Debt Settlement News
Read the latest on Debt, Debt Settlement and Debt Repair.
Ohio House OKs Bill to Hike Fees for Debt Settlement
Columbus Dispatch (12/05/13) ;
The Ohio House passed a bill Dec. 4 that would allow debt settlement firms to charge higher rates in the state, under protest from consumer advocates. The industry has generated consumer warnings from the Better Business Bureau and Ohio Attorney General Mike DeWine, but the American Fair Credit Council argues that the bill would protect consumers and provide for the operation of legitimate companies.
There is debate over the legitimacy of debt settlement since, under most plans, consumers stop payments on their debts and place money into an account that the settlement firm uses as leverage with creditors. The industry and its fees in Ohio have been regulated under the state's Debt Adjusters Act for about a decade already. Some consumer protection groups oppose the new bill, saying that it would help an industry that already has a poor track record. DeWine warned that “far too many of these businesses fail to deliver on their promises and leave consumers in a worse financial situation.” The measure now moves to the Senate.
How Much Can Collectors Legally Boost Charged-Off Debts?
CreditCards.com (10/17/13) ;
When a consumer defaults on a loan, collectors may try to inflate the debt with interest and fees -- even though card issuers generally stop charging interest after they have written off the debt. In one example, a collector tried to charge Montana resident Tim McCollough $5,500 in additional interest on an unpaid $3,800 credit card balance. Consumer advocates recommend that debtors question these claims.
McCollough won a six-figure judgment in 2011 against collection law firm Johnson, Rodenburg & Lauinger LLC for their abusive practices. About $50 billion in unpaid credit card debts are sold each year, and a January report by the Federal Trade Commission found they are frequently sold with little information about their origins. This makes it more difficult to tell if the amounts are even correct, or whether collectors are going after the right person. Debt buyers are not subject to the Truth in Lending Act, and may charge interest on an unpaid debt without sending the consumer monthly statements.
In 2005, the 7th U.S. Circuit Court of Appeals affirmed that a debt buyer had the right to keep charging interest rates of over 18 percent to two consumers, which supports the principle that the owner of a debt "stands in the shoes" of the original creditor. Some states, however, question debt buyers' ability to charge interest rates above the state statutory limit. The U.S. Fair Debt Collection Practices Act stipulates that collectors can add fees or interest only if the amount is "expressly authorized by the agreement creating the debt or permitted by law," which consumer advocates say requires a copy of the original card agreement to prove.
Advocates say that consumers negotiating with a collector should remember that a debt buyer's claims for interest could be inflated or even baseless. Consumers should never ignore claims, but first determine the amount of their debt at charge off (the "principal amount"). This could be the basis for negotiating with a collector to settle the debt.
Consumer Agency Fines Payment Processor Meracord Over Debt-Relief Firms' Illegal Fees
Washington Post (10/04/13) ;
The Consumer Financial Protection Bureau (CFPB) has fined Meracord, one of the country's largest payment-processing companies, $1.3 million for helping debt-relief firms levy illegal upfront fees on struggling consumers. According to the regulator, Meracord processed at least $11 million in illicit fees from October 2010 to July of this year. Of more than 11,000 consumers who paid the upfront charges, almost 5,000 of them did not have any of their debts resolved.
The CFPB intends to compensate affected consumers using its civil penalty fund. The enforcement action against Meracord is part of a sweeping crackdown on companies that take advantage of people trying to get rid of debt. The CFPB is not only going after the firms themselves but also the companies that facilitate withdrawal of funds from consumers' accounts. "If a business is enabling bad actions that hurt consumers, then we will use our authority to stop them," declared CFPB deputy director Steven Antonakes. "We are making the point here, and it applies to all companies that do business with consumer financial providers."
Postal Inspectors: Ask About the Fees
digtriad.com (09/16/13) ;
U.S. postal inspectors are warning consumers to be wary who they pick to help them manage heavy debt. U.S. Postal Inspector Robert Clark says some firms are offering to settle debts for 45 percent of the debt. In one case, the company asked customers to sign a three- or four-year contract agreeing to the deal, stop talking to creditors, and make a monthly payment. However, 1,200 customers said the firm collected $2.2 million in fees and failed to dissolve the debt. Some customers never asked about the $49 in monthly fees due to the seemingly attractive deal they were being offered; and even when salespeople were asked about fees, they only answered with prepared statements.
