Credit Counseling Scam

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The state of Missouri on Thursday sued credit-counseling service AmeriDebt, accusing the company of defrauding consumers of millions of dollars through excessive, hidden fees while falsely pitching itself as a nonprofit organization.

Attorney General Jay Nixon said AmeriDebt secretly functions as a profit-driven company in which “credit counselors” or “debt professionals” – untrained in such roles – sell debt-management plans for commissions.

“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,” Nixon said in announcing the lawsuit, filed in circuit court.

Illinois officials filed a similar suit against Germantown, Md.-based AmeriDebt in February.

Nixon wants a judge to void any contracts between the company and Missouri residents and order restitution of money not already sent to creditors. The suit also seeks fines.

AmeriDebt attorney Rob Herrell said the organization was “surprised and disappointed” by the lawsuit.

“AmeriDebt has been in operation nationwide for more than six years and has an exemplary record of helping needy debtors negotiate lower interest rates and payments,” he said.

On its Web site, AmeriDebt said it has worked with 400,000 people – with more than 90,000 clients as of July. The company says any complaints are resolved in the client’s favor.

Though AmeriDebt advertises no upfront fees for consumers, Nixon said the company downplays or hides that a consumer’s first monthly payment goes to AmeriDebt and its affiliates. That fee is typically 3 percent of the total debt, or an average of $327, Nixon said.

Annually, an estimated 9 million Americans contact a credit-counseling agency – often the last resort for consumers before filing bankruptcy.