The defendants claimed their “debt invalidation” program could eliminate credit card debts by helping customers fight credit reporting agencies, dispute debts and sue debt collectors.  They also promised access to legal services, which they claimed could get their customers monetary damages from lawsuits against debt collectors.  The defendants’ marketing materials claimed their “debt invalidation” program could eliminate customers’ debt in as little as 12 to 18 months by relying upon federal consumer protection laws.

According to the Texas enforcement action, the defendants are unlawfully operating an unregistered credit services organization (CSO).  Under the Texas Credit Services Organization Act, CSOs must register with the Secretary of State AND obtain a surety bond or surety account.  The defendants have done neither.

The enforecement action also charges the defendants with DTPA violations, including not providing services as advertised and withholding information about goods or services when entering into a transaction.  The state seeks penalties of up to $20,000 per violation of the DTPA, restitution for Texans harmed by the defendants’ business practices, and attorneys’ fees.

Court documents show the attorney general requested an asset freeze which was granted by a Harris County district judge.  The state sought the asset freeze because investigators believe the defendants are improperly withholding $500,000 in customers’ payments that should have been applied to debt relief services.

Texans who believe they have been deceived by these defendants or other companies with similar fraudulent business practices should call the Office of the Attorney General at 1-800-252-8011 or file a complaint online at www.texasattorneygeneral.gov

My client was trying to do the morally right thing. Now JC Penney’s won’t receive any money from my client since he has decided to file for bankruptcy.

A recent article on MSNBCcom notes that bogus debt collectors are on the rise.  Bogus debt collectors frequently violate the Fair Debt Collection Practices Act by threatening arrest, prosecution, or garnishment on debts.   These threats must be successful as the stories of debt collectors calling or billing on these non-existent accounts increase every day.   Even my non-computer savvy 73-year-old mother recently got a bill from a debt collector which stated it was collecting on a debt from her deceased husband’s illness.   Only problem was, is that her husband died 9 years ago and never was treated in the state where the original medical provider operated.   

The MSNBC article provided good direction:

1.  Ask that the debt be verified, in writing.

2.  Call the original creditor to verify that the debt (if you do owe a debt) was sent to the debt collector.

3.  Do not give (or verify) any personal information to the debt collector  until you are positive it is a legitimate outfit.

When Debt Relief USA Inc. of Addison, Texas filed for bankruptcy protection in the Northern District of Texas in June of this year, many financially distressed consumers found their debt situation worsened.  Instead of getting the debt relief they were promised - they received no assistance (that they had paid for) and are now being pursued by collection companies.

Debt Relief USA targeted individuals with thousands of dollars in unsecured debt, promising customers it would make them “debt-free in as little as 36 months.”  Under their program, debtors would stop paying their debts in order to save the money they would have paid creditors over time.  Instead, debtors would pay monthly installments to Debt Relief USA, which promised to later negotiate settlements at lower pay-offs with their creditors.

Investigators from the Texas Attorney General’s office found that Debt Relief USA assessed an “administration fee” of approximately 8 percent of each customer’s total debt, as well as monthly “maintenance fees” of up to $40.00.  If the company successfully settled a debt, it then charged a “negotiation fee” of 13 percent of the amount of debt saved.

Court documents filed with the bankruptcy court by the Texas Attorney General state that the fees Debt Relief USA collected are considered “set-aside” funds.  Texas law (Texas Finance Code) prohibits set-aside funds unless a company is licensed or registered and has posted a bond with the Office of Consumer Credit Commissioner.  Debt Relief USA did not meet the registration or bond requirements.  As a result, the Texas Attorney General has filed a proof of claim in the bankruptcy case seeking restitution for debtors who have been financially harmed by Debt Relief USA and for the return of any fees paid to Debt Relief USA by current or former clients.

Additionally, the office of the Attorney General moved to protect the Debt Relief USA’s clients’ privacy by having their names and confidential information removed from the public record.  

The AG’s office also succeeded in having the case converted from a Chapter 11 reorganization to a Chapter 7 liquidation.  The Chapter 7 trustee’s duties include liquidating Debt Relief USA and paying claims to creditors.

Texans who believe they have been deceived by similar fraudulent business practices should call the Office of the Attorney General’s toll-free complaint line at 1-800-252-8011 or file a complaint online at www.texasattorneygeneral.gov