Debt Settlement and Collection News

Security National Automotive Acceptance Company (SNAAC) -- an auto loan company -- is being accused of using a combination of illegal threats and deceptive claims in order to collect debts from servicemembers.

The Consumer Financial Protection Bureau (CFPB) has filed a complaint in federal court seeking compensation for harmed consumers, a civil penalty, and an order prohibiting the company from committing future violations.

“Security National Automotive Acceptance Company took advantage of military rules to put enormous pressures on servicemembers to pay their debts,” said CFPB Director Richard Cordray. “For all the security they provide us, servicemembers should not have their financial and career security threatened by false information from an auto loan company.”

Unfair, deceptive and abusive practices alleged

SNAAC, an Ohio-based auto finance company that operates in more than 2 dozen states, lends money primarily to active-duty and former military to buy used motor vehicles.

The CFPB claims the company violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibitions against unfair, deceptive, and abusive acts and practices by using aggressive collection tactics that took advantage of servicemembers’ special obligations to remain current on debts.

Both active-duty and former servicemembers could encounter trouble with the company if they missed or were late on payments. Once consumers defaulted, they became subject to repeated threats to contact their chain of command. In many other instances, the company exaggerated the consequences of not paying. Thousands of people were victims of the company’s aggressive tactics.

The CFPB alleges that the company has:

• Exaggerated potential disciplinary action that servicemembers would face: The company told customers that their failure to pay could result in action under the Uniform Code of Military Justice, as well as a number of other adverse career consequences, including demotion, loss of promotion, discharge, denial of re-enlistment, loss of security clearance, or reassignment. In fact, these consequences were extremely unlikely.
• Contacted and threatened to contact commanding officers to pressure servicemembers into repayment: The company would repeatedly contact commanding officers to disclose the debts in an effort to force payment, and suggest that the servicemembers were in violation of military law and other regulations. These company’s tactics, the CFPB claims, took advantage of the servicemembers’ inability to protect their interests in their transactions with the company and was unfair.
• Falsely threatened to garnish servicemembers’ wages: The company implied to consumers that it could immediately commence an involuntary allotment or wage garnishment. But such consequences could not or would not occur because -- through the military pay system -- involuntary allotments are only processed once a judgment by a court is obtained. The company would threaten to pursue an involuntary allotment before they had even determined whether the servicemember would be sued.
• Misled servicemembers about imminent legal action: In many instances, the company threatened to take legal action against customers when, in fact, it had not determined whether to take such action. In fact, in numerous instances, the company did not intend to take such action at the time.

Through its lawsuit, the CFPB seeks to stop the alleged unlawful practices of the company. It has also requested that the court impose penalties on the company for its conduct and require that compensation be paid to consumers who have been harmed.

The complaint is not a finding or ruling that the company has actually violated the law.

Many a consumer has tried to explain to a debt collector that the debt he or she is calling about belongs to someone else. Of course, it’s often like talking to a brick wall because the debt collector has heard it all before.

But many times the consumer is right. A Jackson County, Mo., Circuit Court jury has delivered a not-so-subtle message to one debt collector that in situations like that, it had better do a little more thorough investigation before it hauls an alleged debtor into court.

$1000 debt

Portfolio Recovery Associates LLC, one of the largest buyers of written-off debt in the U.S., tried to collect a $1,000 credit card debt from Maria Guadalupe Mejia, who insisted the debt wasn’t hers. She tried to explain that the person they were looking for was actually a man with a name that was similar, but not the same, as her name.

The company didn’t believe her and took her to court. In court, the debt collector could not or would not provide requested information, so the judge struck its pleadings. But the jury wasn’t finished.

Acted maliciously

After 5 days of deliberation, it returned a verdict, finding Portfolio Recovery Associates acted maliciously in its pursuit of Mejia. The defendant was awarded $250,000 in actual damages for violation of her rights under the Fair Debt Collection Practices Act. The jury then added $82,990,000 in punitive damages.

Remember, it was the debt collector who brought the suit in the first place.

In a statement to Credit.com, Portfolio Recovery Associates called the verdict “outlandish” and defying all common sense. It says it expects the judge to set aside the verdict.

Still, any consumer who has ever been on the receiving end of repeated phone calls about a non-existent debt can’t help but get a vicarious thrill.

Fair Debt Collection Practices Act

More importantly, the case underscores of knowing your rights under the Fair Debt Collection Practices Act (FDCPA).

While the law does not protect you from people to whom you owe money, it does provide a number of protections when the creditor turns the debt over to a third-party debt collector.

A collector may contact you in person, by mail, telephone, telegram, or fax. However, a debt collector may not contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you agree. A debt collector also may not contact you at work if the collector knows that your employer disapproves of such contacts.

Within five days after you are first contacted, the collector must send you a written notice telling you the amount you owe; the name of the creditor to whom you owe the money; and what action to take if you believe you do not owe the money.

If you are contacted about a debt you think you owe, then you should pay it. But if you do not owe the debt, tell the debt collector you need to receive the written statement you are entitled to under the FDCPA. Additionally, consumers who want to consolidate their debts can utilize ConsumerAffairs' debt consolidation resource. Consolidating debts may reduce exposure to debt collection agencies.

The Federal Trade Commission and the Illinois Attorney General’s Office have obtained a court order temporarily halting a fake debt collection scam located in Aurora, Illinois, a western suburb of Chicago.

The defendants are charged with illegally using threats and intimidation tactics to coerce consumers to pay payday loan debts they either did not owe, or did not owe to the defendants.

The FTC’s case against K.I.P., LLC, Charles Dickey, and Chantelle Dickey is the agency’s seventh ‘phantom’ debt collector matter.

 “This company scared and tricked people into paying debts they didn’t owe,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “We will keep going after phantom debt scams like this one and shutting them down.”

“The defendants have threatened and intimidated their way into stealing hundreds of thousands of dollars from unsuspecting people all across the country,” Illinois Attorney General Lisa Madigan said. “Between our two offices, we have hundreds of complaints. It is clear they must be stopped.”

According to the complaint, since at least 2010, the defendants used a host of business names to target consumers who obtained or applied for payday or other short-term loans, pressuring them into paying debts that they either did not owe or that the defendants had no authority to collect. 

Often armed with sensitive financial information, the defendants would call consumers and demand immediate payment for payday loans that were supposedly delinquent.  To pressure consumers to pay, the defendants threatened that they would:

• Garnish consumers’ wages;
• Suspend or revoke their drivers’ licenses;
• Have them arrested or imprisoned; or
• File a lawsuit against them.

In response to the defendants’ repeated calls and alleged threats, many consumers paid the debts, even though they may not have owed them, because they believed the defendants would follow through on their threats or they simply wanted to end the harassing phone calls.

Marketers who helped promote a Utah-based home loan modification scheme will be banned from the mortgage relief and debt relief industries.

The newly-announced court settlement resolves Federal Trade Commission (FTC) charges that the marketers violated the law by promoting the loan modification scam, which conned consumers into paying hefty fees for worthless mortgage relief services.

Worthless promises

According to an FTC complaint filed last June, the scam led by Philip Danielson, the Danielson Law Group, and several closely associated companies and individuals, fraudulently pitched loan modifications to consumers.

The complaint accuses the defendants of luring consumers into paying $500 to $3,900 by falsely promising that attorneys would negotiate loan modifications that would substantially reduce the consumers’ mortgage payments. In the face of rising consumer complaints against Danielson Law Group, Linden Financial Group was formed to serve as the marketing arm for the defendants’ enterprise, the FTC contends

Linden Financial Group prepared and mailed ads for mortgage relief services that were designed to look like they were coming from lawyers in the recipients’ states. The FTC also claims Linden Financial Group received money from the payment processor set up to collect funds from consumers and then used this money to fund expenses and funnel cash to Philip Danielson and others.

Hefty fine ordered

Under the proposed settlement, Linden Financial Group also is prohibited from violating the FTC’s Telemarketing Sales Rule, and is required to have competent and reliable evidence to support claims made about the benefits, performance, or efficacy of any financial product or service.

The proposed order imposes a judgment of $28.6 million against Linden Financial Group and requires the company to turn over its financial accounts to the agency.

Back in February, the FTC announced settlements with the other individual and corporate defendants in this case that resulted in orders which ban the defendants from offering mortgage assistance relief services and from participating in the debt relief industry.

A debt collection agency that threatened to have consumers arrested for bouncing checks will pay $50,000 in penalties if a proposed settlement with the Consumer Financial Protection Bureau (CFPB) is approved by a federal district court.

The National Corrective Group used deceptive threats of criminal prosecution and jail time in order to intimidate consumers into paying debts for bounced checks. The company also misled consumers into believing that they must enroll in a costly financial education program to avoid criminal charges.

“National Corrective Group masqueraded as prosecutors and used deceptive tactics to intimidate consumers into paying hundreds of dollars in extra fees to avoid potential criminal prosecution,” said CFPB Director Richard Cordray. “Today we are taking action to put a stop to these illegal debt collection practices.”

The CFPB’s proposed order names National Corrective Group, a privately-held, California-based corporation that operates nationwide and specializes in the collection of consumer debt for bounced checks, and several affiliated companies. Together, these companies operate one of the largest bad check diversion programs in the United States.

The CFPB alleges that National Corrective Group deceived consumers by sending them notices on prosecutors’ letterheads and creating the false impression that consumers may be prosecuted for writing bounced checks. However, the letters went to consumers before any district attorney had determined prosecution was likely.

Consumers were told by the company that to qualify for the diversion program and avoid prosecution they must pay the bounced check debts as well as enroll in the company’s financial education class for an additional fee. The cost of the financial education classes were typically around $200, which was often several times the amount of the alleged bad check debt.

A Texas debt collector faces charges that it used illegal tactics by threatening consumers with false claims of lawsuits and garnishment.

“When it comes to debt collection, people have rights,” said Jessica Rich, Director of the Federal Trade Commission's Bureau of Consumer Protection. “It’s illegal to harass people, or to make false threats about wage garnishment or lawsuits. Unfortunately, these unscrupulous debt collectors systematically lied to the people they called.”

The FTC’s complaint charges Commercial Recovery Systems, Inc. (CRS), its president, Timothy Ford, and its former vice president, David Devany, with violating the FTC Act and the Fair Debt Collection Practices Act by using deceptive methods to collect debts.

CRS has been collecting consumer debts nationwide since 1994. The company collects third-party debt, including credit card and auto loan debt. The company’s representatives contact consumers via telephone and mail.

“The defendants in this case are alleged to have lied to consumers in violation of the law,” said DOJ’s Acting Assistant Attorney General for the Civil Division, Joyce R. Branda. “We will enforce these laws and stop those who would use deception to extract money from American consumers.”

There are people called "debt brokers" who buy and sell portfolios of past-due debts. The purchasers pay pennies on the dollar for the debts and keep whatever they collect.

It's a seamy-sounding business and just to make it a bit seamier, two companies are accused of putting their debt-for-sale portfolios online, posting the sensitive personal information of more than 70,000 consumers on public websites.

The information included consumers’ bank account and credit card numbers, birth dates, contact information, employers’ names, and information about debts the consumers allegedly owed. 

At the request of the Federal Trade Commission, a federal court has now ordered the two debt sellers to notify the consumers whose data they exposed and explain how they can protect themselves against identity theft and other fraud.

No encryption

According to the complaint, the defendants posted their portfolios, in the form of Excel spreadsheets, on the website without encryption, appropriate redaction, or any other protection, meaning any visitor to the website could access and download the spreadsheets, and use the information to exploit consumers.

The website where the information was posted caters to the debt collection industry but was open to public viewing. The FTC alleges that the portfolios have been accessed more than 500 times.

“Debt brokers and collectors who play fast and loose with people’s sensitive personal and financial information are causing tremendous harm,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “Companies must treat sensitive consumer information with appropriate care and security, and the FTC will take action when they fail to do so."

In its complaints, the FTC alleges the disclosures violated the consumers’ privacy, put them at risk of identity theft, and exposed them to “phantom” debt collection, a practice in which unscrupulous debt collectors try to extract payments from consumers when they do not have authority to collect the debts. The FTC noted that the disclosures also publicly branded the consumers as debtors, putting them at risk of other damage, including possible loss of employment or employment opportunities.

The defendants in the two cases include Cornerstone and Company, LLC, of Riverside, Calif., and its owner, Brandon Lambert; and Bayview Solutions, LLC, of St. Petersburg, Fla., and its owner, Aron Tomko.

The FTC’s complaints allege the defendants violated the FTC Act by unfairly exposing consumers’ personal information without their knowledge or consent. The agency is asking the court to stop the defendants from repeating these actions in the future and to require the defendants to provide redress to consumers injured by their actions.

Older Americans are increasingly hamstrung by debt and, as a result, debt collectors, according to a report issued by the Consumer Financial Protection Bureau (CFPB).

The debt collection issues older Americans complain about include collectors hounding them about medical debt, attempting to collect on debts of deceased family members and illegally threatening to garnish federal benefits. 

“It is increasingly common for older Americans to carry debts into their retirement years, and consumers living on fixed incomes often struggle to pay off these debts,” said CFPB Director Richard Cordray. “Older Americans deserve to be treated with the respect they have earned.”

Some older consumers say they are unable to afford debt payments especially when they are retired and live on a small fixed income. They also express concern that the distress of being harassed by a debt collector aggravates existing medical conditions.

The CFPB said it has recently noted that older adults with cognitive impairments are particularly vulnerable to harassment and scams, especially when seniors have memory problems or cannot keep track of finances. 

Medical debt

Older Americans describe being confused and frustrated because collectors attempt to collect medical expenses while the consumer is simultaneously attempting to correct billing mistakes or waiting for providers and insurers to resolve the medical disputes, the report said.

For example, older consumers report frequent and repeated attempts to collect medical bills already covered by insurance. Another common complaint from older consumers is first learning about an overdue bill from checking their credit report.

Deceased family members

Seniors and their survivors also report being hounded about the debts of deceased family members.

Many of the consumers complained that debt collectors continue to call or send collection letters after they have informed debt collectors that they are not personally responsible for the debt, or that there is no money left in the deceased borrower’s estate. 

One consumer reported to ConsumerAffairs recently that a debt collector had first implied that the consumer was responsible for his mother's credit card debt. When told that he was not, the collector then said that the consumer surely wanted to protect his dead mother's credit rating.

Some of the complaints to CFPB describe collection attempts made years after probate is concluded. The closing of probate is the last chance for settlement of debts and other obligations. 

Illegal garnishment threats

Older consumers also report that debt collectors sometimes threaten to garnish Social Security, Supplemental Security Income or Veterans’ benefits, even though these funds ordinarily are not subject to garnishment by collectors.

According to the complaints, these threats cause older consumers significant distress, especially when they rely on federal benefits to pay essential living costs.

What to do

To help older consumers, the CFPB issued an advisory highlighting things they can do to help deal with debt collectors:

Protect federal benefits. Consumers need to know that most federal benefits are protected in debt collection. Also, when a consumer receives federal benefits by direct deposit to a checking account, the bank or credit union is required automatically to protect up to two months of these benefits. If the consumer receives benefits on a government issued prepaid card, they usually are protected too.

Get more information to identify the debt. Older consumers report that collectors often reject or ignore their attempts to correct instances of mistaken identification. Today’s advisory tells consumers how they can obtain more information to identify the debt. It also includes the CFPB sample letter that consumers can use to find out information about the claims being made against them.

Dispute inaccurate debts. Many consumers complain that they often inform collectors that they do not owe the debt, do not recognize it, or believe the amount that debt collectors demand is wrong. The CFPB advisory tells consumers how to dispute the debt. It provides a sample letter to contact the debt collector.

Stop the harassment. Older consumers complain that debt collectors make successive calls using profanity, condescension, indignation, or rage. The advisory includes a sample letter that consumers can send to request that debt collectors cease collection communications.

See the full text of the advisory for more information. 

Collecting a debt is one thing. Collecting a non-existent debt is something else. And according to the Federal Trade Commission, a South Florida debt collection operation has been doing just that -- hounding Spanish-speaking consumers for debts they don't owe. 

A U.S. district court judge in Miami has temporarily shut down Centro Natural Corp. and Sumore LLC pending the FTC's request to permanently put them out of business. 

“These defendants deserve a shameful Triple Crown for fraud. They posed as government officials, used abusive debt collection practices, and ignored the National Do Not Call Registry,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “We’re shining a light on fraud affecting every community, and we’re pleased that this scheme targeting Latinos has been stopped.”

Bogus debts

In its complaint, the FTC charged that the defendants cold-called consumers and threatened them with harsh consequences, such as arrest, legal actions, and immigration status investigations, if they failed to make large payments on bogus debts. The defendants’ telemarketers also pressured and deceived consumers into paying for unwanted products by telling consumers it would “settle” their debt.

According to the FTC’s complaint, since at least 2011, the defendants have held themselves out as court or government officials or lawyers. They demanded that consumers pay them to “settle” phantom debts that typically ranged between $3,000 and $9,000.

The FTC alleges that the defendants often told consumers that they could settle their debts by paying defendants hundreds of dollars. If consumers refused to pay, the defendants often continued to call and threaten them, sometimes using profane language. The defendants also kept calling consumers who asked them not to call again, regularly cold-called consumers whose phone numbers are on the Do Not Call Registry, and failed to pay fees for the Do Not Call Registry.

The complaint charges the defendants with violating the FTC Act, the Fair Debt Collection Practices Act, the FTC’s Telemarketing Sales Rule, and failing to pay for, or abide by, the rules of the Do Not Call Registry.

A federal appeals court has upheld a lower court's decision ordering a bogus mortgage assistance and debt relief scheme to pay $5.7 million in refunds to consumers.

“The court decision announced today is a major win for consumers nationwide,” said Jessica Rich, Director of the Bureau of Consumer Protection at the Federal Trade Commission (FTC). “It affirms that marketers can’t get away with using misleading sales pitches and then burying ‘disclaimers’ in lengthy documents given to consumers later.”

The case grew out of a complaint that the FTC filed in 2012 against E.M.A. Nationwide and several other defendants, alleging that since at least mid-2010 they operated a call center in Montreal that cold-called thousands of U.S. consumers, including those whose numbers were registered on the Do Not Call Registry, pitching programs that would supposedly help them pay, reduce, or restructure their mortgage and other debts.

The U.S. Circuit Court of Appeals for the Sixth Circuit upheld the district court’s conclusion that the defendants’ “initial telephone conversations used to solicit consumers consisted almost entirely of material misrepresentations” that created a deceptive “overall net impression” to induce consumers to incur very high costs for virtually worthless services.

The court rejected the defendants’ argument that the district court needed to conduct additional fact-finding proceedings before determining that those misrepresentations were not offset or “cured” by fine-print disclaimers and clarifications in the contracts and other written materials that consumers received only after agreeing to enroll in the defendants’ programs.

In summarizing its ruling, the appellate court wrote, “A court need not look past the first contact with a consumer to determine the net impression from that contact, and a court may consider individual advertisements or messages to determine the net impression. Defendants cannot make considerable material misrepresentations to consumers and then bury corrections and disclaimers in subsequent communications. . . . Therefore, the district court did not err in granting summary judgment.”

A complete list of the defendants in the case can be found here. 

Defendants based in the U.S. and Canada who deceived consumers through a telemarketing scheme designed to sell them phony mortgage assistance and debt relief programs have been put out of business.

A ruling by the U.S. Circuit Court of Appeals for the Sixth Circuit has issued a decision upholding a district court ruling that permanently bars the defendants from working in the debt relief or mortgage assistance industries, and enters judgment -- jointly and severally -- of $5,706,135.48 to be used for refunds to the injured consumers.

“The court decision,” said Jessica Rich, Director of the Federal Trade Commission's (FTC) Bureau of Consumer Protection, “is a major win for consumers nationwide. It affirms that marketers can’t get away with using misleading sales pitches and then burying ‘disclaimers’ in lengthy documents given to consumers later.”

Cold-call scam

The FTC filed a complaint against E.M.A. Nationwide and several other defendants in 2012, alleging that since at least mid-2010 they operated a call center in Montreal that cold-called thousands of U.S. consumers -- including those whose numbers were registered on the Do Not Call Registry -- pitching programs that would supposedly help them pay, reduce, or restructure their mortgage and other debts.

Based on this conduct, the agency charged the defendants with violating the FTC Act, the Commission’s Telemarketing Sales Rule, and the Mortgage Assistance Relief Services (MARS) Rule, which prohibits mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they deem acceptable.

Lower court had it right

The Court of Appeals upheld the district court’s conclusion that the defendants’ “initial telephone conversations used to solicit consumers consisted almost entirely of material misrepresentations” that created a deceptive “overall net impression” to induce consumers to incur very high costs for virtually worthless services.

The court rejected the defendants’ argument that the district court needed to conduct additional fact-finding proceedings before determining that those misrepresentations were not offset or “cured” by fine-print disclaimers and clarifications in the contracts and other written materials that consumers received only after agreeing to enroll in the defendants’ programs.

In summarizing its ruling, the appellate court wrote, “A court need not look past the first contact with a consumer to determine the net impression from that contact, and a court may consider individual advertisements or messages to determine the net impression. . . . Defendants cannot make considerable material misrepresentations to consumers and then bury corrections and disclaimers in subsequent communications. . . . Therefore, the district court did not err in granting summary judgment.”

Consumers allegedly taken for a ride by a credit counseling/debt management scam run by Andris Pukke and his companies -- AmeriDebt Inc. and DebtWorks, Inc.  -- will soon be getting something in the mail.

The Federal Trade Commission (FTC) is mailing $1,792,759 in refund checks to 60,813 consumers that the agency says were deceived about their fees, believed that AmeriDebt was a non-profit, and were falsely promised they’d be taught how to handle their credit and finances.

Craig of Kemp, Texas, is among those who turned to AmeriDebt for help.

“I was laid off work for a while, and my finances were in trouble, so I contacted AmeriDebt to help me to get them back in order,” he writes in a ConsumerAffairs post. “Within about 3-4 months, I was receiving late charges on all my credit cards, and things weren't getting taken care of in the way I was assured they would be, I tried contacting AmeriDebt on numerous occasions, and I left several messages, but to no avail. My credit was ruined because of all of this.”

The FTC previously returned about $15 million  to AmeriDebt consumers. Those affected in this latest announcement will receive checks for between $12.70 and $725.10. The amount will vary based upon the amount of each consumer’s loss, less the previous refund received.

Those who receive checks from the FTC’s refund administrator should cash them within 60 days of the mailing date. The FTC never requires consumers to pay money or to provide information before refund checks can be cashed.

Consumers with questions should call the refund administrator, Gilardi & Co., LLC, at 1-888-283-7985.

Global Client Solutions, a leading debt-settlement payment processor, has agreed to pay $6 million in consumer relief plus a $1 million penalty for allegedly helping other companies to collect tens of millions of dollars in illegal upfront fees from consumers.

