On October 14, the U.S. District Court for the District of Arizona entered a default judgment against seven corporate defendants in an FTC action involving a nationwide debt relief operation. Because the defendants failed to respond, the court treated the complaint’s allegations as true and found violations of the FTC Act, the Telemarketing Sales Rule, the FTC’s Impersonation Rule, the Fair Credit Reporting Act, and the Gramm Leach Bliley Act. The court’s order found the defendants:
- Misrepresented the services and likely results. The defendants promised substantial debt reductions, said upfront fees would be included in the debt relief, and claimed negative credit effects would be temporary. The court found that consumers, many of them older adults, paid thousands of dollars for services that were nonexistent, not as described, or never provided, and often ended up deeper in debt with worsened credit scores.
- Impersonated trusted institutions. The defendants posed as consumers’ credit card issuers, government agencies, and consumer reporting agencies. They also used information obtained from credit reports to make those representations and charge consumers.
- Violated telemarketing and information-use restrictions. The court found that the defendants charged fees before meeting required debt settlement milestones, failed to disclose that their services could harm consumers’ creditworthiness, and called consumers on the National Do Not Call Registry.The order also addresses the use of consumer reports without a permissible purpose and false statements used to obtain financial information.
The order permanently bars the defendants from marketing or selling debt relief products and from telemarketing. It also prohibits impersonation, specified misrepresentations, and improper use of consumer reports and financial information. A permanent receiver must wind up the receivership entities and liquidate their assets within 365 days. The court entered a $108,586,567.60 monetary judgment against the defaulting defendants.
Putting It Into Practice: This judgment reaches beyond debt relief claims by barring the defendants from telemarketing and restricting their use of consumer reports and financial information. Debt relief providers and their marketing partners should review their sales practices, fee timing, lead sources, and access to consumer data.
*Amanda Yap is a law clerk in the firm's Orange County office.