Deceiving consumers, including charging them without settling their debts as promised, are among several charges brought against the nation’s largest debt settlement services provider in a lawsuit brought Wednesday by the Consumer Financial Protection Bureau (CFPB).
The lawsuit, filed against Freedom Debt Relief (of San Mateo, Calif.) and its co-CEO Andrew Housser, also alleges that the company makes customers negotiate their own settlements, misleads them about its fees and the reach of its services, and fails to inform them of their rights to funds they deposited with the company.
The consumer agency said it is seeking compensation for harmed consumers, civil penalties and an injunction against Freedom and the executive to halt unlawful conduct.
In a release, CFPB said that, in its operations, Freedom claims it has successfully negotiated and settled more than $7 billion in debts for more than 300,000 consumers. Using telemarketing contacts with prospective customers, CFPB said Freedom learns who consumers’ creditors are, the amounts owed to each, and the nature of the debts.
CFPB said that Freedom requires customers enrolled in its debt-settlement program to deposit money into dedicated accounts with an FDIC-insured bank. The firm then tells consumers, CFPB said, that when the accounts have sufficient funds to make settlement offers, Freedom will negotiate with consumers’ creditors to persuade them to accept less than the actual amounts owed. When a debt is settled, Freedom charges consumers fees that range between 18% and 25% of the amount of debt the consumer owed on the day they signed up for the program.
“The agreement Freedom offers to consumers claims that, in general, all creditors will negotiate with Freedom,” the consumer bureau said in its release. “Yet Freedom knows that some creditors refuse to negotiate with debt-settlement companies. In these instances, Freedom sometimes ‘coaches’ consumers instead of dealing with creditors directly. Freedom also tells consumers it will charge a fee only when it negotiates a debt settlement and consumers make a payment. But Freedom charges its full fee even when creditors simply stop collections without a settlement and when consumers negotiate settlements on their own. The company also fails to clearly disclose consumers’ rights to their account funds when they withdraw from the program.”
The bureau said the practices violate the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Telemarketing Sales Rule.
Specific charges in the CFPB lawsuit allege that Freedom:
- Misleads consumers about creditors’ willingness to negotiate.
- Deceives consumers about the extent of its services.
- Deceives consumers about its fees.
- Fails to disclose consumers’ rights to funds:
The agency said Housser, as Freedom co-CEO (who continues to exercise managerial responsibility for the company) similarly engaged in practices that violate Dodd-Frank and the Telemarketing Sales Rule.