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As part of its continuing crackdown on scams that target consumers in financial distress, the Federal Trade Commission settled charges against a debt relief operation that allegedly lured consumers nationwide into paying thousands of dollars in up-front fees, but in most cases failed to actually reduce their credit card debts, and in many cases left them even deeper in debt. The proposed FTC settlement orders ban the company, Debt Relief USA, Inc., from doing further business, and ban company principals James Wojcik and Valerie Leath from marketing any financial products and services.  Litigation continues against the two other principals, Kelly Reilly and Alvin Bell.

According to the FTC’s complaint, Debt Relief USA and its principals made deceptive claims that consumers who enrolled in their program could eliminate 40 to 60 percent of their credit card debt and be out of debt in 24 to 48 months.  The FTC complaint charges that few consumers received the promised results.

Under the proposed settlements, Debt Relief USA, Wojcik, and Leath are required to protect and properly dispose of customers’ personal information. They also are prohibited from misrepresenting relevant facts to consumers.

The proposed settlements also impose a $19.7 million judgment against Wojcik and Leath, which will be suspended because of their inability to pay.  If it is determined that the financial information they gave the FTC was untruthful, the full amount of the judgment will become due.

Debt Relief USA has declared bankruptcy. Through settlement of a separate action brought against Debt Relief USA by the Attorney General of Texas, consumers have received $3.7 million in refunds from the company’s bankruptcy estate and will receive additional distributions soon.  The FTC participated in the bankruptcy proceeding and worked with the Attorney General of Texas to ensure maximum benefit for consumers.  Because the Texas settlement recovered available company funds and provided refunds to consumers, the Commission’s settlement with the company does not involve monetary relief.

Consumers looking for help with credit card debt should be wary of anyone who tells them to stop paying their bills, to pay someone other than their creditors, or to stop talking to their creditors.  Consumers should also be careful about paying for financial assistance before they receive it.  For more information on dealing with debt, including public service announcements about avoiding debt relief scams, see the Debt Relief Services  page of the FTC’s Money Matters website for consumers.

Changes made last year to the FTC’s Telemarketing Sales Rule prohibit companies that sell debt relief services over the telephone from charging fees before they settle or reduce a customer’s credit card or other unsecured debt.  This ban on advance fees protects all consumers who have enrolled in a debt relief service since October 27, 2010.  For more information about the advance fee ban see:  Debt Relief Companies Prohibited From Collecting Advance Fees Under FTC Rule.  For guidance to businesses on how to comply with the new Rule, see Debt Relief Services & the Telemarketing Sales Rule: A Guide for Business.

The Commission vote to file the complaint against defendants Debt Relief USA, Inc., Wojcik, Leath, Reilly, and Bell was 5-0.  The vote to approve the consent agreement with defendant Debt Relief USA, Inc. was also 5-0.  The votes to approve the consent agreements with defendants Wojcik and Leath were 4-0-1, with Commissioner Rosch abstaining on both.  The FTC filed the complaint on August 17, 2011, and the proposed consent decrees on August 19, 2011, in the U.S. District Court for the Northern District of Texas, Dallas Division.  The proposed consent decrees are subject to court approval.

NOTE:  The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest.  The complaint is not a finding or ruling that the defendant has actually violated the law.  Consent decrees are for settlement purposes only and do not constitute an admission by the defendant that the law has been violated.  Consent decrees have the force of law when approved and signed by the District Court judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.  To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357).  The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad.  The FTC’s website provides free information on a variety of consumer topics.  Like the FTC on Facebook and follow us on Twitter.

(FTC File No. 0923052)
(Debt Relief USA, Inc.)