Many customers of Freedom Debt Relief actually incurred greater debt through late fees and collection lawsuits because the San Mateo-based financial services company purposely misled consumers to get their business, according to San Mateo County prosecutors.

The Consumer and Environmental Unit of the District Attorney’s Office joined with the California Department of Corporation to sue Freedom Debt Relief, LLC, Freedom Financial network, LLC and company owners Andrew Housser and Brad Stroh. The lawsuit filed Oct. 30 in San Mateo County Superior Court claims the defendants engaged in unlawful business practices, including making false or misleading statements to consumers via the Internet and telephone to induce them to buy debt reduction services. The suit also claims the company violated the state financial code by operating without a business license from the Department of Corporation.

The business, located at 1875 S. Grant St. in San Mateo, advertised having approximately $1 billion in debt under management throughout the United States. The company advertised being able to negotiate a 40 percent to 60 percent reduction in debt to unsecured creditors but, according to prosecutors, instead made some customers’ situations worse.

“Instead of their debts being settled or reduced, many of the defendants’ customers suffered increased debt because of late fees imposed by creditors, referral to collection agencies or collection lawsuits. Some customers ended up in bankruptcy,” according to the suit.

Prosecutors want an injunction ordering the company to follow the law, pay restitution and pay civil penalties between $2,500 and $10,000 for each violation.

The company’s goal, according to its Web site, is to eliminate rather than simply lower debt. The plan for those who qualify, the site explains, is a “debt reduction program” which involves “affordable monthly savings obligations” to get consumers out of debt “in as little as 2 to 3 years.”

The founders have been profiled by numerous news organizations and were finalists for the 2006 Ernst & Young Northern California Entrepreneur of the Year award.

Consumers who believe they have been victimized should file a complaint with the District Attorney’s Consumer and Environmental Unit at (650) 363-4651.

Michelle Durand can be reached by e-mail: michelle@smdailyjournal.com or by phone: (650) 344-5200 ext. 102.