CFPB Takes Action to Shut Down Debt Settlement Company

The Consumer Financial Protection Bureau (CFPB) today filed a complaint in a federal district court against a Florida debt-relief company that misled consumers across the country and charged illegal fees for their services. The Bureau plans to submit a proposed consent order that, if approved by the court, would halt the company’s operation, prevent the company and owner from providing debt-relief services in the future, and impose a $15,000 civil penalty fine.

“Today we are taking action to halt a debt-relief company we believe has been preying on financially vulnerable consumers,” said CFPB Director Richard Cordray. “Consumers struggling to pay off a debt are among the most at risk and deserve better. We will continue to crack down on this type of harmful behavior.”

A Bureau investigation found that American Debt Settlement Solutions, Inc. (ADSS) and its owner Michael DiPanni routinely charged consumers illegal upfront fees for debt-relief services that rarely, if ever, materialized. In total, the CFPB believes that in the course of their illegal conduct, the defendants charged approximately $500,000 in fees to hundreds of consumers in multiple states. The proposed consent order would award a judgment against the company of approximately $500,000, which would be suspended based on the company’s inability to pay.

The Bureau alleges that ADSS and DiPanni violated the Federal Trade Commission’s Telemarketing Sales Rule (TSR) and the Dodd-Frank Act by charging the illegal up-front fees and making misrepresentations to consumers about their debt-relief services. ADSS deceived consumers by making numerous misrepresentations to lure in consumers who were deeply in debt and in dire circumstances. The upfront fees and the company’s failure to provide the promised services often caused consumers to fall further into debt.

In addition, the Bureau believes that the defendants engaged in abusive acts or practices by signing up and charging fees to vulnerable consumers who the defendants knew had inadequate incomes to complete the debt-relief programs in which they were enrolled. More specifically, ADSS:

• Misled consumers by falsely promising them it would begin to settle their debts within three to six months when, in reality, services rarely materialized;

• Enrolled consumers despite knowing that their income level made it highly unlikely that they could complete the debt-relief programs;

• Collected upfront “enrollment” fees from consumers who ADSS knew could not afford the monthly payments required by these debt-relief programs, causing the consumers to spend their last savings on fees for services from which they ultimately would not benefit; and

• Failed to settle these consumers’ debts within the promised time, forcing many consumers to drop out of the program and forfeit their “enrollment” fees without having received any debt-relief services.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 prohibits abusive acts or practices in the consumer-financial marketplace. If someone – a person or a company – takes unreasonable advantage of a consumer in certain ways or interferes with a consumer’s ability to understand a term or condition of a financial product or service, the Bureau may take enforcement action. Today’s action is the first time the CFPB is enforcing this prohibition on abusive acts or practices.

This action is part of the CFPB’s comprehensive effort to prevent consumer harm in the debt-relief industry. The Bureau is working to ensure federal consumer financial laws are being followed at every stage of the process and is focusing not only on debt-relief companies, but also on those who facilitate their unlawful conduct and who may also violate federal consumer financial laws.

A copy of the CFPB complaint is available here: http://files.consumerfinance.gov/f/201305_cfpb_complaint_adss.pdf

A copy of the proposed order, which will be submitted to the court, is available here: http://files.consumerfinance.gov/f/201305_cfpb_proposed-order_adss.pdf