WASHINGTON, D.C. — The Federal Trade Commission filed charges and requested that a U.S. district court put a stop to the allegedly deceptive tactics of two California-based auto loan modification operations.

In a release revealed today, the FTC asserted that the two separate operations charged hundreds of dollars in up-front fees, based on "bogus" promises that they could reduce consumers' monthly car loan payments and help avoid repossession of their vehicles. 

Federal officials indicated consumers were instructed to pay fees to the companies and to stop paying their auto lenders.

Subsequently, at least one consumer's vehicle was repossessed, and one set of defendants told other consumers to "hide their cars to avoid repossession."

The FTC charged that Hope for Car Owners, LLC, NAFSO VLM, Inc. and Kore Services LLC (doing business as Auto Debt Consulting), and several individual defendants deceived consumers with false promises and then did not provide promised refunds when they failed to obtain car loan modifications.

The FTC has asked the court to order the defendants to stop the allegedly illegal conduct while the FTC moves forward with the cases.

The commission alleged that the Hope for Car Owners defendants typically promised to reduce consumers' monthly auto loan payments by 30 to 50 percent, for fees ranging from $200 to $500.

One supposed customer gave this testimonial, according to the FTC.

"I was four months late and on the verge of losing my car to the repo man," the customer said. "Hope 4 Car Owners stepped in and not only stopped the repossession, but they negotiated to reduce my payments from $1,200 a month to $548!!"

The FTC alleged that the Auto Debt Consulting defendants typically promised to reduce consumers' monthly auto loan payments by 25 to 40 percent, for fees ranging from $350 to $799.

According to one of the defendants' websites, the FTC found, "If you have engaged the services of Auto Debt Consulting for negotiating with your lender or bank on your behalf, and if for any reason you are dissatisfied with our services or we are unsuccessful in the negotiation process we will provide a 100 percent money back guarantee."

Officials stated the complaints are part of the FTC's ongoing effort to protect consumers in financial distress. They allege that both operations' deceptive business practices violated the FTC Act. 

According to the FTC's complaints, both groups of defendants marketed their services on company websites with statements such as, "Join the thousands who have already SAVED!"   (Hope for Car Owners) and "Lower your monthly vehicle payments by as much as 40 percent regardless of your credit score!" (Auto Debt Consulting).   

The FTC alleged that the defendants provided toll-free numbers for consumers to call so that telemarketers could sign them up.  Many consumers were told to stop making payments on their vehicles loans, which increased the risk that their vehicles would be repossessed.

But the FTC asserted that once the up-front fees were collected, neither operation did anything to obtain the promised loan modifications, consumers who tried to get refunds were denied, and one consumer's vehicle was repossessed by the finance company.

Officials recapped that Hope for Car Owners allegedly took $400 from one consumer and told her not to make any more payments on her vehicle. The consumer did not send her next payment to her lender, and the lender soon informed her that her vehicle was going to be repossessed.

The commission vote authorizing the staff to file the Hope for Car Owners complaint was 4-0. The FTC filed the complaint and request for preliminary relief against the Hope for Car Owners defendants in the U.S. District Court for the Eastern District of California. The complaint also names as a defendant Patrick Freeman.

The commission vote authorizing the staff to file the Auto Debt Consulting complaint was also 4-0. The FTC filed the complaint and request for preliminary relief against the Auto Debt Consulting defendants in the U.S. District Court for the Eastern District of California. The complaint also names as defendants Michael Kamfiroozie and Naythem J. Nafso.

"The FTC would like to thank the Better Business Bureau Serving Northeast California for its help in these cases," officials said.

"The commission files a complaint when it has ‘reason to believe' that the law has been or is being violated and it appears to the commission that a proceeding is in the public interest," the continued. "The complaints are not findings or rulings that the defendants have actually violated the law."                                            

Officials mentioned these are the FTC's first cases against companies offering auto loan modifications. The FTC emphasized the cases are coming at a time when the volume of repossessions remains high.

David Vladeck, director of the FTC's Bureau of Consumer Protection, acknowledged that be recognizes a vehicle is second only to a home as the most expensive purchase many consumers make. Vladeck stressed the FTC has been highly involved in auto-related consumer issues as the agency recently held a series of roundtable workshops to gather information on possible consumer protection issues that may arise during the sale, financing, or lease of motor vehicles.

"Now that the FTC and its partners have stopped hundreds of mortgage loan modification scams, fraud artists are moving to another loan modification scam, preying on consumers who are behind on their auto loan payments and facing repossession," Vladeck stated.

"Despite promising to substantially lower consumers' monthly payments, these schemes charge hundreds of dollars in up-front fees, leaving financially distressed consumers in worse shape than when they began," Vladeck continued.

The FTC has a new publication for consumers who are looking for help managing their vehicles loans. The article titled, "Ads for Auto Loan Modifications: You May Be Able to Drive a Better Deal with Your Lender," is available here.

The FTC actions in California come on the heels of Ken Shilson sending a letter to the state legislature that is crafting measures to further regulate buy-here pay-here dealerships in the state. Shilson, who is president of the National Alliance of Buy-Here Pay-Here Dealers, opposed the proposed legislation in a letter posted here.