THE BLOG
07/03/2012 03:01 pm ET | Updated May 23, 2013

Attorney Model Debt Settlement Gets Kicked in the Nuts

For some years, advanced fee debt settlement companies were charging consumers fees for services not yet delivered and consumers were getting, well, screwed. People were paying up to 20 percent of the amount of debt they enrolled into a debt settlement program before any money went to their creditors.

The Federal Trade Commission later stepped in and made advance fee debt settlement illegal under the Telemarketing Sales Rules that apply to debt relief companies. But one perceived loophole was left open, that of the attorney model debt settlement company.

Under this model, attorneys were continuing to charge advance fees but feel they are exempt from the FTC rules. That's a different matter.

But this month two lawyers in charge of Legal Helpers Debt Resolution, one of the biggest advanced fee attorney model firms at one time, had disciplinary charges filed against them by the Illinois Attorney Registration and Disciplinary Commission that provides oversight and supervision of Illinois attorneys.

Both Thomas Macey and Jeffrey Aleman were named in this action. Other Legal Helpers Debt Resolutions attorneys were not named because they are not licensed in Colorado.

The disciplinary action filed also reference CDS Client Services, Eclipse Financial Services, JEM Group, Legal Services Support Group, LSSG, and Lynch Financial Solutions.

The allegations made by the Commission fall into these seven areas:

  1. Breach of fiduciary duty to Legal Helpers' debt settlement clients;
  2. Failing to consult with a client about the means by which the objectives of the representation are to be pursued, in violation of Rule 1.2(a) of the Illinois Rules of Professional Conduct (1990);
  3. Failing to explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation, in violation of Rule 1.4(b) of the Illinois Rules of Professional Conduct (1990);
  4. Collecting an unreasonable fee, in violation of Rule 1.5(a) of the Illinois Rules of Professional Conduct (1990);
  5. Failing to supervise and make reasonable efforts to ensure that the conduct of non lawyers employed by or associated with Legal Helpers is compatible with the professional obligations of Respondent, in violation of Rule 5.3(a) and (b) of the Illinois Rules of Professional Conduct (1990);
  6. Assisting a person who is not a member of the bar in the performance of activity that constitutes the unauthorized practice of law, in violation of Rule 5.5(a) of the Illinois Rules of Professional Conduct (1990); and
  7. Conduct which tends to defeat the administration of justice or to bring the courts or the legal profession into disrepute.

You can read the full complaint here.

The business model cited in the Commission complaint laid out the structure and operations very clearly:

Through Legal Helpers Debt Resolution, it is alleged that Thomas Macey and Jeffrey Aleman, intended to partner with nonlawyer debt settlement companies in order for those companies to appear to be the law firm's agents and thereby permit those nonlawyers to claim the attorney exemption to the new regulations, including the regulations that prohibited the collection of advance fees. The debt settlement companies would identify themselves as Legal Helpers or Macey Aleman in their advertising and promotional materials and, after they were engaged, in their communications and correspondence with clients' creditors and others. In exchange, [Macey and Aleman and/or their company] would receive signed attorney retainer contracts from every enrolled client that required the client to pay, in advance, attorney fees to Legal Helpers, in addition to paying the advance fees of the debt settlement company. Despite the retainer agreements and Legal Helpers' receipt of attorney fees, all of the debt settlement services would be performed by the nonlawyer companies, to the extent that any such services would be performed. At no time would the clients have any consultation or direct communications with [Macey and Aleman] or any attorney.

If these Commission allegations result in action against the law licenses of these two lawyers it will have a broader and more widespread impact. The allegations made, seem to easily apply to most, if not all, attorney firms that work with outside parties for marketing or client support and service.

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