WASHINGTON - The Federal Trade Commission announced settlements Wednesday with three credit counseling firms that were accused of misleading customers.
The firms will pay more than $6 million of consumer redress in addition to returning more than $24 million that was held in trust accounts, the FTC said. The announcement came a week before Congress was expected to pass legislation that would require bankruptcy filers to seek out such firms.
"We think the judgments we have obtained in these cases are terrific for consumers," said Lydia Parnes, the acting director of the FTC's bureau of consumer protection. "We get whatever money we can."
Executives from the National Consumer Council in Santa Ana, Calif., will pay about $3.8 million, and the firm will pay $1 million. Executives at Debt Management Foundation Services in Tampa will pay $200,000 of fines and transfer assets worth about $58,000. Executives at Better Budget Financial Services in Beverly, Mass., will transfer assets worth about $1.3 million.
All the firms, now closed, were charged last year with deceptive practices. These included failing to tell consumers that debt negotiations most often do not work, that participation in debt management programs could hurt rather than help their credit scores, and that creditors would continue to try to collect the full debt.
The businesses also were faulted for failing to comply with the Gramm-Leach-Bliley Act's privacy disclosure rules.
In all the three firms had about 75,000 customers and collected more than $107 million of fees from them, the FTC estimated. Rather than getting debt relief, most customers found that their debt rose, the agency said.
Last week the FTC said it had shut down the credit counseling arm of another firm, AmeriDebt Inc. of Germantown, Md. The agency is pursuing a case against AmeriDebt's executives, and said the company falsely told consumers it was a nonprofit organization that would provide financial counseling for no up-front fee.
Credit management and counseling firms often make money through fair-share agreements, which give them a cut of the amount they collect for lenders, but the FTC said only Debt Management Foundation Services had any fair-share revenue and it was a very small amount.
Ms. Parnes was unable to say whether due diligence is expected of the creditor in fair-share agreements, or situations where a lender refers consumers to a credit counselor. Depending on the particulars of such agreements, the FTC may hold the creditor accountable for doing business with a deceptive counseling firm, she said.
