Debt Settlement News
Read the latest on Debt, Debt Settlement and Debt Repair.
Debt Settlement Bill Leaves PA Consumers Vulnerable
Delaware County News Network (PA) (06/13/14) ; Morris-Louis, Markita
Indebted consumers often look to debt settlement firms to help them lower the amount they owe to creditors; but many end up in even worse financial condition, writes Markita Morris-Louis, general counsel with Philadelphia-based Clarifi. She describes how one client of the nonprofit had paid a third party $1,000 to settle $18,000 in debt, but the company never made progress in negotiating with the creditors. This is one of the reasons, according to Morris-Louis, that it is time to end such practices in Pennsylvania.
On June 17 in the state legislature, the House Commerce Committee is expected to move Senate Bill 622 to appropriations. However, Morris-Louis says the Debt Settlement Services Act has flaws that could keep consumers vulnerable to unscrupulous debt settlers and should be altered to fix these problems. She recommends that the bill set a meaningful limit on fees that settlement companies can charge in the state, based on the amount a consumer is able to save or reduce on their debt. It also should require debt settlement firms to consider the consumer's financial well-being, and his or her whole financial situation, to determine if debt settlement will really benefit; and they should have to review whether creditors are likely to actually settle.
The bill also should prohibit practices that include telling a consumer to stop making payments to creditors and enrolling consumers that debt firms know will not benefit. Legal services also should be included in the definition of debt-settlement services and should not be exempt from these consumer protections.
NC Attorney General Sues Debt-Settlement Firm That Collected More Than $1.1 Million
Raleigh News & Observer (North Carolina) (05/16/14) ; Murawski, John
North Carolina Attorney General Roy Cooper has sued Chicago-based Legal Helpers Debt Resolution (LHDR), alleging that it ran an illegal scheme that swindled 412 state residents out of more than $1.1 million during a two-year period.
The company allegedly collected illegal advance fees for debt-settlement services that were never provided as marketed. The suit argues that LHDR advertised on the radio, online, and via mass mailings, vowing to have customers debt-free within four years. Claiming to be a national law firm, it pledged to assign an attorney to work with clients throughout the process. The lawsuit seeks to ban LHDR from conducting business in North Carolina and to require it to refund state residents.
Through this “classic advance fee scam,” as the lawsuit described it, the company took in more than $1.5 million from North Carolina residents and used only 15 percent of those funds to pay off customer debt. One victim was a Durham resident who paid LHDR about $2,500 to help her resolve $22,000 in credit card debt. The services were never rendered, and the company issued a $90 refund.
Debt Settlement Firm Pleads Guilty in First CFPB Referral
Reuters (04/08/14) ; Ax, Joseph; Raymond, Nate
In the first criminal case referred to U.S. prosecutors by the Consumer Financial Protection Bureau, Michael Levitis and his debt settlement firm Mission Settlement Agency pleaded guilty in Manhattan federal court to conspiracy charges of mail and wire fraud. In U.S. vs. Mission Settlement Agency, prosecutors accuse the firm of victimizing more than 1,200 people nationwide from 2009 to 2013 by charging them excessive fees while failing to help them reduce credit card and other debt.
As part of the plea agreement, Levitis -- who faces up to 10 years behind bars -- and the company will forfeit $2.2 million. The company faces another fine of as much as $4.39 million. Guilty pleas were issued by four other former Mission employees, and charges against a fifth are pending.
Debt-Settlement Legislation Would Lift Fee Caps That Protect Consumers
Cleveland Plain Dealer (OH) (02/02/14) ; Williams, Kalitha E.
Nearly 10 years ago, lawmakers passed the Ohio Debt Adjusters Act, intended to protect state residents from debt adjusters that imposed excessive fees and gave false hope to consumers mired in debt. Under the statute, fees are limited to no more than $75 for initial consultation, up to $100 annually for consultation fees, and no more than 8.5 percent of the debt or $30 -- whichever is greater -- for monthly fees.
These reforms were modest, writes Kalitha E. Williams, policy liaison for Policy Matters Ohio, and the debt adjustment industry remains profitable in Ohio as a result. Many indebted consumers seek financial relief, only to find their situation exacerbated after working with for-profit debt adjusters. These firms insist that clients stop making debt payments and fund an escrow account to be used to negotiate with lenders. As the debts grow, consumers are hit with late fees and higher interest rates; and they often have to file for bankruptcy.
