Two debt settlement companies, Financial Freedom of America Inc. and Debt Settlement USA Inc., agreed to pay $370,000 to settle claims by the Vermont Attorney General's office that the companies violated state law.

The amount includes both refunds to consumers and payments to the state, the state said last week.

According to Attorney General William Sorrell, Debt Settlement, of Dallas, and Financial Freedom, of Scottsdale, Ariz., violated the Vermont Consumer Fraud Act by not following the state's three-day right-to-cancel requirements and by failing to have prior proof to support online claims about the results they could achieve for consumers.

Debt Settlement's Web site stated that the company could "reduce your debt by 60% of the current total," and Financial Freedom's Web site claimed that its clients could "have up to 60% of your credit card bills completely wiped out."

Debt Settlement entered into contracts with 114 Vermont consumers and charged 12% to 14% of the dollar amount of the debt placed with the company.

Financial Freedom entered into contracts with 16 Vermont residents and charged an "administrative fee" of 7.9% of the principal amount of the debt, an added "negotiation fee" of 15%, and a "maintenance fee" of $29.95 or $39.95 per month.

Under the settlements, both companies must pay full refunds to all of their Vermont customers and civil penalties and costs to the state. Debt Settlement's refunds will total more than $230,000, plus $70,000 to the state. Financial Freedom's refunds will total more than $42,000 in refunds, plus $30,000 to the State.

Also, both companies will pay $2,000 to any Vermont resident who was sued by a creditor after signing up with the company.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.