Abbott looks to recover $4.6 million from debt settlement company
AUSTIN, Texas (Legal Newsline) - Texas Attorney General Greg Abbott announced Thursday that he was taking legal action against a bankrupt debt settlement company that withheld funds from its clients.
Abbott is seeking to recover $4.6 million in client funds from Addison-based Debt Relief USA, Inc., which filed for bankruptcy protection in June. Because of the bankruptcy, more than 2,500 clients did not receive the debt relief they were promised, Abbott said.
Investigators in the Attorney General's Office discovered that Debt Relief USA targeted individuals with thousands of dollars in unsecured debt, promising customers it would render them "debt-free in as little as 36 months," Abbott said.
However, investigators claim that 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.
According to court documents the State filed with the bankruptcy court, Debt Relief USA collected "set-aside" funds from its customers.
However, the Texas Finance Code prohibits set-aside funds unless a company is licensed or registered and has posted a bond with the Office of Consumer Credit Commissioner.
As a result, Abbott has filed a proof of claim in the bankruptcy case seeking restitution for financially harmed debtors and the return of any fees paid to Debt Relief USA by current or former clients.
The Republican attorney general also seeks civil penalties of up to $20,000 per violation of the Texas Deceptive Trade Practices Act, as well as attorneys fees.