Today's Feature
Nixon
Sues "Nonprofit" AmeriDebt.
Jefferson City,
Mo. — A nationally advertised company that
claims to be a nonprofit credit-counseling
service is defrauding debt-ridden Missourians,
Attorney General Jay Nixon charges in a lawsuit
filed this month. Nixon says AmeriDebt Inc.
deceives consumers through excessive, hidden fees
and by secretly transferring consumers’
accounts and money to its affiliated for-profit
companies.
Nixon filed suit in St. Louis
City Circuit Court against several companies and
individuals associated with AmeriDebt, including
members of the Pukke (PUCK-ee) family, which owns
and operates the various companies named in the
lawsuit. The lawsuit claims the supposedly
nonprofit companies have taken in millions of
dollars in personal profits for the Pukke family
and other officers and directors from consumers
needing help with unsecured debt and have
violated Missouri consumer protection laws.
"Consumers in financial
dire straits often will reach out to those
offering credit counseling services to keep them
afloat, particularly if the services are
aggressively advertised on television or on the
Web as being nonprofit," Nixon says.
"Unfortunately, with its high, hidden fees
and lack of any significant credit counseling,
AmeriDebt has served more as an anchor than a
life preserver for many consumers."
In addition to AmeriDebt, the
defendants in the lawsuit include Debticated
Inc., which also claims to be nonprofit;
for-profit corporations Debtworks Inc., Ballenger
Group Inc., Ballenger Group Holdings Inc., and
Infinity Resources Inc. (later renamed F&M
Mortgage Inc. and then Fidelity and Trust
Mortgage Inc., also defendants); and owners
Andris Pukke and his brother, Eriks Pukke. The
Pukkes and their companies are based in
Germantown, Md.
Nixon says that while AmeriDebt
tells consumers it is a nonprofit organization
that operates at cost and does not make money,
the company functions like a profit-driven
company. Employees referred to as "credit
counselors" or "debt
professionals" actually perform more as
salespeople to sell fee-based debt management
plans to consumers and are compensated in part on
commission, Nixon says.
"AmeriDebt aggressively
advertises that it charges no upfront fee to
consumers," Nixon says. "What the
company downplays or hides is that the first
monthly payment a consumer makes — which
typically is three percent of the consumer’s
total debt, and averages $327 — does not go
to the creditors, but is instead pocketed by
AmeriDebt and the Pukkes’ for-profit
companies." This payment is termed a
"voluntary contribution" by AmeriDebt,
Nixon says, and results in the consumer going
further into debt since the creditors are not
paid with it. In addition, AmeriDebt charges
consumers fees of up to $70 per month over the
life of the consumer’s debt management plan;
the plans generally last between three and five
years. Most of those monthly fees also are
secretly transferred to the Pukkes’
for-profit companies.
"Those monthly fees, which
also are characterized by AmeriDebt as
‘voluntary,’ add on between $1,000 and
$2,000 to how much consumers pay," Nixon
says. "This is not the kind of help people
in debt need."
The lawsuit also says that
AmeriDebt falsely advertises that it provides
credit counseling. Nixon says the employees with
whom consumers consult on the phone are
salespeople, not trained credit counselors, and
they provide no significant help with budgeting
or education and training about personal or
household finance.
"True credit counseling
would help consumers work their way out of debt
and stay there," Nixon says. "AmeriDebt
has salespeople competing for commission and
bonuses by selling debt management plans. They
are not trained or qualified to know what course
of action is going to be best for the individual
consumer with whom they are speaking."
Nixon also says the statements
AmeriDebt makes that it will
"negotiate" with a consumer’s
creditors to obtain the best terms and lowest
interest rate are false as well. The creditors
dictate to AmeriDebt, in advance of the consumer
contact, what interest rates and terms will be
given to consumers who go on a debt management
plan.
The lawsuit notes that in
September 1996, defendant Andris Pukke pleaded
guilty to the federal felony of trying to defraud
consumers by falsely promising "debt
consolidation loans," then not providing
them. Pukke and his wife formed AmeriDebt Inc.
the same month he pleaded guilty to the federal
charge. The defendants do not disclose the
conviction information to consumers, yet Pukke
companies still entice Missouri consumers by
promising debt consolidation loans, Nixon says.
The lawsuit asks the court to
void any contract made between Missouri consumers
and the defendants, and order consumer
restitution of the money not forwarded to
creditors. Nixon also is asking that the
defendants pay civil penalties of up to $1,000
for each violation of Missouri consumer
protection laws, as well as pay all
investigative, attorney and court costs to the
state.
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