The company owner had no regard for the complaints and was only concerned with signing up customers. Postal authorities say the best way to determine if a debt settlement company is reputable is if it discloses all fees up front and is not trying to expedite the contract process. A new law also requires companies to meet customers in person to sign a contract. Customers should also be aware they can work out payment options with credit card companies without outside help.
Debt Collectors Get More U.S. Consumer Bureau Oversight
Bloomberg (09/05/13) ;
Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB), on Sept. 4 announced that his agency will begin drafting new rules under a federal law governing the debt collection industry and will also "continue to pursue a lot of enforcement work we've been doing."
The 2010 Dodd-Frank Act that created the CFPB also authorized the watchdog to write regulations under the Fair Debt Collection Practices Act of 1977. The agency can oversee debt collection from when credit is extended -- such as via credit cards issued by banks -- through the purchase of charged-off debt by companies. The CFPB's work "will really matter to Americans who often feel harassed and oppressed, or are being chased over debts they don't think they owe," Cordray said.
Debt-Settlement Bill Riles Critics
Columbus Dispatch (09/03/13) ;
The Ohio legislature is tussling over a bill that would allow the debt settlement industry to impose higher fees in the state. Some groups that fought against the payday lending industry are now trying to block House Bill 173, which supporters say would bring clarity to Ohio laws for companies that offer to settle consumer debt.
Brian Tawney of the American Fair Credit Council says the measure would allow legitimate debt settlement providers to operate in Ohio. Linda Cook, senior staff attorney for the Ohio Poverty Law Center, argues that the industry already is permitted to operate in Ohio but must do so under state fee caps: either 8.5 percent of the amount of debt payments by the consumer each month or $30.
Critics of the bill say it would allow the industry to charge desperate consumers higher fees. Most debt settlement plans have consumers stop payments and instead place money into an account that the settlement company uses to leverage settlements with creditors for less than what is owed. The Center for Responsible Lending (CRL) warns of high fees charged by these settlement firms, noting that many clients are left with unresolved debts. “Any savings achieved on one or two settled debts is wiped out by the growth of debts that are not settled,” Ellen Harnick, CRL's senior policy counsel, told federal officials in 2012.
FTC Wins $5.7M From Debt-Relief Scammers
Law360 (08/27/13) ;
U.S. District Judge James S. Gwin in Ohio has ordered several debt counseling firms to pay $5.7 million to consumers for allegedly using scripted telemarketers to lure people into signing debt-consolidation contracts that the companies did not fulfill.
The U.S. Federal Trade Commission accused defendants Dan Michaels and James Benhaim of operating a series of related businesses in the United States and Canada. Gwin found that the defendants' business practices violated the Federal Trade Commission Act, the Telemarketing Sales Rule, and the Mortgage Assistance Relief Services Rule.
Telemarketers from the companies would falsely tell consumers that they were calling from a current lender's wholesale department, that they had special relationships with the consumer's creditors when they really did not, or that consumers could save hundreds of dollars a month. Often consumers would be convinced to pay thousands of dollars in upfront fees, receiving little or no services in return. The judge also said that the companies would instruct consumers to stop paying their monthly bills while the company negotiated their debt settlements. The defendants were found to have misrepresented the total costs and characteristics of their services as well as the amount of money that consumers would save.
U.S. Consumer Bureau Files Lawsuit Against Nevada Debt-Relief Firm
Reuters (08/20/13) ;
The U.S. Consumer Financial Protection Bureau is taking Morgan Drexen, a Nevada-based debt settlement company, to court for allegedly imposing improper fees and misleading the public about its services. The federal watchdog agency alleges that Morgan Drexen charged upfront fees for debt relief services, even though firms are not allowed to collect such payment until after they have helped to settle or lower a borrower's debt. The company also is accused of deceiving consumers into believing they would be debt-free after a few months of the company's services.
