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FTC Charges against Debt Management Foundation Services

What Does the FTC Do?

According to the FTC's web site, the agency "deals with issues that touch the economic lives of most Americans." The FTC was created in 1914 to prevent unfair competition. Over the years, Congress gave the FTC enhanced powers, authorizing the FTC to act against companies that use "unfair and deceptive acts or practices."

The FTC also administers many areas of consumer protection, like telemarketing and predatory lending practices.

The FTC Sued Debt Management Foundation Services

In 2004, the FTC charged Debt Management Foundation Services, Inc., with the following deceptive practices: Falsely claiming to be a nonprofit corporation; conducting a deceptive telemarketing campaign that used misleading information to get consumers to pay hundreds of dollars worth of up-front fees when they applied for a Debt Management Foundation Services account and making telephone calls to consumers who had registered on the FTC's Do Not Call Registry.

How Debt Management Foundation Services Worked

Debt Management Foundation Services operated by soliciting consumers' telephone answering machines, leaving messages that said the consumer has been pre-approved for a debt reduction program that may involve interest rates as low as 1.5 percent.

When consumers returned the phone call to Debt Management Foundation Services, representatives told them that Debt Management was a nonprofit company that consolidated consumer credit card indebtedness.

The representative cited a low monthly payment amount to the consumer that would pay all the consumer's monthly obligations if the consumer enrolled with Debt Management Foundation Services at that moment and agreed to pay a monthly enrollment fee as high as $1,000 and to pay monthly subscription fees of $20 to $49 in addition to the low monthly payment that had been quoted.

Upon receiving the consumer's enrollment fees, Debt Management Financial Services would keep the fee and send the consumer an application to apply for a credit consolidation loan from another company. The consumer soon learned that the low monthly payment and 1.5% interest rate quoted by the Debt Management Financial Services representative was not offered by the second company.

Results of the Charges

The FTC estimated that Debt Management, and two other operations, scammed consumers out of more than $100 million with their promises of easy debt relief. The FTC successfully shut down Debt Management Financial Services, Inc. in 2005.

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