ST. PAUL, Minn. (Legal Newsline) - Six lawsuits against out-of-state debt management companies have been filed by Minnesota Attorney General Lori Swanson.
The lawsuits allege that the six companies charged thousands of dollars in fees for their debt management services, leaving consumers in worse financial shape than when they originally sought help.
The six lawsuits are the first filed under a state law that went into effect Aug. 1 to regulate debt settlement firms doing business in Minnesota. The six companies are alleged to have signed up Minnesota consumers without the required Minnesota Department of Commerce state licenses and to have charged higher fees than allowed under state law.
"Many people owe money on their credit cards and are struggling to keep up with their bills because of the bad economy," Swanson said.
"People who are swimming in debt are often desperate for a life preserver, but they should know that debt settlement companies usually just anchor them down with even more financial problems. No consumer should ever do business with an unlicensed debt settlement company."
The origination and monthly fees that debt settlement firms may charge are limited by Minnesota law, which generally caps the origination fee at a price between $200-$500. The monthly fee for debt settlers is generally capped at a price between $50-$75.
The defendants are American Debt Settlement Solutions, Inc., of Boca Raton, Fla.; Debt Rx USA LLC of Dallas; FH Financial Service, Inc., of Dallas; Morgan Drexen, Inc., of Anaheim, Calif.; Pathway Financial Management, Inc., of Garden Grove, Calif.; and State Capital Financial, Inc., of Hallandale Beach, Fla.
According to the lawsuits, the six companies charged consumers fees ranging from hundreds to thousands of dollars in excess of those allowed by Minnesota law. Debt Rx USA is alleged to have charged a $1,978 origination fee and State Capital Financial an origination fee of $1,808. American Debt Settlement Solutions monthly fees were as high as $322 while FH Financial charged monthly fees of up to $183.
The lawsuits alleged that the companies entered into written contracts with consumers that did not satisfy requirements of Minnesota law and failed to prepare an individual written financial analysis for borrowers.
The companies are also alleged to have not provided debtors with the statutory notice that explains that debtor's wages or bank accounts may be garnished and that creditors may still continue to contact the debtor or sue the debtor while fees and other charges continue to accrue.
The companies also allegedly failed to inform debtors that their credit ratings could be adversely affected by participating in their programs.