Washington State

Office of the Attorney General

Attorney General

Bob Ferguson


Attorney General’s Office argued Freedom Debt Relief’s fees were improper

SEATTLE – Thanks to the Attorney General’s Office, hundreds of cash-strapped Washington consumers who paid Freedom Debt Relief to work out a deal with their credit card providers will be feeling some relief. The California-based company agreed to pay up to nearly $800,000 in restitution to resolve allegations it violated Washington’s Consumer Protection and Debt Adjusting Acts.

 “We’re paying special attention to operations that take advantage of people who, due to this tough economy, are already struggling to put food on the table and keep the lights on,” Attorney General Rob McKenna said. “Failing to inform customers that their credit may be ruined and taking illegal fees -- when those individuals are making a good-faith effort to settle their debts – are practices that we aim to stop.

Freedom Debt Relief advertises on its Web site that it has settled more than $1 billion in debt for its customers. Under its program, consumers stop making payments to their unsecured creditors and allow those accounts to go into default. Debtors then pay into a bank account they control, which is subsequently used to settled their debts. The company deducts its fees from the account. When sufficient money has accumulated in a consumer’s account, Freedom Debt Relief attempts to negotiate with creditors to settle the debts for a fraction of the balance.

About 1,100 Washington consumers who collectively owed $35 million in debt enrolled in the program since Freedom Debt Relief started operating in 2003. The Attorney General’s Office estimated that more than 570 of those consumers are eligible restitution under the state’s settlement.

“We believe hundreds of Freedom Debt Relief customers paid more fees than allowed under Washington’s law,” said Assistant Attorney General Bob Lipson. “Although the company disagrees, it will refund those fees to eligible former and current customers.”

Freedom Debt Relief stopped enrolling Washington residents in March 2009, when a private class-action lawsuit was filed against it. Attorney General Rob McKenna entered an amicus brief in that case, which is still pending in U.S. District Court in Spokane.

Today’s settlement bars Freedom Debt Relief from accepting any new clients in Washington without notifying the Attorney General’s Office, although it may continue to negotiate debt settlements for those currently enrolled in its program.

Washington’s Debt Adjusting Act caps the fee that a debt settlement company may charge at 15 percent of the total enrolled debt. The Washington Attorney General’s Office alleged Freedom Debt Relief sometimes charged consumers more than the state’s Debt Adjusting Act allows, took its fees before the time permitted by the statute and failed to adequately inform some consumers about how the program works.

Freedom Debt Relief denied the states allegations and contends that the Debt Adjusting Act doesn’t apply to its business model. However, as part of the settlement submitted today to King County Superior Court, the company agreed to the restitution program and to comply with certain restrictions on how it conducts business.

Freedom Debt Relief must refund Washington consumers for all fees paid in connection with debts that weren’t settled or aren’t in active negotiation programs -- those fees add up to $742,613 or more.

The company will also pay $70,000 to reimburse the state for the costs of the investigation and litigation.

The agreement states that the company cannot suggest that its program is for everyone who might simply wish to reduce their debt, misrepresent any statistics relating to its negotiations on behalf of consumers or withdraw or transfer any funds saved by consumers in their respective accounts. The provision doesn’t prevent the company from receiving fees as allowed by the Debt Adjusting Act from the accounts or entering into settlement negotiations with creditors.

Consumers must authorize any settlement over 50 percent of the debt and be able to quit the program at any time without a penalty.

In the event that the company enrolls new Washington consumers in its program in the future, the settlement requires a number of disclosures to those customers, including:

  • That the program is only for people who are already in financial hardship and unable to make their minimum payments.
  • That the program assumes consumers will allow their credit accounts to become delinquent and that missing payments will likely have an adverse impact on the consumer’s credit history. And that the decision to stop making payments rests solely with the consumer.
  • That they may still accrue interest and late fees.
  • That it may take six months or longer before the customer has saved up enough money to allow the company to negotiate a settlement.
  • That the company will continue working toward a settlement even if a lawsuit is filed, and that a lawsuit could result in a judgment against the consumer for the full amount owed plus legal costs.


Washington residents who enrolled in Freedom Debt Relief’s program may be eligible for a full or partial refund of paid fees. Consumers who already received refunds for all paid fees aren’t eligible for additional restitution under this settlement.

The refund program will be handled through a parallel, private class-action lawsuit on behalf of Washington consumers, which is also in the process of settlement. The case is Carlsen et al. v. Freedom Debt Relief, LLC, et al., Case No. CV-09-00055-LRS (E.D. Wash.). Once the court in that case gives approval, eligible consumers will be contacted about the refund process, how much money they are eligible to receive, and how to submit a claim.

Consumers who have questions about the refund program should contact The Scott Law Group in Spokane at 1-888-955-3966. Information is also online at www.thescottlawgroup.com/freedomdebtrelief.


Freedom Debt Relief Complaint

Freedom Debt Relief Consent Decree

Amicus Brief


If you are struggling with credit card debt, there are steps you can take to avoid bankruptcy.

  • Consult with a legitimate credit counselor who will help you develop a personalized money-management plan.
    • The U.S. Department of Justice’s U.S. Trustee Program provides a list of government-approved credit counseling agencies on its Web site.
    • The National Foundation for Consumer Counseling provides a list of member agencies online at www.nfcc.org or call 1-800-388-2227 for a 24-hour automated message with office listings.
    • Think carefully before sending money to a credit counseling or repair program that doesn’t have an office in your community. Shop around. Compare a couple of services and get a feel for how they operate.  The credit counselor should spend at least 20 to 30 minutes with you in order to get a complete picture of your finances. Also, be aware that just because an organization says it is “nonprofit” doesn’t guarantee that its services are free or affordable.
  • Debt consolidation programs offered by legitimate organizations can be helpful to some consumers. These programs combine your existing debts into a single loan with a lower interest rate.  You deposit money each month with the credit counseling organization, which uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees if you’re working with a reputable program, but it can still take several years to complete the program.
  • Debt negotiation programs claim they can work out a deal with your creditors to lower the amount you owe. These programs can be risky and may have a negative impact on your credit report and, in turn, your ability to be approved for new credit. Additional risks exist if you are unable to save enough money to satisfy your creditors or are successfully sued and your creditors garnish your wages.
  • Recent changes to the federal Telemarketing Sales Rule prohibit companies that sell debt relief services over the phone from charging a fee before they settle or reduce your debt.
  • Read the Federal Trade Commission’s “Knee Deep in Debt” brochure for more helpful information.

 Media Contact: Kristin Alexander, Media Relations Manager, (206) 464-6432