CFPB Sues Largest Debt Relief Company, Freedom Financial

Yesterday the Consumer Financial Protection Bureau (CFPB) filed a lawsuit against Freedom Debt Relief, the nation’s largest debt-settlement services provider, and its co-CEO Andrew Housser for deceiving consumers. The CFPB alleges that Freedom charges consumers without settling their debts as promised, makes customers negotiate their own settlements, misleads them about its fees and the reach of its services, and fails to inform them of their rights to funds they deposited with the company. 

The CFPB announced,

Freedom Debt Relief, part of Freedom Financial Network and based in San Mateo, California, is the largest debt-settlement services provider in the United States. Andrew Housser is the company’s co-CEO and co-founder. Freedom claims that it has successfully negotiated and settled more than $7 billion in debts for more than 300,000 consumers. Through telemarketing contacts with prospective customers, Freedom learns who their creditors are, the amounts owed to each, and the nature of the debts. Freedom requires customers enrolled in its debt-settlement program to deposit money into dedicated accounts with an FDIC-insured bank. Freedom tells consumers that when the accounts have sufficient funds to make settlement offers, Freedom will negotiate with consumers’ creditors to persuade them to accept less than the actual amounts owed. When a debt is settled, Freedom charges consumers fees that range between 18 percent and 25 percent of the amount of debt the consumer owed on the day they signed up for the program.

According to the CFPB’s complaint, Freedom:

• Misleads consumers about creditors’ willingness to negotiate: Freedom markets its “negotiating power,” but Freedom knows that certain major creditors have policies against negotiating with debt-settlement companies. Freedom does not make clear to consumers that they may need to handle the negotiations with those creditors themselves.
• Deceives consumers about the extent of its services: Freedom leads consumers to believe that the company’s experienced negotiators will deal directly with their creditors. But after they enroll with Freedom and deposit funds into an account, some consumers learn that Freedom offers only guidance or “coaching” on how to negotiate settlements on their own.
• Deceives consumers about its fees: Freedom falsely claims that it charges consumers only when it negotiates a settlement of a debt and consumers make a payment under the terms of the settlement. In fact, Freedom charges consumers its full fee even when creditors simply stop collection efforts in the absence of a negotiated settlement and consumer payment and when it takes no action on a consumer’s account.
• Fails to disclose consumers’ rights to funds: Freedom does not clearly and conspicuously inform consumers that they are entitled to get back the funds in their accounts if they leave the debt-settlement program.

Under the Dodd-Frank Act, the CFPB has the authority to take action against institutions and individuals violating consumer financial protection laws, including engaging in unfair, deceptive, or abusive acts or practices. The complaint against Freedom Debt Relief and Andrew Housser seeks monetary relief, injunctive relief, and civil money penalties.

Company representatives did not respond to requests for comment from a number of other media outlets.

The Bureau's announcement notes that the complaint is not a finding or ruling that the company or individual has actually violated the law.

The complaint is available here.

insideARM Perspective

This is the latest in a string of actions against allegedly fraudulent debt relief scams.

In October 2017 insideARM reported that the Federal Trade Commission (FTC), along with 11 states and the District of Columbia, announced “Operation Game of Loans,” the first coordinated federal-state law enforcement initiative targeting deceptive student loan debt relief scams. This nationwide crackdown encompasses 36 actions by the FTC and state attorneys general against scammers alleged to have used deception and false promises of relief to take more than $95 million in illegal upfront fees from American consumers over a number of years.

On that same day in October 2017, insideARM also reported that the 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. 

In May 2017 insideARM reported that the FTC announced, together with the State of Florida, that it requested a federal court temporarily halt a massive phony debt relief operation that bilked tens of millions of dollars from financially strapped consumers, including the elderly and disabled.

In June 2016 insideARM reported that the CFPB reached a proposed $107 million settlement on Tuesday with several individuals affiliated with the World Law Group. According to the Bureau, defendants Derin Scott, David Klein, and Shannon Scott “received, directly or indirectly, funds or other assets” from World Law Group customers, after the debt settlement company collected millions in up-front fees from consumers for “legal services” and then did little to help those consumers.

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.

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UPDATE: Since the time of publication, Freedom Debt Relief has issued this statement in response to the CFPB's formal complaint.