MINNEAPOLIS - The state attorney general sued six out-of-state debt settlement companies Thursday for alleged violations of Minnesota law that left consumers already struggling with their debt in worse shape than when they started.
"People who are swimming in debt are often desperate for a life preserver, but they should know that debt settlement companies usually just anchor them down with even more financial problems," said Attorney General Lori Swanson in a news release.
Swanson's office says debt settlers typically recommend that consumers stop paying their bills and instead put the money in a bank account, which the debt settlement company will use to negotiate a settlement of the consumer's debt.
However, she cautions that consumers who stop paying their bills could end up with debt collection calls, ruined credit, collection lawsuits and wage garnishments.
A Minnesota law that took effect Aug. 1 caps the fees that settlement companies can charge for the service. For example, it generally caps the origination fee paid by the consumer at between $200 and $500. Monthly fees are capped at between $50 and $75.
Swanson alleges the six companies weren't licensed to do business in Minnesota and overcharged consumers by hundreds or thousands of dollars. The lawsuits seek injunctive relief, civil penalties and restitution.
The companies sued are:
_ American Debt Settlement Solutions Inc. of Boca Raton, Fla.
_ Debt Rx USA, LLC of Dallas
_ FH Financial Service, Inc. of Dallas
_ Morgan Drexen Inc. of Anaheim, Calif.
_ Pathway Financial Management Inc. of Garden Grove, Calif.
_ State Capital Financial Inc. of Hallandale Beach, Fla.
Messages were left with all the companies, but only Jacob Hunt, owner of FH Financial, immediately responded. He said he wasn't aware of the lawsuit, but he would examine the allegations carefully.
"We'll definitely address it appropriately," he said.
On the Net:
The Minnesota Attorney General's Office has advice on avoiding debt settlement scams at: http://www.ag.state.mn.us.