An embattled, bankrupt Texas debt relief firm that was sued by the Texas attorney general for scamming customers out of millions of dollars has now been sued by the Federal Trade Commission (FTC) for unfair and deceptive business practices and fraud.

The FTC filed a lawsuit Thursday against Addison-based Debt Relief USA Inc. for allegedly violating Section 5 of the Federal Trade Commission Act. In its lawsuit, the FTC claimed that Debt Relief USA falsely promised between 2005 and 2009 that it could provide credit card debt settlement services that would result in consumers only having to pay creditors “pennies on the dollar” for debts they owed. According to the company’s advertising, consumers could use its debt relief services to eliminate 40 percent to 60 percent of their debt, avoid bankruptcy, and become debt free in 24 to 36 months.

However, the FTC alleged that the company, in fact, had no “special relationships with creditors” and couldn’t “negotiate significant discounts for consumers,” as advertised. The company, which charged advance fees, monthly fees, administrative fees, and negotiation fees for debt relief services the FTC alleged were usually never rendered.

The FTC’s lawsuit seeks injunctive relief and consumer restitution, as well as a permanent ban against Debt Relief USA and officers Kelly Reilly, Alvin Bell, James Wojick, and Valerie Leath from offering debt relief services (“Two Years After Addison-Based Debt Relief USA Went Bankrupt, the Feds Take an Interest,” Dallas Observer, Aug. 18, 2011) .

Debt Relief USA was sued by Texas Attorney General Greg Abbot after the company filed for Chapter 11 bankruptcy protection in July 2009. Abbot’s lawsuit forced the company into Chapter 7 bankruptcy liquidation shortly thereafter. In December, Abbot’s office announced that Debt Relief USA had settled its lawsuit for $4.7 million, $3.7 million of which would go to reimburse customers the company had bilked.

Further Reading

Complaint for Permanent Injunction and Other Equitable Relief: Federal Trade Commission v. Debt Relief USA Inc., et al. Filed August 17, 2011.

Federal Trade Commission, “Federal Trade Commission Act Section 5: Unfair or Deceptive Acts or Practices.”

“Texas Attorney General’s Office Obtains Court Order Returning $3.7 Million To Financially Struggling Consumers,” Office of the Attorney General of Texas press release, Dec. 2, 2010.

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