First of two-part column
In September 2007, Susie Hulse’s husband died after a long bout with colon cancer.
Hulse found herself in frightening, unfamiliar territory. She’d left her job to care for her husband, Dale. Medical bills from all over the place – hospitals in Wenatchee, Spokane and Tulsa – were piling up. She’d found herself using credit cards to live and to cover co-pays. Her mother developed health problems and moved in with her.
Before she knew it, she was staring at bankruptcy. She owed about $38,000 that she could not pay.
One night, watching television in her Ephrata home, she saw an ad for Freedom Debt Relief. The ad promised that the company would help her get her financial life in order, settle her debts, get back on her feet.
She called right away. She spoke to a guy named Mike.
“I told them the whole sad story, and they were very sympathetic and said don’t worry, we’ll help you,” said Hulse, 59. “I felt so good after I talked to them. I felt like finally somebody understands.”
‘What a racket’
In the state of Washington, it’s against the law to charge more than $25 up front to settle debts. It’s against the law for anyone who settles debts for you to charge more than 15 percent of the amount paid to a creditor.
But Spokane attorney Darrell Scott and his firm have unearthed through a mountain of litigation in the past three years ample evidence that these laws are violated all the time by lots of different companies and individuals. No one in Washington and few people anywhere – in government or private practice – has done as much battle with the debt-settlement industry as Scott and his firm.
The companies Scott pursues follow a similar template: They promise to settle a client’s debt over the course of a three-year program; they have their clients make payments to them, which they say will go into an account for the debt settlement they claim to be negotiating; they emphasize that their client is to stop paying their bills and ignore their creditors, so they’ll have leverage during negotiations; and then they keep most or all of the money in fees, and do little if anything to settle any debts.
“The vast majority of these companies settle little or no debt,” Scott said. “They just collect upfront fees and hope you go bankrupt after you pay the fees. They are predatory. They charge extraordinary fees, and do nothing.”
Their names are legion: Freedom Debt Relief, Silver Bay Financial, Global Client Solutions, Swift Rock Financial, Fast Track Debt Relief, Legal Helpers Debt Resolution. They’re sometimes presented as a government program, a part of the federal stimulus act. They typically operate in hard-to-untangle relationships with other firms. Most recently, they present themselves as law firms, Scott said.
Most states have laws tightly regulating for-profit debt-settlement, and Washington’s are especially strict. But the Internet has made it possible to cross state lines to find customers. And the recession compounded an already growing problem in this country with burgeoning consumer debt.
Which a discouraging number of people see as a business opportunity.
Scott’s firm has pursued some 26 lawsuits, most of them class actions or seeking class-action status, against debt collection firms. They’ve achieved settlements in nine cases, a judgment in their favor in one, and are actively pursuing the rest. They’ve argued before the state Supreme Court, winning a crucial case that asserted the companies, which are headquartered in other states, were bound by Washington law when dealing with consumers here.
Scott called the case “the death knell for the whole industry in Washington state.”
But it’s a long, slow, ongoing death.
“What a racket,” Scott said. “And it is preying on the people least capable of being taken advantage of. It’s not a Bernie Madoff deal.”
Susie Hulse signed a contract with Freedom Debt Relief and started sending monthly payments.
The company is headquartered in California. It describes itself as being affiliated with Freedom Financial Network LLC.
Hulse’s monthly payments of $400 were supposed to go into an account that would be used to pay off her debts, once settlements were negotiated at pennies on the dollar. She paid for a couple of months. She stopped paying her bills. Her creditors were not amused.
She would contact Freedom Debt Relief, concerned.
“They’d say they were going to call (my creditors),” Hulse said. “Then they’d never call them.”
‘Open to abuse’
There are certainly legitimate organizations that help consolidate and settle debt for consumers. They’re typically nonprofit organizations; but for-profit trade organizations argue that a few bad apples have given the whole industry a bad name.
Washington passed its consumer protection statutes on debt settlement in 1967; when the law was due to expire in the late 1970s, the attorney general’s office under Slade Gorton wrote this to the Legislature:
“(It) is our considered opinion that debt adjusting for profit in this state should not be regulated but rather should be prohibited. While it is highly unusual for this office to recommend such a step in view of our strong support for competition and free enterprise with a minimum of regulation, our experience in this area indicates that this field, even with regulation, is open to abuse.”
Scott’s office figures that about 20,000 Washington residents contracted with for-profit debt-settlement companies between 2005 and 2011. It has analyzed about 12,000 of the cases in which more than $75 million was paid to debt settlement companies. Of that, more than $32 million was paid in fees. Less than $31 million, or about 43 percent, was paid to creditors.
About half the time, no money whatsoever was paid to any creditor.
Susie Hulse hung in there for seven months. She sent in her $400 payments – payments that were tough for her to come up with – and hoped for the best. A settlement. No bankruptcy. An end to the burden.
She would call Freedom Debt Relief and ask them why her creditors were still hounding her. She worried that her excellent credit rating was being ruined. They kept telling her not to worry, but the reassurances had worn out. She was worrying.
She asked for her money back. She’d sent in roughly $2,800 in payments. Freedom Debt Relief sent her back $600. They said that was all she had coming.
Coming Saturday: Part 2: A lawyer’s campaign.
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