Consumers to Get Millions Back From Bankrupt Debt Relief USA
The attorney general's office today announced that it obtained a court order disbursing $3.7 million to Texans and consumers in other states who were swindled by the now-bankrupt company.According to court documents filed by the state of Texas, Debt Relief USA illegally collected millions of dollars from customers who hired it to settle their outstanding debts. Debt Relief USA collected so-called "set-aside" funds from customers who believed they would be used to settle their personal debts.
When Debt Relief USA filed for bankruptcy in July 2009, it effectively prevented thousands of economcally distressed customers nationwide from retrieving their money.
In addition to the $3.7 million returned to Texans and other consumers nationwide under today's agreement, an additional $1 million should become available when the bankruptcy case concludes. Consumers won't be required to request refunds, since each customer's eligibility, as well as the amount of money they are owed, has been determined by Debt Relief USA's records.
When Debt Relief USA filed for bankruptcy protection in June 2009, more than 3,000 of its customers failed to receive the debt relief they were promised. The firm's former customers were also denied access to the money they had saved and set aside to pay off their debts.
These victims' financial problems were amplified by the firm's bankruptcy, since they received no financial assistance and were pursued by debt collection agencies while their money was tied up in court proceedings.
Prior to its bankruptcy, Debt Relief USA marketed a "36-month" debt-free plan, which instructed customers with thousands of dollars in unsecured debt to simply stop paying their bills. Instead, they were told to make monthly payments to Debt Relief USA, which promised to hold the money until it negotiated reduced payments with their creditors.
Because Debt Relief USA collected debt payments to pay off future debts, the firm essentially collected "set-aside" funds from its customers, which is illegal in Texas unless a firm has properly registered and posted a bond. Debt Relief USA's failure to comply with these requirements allowed the attorney general's to file for restitution during the bankruptcy case.
In addition, Debt Relief USA assessed burdensome "administration fees" and monthly "maintenance fees" that further damaged its customers' financial situations. And when the company actually managed to successfully settle a debt, it charged customers a 13 percent "negotiation fee."
The attorney general's investigation also found that Debt Relief USA harmed the credit ratings of its customers, some of whom faced debt-collection lawsuits. The defunct firm's customers were also charged late fees, interest, over-limit charges and other fees by their original creditors because they couldn't afford to make payments on their outstanding accounts -- resulting in significantly increased debts and reduced debt settlement savings.
Former Debt Relief USA customers with questions about the settlement are encouraged to visit the attorney general's website.
Three other Texas debt-relief companies were sued by the Federal Trade Commission yesterday.