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Settlement of class-action debt-relief suit criticized

TAMPA — If they recognized the irony, none of the 12 attorneys gathered in a Tampa courtroom this month said a word.

The lawyers were arguing about a proposed settlement of a class-action lawsuit against a Maryland law firm, Persels & Associates. About 125,000 cash-strapped Americans — including at least 11,000 Floridians — had hired Persels to reduce their debt. But Persels' hefty fees, the suit said, left many in worse shape.

Now Persels and the lawyers who filed the suit wanted to settle.

Class-action attorneys would get up to $300,000 for legal fees. But the 125,000 wouldn't get a dime. One reason cited:

Persels is broke and struggling with its own debt.

The proposed settlement filed in U.S. District Court in Tampa is now drawing criticism from the attorneys general of five states, including Florida, and the consumer advocacy group Public Citizen. They say the deal is too chintzy.

They argue that those 125,000 people are being asked to give up potentially valuable legal claims against Persels and related parties without getting a penny.

"Ungenerous is putting it mildly," said Public Citizen attorney Michael Kirkpatrick.

Persels, which says it has helped many consumers climb out of debt, denies wrongdoing.

U.S. District Court Judge Thomas Wilson is now considering whether he will give final approval to the settlement. He has not said when he will rule.

The settlement also calls for a $5,000 payment to Miranda Day of St. Petersburg, who is the lead plaintiff in the case, and $100,000 to two organizations uninvolved in the litigation who provide low-cost legal advice.

The attorneys who filed the suit on behalf of consumers said the deal is the best they could get, especially given Persels' finances.

Persels lost $5.8 million in 2010 and 2011 and owes $14 million for an unrelated Maryland lawsuit, according to an affidavit by a firm manager.

Here's how the suit said Persels operated:

Persels told clients they could negotiate settlements of their unsecured debts — often 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 consumer'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.

"The settlement plans were designed to fail," said the lawsuit, filed in 2010.

In the case of Day, the lead defendant, she paid $1,274 to Persels and CareOne, the suit said. "Every dollar Day paid went towards the fees" of CareOne and Persels, the suit said. "Her debt was not reduced at all."

Lawyers who filed the class action said the suit, while not paying the 125,000, nonetheless wins important concessions from Persels that better safeguard consumers. And they note the uncertainty of going to trial.

Persels, among other things, agreed to only collect its fees after negotiating a settlement with a consumer's creditors, not before. The firm also agreed to provide clients with an estimate of the fees it will charge and the date their debt will be satisfied.

"We got them to stop what they were doing," Tampa lawyer James Felman, a plaintiff's attorney, said at a hearing. "We fixed the problem nobody else stepped forward to fix. … What I haven't heard is any better idea."

Others, however, say Persels is simply agreeing to what the law and legal ethics require.

Those provisions "are so qualified and limited as to provide no meaningful benefits to class members," the New York Attorney General's Office said in a court filing.

Wilson, the judge, said a partial refund to consumers who may have lost hundreds or even thousands of dollars seemed impractical. Even partial refunds by Persels, Wilson said, would total tens of millions of dollars.

"That ain't going to happen," Wilson told lawyers. "Is there any reason to think they have it?"

Kirkpatrick at Public Citizen, however, said no adequate investigation of Persels' financial condition has been conducted and lawyers are accepting on faith the firm's representations about its ability to pay.

Kirkpatrick also said other defendants, including attorneys named individually, may have assets that could be targeted.

"Even if collection would be problem, that doesn't mean it's better to just wipe the slate clean and force everybody to give up their claims," he said.

Attorneys for Persels, lead defendant Miranda Day and her attorneys either declined comment or could not be reached.

About 325 consumers have opted out of the settlement, which would allow them to file suit individually. Some praise the company in letters to the court.

But Michael Corini of New Rochelle, N.Y., is not among the firm's fans.

Corini said he paid Persels $3,000 thinking it would be used to help pay off his debts. He said the firm took all the money to pay its own fees, leaving him in debt.

"The settlement's a joke," Corini said in an interview. "It's not right. We lost our money, and now Persels is walking away free and clear and we get nothing. What's fair about that?"

Reach William R. Levesque at levesque@tampabay.com.

Settlement of class-action debt-relief suit criticized 02/13/12 [Last modified: Tuesday, February 14, 2012 7:46am]
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