“Global Client Solutions made it possible for debt-settlement companies across the country to charge consumers illegal fees,” said CFPB Director Richard Cordray. “Consumers struggling to pay off a debt are among the most at risk and deserve better. We will continue to crack down on illegal debt-settlement firms and the companies that help these operations collect illegal fees from consumers.”

The Oklahoma-based company is one of the largest payment processors for the debt-settlement industry. Debt-settlement companies generally offer to help consumers reduce or eliminate their credit card or other debt by negotiating settlements with creditors.

In many cases, when consumers enroll in a debt-settlement program, the company instructs them to stop paying their debts and to instead make monthly payments to a payment processor account while the debts are negotiated. The CFPB has found that many consumers who use these services end up paying hundreds or even thousands in unlawful advance fees.

Consumers may also end up without their debts settled and fall even deeper in debt.

Illegal upfront fees

According to the CFPB’s complaint, since October 2010, Global Client Solutions processed tens of millions of dollars in illegal advance fees from tens of thousands of consumers. Global Client Solutions processed these unlawful fees on behalf of hundreds of debt relief companies across the country.

The proposed order bans Global Client Solutions from enabling other companies to collect illegal fees from consumers. The defendants will be subject to monitoring by the CFPB and will be required to make reports to the CFPB to ensure their compliance. The defendants will also pay over $6 million in consumer relief in addition to paying a civil money penalty of $1 million.

Checks totaling approximately $800,000 are in the mail to some 1,305 consumers allegedly scammed in two related mortgage relief schemes.

In one scheme, using the name Precision Law Center, the defendants allegedly made false promises to consumers that if they sued their lenders along with other homeowners in so-called “mass joinder” lawsuits, they could obtain favorable mortgage concessions from their lenders or stop the foreclosure process.

In the other, using names such as FreeFedLoanMod.org, HouseHoldRelief.org, and MyHomeSupport.org, the defendants charged consumers for “forensic loan audits,” and allegedly misrepresented that they could use the results to force lenders to give them better mortgage terms.

The checks being sent out by the Federal Trade Commission, through an administrator, must be cashed on or before October 7, 2014. The amount consumers will receive varies depending on how much they lost.

Consumers with questions may call 1-855-294-0136 or visit www.FTC.gov/refunds.  

It began with a dispute between a Michigan condominium owner and the homeowners' association (HOA) over an unpaid assessment. By the time it reached the U.S. 6th Circuit Court of Appeals, it had become a case that may have significantly strengthened consumers' rights under the Fair Debt Collection Practices Act(FDCPA).

The homeowner, Camille Haddad, and a debt collector, Alexander, Zelmanski, Danner & Fioritto, had sued one another since 2008 over an unpaid HOA assessment – originally $55 – that over the years ballooned to well over $1,000.

Haddad expressed willingness to pay the debt but did not know what it was for, and demanded verification from the debt collector that the debt was real. Haddad cited the FDCPA in making this request, since the law specifically says the debt collector must provide verification of the legitimacy of the debt.

Defining terms

But what constitutes “verification?” Up until now the courts have been a bit hazy on this point, but have leaned toward giving the benefit of the doubt to the debt collector. In 1999, when the 4th Circuit Court of Appeals took up a similar case, it ruled:

“[V]erification of a debt involves nothing more than the debt collector confirming in writing that the amount being demanded is what the creditor is claiming is owed; the debt collector is not required to keep detailed files of the alleged debt.”

In other words, a debt collector could simply take the original creditor's word that the debt was real. If the creditor put in writing that the debt was real, the collector had to provide no other proof.

Hollywood video case

In 2010, when Hollywood Video entered bankruptcy and began liquidation, it turned over thousands of accounts to debt collectors, who began calling former customers demanding payment for late charges. The collector offered no proof the debt was real, other than the fact that Hollywood Video said it was. Most of the customers angrily disputed it.

Though the Hollywood Video case was eventually settled with the intervention of state attorneys general, this interpretation of FDCPA enabled rampant abuses in the debt collection industry.

Debt collectors were able to buy bad debt – debt that had been written off the original creditor's books – for pennies on the dollar. They could then begin aggressive collection efforts without having to prove the debt was real, or wasn't the result of a mistake, such as sloppy bookkeeping.

Turning tide

In its ruling last month, the 6th Circuit Court appears to have put the burden of proof back on the debt collector. In the Haddad case, the collector sent an itemized accounting of the debt but the homeowner disputed a small portion of it for which there was no documentation.

In hindsight, if the collector had agreed to Haddad's demand that the $55 be stricken from the amount owed, the case would likely not have reached the appeals court. Because it did, and the court ruled the way it did, buying old debt and trying to collect it from consumers may be a lot less profitable in the future. 

Crux of the case

The 6th Circuit Court has ruled that the previous definition of “verification” was unfair because Haddad was not given enough information to “sufficiently dispute” the debt and was left with only two options – pay money he didn't think he owed or face a lien on his condo.

“Such verification cannot be enough under the FDCPA, a statute intended to protect consumers,” the justices wrote. “The verification provision must be interpreted to provide the consumer with notice of how and when the debt was originally incurred or other sufficient notice from which the consumer could sufficiently dispute the payment obligation.”

That's the money quote for consumers. That turns the tables in their dealings with debt collectors.

The court notes that this information doesn't have to be extensive. It should provide the date and nature of the transaction that led to the debt, such as a purchase on a particular date, a missed rental payment for a specific month, a fee for a particular service provided at a specified time, or a fine for a particular offense assessed on a certain date.  

A federal judge has brought to a halt the operations of a Buffalo, N.Y.-based debt collection operation that's accused of using lies and threats against consumers in violation of federal and state law.

At the request of the Federal Trade Commission (FTC) and the New York Attorney General’s Office, the court also froze the operation’s assets, and appointed a temporary receiver to take over the defendants’ business pending trial.

The FTC and New York AG, in a joint complaint, allege that the defendants misrepresented that consumers had committed check fraud or another criminal act; falsely threatened to arrest or imprison consumers, sue them, garnish their wages, or put a lien on their property; failed to back up their claims that consumers owed the debt; charged illegal fees; and improperly revealed consumers’ debts to third parties.

The defendants have collected at least $8.7 million dollars in payments since February 2010, for purported debts, according to the complaint.

Consumer harassment charged

“These debt collectors continued to harass consumers and violate the law after the validity of the debt was called into question, and after the New York Attorney General’s office ordered them to stop,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “By working together with our state partners, we can leverage our resources to stop these illegal tactics.”

“All too often, innocent New Yorkers are relentlessly harassed by predatory, abusive debt collectors,” Attorney General Eric T. Schneiderman said. “My office, along with partners like the Federal Trade Commission, will keep fighting to protect hardworking consumers and put a stop to unfair financial bullying once and for all.”

The agencies have charged 3 individuals -- Joseph C. Bella, III, Diane Bella, Luis A. Shaw -- and 9 interrelated companies they control. Going by various names including National Check Registry, the operation began using another name -- eCapital Services, LLC -- to evade detection and continue its illegal behavior after signing an agreement with New York State authorities in October 2013 that prohibited it from violating federal and state debt collection laws, according to the complaint.

Lies and intimidation

Also, according to the complaint, the defendants:

• told one consumer in Washington State that they would have the “Washington County Police” issue a warrant for her arrest, and another serving in the military that they would bring an action against him under the Uniform Code of Military Justice;
• said the only way to avoid arrest, imprisonment, lawsuits, wage garnishments, and seized assets would be to make an immediate payment over the phone;
• continued to accuse consumers of check fraud and other crimes even after they produced evidence showing they didn’t owe the debt in question;
• contacted friends, family members, and co-workers of consumers whom they claimed owed a debt, and in some cases, not only revealed the supposed debt but also said the consumers had committed check fraud, and would be arrested or imprisoned if the debt was not paid;
• added an illegal $8 “processing fee” when consumers made payments on supposed debts over the phone;
• failed to provide consumers with debt collection notices and disclosures that are required under state and federal law, making it difficult for consumers to determine whether they owed the debt, and how they could dispute its validity; and
• continued trying to collect a debt from a consumer who had discharged the debt in bankruptcy.

In addition to Joseph and Diane Bella, Luis A. Shaw, National Check Registry, LLC, and eCapital Services, LLC, the complaint names as defendants Check Systems, LLC, Interchex Systems, LLC, Goldberg Maxwell, LLC, Morgan Jackson, LLC, Mullins & Kane, LLC, Buffalo Staffing, Inc., and American Mutual Holdings, Inc.

The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit in a federal district court against a Georgia-based firm, Frederick J. Hanna & Associates, claiming it is running a debt collection "lawsuit mill" that uses illegal tactics to intimidate consumers into paying debts they may not owe.

The Bureau alleges that the Hanna firm churns out hundreds of thousands of lawsuits that frequently rely on deceptive court filings and faulty or unsubstantiated evidence. The CFPB is seeking compensation for victims, a civil fine, and an injunction against the company and its partners.

“The Hanna firm relies on deception and faulty evidence to drag consumers to court and collect millions,” said CFPB Director Richard Cordray. “We believe they are taking advantage of consumers’ lack of legal expertise to intimidate them into paying debts they may not even owe. Today we are taking action to put a stop to these illegal debt collection practices.”

The Hanna firm focuses exclusively on debt collection litigation, and its three principal partners, Frederick J. Hanna, Joseph Cooling, and Robert Winter, play an active role in the company’s business strategies and practices. The firm performs debt collection activities and typically files lawsuits if those efforts do not lead to collections.

"Like a factory"

The CFPB alleges that the firm operates like a factory, producing hundreds of thousands of debt collection lawsuits against consumers on behalf of its clients, which mainly include banks, debt buyers, and major credit card issuers.

Between 2009 and 2013 the firm filed more than 350,000 debt collection lawsuits in Georgia alone. The CFPB further alleges the defendants collected millions of dollars each year through these lawsuits, often from consumers who may not actually have owed the debts.

The CFPB alleges that the defendants violated the Fair Debt Collection Practices Act (FDCPA). Among other things, the FDCPA prohibits making misrepresentations to consumers, and specifically prohibits misrepresenting to a consumer that a communication is from an attorney. 

As the credit crisis of 2008 recedes further and further into the rear view mirror the effects seem to still be with us.

Unemployment is only now starting to drop and yet remains well above normal levels. It might be higher except that millions of people have simply dropped out of the labor force and are no longer counted in the monthly statistics.

The Federal Reserve is only now “tapering” its massive stimulus program that seems to have saved the banks and pumped up the stock market but done little for Main Street. Historically low interest rates haven't done much since banks aren't lending money.

During the Great Recession more than 8 million people lost their jobs and more than 4 million homes were lost to foreclosure. Conventional wisdom has it that an inflated housing market finally collapsed and resulting foreclosures nearly caused an economic collapse.

Another view

But is that really how it happened? In their book “House of Debt,” authors Amir Sufi of the University of Chicago Booth School of Business and Atif Mian of Princeton University suggest there was another, less complicated cause.

They point out that in the years just before the recession, which started at the end of 2007, Americans doubled their household debt to $14 trillion. They argue the dramatic rise in debt, followed by a huge drop in household spending, were key – and overlooked -- factors leading to the economic crash.

"Excessive household debt leads to foreclosures, causing people to spend less and save more," Sufi said. "Less spending means less demand for goods followed by declines in production and huge job losses. The only way to break that cycle is directly attacking debt."

The record household debt is significant, in that it explains how the economy continued to grow at a rapid pace in the late 1990s and early 2000s. People weren't earning more money, they were borrowing more.

Houses became ATMs

And it wasn't all credit card debt. As home prices skyrocketed homeowners continued to refinance their mortgages, taking out massive amounts of equity that they spent mostly on perishable goods.

It created demand for goods and services in the economy but it just wasn't sustainable. In 2008 rapidly rising gasoline prices surged to record highs by the middle of the year. With consumers tapped out and real estate values starting to slide gasoline prices may have been the straw that broke the camel's back.

The banking crisis? How did that affect the average consumer? It may have played a role, providing the catalyst for massive job cuts, but Sufi and Mian use actual data to argue the policy it created is too heavily biased toward protecting banks and creditors.

Increasing the flow of credit, through rock bottom interest rates they argue, is counterproductive when people and organizations already have too much debt.

Student loan debt

With foreclosures no longer rising, Sufi argues that student debt may now be a bigger concern than housing debt. Students who entered college in 2006 were blissfully unaware that, when they graduated in 2010, they probably wouldn't find a job.

Had they known they might not have run up tens of thousands of dollars in student loan debt.

If the cause of the economic dislocation isn't what we thought it was, it helps to explain why remedial action has been less than successful. Sufi and Mian suggest changing strategy to deal with reality.

How to fix it

Their prescription? For starters, they suggest putting more flexibility into consumer debt contracts. For example, they suggest recent college grads should be protected if they face a dismal job market upon graduation by gearing their loan payments to the job market.

And while it has been pointed out countless times before, the authors make the point again; banks got bailed out but their customers – the people who historically have driven the economy – were left to fend for themselves.

Lender flexibility is key in avoiding future financial meltdowns. Borrowers in bad situations, the authors conclude, require more options, not fewer.

When a consumer fails to pay a debt, the creditor will eventually turn the matter over to a collection agency, which focuses on collecting the money owed. While it isn't very pleasant for the consumer, it's the way the system works, as long as the debt collector follows the rules.

When the collection efforts are unsuccessful, the creditor eventually writes the debt off its books. At that point, a debt collector often steps in and purchases the “bad debt” for pennies on the dollar.

If the debt collector is successful at collecting the full amount for an account it purchased for pennies, it stands to make a lot of money. In fact, the Center For Responsible Lending (CRL) says debt collection company revenue rose 600% between 2003 and 2012.

Nolen, of Marietta, Ga., is just one consumer who has experienced this. In a recent ConsumerAffairs post, he said there was a 5-year old charge on his AT&T bill that he disputed. He never paid it.

“Enhanced Recovery bought the paper February 2014 and immediately reported the charge as a collection, in the process dropping my credit score 100 points,” he wrote. “I learned of this action in March of 2014 after this reported collection had reduced my credit score. Now this company calls me 6 days a week at 8:30 with threats.”

At a disadvantage

If the AT&T charge was, in fact, legitimate then Nolen has few alternatives. AT&T is no longer the creditor, Enhanced Recovery is, since it bought the account and is no longer bound by many of the provisions of the Fair Debt Collection Practices Act.

As buying and collecting old debt becomes a growing practice, CRL says abusive and predatory practices have proliferated, with companies trying to collect debt consumers say they do not owe. One of the most high-profile cases involved defunct video rental chain Hollywood Video.

In 2011 thousands of former customers began getting collection calls for money they insisted they did not owe. The outcry was so loud that various state attorneys general stepped in to resolve the matter.

Unfortunately for consumers not involved in high-profile collection cases, there are few protections when a debt collector has purchased the old debt and has become the creditor. CRL says there should be.

Thin on documentation

In a report CRL cites an FTC analysis that found only 6% of debt accounts purchased by some of the largest debt buyers in 2009 came with any documentation. In other words the debt collectors bought old debt without having any proof that it existed.

CRL says debt buyers and collectors take advantage of financially-distressed consumers and extract billions of dollars in judgments for debts that may not even be owed. In many cases, it says the only information transferred is a name, last known address, and purported amount owed.

However thin the debt information may be, CRL says it’s all that’s necessary to begin collection attempts. Common complaints from consumers include misrepresentation about the amount or legal status of the debt, harassment and excessive contact, obscene or abusive language, and unlawful threats to sue.

Using the justice system

In fact, debt collection cases can quickly escalate. The report shows that more and more debt buyers are going to court, suing consumers for debts owed and obtaining default judgments in their favor when consumers fail to appear in court.

Why wouldn't a consumer show up in court if the facts are on their side? According to CRL, consumers often fail to appear because they never received notice of the lawsuit, can’t afford legal representation, or simply don’t understand the situation.

With a default judgment in hand, a debt collector can then freeze a consumer’s bank account, garnish wages, report the judgment to a credit reporting agency, and pressure a consumer into a payment plan.

At the most extreme, collectors in some states can have consumers arrested for lack of payment or seize personal property to satisfy a default judgment.

Solvable problem

What's CRL's answer? Better oversight at the federal and state levels to make sure that when a debt collector comes calling, it's for a legitimate debt and that they follow the rules.

“We are not suggesting the dismissal of debt,” said Mike Calhoun, president of CRL. “Ensuring that debt is collected when owed is an integral component of the American financial system, and makes access to credit possible. What we’re seeing is a pattern of predatory practices when it comes to some kinds of debt buying and collection – and that’s what is concerning.”

Calhoun says while a creditor has a right to be paid money it is owed, borrowers should have the right to information about their debt and how it’s being handled and collected.

“With prudent oversight at the federal and state levels, there’s no reason why this problem can’t be fixed,” he said.

The owners of a debt collection firm that focused on Hispanics have agreed to pay more than $3.3 million to provide partial refunds to victims of its allegedly illegal practices.

Rincon Debt Management's owners, Jason R. Begley and Wayne W. Lunsford, are also also are permanently banned from the debt collection business under terms of a settlement with the Federal Trade Commission (FTC).

Litigation continues against several companies that Begley and Lunsford used as part of their debt collection scheme. The Corona, California-based operation collected debts nationwide.

The settlement resolves FTC allegations that from April 2009 until October 2011 when a judge shut down the operation at the FTC’s request, Begley and Lunsford deceived and abused Spanish- and English-speaking consumers – making bogus threats that consumers had been sued or could be arrested over debts they often did not owe.

“These debt collectors focused on Spanish-speaking consumers and other people who were strapped for cash, and preyed on them by using abusive collection tactics in violation of federal law,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection.

The FTC said the defendants violated the Fair Debt Collection Practices Act by calling consumers and their employers, family, friends, and neighbors, posing as process servers seeking to deliver legal papers that purportedly related to a lawsuit. In some instances, the defendants threatened that consumers would be arrested if they did not respond to the calls. 

The defendants and their employees also masqueraded as attorneys or employees of a law office – demanding that consumers pay “court costs” and “legal fees” – even though the operation did not file lawsuits against consumers, the FTC alleged.  Also, in many instances, consumers did not even owe the debt the defendants were trying to collect.

Nobody likes debt collectors but it's even more annoying when the debt in question is bogus. Yet, it's a common practice and the Consumer Financial Protection Bureau (CFPB) says it often involves aggressive communication tactics and threats of illegal actions.

The CFPB today issued a report on the more than 30,000 consumer complaints it has received about the debt collection market. 

“Consumers should never be hounded about debts they do not owe,” said CFPB Director Richard Cordray. “We will not tolerate companies harassing consumers or threatening illegal actions in the debt collection market. We will continue to work hard to ensure that consumers are treated with dignity and fairness.”

Debt collection is a multi-billion dollar industry. It is estimated that there are more than 4,500 debt collection firms nationwide. Banks and other original creditors may collect their own debts or hire third-party debt collectors. Original creditors and other debt owners also may sell their debts to debt buyers. Debt buyers may sell the debt, collect the debt themselves, or hire third-party debt collectors to do so.

Consumer complaints

The Bureau began accepting debt collection complaints in July 2013. These complaints quickly became the largest source of complaints each month. The Bureau received 30,300 debt collection complaints between July and December 2013. Companies have already responded to about 82 percent of the complaints the Bureau has sent to them for a response in that time frame. The top three complaints were about:

· Collectors hounding consumers about a debt they do not owe: More than one-third of the complaints the CFPB handled were about a debt collector continually attempting to collect a debt that the consumer does not believe is owed. 

· Aggressive communication tactics: Nearly a quarter of the complaints received by the Bureau were about debt collectors using inappropriate communication tactics. 

· Taking or threatening an illegal action: About 14 percent of consumers report that a company is taking or threatening an illegal action. Most of these complaints are about threats to arrest or jail consumers if they do not pay.

$1,400 each

Approximately 30 million Americans had, on average, $1,400 of debt subject to collection in 2013. The main law that governs the industry and protects consumers is the 1977 Fair Debt Collection Practices Act (FDCPA).

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) revised the FDCPA, making the Bureau the first agency with the power to issue substantive rules under the statute. Today’s annual report to Congress highlights the Bureau’s efforts to carry out the FDCPA.

What to do

The Bureau has issued sample letters consumers can use in dealing with debt collectors. These letters may help consumers obtain valuable information about claims being made against them or may help consumers protect themselves from inappropriate or unwanted collection activities. And the Bureau’s interactive online tool,

The sample letters and more information about debt collection are available at Ask CFPB.

Despite the best of intentions it's easy to go overboard in spending on the holidays. If you have the cash, well, that's fine. But if you loaded up your credit cards to make the season bright, you could be facing a credit hangover come January.

Beverly Harzog, a credit card expert, consumer advocate, and author of the book "Confessions of a Credit Junkie: Everything You Need to Know To Avoid the Mistakes I Made," says the first step is not to panic.

"Stay calm and try to get rid of the debt as soon as possible,” she said.

Easier said than done, right? Harzog has come up with six steps she believes can help cure a post-holiday credit hangover. The first step is to put your credit cards away. All of them.

“People panic and start using their credit cards as a crutch to help them get through their normal monthly expenses,” Harzog said. “I know from experience that once you get into debt you start worrying about cashflow. You need more money to pay your rising credit balance but your cashflow isn't getting any bigger.”

This step is number one for a reason. To start paying off your debt you first have to make sure it doesn't get any bigger.

Balance transfer

The second step is to see if you can move that high-interest balance to a credit card with a 0% rate for a number of months. Right now, consumers with excellent credit will find offers ranging from six months to 18 months.

The plus side? You have a chance to pay a big chunk of your debt at 0% interest during the intro period. The down side? Usually there is one. In this case there is almost always a transaction fee, usually about 3 to 4 percent. That means transferring a $10,000 balance could cost you more than $300. Still, Harzog says, it could be a good move.

“You'll save so much by not having to pay interest for several months that paying the fee is worth it, almost a cost of doing business,” she said.

Request a lower rate

If you don't qualify for a 0% balance transfer card you might still be able to save on interest by simply asking for a lower interest rate. Believe it or not credit card companies sometimes say yes.

“It's not going to work for everyone,” Harzog said. “But if you've been a great cardholder, you've paid all your bills on time, maybe you've been a long time customer, you're going to have a little more leverage.”

The fourth step is creating a plan for paying off the debt. Harzog prefers a method she calls debt-stacking.

“Make a list of cards with the balance and the interest rate,” she said. “Start with the card with the highest interest rate and make the biggest payments on it. That makes sense because you're going to save money by paying off the balance with the highest interest rate.”

Found money

Next, look for money you didn't know you had. This doesn't mean looking for cash in the sofa cushions. It means looking at your monthly spending and tightening your belt.

Review each line item and ask yourself how you can cut expenses. In some cases, you can cut out an expense temporarily, like entertainment, until you’re out of debt.

