Judge bans debt settlement company from resuming operations

The federal government is likely to win in its lawsuit against Strategic Financial Solutions, a debt negotiation firm that was included in a Times investigation last month, under a magistrate’s preliminary injunction issued this week that bars the company from operating.

For years, Strategic Financial Solutions has collected fees from thousands of low-income customers who signed up with the company to negotiate their debts. In January, the Consumer Financial Protection Bureau – along with the attorneys general of New York, Colorado, Delaware, Illinois, Minnesota, North Carolina and Wisconsin – has sued Strategic and its operatorsincluding its CEO, Ryan Sasson, on civil fraud charges.

In interviews with former employees and former customers of Strategic, many described the company as predatory and said its services often left people worse off financially. The firm works with a national network of complicit law firms. Customers think they are paying those companies to represent them in the risky debt settlement process, but instead they are often funneled to call center agents with no legal training, and are sometimes left unrepresented in legal proceedings.

This week, a federal judge in the Western District of New York said that the debt relief program of Strategic and its affiliated law firms does not provide “an appreciable economic benefit” to its clients, and that many who sign up for the program “are negatively impacted.”

Federal law requires law firms that promote telephone debt settlement services to close the deal in person, through a face-to-face meeting with a representative, if they want to charge an upfront fee. The regulators’ case hinges on whether Strategic’s member companies violated this law by relying on gig worker notaries to meet with clients in person.

The federal judge wrote that the notary meetings “do not result in consumers being better informed about the” debt relief program of Strategic and its legal partners.

Mr. Sasson filed an appeal Tuesday with the U.S. Court of Appeals for the Second Circuit. “This decision rests on a very narrow interpretation of the telemarketing rules,” said Dennis Vacco, an attorney representing Strategic. “We are confident that we will prevail.”

Former Strategic customers celebrated the preliminary injunction. “Anything to prevent other families from going through what we had to go through,” said Anne Barsch, a former client who testified at the Strategic trial in Buffalo last month.