CFPB and State AGs Prosecute Debt Relief Companies and Law Firms

In recent weeks, we have seen an increase in prosecution by the Consumer Financial Protection Bureau (“CFPB”) and state attorneys general against debt relief companies and law firms. Additionally, the focus on these debt relief entities has also been seen in the private adversary proceeding related to Litigation Practice Group (“LPG”), a defunct debt relief law firm.

On January 20, 2024, the CFPB and seven state attorneys general sued Strategic Financial Solutions and its conglomerate of supposed shell companies for running an illegal debt-relief enterprise (the “Strategic Lawsuit”). According to the complaint, the CFPB alleged that the defendants charged illegal upfront fees, failed to provide debt relief services in exchange for consumer money received, and that “façade” debt relief law firms has close relationships with their related debt relief services providers, all of which were named as defendants. The lawsuit also claimed that consumer funds were received from consumers – at times received by the façade law firms; at other times by the debt relief services – and were eventually received by the individually named defendant-owners and operators of the alleged debt relief scheme. The seven states that joined with the CFPB are Colorado, Delaware, Illinois, Minnesota, New York, North Carolina, and Wisconsin.

Just days after the CFPB and these seven states filed the Strategic Lawsuit, on January 24, 2024, Pennsylvania’s own Attorney General reached a separate court settlement based on the allegedly illegal operations of in-state debt relief law firms and their individual operator: Respondents Helbing Law, LLC; Consumer Law Relief LLC d/b/a Helbing Law Group, LLC; and Erik M. Helbing (the “PA Settlement”). 

Both the Strategic Lawsuit and the PA Settlement – a court-filed settlement agreement – alleged that the defendants and respondents failed to deliver promised debt relief services to paying consumers, charged illegal advance fees, and operated sham debt relief law firms to carry out debt relief schemes. Specifically, both alleged that while many paying consumers believed attorneys were working on their debts, often their accounts were transferred to non-attorney representatives for servicing. 

Shortly after the PA Settlement, on January 30, 2024, in continuance of yet another ongoing legal action involving a defunct California debt relief law firm, LPG, a court-appointed trustee asked a court to assist in prioritizing more than $100 million in claims from investors and alleged that LPG was running a “Ponzi scheme.” Specifically, in the adversary proceeding brought by the trustee, Richard Marshack, he argued that LPG sold the same accounts receivable to multiple people. 

Based on January’s increase in regulatory and legal actions, we anticipate continued legal activity throughout the year on both the federal and state levels to prosecute unlawful, deceptive, and fraudulent practices by debt relief companies and law firms nationwide.

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