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Class-action debt-relief settlement approved

TAMPA — A federal judge this week approved a controversial settlement in a class-action lawsuit against a law firm accused of misleading and charging excessive fees to clients around the nation seeking debt relief.

U.S. District Court Judge Thomas Wilson ruled a proposed settlement paying attorneys who filed suit up to $300,000 but giving nothing to 125,000 clients of the Maryland firm, Persels & Associates, was "fair, reasonable and adequate."

A problem in securing a financial award for consumers, the judge said, was one the Maryland firm, Persels & Associates, shared with its cash-strapped clients.

It's broke.

"Unfortunately, there just weren't funds available to distribute," said Tampa attorney Katherine Earle Yanes on Wednesday. She is one of several attorneys who filed the suit.

The firm said it lost nearly $6 million in 2010 and 2011 and had a $14 million judgment against it from an unrelated court case.

But Yanes said the suit forced Persels to reform its behavior toward clients, so she said it did much good.

Still, the settlement was opposed by the attorney generals of five states, including Florida Attorney General Pam Bondi, because it did not compensate consumers. Bondi's office did not return a call seeking comment.

The only person aside from lawyers who will be paid any money is St. Petersburg resident Miranda Day, who as the lead plaintiff will be paid $5,000.

The settlement also calls for Persels to pay $100,000 to two organizations uninvolved in the litigation who provide low-cost legal advice to consumers.

Wilson said Persels was unable to pay even a relatively small award to its 125,000 clients.

"These circumstances . . . demonstrate the futility of the plaintiff taking this case to trial since any judgment would be uncollectable," the ruling said.

The judge also said a settlement was fair because every member of the class had the option of withdrawing from the case. That would have allowed them to file suit separately.

"It is easy enough for the objectors to criticize the (settlement) from the sidelines," Wilson said. "They do not have to deal with the legal hurdles in this case."

Attorneys for Persels, which has denied all wrongdoing, could not be reached for comment.

Here's how the suit said Persels operated:

Persels told clients it could negotiate settlements of their unsecured debts — usually credit cards — for a fraction of their face value. Clients then made monthly payments to a Persels' fund. When enough money accumulated, Persels was supposed to negotiate settlements with a client's creditors.

But Persels and a related company, CareOne Services, charged fees amounting to 15 percent of a client's total debt, the suit said.

So in reality, the suit said, many customers were not informed by Persels that they would not have enough cash, after fees were deducted, to successfully settle their debts.

William R. Levesque can be reached at levesque@tampabay.com or (813) 226-3432.

Class-action debt-relief settlement approved 03/14/12 [Last modified: Thursday, March 15, 2012 12:08am]

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