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Monday, July 15, 2024 | Back issues
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Class Accuses Debt-Relief Agency of Skirting the Law

(CN) - A debt-relief agency skirts Minnesota law by hiring outside companies to solicit customers, and also charges exorbitant and illegal fees for its services, a class claims in court.

Lead plaintiff Paul Nelson sued EFA Processing LP, Consumer Law Associates LLC (CLA), Impact Debt Settlement (IDS) and five individuals in Minneapolis.

The complaint in Hennepin County District Court alleges that, even though EFA Processing performs debt-settlement services with outrageous fees, the company avoids being prosecuted under the Minnesota Debt Settlement Services Statute (DSSS) by hiring out-of-state attorneys from Consumer Law Associates and using "so-called 'front-end' companies [that] perform little or no work and merely serve as facades to conceal EFA's involvement."

IDS, one of the "front-end" companies, allegedly "holds itself out to consumers as a business offering debt settlement services to consumers burdened with credit card debt. IDS advertises through the Internet and other channels under its own name ... [but] fails to make the disclosures require by [the DSSS]."

These disclosures include the fact that EFA, a multimillion dollar company not registered for business in the state of Minnesota, is actually providing the debt-settlement services, according to the complaint.

Likewise, the class accuses CLA of duping customers into believing that licensed attorneys, rather than EFA, will perform their debt-settlement services.

"In furtherance of defendants' scheme, EFA prepares and mails letters to consumers and creditors identifying itself and its employees as assistants or employees of CLA," the complaint states. "Based on an agreement among defendants, all correspondence and customer interactions by EFA are 'private labeled' to CLA's 'brand.'

"Included in the documentation that defendants send to consumers is a 'Welcome' brochure and a 'client retainer package.' Both the brochure and the package are identified as being from CLA."

The class claims that EFA and the other debt-settlement companies both lied to them and charged exorbitant fees, most of which the company kept rather than send on to creditors.

Specifically, Nelson says he was charged more than $15,000 in "retainer fees" on top of a $199 "consultation fee."

"While plaintiff Nelson was enrolled in defendants' unlawful program, defendants collected at least $34,365.00 from him," the complaint states. "On information and belief, approximately $9,231.64 was disbursed to Nelson's creditors. ... Ultimately, defendants refunded $5,000.00 in fees to plaintiff Nelson and retained $13,040.69 in fees."

The class seeks reimbursement of the fees collected by the defendants, as well as $5,000 in statutory damages for each claimant, for violations of the Minnesota Debt Settlement Services Statute, conspiracy and breach of fiduciary duties.

Alleged violations of the statute include the companies' failure to inform consumers that it was splitting the fees with others, failure to disclose that fees exceeded the amounts allowed by law, and failure to hold the funds paid by consumers in an interest-bearing account before disbursement.

The class is represented by James Anderson of Heins, Mills and Olson.

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