Expenses that can't be eliminated – like groceries – can be downsized. Cut back on the expensive grocery items you buy unless it’s a special occasion. Another option is to check out the excellent couponing websites that can help you save money on a variety of items.

Finally, if you are feeling overwhelmed by your debt, reach out to a certified credit counselor for help. Look for someone who can help you find ways to address your debt and avoid those who offer up easy answers for a fee. Above all, says Harzog, keep your head up.

“There's no reason to beat yourself up,” she says. We've all been through it.

If you have a spending problem, chances are it peaks this time of year. There are gifts to buy, entertainment functions to attend and even appeals from a wide range of worthwhile charities.

Some people might not even be completely aware of the problem or the reasons for it. To get finances under control, here are five straightforward steps that may get you moving in the right direction:

Face reality

Yes, this sounds overly simplistic but financial counselors say it is impossible to know where your money is going until you actually look at where it's going. In many cases there is a lot of resistance to tracking expenses because confronting reality may bring about a level of discomfort; either you stop spending you can't afford or you fall deeper into the whole.

But there's power in taking this step. The result is a more careful spending pattern that takes less of a toll on the bank account.

Add up your debt

If you don't know how much money you owe you can't put together a rational budget. But adding up all one's debt can be a brutal exercise. Not only must you confront the total amount you owe, you have to measure the interest you are paying on your debt.

However, confronting this information might spur you to positive action, such as applying for a 0% balance transfer credit card. It also focuses your attention on how you could be using that money if you weren't spending it on interest.

Break bad financial habits

We all could benefit from a more careful use of our money but it is easy to fall into seemingly harmless financial bad habits. Be aware of the small expenditures at the grocery store. At the department store do you find you usually make an “impulse buy” while standing in the checkout line? These little expenses add up.

Put a price on convenience

Busy people don't always have time to do things themselves so they pay others to do them. We're not just talking about mowing the lawn or cleaning the house.

How many meals out do you eat in a week? Even take-out or delivery usually ends up costing more than food you buy at the grocery and prepare yourself. In most cases, the food you prepare yourself is a lot healthier too.

Second-guess your spending

It's good to think before you spend but don't forget about it after the fact. It's a good idea to carefully review monthly bill statements to determine if the expense, especially if you went into debt to make it, was really worth it.

This look in the rearview mirror, with the benefit of hindsight, can give a new perspective on the spending you will do in the future.

The National Foundation for Credit Counseling (NFCC), whose members provide free or low-cost financial counseling, recently commissioned a survey of consumers that found 80% admitted their worst decisions in life revolved around finances. That beat out mistakes in romance, on the job and with their health.

“It is good sign that consumers recognize and admit their problem,” said Gail Cunningham, spokesperson for the NFCC. “Financial awareness often provides the motivation to jolt a person into taking action that can change the course of their financial life,” continued Cunningham.

Getting out of debt

Recognizing the problem is a big step but a realistic plan of action is required to turning things around. Excessive spending is usually easier to control than excessive debt – you simply buy less or find a cheaper alternative.

Getting out of debt is harder and requires more discipline. Look out for those pitching easy answers – they almost always turn out badly.

This article from our friends at The Motley Fool provides some additional debt-reduction tips that might get you started.

The “Rachel from Cardholder Services” scam has apparently reached an end.

The final six of 10 defendants have agreed to settle Federal Trade Commission (FTC) charges that they misled consumers with bogus claims that they would lower their credit card interest rates.

The settlement bans Emory L. “Jack” Holley IV, Lisa Miller, and the remaining corporate defendants from telemarketing and marketing debt relief services or assisting others in such conduct, prohibits them from misrepresenting any products or services, and imposes a partially suspended $11.9 million judgment.

False promises

The FTC filed its complaint in the case last fall, alleging that the defendants violated Section 5 of the FTC Act and the agency’s Telemarketing Sales Rule (TSR) by charging illegal up-front fees during telemarketing calls in which they made false promises to reduce the interest rate on consumers’ credit cards and save them thousands of dollars.

The defendants also were charged with making other misrepresentations, such as claiming that consumers who bought their services would be able to pay off their debts much faster as a result of the lowered credit card interest rates and making false claims about their refund policies.

The other four Key One defendants agreed to settle the FTC charges against them in June of this year. They allegedly participated in the scheme by opening merchant and bank accounts in their names for processing consumer payments obtained in connection with the deceptive sales of credit card interest rate-reduction and by providing substantial assistance, such as web pages, mail drops, customer service, and shipping of CDs with general debt and other financial information to consumers.

Permanent bans

Under the settlement Holley, Miller and the companies they control, will be permanently banned from all telemarketing, with extremely limited exceptions to allow them to engage in legitimate business activities. The settlement also bans them from advertising, marketing, promoting, offering for sale, or selling any debt relief-related products or services. Several of the defendants are repeat offenders, and this ban will permanently stop them from preying on consumers in financial distress.

The final order also prohibits the six from making any misrepresentations related to any financial product or service, and requires them to substantiate any claims they make to consumers in the future about the potential benefits or effectiveness of any product or service.

Finally, the order imposes a partially suspended judgment of $11.9 million jointly against the corporate and individual defendants. The defendants' assets, currently being held in receivership, will be paid to the Commission.

People drowning in debt often turn to debt settlement companies without realizing where that road leads. In most cases it leads to a barrage of debt collection calls and a cratering credit score.

Credit counselors take a different approach. Instead of trying to help consumers walk away from legitimate debts, they try to help them manage their money so they can pay their debts and actually save money.

Where debt settlement firms usually charge big fees, credit counselors who belong to the National Foundation for Credit Counseling (NFCC) charge small fees. Still, it's sometimes hard to convince debt-ridden consumers to reach out for help.

“People may unnecessarily shy away from the very concept of credit counseling but I want people to hear loud and clear they are not alone,” said Gail Cunningham, an NFCC vice-president. “The NFCC member agencies help over two million people each year, so people can know that if they are experiencing a financial hardship, there are plenty of people walking in those shoes.”

Face-to-face counseling

Cunningham said their member credit counselors, who must be certified and ethical, operate from 650 locations across the country so it's easy for people seeking help and advice to talk to a real person, face to face. Counselors are also available by phone and online.

No one, says Cunningham, should feel embarrassed to seek help.

“Guess what, each of those financial professionals sees about five people just like you every day,” she said. “It's highly likely that they've heard it all and your situation is not going to be at all shocking to them.”

The credit counseling process is fairly straightforward. A counselor starts by trying to understand a client's short-term and long-term goals. A short-term goal, for example, might be to head off an impending home foreclosure. Together, the counselor and client look for ways to achieve that.

First steps

They will also look at a client's day-to-day living expenses, reviewing pay stubs, monthly credit card statements, any collection letters, and then work up a monthly budget tailored to a client's needs. Everyone in the household, including children, needs to be on board and be committed to the financial objectives.

Cunningham says credit counselors often meet resistance at the point where clients start to draw up a budget. There's resistance because a budget is viewed as restrictive. Well, it is. That's the point.

“We all work hard for our money but then we spend it very frivolously,” Cunningham said. “So I just want to suggest to people that they can do anything for 30 days. I'd like the whole family to just track spending for 30 days. See where you're spending the most. If you're ordering pizza four times a week, see if you can live with twice a week. From there you can come up with a spending plan that is workable and that everyone can agree with.”

Save or pay off debt?

If you talk to most people struggling with debt you will quickly find that they badly want to start saving money but can't envision how they can. They also feel they should pay down debt before they start saving. Should they?

“Frankly, you need both,” Cunningham said. “It's not a matter of if that unplanned emergency is going to rear its ugly head, it's when – and it's going to rear its ugly head at just the wrong time. When people tell me they can't afford to save, I tell them they can't afford not to.”

But how do you save money when you are living paycheck to paycheck? You have to start somewhere. Cunningham suggests you start with your budget, looking at your dozen or so discretionary spending categories.

“I'm going to suggest that you can painlessly shave $10 dollars a month off each of those discretionary spending categories and never miss it,” she said. “Would you really miss $10 off your monthly grocery budget? You could probably save $10 on each of your utility bills. At the end of the month you've got an extra $100 or $150.”

Choose carefully

If you decide to reach out to a credit counselor, make sure you are dealing with a reputable person or company. Some debt settlement firms try to blur the lines between what they offer and a true credit counselor. These tips from USA.gov may help you make a good choice: 

• Ask family members and friends if they can recommend an agency. It's best to pick one that has been around for several years and has a well-established reputation.
• Use credit agencies or credit counseling services referred by credit unions, banks, universities or military bases.
• Choose a credit agency that's been approved by the Federal Government

You can also check out state and local consumer agencies to find out if a credit agency has complaints.

A leading debt-settlement payment processor is being sanctioned for allegedly helping others to collect millions of dollars in illegal upfront fees from consumers. The Consumer Financial Protection Bureau (CFPB) has asked a federal district court to approve a consent order that would require Meracord LLC and its CEO and owner, Linda Remsberg, to halt all illegal activities and to pay a $1.376 million civil penalty.

“We are taking action against Meracord, a company that made it possible for debt-settlement companies across the country to charge consumers illegal fees,” said CFPB Director Richard Cordray. “By taking a stand against those who facilitate illegal activity, we can root out harmful behavior across the debt-settlement industry and better protect consumers.”

Debt-settlement companies generally offer to help consumers reduce or eliminate their credit card or other debt by negotiating settlements with creditors. In many cases, when consumers enroll in a debt-settlement program, the company instructs them to stop paying their debts and to instead make monthly payments to a payment processor, such as Meracord, while the debts are negotiated. Washington state-based Meracord has been one of the largest payment processors for the debt-settlement industry.

Upfront fees charged

The CFPB charges that Meracord and Remsberg violated the Telemarketing Sales Rule by helping debt-settlement companies charge consumers upfront fees. The rule prohibits debt-settlement companies from charging consumers such fees before settling any of their debts. It's designed to protect consumers from the risk of spending money on services that may not materialize and then ultimately being left even deeper in debt.

According to the complaint, Meracord processed thousands of these illegal advance fees since October 2010. In total, the CFPB believes that Meracord helped debt-settlement companies charge millions of dollars in unlawful fees to more than 11,000 consumers in multiple states. Nearly 5,000 of those consumers’ accounts were closed without any of their debts being settled.

Prohibitions and penalties

The proposed order, which the defendants have agreed to, would bar Meracord and Remsberg from processing payments for debt-settlement companies and for members of the related mortgage-settlement industry. They would be subject to monitoring by the CFPB and would be required to make reports to the CFPB to ensure their compliance, and would also have to pay a civil money penalty of $1.376 million.

This action is part of the CFPB’s comprehensive effort to prevent consumer harm in the debt-settlement industry. In the lead up to this case, the bureau has been pursuing actions against several debt-settlement providers that charged consumers illegal advance fees with Meracord’s assistance.

The bureau obtained judgments against two of these companies -- Payday Loan Debt Solution, Inc. and American Debt Settlement Solutions, Inc. It also filed a complaint against four others – Mission Settlement Agency, the Law Office of Michael Levitis, Premier Consulting Group, LLC, and the Law Office of Michael Lupolover.

In the first Federal Trade Commission (FTC) case of its kind, a Glendale, California-based debt collector will pay $1 million to settle charges of using text messaging to attempt to collect debts in an unlawful manner.

According to the FTC, Archie Donovan and two companies he controls -- National Attorney Collection Services, Inc., and National Attorney Services LLC -- used English- and Spanish-language text messages and phone calls in which they unlawfully failed to disclose that they were debt collectors. They're charged with violating both the Fair Debt Collection Practices Act and the FTC Act.

Unlawful disclosure

In their text messages, phone calls and mailings, the defendants also falsely portrayed themselves as law firms -- by using the names National Attorney Services, National Attorney Service, National Attorney, and Abogados Nacionales. Building on their deceptive company name, the defendants falsely threatened to sue consumers for not paying their debts or to garnish their wages.

The FTC also contends Donovan and his companies illegally revealed debts to the consumers’ family members, friends and co-workers. Among other tactics, the defendants used mailing envelopes picturing a large arm shaking money from a consumer who is strung upside down.

The law does not allow debt collectors to disclose publicly someone’s private debts, because doing so could endanger their jobs and reputations. Mailing envelopes can include only the name and address of the company, and cannot indicate that the consumer may owe a debt.

“No matter how debt collectors communicate with consumers -- by mail, by phone, by text or some other way -- they have to follow the law,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “The FTC has a zero tolerance policy for deception.”

In addition to the $1 million civil penalty, the settlement requires the defendants to stop sending text messages that do not include the disclosures required by law, and to obtain a consumer’s express consent before contacting them by text message.

The defendants also are barred from falsely claiming to be law firms, and from falsely threatening to sue or take any action – such as seizure of property or garnishment – that they do not actually intend to take.

Innovative Wealth Builders, Inc., (IWB) and its three Florida-based principals -- Carly Janene Pelland (also known as Carly Zurita), Sheryl Leigh Lopez, and Tamara Dawn Johnson -- have run into a Florida buzz saw.

A federal court judge in Florida has approved and signed a stipulated order that pretty much puts them out of business. The order prohibits the settling defendants from making any material misrepresentations in connection with advertising, marketing, promotion, offering for sale, or sale of any financial related product or service. It also includes a $9.9 million judgment against the defendants.

The order came as a result of the defendants agreeing to settle Federal Trade Commission (FTC) allegations that they falsely promised to substantially reduce consumers’ credit card interest rates and save them thousands of dollars on their credit card debts.

Massive misrepresentations

According to the FTC’s complaint, IWB and its three principals violated the FTC Act by misrepresenting credit card interest rate reduction services and refund policies, and billing consumers without authorization.

The complaint also contends the defendants violated the FTC’s Telemarketing Sales Rule by misrepresenting the debt relief services they were selling, charging a fee before providing these services, and billing consumers without their express informed consent.

The FTC will continue to move forward with litigation against Independant Resources Network Corp. (IRN), the payment processor that allegedly assisted and facilitated the scam. In June, the FTC amended its original complaint to name IRN as a defendant in the case.

Brett Fisher probably wishes the Federal Trade Commission didn't exist. Back in 2010, the agency imposed a $17.2 million judgment against him in a case involving advance-fee credit cards. Fisher got out of that one with a payment of $21,000, which was all he was able to scrape together.

This time around, the FTC has imposed a $25.3 million judgment against Fisher in a case involving two Tampa, Fla., operations that allegedly bilked consumers out of millions of dollars before being shut down by a federal court last year.

According to the FTC, the defendants used phony debt collection calls from India and bogus claims that they would reduce consumers’ credit card interest rates to bilk consumers. Fisher masterminded both schemes, the FTC alleged.

Besides the $25.3 million judgment against Fisher, other defendants are required to surrender their assets to satisfy their monetary judgments. 

Defendants Pro Credit Group, LLC, Consumer Credit Group, LLC, and My Success Track, LLC, are not parties to these settlements, are not currently represented, and are facing default judgments, the FTC said.

Debt collection scheme

The FTC alleged that between January 2010 and August 2011, Fisher and other defendants set up U.S.-based financial accounts for a call center operation based in India to unfairly collect payday loan debts from consumers who either did not owe them, or owed them to somebody else. 

The callers used threats, lies, and abusive tactics to collect debts from consumers who had previously applied for or received loans from online payday loan companies and had supplied sensitive personal financial information that later found its way into the hands of those involved with the scam.

Once consumers agreed to pay, Fisher used Sanders Legal Group, P.A. to process at least $5 million from consumers whom the India-based callers had misled. Although numerous consumers complained to the local Better Business Bureau chapter about the abusive tactics of the callers, and many consumers tried unsuccessfully to get refunds, the defendants continued processing consumers’ payments.

"Lower interest"

In the credit management case, the FTC said Fisher, several other individuals and five companies they controlled – Pro Credit Group, Sanders Law, Consumer Credit Group, LLC, My Success Track, LLC, and First Financial Asset Services, Inc. – deceived consumers by offering a bogus service to negotiate lower interest rates. 

As part of their scheme, the defendants allegedly used prerecorded telemarketing robocalls, including one from “Rachel” at “cardholder services” that urged consumers to press a number and speak to a live representative in order to obtain lower interest rates. 

Nancy of Paola, Kans., got several of those calls. "I'm continually getting automated calls from Consumer Credit threatening me, to call them back," she said in a posting to ConsumerAffairs.

According to the complaint, defendants’ telemarketers falsely represented that they had established relationships with consumers’ lenders and often assured consumers that, if they did not see the promised results, they would receive full refunds.

According to the FTC, the defendants violated the Telemarketing Sales Rule by allegedly charging consumers between $695 and $995 up front for their bogus service and failing to obtain written approval from consumers before sending them robocalls. 

That's apparently what happened to Randy of Leesville, S.C., who posted to ConsumerAffairs about his experience with Consumer Credit Group last year.

"I was contacted and was charged on my credit card without any response and the phone number is no longer in service. I was told they could not help me refund my money. I have tried to contact them with no way to get my refund," Randy said.

Charging illegal upfront fees and deceiving consumers are among the charges facing Morgan Drexen, Inc., in a lawsuit filed by the Consumer Financial Protection Bureau (CFPB).

The agency accuses the Nevada corporation of falsely claiming that it does not charge consumers upfront fees for debt-relief services and falsely representing to consumers that they will become debt free in months if they work with Morgan Drexen.

“This company took advantage of people who were struggling,” said CFPB Director Richard Cordray. “The company charged consumers illegal fees and deceived them about the services provided. We will hold them accountable for these actions.”

Morgan Drexen is a nationwide debt-settlement company that was founded by its its president and chief executive officer, Walter Ledda, in 2007. Ledda, who is also named in the suit, maintains a 93% stake in the company and plays an active role in the company’s business strategies and practices.

Rules violations alleged

The CFPB contends the defendants have violated the Telemarketing Sales Rule (TSR) and the Dodd-Frank Wall Street Reform and Consumer Protection Act. The TSR prohibits deception in telemarketing and generally bars debt-relief providers from charging a fee for any debt-relief service until it has actually settled, reduced, or otherwise altered the terms of at least one of the consumer’s debts. Dodd-Frank prohibits deceptive acts or practices in the consumer financial marketplace.

When consumers sign up for Morgan Drexen’s services, the company presents them with two contracts -- one for debt-settlement services, and the other for bankruptcy-related services. Based on its investigation, however, CFPB believes that little to no bankruptcy work is actually performed for consumers, who are are nevertheless charged fees.

According to the bureau, the bankruptcy-related contract is a ruse designed to disguise the illegal upfront fees the company is charging for debt-relief services as bankruptcy-related fees. The investigation has revealed that, since October 2010, more than 22,000 Morgan Drexen consumers have enrolled in this program and have been charged millions of dollars in upfront fees for debt-relief services.

Misleading claims

The CFPB also claims Morgan Drexen has violated both the Dodd-Frank Act and the TSR by making the following false and misleading claims in its advertisements:

• No upfront fees: The company claims consumers will not pay upfront fees for debt-relief services, when, in reality, they typically pay hundreds, if not thousands, of dollars in upfront fees.
• Debt free in months: Morgan Drexen says consumers will be “debt free in months” when, in fact, only a tiny fraction of consumers who work with the company ever become debt free.

Through the lawsuit, the CFPB seeks to stop the unlawful practices of Morgan Drexen and Ledda. The bureau has asked the court to impose penalties on the company and Ledda for their conduct and require that restitution be paid to consumers who have been harmed.

A telemarketer who allegedly defrauded consumers with false promises of debt relief and charged them without their consent is banned from selling debt relief services, telemarketing and making robocalls.

The settlement with the Federal Trade Commission (FTC) resolves a complaint that was filed last year against Jeremy R. Nelson and four companies he controlled. The FTC contended that the companies violated federal law by making false claims, causing unauthorized debits from consumers’ bank accounts and illegally charging advance fees.

The agency also alleged that the defendants called phone numbers on the National Do Not Call Registry, called consumers who had told them not to call, failed to transmit caller identification to consumers’ caller ID service, delivered recorded messages without prior written consent, repeatedly called consumers to annoy them, and delivered recorded messages that failed to identify the seller, the call’s purpose, and the product or service.

Settlement terms

In addition to the ban on debt relief sales, telemarketing and robocalls, the proposed settlement order permanently prohibits the defendants from misrepresenting material facts about any products and services, making unsubstantiated claims, charging consumers’ accounts without their express informed consent. It also bars the companies from collecting money from customers who agreed to purchase debt relief products or services from the defendants, selling or otherwise benefiting from consumers’ personal information and failing to properly dispose of customer information.

The order imposes a judgment of more than $4.6 million,which will be suspended, based on Nelson's inability to pay, after he surrenders to the FTC bank accounts and investment assets frozen by the court.

However, the full judgment will become due immediately if he is found to have misrepresented his financial condition.

The Consumer Financial Protection Bureau (CFPB) is putting debt collection companies on notice that they will be held accountable for unlawful conduct.

The CFPB also announced that it is now accepting debt collection complaints and is publishing action letters for consumers to consider using in corresponding with debt collectors.

“These bulletins make clear that it doesn’t matter who is collecting the debt—unfair, deceptive, or abusive practices are illegal,” said CFPB Director Richard Cordray at a field hearing in Portland, Maine. “Consumers need options to help them secure fair and respectful treatment from those debt collectors that fail to abide by the law. They can protect themselves by using our action letters to communicate with debt collectors and by submitting a complaint to us if they believe they are harmed by illegal conduct.”

Action letters

The sample action letters are for use by consumers when corresponding with debt collectors. They're intended to help consumers obtain valuable information about claims being made against them and may help consumers protect themselves.

The letters address situations when the consumer:

• is seeking more information on the debt;
• is disputing the debt;
• wants to restrict how the debt collector can contact them;
• has hired a lawyer to handle the case; and 
• wants the collector to stop all contact.

More information is available on the CFPB website. 

The CFPB is also releasing a second bulletin today that warns companies about statements they make about how paying a debt will affect a consumer’s credit score, credit report, or creditworthiness.

The Bureau is concerned that some of these statements – like telling consumers that paying a debt would improve their credit score – may be deceptive. The bulletin highlights examples of potentially deceptive claims debt collectors may be making to consumers about their credit reports and credit scores. The complete bulletin is available online. 

The world’s largest debt collection agench, Expert Global Solutions, has agreed to stop harassing consumers and will pay a $3.2 million civil penalty, the largest ever obtained by the Federal Trade Commission against a third-party debt collector.

In its complaint, the FTC charged that the Expert Global and its subsidiaries used illegal tactics such as calling consumers multiple times per day, calling even after being asked to stop, calling early in the morning or late at night, calling consumers’ workplaces despite knowing that the employers prohibited such calls, and leaving phone messages that disclosed the debtor’s name, and the existence of the debt, to third parties. 

