Illinois Attorney General Lisa Madigan has filed lawsuits against two debt settlement companies for allegedly misrepresenting their services to consumers and failing to follow through on their obligation to settle their clients’ debts, according to a press release from the Illinois attorney general’s office (“Attorney General Madigan Sues Two Debt Settlement Firms,” May 4, 2009).

Madigan has charged debt settlement firms Debt Relief USA, Inc. and SDS West Corporation with violations of the state’s Consumer Fraud and Deceptive Business Practices Act, accusing the companies of deceptively marketing their services and of misrepresenting the impact those debt settlement services would have on clients’ credit.

According to one lawsuit, SDS West, along with its partner Nationwide Support Services, did not adequately inform its customers that their monthly payments would be applied to the company’s fees before the company would provide any of its promised debt settlement services — negotiations with a customer’s creditors for reduced payoff amounts. SDS West also failed to explain to its customers that they would have to make several months of payments before they would accumulate enough funds for the company to begin negotiating these settlement payoffs with the customers’ creditors.

In the second lawsuit, Madigan alleges that Debt Relief USA, which enrolled at least 470 Illinois customers in its debt settlement program between 2005 and 2008, did not “negotiate substantial reductions on most consumers’ accounts” and that most of its clients, having already paid the company’s nonrefundable fees, dropped out of the program before the company settled any of their debts.

Madigan is asking for permanent injunctions against both Debt Relief USA and SDS West that would prohibit them from engaging in debt settlement in the state of Illinois, along with court orders requiring each company to pay restitution, civil penalties of $50,000, and an additional $50,000 for each one of their violations that included intent to defraud.

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