from working directly with their creditors, seeking credit counseling, or consulting an attorney about filing for bankruptcy. Additionally, even when enrolled in a debt settlement plan, consumers are often still subjected to collection efforts and lawsuits filed by their creditors. Consumers are even told not to discuss their debt situation with creditors.
Consumers who believe they are being defrauded by a debt settlement company are urged to contact the Attorney General’s office at 800-771-7755 or www.ag.ny.gov.
The lawsuit against Nationwide Asset Services, Inc. is being handled by Assistant Attorney General James Morrissey of the Attorney General’s Buffalo Regional Office. The lawsuit against Credit Solutions of America, Inc. is being handled by Assistant Attorney General Herbert Israel, Special Assistant Attorney General Stephen Mindell, Senior Enforcement Counsel David Holgado, and Acting Deputy Chief Darcy Goddard, under the supervision of Consumer Frauds Bureau Chief Joy Feigenbaum.
The following are some helpful information tips for consumers faced with significant credit card debt:
- Be wary of debt settlement companies which falsely promise to obtain substantial lump sum debt reduction settlements. Many advertise "reduce debt now," and claim as much as 50% to 75% off credit card debt, but rarely obtain advertised reductions.
- Never agree to sign a contract with a debt settlement company that requires payment in advance prior to obtaining the promised debt reduction.
- Enrollment in debt settlement plans may not stop creditors from bringing collection law suits, or prevent enrolled accounts from growing larger by the addition of late fees, interest, and penalties. Also, credit reports will reflect derogatory information, including assessed late charges and non-payment of debt, and consequently credit scores will be adversely affected.
- Creditors are under no legal obligation to accept a settlement offer for less than the outstanding balance owed.
- Only a small number of consumers who enroll in debt settlement plans have the financial means to complete them. Usually, they drop out after having paid service fees to the companies with no settlements.
- Enrollment in a debt settlement plan premised on stopping payments to creditors will likely lead to more frequent and aggressive creditor collection efforts often resulting in judgments, wage garnishments, and freezing of bank accounts.
- Check with the Better Business Bureau to obtain a Reliability Report on a particular debt settlement company and its rating.
- A wise first step to help resolve an outstanding account is to speak directly to the credit card issuer. Alternatively, it may be helpful to speak to an attorney or an accredited credit counselor who can help develop a plan of action that best works for each consumer's unique situation.