FTC suit accuses California auto loan modification firms of fraud

Personal items left in repossessed vehicles await collection by their owners. The FTC is now taking aim at auto loan modification scams that cause consumers' cars to be repossessed.

By Tiffany Hsu

April 4, 2012 12 AM PT

The Federal Trade Commission filed a lawsuit accusing several California auto loan modification operations of deceiving consumers with false promises and then leaving their cars to be repossessed.

The agency alleged that Hope for Car Owners in Folsom and Kore Services in San Diego charged clients hundreds of dollars in up-front fees for help obtaining car loan modifications, but then did nothing and refused to provide the full refunds they had advertised.

The FTC also said it filed suit against individual participants Patrick Freeman from Hope and Michael Kamfiroozie and Naythem J. Nafso of Kore, which conducted business as Auto Debt Consulting. The suit also names NAFSO VLM in Roseville as a defendant.

The suit is the FTC’s first action against auto loan modification scams, according to documents filed Wednesday morning. The complaint asks the U.S. district court in Fresno to shut down the companies while the FTC pursues the case.

Consumers were allegedly told by Hope and Kore counselors to stop paying their auto lenders and shell out fees to the loan modification companies instead. Hope allegedly promised to lower monthly payments by 30% to 50% for clients who paid fees ranging from $200 to $500, luring consumers with ads that stated: “Join the thousands who have already SAVED!”

Kore, as Auto Debt Consulting, promised 25% to 40% reductions in exchange for fees of $350 to $799, “regardless of your credit score!” If the modification was unsuccessful, at least one of the company’s websites pointed to a 100% money-back guarantee, according to the suit.

But once the companies collected the fees, they never tried to modify their customers’ loans, the FTC alleges. Some consumers were told to hide their cars to avoid repossession; at least one client’s vehicle was repossessed after she paid $400 to Hope for Car Owners, according to the suit.

The schemes leave “financially distressed consumers in worse shape than when they began,” David Vladeck, director of the FTC’s Bureau of Consumer Protection, said in a statement.

The Better Business Bureau gave Auto Debt Consulting a grade of D-minus while handing F’s to both Hope for Car Owners and NAFSO.

After reaching out to Hope, the BBB said that the company removed online claims that its services saved consumers millions of dollars. The BBB also said that the company’s refund guarantee came with hidden conditions that weren’t advertised and that Hope couldn’t substantiate its claim that it had “nearly a 99% success rate.”

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