The proposed settlement of a class action lawsuit against a Maryland law firm that allegedly scammed 125,000 consumers nationwide out of thousands of dollars in exchange for false debt relief promises will award class-action attorneys $300,000 in legal fees but won’t give a single penny to the victims.

Persels & Associates allegedly charged tens of thousands of consumers hefty fees for credit card debt relief and debt settlement services that were never provided. Instead, Persels & Associates reportedly ignored customers’ debts and kept customer payments for itself, leaving many customers in worse financial shape than when they first hired the company. In fact, the lawsuit alleged, the settlement plans “were designed to fail.”

But when it came time to settle customers’ allegations, Persels & Associates told class-action lawyers that the company was broke, losing $5.8 million in 2010 and 2011 and owing $14 million to settle an unrelated Maryland lawsuit. The attorneys capitulated, according to Michael Kirkpatrick, an attorney for consumer advocacy group Public Citizen, without launching an adequate investigation of Persels & Associates’ financial condition. Lawyers, Kirkpatrick said, are simply accepting on faith the firm’s representations of its ability to pay.

Not only does the proposed settlement fail to provide even partial relief for scam victims — something that presiding U.S. District Court Judge Thomas Wilson cited as “impractical” and something “that ain’t going to happen” since it would cost the broke defendants tens of millions of dollars — it requires that class participants forfeit their right to take further legal action against the company.

The terms of the proposed settlement are so egregious that it’s drawn criticism from the attorney generals of five states, including the attorney general of New York, who said that the provisions “are so qualified and limited as to provide to meaningful benefits to class members.” Additionally, 325 consumers have already opted out of the settlement, which would allow them to file lawsuits individually (“Settlement of Class-Action Debt-Relief Suit Criticized,” Tampa Bay Times, Feb. 14, 2012).

However, Tampa attorney James Felman, one of the class-action lawyers who filed the lawsuit against Persels & Associates, said that the proposed settlement, while perhaps not ideal, wins important concessions from the company that will better safeguard consumers. Not only did Persels & Associates agree to collect fees only after settlements were negotiated, but the firm also agreed to respond more quickly to its customers and more clearly explain the basis for their substantial fees.

“We got them to stop what they were doing,” Felman said. “We fixed the problem nobody else stepped forward to fix…. What I haven’t heard is any better idea.”

But Michael Corini, a customer from New Rochelle, N.Y., isn’t satisfied with the proposed settlement. Corini said he paid Persels & Associates $3,000 for debt relief that was never provided and that the company left him in more debt.

“The settlement’s a joke,” Corini said in an interview. “It’s not right. We lost our money, and now Persels is walking away free and clear and we get nothing. What’s fair about that?”

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