FTC Stops ?Reduce Debt Now? Scheme

As requested by the Federal Trade Commission, a judge has temporarily halted an operation that falsely claimed it could reduce consumers’ credit card interest rates or the total amount of their credit card debt, leading many people into even more debt.

The FTC’s complaint alleges that since 2004 the defendants have sold debt reduction services through Web sites and television and radio advertisements with claims such as “Reduce Debt Now,” “Eliminate Harassing Calls,” and “It’s Free.” When consumers call a toll-free number, they are encouraged to enroll in a “debt consolidation program” if their unsecured consumer debt is up to one month overdue, or to enroll in a “debt settlement program” if overdue more than a month.

According to the complaint, the defendants promise to consolidate the consumer’s debts and negotiate with creditors for lower interest rates, such as “between zero and 9 percent,” or lump-sum settlements, such as “fifty cents on the dollar” or “50 to 60 percent” of the consumer’s total unsecured debt. They allegedly fail to obtain the promised debt reductions in violation of Section 5 of the FTC Act, and many of their clients experienced more debt due to accumulated interest, late fees, and finance charges.

The complaint also alleges that, during initial telephone sales, the defendants assert that consumers will not have to pay up-front fees before the defendants begin obtaining the promised debt relief. They also represent that participation in their program will stop creditors from calling or suing them to collect debt. Instead, the Commission alleges, they generally require consumers to pay, in monthly payments, eight percent of the consumer’s total debt before the defendants contact creditors. The complaint also alleges that the defendants often do not contact creditors or debt collectors at all, and that consumers who enroll in the program continue to receive collection calls.

On March 22, 2007, the court issued a temporary restraining order against Debt Set Inc. (“Debt Set Colorado”), Debt-Set (“Debt -Set Nevada”), Resolve Credit Counseling Inc., William Riggs, Michelle Tucker a/k/a Michelle Mangan, Lee Tucker a/k/a Leo Mangan, and Isaac Khan a/k/a Issac M. Khan or Ishaq Mohammad Khan. The order freezes the individual defendants’
assets and appoints a temporary receiver over the corporate defendants.

The Commission vote to authorize staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the District of Colorado.

The FTC’s case was brought with assistance from the Attorney General of Colorado.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.