Debt company settles case

The San Mateo-based debt settlement company accused of misleading customers to the point some were led into further financial holes and even bankruptcy agreed to refund fees to some California customers and maintain specific business practices.

The half-million dollar refund account and contract rules were part of a consent judgment reached Dec. 22 between Freedom Debt Relief, San Mateo County and the California Department of Corporations

Freedom Debt Relief was not required to admit any liability and continue operating, said Chuck Finney, San Mateo County deputy district attorney of the Consumer and Environmental Unit.

"To their credit, the company has made a lot of refunds to people and made some major changes in mid-2008,” Finney said.

By that time, the District Attorney’s Office was already investigating a number of complaints about Freedom Debt Relief forwarded to them. In the suit filed Oct. 20, 2008, prosecutors alleged customers actually incurred greater debt through late fees and collection lawsuits because the company purposely misled them to get their business.

Specifically, the complaint alleged the company charged clients excessive fees, operated without the proper business license, failed to tell customers they had the right to cancel contracts within three business days and made misleading statements to persuade clients to buy the services.

Freedom Debt Relief and co-defendants Freedom Financial network, LLC and company owners Andrew Housser and Brad Stroh denied the allegations.

Housser, who called the settlement "a huge vindication for our business model,” believes the suit was "more of a miscommunication” between the company, county and Department of Corporations about whether it was required to be licensed to distribute clients’ money to creditors. Housser said the company negotiated, but did not distribute.

The settlement dismissed the claims against the other defendants and withdrew the May 29, 2008 desist order.

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 the suit, instead made some customers’ situations worse.

Of its 70,000 customers, Housser said there are a "handful of complaints” but that the company works diligently to resolve them.

The settlement requires Freedom Debt Relief to continue disclosing the time it may take before negotiation with a client’s creditors, the fees charged, termination policies and how clients can get information about their accounts. Housser said changes, like the three-day termination window, happened in 2007, long before the lawsuit.

The company drew customers nationwide but only those in California — approximately 3,000 between the qualifying period of Nov. 1, 2004 through May 31, 2008 — are eligible for refunds under the terms of the settlement, Finney said.

Those eligible will receive a letter explaining the process, including the formula on which the partial refund for fees is calculated, according to Housser.

Freedom Debt Relief must also pay $360,000 in reimbursement to the San Mateo County District Attorney’s Office and California Department of Corrections and $90,000 in violation fees.

Although the settlement only addresses California clients, Finney’s advice to all potential customers regardless of location is to do a little homework.

"Consumers owe it to themselves to have an initial consultation with an experienced bankruptcy attorney to know what the consequences are before deciding what to do,” Finney said.

A half-hour initial meeting runs roughly $25 to $35, according to Finny — likely a minimal amount in comparison to the money at stake.

Referrals to certified bankruptcy attorneys can be had through the San Mateo County Bar Association, the county’s legal referral service, the California Board of Legal Specialization.

Housser recommends existing customers direct any questions to the customer service representatives at (800) 893-3123 and potential customers visit the company’s Web site www.freedomdebtrelief.com.