Debt reduction service sued for bad practices

I have posted about several debt reduction service lawsuits  but this one does the best job of explaining how these services allegedly operate.  This class action lawsuit was filed in Washington Federal Court.

The plaintiff with more than $40k of unsecured debt receives literature from Freedom Debt Relief promising to reduce his debt by 50% within 12-36 months.  The plaintiff is suppose to stop paying creditors and instead pay the credit repair service which is suppose to negotiate better payment options for the plaintiff.  After 13 months of paying the service, the plaintiff got frustrated because allegedly not a single debt had been resolved. 

Now the plaintiff had allegedly paid almost $6,000 to the defendants and upon withdrawing receive a refund of $1,498.  In addition, the defendant was sued for nonpayment by one of its creditors, Citibank, further damaging their credit rating.  So, they owe more money to their creditors, they lost out on more than $4,000 in payments to the service and their credit ratings are worse than when they started. 

Complaint courtesy Courthousenews

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4 Responses to “Debt reduction service sued for bad practices”

  1. Dominic Says:

    This article has nothing to do with credit repair. This is about a debt settlement company.

    • Randy Wilson Says:

      Good point. I posted this when I a little sleepy. I’ll fix it. Appreciate the feedback. Randy

  2. Monta E Says:

    I don’t understand. The literature states the client would be out of debt in 12-36 months. He pulled out at month 13. The plaintiff said his credit rating was further damaged…. all debt help program negatively affect your credit. If they didn’t everyone would go into these programs. Maybe this guy should have the read the contract before going into this program.

  3. Steve K. Says:

    Hello Randy,

    My name is Steve and I work for FDR. Let me clarify a few points. First of all we are a debt settlement company, not credit repair. Secondly we do not negotiate better payment options for the client (this would be credit counseling). What we do is negotiate a client’s debt down directly with creditors. Our current debt settlement program is entirely client funded, we do not lend any funds. Once clients are approved into our program we help them set up a 3rd party fdic insured bank account into which their monthly drafts get transferred into each month. We send letters to most of their creditors along with limited power of attorney forms. As their funds accumulate we then start negotiating with their creditors one by one. We will not negotiate with any creditor unless the client has at least 40%-50% of funds saved for that particular account. We do not send the creditors a regular monthly payment, they receive a lump sum after successful negotiations.

    I should add also that we believe in full disclosure with our clients. Our agreement is very detailed and we include the fact that legal action may occur during the process. We have no hidden fees. We have a large in-house dedicated customer service department and also a legal customer group to assist our clients and take every step possible to help our clients through the process.

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