The federal government is likely to win in its lawsuit against Strategic Financial Solutions, a debt negotiation company covered in a Times investigation last month, according to a magistrate judge’s preliminary injunction granted this week that keeps it from operating.
For years, Strategic Financial Solutions collected fees from thousands of low-income clients who enrolled with the company to negotiate down 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 — sued Strategic and its operators, including its chief executive, 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 financially worse off. The company works with a nationwide network of accomplice law firms. Customers think they’re paying those firms to represent them in the high-risk process of debt settlement, but instead they are often funneled toward call-center workers with no legal training, and are sometimes unrepresented in legal proceedings.
This week, a federal judge in the Western District of New York said that the debt-relief program run by Strategic and its associated law firms does not provide “appreciable economic benefit” to its customers, and that many who sign up for the “program are negatively impacted.”
Federal law stipulates that law firms promoting debt settlement services by phone have to close the deal in person, through a face-to-face meeting with a sales representative, if they want to charge upfront fees. The regulators’ case hinges on whether Strategic’s affiliated firms violated this law by relying on gig worker notaries to meet with customers in person.
The federal judge wrote that the notary meetings “do not result in consumers being more informed about the” debt-relief program run by Strategic and its legal partners.
Mr. Sasson filed an appeal notice on Tuesday to the United States Court of Appeals for the Second Circuit. “This decision turns on a very narrow interpretation of the telemarketing rules,” said Dennis Vacco, a lawyer representing Strategic. “We are confident we will prevail.”
Former customers of Strategic celebrated the preliminary injunction. “Anything to avoid other families going through what we had to experience,” said Anne Barsch, a former customer who testified last month at Strategic’s trial in Buffalo.