According to the FTC’s complaint, the companies also continued collection efforts without verifying the debt, even after consumers said they did not owe it, a violation of the Fair Debt Collection Practices Act.

Helen of Bisbee, AZ, recently wrote to ConsumerAffairs about her experience with NCO.

"I do not owe any money and have no debts. This company uses an automated phone system to call me at least once a day, sometimes twice, to request from me a return call," she said. "I attempted once to do this -- to request they stop calling or an option to contact me in writing only. I only got an automated system. So I did not get anywhere." 

With more than 32,000 employees and revenues in 2011 of more than $1.2 billion, the Texas-based Expert Global Solutions and its subsidiaries – ALW Sourcing, LLC; NCO Financial Systems, Inc.; and Transworld Systems, Inc., which also does business as North Shore Agency, Inc. – collectively are the largest debt collector in the world.  In addition to their U.S. offices, the companies operate in Canada, Barbados, India, the Philippines, and Panama.

Must verify the debt

Under the proposed settlement, whenever a consumer disputes the validity or the amount of the debt, the defendants must either close the account and end collection efforts, or suspend collection until they have conducted a reasonable investigation and verified that their information about the debt is accurate and complete.  

Juan of China, CA, is one of many consumers who've complained about  NCO refusing to verify the amount of the alleged debt. Jua said he received a bill for $389.76 but had no clue what it was for.

"They proceeded to [say] you do owe this money with an angry tone and that it was from a hospital bill. I mentioned to them I received one bill only from the hospital and never an additional one. They argumentatively wanted me to accept these charges," Juan said.

"I never did receive a bill for any other charges. I had received one and has been paid for. I have proof of a zero dollar balance. They push it to the limit where I asked to speak to a supervisor and they didn't have anyone to which to speak to only other sales rep. I had also called the hospital asking if I had ever sent any bill to collection. I received a no from the accounts payable personnel named Julie."

The proposed FTC order also restricts situations in which the defendants can leave voicemails that disclose the alleged debtor’s name and the fact that he or she may owe a debt. 

If you are struggling to pay a debt you may find a debt collector is calling you regularly, seeking to speed up payment. This is never pleasant and, in some cases, can be illegal, depending upon how it is done.

A number of ConsumerAffairs readers have cited General Revenue Corporation (GRC), a collection firm used by companies making student loans, as being particularly nasty. But nasty doesn't always translate into illegal.

The Fair Debt Collection Practices Act (FDCPA), enforced by the Federal Trade Commission (FTC), is the law that governs debt collection. Consumers who owe debts should get familiar with it so they can better understand their rights and responsibilities. Let's look at some recent complaints and see how they fit with the letter and spirit of the law.

Tara, of Atlanta, Ga., said she owed money to the Georgia Higher Education Assistance Corp. She reports that a conversation with a GRC agent escalated into what she took to be an ominous threat.

Employer contact

"She then threatened to seek out my employer, as if I am not trying to cooperate with my debt voluntarily," Tara wrote in a ConsumerAffairs post.

Did this cross the line? You could certainly argue that a threat meant to intimidate the debtor violates the spirit of the law but Tara really had nothing to fear. The FDCPA allows a debt collector to contact an employer, but only to verify someone's employment or to obtain their contact information. Under the law, the collector is not allowed to tell an employer they are a debt collector or that the person they are seeking owes a debt.

Carmen, of Southfield, Mich., said she received a bill for an incorrect amount. The bill was for $4,467.61 and Carmen says she actually owed $337.61 -- a big difference.

"Today, I received another bill from them attempting to collect $4,467.61," Carmen writes. "Included is updated ledger from the school indicating I actually owe $337.61. They are still attempting to collect $3,100.00 more than I actually owe. Of course, they chose to be rude before they would acknowledge their error."

Rudeness is unpleasant but no crime

The dispute could well have been the result of sloppy bookkeeping but it sounds like Carmen was able to resolve the contentious situation with documentation. It was no doubt an unpleasant experience but rudeness, on its own, does not violate the law.

D, of Lansing, Kan., writes to say that a GRC agent called looking for her son, who owed money for a student loan.

"He demanded that I contact our son who had listed us as a reference," D wrote. "He used threatening tones and was extremely abusive--absolutely no tact. I tried to explain I had no recent contact with him, and after verbally abusing and interrupting me, he hung up."

Limits on family contact

The law allows a debt collector to call a family member about a relative's debt, but only once and only to learn how to contact the debtor. D believes she was subjected to "threatening tones" and "verbal abuse," but often that can be a matter of interpretation. Here's what the law has to say about that:

A debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.

Specifically, the law defines unlawful behavior as threats to inflict physical violence, the use of obscene language, publication of a debtor's name or calling repeatedly with the intention to harass or annoy.

It can be assumed that reputable debt collection firms know the law and train their collectors about where the boundaries are. But it is also a safe assumption that debt collection companies hire tough, hard-nosed agents who go right up to the legal line in their efforts to collect and sometimes cross it. The advantage they often have is they know the law. So should you.

What to do

If you are receiving calls from debt collectors, you should read and understand the FDCPA. You'll find it here. If you have any questions about your rights under the law, check with your state attorney general's office for advice.

In your dealings with a debt collector, keep your cool and remain professional. If you cite certain instances of your rights under the FDCPA you will serve notice on the debt collector that you are an informed consumer. If you show you can't be intimidated, you might even find you are treated with a bit more respect. 

The defendants in a debt collection operation have agreed to settle Federal Trade Commission (FTC) charges that they allegedly misled consumers into paying unnecessary fees and falsely threatened consumers with lawsuits.

In its complaint, the FTC claims that the defendants -- a debt buyer and a debt collection law firm, both based in Mississippi -- violated the FTC Act and the Fair Debt Collection Practices Act by deceptively charging consumers a fee for payments authorized by telephone.

The commission says consumers were led to believe that the fee was unavoidable when, in fact, those who paid by mail or online did not incur the fee. The FTC also contends that the companies violated the laws by falsely threatening to sue consumers as a means of getting them to pay. A debt collector is prohibited by law from using false, deceptive, or misleading representations or tactics when collecting a debt.

Settlement terms

Under the terms of the proposed settlement, the defendants will pay $799,958 in restitution for consumers. They also are barred from making any misrepresentations when collecting a debt, including false claims that consumers must pay an extra fee when making payments on a debt or that they will be sued for not paying a debt.

According to the complaint, debt buyer Security Credit Services, LLC, and Jacob Law Group, PLLC have worked together since 2006 to collect debts nationwide. Security Credit buys consumer debt accounts, and contracts with Jacob Law to collect on them.

The complaint alleges that Law called and pressured consumers to immediately make payments on their debts by authorizing electronic checks or credit or debit card payments over the phone. In addition, Law allegedly told consumers they were required to pay an additional fee of $18.95 for this service, but routinely failed to mention that they could avoid the fee by mailing the payment or paying online. Since 2008, the defendants have collected at least $799,958 in fees from consumers.

The FTC also says Jacob Law Group implied that it would file lawsuits to collect the debts even when it did not intend to do so.

What to do

Got a problem with debt and bill collectors? You have some rights and there are things you can do to protect yourself. Find out more here.

There are lots of resources that say they can help consumers manage or get out of debt. But there are very few that try to help consumers avoid too much debt in the first place.

Many consumers, especially young adults, begin accumulating debt before they really have an understanding of what it is and how it works. Before they know it, they're having trouble making ends meet.

In short, debt is a financial instrument that allows you to live above your means. You borrow the money to make a purchase that, if you had to pay for it all at once, you couldn't afford.

A good example is a house. Most consumers can't come up with $100,000 or more to purchase a home. To buy a home, most people get a mortgage, which is a loan with a term of as long as 30 years.

In most cases, mortgage debt is okay

Even though this is the largest debt most consumers will ever take on, it can be the most benign -- although it wasn't for people who purchased at the height of the housing bubble. But if the monthly mortgage payment is comparable to what the consumer would be paying in rent for a place to live, the debt becomes manageable.

That's the key -- being able to manage your debt. And this is where so many people go wrong. They run up high-interest credit card bills on multiple cards, take on a couple of new car payments and end up borrowing more money to make payments on old debt.

Before the economy crashed in the Great Recession, consumers were using debt to keep the economy growing. When credit sharply tightened in late 2008, consumers and the economy suffered.

Household debt is down

Since then, many consumers have worked hard to pay down debt. According to the U.S. Census Bureau, the percentage of U.S. households holding some form of debt declined from 74 percent to 69 percent between 2000 and 2011.

That's the good news. The bad news is the people who still have debt have more of it. The median amount of household debt increased over this period from $50,971 to $70,000 in 2011 constant dollars.

While the stereotype is young consumers running up credit card debt, the report shows it's older consumers who have experienced the largest percentage increase in debt.

"Those 65 and over became more likely to hold debt against their homes, and their median housing debt increased, as well, which explains a significant portion of the increase in their overall debt between 2000 and 2011," said Census Bureau economist Marina Vornovytskyy.

This is not to suggest you should avoid debt altogether, although some people definitely hold to that view. Rather, the question is how much debt is manageable?

Debt-to-income ratio

For a clue, let's look at it from a lender's perspective. When you apply for a mortgage, the lender will measure your debt and obligations and arrive at your debt-to-income ratio.

This is the percentage of your monthly gross, pre-tax income that is used to pay your monthly debts. It's a combination of two number. The first is the percentage of your income that will be used to pay your mortgage. The second number adds in other debt -- car payments, credit cards, installment and student loans.

The mortgage industry wants that second number to be no more than 38, meaning the borrower's combined debt payments each month, including mortgage, should take up no more than 38 percent of their gross, pre-tax income.

Chances are, most consumers have no idea what that number is so it is easy to get over-extended. Credit card debt is especially hard to manage because the interest rates are high and the minimum payment required isn't usually enough to make much headway on paying it off.

Pay credit card balances in full

That's why consumers who are just starting out should avoid allowing credit card balances to accumulate. Do not purchase something with a credit card that you cannot pay for, in full, at the end of the month. In some cases a major purchase, like a new refrigerator, could be carried for a short time. Just make sure you have a plan in place to pay it in full within a short period of time.

But when you charge restaurant meals, for example, make sure you pay for those, in full, at the end of the month. A meal at your favorite restaurant, running up interest charges of 21% each month, will turn out to be very expensive.

Avoiding too much debt requires a household budget. Make a list of monthly expenses, divided between "needs" and "wants." Making these hard choices can help you avoid getting into debt in the first place.

A federal court has shut down a Houston debt collector accused of using insults, lies, and phony threats to collect on payday loans.

In one case, the company -- Goldman Schwartz -- told a Virginia woman that she would be arrested and jailed for three years, and would lose her disability payments if she did not pay a $980 debt.

The court also froze the operation's assets, banned the defendants from engaging in debt collection, and appointed a receiver to take control of the business while the FTC moves forward with the case.

The firm's debt collectors also allegedly told some consumers their minor children would be taken into government custody; disclosed debts to family members and military superiors; falsely claimed to work hand-in-hand with local sheriff’s offices; and collected bogus late fees and attorneys’ fees, the Federal Trade Commission (FTC) charged.

Goldman Schwartz did business nationwide collecting debts for numerous payday loan companies, including Ace Cash Express, Advance America, Allied Cash Advance, Checkmate, First Cash Advance, and MoneyMart.

The complaint charges the defendants with multiple violations of the FTC Act and the Fair Debt Collection Practices Act, including:

• falsely representing that Goldman Schwartz is a law firm and owner Gerald Wright is an attorney named Barry Schwartz.
• falsely claiming that consumers have committed crimes by not paying their debts, will be arrested or jailed, and will lose custody of their minor children.
• falsely claiming to be affiliated with or work in conjunction with law enforcement agencies.
• harassing and abusing consumers by using obscene or profane language, calling repeatedly or continuously, and calling late in the evening or early in the morning.
• adding unauthorized late fees and attorney’s fees to the amount consumers owe on their debts, and
• failing to inform consumers of their rights to dispute the debts, have the debts verified, and obtain the names of the original creditors.

Millions of consumers would like to get out from under their crushing credit card debt but don't know where to start. It just might start with having the right credit card.

For example, if your debt is on a card with a very high interest rate, it will take a long time to pay off the balance. But if you can transfer that balance to a card with a lower rate, it's a little easier. If you can transfer to a card with zero percent interest for a limited time, all the better.

Zero percent interest? Do such cards exist? Yes they do, says Odysseas Papadimitriou, a former executive at Capital One and the founder and CEO of credit card comparison website CardHub.com.

No brainer

“The zero percent interest rate offers are not getting any better, but they're much better than they have been in the last few years,” Papadimitriou said. “Taking advantage of these offers is a no brainer, since every penny of your payment goes toward paying down your credit card debt.”

So, off the bat having the right credit card can help you pay down debt quicker, but how do you find out exactly which card is best? A credit card calculator can help. The calculator at CardHub is helpful because there's an added dimension.

When you enter your data -- the amount of debt, the interest rate and the length of time you want for the payoff -- it matches you up with the current credit card offer that will best help you reach that goal.

Using the calculator, we entered a debt amount of $6,700 at 14 percent and said we wanted to pay it off in 24 months. The calculator showed we could reach that goal by paying $322 a month. The calculator also shows that if we transferred the balance to the Slate from Chase card, we could pay it off two months earlier and save $950.

That particular card has a zero percent interest rate for 15 months and no transfer fee. Its regular rate is between 11.99 and 21.99 percent. The key factor, however is that for the first 15 months 100 percent of your payment is going to pay down the balance.

You need a good credit score

Not everyone can qualify for the card, however, because it takes a credit score of 700 or better. But that's no reason not to apply. In fact, chances are 50-50 that your credit is good enough.

“The misconception that exists here is a lot of people think, when they hear 'excellent credit,' that it doesn't include them,” Papadimitriou said. “But we have data that shows more than 50 percent of consumers have what is considered excellent credit.”

Once you've transferred your balance to a low or no interest card, you'll need at least two other credit cards. One for everyday purchases that you will pay off at the end of every billing cycle and one for an emergency purchase, which might require up to six months to pay off.

The last thing you want to do, Papadimitriou says, is mix new purchases with the balance you are paying off.

“When you do not pay a credit card in full every month you do not have a grace period,” he said. “When you don't have a grace period you pay interest on the purchase from the day you make the purchase. And that interest compounds daily.”

Paid in full

The card with everyday expenses – like gas and groceries – should be paid in full every month. If you find you are unable to pay the full amount each month, it's a sign you're living above your means and adjustments are in order.

Papadimitriou calls this method of segregating expenses on different cards the “island approach.” It should be part of your plan for getting out of debt. Trying to pay off debt without devising a plan to do so, he says, is very hard to do.

Finally, budgeting is key. Paying down debt takes a bite out of your monthly expenses so it is very important to account for every dollar and eliminate luxuries for a while.

“If everything in your life looks like a necessity and you cannot identify anything as being a luxury, then you know that there is an issue there,” Papadimitriou said.

Debt settlement

Paying down debt is doable but rarely easy and consumers should be leery of anyone who says it is. So a final word here about so-called debt settlement companies that advertise on radio, TV and the Internet.

“There's a lot of scams out there,” Papadimitriou warned. “What these companies do, and they won't tell you this, they make you default on your credit cards. They make you make payments to them instead of the credit card company so you can accumulate a significant position. Then they go to the credit card company and offer to settle your debt for less than what you owe. The credit card company sometimes accepts those offers.”

But can you stand up to the pressure of having the credit card company's debt collectors calling you several times a day, sometimes threatening legal action? Because that's what happens.

Some people can't deal with it and cave in, promising to pay back what they owe. Meanwhile, they've already made several payments to the debt settlement company, which has collected its fee off the top. So they're actually deeper in the hole.

Better to craft a plan and a budget that allows you to pay off the debt over time. It's rarely easy but in some cases, having your debt on the right credit card can make it a little more manageable.

A day after announcing it would police credit reporting agencies, the Consumer Financial Protection Bureau (CFPB) proposed a rule that would allow it to supervise the larger consumer debt collectors for the first time.

The CFPB also released the field guide that examiners will use to ensure that companies and banks engaging in debt collection are following the law.

“Millions of consumers are affected by debt collection, and we want to make sure they are treated fairly,” said CFPB Director Richard Cordray. “Today we are announcing that we will be supervising the larger debt collectors in the market for the first time at the federal level. We want all companies to realize that the better business choice is to follow the law — not break it.”

Source of complaints

Debt collectors are a frequent source of complaints from consumers, who feel they are being unfairly pursued. Often times they complain of harassment both at home and at work.

Debt collectors are, in fact, allowed to collect legitimate debts but must abide by the Fair Debt Collection Practices Act. Under the law, a collector may contact you in person, by mail, telephone, telegram, or fax. However, a debt collector may not contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you agree. A debt collector also may not contact you at work if the collector knows that your employer disapproves of such contacts.

Approximately 30 million Americans have, on average, $1,500 of debt subject to collection. Debt collectors often report consumers’ collection status to the credit bureaus.

If they get the information wrong, this can be the difference between getting approved or denied for such financial products as a mortgage or a car loan.

Types of debt collectors covered

The consumer debt collection market covered by the rule includes three main types of debt collection: first, firms that may buy defaulted debt and collect the proceeds for themselves; second, firms that may collect defaulted debt owned by another company in return for a fee; and third, there are debt collection attorneys that collect through litigation.

A single company may be involved in any or all of these activities. By expanding the supervision program to oversee the non-banks that are larger participants in the consumer debt collection market, the CFPB would have a window into every stage of the process – from the origination of credit to debt collection.

The CFPB’s supervision authority over these entities will begin when the rule takes effect on January 2, 2013. Under the rule, any firm that has more than $10 million in annual receipts from consumer debt collection activities will be subject to the CFPB’s supervisory authority. This authority will extend to about 175 debt collectors, which account for over 60 percent of the industry’s annual receipts in the consumer debt collection market.

In the past the Federal Trade Commission (FTC) has had jurisdiction over debt collectors. Once the new rule takes effect, consumers will have another avenue to air their complaints about debt collectors they believe to be abusive.

“I owe what?” That's often the response from consumers who get calls from collectors telling them to pay up -- or else. Victims of such scams will be glad to know that the Federal Trade Commission (FTC) is putting one of these operators out of business.

A California man who worked with bogus debt collectors in India has agreed to settle FTC charges that he and his companies deceived and threatened consumers into paying debts that were not owed or that the defendants were not authorized to collect.

As part of the settlement, the defendants will turn over nearly all of their assets -- amounting to an estimated $170,000 -- which will be used for consumer refunds.

The case against Villa Park, California-based Varang K. Thaker, American Credit Crunchers, LLC, and Ebeeze, LLC, is part of the FTC’s continuing crackdown on scams that target consumers in financial distress. The settlement order bans the defendants from debt collection, and prohibits them from misrepresenting:

• that they are affiliated with the government or a non-profit group,
• any terms or conditions for buying any good or service,
• any aspects of the good or service, and
• their refund policy.

The order includes a $5.4 million judgment, which is equivalent to the full amount of injury. The monetary judgment will be partially suspended due to the defendants’ inability to pay, but if it is determined that the financial information they gave the FTC was untruthful, the remaining amount of the judgment will become due.

Payday loan collectors

The FTC’s February 2012 complaint alleged that the callers who worked with the defendants would contact consumers who previously had received or inquired about online payday loans. Often pretending to be law enforcement or other government authorities, the callers would falsely threaten to immediately arrest and jail consumers if they did not agree to make a payment on a supposedly delinquent payday loan.

The FTC alleged that information submitted by consumers who had applied online for these loans found its way into the hands of the defendants, who used it to convince consumers that they owed them money.

Saying they represented the local police department, the “Federal Department of Crime and Prevention,” or simply a “federal investigator,” the callers allegedly typically demanded more than $300, and sometimes as much as $2,000. At other times, the callers claimed to be filing a large lawsuit against the consumer, or threatened to have the consumer fired from his or her job, according to the FTC. But the consumers did not owe money to defendants -- either the payday loan debts did not exist or the defendants had no authority to collect them because they were owed to someone else, the FTC alleged.

Consumers received millions of collection calls from India, and in a two-year period the operation took in more than $5 million from victims, according to the FTC. During that time, consumers filed more than 4,000 complaints with the FTC and state attorneys general about fraudulent debt collection calls.

The FTC charged the defendants with violating the FTC Act and the Fair Debt Collection Practices Act. According to the complaint, they:

• falsely told consumers they were delinquent on a loan, they must pay it, and the defendants had the authority to collect it.
• falsely claimed to be law enforcement authorities or attorneys.
• made false threats against consumers who refused to pay the alleged debts, including threats of arrest or imprisonment.
• harassed and threatened consumers so they often paid the alleged debts out of fear of being arrested or sued.

So, you think that guy on TV who says his company will get you out of debt will really help? Guess again.

As few as one in 10 unwary consumers who are lured into so-called “debt settlement” schemes actually end up debt free in the promised period of time, according to a major new consumer alert issued by the nonprofit National Association of Consumer Bankruptcy Attorneys (NACBA). That, the NACBA says, makes these risky schemes the No. 1 threat facing America’s most deeply indebted consumers.

Getting in deeper

The alert notes that already struggling with home foreclosures, harsh bank and credit card fees, and other major financial challenges, the most deeply indebted consumers are now falling victim to a major new threat – so-called ‘debt settlement’ schemes that promise to make clients ’debt free’ in a relatively short period of time.

Unfortunately, most consumers who pursue debt settlement services find themselves facing not relief but even steeper financial losses. Even the industry acknowledges -- though not in its ever-present radio, TV and online advertising -- that debt settlement schemes fail to work for about two thirds of clients.

Federal and state officials put the debt-settlement success rate even lower -- at about one in 10 cases -- meaning that the vast majority of unwary and uninformed consumers end up with more red ink, not the promised debt-free outcome.”

Robust industry

The private debt-settlement industry remains robust. More than 500,000 people with approximately $15 billion of debt are currently enrolled in debt settlement programs, according to industry estimates. And there is room for further growth: One in eight U.S. households has more than $10,000 in credit card debt.

“Based on what bankruptcy attorneys are seeing across the nation, we believe that debt settlement schemes are the number one problem facing America’s most deeply indebted consumers today,” says Durham, NC, bankruptcy attorney Ed Boltz, NACBA Board member and incoming NACBA president. “Bombarded with slick radio and Web advertising falsely promising a smooth road to being debt free in a short period of time, these companies prey on the most desperate victims of the economic downturn. These particularly vulnerable consumers usually end up getting sued, stuck with outrageous fees, more deeply in debt, and far worse off in terms of their credit score.”

Earlier this year, NACBA focused national attention on the “student debt bomb,” which then was identified as the fastest growing consumer debt problem being handled by consumer bankruptcy attorneys.

