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These instances of consumer involvement allegedly arose as a consequence of FDR failing to disclose that there are certain creditors who, allegedly, will not negotiate with the company. The CFPB asserted that FDR's practice of occasionally securing consumer involvement in the settlement process and then collecting its fee when the consumer assists in, or secures, the settlement is an unfair and deceptive business practice because it deprives consumers of the "benefit of the bargain." The CFPB contended that the consumer's expectation is that the fee paid to FDR is in exchange for FDR doing the settlement work and, when the consumer becomes involved, there should be no fee. The last claim, the abusive claim, alleged that FDR "abusively" required consumers to negotiate debts on their own. The TSR claim alleged that the agreement with the debt settlement client failed to clearly and conspicuously disclose that the client could cancel the agreement and could obtain a refund, less the earned fees. The two deception claims stem from an alleged failure to disclose that some creditors would not negotiate with FDR and a misrepresentation regarding when FDR would impose a fee for its services. The lawsuit raised four counts: two for deception under the Consumer Financial Protection Act of 2010 ("Dodd-Frank"), one for a violation of the Telemarketing Sales Rule ("TSR"), and one under the "abusive" authority created by Dodd-Frank. The debt settlement industry received some "regulation by enforcement" in the wake of a settlement of the lawsuit filed by the Consumer Financial Protection Bureau ("CFPB") against Freedom Debt Relief, LLC ("FDR").
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And New York's attorney general is investigating FDR and 13 other debt-settlement firms.J"Clearly and Prominently:" Consumer Debt Settlement Disclosures in Wake of CFPB v. FDR has also been forced to refund money to customers in Colorado and Rhode Island. To settle the lawsuit, FDR agreed to pay the San Mateo County district attorney's office and the California Department of Corporations $450,000 in fees and court costs and $500,000 in refunds to customers without admitting wrongdoing.Īs a result of the suit, an earlier complaint by the California Department of Corporations alleging that FDR operated in the state for seven years without a license, in violation of a 2002 desist and refrain order, was withdrawn. In addition, the suit said, customers who wanted to find out the status of their settlements were often rebuffed by the company, and some were denied the money-back guarantee it advertises. But Freedom Debt Relief continued to charge them for administrative and service fees for about the first 18 months the accounts were open. It also charged that many clients never finished the debt-relief program, even after months or years. Customers deposit about 15 percent of the amount they owe into a bank account and give FDR power of attorney so that it can access the money to settle their debts.Ī 2009 lawsuit brought by the district attorney's office in San Mateo, Calif., charged that the company often "did not even contact all of the consumers' creditors to negotiate a settlement." After months of being told FDR was settling their accounts, many consumers found that creditors had sent their accounts to a collection agency or had initiated legal actions against them, the suit alleged. (FDR is also an umbrella group that includes, Freedom Financial Network, Freedom Tax Relief, and several others.) It operates like other settlement companies often do. Freedom Debt Relief (FDR) claims to be a leader in the debt-settlement industry and says it has helped consumers erase more than $500 million in debt since 2003.