CFPB, State AGs Sue Debt Relief Company Over Disproportionate, Premature Fees

A debt relief company faces a lawsuit brought by the CFPB and seven state attorneys general over allegations that the company collected disproportionately high fees from consumers for debt relief services prior to providing such services.  The action was brought against the company, its individual owners, and dozens of subsidiaries and alleges violations of the Telemarketing Sales Rule, CFPA, and various state laws.

The debt relief company allegedly established a wide network of subsidiaries and partnered with law firms, which the plaintiffs allege were “facades” that performed little to no work for consumers, to market and provide debt relief services to consumers.  Upon enrollment in the debt relief program, consumers were allegedly required to make monthly payments into an escrow account that was intended to be used to settle the consumers’ debts.  The company then allegedly withdrew fees from the escrow account before it settled at least one of the consumers’ debts and before the consumer made at least one payment pursuant to a settlement plan.  The fees were allegedly in an amount neither proportional to the amount of debt actually settled nor based on a fixed percentage of the amount saved.

The plaintiffs seek a permanent injunction, equitable relief, and civil money penalties.  The court has already granted a temporary restraining order against the defendants, including an asset freeze, appointment of a temporary receiver, and expedited discovery as to the existence and location of the defendants’ assets and documents.