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Christine
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Username: Christine

Post Number: 1278
Registered: 09-2002
Posted on Friday, August 22, 2003 - 06:41 pm:   Edit Post Delete Post Print Post    Move Post (Moderator/Admin Only)

David Vendler, Morris Polich & Purdy, encourages persons who believe that they have been wronged by any nonprofit debt counseling firm to contact him at (213) 891-9100 or e-mail him at dvendler@mpplaw.com.

Here is a press release:

District Court Upholds Claim Against Supposedly Non Profit Debt Counseling Company

Propelled by national radio and television advertising campaigns touting their “non-profit” status to consumers, “debt counseling” has become a multi-million dollar industry. The pitch is familiar. “Are you in debt? We are a non-profit organization that can help you lower your credit card payments.” But are these companies really non-profits and are they really trying to help consumers? The answer to both questions is a resounding no according to a pending class action lawsuit filed by Alyssa Polacsek and her attorneys against Debticated Consumer Counseling, Inc.

Claiming that Debticated is run by its organizers purely for their own gain, Polacsek’s claim hinges on a 1998 federal law called the Credit Repair Organizations Act that imposes strict regulations on credit counseling agencies in general, but excludes from the reach of the law nonprofit/tax exempt debt counseling agencies.

According to Polacsek’s suit, however, it was to take advantage of this exclusion, and not for any sort of charitable purpose, that Debticated was organized as a tax exempt organization. Her suit alleges, however, that just because the IRS recognizes a company as tax exempt, it does not automatically mean that the company is entitled to the exclusion from the federal credit repair law. Rather, her complaint contends that if the company’s actual operations are designed to make a profit, it must obey the federal statute notwithstanding its organizational structure.

Rejecting claims by the defendants that the suit should be dismissed, Judge Cormac J. Carney of the United States District Court for the Central District of California has allowed Polacsek to proceed with her suit which claims that Debticated, which is one of the world’s leading internet advertisers and is among the highest grossing of the debt counseling companies with revenues exceeding $10,000,000 for 2002, can be sued under the federal debt counseling law, for fraud and a number of other California state law claims. According to the Court’s ruling, “The Court is not bound by the IRS’ determination that Debticated is a 501(c)(3) corporation. The Court must make its own independent determination in this regard after an evidentiary hearing.”

Reacting to the ruling, Polacsek’s attorney, David Vendler of Morris Polich & Purdy’s Los Angeles office said: “The Court has today closed an important loophole in the law. No longer will supposedly non-profit debt counseling firms be able to raise the IRS’ recognition of their tax exempt status as a bullet-proof shield to deflect attacks against their operations. We are pleased with Court’s recognition that a company’s actual conduct may be completely inconsistent with its organizational structure and the Court’s rejection of defendants’ form over substance argument.”

The specifics of plaintiff’s suit against Debticated allege that when Polacsek was facing financial difficulty after losing her job, she contacted Debticated after seeing its advertisements on the internet. She then alleges that under the Debticated program, her payments to creditors actually went up, not down, and that debt consolidation loan she was promised at the end of her six months on the Debticated program was illusory.

She claims that under the cloak of its “non-profit” status, Debticated charged thousands of consumers, including herself, fees that would otherwise be prohibited under the Credit Repair Organizations Act under the guise of soliciting hundreds of dollars in “donations” from each of its customers. She further alleges that no sooner than the “donations” are received by Debticated, which is owned by Eriks Pukke, the overwhelming majority of these monies, other than what is paid for self-propagating advertising, are promptly funneled Andris Pukke’s for profit company, Debtworks as supposed “payment” for the customer support services Debtworks allegedly provides to Debticated. In short, it is all kept in the family.

Polacsek further alleges in her complaint that Debticated also serves as a direct conduit to supply customers to defendant Infinity Resources Group, Inc., which she alleges is another “for profit” company owned by Eriks Pukke’s brother Andris. The way Debticated provides customers to Infinity is that Debticated advertises extensively to consumers that what makes its services unique among other debt counseling services is that it provides consolidation loans to its customers. After Debticated’s customers have paid both their “initial” “donation” and have made six consecutive “monthly” “donations” to Debticated -- which Debticated states in its initial customer representations is a prerequisite for consideration for any consolidation loan – Polacsek alleges that Debticated then directs its customers seeking such consolidation loans to Infinity. Polacsek alleges Infinity then charges the customer a $25.00 application fee and in the vast majority of the cases, and notwithstanding the promises made by Debticated, denies the loan to the consumer. Polacsek’s charge is not a first for Andris Pukke, who pled guilty in 1996 to federal charges of providing false loan promises.

Vendler says the next step in the case will be to conduct discovery against the Pukke defendants and the entities they control to see how many people have been affected and the nature of the class to be certified. He encourages persons who believe that they have been wronged by any nonprofit debt counseling firm to contact him at (213) 891-9100 or e-mail him at dvendler@mpplaw.com

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