N.C. blocks two debt settlement companies

Florida companies deny that they sought fees upfront and then failed to pay clients' bills

RALEIGH -- Two Florida-based businesses that promised clients a way out of debt are accused of driving them further into arrears by pocketing money meant to pay creditors, according to a lawsuit filed this week by the N.C. Attorney General's Office.

A Wake judge approved an order Friday temporarily preventing the companies, Hess-Kennedy Chartered LLC and The Consumer Law Center, from doing business in North Carolina and with North Carolina residents. Wake Superior Court Judge Donald Stephens signed the order Friday.

The two companies, which operate out of the same Coral Springs, Fla., building, depended on referrals made by credit counseling companies listed in local phone books and on the Internet. They are accused of demanding high fees upfront, which is illegal in North Carolina, and then failing to pass on payments to the client's creditors, according to the lawsuit.

Clients were often left in worse financial shape than when they first sought help, said Roy Cooper, North Carolina's attorney general.

"They take advantage of people that are struggling," Cooper said.

In court documents, Laura Hess and Edward Cherry, presidents of Hess-Kennedy Chartered LLC and The Consumer Law Center, respectively, denied any wrongdoing.

Mark Finkelstein, a Raleigh attorney representing the companies, said in a hearing Thursday that the companies were trying to steer people away from bankruptcy.

The Attorney General's Office was mischaracterizing what the business did, making them out to be predatory, Finkelstein said.

"My client doesn't do debt adjusting," he said.

Lawyers with Cooper's office don't know how many North Carolinians used Hess' company hoping to rid themselves of debt. But court documents show that Hess-Kennedy collected more than $500,000 from 220 North Carolina consumers since January 2006.

Statistics from the Attorney General's Office suggest accusations of similar fraud may be rising in North Carolina. The office received 12 complaints in 2007 but already has received six complaints from consumers about debt settlement companies this year.

Cooper said most North Carolina companies are aware of the law preventing them from taking fees up front, but that most of the complaints are about national groups that advertise on televisions or over the Internet.

Granville Jones of Durham described in court documents how he turned to The Consumer Law Center to help him manage $96,000 in debt he had from hospital bills and other expenses. He gave them nearly $11,000 with the promise that the money would greatly reduce his debt, Jones wrote in an affidavit. But he learned later that his creditors never received any payments and his accounts were in default. He expects now that he'll have to declare bankruptcy, something he was hoping to avoid when he signed up with the company. He hasn't gotten his money back.

"I am much worse off after having entered the Consumer Law Center's program," Jones wrote in an affidavit submitted in court.

Cooper said complaints to his office have increased in part due to the combination of a slowing economy with higher amounts of debt and stiff barriers to declaring bankruptcy.

But he still suspects that those wronged by debt settlement companies are hesitant to contact authorities, out of embarrassment and shame about being saddled with debt.

"It's often underreported because people may feel embarrassed," he said.

Cooper said people should be wary of any debt consolidation service that asks for money upfront or tells people to stop paying their bills.