FTC, Debt Counselor Reach Accord

By Eileen Ambrose
Sentinel Sun Staff

The Federal Trade Commission announced yesterday an agreement with AmeriDebt Inc. that seeks to recoup millions of dollars for consumers and calls for the nonprofit to shut down its credit counseling operations.

Under the settlement, the FTC said it would make a $170 million claim against AmeriDebt to create a restitution fund for customers who overpaid for counseling services over the years.

But it's questionable whether consumers will see any of that money from the Maryland nonprofit, which is now under bankruptcy protection. The Internal Revenue Service - which must be repaid first - has filed a claim for nearly $15 million for potential back taxes. Also, AmeriDebt's court-appointed trustee is transferring its remaining customer accounts to another nonprofit counseling agency.

AmeriDebt was launched in late 1996 and over the next few years grew into one of the nation's largest credit counseling agencies through a heavy advertising campaign. But consumer complaints also escalated. In 2003, the FTC and four states separately sued AmeriDebt, which was based in Germantown at the time. Essentially, all accused the nonprofit of acting like a for-profit venture and charging excessive, poorly disclosed fees to consumers desperate to get out of debt.

The FTC contends that AmeriDebt funneled tens of millions of dollars to DebtWorks, a for-profit company owned by Andris Pukke, who also controlled AmeriDebt.

The settlement announced yesterday must be approved by the bankruptcy court and U.S. District Court, both in Greenbelt.

"We think it's an important step in this case. AmeriDebt won't be in a position to dupe any consumers about its nonprofit status or the fees they are paying," said Peggy Twohig, assistant director of the FTC's division of financial practices. AmeriDebt has been working with the FTC to settle the dispute since September, when the bankruptcy court appointed Mark Taylor as a trustee to oversee AmeriDebt's operations.

In January, Taylor received bankruptcy court approval to sell AmeriDebt's 50,000 to 60,000 client accounts to Money Management International, a nonprofit counseling agency based in Houston. The transfer of clients is expected to be completed April 15, Taylor said.

The FTC settlement requires AmeriDebt to transfer its remaining clients to a reputable credit counseling agency and to file a liquidation plan with the bankruptcy court, which Taylor also has been preparing to do.

AmeriDebt must stay out of the credit counseling business and shut down its operations.

The settlement with the FTC clears the way for AmeriDebt to resolve the lawsuits filed by Illinois, Missouri, Minnesota and Texas, Taylor said. Negotiations with the states are far along and the cases could be resolved in a matter of weeks, he said.

The trustee also is negotiating with the IRS to settle its tax claim. The agency notified AmeriDebt in October that it intended to revoke its tax-exempt status and seek taxes going back to 2000.

Ultimately, Taylor said, how much money gets into consumers' hands as a result of the FTC settlement depends on negotiations with the IRS and any action he may take against former insiders, including Pukke.

The FTC also is trying to recover money from Pukke. On Friday, the agency asked the U.S. District Court for a judgment against Pukke and DebtWorks without a trial. The FTC is seeking to recover $172 million in fees paid by consumers over the years.

Pukke's lawyer, Kerrie L. Hook, declined to comment on the FTC's allegations but said that Pukke had saved thousands of consumers money through debt management over the years.

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