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.
Morrisey Files Suit Against Debt Settlement Firm
Charleston Gazette (WV) (01/02/14) ;
West Virginia Attorney General Patrick Morrisey has brought a lawsuit against Legal Helpers Debt Resolution in the wake of a two-year investigation launched by his predecessor, Darrell McGraw. The Nevada-based debt settlement firm allegedly collected upfront fees from 250 customers in West Virginia in exchange for helping to resolve their debt problems, but it never settled those debts.
Customers paid more than $198,000 in fees, according to the lawsuit. "We believe ... that the defendants provided no legal services or any discernible value to their customers in the state even though they collected fees from them," Morrisey said in a news release. AGs in Indiana, Illinois, Rhode Island, and Oregon have already filed lawsuits against Legal Helpers. The company agreed to stop doing business in Illinois and paid fines and restitution, but the other cases are pending.
The West Virginia lawsuit alleges that attorneys working with Legal Helpers were not licensed to practice in the state. Legal Helpers failed to "clearly and conspicuously disclose" that it would not settle customers' debts or begin to negotiate debt-settlement agreements until customers had paid all fees in advance, it further claims. The suit is asking a judge to block Legal Helpers from conducting business in West Virginia and is requesting that Legal Helpers refund fees to customers.
4 Ways Debt Settlement Can Burn You
Ebony (12/13/13) ;
Consumers who struggle with debt may consider turning to a debt settlement firm, but this strategy can backfire in several ways.
First, it can damage a credit score. Debt settlement companies usually insist that consumers stop paying their bills for a few months, after which the company contacts the creditors and tries to negotiate settlements on the consumer's behalf. However, failure to pay can stain a credit report and damage FICO credit scores; and even when creditors agree to accept less than the full amount owed, they will report to credit bureaus that the account was “Settled” or “Paid by Settlement,” which still tarnishes credit records.
The second way this tactic can hurt consumers is by risk of lawsuit or court judgment. Instead of reaching an agreement with a debt settlement company, creditors may decide to sue the borrower, get a judgment against him or her, or have wages garnished.
A third reason to avoid debt settlement is that many debt settlement firms also charge high fees, either in the form of a flat fee or a percentage of the total debt.
A fourth drawback is that consumers must pay taxes on the amount of money they saved. Better alternatives to debt settlement include trying to negotiate directly with creditors, or consulting a credit counseling firm.
Colorado AG Suthers Settles With Texas Debt Management Firm 'Operating Illegally'
Denver Business Journal (12/12/13) ;
Colorado Attorney General John Suthers announced that he has resolved a case in which 615 state residents "were financially harmed by a Texas-based debt settlement company that was operating illegally in Colorado." The state received $225,000 in a settlement with the now-defunct CreditAnswers and CEO William Loughborough.
The Consumer Protection Section of the AG's office has entered a stipulation and final agency order with CreditAnswers and Loughborough. Both agreed to permanently stop providing debt-management services to Colorado residents as well as to pay for consumer restitution, reimbursement of legal costs, and for educational purposes.
In February 2012, Suthers' office accused CreditAnswers of providing debt management services that failed to comply with Colorado consumer protection and debt settlement laws. CreditAnswers allegedly failed to provide required consumer disclosures and cancellation notices and engaged in other violations.
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 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.