The state of Illinois filed a lawsuit yesterday against AmeriDebt, claiming the Germantown-based debt-management company charged debtors excessive fees, put them deeper in debt and failed to forward their payments to creditors.
The lawsuit asks that the company be forced to stop doing business in Illinois until it is licensed by the state. It also asks that AmeriDebt refund fees that Illinois consumers paid to the company and pay $50,000 for each violation of the state's consumer fraud law.
An Illinois official said the state's investigation is just beginning and the number of potential violations is not known.
"Although you can't miss their commercials, the truth is AmeriDebt is not licensed to do business in Illinois," Illinois Attorney General Lisa Madigan said in a statement. "They seem like they're everywhere, ready and willing to help. In fact, they're really only at their headquarters in Maryland, making a lot of money."
AmeriDebt's general counsel, Jerry E. Jones, said in a statement that the company had been voluntarily working with Illinois regulators to "address routine licensing issues" and was surprised by the lawsuit.
"The key fact here is this: AmeriDebt has been in operation nationwide for more than three years, and no other state attorney general has seen fit to take the sort of action that was announced today by Illinois," Jones said.
"As one of the largest and fastest-growing nonprofit credit counseling organizations in the United States, AmeriDebt has prided itself on a customer satisfaction rate of better than 99.75 percent."
The circuit court lawsuit said AmeriDebt's many commercials emphasize its nonprofit status and "free consultations and solutions" but, in reality, AmeriDebt charges an upfront fee of 3 percent of a debtor's total debt, plus $3 to $7 per creditor each month, and the fees are not voluntary.
In addition, the lawsuit says, the debt management is actually done by a for-profit company, Debt Works, which gets a share of the fees.
Some Illinois consumers paid upfront fees ranging from $110 to $812 and did not understand that it was not being forwarded to creditors, the lawsuit states. If the company had been licensed in Illinois, AmeriDebt would not be able to charge more than $50 for an initial fee and $30 for a monthly fee under that state's laws.
The state also claims that AmeriDebt did not forward payments to creditors on behalf of some consumers, who then incurred late fees and other charges from creditors.
AmeriDebt spokesman Scott Stapf said clients are notified several times about the "voluntary contributions," although occasionally some are confused and their money is returned.
There have been a small number of cases where payments were not forwarded, and the company has worked with creditors and debtors to resolve the problem, Stapf said.