On March 7, 2017, the FTC issued a press release announcing that it had entered into a stipulated order with a debt relief company that allegedly misled consumers and charged illegal advance fees. Under the terms of the order, the United Debt Counselors, LLC will be prohibited from making misleading claims about its debt relief services.
United Debt Counselors, LLC, formerly known as United Debt Services, LLC (“United Debt” or “Defendants”) is headquartered in Frisco, Texas and has offered and engaged in debt relief services since 2011.
In February 2017, the FTC filed a complaint in the US District Court for the Eastern District of Texas alleging that United Debt had exaggerated how much consumers would save by enrolling in their services. The FTC alleged that the defendants make misleading claims on their website, over the phone and through direct mail solicitations by falsely representing that participants in their debt relief programs could cut their debt in half and become “debt-free in around 36 months.” According to the FTC, fewer than half of those who bought the services completed the program, and even fewer were debt-free at the end of 36 months.
According to the compliant, United Debt would send approximately 60,000 to 100,000 direct mail solicitations to consumers each week. Those mailers were designed to look like an official document from a bank or an attorney, and contained statements implying that the consumer could lose money if they didn’t call within 10 days.
The FTC also asserted that defendants’ website included “dozens of audio-recorded testimonials from satisfied customers and numerous claims regarding United’s debt relief services.” According to the FTC, those advertised testimonials reflected atypical customers without any disclaimer about typical results that a consumer should expect.
According to the complaint, United Debt made it difficult for consumers who were interested in their debt services to obtain specific information about their program. The FTC alleged United Debt made arrangements for in-person meetings with consumers who were interested in defendants’ program. United Debt would tell consumers that they were sending an experienced sales representative to explain the program’s feature. In reality, defendants would hire an independent public notary to attend the meeting and play a 10-minute sales video or read a script to the consumer.
The FTC also alleged that United Debt violated the Telemarketing Sales Rule (“TSR”) by charging illegal advance fees before they negotiated any savings on credit card debts and without providing a face-to-face sales presentation by a knowledgeable representative who can fully describe the program and answer questions.
Finally, the FTC alleged that United Debt advertised that it offered a “special purpose savings account” which is completely controlled by the consumer. In reality, the defendants automatically withdrew monthly fees from this account. United Debt did not provide any disclosures clearly stating that it would maintain access to the accounts and withdraw funds.
The stipulated order contains the following terms:
- Defendants are banned from making misrepresentations about debt relief and other financial products or services and making unsubstantiated claims about any products or services;
- Defendants may charge advance fees only if they comply with the TSR;
- Sales persons making face-to-face sales presentations must have the authority to discuss material terms, they must do so in specific detail, and they must be able to answer consumers’ questions.
The order also imposes a $9 million judgment that represents the amount of alleged harm to consumers. The judgment will be partially suspended upon payment of $510,000. The full judgment will be come due immediately if the defendants are found to have misrepresented their financial condition.