The Federal Trade Commission has announced that it is mailing almost 7,000 redress checks to victims of a nationwide debt relief scam that promised to reduce consumersâ€™ debt but that, instead, ultimately led customers to financial ruin and bankruptcy (â€śFTC Mails Redress Checks Totaling $1.2 Million to Debt Reduction Scam Victims,â€ť FTC press release, Oct. 26, 2010).
Two companies, Homeland Financial Services and Prosper Financial Solutions, and two individuals, Dennis Connelly and Richard Wade Torkelson, were initially sued by the FTC in 2006 for deceptive and unfair practices in violation of the Federal Trade Commission Act. The defendants settled with the FTC in 2008 (â€śDebt-Negotiation Defendants Agree to Settle FTC Charges,â€ť FTC press release, Sept. 25, 2008).
The defendants were charged with four major violations of the FTC Act:
- Falsely claiming that they could reduce consumersâ€™ debt by up to 60 percent through a debt settlement program that involved customers ceasing to make payments on outstanding debts
- Failing to disclose the likelihood that consumers could be sued if they stopped paying their creditors as part of the debt relief program
- Failing to disclose that consumersâ€™ outstanding account balances would grow during the debt relief program as a result of interest, interest rate increases, late fees, collection fees, penalties, and other charges
- Falsely claiming that negative information that appeared in consumersâ€™ credit reports as a result of participating in the debt settlement program would be removed upon completion of the program
Consumers were charged upfront fees equal to about 5 percent of their unsecured debt in order to enroll in the debt reduction program.
The restitution fund, established by the settlement, represents the available assets of the defendants and is valued at $1.2 million. Although the amount of each check will vary based on the amount each customer paid the defendants, the average refund check will be $180.
Those who receive redress checks are required to cash them on or before Dec. 24, 2010. Checks are being mailed by Gilardi & Co., the redress claims administrator, and can be cashed directly by the recipients.
For more information, consumers are asked to visit www.ftc.gov/refunds or call Gilardi & Co. at (877) 987-3923.
Claims of fraudulent, deceptive, or unfair business practices can be filed online in English or Spanish with the FTC Complaint Assistant or by calling (877) FTC-HELP (382-4357).
Read the FTCâ€™s court filings against the defendants:
Final order for Financial Liberty Services, Homeland Financial Services, National Support Services, and United Debt Recovery; FTC v. Connelly et al. Filed September 15, 2008.
Settlement agreement and final order for Richard Wade Torkelson, FTC v. Connelly et al. Filed September 21, 2007.
Settlement agreement and final order for Dennis Connelly, FTC v. Connelly et al. Filed September 21, 2007.
Settlement agreement and final order for Prosper Financial Solutions, FTC v. Connelly et al. Filed February 23, 2007.
First amended complaint for injunctive and other equitable relief, FTC v. Connelly et al. Filed November 27, 2006.
Complaint for injunctive and other equitable relief, FTC v. Connelly et al. Filed August 3, 2006.
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