Monterey Co. prosecutors: Debt settlement company used false advertising

Prosecutors in Monterey and Contra Costa counties have reached a settlement with a debt settlement company over unfair business practices and false advertising.

Debt Free Associates, a debt settlement company, would sign up customers to manage their debt, promising to negotiate with credit card companies to reduce debt.

According to prosecutors, unsuspecting customers did not realize that the large amounts of money they were charged upfront went mainly to non-refundable advance fees and not towards reducing their debt.

When customers realized months down the road that their debts were not being reduced and tried to cancel their agreements, they found that a very small portion of the thousands of dollars they had paid would be refunded. That practice has been barred under federal law since late 2010.

Debt Free Associates also had customers sign agreements that didn’t comply with a state law requiring contracts to give clear notice of a customer’s three business day right to cancel.

Under the terms of the settlement, Debt Free Associates will have to pay restitution to refund eligible clients. That includes those who signed agreements with the company between December 2008 and May 2013, and were California residents at the time.

The company also must pay $40,000 in civil penalties and other costs to the Monterey County and Contra Costa District Attorney’s Offices.