Horror stories

“I went with Freedom Debt and ended up getting sued by three of the credit companies,” writes Randy of Palm Desert, CA,  in a ConsumerAffairs post. “It cost me about $900.00 out of pocket. After talking to the companies, they would have worked out a deal with me if I had not used Freedom Debt. It has been the worst experience of my life. I have money to pay my debt, but they will not contact the creditor. You can do it yourself and not have to pay almost $2,000.00 before they say they will start. Save the money and do it yourself.”

“They (Debt relief Network) have about $1000 of my money, which they deduct from my bank account; and I cannot reach them,” Angela of Guadalupita, NM, tells ConsumerAffairs. “They stopped taking money, but their phone line is a recording and I have been trying to reach them without success. I do not want to be a client anymore, and I want my money back! I am getting ready to get my car repossessed, and my bills are piling up. Creditors call every minute of the day.”

Alert highlights

The NACBA consumer alert also notes:

• There is now across-the-board agreement on the danger that debt settlement schemes pose to consumers. The Better Business Bureau has designated debt settlement as an “inherently problematic business.” Similarly, the New York City Department of Consumer Affairs called debt settlement “the single greatest consumer fraud of the year.” Across the country, the U.S. Government Accountability Office (GAO), the Federal Trade Commission, 41 state attorneys general, consumer and legal services entities, and consumer bankruptcy attorneys have all uncovered substantial evidence of abuses by a wide range of debt settlement companies.
• Debt settlement schemes encourage consumers to default on their debts. Because creditors frequently will not negotiate reduced balances with consumers who are still current on their bills, debt settlement companies often instruct their clients to stop making monthly payments, explaining that they will negotiate a settlement with funds the client has paid in lieu of their monthly debt repayments. Once the client defaults, he or she faces fines, penalties, higher interest rates, and are subjected to increasingly aggressive debt-collection efforts including litigation and wage garnishment. Consequently, consumers often find themselves worse off than when the process of debt settlement began: They are deeper in debt, with their credit scores severely harmed.
• “Self help” may be the best answer for smaller debt burdens. If you have just a single debt that you are having trouble paying (such as a single credit card debt) and you have cash on hand that can be used to settle the debt, you may be able to negotiate favorable settlement terms with the creditor yourself. Creditors typically require anywhere from 25 to 70 percent on the dollar to settle a debt so you will need that much cash for a successful offer. Be sure to get an explicit written document from the creditor spelling out the terms of the debt settlement and relieving you of any future liability. Also be prepared to pay income taxes on any of the forgiven debt.

Red flags

NACBA urges consumers to steer clear of any companies that:

• Make promises that unsecured debts can be paid off for pennies on the dollar. There is no guarantee that any creditor will accept partial payment of a legitimate debt. Your best bet is to contact the creditor directly as soon as you have problems making payments.
• Require substantial monthly service fees and demand payment of a percentage of what they’ve supposedly saved you. Most debt settlement companies charge hefty fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee-- a percentage of the money you’ve allegedly saved.
• Tell you to stop making payments or to stop communicating with your creditors. If you stop making payments on a credit card or other debts, expect late fees and interest to be added to the amount you owe each month. If you exceed your credit limit, expect additional fees and charges to be added. Your credit score will also suffer as a result of not making payments.
• Suggest that there is only a small likelihood that you will be sued by creditors. In fact, this is a likely outcome. Signing up with a debt settlement company makes it more likely that creditors will accelerate collection efforts against you. Creditors have the right to sue you to recover the money you owe. And sometimes when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home.
• State that they can remove accurate negative information from your credit report. No company or person can remove negative information from your credit report that is accurate and timely.

“Many different kinds of services claim to help people with debt problems,” Boltz points out. “The truth is that no single solution works in all cases. Bankruptcy is an option that makes sense for some consumers, but it’s not for everyone. For example, the National Association of Consumer Bankruptcy Attorneys and its individual consumer bankruptcy attorney members do not encourage every person who looks at bankruptcy to enter into it. What makes sense for each consumer will depend on their individual circumstances. We encourage everyone to get the facts and do what makes the most sense in their situation.”

You can't go online these days without seeing ads promising to either reduce your debt or get you out of debt altogether. It's something that keeps the Federal Trade Commission busy.

The agency has charged an Ohio-based company and its owner with fraudulently claiming on 17 Websites they operated that consumers could quickly get out of debt by working with one of several debt settlement companies. And now the company owner, Ryan Golembiewski, has agreed to a settlement barring the deceptive claims, and to a judgment requiring him to pay more than $390,000.

Golembiewski and a company he controlled -- United Debt Associates -- were “lead generators” paid by debt settlement companies to refer consumers who responded to the deceptive ads, according to the complaint. Using Websites such as legitimatedebtsettlement.com, debtreliefemergency.com, DebtDecreaser.com, freedebtreductionhelp.com, and disputedebts.com, and earning approximately $24.60 per lead generated, the defendants directed consumers to either provide their contact information online, or call a toll-free number for help with their credit card debt.

Consumers who called either were routed directly to the debt settlement companies or were asked to provide preliminary information to the defendants, the complaint stated.

'Deceptive claims'

According to the complaint, the deceptive claims the defendants used to entice consumers to contact them included:

• “Once creditors agree to make a deal, you can get out of debt from 12 to 36 months.”
• “The U.S. government decided to introduce a stimulus package to boost the financial institutions and prevent them from breaking down. Part of this stimulus money is being utilized by the [c]redit card companies to offer debt settlements to the users.”
• Debt settlement companies “can take all of your outstanding debt and not only eliminate at least 50% of it but also provide a realistic repayment plan for the rest of your debt.”
• “If you play your cards right, your debt problems will vanish before the first year ends.”

Purported consumer testimonials on the defendants’ Websites, which conveyed the impression that consumers could successfully and quickly reduce or eliminate their debts by using the supposed debt settlement services the defendants advertised, were not genuine, the FTC alleged.

The defendants did not have support for the claims they made that the debt settlement companies would substantially reduce or eliminate consumers’ debts, according to the complaint. Instead, they merely posted claims provided by the debt settlement companies, or copied information from other debt relief Websites.

A West Virginia court has ruled that California-based CashCall must pay $15 million in civil penalties, refunds, and cancelled debts for the 292 West Virginia consumers who obtained the loans and to the State.

The ruling came in a suit filed by West Virginia Attorney General Darrell McGraw, who claimed CashCall entered into a "sham" relationship with the First Bank & Trust of Milbank, South Dakota, for the purpose of using the bank’s charter to evade the State’s usury laws.

McGraw argued that although the loans obtained by West Virginia consumers were made to appear as if they were issued by the South Dakota Bank, in fact, CashCall was the "true lender" because it bore the entire economic risk of the loans. The court agreed.

McGraw’s suit also claimed that CashCall engaged in abusive debt collection practices, violating any number of consumer protection laws. The complaint says CashCall harassed debtors with up to 25 telephone calls a day, sometimes disclosing alleged debts to various third parties, including friends, family members, co-workers, and persons that consumers listed as "references" on their loan applications.

Complaints

Complaints to ConsumerAffairs about CashCall have reflected similar charges.

“Their employees and even supervisors are unaware of company policies and procedures and will call and harass you to death even after you make a payment because their system has to play catch-up,” Ticondria, of Palm City, FL, wrote in a ConsumerAffairs post. “I even made payment arrangements to change my payment date. The representatives never note accounts correctly.”

“I paid off my loan in full with Cash Call and they took an additional payment from my account,” wrote Linda, of Temecula, CA. “They acknowledge the error, but haven't return my funds and refuse to return my calls.”

Embarrassment and humiliation

McGraw’s suit also alleged that CashCall repeatedly contacted consumers at work, subjecting them to embarrassment and humiliation before their co-workers, after consumers had asked that such calls stop.

McGraw says the his case could well have national implications.

"I am proud of my Consumer Protection staff for making West Virginia the only state to successfully challenge CashCall’s 'sham' business model that was designed to evade laws intended to protect West Virginia consumers from excessive interest rates,” McGraw said.

The average U.S. consumer added to his or her credit card debt is the second quarter of the year and is now on pace to build up an additional $43.5 billion in credit card balance in 2012, according to a private analysis.

In its Second Quarter 2012 Credit Card Debt Study, Card Hub found that, even though debt levels are rising, consumers have done a better job paying their credit card bills each of the past two quarters than they did last year. It's the first time since 2009 that there have been two consecutive quarters of improvement relative to the respective quarters the year before.

The average U.S. household now carries about $6,700 in credit card debt.

Looks good compared with last year

When compared with 2011 the credit card data don't look bad. But Card Hub says last year was a bad year for consumer over-leveraging. Credit card debt increased by $46.7 billion during the course of the year. The fact that there has been only slight improvements this year, says Card Hub CEO Odysseas Papadimitriou, means we are on a similar track.

“I hate to sound like a broken record, but people simply cannot continue to live in denial, thinking that the economy’s improvement means they can take spending back to pre-recession levels,"Papadimitriou said. "Pre-recession spending was inextricably tied to the housing bubble, and its collapse means that we all have to adjust. Perhaps more people have gotten the message, judging from our improved performance thus far this year relative to last, but our pay-downs were still more significant and our buildups less severe than in 2010 when we were battening down the hatches in the face of the recession."

Improving metrics

However, the 2012 metrics do appear to be improving. Consumers are either paying down their credit card debt or taking on less than the two previous years. The charge-off rate, now at 4.24 percent, is approaching pre-recession levels, which is one of the main factors prompting credit card companies to begin lending again.

But while credit card outstanding balances have fallen since the start of the Great Recession, the numbers show it's mostly due to write-downs by lenders. True, many consumers have made efforts to pay down their balances but it's a small amount of the decrease.

With the recession now over, we need to focus on rebuilding, so to speak, rather than reverting back to the old status quo," Papadimitriou said. "We’ve all seen what that has done for us, after all. Reigning in our budgets necessitates foregoing certain luxuries, but consumers at least have a couple of important allies in this battle in the form of credit card calculators and 0 percent credit cards.”

You open your credit card bill and stare at the balance. How could it have gotten so large?

And maybe that's not your only credit card balance. Combined, the monthly payments are almost more than you can manage each month. Then along comes a company that says it can help you settle your credit card debt for pennies on the dollar.

Though it sounds tempting, keep in mind that it's a sales pitch. It rarely works out the way they present it.

Joe, of Bradford, Pa., says he received a pitch from a debt settlement firm and, even though all his accounts were current and we was slowly paying down the balances, he signed up. Maybe he wouldn't have to pay his debts after all.

Too good to be true?

“They asked me if id like to get out of debt and not have to pay all the interest so I started putting money into the account to settle my debts,” Joe wrote to ConsumerAffairs. “They guaranteed settling at 50 cents on the dollar and hoped to do it at 30 cents.”

Joe says the first card was settled at around 39 cents on the dollar he was very happy. But the happiness was short-lived.

“Next I received a letter saying i was being sued because I hadn't made any payments.”

Joe said the debt settlement company told him to withhold payment so he did. In response to the suit, he said he settled at 80 cents on the dollar plus had to pay court costs, plus pay a percentage to the debt settlement company.

No savings

“So it cost me more to settle the account than it would have to pay it off in the first place,” Joe wrote. “It was my own fault for signing up but when they contacted me it seemed like it was a good way to help get out of debt. Now that they are paid off they no longer return any calls.”

Debt settlement companies now have to operate under new rules and government consumer agencies generally keep close tabs on them. In February 2010 the state of Illinois filed individual lawsuits against four debt settlement companies, claiming they engaged in deceptive marketing practices, charged excessive fees and did little or nothing to improve consumers' financial standing.

"These companies are unfairly luring financially strapped consumers with misleading claims that they can effectively eliminate consumers' debt," Illinois Attorney General Lisa Madigan said at the time. "The reality is that, after enrolling in a debt settlement program, consumers too often find themselves in even worse financial straits.”

Legal Helpers, a national debt settlement firm, has made a settlement of its own with the state of Illinois.

Illinois sued the Chicago-based firm, claiming it unlawfully charged consumers upfront fees to provide debt settlement services with promises to make them debt free.

Mark, of Delaware, OH, says he retained Legal Helper's services when he was on the brink of bankruptcy. A Legal Helpers representative, he says, explained debt settlement would be a better option.

“He explained that I would make $875.00 monthly payments to them for three years and that would be the total I would pay for everything, settlements and legal fees,” Mark wrote in a ConsumerAffairs post. “He said the national average for settlements was 28 percent and if they could not settle it for that amount, they would pay the balance out of their fees. Not one of these happened.”

What happened, Mark writes, is that each and every one of his creditors sued him. The fees, of course, were paid up front.

"This company was fronting as a law firm claiming to help consumers reduce their debt, but in reality, their scheme had nothing to do with the practice of law,” said Illinois Attorney General Lisa Madigan. “The company's primary purpose was to squeeze thousands of dollars in illegal upfront fees from struggling families for supposed debt relief that never materialized.”

$2.1 million in restitution

While it might not help Mark, the settlement with Legal Helpers Debt Resolution LLC will provide $2.1 million in restitution for Illinois residents who paid for debt settlement services but failed to receive meaningful debt reduction. The company also agreed not to accept any new Illinois customers.

Madigan filed the action in March 2011 and the Illinois Department of Financial and Professional Regulation joined the lawsuit as a co-plaintiff in September 2011 after the company failed to respond to the department's cease-and-desist order for not obtaining the proper licensing required under Debt Settlement Consumer Protection Act.

Warning

"Governor Quinn signed the Debt Settlement Consumer Protection Act in 2010 to stop companies that attempt to prey on consumers who find themselves trapped in a cycle of debt," said Secretary of Financial and Professional Regulation Brent Adams. "This settlement should make clear that we will vigorously pursue companies that try to circumvent the protections of the new law."

In addition, on June 5, 2012, the Attorney Registration and Disciplinary Commission, the entity that regulates licensed Illinois attorneys, filed a disciplinary action against two Legal Helpers Debt Resolution LLC managing members, attorneys Thomas Macey and Jeffrey Aleman. The disciplinary action alleges misconduct in connection with their debt settlement business.

When West Virginia consumers started getting phone calls from a California debt collector that they considered harassing, many complained to West Virginia Attorney General Darrell McGraw.

McGraw said he began an investigation and quickly discovered that DP & Associates of Irvine, CA, did not have a license to collect debts in the state. In addition, McGraw said the collectors engaged in threats, a violation of consumer protection laws.

As a result, DP & Associates will make refunds or cancel debts totalling $1.7 million in the state.

"In these difficult economic times, it is especially heinous for companies to bully and exploit financially strapped consumers with false threats and phony debts," McGraw said. "Our Office will continually strive to protect West Virginians from these coercive, unlawful, and threatening debt collection techniques."

The investigation

The investigation led to the signing of an "Assurance of Discontinuance." That requires DP to close all West Virginia accounts with a zero balance, notify credit-reporting bureaus to delete references to the debts, refund all amounts it collected, and release any judgments obtained against the state’s consumers.

The refunds and cancelled debts will go to 124 West Virginians.

The investigation began in January when consumers complaints the company was making phone calls falsely threatening arrest and harassing family members regarding a debt allegedly owed by a consumer. DP did not have a license to collect debts in West Virginia and McGraw’s investigation revealed a pattern of abusive collection methods. In many cases, McGraw says, the consumers owed no money.

Unlawful threats

In one case, he says a Grafton, WV, consumer was misled to believe that if she did not pay $3,000 to DP by the end of the day a warrant would be issued for her arrest. DP also contacted the consumer’s mother-in-law and falsely stated that representatives were waiting at the Taylor County Courthouse for the arrest of her daughter-in-law.

The company also inflated the alleged amount owed, upping it to $8,000 after specifying it as $5,987.10 in an email.

The lesson for consumers is to report any harassing actions by debt collectors to you state attorney general. Nothing can be done unless authorities no of the problem.

It's also a good idea to understand your rights when it comes to debt collectors. Learn about the Fair Debt Collections Practices Act here.

There are a lot of companies and law firms that say they can settle your credit card debt, but can they really? The consumers were hear from say these services are costly and many are not very effective.

Hyun, of LaHabra, Calif., said he made a mistake when he hired a debt-settlement law firm to reduce his credit card balance.

“I lost my time and my credit score,” Hyun wrote in a ConsumerAffairs post.

A couple of years ago Hyun hired a firm to settle his debt and ended up paying around $8,000. After the payment, Hyun said he was told it would cost even more.

“It was a 30-month program I believed to be $250, never mention about I have to pay more other than the 30 months of $250 and before that time everything will be done,” he wrote. “In addition to losing that much money, I also realize waiting that much times to pay off each creditor, other cards will increase in balance of late fees and non payment such.

Do it yourself

So Hyun said he ended up calling the credit card companies himself.

“The whole process with the law group took me three years or more, but it could be done in less than a year working with the creditor directly,” Hyun said. “What angered me the most is, like myself and others who are in this situation, I was so desperate and they took a advantage of that.”

While consumers shouldn't fall for every slick promise of credit card debt settlement, they should also understand that it might not be that easy to settle their credit card debt the way Hyun did it. After all, there are a lot of people in his situation.

Debt settlement experts say credit card companies are still willing to make accommodations with their distressed customers, but you have to have a good reason why you are unable to pay off your debt. Debt settlement is mostly reserved these days for consumers in an extreme hardship situation.

Still, credit card companies increasingly say they would prefer to deal with the consumer directly and not a third-party who is going to take a cut.

Time is money

The sooner you contact the credit card company about negotiating the settlement, the better. Late fees and interest will quickly increase the balances. Be ready for a full and frank discussion of your income and finances.

Asking a credit card company for a settlement will not negatively affect your credit score. However, if you are successful in reaching a settlement, keep in mind your credit score will take a hit. But for many people still struggling against a crushing debt load, it may well be worth it.

Over the years West Virginia Attorney General Darrell McGraw has filed dozens of lawsuits against payday lenders and car title loan companies, which state law bars from doing business in the state.

Because many now operate on the Internet, they have been able to get around that prohibition - up to a point. Sure, they can make the loans but getting repaid is another thing entirely.

Back in court

McGraw has gone to court again, this time suing Virginia-based Fast Auto Loans, Inc., its parent company, Community Loans of America, headquartered in Atlanta, and its owner Robert I. Reich.

The lawsuit asks for a permanent injunction preventing Fast Auto from making unlawful threats of criminal prosecution and halting the company’s collection of excess charges, failure to follow the law in seizing consumers’ vehicles, extreme methods of coercion, and other deceptive, unfair and illegal debt collection practices.

It's McGraw's second suit against the company in the last 14 months. He sued the company last year accusing it of trying to block his investigation.

Seeks restitution and refunds

The suit also charges that Fast Auto Loans violated several state consumer protection laws and asks for civil penalties as well as restitution and refunds for consumers.

"Out-of-state lenders collecting debts in West Virginia will respect the rights of our citizens and the laws of our state or they will face the consequences," McGraw said.

McGraw said his investigation shows that Fast Auto Loans has put hundreds of liens on vehicles in 24 West Virginia counties. Many of the affected consumers live close to the Virginia border where they visited Fast Auto offices. Car title loans are illegal in West Virginia.

"Unfortunately, many desperate folks obtained a title loan from the company as a stopgap measure only to find that they had compounded their financial troubles," McGraw said.

300 percent interest

After a number of West Virginia residents complained, McGraw said he found that Fast Auto Loans had charged 300 percent interest on loans made against car titles, repeatedly harassed and abused West Virginia consumers and their families and friends in attempt to collect debts, made false threats of arrest and criminal prosecution, and confiscated cars without a court order. Some victims’ vehicles were seized even though the amount owed – as little as $100 – was a fraction of the car’s value.

"While we cannot stop our citizens from seeking these ill-advised out-of-state loans, we can and will stop predatory lenders from abusing our citizens and violating our state’s debt collection laws," McGraw said.

West Virginia has, in recent months, cracked down on debt collectors that violate state consumer protection laws.

The crackdown continues as give more out-of-state debt collectors agreed to terms with West Virginia Attorney General Darrell McGraw, coughing up a total $772,286 in refunds and cancelled debts to settle charges that they engaged in unlawful debt collection within the state.

The investigation began after McGraw said he received complaints that four of the companies them were not licensed in West Virginia and all five were collecting illegal Internet payday loans. The five companies Frontier Financial Group, Henderson, NV; United Debt Holding, Castle Rock, CO; Skutr Financial, Las Vegas, NV; USCB Corp., Archibald, PA; and Mauconduit & Luna, Hapeville, GA.

In most cases, the debts were not only illegal, but also old. McGraw said the debt collectors had purchased charged-off debt for pennies on the dollar.

"State laws and regulations governing collection agencies are intended to protect both consumers and legitimate creditors from fraud and abuse," McGraw said. "The Tax Department has made it clear that debt buyers who buy charged-off debts for collection must comply with collection agency laws."

Second time around

McGraw also says his office had taken action in the past to prevent some of these same debts from being collected. For example, he says James Shuff, from Oak Hill, West Va., filed a complaint against Frontier Financial after he received a letter demanding payment of a $615 debt to Money & More, an Internet payday lender based in California. Because of information previously provided by McGraw’s Consumer Protection Division, Shuff knew that the debt had been canceled and Money & More had been banned from doing business in West Virginia.

Because Internet payday loans are illegal in West Virginia, the companies have no legal way to require their repayment. Internet payday loan companies make loans to West Virginia citizens at their own risk.

"Internet payday loans are harmful to consumers and have never been legal in West Virginia," McGraw said. "My office will continue to intervene whenever any agency, licensed or otherwise, is collecting unlawful debts here."

The Federal Trade Commission has put a stop to the allegedly deceptive practices of a debt settlement operation that lured consumers with exaggerated claims about how it could help reduce their debts. The defendants behind the operation have agreed to a settlement that prohibits them from making any further misleading claims.

The FTC case against FDN Solutions, LLC and Timothy Daniels is part of the agency’s continuing crackdown on scams that target consumers in financial distress. The defendants claimed, mostly through Google ads and websites they used, such as everestdebtsolutions.com, 1800debtsettlement.com, and everestdebtrelief.com, that they could reduce consumers’ debts, typically by 40 percent to 60 percent, according to the FTC complaint.

However, the FTC charged that these savings claims were misleading, because they did not take into account the consumers who dropped out of the program, or the fact that the fees each client paid totaled 30 percent of the savings achieved. 

The settlement order imposes a judgment of $3.3 million but because they say they have no money, the defendants will pay only $85,000. If it is later determined that the financial information the defendants provided the FTC was false, the full amount of the judgment will become due.

Operating from offices in Tustin, California and Tampa, Florida, Daniels and FDN Solutions used paid search results on Google’s search engine and Google ads on third-party websites to advertise their services, telling consumers, “Reduce Debt 70% Want Proof?” and “Save up to 70% On Credit Card Debt,” according to the complaint. 

A bar chart on one of the defendants’ websites showed that a consumer with a $40,000 debt would pay only $22,000 by using the defendants’ services.

