Byline: Michael D. Sorkin
Sep. 12--One of the fastest-growing credit counseling companies is AmeriDebt, whose late-night TV ads promise free help to get out of debt.
On Thursday, Missouri Attorney General Jay Nixon sued the company for fraud, warning that it makes millions of dollars from consumers who could save money repaying loans without AmeriDebt's help.
The suit accuses AmeriDebt of posing as a nonprofit company to lure customers, then funneling their payments into for-profit companies operated by one of the owners, a convicted felon.
AmeriDebt also tricks consumers into making "voluntary donations" -- averaging $327 -- allegedly to pay for training the company's counselors and other services, it says.
"Unfortunately," Nixon said, "with its high, hidden fees and lack of any significant credit counseling, AmeriDebt has served more as a boat anchor than a life preserver for many consumers."
The investigation began after Nixon saw one of the company's TV ads and became suspicious. Consumers also complained to the attorney general's office.
State investigators say the company has bilked about 2,000 people in Missouri of an estimated $500,000, along with thousands of other debt-ridden people nationwide.
Illinois Attorney General Lisa Madigan filed a similar suit in February. The District of Columbia won $2 million in a fraud suit in 1999. The Federal Trade Commission also is investigating the company.
AmeriDebt founder Andris Pukke of Pittsburgh also is named as a defendant. He started the company in September 1996, the same month he pleaded guilty to a federal felony charge of trying to defraud consumers by promising "debt consolidation loans," and then not providing them.
AmeriDebt operates over the Internet and promises a "complete, comprehensive credit-counseling program."
Nixon says the promise is usually pretty worthless.
His suit says the company's counselors are salespeople who often lack any real knowledge of debt counseling.
The suit says AmeriDebt often fails to provide any counseling: instead, the counselors' job is to sell consumers a debt consolidation plan, which is usually the same for everyone. Then AmeriDebt turns over customer files, accounts and most of their loan payments to one of the company's for-profit sister companies.
Those companies also are named as defendants. Investigators say AmeriDebt developed a complex scheme to keep customers from learning that that they were not dealing with nonprofit credit counselors.
Most of the money AmeriDebt makes, the suit says, is from creditors and is based upon how much money AmeriDebt is able to get its customers to repay.
An AmeriDebt spokeswoman said the company was preparing a statement responding to the allegations.
There is no federal regulation of debt counseling companies. Illinois requires the companies to be licensed; Missouri does not.
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