The Consumer Financial Protection Bureau filed a lawsuit last week against Freedom Debt Relief, the nation’s largest debt-settlement services provider, and its co-CEO and co-founder Andrew Housser, for allegedly deceiving consumers.
The CFPB alleges that San Mateo, Calif.-based Freedom charges consumers without settling their debts as promised, makes customers negotiate their own settlements, misleads them about its fees and the reach of its services, and fails to inform them of their rights to funds they deposited with the company. The company’s actions violated the Dodd-Frank and the Telemarketing Sales Rule, the bureau said.
Freedom denied the CFPB’s allegations and said it plans to “vigorously contest” the complaint, the company said in a statement. “We firmly believe that the CFPB fundamentally misunderstands how debt settlement works and has acted without proper regard for the consumers it is charged with protecting,” the company said. “Freedom Debt Relief’s business practices are legally compliant, highly ethical and serve the needs of our customers.”
When a debt is settled, Freedom allegedly charges consumers fees that range between 18 percent and 25 percent of the amount of debt the consumer owed on the day they signed up for the program. Freedom claims all creditors generally negotiate with Freedom “although it knows that some creditors refuse to negotiate with debt-settlement companies,” the bureau said.
In these cases, Freedom sometimes “coaches” consumers, the bureau said, instead of dealing with creditors directly. Freedom also tells consumers it will charge a fee only when it negotiates a debt settlement and consumers make a payment. But Freedom charges its full fee whether or not it does reach a settlement on consumers behalves, the CFPB claimed. The company also fails to clearly disclose consumers’ rights to their account funds when they withdraw from the program, the bureau said.
“It’s surprising, and very unfortunate, that the CFPB chose to act without taking the time to focus either on the facts or the utility and purpose of ‘coached settlements,’ both of which were thoroughly and completely disclosed to consumers at various points in their debt settlement programs,” said Freedom co-founders and co-CEOs Andrew Housser and Brad Stroh in the statement. “The overarching assertion that we cannot and do not settle client accounts with key creditors is simply not true.”
Housser co-founded and continues to exercise “managerial responsibility” for Freedom, the bureau said. Stroh was not named in the suit.
“Freedom took advantage of vulnerable consumers who turned to the company for help getting out of debt,” said CFPB Director Richard Cordray. “Freedom deceived consumers about its clout with creditors that it knows do not negotiate with debt-settlement companies, made some customers negotiate on their own, and misled consumers about its fees and their accounts. Today’s lawsuit seeks to stop the deception and get compensation for consumers Freedom cheated.”