Unsupported claims

The FTC alleged that Daniels and his company, also doing business as Everest Debt Solutions, 1800debtsettlement.com, and everestdebtrelief.com, violated the Federal Trade Commission Act by making unsupported savings claims and by using a fake consumer testimonial.  One supposed testimonial attributed to “Alicia S., Lake Charles, LA” said, “Everest Debt Solutions was able to drop my credit card debt down 62%!  They are truly a Godsend!  God Bless.”

The defendants’ websites provided consumers with toll-free numbers they could call for more information.  When they called, the defendants violated the Telemarketing Sales Rule by misrepresenting the amount of money or the percentage of the debt amount that a consumer could save by using their services, according to the complaint.

Consumers beware

Consumers looking for help with credit card debt should be wary of anyone who tells them to stop paying their bills, to pay someone other than their creditors, or to stop talking to their creditors. 

Consumers also should be careful about paying for financial assistance before they receive it.  For more information on dealing with debt, including public service announcements about avoiding debt relief scams, see the Debt Relief Services page on the FTC’s Money Matters website for consumers.

Defendants in a debt collection operation that allegedly sought payment for bogus magazine subscription debts have settled with the Federal Trade Commission.

The FTC alleged in its complaint that Luebke Baker and Associates, Inc. knew, or should have known, that some of the magazine subscription debts they were collecting were not valid. The defendants, who handle collection of hundreds of thousands of accounts each year, violated the FTC Act, the Fair Debt Collection Practices Act, and the Telemarketing Sales Rule, according to the complaint.

The proposed settlement order, filed by the Department of Justice on the FTC’s behalf, bars Luebke Baker, Kevin Luebke, and other defendants from representing that a consumer owes a debt without having a reasonable basis to do so, and from making any other misrepresentations when collecting debts or selling goods and services. 

It also requires the defendants to conduct a reasonable investigation when a consumer disputes a debt or when the defendants otherwise have reason to question whether the debt is valid.

Under the proposed settlement order, when the defendants attempt to collect debts, they must provide consumers with disclosures about their rights under the Fair Debt Collection Practices Act.  The proposed order also requires the defendants to inform their collection employees of their personal obligations under the Act.

The Luebke defendants allegedly collected on debts for magazine subscriptions despite the fact that the FTC had successfully sued the company that originally sold the magazine subscriptions for deceptive marketing.  The defendants were notified of a 2003 federal court order against Cross Media Marketing Corp. that placed special requirements on anyone attempting to collect payment for these magazine subscriptions.

The FTC alleged that the Luebke defendants ignored these requirements and repeatedly told consumers the debts were due and payable.

The complaint also alleges that the Luebke defendants:

• 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.

The defendants also marketed a credit repair CD titled “Credit Solutions,” allegedly collecting an up-front fee before providing any goods or services, in violation of the Telemarketing Sales Rule, which bans advance fees imposed by companies selling credit repair goods and services, according to the complaint.

The proposed settlement imposes monetary judgments totaling $3.1 million – $2.3 million in civil penalties for violations of the Fair Debt Collection Practices Act, $730,000 in disgorgement for collecting Cross Media Marketing Corp. accounts in violation of the FTC Act, and $45,000 in restitution to consumers for charging an advance fee for a credit repair product in violation of the Telemarketing Sales Rule.

A U.S. district court has halted an operation that alleged hounded consumers for payday loan debts they didn't owe to the defendants or, in some cases, didn't owe at all. The defendants' scheme involved more than 2.7 million calls to at least 600,000 different phone numbers nationwide, according to the Federal Trade Commission (FTC).

In less than two years, they fraudulently collected more than $5.2 million from consumers, many of whom were strapped for cash and thought the money they were paying would be applied to loans they owed, according to FTC documents filed with the court. The court order temporarily stops the illegal conduct and freezes the operation’s assets while the FTC moves ahead with the court proceedings and seeks refunds for consumers.

The agency charged Tracy, California-based Kirit Patel and two companies he controls with violating the FTC Act and the Fair Debt Collection Practices Act.

Often pretending to be American law enforcement agents such as "Officer Mike Johnson" or representatives of fake government agencies like the "Federal Crime Unit of the Department of Justice," callers from India who were working with the defendants would harass consumers with back-to-back calls, according to the FTC. One consumer reported that the caller threatened to have her children taken away if she did not pay, according to court documents.

Another consumer told the FTC, “The callers threatened me and claimed they would arrest me if I didn’t pay them the alleged debt. One of the callers even contacted my neighbors and told me he was watching my house. The callers had a lot of . . . personal information about me, including my work address. One caller told me, ‘We just saw you walk into your office building,’ and then listed my office address. Another caller told me there were 55 warrants out for my arrest. Sometimes my caller ID would indicate that the call was from the FBI. Because the callers knew so much about me, I believed they were police officers or FBI agents. The calls scared me and I was often shaking when I hung up the phone."

Private data leaked

In difficult economic times, consumers may turn to high-interest, short-term payday loans between paychecks. The FTC alleges that information submitted by consumers who applied for these loans online found its way into the defendants’ hands.  Because the callers had this information – which often included Social Security or bank account numbers – and because many of the victims already were in a tenuous financial situation, they often believed that they owed the defendants the money, according to the FTC. In some cases, when consumers made the allegedly bogus payments, they had nothing left over to cover legitimate expenses: Two mothers reported that they could not buy Christmas presents for their families after making payments on the phony debts.

The defendants typically demanded several hundred dollars and, in violation of federal law, routinely used obscene language and threatened to sue or have consumers arrested, according to the FTC’s complaint. They also threatened to tell the victims’ employers, relatives, and neighbors about the bogus debt, and sometimes followed through on these threats, the FTC alleged.

Once victims were pressured into paying, the callers instructed them to use a pre-paid debit card such as a Wal-Mart MoneyCard, another debit card, a credit card, or Western Union so the money could be deposited into one of the defendants’ merchant processing accounts, the FTC alleged. Even after victims made a payment, the harassing calls often continued, forcing them to change their phone numbers, or close their credit cards or bank accounts in an effort to get the calls to stop, according to documents filed with the court.

$4.2 million in consumer losses

The FTC alleged that of the $5.2 million the defendants collected, almost $1 million was returned or charged back by their merchant processor, resulting in consumer injury totaling more than $4.2 million.

The complaint alleges that the defendants violated the FTC Act and the Fair Debt Collection Practices Act by:

• misrepresenting that they had the authority to collect on supposedly delinquent loans that consumers owed, they were a law enforcement authority or were affiliated with a government agency, and that consumers would be arrested, imprisoned, or sued; and
• using obscene or profane language, and calling consumers repeatedly with the intent to annoy, abuse, or harass them.

Conventional wisdom holds that most consumers are drowning in credit card debt. But according to a nonprofit credit counseling agency, conventional wisdom is wrong.

In fact, according to the Federal Reserve, more than a quarter of Americans have no credit cards at all. Among consumers who do have credit cards, only half carry a balance. That leaves 63 percent of the population free of credit card debt.

"If you feel compelled to overspend on credit cards because your friends are doing it, you should get new friends," said Karen Carlson, Director of Education and Creative Programs at InCharge Debt Solutions. "Headlines that tout average credit card debts of $10,000-$20,000 are really talking about average debt levels for people who carry debt, not the general population."

While this might seem like good news, think of it another way. All that credit card debt – about $780 billion at last count – is weighting down a much smaller group of people. That means the consumers who do have credit card debt usually have a crushing amount of it.

"If you carry credit card debt, you put yourself at much higher risk for bankruptcy, foreclosure, divorce and other negative situations, including the inability to retire in later years," Carlson said.

Toxic debt

Credit card debt is among the most toxic of debt. It was probably spent on consumables like restaurant meals and vacations, rather than assets. Worst of all, it carries interest rates as high as 30 percent.

InCharge Debt Solutions says the 60 percent who have no credit card balances should serve as role models. What do they do that others don't?

According to Carlson, they probably have a budget that they stick to, do without things they can't afford, only used credit cards for things they can pay for when the bill arrives and have a vision of where they want to go financially.

If you are among the 37 percent drowning in credit card debt, avoid the easy fixes offered by debt settlement companies. If you seek the advice of a credit counselor, make sure its one associated with the National Foundation for Credit Counseling, which has been around for more than a half-century.

Debt collection is a growing industry and a growing source of complaints from consumers. Lately there has been a flood of complaints from former Hollywood Video customers who say they are being contacted about fees they say they do not owe.

There are also complaints from consumers who say they are being contacted about debts other people owe.

"I was awakened at 7 am by a person looking for a way to contact my brother about a private business matter," Virginia, of Peoria, Ariz., wrote in a post at ConsumerAffairs. "I have not spoken to my brother in at least eight months and didn't know of any other way to reach him. I looked up the caller's company and found it to be a debt collector. I called them back and ordered them to remove my phone number from their files. He told me he couldn't guarantee that my number would be removed."

As long as Virginia is not a party to her brother's debt, she is within her rights under the Fair Debt Collection Practices Act (FDCPA) in demanding that she not be contacted further.

Consumer Financial Protection Bureau Takes Over

Responsibility for enforcing this important law has shifted from the Federal Trade Commission (FTC) to the new Consumer Financial Protection Bureau (CFPB). In its first report to Congress on the subject of the FDCPA, the new agency promised to step up efforts to end abusive behavior.

"Debt collection is a large, multi-billion dollar industry that directly affects many consumers," the CFPB said in its report. "In 2011, approximately 30 million individuals, or 14 percent of American adults, had debt that was subject to the collections process, averaging approximately $1,400."

The report notes there have been many changes in the debt collection industry since the FDCPA was passed in 1977. The FDCPA created parameters on debt collection activities such as the time and place collection calls could be made, restrictions on how and to whom debts are communicated, and prohibitions on deceptive, threatening, and abusive collection tactics.

Third-party debt collectors

The FDCPA’s prohibition of deceptive, unfair, and abusive practices applies to third-party debt collectors. For the most part, creditors are exempt when they are collecting their own debts.

"In 2011, consumer complaints to the FTC about third-party debt collectors (“FDCPA complaints”) increased in absolute terms and as a percentage of all complaints that consumers filed directly with the FTC," the report notes. "The FTC received 117,374 FDCPA complaints in 2011, representing 22.3% of all complaints it received directly from consumers. By comparison, in 2010, the FTC received 109,254 FDCPA complaints, representing 21.1% of the complaints it received directly from consumers.

Industry responds

The debt collection industry quickly fired back, saying an increasing number of consumer complaints does not necessarily indicate bad behavior.

"While the FTC simply tallies consumer complaints the agency admittedly does so without investigation into whether the complaint is actually illegal or a violation of the Fair Debt Collection Practices Act," the Association of Credit and Collection Professionals said in a statement. "It therefore cannot be assumed that all complaints equate to actual bad behavior."

For its part, CFPB acknowledged third-party debt collectors play a legitimate role in the economy.

"Consumer debt collection is critical to the functioning of the consumer credit market," it said in its report. "By collecting delinquent debt, collectors reduce creditors’ losses from non-repayment and thereby help to keep consumer credit available and potentially more affordable to consumers."

That said, the new cop on the beat made clear that it will be diligently watching for abusive behavior.

Midland Funding is one of the nation’s largest “debt buyers,” having purchased approximately $54.7 billion in old consumer debt in recent years.

Specifically, Midland buys debt that has been charged off by the original creditor, usually old credit card debt, for approximately three cents on the dollar. If they can collect a portion of that old debt, it can be a profitable business.

But Midland, along with its affiliate Midland Credit Management, has run afoul of West Virginia Attorney General Darrell McGraw. McGraw has sued the companies, accusing them of using false affidavits when obtaining default judgments against West Virginia consumers and for failing to include information required by law when suing a consumer in magistrate or circuit court for an alleged debt.

Because debt buyers typically only acquire an electronic file about the debt and not actual copies of the underlying documents, McGraw says consumers regularly are hounded by debt buyers for payment of bills they do not owe.

In some cases, debt buyers sue people solely because they have the same or similar name or address as the real debtor, while in other cases they pursue people for bills repaid long ago.

McGraw charges Midland frequently will use false and unreliable mass-produced affidavits as supposed “proof” of consumer debts in lawsuits against individual citizens. He says the company does this in order to obtain judgments against or extract payments from mostly unrepresented consumers, some of whom had no knowledge of any alleged debt.

Incorrect information

The National Consumer Law Center (NCLC) has estimated that one out of ten lawsuits filed by debt buyers are premised on bad or incorrect information.

McGraw says he began his investigation into Midland’s business practices upon receiving complaints from consumers that they had received repeated telephone calls from the company's representatives, attempting to collect debts they did not owe. Some consumers also complained they had been sued for debts they did not owe on credit cards they never had.

“Unfortunately, many consumers are frightened or unaware of their rights when they are sued and fail to respond to these groundless lawsuits, leaving them subject to judgments on debts that cannot be proved,” McGraw said. “Companies such as Midland rely upon this fear and typically drop their lawsuits if consumers know their rights.”

Other findings

What to do

Debt collectors and consumer credit reporting agencies are among the few largely unregulated segments of the financial services industry. But, perhaps, not for much longer.

The Consumer Financial Protection Bureau (CFPB) today announced a proposed rule to include debt collectors and consumer reporting agencies under its nonbank supervision program -- the first time they would be subject to federal supervision.

“Consumer financial products and services have become more complex over the years and they have expanded well beyond traditional banks,” said Richard Cordray, CFPB Director. “Our proposed rule would mean that those debt collectors and credit reporting agencies that qualify as larger participants are subject to the same supervision process that we apply to the banks. This oversight would help restore confidence that the federal government is standing beside the American consumer.”

The Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB, authorizes the CFPB to supervise nonbanks in the specific markets of residential mortgage, payday lending, and private education lending.

In addition, for other nonbank markets for consumer financial products or services, the CFPB has the authority to supervise “larger participants.” As directed by Dodd-Frank, the Bureau must define such “larger participants” by rule, and an initial such rule must be issued by July 21, 2012.

Last summer, the CFPB sought public comment about possible markets to include in the initial rule and available data sources the Bureau could use to define larger participants in nonbank markets.

30 million

Debt collectors and consumer reporting agencies touch millions of American consumers. About 30 million Americans have debt under collection. For these consumers, the average amount under collection is $1,400.

Three main kinds of debt collection firms dominate the market: firms that collect debt owned by another company in return for a fee; firms that buy debt and collect the proceeds for themselves; and debt collection attorneys and law firms that collect through litigation. A single company may collect through any or all of these activities.

Under the proposed rule, debt collectors with more than $10 million in annual receipts from debt collection activities would be subject to supervision. Based on available data, the CFPB estimates that the proposed rule would cover approximately 175 debt collection firms — or 4 percent of debt collection firms — and that these firms account for 63 percent of annual receipts from the debt collection market.

Credit reporting agencies

The consumer reporting market plays a critical role in the consumer financial services marketplace and in consumers’ financial lives. It includes the largest credit bureaus selling comprehensive consumer reports, consumer report resellers, and specialty consumer reporting agencies.

According to the Consumer Data Industry Association, each year there are 36 billion updates to consumer files, and three billion reports are issued. The three largest consumer reporting agencies alone maintain information on 200 million American consumers.

Lenders use consumer reports, which are commonly called credit reports, when evaluating applications for credit cards, home mortgage loans, automobile loans, and other types of credit. Specialty consumer reporting agencies collect and provide information used to make eligibility decisions for a variety of products, such as checking accounts.

Under the proposed rule, consumer reporting agencies with more than $7 million in annual receipts from consumer reporting activities would be subject to supervision. This would include approximately 7 percent of consumer reporting agencies based on available data. The proposed threshold would allow the CFPB to cover about 30 consumer reporting agencies. The CFPB estimates that these 30 companies account for about 94 percent of the annual receipts from consumer reporting.

It's hard enough keeping up with current debts without old debts raising their ugly head. Often consumers get a call out of the blue from a debt collector seeking payment for some long-forgotten debt.

The Federal Trade Commission (FTC) recently published a brochure to help consumers understand their rights when it comes to old debts. It explains, among other things, that if you have old debts, collectors may not be able to sue you to collect on them.

Time-barred debt

That's because debt collectors have a limited number of years — known as the statute of limitations — to sue you to collect. After that, your unpaid debts are considered "time-barred." According to the law, a debt collector cannot sue you for not paying a debt that's time-barred.

How old does a debt have to get before it's time-barred? There's no easy answer because each state has its own statute of limitations.

It is also tricky because, under certain circumstances, the clock can be reset, and the time period can be started fresh.

Under the federal Fair Debt Collection Practices Act (FDCPA), a debt collector is someone who regularly collects debts owed to others. This includes collection agencies, lawyers who collect debts on a regular basis, and companies that buy unpaid debts and then try to collect them. The term 'debt collector' doesn't include original creditors who collect their own debts.

When is an old debt too old for a collector to sue?

Typically, state law determines how long the statute of limitations lasts. Usually, the clock starts ticking when you fail to make a payment; when it stops depends on two things: the type of debt and the law that applies either in the state where you live or the state specified in your credit contract.

For example, the statute of limitations for credit card debt in a few states may be as long as 10 years, but most states impose a period of three to six years. To determine the statute of limitations on different kinds of debts under each state's law, check with a legal aid lawyer, another attorney, or your State Attorney General's Office.

Disclosure

If a debt is time-barred, a debt collector is supposed to tell you. Unfortunately, not all do. Ask the collector if the debt is beyond the statute of limitations. If the collector answers your question, the law requires that his answer be truthful. Some collectors may decline to answer, however.

Another question to ask a collector if you think that a debt might be time-barred is what their records show as the date of your last payment. This is important because it helps determine when the statute of limitations clock starts ticking.

Should you pay a time-barred debt? The decision to pay a time-barred debt is up to you. You have options, but each one has consequences. For example, whether you pay the debt and how much you pay will affect your credit rating.

Consider this: Many of us reach a point in life where we frankly no longer care much about our credit rating.  If you are not expecting to buy a house, a car or some other big-ticket item, you may be ahead to let old debts and sleeping dogs lie.

Debt collector NCO Financial Systems, Inc. (NCOF) has agreed to change certain collections practices as part of a settlement announced today by Ohio Attorney General Mike DeWine and 18 other states. The settlement resolves concerns about NCOF's debt collection practices.

"We believe this is a fair settlement that will help uphold consumers' rights under the Fair Debt Collection Practices Act," Attorney General DeWine said. "NCOF is agreeing to provide restitution for eligible consumers, to provide stronger notifications to credit reporting agencies and consumers, and to implement policies to ensure compliance with federal and state law."

Since 2008, Ohio has led a multi-state working group that investigated allegations of misleading and deceptive debt collection practices by NCOF.

In the settlement, NCOF agrees to:

• Comply with the federal Fair Debt Collection Practices Act, the federal Fair Credit Reporting Act, and all applicable state laws.
• For debts reported to the credit reporting agencies, notify the credit reporting agencies within 30 calendar days of (1) any verbal or written consumer dispute or (2) receiving the results of an investigation into the accuracy or completeness of previously reported information.
• Provide notice to consumers about their debt collection rights under federal and state law.
• Monitor compliance, including training and monitoring its representatives and independent contractors, creating written policies and procedures for handling consumer complaints, and submitting compliance reports to the states every 6 months for 18 months.

Additionally, consumer restitution will be available for three years following the effective date of the agreements. NCOF will set aside $950,000, or $50,000 for each of the 19 participating states, for consumers who have valid claims that meet one of the following criteria:

• Consumer paid NCOF a third party debt that the consumer did not owe; 
• Consumer overpaid interest on a third party debt that was not supported by the underlying agreement between the debtor and the original holder of the debt or as otherwise permitted by law; or 
• Consumer paid more on a third party debt than the amount NCOF agreed to settle the account. 

NCOF also has agreed to pay $575,000 for the states' consumer protection enforcement efforts. As the lead of the group, Ohio will receive $76,562.50 of the payment.

Joining Ohio in the multi-state working group were the following states: Alaska, Arkansas, Idaho, Illinois, Iowa, Kentucky, Louisiana, Michigan, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, Oregon, Rhode Island, South Carolina, Vermont, and Wisconsin.

One of the nation's largest consumer debt buyers has agreed to pay a $2.5 million civil penalty to settle Federal Trade Commission charges that it made a range of misrepresentations when trying to collect old debts. In addition, the company, Asset Acceptance, LLC, has agreed to tell consumers whose debt may be too old to be legally enforceable that it will not sue to collect on that debt.

The proposed settlement order resolving the agency's charges also requires that when consumers dispute the accuracy of a debt, Asset Acceptance must investigate the dispute, ensuring that it has a reasonable basis for its claims the consumer owes the debt, before continuing its collection efforts.

The proposed order also bars the company from placing debt on consumers' credit reports without notifying them about the negative report. The U.S. Department of Justice filed the proposed settlement order this week at the FTC's request.

“Most consumers do not know their legal rights with respect to collection of old debts past the statute of limitations,” said David Vladeck, Director of the FTC’s Bureau of Consumer Protection. “When a collector tells a consumer that she owes money and demands payment, it may create the misleading impression that the collector can sue the consumer in court to collect that debt.  This FTC settlement signals that, even with old debt, the prohibitions against deceptive and unfair collection methods apply.”

The FTC alleged in its action that Asset Acceptance violated the FTC Act, theFair Debt Collection Practices Act, and the Fair Credit Reporting Act – is part of the FTC's continuing efforts to protect consumers adversely affected by the struggling economy.

The agency today also issued a new publication for consumers, "Time-Barred Debts: Understanding Your Rights When It Comes to Old Debts".

Old debts

Michigan-based Asset Acceptance buys unpaid debts from credit originators such as credit card companies, health clubs, and telecommunications and utilities providers, as well as other debt buyers, and attempts to collect them. Asset Acceptance has purchased tens of millions of consumer accounts for pennies on the dollar. It targets accounts that other collectors have pursued and are more than a year past due, and in some cases attempts to collect debt that is more than 10 years old.

Some of this debt is too old to be legally enforceable – state statutes of limitations cut off the right to sue to collect the debt after some period of time has passed, depending on the state and the type of debt. And many consumers do not know that making a partial payment of a debt may reset the state law's clock on the collector's ability to take legal action.

The proposed settlement requires that when Asset Acceptance knows or should know debt may not be legally enforceable under state law – often referred to as "time-barred" debt – it must disclose to the consumer that it will not sue on the debt and, if true, that it may report nonpayment to the credit reporting agencies.

Once it has made that disclosure, it may not sue the consumer, even if the consumer makes a partial payment that otherwise would make the debt no longer time-barred.

