Two debt settlement companies have been sued by New York Attorney General Andrew Cuomo on behalf of 20,000 New York consumers, as part of Cuomo’s probe into the debt settlement industry. Credit Solutions of America, Inc. in Texas and Nationwide Asset Services, Inc. in Arizona are both facing charges of fraud, deceptive practices, and false advertising, Reuters reports (“New York AG Sues Texas, Arizona Debt Settlement Firms,” May 19, 2009).

CSA is accused of defrauding 18,000 New York customers out of about $17 million in fees over a five-year period from January 2003 to September 2008.

Through marketing and advertising campaigns CSA promised to reduce customers’ debt by 60 percent, but Cuomo’s office found that only an average of 1 percent of CSA customers actually saw these results.

CSA, the self-proclaimed largest debt settlement firm in the country, instructed its customers to make monthly contributions to a savings account instead of making their debt payments and to ignore calls from creditors, which often drove customers further into debt and failed to result in a successful resolution. The New York Times reports that the debt settlement firm even suggested that its customers sell their blood plasma, mow lawns, and borrow from their neighbors to drum up funds for their savings account (“2 Firms Accused of Fraud in Debt Settlement,” May 19, 2009).

Lawyers representing CSA said the debt settlement company “disputes liability over the complaints and supposed practices” because the alleged fraud occurred during a 12-month period when the company was under different ownership. The company has also faced litigation in South Carolina, Idaho, and Texas.

Cuomo has also charged Nationwide Asset Services with falsely advertising that it could reduce customers’ debt by 25 to 40 percent. But of the 18,000 New York customers it enrolled between January 2005 and May 2008, Nationwide settled the debts of less than 2,000 of these customers.

“Today’s lawsuits send a clear message that we are prepared to rein in this unregulated industry and protect New Yorkers who are proactively trying to work their way out of debt,” Cuomo said in a statement released by his office (“Attorney General Cuomo Sues Debt Settlement Companies for Deceiving and Harming Consumers,” May 19, 2009).

Cuomo’s two lawsuits are part of a larger probe of the debt settlement industry announced earlier this month in which he subpoenaed 17 debt settlement companies in addition to Nationwide and CSA.

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