Sometimes, the promises are just too good to be true. That was the case with some of the claims made by four debt settlement companies. Texas Attorney General Greg Abbott has charged BC Credit Solution, LLC, LH Financial Service, Four Peaks Financial Services, and DebtORSolution with orchestrating fraudulent debt settlement schemes, according to TV station KTRE.
The first two companies are based in Dallas, Texas, the third in Scottsdale, Ariz., and the last in Louisville, Kent., and Abbott alleges that all four have unlawfully misrepresented and overstated the nature of the services they are able to provide to customers, especially as alternatives to bankruptcy.
"At a time of economic hardship, these defendants are charged with orchestrating unlawful debt reduction schemes," Abbott said. "Today’s enforcement action cites four defendants for materially misrepresenting the nature of their services and misleading customers about the protections they are guaranteed by Texas law."
Among the misleading statements found on the companies' web sites:
BC Credit solution reported that "Chapter 13 reorganization forces you to pay back the full balance plus any interest that you accrued." In reality, Chapter 13 allows debtors to reduce the amount they must pay back to unsecured creditors and stop most interest from accruing.
FH Financial and DebtORSolution stated that Chapter 7 bankruptcy will lead to the auction of a debtor’s property, including cars and homes. In fact, Chapter 7, as allows debtors to keep exempt property, which commonly includes the primary residence.
Four Peaks Financial stated that bankruptcy ruins an individual’s credit, while debt settlement allows their credit score to improve. This is by no means always the case.
According to Texas’ enforcement action, the defendants did not clearly disclose the material claims of their programs, including the potential negative effects that include increased risk of lawsuits, decreased credit scores, increased collection efforts, and other interest and fees. All four companies misrepresented the time frame in which a customer could complete a debt resolution program.
In fact, such a time frame is impossible to guarantee due to the unique circumstances of each case. The state is seeking restitution harmed by the companies’ allegedly unlawful business practices, including civil penalties up to $20,000 per violation of the Texas Deceptive Trade Practices Act.
Several of the companies are accused of misrepresenting their affiliation or positive standing with the Better Business Bureau, and one, Four Peaks, is accused of exposing its consumers’ personal information on its web site. That would violate Texas’ Identity Theft Enforcement and Protection Act, and expose the company to penalties from $2,000 to $50,000 per violation.
In fact, three of the companies have been rated by the Better Business Bureau. FH Financial and Four Peaks Financial have both received an "F" grade from the BBB, while DebtORSolution received a "C-".
While not all debt settlement companies engage in illegal practices, the action of Attorney General Abbott underscores the need for any debtor to carefully research all of their options and make sure they know the history and reputation of any company before entering into any agreement.