FTC Takes Aim at Another Credit Counseling Firm
The Federal Trade Commission has cracked down on another consumer debt counseling firm for allegedly deceiving consumers about its debt negotiation efforts and charging undisclosed fees.
The FTC has filed a complaint against the National Consumer Council, based in Santa Ana, Calif., and a U.S. District Court judge issued a restraining order that has shut down the organization, at least temporarily. A court hearing is scheduled for May 24.
The FTC alleges that NCC debt negotiation programs are largely "ineffective" and many consumers end up filing for bankruptcy.
The FTC, under chairman Timothy Muris, has filed several legal actions against consumer counseling agencies, including AmeriDebt, based in Germantown, Md., for engaging in deceptive practices that harm consumers.
Mr. Muris unexpectedly announced on May 11 that he plans to step down as chairman this summer. President George Bush has nominated a Justice Department attorney, Deborah P. Majoras, to replace him.
In the National Consumer Council case, the FTC found that the firm encourages consumers to stop paying their debts once they sign up for a debt reduction program. But NCC usually does not begin negotiating with creditors until the client's accounts are six months delinquent, the FTC says in the complaint.
This prompts creditors to become more aggressive in their collection efforts, which can result in additional penalty fees and higher interest rates.
Meanwhile, consumers are making monthly payments to a trust account, which NCC taps for an upfront fee and a monthly fee.
NCC takes "hundreds of dollars from the consumers' monthly payments as fees, which they do not always disclose," the FTC said. "As a consequence, many consumers are shocked to see that after making hundreds of dollars of payments to the defendants [NCC], their debts actually have increased."
The FTC also charged NCC and an affiliated firm, London Finance Group, Irvine, Calif., with violating telemarketing rules by calling consumers who are registered on the national do-not-call list. The two firms could not be reached for comment.
London Financial Group, which provides telemarketing services to NCC along with accounting, business administration and trust management, also temporary closed its doors due to the restraining order. The court judge also appointed a temporary receiver for LFG.
The Consumer Federation of American welcomed the FTC's action.
"We applaud the FTC for moving to protect consumers from debt settlement firms that make wild claims, charge consumers outrageous fees and destroy their credit records by urging them not to pay their bills," CFA legislative director Travis Plunkett said.
In November 2003, the FTC filed a complaint against AmeriDebt, alleging the firm misrepresents its fees to consumers. An AmeriDebt executive said the firm would "defend itself vigorously against the FTC complaint."
However, the debt-counseling firm stopped taking on new clients after the FTC filed the complaint.
On April 5, Maryland's Department of Labor, Licensing and Regulation rejected AmeriDebt's application for a state license after the firm failed to respond to requests for additional information.
After the firm failed to appeal the decision, the state started transferring 5,000 AmeriDebt clients who are Maryl-anders to debt management firms that are licensed by the state.
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