Williams writes that these conditions would worsen if House Bill 173 is passed. The proposal would lift the fee caps, on the grounds that federal protections have removed “bad actors” from the debt-adjustment industry. However, the last year alone has seen regulators such as the Federal Trade Commission, the Consumer Financial Protection Bureau, and the U.S. Attorney office in New York taking legal action against such companies.
The Center for Responsible Lending found that consumers only benefit from debt adjustment if they can complete the settlement of at least two-thirds of their debt. Consumers cannot know this before enrolling. A survey from the iA Institute found that nearly half of debt creditor and collector companies refuse to work with debt-settlement companies.
Deny the Debt-Settlement Industry the Carve-Out From Ohio Law They're Seeking in Columbus: Editorial
Cleveland Plain Dealer (OH) (01/19/14) ;
A new bill is pending in Ohio’s Senate, after passing the Ohio House of Representatives, that the Cleveland Plain Dealer editorial board calls "grotesquely anti-consumer." Substitute House Bill 173 purports to “regulate providers of debt settlement services” but actually would offer debt settlement a way to skirt current fee caps under Ohio's existing debt-adjusting law.
Debt adjusters claim to negotiate with creditors on behalf of indebted consumers, intending to persuade a creditor to accept less than the entire balance owed.
A bipartisan 2004 law, Substitute House Bill 420, was passed unanimously and now regulates debt adjusters in Ohio. It forbids debt adjusters to charge “a periodic fee or contribution more than 8.5 percent of the amount paid by [the] debtor each month or $30, whichever is greater,” according to the office of Attorney General Mike DeWine. This law also appears to force debt settlement service providers to observe the monthly 8.5 percent or $30 fee cap, unless the proposed H.B. 173 becomes law.
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 Collector Sued by Arkansas AG Wins Appeal
Arkansas News Bureau (05/17/12) ; Lyon, John
The Arkansas Supreme Court has overturned a judgment that Attorney General Dustin McDaniel won for the state against a debt collector. Last year, a Pulaski County circuit judge ordered Jack H. Boyajian to pay a $194,000 civil penalty for 776 violations of the Arkansas Deceptive Trade Practices Act. The state Supreme Court has now reversed and dismissed the order, however. McDaniel said, "While I respect the Court’s decision, I am deeply troubled by its far-reaching effect on Arkansas consumers and the likely harm that will result." The attorney general had filed a lawsuit alleging that Boyajian was "badgering and harassing" Arkansas residents to collect debts, sometimes threatening them with criminal action and sometimes targeting individuals who did not actually owe anything. Boyajian, an attorney licensed in California at the time, argued on appeal that his actions were carried out in the practice of law, making him exempt from the Deceptive Trade Practices Act. The Supreme Court agreed. Boyajian also was sued over his debt collection practices in Colorado, Connecticut, and New York.
Taxpayers Fund Collector Chasing Student Loans
Bloomberg Business Week (05/15/12) ; Hechinger, John
Employees and executives at the student loan debt collection company Educational Credit Management Corp. (ECMC) receive significant compensation from collecting past-due student loan debt for the U.S. Education Department. The guaranty agency generates big profits thanks to an 18-year-old agreement with the federal government. Approved by Congress, the company charges borrowers fees and earns commissions from taxpayers when it collects defaulted loans. But ECMC says it helps keep federal financial aid programs solvent by recouping the delinquent debt. The company confirms that it has returned $4.3 billion to the U.S. Treasury since 1994; but critics say those working at ECMC benefit, too. CEO Richard Boyle received $1.1 million in 2010, while five managers took home more than $400,000 each. Justin Hamilton, a department spokesman, acknowledges that some of the government's policies in relation to the debts deserve "a second look." Not only do workers at the company take home large paychecks, but the firm also reimburses large commuting bills. Additionally, it receives more money collecting from struggling borrowers than it does from those defaulting in the first place. If the company gets borrowers to make nine payments in 10 months, it gets a jackpot: up to 37 percent of a borrower's entire loan amount. Despite the criticism, National Council of Higher Education Loan Programs President Shelly Repp says, "There's no factual basis for this claim that the incentives are misaligned."
