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WBK Industry News - Federal Regulatory Developments

FTC and Florida AG Awarded $23 Million from Owner of Debt Relief Companies

The FTC, in conjunction with the Florida Attorney General, prevailed in a suit against the individual owner of a group of debt relief companies for fraudulent debt relief activities and for violations of telemarketing requirements.

In FTC v. Life Management Services of Orange County, LLC, the FTC and the Florida Attorney General sued a group of 13 companies which offered debt relief services, along with the owner of all of the companies and six other employees, in the U.S. District Court of the Middle District of Florida.  The suit alleged violations of the FTC Act, the Florida Deceptive and Unfair Trade Practices Act, and the Telemarketing Sales Rule.  All of the corporate defendants, and all of the individual defendants other than the owner of the companies, previously settled.

On summary judgment, the court found that the companies had engaged in two debt relief programs.  First, the companies told consumers with credit card debt that they could get the consumers lower credit card interest rates.  In fact, the companies would get the consumers new credit cards with temporary, promotional zero percent interest rates and then direct the consumers to transfer their existing credit card debt to the new cards.  The companies would keep the consumers’ interest rates at zero percent by repeatedly obtaining new cards with zero percent introductory rates and transferring balances when the previous introductory rate expired.  Second, the companies operated a “debt-elimination” program where they had consumers stop making payments on credit card debt, and then negotiated a settlement of the debt with the credit card companies after the accounts went into default.

The court found that the owner was personally responsible for the actions of the companies since he had actual control of the companies, had knowledge that they were engaging in these activities, and had directed much of this conduct.  Further, the court found that the companies had misled or defrauded consumers in several ways.  Among other things, the companies: 1) falsely told consumers that the companies were affiliated with the consumers’ credit card issuers, and gave other inaccurate information about the identity of the companies; 2) did not fully and clearly inform consumers about the costs and fees they would be charged under the programs; 3) made misrepresentations regarding the amount of money the consumers would save and how long it would take the consumers to pay off their debts; 4) told consumers that they would receive permanent zero percent interest credit card rates, as opposed to explaining that the consumers would be signed up for a series of temporary zero percent rates; 5) failed to disclose that the programs could negatively affect the consumers’ credit scores, could result in accounts being put into collections, or could result in the consumer owing additional fees or interest to the credit card companies; and 6) falsely told consumers that some of their debt would be paid by government programs or as a result of lawsuits against the credit card companies.

In addition, the court found that the companies violated the Telemarketing Sales Rule by making telemarketing calls to people who were on the FTC’s Do Not Call Registry, by making telemarketing calls which delivered prerecorded messages to people who had not consented to receiving such calls, and by charging up-front fees before certain work had been performed for the consumer.

As relief, the owner was ordered to pay $23 million to be used as restitution for consumers.  Further, he was permanently barred from engaging in any type of telemarketing or debt relief business, and has to submit to rigorous recordkeeping and compliance obligations to the extent he operates any other type of business in the future.

The Court’s order and opinion is available here.