Texas Attorney General Greg Abbott has filed a suit to recover $4.6 million from Debt Relief USA to pay restitution to former clients who claim they were financially hurt by the Addison-based company's debt negotiation practices.
Abbott's office contends Debt Relief USA, which filed for Chapter 11 bankruptcy relief in June, took money from consumers who were in debt and promised to negotiate better terms with their creditors. As a result, more than 2,500 financially distressed consumers did not received the debt relief promised, Abbott said.
In a statement issued Thursday, Abbott alleges Debt Relief USA assessed an administration fee of about 8 percent of each customer's total debt, as well as monthly "maintenance fees" of up to $40. If the company successfully settled a debt, it then charged a "negotiation fee" of 13 percent of the amount of debt saved.
Abbott also contended Debt Relief USA took “set-aside” funds from clients, a practice which is not in compliance with the Office of Consumer Credit. In addition, the attorney general contends Debt Relief USA often did not contact creditors on their clients’ behalf. This, in turn, caused consumers who put off making payments under the company’s advice into a situation where their credit declined significantly and a negotiated settlement with creditors was never reached, Abbott's office said. In addition, the suit contends Debt Relief USA failed to register its debt management services as required by the Texas Finance Code.