FTC Settles With Debt Collectors Over Bogus Magazine Payments
Chicago Tribune (05/15/12) ; Samuelson, Kristin
The Federal Trade Commission has reached a settlement with Luebke Baker and Associates Inc., a debt collection agency that pursues payments on hundreds of thousands of accounts each year. The government charged the firm with violating the FTC Act, Fair Debt Collection Practices Act, and Telemarketing Sales Rule as it sought to recover payments for bogus magazine subscriptions. Among the allegations, according to a press statement, were that Luebke "illegally masked their identity and sent false information over caller ID, falsely posing as Ed McMahon, attorneys from a law firm and other entities; falsely told consumers that magazine subscription debts are exempt from the statute of limitations; and illegally threatened to garnish wages and take other unintended legal actions." Under the proposed settlement, the debt collector may not declare that a consumer owes a debt without having a reasonable basis to do so and also may not make any other misrepresentations when collecting debts or selling goods and services. Luebke also is obliged to investigate if a consumer challenges a debt. Meanwhile, Cross Media Marketing Corp. -- the company that sold the magazine subscriptions -- was successfully sued several years by the FTC for deceptive marketing. A 2003 federal court order against the firm placed special requirements on anyone seeking to collect payment on the subscriptions.
Seventh Circuit: Bill Collector Can Be Sued for Calls to Wrong Numbers
Legal Newsline (05/15/12) ; Karmasek, Jessica M.
The U.S. Court of Appeals for the Seventh Circuit recently ruled that bill collectors can be sued for automated calls made to the wrong cell phone subscribers, upholding an earlier decision by a Northern Illinois District Court. The case revolves around the federal Telephone Consumer Protection Act -- which restricts the use of automatic dialing systems, artificial or prerecorded voice messages, SMS text messages received by cell, and the use of fax machines to transmit unsolicited marketing materials. Two mobile phone subscribers, Teresa Soppet and Loidy Tang, allege that Enhanced Recovery Company made dozens of automated calls to their cell phones, draining valuable minutes from their plans. The pair claim they never consented to receive automated calls. But Enhanced Recovery said it had the consent of the previous subscribers. The court said that only the consent of the current subscriber can consent to the automated or recorded calls.
5 Credit Card Rules for New Grads
Huffington Post (05/14/12) ;
New college graduates who are managing their money for the first time should be cautious about credit card use. When receiving a card offer in the mail, they should not fall for flattery. Envelopes often have language such as, "You've been selected!" and "You deserve this opportunity!" to make potential users feel special; but individuals should not apply for a new card unless they need it. Another tip for new graduates is to scour the fine print before applying for a credit account, making sure the card meets their needs. For example, frequent commuters may want cash-back cards that offer a gas rebate. Card users also should pay their balances every month, using a budget so that they know how much money goes toward credit cards; and these payments should be made on time. New graduates additionally should promise themselves to learn about money and personal finance, using sources such as books by Liz Weston and Farnoosh Torabi, or free webinars offered by CredAbility. Consumers who are already in debt and need help can reach out to organizations such as the National Foundation for Credit Counseling or CredAbility.
Brewer Signs Bill to Help Debt Collectors
Phoenix Business Journal (05/14/12) ; Sunnucks, Mike
Arizona Gov. Jan Brewer signed House Bill 2664 into law on May 14. The legislation makes it easier for debt collectors to pursue defaulting consumers and small businesses by allowing collection agencies to use final billing statements to show amounts owed and interest rates. Many debt collectors purchase delinquent accounts from banks and credit card companies but often receive minimal information about the debt. Obtaining additional data can be difficult and expensive. While Arizona's new law makes it easier for collection agencies to pursue debt if they can obtain final billing statements from banks, consumer attorneys and Democrats opposed the measure, questioning the accuracy of information such as credit card statements and fees.
