New York AG Andrew Cuomo sued two major debt settlement companies today for fraud and deceptive advertising practices in the first big development in an expansive probe of the debt settlement industry he announced last week. One of the companies, Credit Solutions of America of Richardson, Texas, was sued by its own state attorney general in March — and from the numbers it sounds like a busy time for the company’s lawyers. Cuomo’s office said CSA, which has had more than 1,600 Beter Business Bureau complaints filed against it in the past three years, collected approximately $17 million in fees signing up 18,000 New Yorkers between 2003 and 2008 with promises of reducing their debtload by 60% — a promise they fulfilled for an average of one percent of their customers.
Two things make that shocking statistic even more shocking. Number one, as a New York Times Magazine story published Sunday makes clear, it’s hardly unusual these days for customers to receive a 60% reduction in their credit card debts simply by asking the customer service representative on the other end of the line. Number two, as some documents we received from a lawyer representing an ex-client of CSA makes clear, the company endorsed some pretty desperate measures for settling debts: yup, CSA encouraged its clients to sell their blood plasma!
“Sell plasma” is number sixteen a list of sixty ways “to gather funds” California attorney Amy Kleinpeter said had been sent to her client as an addendum to the company’s customer enrollment package. (Among others: 1. Refinance your house, 2. Get a 2nd mortgage and 28. Use your talent to earn extra cash.”)
Kleinpeter, who represents clients in a variety of suits against debt settlement services, says CSA, which is represented by the formidable law firm DLA Piper, is one of the least effective — in part, she believes, because working with a debt settlement service appears to trigger more aggressive legal action from banks. She says JP Morgan was sued by a CSA client of hers named Carlos Cantu within six months of stopping payments on his debt — something she says CSA told him to do as a way to increase his leverage.
An OAG statement announcing the lawsuit and a new informational website called NYDebtHelp encouraged indebted readers to negotiate directly with their creditors — something Kleinpeter says worked for another client she helped to get a settlement against a debt negotiator recently. “He settled a $14,000 debt with Bank of America for $2,900,” she said. “I said, wow, that’s the best I’ve ever seen yet.” Nice to see Ken Lewis sharing some of that $45 billion in TARP funding with the little guy.