AG Cooper seeks to stop sham credit counselor
Release date: 10/10/2006
Raleigh: Attorney General Roy Cooper took legal action this week to stop a company that collected $1.8 million from dozens of North Carolina small businesses to settle debts with creditors, then kept most of the money, using only a quarter of the funds to pay off what clients owed.
“North Carolina family-owned businesses looking for help instead got pushed deeper into debt by these socalled credit counselors,” Cooper said. “We want to shut down this company that’s preying on struggling small businesses.”
Cooper filed suit late Monday in Wake County Superior Court against Commercial Credit Counseling Services, Inc., which does business as Corporate Turnaround, charging that it broke state laws against unfair business practices and debt adjusting, the practice of charging a fee to help settle debts. He is asking the court to shut down the Paramus, New Jersey-based company’s illegal operations in North Carolina and order the company to pay refunds for consumers. Cooper has requested a hearing on a preliminary injunction to stop the company while the case goes forward.
As alleged in the complaint, Commercial Credit promises to help distressed consumers save their businesses by negotiating with their creditors, telling prospective clients that its services, “won’t cost you a cent” according to the company’s marketing materials. Clients are told that their monthly payments to the company will go to pay off their debts and that Commercial Credit will charge them a fee only if its work saves clients money. Instead, Commercial Credit charges its customers a long list of exorbitant fees, including enrollment fees, check writing fees, and fees for settling debts that climb as high as 30 percent of the total amount owed, and pays out very little to clients’ creditors.
According to an analysis by Cooper’s Consumer Protection Division, Commercial Credit enrolled 163 North Carolina clients between 2001 and 2004. Of the $1.8 million the company collected from those consumers, the company kept 57 percent—more than $1 million—for itself and paid out only 25 percent to clients’ creditors. Commercial Credit held the remaining 18 percent—around $322,000—as clients’ available balance, money it usually keeps when consumers withdraw from the failed debt management plan. Only six out of 163 North Carolina clients appear to have completed Commercial Credit’s program, with the rest withdrawing.
Cooper’s complaint includes several examples of North Carolina small business owners harmed by Commercial Credit. When Bennett Timber Harvesting in Roanoke Rapids lost a major client, owner Teresa Bennett and her husband turned to Commercial Credit for help managing debts. Commercial Credit promised the Bennetts to keep them out of bankruptcy and keep their logging equipment from being repossessed. They paid Commercial Credit $4,500, but three weeks later no money had been paid to their creditors and their equipment had been repossessed. Commercial Credit then assessed Bennett Timber $79,121 in default fees. The company wound up having to file for bankruptcy.
In another example cited in the complaint, Neal Wrenn ran a small ballroom dance studio in Matthews. In 2004, Mr. Wrenn got into debt after a series of misfortunes including health problems that kept him from
NC Department of Justice y 9001 Mail Service Center Raleigh, NC 27602-0629 y (919) 716-6400
working and a fire that destroyed his home. From October 2004 through May 2005, Mr. Wrenn paid Commercial Credit $6,750 for help getting out of debt, but Commercial Credit didn’t pay any of that money to his creditors. His debts actually increased from $41,000 to $49,000 due to late fees, he was sued by one of his creditors and his credit was ruined.
North Carolinians now have more protection from unfair debt adjusting under a new law that took effect in January of 2006. The measure, the Consumer Credit Counseling/Debt Management Act, is slated to expire in October of 2007, but Cooper believes it should be extended.
“People who are struggling to make ends meet and looking for a way out of debt need real help,” said Cooper. “We need to keep strong laws in place to stop unfair companies from taking advantage of consumers when they’re down.”
Consumers who need help managing personal debt should check with a national accrediting organization such as the National Foundation for Credit Counseling at 1-800-388-2227 or www.nfcc.org for a reputable local counselor. Small businesses facing financial troubles or considering bankruptcy should consult with an attorney.