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FTC shuts down debt relief company that made bogus claims about getting consumers out of debt

Debt Relief USA has signed an agreement with the Federal Trade Commission to settled charges that it allegedly lured consumers nationwide into paying thousands of dollars in up-front fees, but in most cases failed to actually reduce their credit card debts, and in many cases left them deeper in debt.

Settlement halts operation and bans financial activities of two principals

The proposed FTC settlement orders the company to close down and bans company principals James Wojcik and Valerie Leath from marketing financial products and services. Legal action continues against the two other principals, Kelly Reilly and Alvin Bell, the FTC said in a statement.

Past Due Note Debt Relief USA and its principals made deceptive claims that consumers who enrolled in their program could eliminate 40 to 60 percent of their credit card debt and be out of debt in 24 to 48 months, according to the FTC’s lawsuit. The FTC also charges that few consumers received the promised results.

The proposed settlements impose a $19.7 million judgment against Wojcik and Leath, which will be suspended because of their inability to pay, according to the FTC. 

Company files for bankruptcy; Texas consumers receive refunds

Debt Relief USA has declared bankruptcy. Through settlement of a separate action brought against the company by the Texas attorney general, consumers have received $3.7 million in refunds from the company’s bankruptcy proceedings and will receive additional money soon. 

The FTC participated in the bankruptcy proceeding and worked with the Texas attorney general on refunds for consumers. Because the Texas settlement provided refunds to consumers, the FTC’s settlement with the company doesn’t include them.

FTC warnings about debt relief companies

Consumers looking for help with credit card debt should be wary of anyone who tells them to stop paying their bills, to pay someone other than their creditors, or to stop talking to their creditors, the FTC advises. Consumers should also be careful about paying for financial assistance before they receive it. 

For more information on dealing with debt, including public service announcements about avoiding debt relief scams, see the Debt Relief Services page of the FTC’s Money Matters website for consumers.

New rule protects consumers seeking debt relief services

Changes made last year to the FTC’s Telemarketing Sales Rule prohibit companies that sell debt relief services over the phone from charging fees before they settle or reduce a customer’s credit card or other unsecured debt. The ban on advance fees protects all consumers who have enrolled in a debt relief service since October 27, 2010. 

For more information about the advance fee ban see: Debt Relief Companies Prohibited From Collecting Advance Fees Under FTC Rule.

Copyright 2011, Rita R. Robison, Consumer Specialist

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