Last week The Consumer Financial Protection Bureau (CFPB) filed suit in federal court against two companies operating under the name “FDAA,” a service provider, and their owners for falsely presenting FDAA as being affiliated with the federal government. The CFPB also alleges that the FDAA’s so-called “debt validation” programs violated the law by falsely promising to eliminate consumers’ debts and improve their credit scores in exchange for thousands of dollars in advance fees. The CFPB’s lawsuit seeks to end these deceptive practices, obtain redress for harmed consumers, and impose civil money penalties. 

A copy of the complaint is available here.  

According to the complaint, Federal Debt Assistance Association, LLC and Financial Document Assistance Administration, Inc., both operating as FDAA, claims to provide advice and assistance to consumers to eliminate all or a portion of their debts and improve their credit scores. Clear Solutions, Inc., processed consumer payments for the FDAA companies and provided other services.  

The lawsuit alleges that the companies lied about having an affiliation with the federal government and made false promises regarding the services they could provide. Specifically, the CFPB alleges that the companies and their owners engaged in the following illegal practices: 

  • Deceiving consumers about an affiliation with the federal government: The FDAA companies marketed themselves through direct mailers that were designed to look like an official government notice. The mailers stated that they were a “regulatory notification” with a case number and “entitlement amount.” The mailers and envelopes included a seal similar to the Great Seal of the United States. FDAA’s direct mailers and telemarketing scripts deceptively misrepresented an affiliation with the federal government. In letters sent to consumers, FDAA would falsely claim they can assist consumers in retrieving restitution from CFPB enforcement actions in the form of credit-card debt reduction.
  • Deceiving consumers about the companies’ debt-relief and credit-repair services abilities: FDAA lied about the results that could be achieved. The companies falsely advertised that they would eliminate or reduce consumers’ principal balances by at least 60 percent, that creditors would be unable to collect the debts, and that the programs would increase consumers’ credit scores. 
  • Failing to make proper disclosures about not paying debts: FDAA instructed consumers to stop making payments on the debts enrolled in their program. However, they failed to disclose that not making payments may result in the consumer being sued by creditors or debt collectors and may increase the amount of money the consumer owes due to the accrual of fees and interest. 
  • Taking illegal advance fees for debt-relief and credit-repair services: Federal law prohibits the collection of fees before a credit-repair or debt-relief company achieves certain results. FDAA charged and received payment of fees for debt-relief services before altering the terms of consumers’ debts. The companies also charged and received fees for credit-repair services without achieving the promised results. 

insideARM Perspective

insideARM applauds the efforts of regulators to halt the actions of fraudulent credit repair organizations. They create clear harm to consumers, and they consume the resources of legitimate companies.

Numerous creditors and collection agencies have shared with insideARM that the influx of mass disputes or debt validation requests from credit repair organizations has become a material problem over the last year. These can often take the form of dozens or hundreds of form letters, all exactly the same except for the consumer’s name and basic information. insideARM learned recently that the law firm of Ballard Spahr hosted a very informative webinar on strategies for dealing with debt settlement companies.

In May of this year insideARM wrote about a joint effort by the Federal Trade Commission and the State of Florida to shut down a network of 11 related companies that took upfront fees for the promise of settling consumers’ debts, but failing to deliver on their promises.

In July we covered the case of Taylor-Burns v. AR Resources, Inc. (ARR), in which ARR argued that it did not report a consumer’s account as disputed because the agreement she had with the credit repair agency that sent the dispute letter on her behalf did not meet the requirements of the Credit Repair Organizations Act ("CROA"). The judge in the case sided with ARR. But the facts of this case were specific, and unfortunately this positive result doesn’t provide much guidance to others in how to evaluate the validity of these requests.

While the complaint against FDAA is just that at this point -- a complaint; not a finding or ruling that the companies or individuals have actually violated the law – one does wonder about the purpose of the tactic of sending letters with what appears to be an official government seal, or making reference to their “regulatory” office.

Steve Rhode, the self-proclaimed “Get out of Debt Guy,” wrote about the FDAA in June 2016. He posted copies of marketing letters from the company, and essentially predicted the trouble announced last week, and he reminds readers of past enforcement actions against allegedly fraudulent debt relief companies.

Unfortunately, these cases only seem to be the tip of the iceberg. As we’ve noted before,

It is difficult to turn on a radio or go online without hearing or seeing an ad promoting such “services.” With taglines like “you have the absolute right to settle your accounts” or “the Obama administration has recently passed laws making it your absolute right to settle your debts,” the slick marketing campaigns work. The cases above demonstrate that consumers believe (or want to believe) the advertising.

Creditors and collection agencies may be able to help regulators by sharing letters and data about debt settlement companies that appear to be fraudulent. Legitimate companies often tend to be alerted to scams before the consumers that are ultimately harmed.

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