CFPB Sues Debt Relief Firm, Alleging It Bilked Customers For $67M

Being in debt can be paralyzing, leaving some people with the feeling like they’ll never climb their way out of the hole. So when a company promises it can help ease that burden, it might some like a good idea to spend even more money in the hope that you’ll ultimately be pointed in the right financial direction. Federal regulators say one debt relief operation took in $67 million from customers in need of help, but most of that money just went to the firm’s fees while the customers’ debts continued to pile up.

According to a complaint [PDF] filed last month in a U.S. District Court in Florida by the Consumer Financial Protection Bureau, the folks at Orion Processing — also known as World Law Processing, World Credit Repair, and World Law Debt — “operate a debt relief business that takes exorbitant, illegal upfront fees from vulnerable consumers suffering financial difficulties.”

The company tells these debtors that its team of lawyers will negotiate with the customer’s creditors to come to affordable repayment plans. But in order to get this process started, the customer is directed to stop paying their creditors and make payments directly to the debt relief firm.

Even though the defendants’ various operations have brought in millions of dollars the CFPB alleges that they “often fail to settle” any of their customers’ debts, and “fail to provide consumers with the legal representation they promise.”

In 2010, the Federal Trade Commission amended the Telemarketing Sales Rule to bar debt relief companies that use telemarketing from requesting or receiving advance fees before they renegotiate a client’s debt.

Around this same time, the CFPB alleges that the defendants devised a scheme to get around this prohibition by changing the appearance of the service they offered from debt relief to “legal representation” and “processing services.”

The defendants claimed to employ lawyers in every state, according to the complaint. “They also touted that consumers would receive the skill and expertise of a licensed lawyer to negotiate with creditors regarding their unsecured debts.”

But the CFPB claims that clients rarely communicated with any lawyers and the “vast majority” of the work performed was debt relief services provided by non-attorneys.

Thus, argues the suit, the defendants were not operating a legal representation firm, but a debt relief business. And in spite of the prohibition against collecting advance fees from debt relief clients, the CFPB says the defendants collected upfront fees from 99% of its customers.

And those fees were not cheap.

The lawsuit breaks down the three types of upfront fees charged by the defendant:

• $199 in “Initial Fees” collected during the first three months of being a client.

• “Bundled Legal Service Fees” of anywhere from 10-15% of the client’s total outstanding debts. Rather than collect these after the debt was renegotiated, the CFPB says it is often collected over the course of the first 13 months of being in the program.

• $84.95 in “Attorney Monthly Service Fees,” even though the CFPB says that most customers never dealt with or were represented by a lawyer. As the name implies, this fee is collected monthly so long as the client remains in the program.

And if clients try to quit, the lawsuit alleges that World Law “typically makes canceling very difficult or refuses to provide the requested refund.”

Today, the court granted a preliminary injunction [PDF] against World Law and the other defendants, freezing their assets, halting their online operations (but preventing them from deleting their websites), and granting a temporary restraining order that prohibits the defendants from marketing any debt relief services.

“We took action today against World Law Group for an alleged debt relief scheme that lured consumers with false promises of help from lawyers and collected millions in illegal upfront fees,” said CFPB Director Richard Cordray. “We are seeking to put an end to this scheme and prevent more consumers from being harmed.”

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