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Fraud Probe Targets Credit Repair Firms

Debt: Consulting companies unable to account for clients' funds, agencies say.

September 06, 2002|ROBERT PATRICK | TIMES STAFF WRITER

WASHINGTON — More than 30 consumer credit consulting companies, including two in Southern California, have been caught up in a nationwide Federal Trade Commission sweep against credit and telemarketing fraud, officials announced Thursday.

The Southern California debt negotiation companies, housed in the same building in Downey, are Jubilee Financial Services Inc. and Jabez Financial Group Inc.

"The tragedy is just horrific" for clients of the two companies, said Adrian B. Stern, the court-appointed receiver for Jubilee and Jabez. Stern has been unable to find $2 million that was supposed to be held in trust to pay the clients' debts. "My suspicion is that the number will run much higher," he said.

The FTC action, dubbed Operation No Credit, targeted a wide range of fraud allegations involving credit repair services, payday loan companies, debt adjustment programs and advance-fee credit cards.

Officials said that the agency monitors the Internet, e-mail, consumer complaints and television and newspaper advertisements to find and target companies for investigation. Jubilee, they said, stood out.

"They hit our radar screen and they hit it hard," said Tom Syta, assistant regional director of the FTC's Western region.

Syta said the FTC might bring cases against other "bad actors" such as Jubilee.

Using advertisements, spam and telemarketers, Jubilee and Jabez attracted debt-ridden people with promises to reduce their unsecured debt by 40% to 60%, according to U.S. District Court filings. The companies kept upfront fees, which could total more than $1,000 for an individual case, according to the FTC.

Jubilee and Jabez told their clients to stop payment on all unsecured debt. This, the companies said, would put the individuals in a "hardship" condition, strengthening their position in negotiating a settlement with their creditors, according to the filing.

But clients complained that the companies took their money and did little or nothing in return, ruining their credit and triggering creditor lawsuits.

Anaheim resident Dana C. Lester said she was making good progress in repaying a large debt until she signed on with Jubilee in February 2001 and paid a $1,100 fee. Then she was told to stop making payments.

After months with no action and no satisfactory response to her complaints, Lester said, she pulled out of the program.

Through a suit she filed in small claims court, she won back half of the almost $4,000 she paid the company.

"If I help one person not fall in the trap I did, I'll feel good about it," Lester said.

U.S. marshals, Downey police, FTC officials and Stern's employees arrived at the building occupied by Jubilee and Jabez at about 9 a.m. Aug. 21.

"They just came in and took over and kicked us out," Jubilee President John E. Gustavsen said in a telephone interview Wednesday night.

Gustavsen vigorously defended his company and blamed the FTC action on pressure from bank and credit card lobbyists in Washington, who he said lose money when Jubilee negotiates repayment of debt.

Many of the FTC allegations are "phony," Gustavsen said. Many client complaints stemmed from growing pains when Jubilee absorbed several thousand clients of a Phoenix company, he said.

Gustavsen said it was true that the company told clients to stop paying their bills because it couldn't negotiate with creditors if payments were being made. He added that his company warned clients that "when you're in the program, your credit is going to be thrashed."

"The people who are complaining are the people who just couldn't wait" for the program to work, he said. "They quit after their freshman year and said they didn't get a diploma."

Gustavsen, 70, lives in a Whittier house he purchased last year for $606,000, according to property records.

Stern said he did not think that the former pastor and insurance company employee was living a lavish lifestyle with his clients' money. "He didn't take any trips to Hawaii with 45 people," Stern said.

Stern said he believed that much of the money went to cover Jubilee's expenses, including rent and salaries. Gustavsen's 2001 BMW 325 convertible was seized and sold for administrative and legal expenses, and his personal accounts have been frozen. Gustavsen said he has no credit cards because of the harm he has seen debt do to others.

Curtis Cobb, president of Jabez, did not return calls seeking comment.

Stern said his office has begun notifying the more than 1,400 clients with active Jubilee accounts of the FTC action. "We'll go after anything and everything we can find," he said, adding, "I am finding very, very little money."

Stern said he has found more money at Jabez, which has only been in operation since April. Stern vowed to close both companies and return as much money to consumers as possible.

Neither Stern nor the FTC has found any relationship between the two.

FTC officials and credit counselors cautioned people to be wary of companies that ask for money up-front, charge large fees or tell individuals to stop paying bills.

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