The order also prohibits the company from:

• Making any material misrepresentation to consumers and making any representation that a consumer owes a particular debt, or as to the amount of the debt, unless it has a reasonable basis for the representation. To ensure it has such a basis, the order requires Asset Acceptance to investigate consumer disputes before continuing collection efforts;
• "Parking" – or placing – debt on a consumer's credit report when it has failed to notify the consumer in writing about the negative report, and;
• Violating the Fair Credit Reporting Act and the Fair Debt Collection Practices Act, in the ways alleged in the complaint.

Increasingly consumers report being contacted by a debt collector about an obligation they insist they do not owe.

"On November 9, 2011 I received a bill for $7.45 for Parlee Tatem Radiologic Associates dated November 17, 2010," Alice, of Doylestown, Pa., told ConsumerAffairs.com. I don't recall such a debt; never received a bill previously for this. I call the number on the letter both that evening and the following Monday morning. Both times were when their office was listed on the letter as being open. But there were just recordings and then a hang-up."

Alice believes the request for payment is a scam, since she says she would certainly remember if she had used the medical services company. It could be a scam, or it could simply be a mistake. Either way, she should not pay it until she gets more information, and under the Fair Debt Collection Practices Act, she is certainly entitled to more information.

Alice's rights

According to the Federal Trade Commission (FTC), which drafted the law, every debt collector must send you a written “validation notice” telling you how much money you owe within five days after they first contact you. This notice also must include the name of the creditor to whom you owe the money, and how to proceed if you don’t think you owe the money.

If you send the debt collector a letter stating that you don’t owe any or all of the money, or asking for verification of the debt, that debt collector must stop contacting you. You must send that letter within 30 days after you receive the validation notice.

But a collector can begin contacting you again if it sends you written verification of the debt, like a copy of a bill for the amount you owe.

Assuming Alice determines she does not owe the debt but the debt collector does not agree and refuses to stop calling her, is there any way for her to make them stop? Yes.

Stopping the calls

According to the FTC, Alice should write a letter to the debt collector explaining that she does not owe the money and insisting that they stop contacting her. She should make a copy of the letter, sending the original by certified mail, and pay for a “return receipt” so you’ll be able to document what the collector received.

Once the collector receives your letter, they may not contact you again, with two exceptions: a collector can contact you to tell you there will be no further contact or to let you know that they or the creditor intend to take a specific action, like filing a lawsuit. Sending such a letter to a debt collector you owe money to does not get rid of the debt, but it should stop the contact. The creditor or the debt collector still can sue you to collect the debt.

Since the amount is less than $8, why not just send them a check? If the debt collector is, in fact, a scammer, sending them a check could give them access to Alice's bank account.

CardHub.com, an online credit card resource, reports consumers piled on $16.8 billion in credit card debt in the third quarter of 2011, up 154 percent from the same quarter last year.

The news comes on the heels of a report by First Data that credit card spending in the U.S. rose in the first three quarters of the year. The Great Recession may have promoted many consumers to put away their plastic for a while, but they are apparently spending again, with a vengeance.

Based on the results of its study, CardHub.com’s latest projection is that consumers will end 2011 with roughly $64 billion more in credit card debt than they began it with.

The company arrived at its conclusions by analyzing consumer debt data from the Federal Reserve’s G19 report in conjunction with quarterly charge-off data to determine how much consumer debt actually increased when you consider the amount of bad debt written off the books.

Unprecedented rate

While it is common for consumers to end the first quarter of each year with a significant net decrease in credit card debt and subsequently wipe out this reduction throughout the rest of the year, the speed at which consumers are garnering new debt in 2011 is unprecedented, the company said. More specifically, this is the first time in the last two years that a first quarter paydown has been completely eradicated by the end of the third quarter.

While economists have said a return of consumer spending is necessary to help the economy fully recover, unbridled credit card spending is probably not what they envisioned. If the recent trend of rising credit card debt in the fourth quarter continues – and data from Black Friday and Cyber Monday shopping suggests it will – the report concludes that consumers could be headed down a dangerous path.

“Consumer spending is gaining momentum,” said Card Hub CEO Odysseas Papadimitriou. “While people going out and buying things is good for the economy, over-leveraging is not.”

The First Data report earlier this week found that Black Friday credit card purchases were up 7.4 percent over last year, while debt card purchases rose only 3.4 percent. In other words, consumers were spending money they didn't have at more than twice the rate they spent their own money.

At the request of the Federal Trade Commission, a U.S. district court has halted a debt collection operation that allegedly deceived and abused consumers – making bogus threats that consumers had been sued or could be arrested over debts they often did not owe. 

The FTC charged two individuals and seven companies in a Corona, California-based debt-collection operation doing business as Rincon Debt Management.  The court order stops the illegal conduct, freezes the operation's assets, and appoints a temporary receiver to take over the defendants’ business while the FTC moves forward with the case.

Operating since March 2009, the defendants have been unjustly enriched by at least $9.4 million, according to documents the FTC filed with the court.

“Consumers have a right to expect that debt collectors will be truthful and abide by the law,” said FTC Commissioner Edith Ramirez.  “We allege that, instead, the victims in this case were subject to abusive and illegal debt-collection practices, and that cannot stand.”

The FTC complaint alleges that the defendants targeted both English- and Spanish-speaking consumers.  The defendants called consumers and their employers, family, friends, and neighbors, posing as process servers seeking to deliver legal papers that purportedly related to a lawsuit.  In some instances, the defendants threatened that consumers would be arrested if they did not respond to the calls. 

The defendants also allegedly posed as attorneys or employees of a law office,and demanded that consumers pay “court costs” and “legal fees.”  However, according to the FTC, the debt collectors making calls to consumers were not actually process servers, attorneys, or their employees, and the defendants did not file lawsuits against consumers. 

In many instances, consumers did not even owe the debt the defendants were trying to collect, the FTC charged.

The FTC charged that the defendants’ false and misleading claims that they were process servers or attorneys who had filed – or were about to file – a lawsuit against a consumer violated the FTC Act.  In addition, the FTC alleged that the defendants violated the Fair Debt Collection Practices Act by:

• improperly contacting third parties about consumers’ debts;
• failing to disclose the name of the company they represented, or the fact that they were attempting to collect on a debt, during telephone calls to consumers;
• misrepresenting the existence of a debt, the amount, and other facts about the debt; and
• failing to notify consumers of their right to dispute and obtain verification of their debts.

At the request of the Federal Trade Commission, a U.S. district court has halted an operation that allegedly subjected consumers to abusive debt-collection practices and deceived the small-business clients for whom it collects. 

The order also freezes the operation's assets and appoints a permanent receiver to run it while the FTC moves forward with the case.

As part of its continuing crackdown on scams that target consumers in financial distress, the FTC filed a complaint against six individuals and three companies involved in a Van Nuys, California-based debt-collection operation doing business as Rumson, Bolling & Associates. 

The FTC complaint charges that the defendants, in collecting debts on behalf of their clients:

• harassed and abused consumers by threatening physical harm and death to them and their pets, threatened to desecrate the bodies of deceased relatives, and used obscene and profane language; 
• improperly revealed consumers' debts to third parties, such as the consumers' employers, co-workers, neighbors, and family members;
• falsely threatened consumers with lawsuits, arrest, seizure of their assets, or wage garnishment; and
• falsely claimed that consumers would be liable for legal fees incurred in the collection of the debt.

According to the FTC complaint, using the slogan “no recovery, no fee,” the defendants promised small businesses and other potential clients that they would collect debts on contingency, charging a fee only when they successfully collected a debt. 

But in many cases, the defendants allegedly collected money from consumers on a client’s behalf and then kept more than they were entitled to, sometimes keeping all the money for themselves, instead of forwarding what was owed to the client. 

In some cases, the defendants asked clients for additional fees, purportedly for legal expenses in filing a lawsuit that would “guarantee” the successful collection of a debt.  Many clients paid these fees, but the defendants failed to file the promised lawsuits and the clients never received any money in satisfaction of the debt in question.

The FTC charges that these practices violate the Federal Trade Commission Act and the Fair Debt Collection Practices Act.

Last week's consumer credit report from the Federal Reserve showed a drop in consumer credit card debt in July. But numbers buried deep in the report showed July's slowdown followed a dramatic plastic binge in the second quarter.

In its analysis of data for the second quarter of 2011, CardHub.com reports consumers ran up a staggering $18.4 billion in credit card debt in the April through June period. To give you an idea of how significant that is, the July 2011 total is 66 percent more than consumers accumulated in the same quarter in 2010 and 368 percent more relative to the second quarter of 2009.

Based on the results of this study, CardHub.com’s latest projection is that consumers will end 2011 with around $54 billion more in credit card debt.

The study focused on consumer debt data from the Federal Reserve’s G19 report in conjunction with quarterly charge off data to determine how much consumer debt actually increased when you consider the amount of bad debt written off the books.

Worrisome

Like the first quarter of 2010, consumers ended the first quarter of 2011 with a significant net decrease in credit card debt. However, in subsequent quarters they proceeded to wipe out any reduction. What’s worrisome about 2011, according to the financial website, is that they seem to be doing it at a faster rate than ever.

Last year ended with a net increase in debt of $9.1 billion, which practically erased the net decrease of $10.0 billion in 2009. In contrast, 2011’s projected $54 billion increase in debt puts consumers on a very alarming trajectory, the company said.

Some might see the renewed credit card spending as a sign of confidence, but consumer confidence surveys this year have actually shown a steady decline in confidence. What appears more likely, according to some economists, is that consumers are using plastic to meet basic expenses, and that much of the increase in credit card spending could be purchases of more expensive gasoline.

The Fed's report last week suggests the alarming trend has been reversed, at least for one month. In July non-revolving credit, which includes auto loans and loans for educational purposes jumped $15.4 billion. However, that was offset by a $3.44 billion decline in credit card spending.

Where does the line fall between clever direct mail marketing and deception? Whereever it is, Cindy, of Littleton, Colo., thinks Bank of America (BOA) has crossed it.

“I received a letter in the mail from Bank of America with the following stamped notice, in red, on the front of the envelope: "REMINDER NOTICE/Sign and return the form inside,” Cindy told ConsumerAffairs.com. “The return envelope was stamped, in red, PROCESS IMMEDIATELY.”

Cindy said her family had a checking account with BOA so she quickly opened the envelop. Instead of a bill, she said she found a second attempt to sell her accidental death insurance.

“I find this to be deceptive,” Cindy said. “I can see how some, particularly seniors, would sign this and return without really looking at the material inside. Very deceptive.”

An ill-advised loan

Eric, of Falling Waters, W.Va., says he is about to lose his wheels. He and his wife took out a car title loan – very similar to a payday loan, except that a vehicle title is used as collateral. After paying off two previous car title loans with the company, Virginia Fast Auto Loans, Eric says he suffered a financial setback.

“I told them we cant pay and if they have to to come pick up vehicle,” Eric said. “They keep calling and harassing us to make a payment. I've recently learned that theses loans were not legal in West Virginia. What can I do? Can they legally take my vehicle?”

Ordinarily, yes. But in West Virginia, maybe not. State Attorney General Darrell McGraw has aggressively taken on payday lenders, which are illegal in West Virginia. McGraw just happens to be investigating Fast Auto Loans and in April, sued the company for refusing to turn over records in defiance of a subpoena. Here's what McGraw has to say about car title loans:

"We cannot prevent consumers from traveling to other states to get ill-advised title and payday loans," McGraw said. "But when companies contact West Virginians who allegedly default on the loans, they must obey our state’s debt collection laws. If companies break these laws, my office will not hesitate to intervene."

Eric should call McGraw's office ASAP. He may end up losing his car, but at least the company will have to obey the law if it takes possession.

Where's my refund?

The Internal Revenue Service (IRS) raised a lot of hopes among air travelers last month when, after the federal airline tax expired, the agency said some travelers who paid the tax were due a refund.

“Paid for two airline tickets June 8 and while vacationing the news gave information about the FAA charging these tickets with a tax that needs to be refunded back to us, the customer, for both roundtrip tickets,” Darcelle, of Brighton, Colo., told ConsumerAffairs.com. “I'm filing this complaint just in case we ever see this refund.”

Sorry, Darcelle, you won't see a refund. The IRS just announced that, in its opinion, consumers aren't due a refund after all.

You're driving along, listening to the radio, and a program comes on featuring a guest who says it's easy to walk about from your debts. All you need is a clever debt-settlement service.

Intrigued, you write down the toll-free number at the next traffic light and give the company a call. The experience, however, doesn't quite work out as advertised. In fact, you end up in worse shape than before.

How could that radio station broadcast a program that was so misleading? That's what Colorado Attorney General John Suthers wanted to know. The program about debt settlement, it turns out, was not produced by the station that aired it but by an infomercial producer, who bought time on the station and aired it.

Suthers filed suit last year against Real Talk Network and its principals, charging them with deceptive marketing. He's now reached a settlement with the company, requiring it to pay $226,414 – with most of that going to consumer restitution.

The settlement resolves charges that the company’s infomercials falsely promised, through deceptive infomercials and seminars, that they could help consumers get out of debt and pay off their mortgages in less than 10 years.

Static

Real Talk Network isn't the first debt relief company, posing as a broadcaster, to run afoul of consumer authorities. Earlier this year three companies and their owner, who allegedly falsely claimed they could help consumers quickly eliminate their credit card debts and stop calls from debt collectors, were banned from the debt relief business under a settlement with the Federal Trade Commission (FTC).

According to the FTC’s complaint, The Hermosa Group and Financial Future Network deceptively advertised debt relief services, in English and Spanish radio and television ads, claiming that consumers could pay thousands less than what they owe on credit cards.

The defendants themselves did not provide any debt relief services. Instead, the advertising was meant only to generate sales leads -- the names and phone numbers of consumers who called the defendants’ toll-free number -- which the defendants sold to debt relief providers or other sales lead generators.

Two purported debt relief firms that claimed they could help consumers lower their credit card balances have been put out of business.

The Federal Trade Commission (FTC) had charged Advanced Management Services NW LLC (AMS) and PDM International with making deceptive telemarketing calls, calling consumers on the Do Not Call Registry, and using illegal robocalls. The settlements will ban all of the defendants from selling debt relief services.

The FTC charged that AMS soaked clients up to $1,590 and promised a refund if they failed to deliver at least $2,500 in interest rate savings. But, instead of arranging reduced interest rates, the defendants sent consumers instructions to pay down their credit card debts early to save money on interest.

Consumers who demanded refunds allegedly were denied outright, got the runaround, or had a $199 “nonrefundable fee” deducted from their refund.

Under two settlement orders, all of the Advanced Management Services defendants are banned from selling debt relief services. The defendants, who were based in Washington and Texas, are also prohibited from misrepresenting material facts about any good or service, selling or using customers’ personal information, failing to properly dispose of customer information, and collecting payments from their debt relief customers.

The order against PDM International Inc., also doing business as Priority Direct Marketing International Inc., and William D. Fithian, also bans them from telemarketing and from violating the FTC’s Telemarketing Sales Rule, and imposes a $13.8 million judgment.

The order against Advanced Management Services NW LLC, also doing business as AMS Financial, Rapid Reduction Systems, and Client Services Group; Rapid Reduction System’s LLC; Ryan David Bishop; and Michael L. Rohlf; imposes an $8.1 million judgment.

Both judgments, which represent the total amount of money consumers lost, will be suspended when the defendants have surrendered virtually all of their assets, including several luxury cars, a boat, jet skis, and ATVs. The full judgments will become due immediately if the defendants are found to have misrepresented their financial condition.

Dynamic Financial

In a second case, the FTC alleged that Dynamic Financial Group and other defendants told consumers that, for an up-front fee of up to $1,995, they could save consumers thousands of dollars by reducing their credit card interest rates, and help them pay off their debts faster. The FTC further charged that the defendants promised, falsely, a full refund if consumers did not save a “guaranteed” amount – typically $2,500 or more. However, the defendants allegedly did not negotiate lower interest rates for consumers or failed to provide refunds.

Under five settlement orders in this case, all of the defendants are banned from selling debt relief services.

The order against 2145183 Ontario, Inc., also doing business as Dynamic Financial Resolutions Inc.; The Dynamic Financial Group (U.S.A.) Inc.; R&H Marketing Concepts Inc.; America Freedom Advisors Inc.; Joseph G. Rogister; and Christopher M. Hayden also bans them from robocalling and imposes an $8.3 million judgment that will be suspended due to the defendants’ inability to pay.

The order against Thriller Marketing LLC, Dwayne J. Martins, and John L. Franks Jr. imposes a $4.9 million judgment that will be suspended when Martins has surrendered the proceeds from selling a 2005 BMW 645 and Franks has surrendered the proceeds from selling two business condominiums in Tampa.

The order against Frank Porporino Jr. also bans him from robocalling and imposes an $8.3 million judgment that will be suspended when he has surrendered certain assets. In each instance, the full judgment will become due immediately if the defendants are found to have misrepresented their financial condition.

The orders against Michael Falcone and Sean Rogister also ban them from robocalling and impose judgments of $93,137 and $90,473, respectively, which must be paid immediately.

As part of a settlement with a company offering debt settlement services, more than 5,000 New Yorkers will get refunds totaling $1.1 million.

New York Attorney General Eric T. Schneiderman announced the agreement with Freedom Debt Relief, a company he says misled debt-saddled consumers about the amount of money they would save and the services it would provide, while reaping large profits in up-front fees.

"Freedom Debt promised relief and financial stability, but left thousands of its customers even farther in the red,"  Schneiderman said. "This office has zero tolerance for those who prey on the vulnerable to make a profit, and will continue to root out the kinds of deceptive practices seen in this case. It is just as important that New Yorkers know how to both recognize and avoid a bad deal, so that they can make sound financial decisions."

Lured consumers

Schneiderman said his investigation revealed that Freedom Debt lured consumers by making false and misleading claims, promising to eliminate large portions of debt by negotiating directly with creditors, claiming that it could reduce total debt by 40 to 60 percent. Consumers were told that they would be "debt-free" within anywhere from one to three years.

But, says Schneiderman, the company's program was fundamentally flawed, leaving most New York consumers with as much or more debt than they had before signing up for the service. In lieu of making even the minimum payments to their creditors, customers made monthly deposits to a designated account that was purportedly to be used to settle their debt. Freedom Debt deducted its up-front fees from this account before it engaged in a discussion with consumers' creditors - a practice it continued until the Federal Trade Commission banned it in October 2010.

When consumers were unable to make the strict monthly deposit schedule the program required, they dropped out of the program - having paid most or all of the fees without receiving the promised services.

Not just one company

Schneiderman says these practices aren't limited to this particular company, and that consumers should be wary of most firms promising credit relief. His advice? Be wary of debt settlement companies that promise to reduce your debt substantially or to make you "debt free." Also, never agree to sign a contract with a debt settlement company that requires the payment of up-front fees, which are generally illegal.

Keep in mind that enrollment in a debt settlement plan premised on stopping payments to creditors will likely lead to more frequent and aggressive creditor collection efforts often resulting in judgments, wage garnishments, and freezing of bank accounts.

Schneiderman says a wise first step to help resolve an outstanding account is to speak directly to the credit card issuer. Alternatively, it may be helpful to speak to an attorney or an accredited credit counselor who can help develop a plan of action that best works for each consumer's unique situation.

Debt settlement and other credit-related issues topped the list of consumer complaints in Illinois last year, Illinois Attorney General Lisa Madigan said today as she released her top 10 consumer complaints, detailing concerns of the 170,000 consumers who contacted her office’s Consumer Protection Division in 2010.

That consumer debt again topped the list of concerns in 2010 mirrors what Madigan’s office has seen in recent years as consumers struggle with pocketbook issues in a down economy. Complaints related to residential mortgages ranked highest among consumer debt concerns, showing that, much like 2009, people are still fighting to stay in their homes. Many consumers also contacted Madigan’s office over credit card debt and abusive collection practices.

“The economic crisis continues to affect consumers in Illinois,” Attorney General Madigan said. “People are struggling just to make ends meet. Consumers should know my office is here to help protect them against financial abuse and from con artists who are taking advantage of these tough times to make a quick buck.”

Included in the more than 7,000 consumer debt complaints filed with Madigan’s office is a new attempt to evade recent reforms aimed at protecting consumers. Last year, Madigan successfully led an effort to pass the Debt Settlement Consumer Protection Act, which bans upfront fees debt settlement companies charge and requires they can only collect fees if a consumer’s debt is actually settled.

Legal Helpers

Madigan today filed a lawsuit against a national legal firm that has unlawfully charged upfront fees to consumers in Bureau, Champaign, Kendall, Will and Cook counties. Madigan’s suit, filed in Sangamon County Circuit Court, alleges Legal Helpers Debt Resolution LLC unlawfully charged consumers upfront fees for debt settlement services with promises to make them debt free. But, in fact, they never lowered the consumers’ debt and actually left them worse off financially.

The lawsuit alleges Legal Helpers Debt Resolution, based in Chicago, illegally charged fees upfront under a guise that attorneys, who are exempted from an upfront fee ban, were providing the debt settlement service to consumers, enabling them to charge the initial fees. In fact, Madigan alleges, attorneys with Legal Helpers Debt Resolution only served as a front to the business, and debt settlement service was contracted out to non-lawyer, third-party companies.

You can't listen to satellite radio or watch cable TV without being bombarded by commercials for companies claiming they can help you reduce your debt, whether it be to credit card companies or the Internal Revenue Service (IRS).

A common characteristic of these ads is the warning that "there are a lot of scammers" out there making similar claims, but that you can trust them. How do you know? You might not want to take their word on that score. (Read consumer complaints about debt settlement companies).

Another common trait of these commercials is the disclaimer "if you have $10,000 or more in credit card debt..." they can help you. Why $10,000?

Because many companies charge a percentage -- usually around 10 percent -- of your total debt as their fee. The more money you owe, the more you will have to pay them. If your debt is less than $10,000, they really aren't interested in helping you because their fee would be too low.

The Federal Trade Commission (FTC) amended the Telemarketing Sales Rule (TSR) last year to add specific provisions to curb deceptive and abusive practices associated with debt relief services. One key change is that many more businesses will now be subject to the TSR.

The new rule expands the scope to cover not only outbound calls from the companies but inbound calls from consumers, in response to advertisements and other solicitations. There are three main changes to the rule, but one in particular will have the most impact.

No more upfront fees

Businesses can't collect any fees from a customer before they have settled or otherwise resolved the consumer's debts. If a company renegotiates a customer's debts one after the other, it can collect a fee for each debt it has renegotiated, but it can't front-load payments.

That means they can't charge any money up front. They must do the work before they get paid. This makes the debt settlement business much more risky and less lucrative. If a company demands an upfront payment from you, it is violating the law. You should assume it's a scam.

In the past ten years, the FTC and state law enforcement partners have filed more than 250 actions to stop deceptive and abusive practices by members of the debt relief industry. Even so, you should not assume that the remaining companies will always play by the rule.