Settlement Company Banned
Lebanon Express (OR) (07/10/13) ;
The Oregon Department of Justice and the Oregon Department of Consumer and Business Services together obtained a court order that prohibits World Law Debt and several of its affiliates from conducting business in the state. The two agencies accused World Law Debt, a Texas-based debt settlement company, of violating Oregon’s Unlawful Trade Practices Act by imposing excessive fees and inaccurately claiming that it had Oregon attorneys on staff to handle client cases. The lawsuit also alleges that World Law Debt collected $1.5 million from Oregon clients but paid just $275,211 to their creditors and kept more than $960,000 in fees. A temporary restraining order prohibits World Law Debt and its affiliates from doing business in Oregon, and the state will seek a longer-term ban later this month. Oregon's Department of Consumer and Business Services fined World Law Debt $70,000 last September for failing to register before doing business in the state. The company has not paid the fine and remains unregistered, according to the lawsuit. The Department of Justice is seeking more than $10 million in civil penalties, and the state is also demanding World Law Debt fully refund its Oregon customers.
Consumer Credit Industry Criticizes Ohio, Pennsylvania Legislation on Debt Settlement
BankCreditNews.com (06/27/13) ;
Proposed legislation in Ohio and Pennsylvania would increase regulation of the for-profit debt settlement industry, but some members of the industry say the bills ignore the practices most detrimental to consumers. Ohio H.B. 173 would codify consumer protections adopted by the Federal Trade Commission, while Pennsylvania S.B. 622 would mandate licensure for individuals who offer debt-settlement services. The Association of Independent Consumer Credit Counseling Agencies has contacted both state legislatures to voice its concerns. “Recent actions taken by the Consumer Financial Protection Bureau against abusive and even criminal debt settlement abuses would indicate that many consumers are still suffering because of the practices of some for-profit debt settlement companies, and these proposed bills will not help address the problem without substantial amendment,” declared association president David Jones. The group has recommended caps on fees, restrictions on enrolling consumers with financial conditions that may not yield a successful debt settlement program, and stiffer penalties for violations.
Regulators Stepping Up Probes of Debt Collectors' Practices
Los Angeles Times (06/22/13) ;
State and federal regulators are pressing debt collectors over their use of faulty records in litigation against credit card borrowers. Authorities say that, in some cases, paperwork was so flawed that borrowers were not even aware of lawsuits against them until their wages were garnished or assets seized after they failed to appear in court. At the state level, the California attorney general's office is leading a broad investigation of the debt collection industry, focusing on firms that buy delinquent credit-card accounts at a discount, then sue borrowers for the payments. That probe already has spawned a civil lawsuit against JPMorgan Chase, in which California Attorney General Kamala Harris accused JPMorgan and Chase Bank of running a "massive debt collection mill" that led to more than 100,000 lawsuits statewide based on shoddy documents, including some signed by low-level employees posing as bank officers. In one case, Oakland resident Tommie Sexton fell behind on payments for his Chase credit cards only to be sued by debt buyer Midland Funding for $7,000 in unpaid bills, including interest. Midland filed copies of Sexton's credit card statements and an affidavit that Chase had sold the account to Midland; but Sexton argued that the documents were not enough to prove Midland owned the debt, especially because the affidavit was created after he was sued. Sexton and Midland eventually settled. Such shoddy documents are "ubiquitous" in the debt collection industry, said Peter Holland, an assistant professor at the University of Maryland law school. AGs in more than a dozen other states have responded by banding together to look into similar incidences; and at least three federal agencies, including the Consumer Financial Protection Bureau, are scrutinizing debt collectors.
