Maryland AG Settles with Law Firms Collecting Illegal Advanced Debt Settlement Fees

On March 16, Maryland Attorney General Brian E. Frosh announced a settlement between his Consumer Protection Division and five California law firms that allegedly collected illegal advance fees from consumers for debt settlement services and used the payments to pay themselves thousands of dollars.

Maryland’s Debt Settlement Services Act prohibits companies from collecting fees for debt settlement services from consumers until the company has settled, reduced, or renegotiated the consumers’ debt. The Division alleged that the firms regularly collected fees for the full cost of debt settlement service in advance, and in most cases did not reduce or settle the consumers’ debts.  The Division also alleged that the firms told consumers that attorneys would be involved in settling their debts, when in actuality attorneys were not involved.  Further, the Division alleged that, contrary to the provisions of the Debt Settlement Services Act requiring persons offering debt settlement services in Maryland to register with Maryland’s Commissioner of Financial Regulation, none of the law firms were so registered.

Under the terms of the settlement, the firms and their common owner may no longer offer or provide debt settlement services in Maryland, and they must return to customers their payments for unsettled debts.  The companies must also pay a civil penalty of $200,000, plus $50,000 for investigation costs and the claims process.