Some States Give Troubled Consumers a Break on Use of Credit Scoring for Insurance Rates
InsuranceQuotes.com (04/30/12) ; Anderson, Troy
Certain state laws enable insurers that use credit scores when determining rates for auto and homeowners' insurance to take into account bankruptcies brought on by death, job loss, or catastrophic illness, since in many cases bad credit can mean premiums that are up to 200 percent higher than someone with good credit. These exceptions for "extraordinary life circumstances" are available in 15 states, including Connecticut, Nevada, Texas, and Iowa, and are based on a model law from the National Conference of Insurance Legislators. The laws still allow insurers to use credit score information to determine rates, but require them to take into account life events. American Insurance Association (AIA) Vice President and Associate General Counsel Dave Snyder says that the use of credit-based insurance scores are permitted in most states. "The majority of policyholders receive discounts as a result of credit-based insurance scoring, and auto insurance and homeowner's insurance are more available because credit-based insurance scoring has improved the accuracy of underwriting. Insurance is more affordable to more people and is generally more available because insurers have an objective measurement of risk that has increased the accuracy of underwriting over the more traditional factors," he said. Insurance credit scores are used to predict the number and cost of claims customers are likely to file and use those numbers to determine the premiums they should be charged. In Illinois, insurers could be required to recalculate consumers' insurance scores upon request should lawmakers pass a pending measure, and a bill in Maryland would prevent insurers from rating risk based on credit history.
W. Va. Woman Fights to Collect $10 Million From Debt Collectors
WTMA (04/26/12) ;
Diana Mey of Wheeling, W.Va., has won a $10 million judgment against an abusive debt collection company, the largest award of its kind ever made. Two years ago, a representative with Reliant Financial Associates (RFA) left a message for Mey implying that her house was in jeopardy unless she paid a debt. Debt collectors are legally forbidden from making empty threats to debtors about serving them with a lawsuit or seizing their homes. Mey also says she is debt-free. Mistaken debtor identity is a frequent issue in the United States because of collectors called "debt buyers," which purchase old debts at a discount that original creditors have given up on. The debt buyers, including RFA, then try to collect them for a profit. In May 2011, Mey sued RFA for harassment and illegal collection practices. RFA's lawyer failed to show up in court in August, leaving Mey to testify unopposed. The judge called RFA's actions "malicious" and awarded $10,860,000. It later was discovered that RFA is a fictitious business name for a company called Global AG LLC -- one of several collection companies that are operated by the same people but often change names and relocate.
Accretive Put Debt Collectors in Hospitals, State AG Says
Bloomberg (04/25/12) ; Wayne, Alex
A Minnesota official has accused a debt collection firm of pressuring payments out of patients at a hospital chain in the state, both in the emergency room and at their bedsides. Attorney General Lori Swanson said that employees of Fairview Health Services were required to use a computer system called "Blue Balls" to track whether patients paid their bills and then demand payment before they received treatment at any of the seven facilities in the company's franchise. She said the system was introduced in May 2010 when the hospital hired collection agency Accretive Health Inc. In a recently released report based on internal documents and interviews with employees, Accretive's tactics created "a high-pressure boiler-room-style sales atmosphere." Swanson has filed suit against the Chicago-based debt collector for violations of U.S. and state patient-privacy and debt-collection laws. In the report, Swanson said Accretive provided emergency room personnel with scripts for conversations with patients that "can lead a patient or her family to believe the patient will not receive treatment until payment is made." Additionally, employees were instructed to ask for credit card payments, tell patients they would wait for them to get their checkbooks, and remind them that debt-collection activities "can affect your credit score." The hospital chain recently ended a portion of its contract with Accretive. Web Link
Could Your Next Facebook Friend Be a Debt Collector?
