The six companies being sued were supposed to help debt-ridden consumers, but they actually made things worse, according to a statement released by Minnesota Attorney General Lori Swanson.
Apparently, the companies charged excessive fees, didn't explain their terms to consumers, and weren't licensed to operate in the state, according to the lawsuit. Here's what the AG's office had to say about them:
The debt settlement industry took off a few years ago as consumers faced high levels of credit card and consumer debt and a recession that made it difficult for many people to keep up with their bills. Debt settlement companies tell consumers to stop paying their creditors and instead place the money that would have gone to creditors in a bank account, which the debt settler will supposedly use to negotiate a reduction in the consumer's debt.
For example, debt settlers typically recommend that consumers stop paying their bills so that the debt settler can negotiate reduced payments with the creditors. Consumers who stop paying their bills, however, usually end up with ruined credit and often face collection lawsuits, garnishment, and debt collection calls. In addition, when a consumer stops making payments on their credit card and other bills, late fees and interest accrue, and the amount of the loan swells. Meanwhile, the debt settlers are profiting from fees that could have been used by the consumer to pay bills.
Great. Just punch us while we're down. Here are the names of the companies the AG has sued:
- American Debt Settlement Solutions, Boca Raton, Florida
- Debt Rx USA, Dallas
- FH Financial Service Inc., Dallas
- Morgan Drexen Inc., Anaheim, California
- Pathway Financial Management Inc., Garden Grove, California
- State Capital Financial Inc., Hallandale Beach, Florida