CFPB Sues Large Debt Settlement Company
11/10/2017 10:00 AM
Freedom Debt Relief allegedly misled consumers about negotiation services with creditors and its fees, according to the CFPB complaint.
The Consumer Financial Protection Bureau filed a lawsuit Nov. 8 alleging Freedom Debt Relief (Freedom) charged consumers fees without delivering complete debt settlement services and failed to accurately communicate its ability to engage in debt-relief negotiations with creditors.
The CFPB’s complaint, filed in United States District Court Northern District of California, alleges Freedom Debt Relief violated the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Telemarketing Sales Rule.
“The CFPB alleges that Freedom charges consumers without settling their debts as promised, 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,” according to a news release from the bureau.
“It's surprising, and very unfortunate, that the CFPB chose to act without taking the time to focus either on the facts or the utility and purpose of ‘coached settlements,’ both of which were thoroughly and completely disclosed to consumers at various points in their debt settlement programs,” Andrew Housser and Brad Stroh, Co-Founders and Co-CEOs of Freedom Debt Relief, said in a statement from the company Thursday. “The overarching assertion that we cannot and do not settle client accounts with key creditors is simply not true. In fact, since 2010, Freedom Debt Relief has settled $1.2 billion in debt (nearly 200,000 accounts) for clients who came to us with accounts from the credit card issuers mentioned in the complaint. Sadly, the CFPB paid no attention to the enormous benefits our clients realized from our active assistance in their settlement process.”
“Freedom required consumers enrolled in its debt-settlement program to deposit funds into dedicated accounts with an FDIC-insured bank. Freedom claimed that once there were sufficient funds in those accounts to make settlement offers to consumers’ creditors, Freedom would negotiate with the creditors to persuade them to accept less than the amounts actually owed,” according to the complaint.
After Freedom Debt Relief settles a debt for a consumer or a creditor stops attempting to collect the debt, the company would charge consumers fees ranging between 18 and 25 percent of the debt amount when they enrolled in the service, it states.
The CFPB alleges in its complaint that those fees would still be assessed even if consumers ultimately negotiated the debt settlement with the creditor or the creditor would not work with Freedom Debt Relief.
“Despite knowing that certain creditors would not negotiate with it, Freedom told consumers that it could negotiate all of their debts … Since at least 2013, when creditors refused to negotiate with Freedom, Freedom would tell some consumers to negotiate with their creditors directly and would give these consumers instructions on how to negotiate a settlement on their own,” according to the complaint. “When consumers acting on their own were able to negotiate a settlement with their creditors, Freedom still charged consumers its fee, usually in the thousands of dollars per enrolled debt—even when Freedom had not directly negotiated with the creditors (or, in some cases, even communicated with the creditors.)
The complaint also notes that the company’s debt resolution agreement states, “We will not charge any fee for our services until we successfully resolve a debt for you and you have made a payment toward the settlement of that debt.”
The CFPB seeks restitution for consumers, civil penalties and an injunction against Freedom Debt Relief and its CEO Andrew Housser to stop the alleged unlawful practices. The CFPB’s complaint is not a finding or ruling that the company or individual has actually violated the law.
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