Wisconsin Sues Chicago Debt Firm, Alleges Illegal Fee Collection
Milwaukee Journal Sentinel (WI) (06/17/13) ;
Several Wisconsin state agencies are suing Legal Helpers Debt Resolution, alleging that the Chicago-based firm illegally collected millions of dollars in fees from Wisconsin consumers seeking debt relief. Prosecutors say Legal Helpers portrayed itself as a law firm when it really operated a debt settlement service, enrolling about 1,900 Wisconsin consumers. The outfit charged clients illegal upfront fees of $500 to $900 as well as monthly fees of $50 to $75, although the customers received few, if any results, according to the Wisconsin attorney general's office. To operate a debt resolution or debt settlement service in Wisconsin, a company must obtain an adjustment service license from the state, which Legal Helpers never had. The debt resolution services were provided by third parties who were not attorneys or properly licensed. The complaint says that state agencies -- including the Department of Agriculture, Trade and Consumer Protection and the Department of Financial Institutions -- fielded more than 70 consumer grievances about Legal Helpers in the past three years. Many complaints said that Legal Helpers had promised to get in touch with creditors to stop or reduce the number of calls,but regularly misplaced documents and failed to consult with creditors in a timely manner. The firm also instructed clients to stop making minimum payments to creditors, causing them to rack up more fees and additional interest on outstanding balances. The state is seeking penalties of up to $10,000 per violation, possible imprisonment for the defendants, and restitution to consumers.
Courts Clogged by Debt Cases, 'Rubber Stamp' Rulings, Advocacy Group Says
NBC News (06/05/13) ;
Plaintiffs' attorneys seeking judgments against alleged debtors in New York hog 89 percent of the court docket in Rochester, 76 percent in Buffalo, and 77 percent in the Capital District near Albany, according to a report by the New Economy Project. The high percentage of lawsuits that involve debt collection is not unique to the state, however. Consumer advocates across the United States cite this as an escalating issue. Susan Shin, staff attorney at the New Economy Project, says the collection industry has a careless attitude toward the legal system and that courts are making "rubber stamp" judgments. For its research, the advocacy group examined data from the New York State Office of Court Administrators covering 195,105 debt collection cases filed against New Yorkers in 2011. Most cases lack a defense, and nearly half are settled by "default judgment” because the defendant did not appear. One consumer, Brian Pindell, was unaware that a debt collection firm had sued him and won two judgments in 2007, until his application for a $4,500 Small Business Administration loan was denied in 2012. Pindell claims he was never served with legal papers and still does not know what the alleged debt is. Collection agencies often file cases with incomplete paperwork, or file so frequently that the signer could not understand what was signed. Sometimes agencies have their employees sign documents asserting facts they could not know. However, the New Economy Project report found that the court rejected improper paperwork in only two of 90 randomly chosen cases.
Consumer Watchdog Takes Its First Action Against Abusive Practices
The Hill (05/30/13) ;
The Consumer Financial Protection Bureau is, for the first time, taking action against a company for abusive practices that confused or misled the public. The agency brought a complaint May 30 against American Debt Settlement Solutions Inc., a Florida debt-relief company, and its owner, alleging that the firm had charged illegal upfront fees and had misrepresented itself and its services to consumers nationwide. About 89 percent of its clients who paid these "enrollment" fees, many of whom the company knew could not afford them, never had their debt reduced or changed in any manner by the company. The CFPB also accused the firm of violating a Federal Trade Commission law banning fraudulent telemarketing calls. It is seeking to stop American Debt Settlement Solutions' operations, block it from offering debt-relief services, and impose a fine of $15,000 on the company.
NY Debt-Settlement Agency Charged With Fraud
Associated Press (05/07/13) ;
U.S. Attorney Preet Bharara of the Southern District of New York confirms that debt settlement firm Mission Settlement Agency, its owner Michael Levitis, and three employees have been charged with mail and wire fraud. Federal prosecutors say that although the company advertised debt settlement services, it actually defrauded more than 1,200 debt-ridden individuals out of a total of millions of dollars by lying about its fees. Prosecutors also say that Mission employees lied about the company's debt reduction results.
N.C. AG Announces Court Order Against Debt Settlement Firm
Legal Newsline (04/26/13) ;
North Carolina Attorney General Roy Cooper has secured a court order against Advantage Debt Solutions Inc., a Charlotte-based company that he says was part of an illicit debt relief scheme. The firm allegedly charges consumers upfront fees equal to 15 percent of their total debt but rarely provides any debt relief or refunds customers who cancel the programs and attempt to recoup their money. Consumers in North Carolina, which bars upfront fees for debt settlement services, forked out more than $140,000 to Advantage Debt Solutions, while out-of-state customers paid an estimated $1 million to the company. "Outfits that promise debt relief for an upfront fee most often end up driving consumers even deeper into debt," according to Cooper. "Thanks to North Carolina's strong laws, we're able to take action to stop these harmful schemes." A judge's order upholds Cooper's request to temporarily prevent Advantage Debt Solutions and its owner, Anthony Krysinski, from offering debt negotiation or adjustment services in the state. The AG hopes to permanently end these activities and win refunds for affected consumers as part of a lawsuit against the company and its owner.
