AFSCME 3357-HOF'S BLOG

FTC Sues Ameridebt

The FTC has finally started taking action against credit counselors. I've talked before about the problems with the credit counseling industry. Misrepresentations and conflicts of interest abound. Most of the customers don't know that the counselors take back-end "fair share" (their words) payments from the creditors. These "fair share" fees are a percentage of the debt paid. In other words, the counselors get more money the more debt is paid. Imagine if an attorney was hired to negotiate the best terms to get out of debt and the attorney took a back-end payment from the other party that increased as more debt was paid, the attorney's license would be gone in a heartbeat. And what are non-lawyers doing negotiating contracts on behalf of consumers in the first-place?

Secondly, when the counselor gets fees from the consumers and from the creditors, what are the odds that the consumer will get unbiased advice regarding bankruptcy as an option.

The biggest problem that I have seen as a consumer lawyer is that the counselor takes the first month's payment as a "voluntary" contribution. This means that an account that is two months late becomes three months late before the money even hits the counselor's office. By the time it is disbursed, the account might be four months late or more. Instead of improving the consumers credit, the counselor actually hurts the credit. The consumers also aren't told that when accounts are settled short, that is a negative mark on the credit report even if the account is eventually paid.

The AP Miami Herald article includes the quote below regarding increasing complaints against credit counselors:

Complaints against such companies are increasing, according to Edward Johnson, president and chief executive of the Better Business Bureau-Washington D.C. In 1998, 237 complaints were filed nationwide. Last year, complaints grew to 1,480, with the largest percentage naming AmeriDebt.

This coincides with my experience. Although I have been practicing consumer law since 1991, I didn't get my first complaint about a credit counseling service until about 1997. After that, the complaints started piling in.

Words to the wise if you are a consumer lawyer trying to pursue a case against a credit counseling company: These suits are very difficult. You have to dig into the relationship between the credit counselor and the related for-profit entities. In the long run, you have to prove your client's damages, when your client may have been a lost cause to begin with. The clients who come to you with these kinds of cases tend to be unreliable and not always honest. Finally, there is always the possibility or probability that the client will end up in bankruptcy, and the case against the credit counselor will become the property of the trustee.

Before you take on a case, Google the company, check the consumer complaint site message boards. Check your local court records to see if anyone has filed suit against the company before. Try to line up more than one client with the same problem. If you practice bankruptcy, consider filing the bankruptcy then working the credit counseling offensive case as an adversary action in the bankruptcy court. Don't take on one of these cases without plenty of time to spend on it. Consider networking with another attorney. Check with the National Association of Consumer Advocates for an attorney who practices consumer law in your area.


AP Wire | 11/19/2003 | AmeriDebt Accused of Misleading Consumers