The Consumer Financial Protection Bureau (CFPB) filed a lawsuit last week against the largest debt settlement company in the nation and its CEO for deceiving consumers.
In the suit, the bureau alleges that Freedom Debt Relief and co-CEO Andrew Housser took advantage of vulnerable consumers who were looking to reduce their debt.
“Freedom deceived consumers about its clout with creditors that it knows do not negotiate with debt-settlement companies, made some customers negotiate on their own, and misled consumers about its fees and their accounts. Today’s lawsuit seeks to stop the deception and get compensation for consumers Freedom cheated,” CFPB Director Richard Cordray said.
Freedom requires its debt-settlement customers to deposit money into dedicated accounts and tells them that when the accounts have sufficient funds to make settlement offers, Freedom will negotiate a deal that’s lower than they owe. Then, Freedom charges consumers fees of 18 to 25 percent of the amount of debt the consumer owed.
According to the CFPB, Freedom claims that all creditors will negotiate with them, but it knows that some will not. In these cases, Freedom may coach consumers instead of dealing with creditors directly.
Further, the company said it will only charge a fee if it negotiates a debt settlement, but the bureau said Freedom charges its full fee when creditors simply stop collections without a settlement and when consumers negotiate their own settlements.
In addition, the suit alleges that the company does not clearly disclose consumers’ rights to their account funds when they withdraw, which is in violation of Dodd-Frank Wall Street Reform and Consumer Protection Act and the Telemarketing Sales Rule.
The CFPB alleges that Housser has violated the Dodd-Frank Act and the Telemarketing Sales Rule in that he is aware of these discretions but allows them to continue.
The CFPB has the authority under Dodd-Frank to take action against institutions and individuals that violate consumer financial protection laws. CFPN is seeking monetary relief, injunctive relief, and civil money penalties.