KDVR.com (04/23/12) ; Melear, Nancy
Facebook users should be careful about which friend requests they accept, as some people may only be after their private information. An increasing number of debt collectors are using social media to track down consumers who owe money, sometimes setting up a fake profile and sending out friend requests. After receiving a first collection letter, consumers are advised to call the collection company within 30 days with a request for no contact by phone, text, or e-mail. If payment is not possible, negotiation and settlement will damage the borrower's credit score but will stop the collection. Facebook users should set their privacy settings so that their profile is visible only to friends -- not the public -- and should accept friend requests only from people they know. Users should employ common sense in their posts, avoiding details such as employment history, including current employer; e-mail; cell phone; and birth date. The Fair Debt Collection Practices Act currently does not have provisions for social media, so it does not explicitly forbid collectors from posting on a consumer's Facebook unless they talk about the debt. Consumer attorney Craig Thor Kimmel recommends that social media users save any messages they receive from collectors. They can then report the sender as spam on Facebook and file a complaint with the Federal Trade Commission. Web Link
Attorney General Sues 7 Debt Collectors
Charleston Gazette (04/17/12) ;
West Virginia Attorney General Darrell McGraw has filed a lawsuit against seven unlicensed debt collection agencies, claiming that they use unfair tactics to get money from consumers. Several consumers have complained that the agencies' collectors impersonated law enforcement and judicial officers and made threats of prosecution for failure to pay off debts. Some agencies attempted to collect nonexistent debts. The suit involves County Filing Services Inc.; Portfolio Investment Financial; Investment Management and Recoveries Inc.; Rosenthal, Stein and Associates LLC; Vision Credit Solutions LLC; National Capital Management Inc.; and Dorsey Thornton and Associates LLC. The lawsuit asks a judge to force these seven agencies to comply with an investigative subpoena.
Chicago Woman Says She Was Ripped Off by Debt-Settlement Firm
CBS 2 Chicago (04/16/12) ;
Letitia Mika, a resident of Chicago, says she fell prey to a scam artist pretending to be a legitimate debt-collection agency. The Lincolnwood firm PN Financial offered to settle her overdue credit card balance, for which Mika paid $1,800. She later learned that PN Financial was keeping the money, not using it to pay off her debt. The Illinois attorney general's office is now suing PN Financial for fraud in four dozen cases, including Mika's. AG spokesperson Natalie Bauer says PN Financial also was threatening to sue people while it posed as a law firm. In some cases, the firm had sent out letters with fake court case numbers, dishonestly claiming to have filed suit against the letter's recipient. Consumers should be aware of their rights: debt collectors may not call at all hours, may not use threats or call a person's employer to tell them about the debt, and they must apply any payment to the actual debt.
Debt Collectors Increasingly Using Abusive Threats, Insults, Lies: Report
Huffington Post (04/13/12) ; Eichler, Alexander
A recent report from Marketdata Enterprises points out that debt collectors have been adopting increasingly nasty tactics -- including curses, threats, insults, and even telling lies that break the law. In the current economic climate, people are more unwilling or unable to pay cash for their debts when demanded to do so. Debt collecting remains a profitable industry, with revenues at $11.74 billion in 2010. Still, many companies are experiencing shrinking profits with an increasingly crowded collection field. One firm allegedly told a debtor that they would dig up her dead daughter and hang her from a tree if she did not pay her bills. Others go on a campaign with calls early in the morning and late at night, or try to recruit relatives to apply indirect pressure. Sometimes, collection agencies call people who do not owe any money. At least one company has been accused of lying to people and threatening them with arrest, a tactic that is also against the law.
BBB Study: Consumers Paying Scammers Thousands for Services They Can Do Themselves at No Cost
Better Business Bureau (04/10/12) ;
A St. Louis Better Business Bureau (BBB) study has found that many consumers mired in debt are paying scammers thousands of dollars for credit repair, when they can do the same thing themselves for less or even for free. The study, "Are They Creditable? A Study of the Credit Repair and Debt Settlement Industries, Complaints, Laws & Enforcement," explains that credit repair offers to rid a consumer’s credit report of damaging marks. Debt settlement, on the other hand, promises to reduce debts or monthly payments through negotiations with creditors. Complaints to BBBs across the United States about credit repair have ballooned from just 133 in 2006 to 711 last year. The study notes that the credit repair industry attracts customers with enticing ads that suggest, for example, that they can boost their credit score by a hundred points or more -- for what is supposed to be a nominal fee. Grievances lodged with the St. Louis BBB, however, showed that 85 percent of complainants received no services from credit repair companies, despite paying an average of $816 each. Most of these customers received no refunds. Complainants paid an average of $2,000 for debt settlement and averaged only $67 in refunds. The study recommends that consumers follow advice from the Federal Trade Commission and not hire credit repair companies. Only outdated or inaccurate information can be erased from a credit report. Consumers should turn to a trustworthy not-for-profit organization to resolve debt and credit problems.