NEWS RELEASE

FROM: 
Stephen Gibbons, Assistant District Attorney   CONTACT PERSON: 
Robin B. Wakshull, Deputy District Attorney
Consumer Protection Unit
(408) 792-2584   For release on August 26, 2004     ATTORNEY GENERAL AND DISTRICT ATTORNEYS SETTLE WITH DEBT MANAGEMENT PROVIDER AND TELEMARKETER   Attorney General Bill Lockyer, Santa Clara County District Attorney George Kennedy, and Monterey County District Attorney Dean Flippo have announced the settlement of a civil enforcement action against two Florida corporations that marketed and sold debt management or debt consolidation plans to consumers in California. The complaint was filed against Integrated Credit Solutions, Inc, (“ICS”) a telemarketer, and Lighthouse Credit Foundation, Inc., a tax-exempt organization that provides credit counseling and debt management plans. All parties consented to the entry of a judgment that provides for over $1.89 million in consumer restitution, civil penalties and costs, and injunction provisions to prevent future violations. The judgment was signed today by Monterey County Superior Court Judge Robert O’Farrell.   The complaint alleges that between January 2002 and January 2003, Lighthouse hired ICS to market, promote, and sell its debt management plans. A debt management plan involves an agreement by a consumer to have a third party negotiate new payment terms with his creditors. Thereafter, the debtor makes one monthly payment to the third party, who distributes the money to the participating creditors until the debt is paid off, usually in three to five years. Consumers pay a monthly administration fee to the third party.   The complaint alleges that, during the time period in question, ICS left prerecorded telephone messages on answering machines urging consumers to call an 800 number to talk to a representative about the nonprofit’s program. The calls failed to disclose that in order to sign up with Lighthouse, ICS required the consumer to pay substantial up-front fees for enrollment services or for the purchase of ICS’s finance guide.   The complaint further alleges that in the prerecorded messages and in subsequent person-to-person telephone calls, ICS made untrue or misleading representations, including statements that:  

  • The consumer had already been “approved” by a nonprofit agency.
  • The consumer's interest rate after consolidation will be as low as 1.5%, 5.5% or 6.5%.
  • The purchase of ICS’s Money Matters Toolkit is required by the consumer’s creditors as a condition of enrolling in Lighthouse’s debt management plan.
  • The monthly fee charged by Lighthouse is the amount allowed by law and is tax deductible.

The complaint also alleges that, prior to the entry of judgment, Lighthouse was not in full compliance with the California Check Sellers, Bill Payers and Proraters Law (Financial Code section 12000 et seq.), which regulates nonprofit and for-profit  providers of debt management plans.  That statute establishes specific operating requirements for nonprofit organizations and regulates fees that may be charged for debt management plans and services.    Under the terms of the settlement, ICS will pay a total of $1.02 million in restitution to former customers, as well as $350,000 in civil penalties and reimbursement of costs. Each former customer will receive $140 refund of the up-front fees. Current customers who complete the Lighthouse program according to the original payment schedule will still receive a full refund of up-front fees under terms of the completion certificate. Current customers who drop out of the Lighthouse program prior to the scheduled completion date but after the judgment will also receive $140. Finally, Lighthouse will pay a total of $422,400 in restitution to customers who paid monthly fees that exceeded the $20 allowed by state law, as well as $100,000 in civil penalties and costs.   Before signing up for a debt management plan “DMP”, California consumers should check with the California Department of Corporations to see if the plan provider is a licensed (for-profit) prorater or a registered nonprofit community service organization. In addition, consumers should be aware that entering into a “DMP” will require that they close some or all of their credit card accounts. Most importantly, consumers should review their financial situation with a qualified credit counselor to evaluate whether a debt management plan is a good course of action for their individual needs.   Consumers who believe they have been victimized by debt consolidation solicitations can file a complaint with their local District Attorney’s Office or the Attorney General’s Office by writing to Public Inquiry Unit, P.O. Box 944255, Sacramento, CA 94244-2550.   # # #

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