Trial to Begin in FTC’s Suit Against AmeriDebt

With $13,000 in credit card debt, Sandra Gavin was looking for help paying her bills in 1999 when she saw a television ad for a credit counseling company called AmeriDebt. The promise to cut her monthly payments in half while ridding herself of debt seemed just what she needed.

Gavin spoke with a saleswoman and signed up, sending AmeriDebt $521. She thought it was her first debt payment. But a month later, when creditors said she owed late fees for missed payments, she discovered that the money was instead a “contribution” to AmeriDebt. For the next two years, she paid a $70-a-month contribution along with her monthly payment.

Gavin is one of thousands of former customers who allegedly paid millions of dollars in upfront fees to the Germantown, Pa.-based AmeriDebt Inc., once one of the nation’s fastest-growing companies offering to help Americans staggering under personal debt.

In a lawsuit set to go to trial Tuesday, the Federal Trade Commission claims that the company unfairly portrayed itself as a nonprofit, then hid fees from the debtors who signed up. AmeriDebt and a for-profit sister enterprise allegedly reaped $172 million in fees, much of which the FTC says funded the lavish lifestyle of company founder Andris Pukke.

Pukke has denied the charges in court filings, arguing that AmeriDebt never confused or misled customers. He maintains that only a fraction of AmeriDebt’s estimated 450,000 customers believe they were misled about fees and asserts that the firm saved clients an average of $1,300 each through its debt management plans.