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Feds warn drivers about auto loan modification scams

By Todd Sperry, CNN Senior Producer
updated 7:35 PM EDT, Thu April 5, 2012
STORY HIGHLIGHTS
  • FTC files charges against two California companies
  • They are accused of charging hundreds in fees for auto loan modifications never performed
  • Officials say fraud artists are going after consumers behind on their auto loans

Washington (CNN) -- After years of focusing on home mortgage scams, the Federal Trade Commission is turning its sights on what it calls bogus auto loan modifications. The FTC says fraud artists are moving from mortgage loan modification schemes and targeting consumers who are underwater on their auto loans.

In a motion filed in a U.S. District Court in California, the FTC asked the court to stop two California companies, "Auto Debt Consulting" and "Hope for Car Owners," from allegedly deceiving consumers. The government alleges both companies have racked up hundreds of dollars in up-front fees for loan modifications that were never performed for customers. Additionally, the FTC hopes to force the companies to cease what it says are deceptive marketing tactics.

Authorities allege the companies told customers to stop making payments on their vehicles, and in some cases told victims to "hide [their] car[s] to avoid repossession."

"Hope for Car Owners" made claims it could reduce monthly auto loan payments by up to 50% in return for fees ranging between $200 and $500, the FTC alleges.

Similarly, "Auto Debt Consulting" is accused of promoting that it could reduce monthly auto loan payments between 25% and 40% in exchange for $350 to $799 in fees.

Gregory Ashe, senior staff attorney for the Bureau of Consumer Protection at the FTC, said the agency is increasing its focus on the auto loan industry because, "We want the misrepresentation to stop." He added, "With these actions we want to stop the problem before it gets too big ... we're not going to tolerate deception."

But according to "Help for Car Owners" founder Patrick Freeman, the FTC's claims are "completely baseless." Freeman said he stopped using his company's website for marketing purposes in January 2011 and began the process of dissolving his company earlier this year. Since then, Freeman said he has been assisting customers who are in immediate danger of having their cars repossessed.

In 2008, as the U.S. economy plummeted, many people found their mortgages and auto loans in danger of default. Freeman said he started "Help for Car Owners" in an attempt to help customers keep their automobiles, and his success proved overwhelming, he said. In 2009, during the first months of business for "Help for Car Owners," he said he received more than 20,000 calls for help with delinquent auto loans. Freeman said, "In many cases people called me crying ... with the repo man at their door."

In January, Freeman said lenders were no longer willing to work with him. He began the processes of shuttering his business. Freeman said he shredded many of the documents he had supporting his claims. "We didn't destroy the documents, we got rid of them, it was a huge amount of files," Freeman said. He said the burden of being financially insolvent and having no place to store his company's files led him to destroy them. It's a claim he also made in court on Wednesday.

In the end, Freeman said he puts blame on clients who he said misled the FTC about their relationship with his company and didn't disclose contracts they had signed with "Help for Car Owners." Speaking about his customers, Freeman noted, "90% of my clients never saved a dime ... they manipulated the system for their gain." He also blames predatory collection tactics by lending companies who finance auto loans far exceeding borrowers' income.

Freeman told the judge on Wednesday that he intends to represent himself against the charges. The next hearing is scheduled for April 16. Freeman said he is broke and doesn't have money for an attorney, but he's not fearful of taking on the government by himself, saying he only wants to clear his name. As to the allegations levied against him, he said, "Ultimately, the FTC claims we made guarantees of loan modifications. We didn't, we made guarantees we would make every effort to facilitate the opportunity for assistance [with their car loans]."

A check of the Better Business Bureau's records showed that "Hope for Car Owners" gets a grade of "F," the BBB's lowest. "Auto Debt Consulting" received a "D-" with more than a dozen complaints on file.

Both companies are accused of violating the FTC act intended to protect cash-strapped consumers. So-called "last dollar scams" often involve bogus offers of easy moneymaking schemes that dupe uneducated and desperate customers.

CNN made multiple attempts to reach "Auto Debt Consulting" for this story but received no response.

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