CFPB Settles with Debt Relief Company

Earlier this week, the Consumer Financial Protection Bureau (CFPB) settled a lawsuit against Freedom Debt Relief, the country’s largest debt-settlement services provider. According to the settlement, the company must pay $20 million in restitution to its customers in addition to paying a $5 million civil money penalty. 

The CFPB claimed that Freedom Debt Relief violated the Telemarketing Sales Rule (by charging customers advance fees and not adequately informing them of their rights to their deposited funds) and the Consumer Financial Protection Act (by misleading consumers about their ability to negotiate with creditors). 

According to the original lawsuit, “Freedom has represented to consumers in its customized Debt Resolution Agreements that it believed all creditors, including creditors with which Freedom was often unable to negotiate, would work with Freedom to negotiate a settlement of debts.”

This has been a recurring problem with debt relief companies. Many consumers are not aware that lenders are not obligated to work with debt-relief companies. In fact, “dealing with debt settlement companies can be risky” and they can “leave you deeper in debt than you were when you started,” according to the CFPB. 

Rather than utilizing the services of debt relief companies, a potentially better option is credit counselors. These are typically non-profit organizations that aim to help indebted people manage their money.

The CFPB and the FTC both have webpages and materials for those wanting to learn more about credit counselors. Also, the Department of Justice provides a database that includes a list of approved credit counseling agencies by state and judicial district, which was last updated on July 5.