Minnesota Attorney General Lori Swanson filed lawsuits Thursday against six debt settlement companies, alleging they violated a state law passed last August that requires them to be licensed in Minnesota and cap the fees they can charge. The law generally caps the origination fee paid by the consumer at between $200 and $500. Monthly fees are capped at between $50 and $75.

Swanson alleges the six companies overcharged consumers by hundreds or thousands of dollars. The lawsuits - the first filed under the new law - seek injunctive relief, civil penalties against the firms and restitution to victims for the fees they paid.

The companies are: American Debt Settlement Solutions Inc. of Boca Raton, Fla.; Debt Rx USA LLC of Dallas; FH Financial Service Inc. of Dallas; Morgan Drexen Inc. of Anaheim, Calif.; Pathway Financial Management Inc. of Garden Grove, Calif.; and State Capital Financial Inc. of Hallandale Beach, Fla.

"What is really unfortunate about these practices is that the consumers who hire companies like these are trying to do the right thing. They know they have financial trouble," Swanson said in a statement. "They're trying to hire an advocate to be on their side and help them manage a bad situation. Only rather than get help, they get exploited."

At press time, the companies had not commented on the lawsuits but several told Collections & Credit Risk they would have statements ready this afternoon. This story will be updated as those responses are received.

In other recent legal action against debt settlement companies, Illinois Attorney General Lisa Madigan last week filed four lawsuits against seven debt settlement firms, alleging they are misrepresenting the services they provide to consumers and the impact those services will have on credit ratings. Six executives with the companies also are named as defendants, Illinois AG Sues Debt Settlement Firms, Executives, Feb. 10.

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