More Americans Debt-Free, But the Rest Owe More
USA Today (03/22/13) ;
Although the share of U.S. households carrying debt fell from 74 percent to 69 percent between 2000 and 2011, the median debt load climbed from an inflation-adjusted $50,971 to $70,000 over the same period, the Census Bureau reports. According to the bureau, the largest debt spike was for households led by people 35 to 44 years old, who owed a median of $108,000. There also was a doubling of the amount of debt owed by seniors to a median of $26,000, and this group's housing debt led the boost in their overall debt load, the government reported. "We've known for five-plus years that seniors are falling into debt, and it's very troubling," said personal finance expert Lynnette Khalfani-Cox. "Most of us have this idealized concept of riding into the sunset with a paid-off house. Unfortunately, that isn't the case." The volume of unsecured debt like student loans and uninsured medical costs rose to 19 percent from 11 percent -- led by people under age 45 -- but far fewer Americans today have credit card debt. Just over 50 percent had credit card bills early last decade compared to 38 percent now.
Debt-Settlement Bill Shelved for Now (GA)
Atlanta Journal-Constitution (03/04/13) ;
Debt settlement companies are trying to set up shop in Georgia, but the state House banking committee defeated a bill that would permit the companies to operate there. HB 465 may be revived and presented in the state Senate or be attached to another bill. Lead sponsor Rep. Chuck Martin (R-Alpharetta) argued that the measure would help consumers by giving them alternatives to bankruptcy. Many consumer advocates, however, counter that debt settlement firms charge high fees and often fail to protect consumers from creditor lawsuits, wage garnishment, or harassment from collectors. HB 465 would require that companies disclose alternative forms of assistance and forbid them from charging for settlement services until the consumer agrees to a plan and makes a first payment toward debt. Critics of the bill would prefer to see a cap on the fees charged by debt settlement companies.
Fla. AG Announces Injunction Against Debt Firms
Legal Newsline (03/04/13) ;
Florida Attorney General Pam Bondi recently announced a temporary injunction and asset freeze against the debt collection companies Vanderbilt & Associates LLC and Buchanan Capital Management LLC as well as their owner, Merrill Miller. The businesses allegedly engaged in illegal debt collection schemes, including masquerading as process servers, government agents, law enforcement officials, or county clerk’s office employees in order to intimidate consumers into paying debts. The alleged practices often targeted debts that had been paid, were nonexistent, or that the company had no legal right to pursue for collection. The allegations violate the Florida Consumer Collection Practices Act and the Florida Unfair and Deceptive Trade Practices Act.
When Bill Collectors Knock
Wall Street Journal (02/08/13) ; Blumenthal, Karen
Some 30 million Americans have an average $1,500 of debts in collection, according to estimates by the Consumer Financial Protection Bureau. Debt buyers pay an average of only four cents on the dollar, and they often aggressively pursue the debtors without proper documentation of the accounts. Third-party debt collectors generated 155,640 complaints to the Federal Trade Commission (FTC) in 2011, up from 96,102 in 2009. Individuals targeted by collectors should talk to the lender as soon as possible to work out a plan to keep the debt current. Nonprofit credit-counseling firms may also provide help, such as working with consumers on a budget and helping negotiate repayment plans. False threats and harassment are illegal; borrowers can request in writing that collectors stop contacting them. However, this will not resolve the debt; and a collector could still take the debtor to court. Keeping detailed records can help borrowers if they are sued; and if they are not sure the debt is theirs, they should dispute the debt within 30 days of being notified. The FTC reports that debt buyers often do not share relevant information with consumers about the debts they purchased, such as the original lender or the date of the last payment. About 1 million debts per year are disputed. If they dispute the debt or go to court, debtors should negotiate, get the results in writing, and understand the relevant laws in their state.