Consumer Law In the News

FTC: Some Bite Behind the Bark

As this release from the FTC makes clear, the federal agency charged with so much oversight over the economic lives of consumers won’t hesitate to proceed against the unscrupulous and unethical among us who make false promises to those of us dealing with crushing debt.

Calling what the defendants in FTC v. Connelly et al. created a “debt negotiation scheme” is something like calling the recent bankruptcy amendments “Consumer Protection” - though perhaps not quite that laughable. These companies, including Homeland Financial Services, National Support Services and Prosper Financial Solutions, claimed that they could reduce consumers’ debt loads by up to 60%. Of course, people who were desperate for relief believed them - the result being bankruptcy, financial ruin, and completely trashed credit scores. From the press release:

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.

The FTC complaint in the underlying legal action rests on alleged violations of Section 5 of the FTC Act, and charges the defendants with UDAP - unfair and deceptive acts and practices, in furtherance of their “debt negotiation scheme.” The judge in the case issued a temporary restraining order against the defendants. While this is not a final judgment, it is a good move and a win for the FTC, since TROs are usually granted only on a fairly strong showing by the party seeking the order.

The FTC has placed some of its work product in this case on its website in PDF format:

• Complaint
• Temporary Restraining Order

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