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Arizona debt-relief company fined, ordered to pay restitution

Freedom Debt Relief, which has a major office located in Tempe, has agreed to pay $20 million in restitution and a $5 million fine. The restitution will go to the consumers who were improperly charged fees for services they never received. The $5 million fine will go to the federal government. The agreement will allow the company to settle the lawsuit over its business and marketing practices without admitting guilt.

The allegations against the company include the following:

  • Charging its clients without actually settling their debts
  • Obliging clients to forge ahead and craft their own debt settlement agreements and then charging them as if the company had done the work
  • Generally misleading consumers about the extent of the company's ability to diminish or remove their debts
  • Charging fees in advance of actual work -- which then sometimes never happened
  • Instructing consumers to change their billing address to Freedom's offices
  • Failing to tell customers that they were entitled to any unused funds they had deposited in settlement accounts with Freedom
  • Not advising clients that the company could not negotiate with some major credit card companies, including Chase, American Express, Macy's and Discover.

Freedom is one of Arizona's largest employers, so this settlement is important to both the company and many individual employees -- who would be out of work if the company folds. Freedom has stated that they're addressing the concerns raised in the lawsuit and revamping its policies to avoid future problems. As one representative stated, "In resolving the case, we have agreed to make some changes to our disclosures and policies to enhance our program, many of which were implemented when the case was first filed."

This lawsuit offers lessons for any business. Transparency is always the most important thing when you engage with your customers and it's never wise to overstate your promises. In addition, you want to take pains to make sure that your customers are completely aware of their rights when they make an agreement with you. That can avoid unpleasant -- and costly -- business lawsuits down the line.

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