NEW YORK, May 19, 2009 (Reuters) - New York Attorney General Andrew Cuomo sued two debt settlement companies for fraud, deceptive practices and false advertising on Tuesday as part of a probe of their treatment of consumers in the financial crisis.

CSA-Credit Solutions of America, Inc of Richardson, Texas, which describes itself as the largest debt settlement company in the United States, and Nationwide Asset Services Inc of Phoenix, Arizona, were sued on behalf of about 20,000 New York customers, Cuomo's office said in a statement.

"These companies are taking advantage of people in New York and throughout the entire country who are facing tremendous economic hardship," Cuomo said in the statement. "Today's lawsuits send a clear message that we are prepared to rein in this unregulated industry and protect New Yorkers who are proactively trying to work their way out of debt."

The lawsuit charged that CSA promised a 60 percent reduction in customers' outstanding debt, but only an average of 1 percent of consumers received that savings. It said CSA collected approximately $17 million in fees from New York consumers.

CSA said in a statement that it "disputes liability over the complaints and supposed practices" which largely occurred in 2007 during a 12-month period when the company was under different ownership.

Chief Executive Doug Van Arsdale said the company was disappointed with the action because it had "worked hard to bring integrity and regulation to the industry. We are part of the solution."

The lawsuit against Nationwide in Buffalo, New York, said the company promised a 25 percent to 40 percent reduction in consumers' outstanding debt, but only one-third of 1 percent of consumers received that savings.

"Customers suffered continued harassment and lawsuits by creditors and had their credit ratings destroyed," the attorney general's office said.

Nationwide said in a statement that its attorney had not yet seen the lawsuit, and the company declined comment. It said it had cooperated with Cuomo's investigation and supplied all documents requested by his office.
On May 7, investigators subpoenaed 14 debt settlement firms nationwide seeking information about their fee structures and what kind of relief they are providing to consumers. (Reporting by Grant McCool; Editing by Kenneth Barry)