FTC Shuts Down Debt Firm National Consumer Council

The Federal Trade Commission on Monday shut down National Consumer Council Inc., citing “misrepresentations and omissions” by the Santa Ana nonprofit credit-repair firm and its for-profit affiliates.

A notice on the locked door at National Consumer’s Deere Street office said a federal judge had appointed a financial guardian to take over the firm and affiliates London Financial Group, National Consumer Debt Council, Solidium, J.P. Landis and Financial Rescue Services Inc.

The notice said the FTC, in an April 23 lawsuit, “alleged that the companies violated the FTC Act by misrepresentations and omissions and violated other regulations and laws.” The notice also said the state Department of Corporations, which regulates financial companies, had issued a desist-and-refrain order against National Consumer.

An officer at the financial guardian, Robb Evans & Associates of Sun Valley, said he was constrained from commenting until the unsealing of the FTC lawsuit, a move expected to take place today.

FTC officials didn’t return calls.

Department of Corporations officials said National Consumer and London Financial had operated without a required California license. In all, more than 250 employees of various companies were sent home Monday, said Virginia Jo Dunlap, a supervisor with the state agency.

National Consumer bills itself as an educational organization, advising debt-swamped clients to stop paying creditors, a strategy designed to increase pressure on credit card companies to settle. Instead, clients make payments to National Consumer affiliates, which promise to negotiate with creditors after consumers’ saved funds total about 25% of what they owe.

Better Business Bureau of the Southland President Bill Mitchell called National Consumer the largest and most egregious of deceptive debt-relief operations. He said the company collected high upfront fees but often left clients worse off than they started, sometimes in bankruptcy protection -- a statement disputed by a National Consumer spokeswoman.

“This company has settled over 40,000 credit card accounts for its customers and saved them over $100 million,” said Nilou Salimpour, an outside publicist for the firm. National Consumer’s president, William Harvey, and lawyer, Michael Mallow, couldn’t be reached for comment.

Frances Townsend, 77, of Springfield, Mo., said National Consumer’s process worked for her after she wound up in the hospital with a broken leg, making it impossible to keep up payments on about $6,000 in credit card debt.

Townsend said she paid $1,500 into a trust account with Solidium, which turned the accumulated funds over to London Financial, which negotiated a settlement of about 50 cents on the dollar -- the saved $1,500 in a lump sum, plus Townsend’s promise to repay about that amount over time.

“They changed my life,” Townsend said. “I felt I was heading downhill into a dark hole. The relief gave me back my self-esteem -- I feel better, sleep better, everything is better.”

Mitchell said such stories were the exception. National Consumer, according to the BBB, has generated more than 70 complaints from across the nation to the bureau’s local office in Colton. The BBB says it has received many additional complaints about affiliated firms including London Financial Group and Solidium.

Companies such as National Consumer advise consumers even with good credit to stop paying credit card companies, Mitchell said.

The clients, he added, often complain that the debt-relief companies take their money and do little or nothing in return, ruining their credit, triggering lawsuits and frequently driving them into bankruptcy protection.

National Consumer “is the worst in my opinion, mainly because of this nonprofit thing, which is just a front and a conduit to funnel money to the for-profits,” Mitchell said.

“It’s the real 800-pound gorilla in the industry. But there are lots and lots of people doing this.”

In a pending Los Angeles County Superior Court lawsuit, National Consumer accused the BBB of the Southland of defamation, contending that Mitchell had a conflict of interest because he served on the board of a competing credit-repair firm, Consumer Credit Counseling Service, which operated under the name Springboard.

Mitchell said Springboard, unlike National Consumer, didn’t advise consumers to default on their debts. He has resigned from its board.

National Consumer is the latest firm targeted in an FTC sweep of companies the agency accuses of making fraudulent promises to debt-laden consumers. In September 2002, the agency moved against more than 30 consumer-credit consulting companies.