The Consumer Financial Protection Bureau has sued the nation’s largest provider of debt-settlement services, alleging that Freedom Debt Relief deceived and misled consumers about its services and fees.
The agency announced the lawsuit Wednesday in a news release, seeking compensation for consumers harmed by the alleged practices, as well as unspecified civil penalties and a court order to stop the company from providing services.
“Freedom took advantage of vulnerable consumers who turned to the company for help getting out of debt,” asserted bureau Director Richard Cordray. “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.”
Debt-settlement companies are those that promise to reduce or remove consumers’ debt and negotiate more favorable terms for clients, usually in exchange for a set fee. Often desperate for help, debtors contact a debt-settlement company to help reduce their payments, stop collections and lower their interest rates. In many cases, debt-settlement companies work by getting creditors to charge off portions of a consumer’s debt.
But in the charges, the Consumer Financial Protection Bureau accused the San Mateo, California, company and its principals for failing to “settle debts as promised,” making consumers “negotiate their own settlements,” misleading them about its fees and capabilities and failing to inform them of their rights. The bureau noted that, once a settlement is reached, the company charges consumers “between 18 percent and 25 percent of the amount of debt the consumer owed on the day they signed up for the program.”
On its website, Freedom Debt relief says it “takes a human approach to debt relief” and claims to have successfully negotiated and settled more than $7 billion in debts for more than 300,000 consumers. But the Consumer Financial Protection Bureau’s lawsuit says its practices deceive debt-burdened customers by promising to work with creditors, when some creditors won’t work with the company (or, in some cases, any debt-settlement company). In addition, the bureau says, 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.”
In a news release from co-CEOs Andrew Housser and Brad Stroh, Freedom Debt Relief challenged the bureau’s assertions, saying it will “vigorously contest” the agency’s lawsuit. “We firmly believe that the CFPB fundamentally misunderstands how debt settlement works and has acted without proper regard for the consumers it is charged with protecting,” the company noted in its response. “We’ve asked to sit down on a number of occasions with the CFPB, to no avail, so we are disappointed that they’ve rushed to judgment, seemingly putting the interests of a few of the largest creditors ahead of the interests of consumers who need help and support.”
To read the Consumer Financial Protection Bureau’s complaint, visit http://files.consumerfinance.gov/f/documents/cfpb_freedom-debt-relief-llc_complaint_112017.pdf.