Legal Helpers Debt Resolution, an Illinois company claiming to lower its customers’ debt interest rates, agreed to reimburse customers who paid for the company’s services in advance and yet did not receive any debt consolidation. The company will have to pay a reported $2.1 million in a settlement with the state. By law, debt consolidation companies are not allowed to charge an up-front fee. Instead, a firm can only make money once they’ve actually reduced a customer’s interest rate or otherwise negotiated a reduced debt load. Usually, this means making a contract for a certain percentage of whatever the deduction turns out to be. This a necessary protection, as otherwise consumers can be duped into paying for a service that provides no actual benefit. Only truly determined scum would then be able to take advantage of struggling families. So how did Legal Helpers Debt Resolution get around this?
The scammers behind Legal Helpers Debt Resolution, though, found a loophole in these laws and capitalized on it. LHDR had their customers sign documents declaring one of two lawyers, Thomas Macey or Jeffrey Aleman, as the customers’ legal counsel, charging them a fee soon afterward despite the customers never actually meeting them or any other attorney. A lawyer held on retainer in a debt resolution case can charge an up-front fee, while a non-lawyer debt company employee cannot. Presumably this is because legal work done by attorneys is more specialized, professional, and clear-cut than commercial debt consolidation. Debt-ridden customers were made to believe that the fees were justified, guaranteeing a reduced amount of debt for much less total than they would have paid. However, customers more often than not ended up in a much worse financial situation than they were in to begin with.
The Attorney General of Illinois, Lisa Madigan, caught wind of this scam and quickly brought a lawsuit against the company. LDHR, in addition to not helping many of their nominal customers lower any debt at all, had also passed the actual work of debt consolidation to non-lawyers at the firm. Essentially, the two lawyers acted as a front for the debt company to get around the ban against up-front fees. Macey and Aleman were slapped with seven charges including “collecting an unreasonable fee”, “conduct which tends to defeat the administration of justice”, and, my favorite, “assisting in … the unauthorized practice of law”. Along with reimbursing all of the customers they ripped off, Legal Helpers Debt Resolution also agreed not to accept any new Illinois customers.