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AG Cooper takes aim at debt adjusters

Release date: 4/15/2004

Raleigh: Attorney General Roy Cooper and Wake County District Attorney Colon Willoughby took action today against two credit counseling companies that broke North Carolina law by charging consumers high fees for plans to get out of debt.

“These so-called credit counselors said they could help people pay off their debts,” said Cooper. “Instead, they used consumers’ money to line their own pockets while driving people even deeper in the hole.”

“We want to stop these companies from making an unfair profit off of people who are already in tough financial straits,” said Willoughby.

Cooper and Willoughby today filed suit against Cambridge Credit Counseling Corporation of Agawam, Massachusetts, and Debt Management Foundation Services, Inc. of Orlando, Florida. The suits allege that both companies deceived customers and engaged in debt adjusting, the illegal practice of charging consumers high fees to negotiate with their creditors to pay off debts. Cooper and Willoughby are asking the court to ban both Cambridge and Debt Management from advertising, soliciting or engaging in debt adjusting in North Carolina. The suits also seek cancellation of all contracts with North Carolina consumers, refunds and civil penalties.

As alleged in the complaints, both Cambridge and Debt Management claim to be non-profit credit counseling services dedicated to helping financially distressed people get out of debt. In reality, both organizations are profit-driven companies whose “counselors” pitch expensive and unlawful debt adjustment plans to consumers.

According to consumers who complained to Cooper’s office, Cambridge encouraged them to make their first debt adjustment payment to the company as soon as possible and to stop paying their other creditors. In many cases, consumers wound up with extra interest and late charges on their outstanding debts because Cambridge failed to pay bills as promised. Cambridge also failed to tell its customers that their entire first payment and ten percent of all other payments would go directly to the company, not to pay off other bills. If Cambridge negotiated a debt on the consumer’s behalf, the company kept fifty percent of the savings. Cambridge’s 2002 tax returns indicate that it made profits in excess of $53 million that year, spending close to $16 million on advertising alone and paying its founders, brothers John and Richard Puccio, salaries of $624,000 each.

Debt Management pitched a similar service, according to consumers who received recorded sales calls from the company. Consumers reported getting messages on their answering machines informing them that they were pre-approved to consolidate and reduce their credit card debt through Debt Management. When consumers who responded to the pitch got a written contract in the mail, they discovered that the debt plan included hefty fees. Costs to consumers included an enrollment fee of several hundred to $1,000 and a monthly charge of $39 a month over 40 months for a total of $1,560.

The allegations against Debt Management are in addition to a complaint first filed by Cooper last November against the company for illegal telemarketing using autodialers and recorded sales calls. Cooper is seeking to bar the company from making unlawful telemarketing calls into the state in violation of the Do Not Call law.

“This case shows how telemarketing investigations can also help us uncover frauds and scams,” said Cooper.

A total of 21 consumers have complained to Cooper’s office about Cambridge, although the company may have contracts with hundreds of other North Carolina consumers. Cooper has received 94 Do Not Call complaints about Debt Management Foundation and another 6 complaints about the company’s debt adjusting practices.

Consumers who need help managing debts can contact a legitimate non-profit credit counseling agency for advice. Check with the National Foundation for Credit Counseling at 1-800-388-2227 or to find a reputable local counselor.