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Corporation Counsel Announces Settlement of Consumer Protection Lawsuit Against Credit Debt Solutions Inc.

Thursday, July 17, 2003

Corporation Counsel Announces Settlement of Consumer Protection Lawsuit Against Credit Debt Solutions Inc.

(Washington, DC) District of Columbia Corporation Counsel Robert J. Spagnoletti today announced the settlement of a lawsuit brought by the District against Credit Debt Solutions Inc. ("CDS"), a District of Columbia company that offered credit counseling and debt management services to consumers across the country. Without admitting any wrongdoing, CDS has agreed to reimburse consumers who meet specified criteria under the agreement. The Defendants - CDS; Barbara Carr, Chairwoman of CDS; and James A. Kehoe, Manager of CDS - have also agreed permanently to cease offering credit counseling and debt management services from the District of Columbia or to any District of Columbia consumer.

According to OCC's lawsuit, CDS had advertised that it could help consumers get out of debt. It had advertised that it could help "lower debt payments up to 50%." OCC charged that consumers who decided to seek the assistance of CDS were required to make a "voluntary contribution" in the amount of one month's debt payments in addition to paying monthly fees on each account managed by CDS. Yet, according to the allegations, many consumers who gave their money to CDS found that instead of getting out of debt, their problems only increased. OCC also alleged that CDS failed to forward many consumers' debt payments to their creditors. Other consumers allegedly achieved no reduction in their debt by signing up with CDS and paying CDS's fees.

Consumers are eligible for restitution under the agreement, if CDS failed to forward the consumer's debt payments to the consumer's creditors, or if CDS was at fault in failing to obtain a reduction in the interest rates that the consumer's creditors charged. These consumers will be able to obtain a refund of their voluntary contribution and account fees, as well as any funds that were not forwarded to their creditors.

"We are very pleased that these vulnerable consumers will be entitled to restitution under our settlement with CDS," said Corporation Counsel Spagnoletti. "The Office of the Corporation Counsel has guaranteed that consumers will obtain restitution in this case by having the Defendants pre-pay $123,900 into an escrow account, which is an estimate of the restitution that consumers will ultimately recover under the District's claim process." Spagnoletti added, "This should serve as a warning to anyone who would prey upon District consumers that this Office will vigorously enforce consumer protection laws."

At the end of July 2003, OCC will send questionnaires to consumers who made payments to CDS while they were located in the District of Columbia, so that those consumers can make a claim for a refund in this case. Consumers will be given until September 2003 to respond to the questionnaire. Consumers who believe that they may be entitled to a refund and do not receive a questionnaire by mid-August 2003 should call the OCC consumer hotline at (202) 442-9828.

Consumer education and complaint information can be found on OCC's consumer protection website.