Review the changes in the law

Instead of believing what the companies say in their commercials, consumers should know and understand the changes in the FTC rules by which the agency hopes to prevent consumer fraud. In addition to not allowing advance fees for services, the rule also prevents debt settlement companies from charging consumers until:

• They successfully settle or otherwise change the terms of at least one of the customer's debts;

• There's a settlement agreement, debt management plan, or other agreement that has the OK of both the creditor and the customer; and

• The customer has made at least one payment to the creditor as a result of the agreement negotiated by the debt relief provider.

 If customers enroll multiple debts in a company's program, the rule makes it clear they can't front-load their fees.

Consumers should perhaps take all these debt settlement commercials with a grain of salt. After all, settling debt is not as easy as many people make it sound.

"Many people owe money on their credit cards and are struggling to keep up with their bills because of the bad economy," said Minnesota Attorney General Lori Swanson last year, after suing six debt settlement companies doing business in her state. "People who are swimming in debt are often desperate for a life preserver, but they should know that debt settlement companies usually just anchor them down with even more financial problems."

Three companies and their owner, who allegedly falsely claimed they could help consumers quickly eliminate their credit card debts and stop calls from debt collectors, have been banned from the debt relief business under a settlement with the Federal Trade Commission (FTC).

According to the FTC’s complaint, The Hermosa Group and Financial Future Network deceptively advertised debt relief services, in English and Spanish radio and television ads, claiming that consumers could pay thousands less than what they owe on credit cards.

The defendants themselves did not provide any debt relief services. Instead, the advertising was meant only to generate sales leads -- the names and phone numbers of consumers who called the defendants’ toll-free number -- which the defendants sold to debt relief providers or other sales lead generators.

Bogus pitches

The defendants’ ads included sales pitches such as:

•  “With one simple call you can eliminate your debt in a fraction of the time and for less than you owe.”
•  “Find out today how quickly and easily you can eliminate your debt.”
• “Stop the harassing calls!”

The FTC contends the defendants’ claims that they could reduce debts substantially, settle debts quickly, and stop calls from debt collectors, were false or unsubstantiated, and that the defendants did not obtain adequate evidence from sales lead buyers that they could achieve the promised results. The complaint also alleges that the defendants falsely claimed they provided the debt relief services they advertised.

Settlement terms

The defendants are Jonathan Greenberg, Hermosa Group LLC, Media Innovations LLC, and Financial Future Network LLC. The settlement order imposes an $8.5 million judgment that will be suspended when the defendants pay $500,000. The full judgment will be imposed immediately if they have misrepresented their financial condition.

In addition to banning the defendants from the debt relief business, the settlement order prohibits them from making unsubstantiated claims about financial related products or services, or misrepresenting material facts about any product or service.

The order also prohibits them from disclosing or otherwise benefiting from customers’ personal information, and failing to dispose of this information properly.

The FTC recently amended its Telemarketing Sales Rule to require debt relief companies to make certain disclosures and prohibit them from making false claims or collecting fees before delivering the services they promise.

Because the defendants’ ads predated these amendments, the FTC did not allege any violations of the Rule in this case.

To play off that cliche' about how guns don't kill people, people kill people, credit cards don't drive people deep into debt, but they sure do make it easy for people to get there.

Credit card debt has become the bane of the American consumer's existence. As hard as we try, it seems that getting completely out from under credit card debt is extremely difficult.

It doesn't help that credit card companies will do everything they can to keep you from paying off that balance. After all, the interest rate they get to charge when you don't is a large portion of their revenue, along with what they charge business to use their cards.

Catch 22

Not many people know this and the credit card companies have done a great job keeping it secret, but they regard people who pay off their credit card bills each month and never carry a balance as "deadbeats."

At the same time, if you carry too much debt or make a late payment, your credit score goes down and credit card companies will use that as a way to penalize you by raising your interest rates. How's that for a mixed message?

Sooner or later, you'll say you've had enough and decide that it's finally time to do something about your credit card debt to get away from all those late fees and finance charges, and say no more to all those hefty transfer fees to cards with introductory low interest rates that eventually climb back up.

Cutting the cord

If that's where you are, here are some relatively easy ways of finally paying off that credit card debut.

• First, you have to change the way you think about credit cards. No, they're not an easy access to free money. Thinking like that is what got you in trouble to begin with. Credit cards are merely tools -- tools of convenience and should be considered as such.

• Second, you have to put those cards away and be real. And by "being real," we mean you have to not buy something you really can't afford. You'll never be able to pay off your debt if you keep adding to it. If this is too difficult and you fall into that category of consumer-holic unable to stop spending, then you have to take a more severe approach. Cut up your credit cards. If you don't have them you can't use them.

Now if you do have a serious problem, you can expect a form of withdrawal to take place, for which you may need to seek out a Debtor's Anonymous meeting or even a therapist. If "not spending" makes you ill, then it's time to admit you have a problem and you have to deal with it.

• Step three, now that you've curbed your excessive spending, you need to create a budget or a spending review. This will give you an idea where the money goes every month. When you stop the compulsive spending you should have some extra money that you can use to make larger payments to your credit card bills. If you continue to pay the minimums you'll never pay the balance off.

• Step four: start paying off your credit card debt by paying off the highest interest rate card first. Some people will say they'd rather pay off the lowest balance because it gives them a sense of accomplishment. That's fine, but paying down the higher interest rate card first is still the best solution financially.

This step of paying down debt could take a while, but that's okay because it will also be teaching you a new way of living. Once you pay off those last balances, you will enter a special group of Americans, that rare breed of sensible consumers who live within their means and carry no credit card debt.

Yes, the card companies will call you a deadbeat behind your back, and they'll inundate you with offers of easy access to "free money." But you beat them and you can rest assured that you will feel a lot better about yourself, not to mention your glowing credit score if you continue to resist their temptation and not slide back into that deep well of debt.

Back in September, we told you about new Federal Trade Commission (FTC) rules aimed at debt consolidation companies. The rules were designed to clamp down on scam artists who dominate the debt consolidation industry. Well, it seems some of those so-called debt relief scoundrels have figured out a way around the rules.

The FTC imposed new rules on September 27, 2010 that banned debt-fixers from engaging in telemarketing that misrepresented their services, such as promising to cut your debt in half or charging fees before services are delivered.

Apparently, some of the debt consolidation companies are still charging those upfront fees. According to the FTC, which is responsible for regulating telemarketers, the debt settlement companies are supposed to first negotiate with a customer's creditors to whittle down the amounts owed, and then get paid for their services. Instead, many of those firms continue to collect fees amounting to thousands of dollars without making even a dent in the customer's credit card balance.

Chris Viale, CEO of Cambridge Credit Counseling, a nonprofit consumer advocacy group, says that intead of complying with the new rules, the majority of debt settlement companies are evading them and doing everything they can to continue charging advance fees and misleading consumers.

Cambridge Credit Counseling is one of a dozen nonprofit debt counselors that sent a letter to the FTC warning them about this situation.

The advocate groups say debt settlement firms are targeting prospective customers via text message, Skype, Internet chats, or setting up in-person meetings claiming that these marketing techniques don't fall under U.S. telemarketing regulations. The advocates also warn that debt-fixers may pose as law firms or may hire attorneys, since lawyers are exempted from the rules.

Evan Zullow, an attorney in the FTC's division of financial practices, says he's aware that companies are looking for loopholes and that the FTC is monitoring the industry to make sure that what they're doing actually meets the exception. He added that this alleged practice of baiting prospects with text messages and getting the consumer to make the initial call, will not exempt them from the FTC rules.

Zullow explains that whether a debt settler's ad is on TV, radio or text, if the ad prompts a consumer to call, the companies are not allowed to charge advance fees.

Chris Viale of Cambridge Credit Counseling told CNN that one of his organization's staffers received recently a text that asked the staffer to call to speak with a credit analyst. When the staffer called back, the rep asked if his debt totaled more than $10,000 and then transferred him to a company it claimed was a law firm that would charge a "retainer" for legal services. That retainer is basically an upfront fee.

Just weeks after the FTC rules banning deceptive practices went into effect, the North Carolina Attorney General sued the Consumer Law Group of Boca Raton, Florida accusing it of being a debt relief company posing as a law firm. It reportedly collected $2.6 million in fees from more than 3,000 consumers in North Carolina.

Another way to evade regulation is for debt settlement companies to move their operations offshore, similar to online gambling sites in that operate out of the Dominican Republic, Costa Rica or Panama. There are reports many debt fixing companies are now based in Bermuda.

For a while it was looking as if the American consumer had actually learned to live within their means. Conspicuous consumption was down, more of us were using cash instead of credit and a large portion of the country was paying down its credit card debt. Or at least most studies and figures seemed to indicate that trend, including numbers put out by the Federal Reserve showing credit card debt was decreasing year over year.

Well, it seems we may not have looked deep enough to see the true direction. On the surface just looking at the numbers, it does appear that overall credit card debt is going down. But according to a new study released this week, that figure has nothing to do with reality and that things may have started to change as far back as the spring of 2009.

CardHub.com, which tracks credit card use, has just released its 2010 Credit Card Debt Study for Q3. That is the quarter covering the summer months of July, August and September. The CardHub.com study shows that not only didn't consumers pay down their credit card debt this summer, but they actually increased it by $6.5 billion compared to the spring.

What's worrisome is that consumers, who had begun 2009 and 2010 with a significant net decrease in credit card debt as they paid down their balances, appear to have slipped back into old habits and have begun to use their cards again. The result is that their credit card debt has either gone back up or at least stayed the same.

More specifically, although credit card debt in the first quarter of 2010 had a net decrease of $43 billion, it was 9% less than the net decrease in the same quarter last year. In addition, during the spring and summer of this year, consumers accumulated $16.1 billion in credit card debt, 11% more than the same period last year. As a result, according to the latest Card Hub forecast, consumers are actually on track to end 2010 with no net change in their debt.

Why the discrepancy?

So why is there such a discrepancy between overall Credit Card Debt numbers and personal credit card use?

In an interview with ConsumerAffairs.com, Odysseas Papadimitriou, CEO and Founder of CardHub.com says one might look at the $93 billion decline in credit card debt, and come to the conclusion that Americans have paid down their balances in a big way. But the reality he says is that $81.6 billion of the $93 billion decrease is the direct result of Americans defaulting on their debt, not paying it off.

According to the CardHub.com study, we paid down our credit card debt in the first quarter of 2009 and the first quarter of 2010. Papadimitriou says that's usually when we get our tax refunds or bonuses. But our collective debt repayment this year was 9% less than in 2009 and continues to get worse to the point where in the spring of 2010, outstanding credit card debt was actually 246% above the same quarter of 2009 even though the figures given for overall debt implied we were reducing our debt and not adding to it.

"People look at the overall credit card debt number going down and think things are getting better," says Papadimitriou. "But if you look closer you see there are two numbers you need to consider, the number related to the debt consumers are paying down and the number associated with credit card defaults."

Beyond their means

The CardHub.com chief says his study shows that some consumers are once again beginning to use their credit cards to live beyond what their salaries or regular income would cover. "This could be due to an over-optimistic view or that they believe we are on the road to economic recovery to they've returned to their old habits," says Papadimitriou, "but the reality is people are going to find themselves deeper in debt again if this trend continues."

"It's a little like the game musical chairs," adds Papadimitriou. "As long as the music is playing, like it was during the housing bubble, everything is great. But once music stops like it did during the financial crisis, some people were left without a chair, in the form of being without a job or a home."

Papadimitriou puts a great deal of the responsibility for the financial crisis clearly on the shoulders of the Federal Reserve, which he says had the authority to step in and tell the major banks that the type of lending they were doing during the housing bubble was neither safe nor sound. "But they didn't do that"" he adds, "and neither did any of the other regulators who could have done something about it."

"Even former Fed Chairman Alan Greenspan admitted that he didn't think it was a problem," says Papadimitriou, "because he figured investors simply would not buy such bad loans and that would be the end of it."

As we all know now, Greenspan was wrong, and that even though some banks like Goldman Sachs knew the loans were crap, there were enough other banks who apparently wanted to keep playing and they, to draw on Papadimitriou's analogy, along with the rest of us, were left without a chair.

For a copy of the CardHub.com study go to http://education.cardhub.com/q3-2010-credit-card-debt-study.  

A number of consumers have recently reported calls from debt collectors seeking money they don't think they owe. Do they have any recourse?

The Fair Debt Collection Practices Act provides a number of consumer protections. Ohio Attorney General Richard Cordray has issued a consumer alert, highlighting five specific things debt collectors are not allowed to do:

• Harass you or use obscene words when talking to you.

• Contact you before 8 a.m. or after 9 p.m.

• Contact you without identifying themselves.

• Tell others about your debt.

• Contact you at work if your employer disapproves.

Watch out for scams

Some recent debt collector calls are outright scams. They involve a male caller who pretends to be an attorney or someone representing a payday loan company. He threatens the consumer with arrest and prosecution unless immediate payment is made on the non-existent loan. 

Former Hollywood Video customers have reported getting calls from a collection agency trying to collect late fees allegedly owed to the now defunct video chain. Many say the charges are for movies and games they never rented.

"I received a notice in the mail from Credit Collection Services stating that I owed $355.05 for past due movies from Hollywood Video," Rhiannon, of Portland, Ore., told ConsumerAffairs.com. "I called them and asked for the list of movies I owed. There were nine movies/games I have never rented before."

When you are presented with a debt collectors bill that you don't think is legitimate, Cordray says you need to know your rights. Within five days after contacting you by phone, a debt collector must send you a letter explaining how much you owe, who you owe it to and how long you have to dispute the debt.

You have 30 days from the date you are contacted by the debt collector to send the collector a letter disputing the debt and requesting verification of the debt. Make sure you specifically state that you are requesting verification of the debt, Cordray says.

Whether or not you believe you owe the debt, you can tell debt collectors in writing not to contact you again. Keep in mind that asking for them to stop contacting you does not eliminate any debt you may actually owe, and they still can sue you for such debt.

Another thing to remember is the Fair Debt Collection Practices Act applies only to third-party debt collectors, so these rights do not apply to debt owed to your original creditor, such as your credit card company, or to debt owed to a governmental agency, including unpaid parking tickets, child support or taxes.

If you do owe a debt, Cordray says to watch for companies that promise to "erase" your debt, reduce your interest rate or improve your credit score. These claims are usually bogus, and most debt consolidation companies will charge you for services you could do yourself for little or no cost. Most negative credit information remains on your credit report for seven years.

When you're drowning in debt, you can ill afford to spend money needlessly. That's exactly what a group of struggling consumers did, according to Texas Attorney General Greg Abbott, and now they'll get that money back.

Abbott says his office has obtained a court order disbursing $3.7 million to Texans and customers in other states who were defrauded by a now bankrupt debt relief firm.

Court documents filed by the state indicate that Debt Relief USA Inc. unlawfully collected millions of dollars from Texans who hired the firm to settle their outstanding debts. Debt Relief collected so-called "set-aside” funds that customers believed would be used to resolve their personal debts.

But when the firm filed for bankruptcy in July 2009, it effectively prevented financially strapped Texans and other customers nationwide from accessing their own money.

In addition to the $3.7 million returned to Texans and consumers nationwide under the agreement, an additional $1 million should become available when the bankruptcy case concludes, Abbott said.

Under the disbursement order signed today, eligible customers need not request that their set-aside funds be refunded. Each customer's eligibility, as well as the amount of refund they are owed, has been determined based on Debt Relief's records.

3,000 customers left high and dry

In June 2009, Debt Relief USA filed for bankruptcy protection in the Northern District of Texas. As a result, more than 3,000 of its financially distressed customers did not receive the debt relief they were promised.

Worse, the victims were denied access to the money they had saved and set aside to pay their debts. Thousands of customers' financial problems were exacerbated by Debt Relief's bankruptcy, because the customers received no real financial assistance and were pursued by debt collection agencies while their money was tied up in bankruptcy.

Prior to its bankruptcy, Debt Relief USA marketed a "36-month” debt-free plan. Under their scheme, customers with thousands of dollars in unsecured debt were advised to simply stop paying their bills. Then, they were told to make monthly payments to Debt Relief USA, which promised to hold the money until it negotiated discounted pay-offs with creditors.

Because Debt Relief USA was collecting debt payments that it promised to use to pay off their debts in the future, the firm essentially collected "set-aside” funds from its customers. This practice is prohibited under the Texas Finance Code unless the firm has properly registered and has posted a bond with the Office of Consumer Credit Commissioner.

Unregistered

A frightening new scam, which first appeared earlier this year, has moved into Mississippi, according to that state's attorney general, Jim Hood. Hood said his office has gathered reports from consumers who said they received threatening phone calls from phony debt collectors attempting  to collect for a payday loan. 

"While you might think you can spot some scams from a mile away, this latest one uses your own information against you," Hood said.

The scammers often have the victim's Social Security number, old bank account numbers, driver's license numbers, home addresses, employer information, and even the names of personal friends and professional references, suggesting the victims are not being contacted at random.

The scammers accuse the victim of defaulting on a payday loan, and in some instances even claim the victim is being, or will be, sued. They may threaten that  if the victim doesn't pay immediately via wire or by providing bank account or credit card numbers, he or she will be arrested. Many call themselves federal investigators, and use methods of fear and intimidation.

Don't reveal information

"One consumer who felt threatened lost $1,300 after she gave out her bank account information," said Hood.

Hood says that there are things you can do to protect yourself from these scams.  Under the Federal Trade Commission's Fair Debt Collection Practices Act, debt collectors may not harass, oppress, or abuse any person while attempting to collect a debt.  This includes threats of arrest or removal from your home.

Here of some tips to follow if you receive a suspicious phone call from a supposed debt collector:

• Ask the debt collector to provide official documentation in writing which substantiates the debt.
  

• Do not provide or confirm any bank account, credit card or other personal information over the phone until you have confirmed the legitimacy of the call.
  
• Review recent copies of your credit reports to ensure that the alleged debt is not affecting your credit.
  

Consumers should always use caution when disclosing any personal information, particularly on a website. Be cautious of any lender that does not ask you for background information outside of your bank account number, which may be a sign that the payday loan offered is not legitimate.

If you believe the scammer is in possession of your Social Security number of other sensitive information, you should consider contacting the three credit bureaus and placing a freeze on your credit accounts.

Three debt collection agencies have agreed to cancel $1,277,337 in debts for 161 West Virginia consumers. In addition, some consumers will get cash refunds.

West Virginia Attorney General Darrell McGraw had opened an investigation against the companies - Trailhead Capital, LLC, a debt buyer based in Chicago, IL; Hollis Cobb Assoc., Inc., Trailhead's affiliated collection agency in Norcross, GA; and Troy Capital, LLC, a debt buyer based in Las Vegas, NV - after receiving complaints that revealed the three businesses were collecting debts in West Virginia without a license and surety bond as required by state law.

Records also showed that the debts the companies were attempting to collect were primarily charged-off credit card accounts originally owed to Chase, Wells Fargo Bank, and GE Capital. In other words, the banks were no longer attempting to collect the debts.

In West Virginia, businesses that purchase defaulted debts for collection, as Trailhead and Troy Capital did, cannot avoid being licensed and bonded by hiring other agencies to assist them in collecting the debts.

"Our nation suffers from an explosion of credit card debt resulting largely from companies that extended credit without due regard to consumers' ability to repay and without clearly disclosing the terms of financing," McGraw said. "Rather than working with consumers to develop plans that might enable them to pay their debt over time, banks increasingly sell defaulted credit card debt for pennies on the dollar to collection agencies called debt buyers."

The first phase of new federal regulations protecting consumers from unscrupulous debt settlement companies takes effect September 27, part of the government's effort to corral the scam artists who dominate the industry.

Debt settlement companies often promise desperate consumers they can reduce their credit card debt, but charge a large upfront fee. Little or no effort is made to settle the debt and the consumer is left in worse shape than before.

The initial changes in the Federal Trade Commission regulations govern how debt relief products are marketed to consumers.

Specifically, the new rules prohibit debt services providers from misrepresentations regarding their program, success rates or any material program features. Companies are also required to disclose potential negative consequences of a settlement and how long it might take for a consumer to realize results.

"This is really a best case scenario for consumers," said Brad Stroh, CEO of Bills.com, an online financial resource. "Consumers will now have substantial and important protections in place to ensure that they are not taken advantage of by predatory debt relief providers. At the same time, responsible providers will be rewarded for their efforts and can stand apart from less reputable companies - making it even easier for consumers to find help from the good actors in the debt relief industry."

Phase two

The second sets of changes take effect on October 28, 2010. This second step will restrict debt relief companies from charging any fees until the consumer has received either interest rate or principal reductions from their creditors.

This addresses one of the most-often criticized aspects of the industry, where a debt relief company could collect up-front fees without having to resolve any consumer debt. With these changes, consumers are protected from unscrupulous providers.

"The timing of these changes is important because the still struggling economy means that many Americans and families remain in financial peril," Stroh said.

States take lead

The new federal rules are designed to provide support to a number of states that have long waged a fierce battle against predatory debt settlement firms. Earlier this year Illinois passed a law to prohibit debt settlement firms from engaging in unfair and abusive practices.

"Debt settlement operators target hardworking people with crushing credit card balances. They claim they're able to pay off your debt for a fraction of what's owed, but most times, this turns out to be a scam," said Illinois Attorney General Lisa Madigan. "They take your money and almost never reduce your debt.

In Oregon, meanwhile, Attorney General John Kroger this year reached an agreement with Credit Solutions of America (CSA) that cracks down on the Texas-based debt settlement company's alleged practice of charging high upfront fees and encouraging consumers to quit paying their creditors.

"CSA's existing Oregon customers may be entitled to a partial refund if they are not satisfied with the service they get," Kroger said.

CSA is the largest debt settlement company in the country and has a national client base. Oregon consumers complained that CSA charged very high up-front fees and encouraged clients to stop paying their creditors. There were frequent allegations that a lack of effort on behalf of CSA resulted in litigation and costs levied against consumers.

Also in 2010, Minnesota sued American Debt Settlement Solutions, Inc. of Boca Raton, Florida; Debt Rx USA, LLC of Dallas, Texas; FH Financial Service, Inc. of Dallas, Texas; Morgan Drexen, Inc. of Anaheim, California; Pathway Financial Management, Inc. of Garden Grove, California; and State Capital Financial, Inc. of Hallandale Beach, Florida, claiming the six companies violated the state's new debt settlement law.

Read more about debt settlement and consolidation.

Well forget it, because it never happened. It's just the latest misinformation and outright falsehoods swirling around the debt settlement industry that continues to do a banner business in a miserable economy.

At least two press releases posted online in the last two months, by the same individual, proclaim the good news that the Credit Card Debt Settlement Act of 2010 makes credit card debt settlement a much more viable alternative.

But what exactly is the Credit Card Debt Settlement Act of 2010?

There is no such law, Frank Dorman, spokesman for the Federal Trade Commission, told ConsumerAffairs.com.

What about the radio commercial that claims a provision of the new CARD Act, which took effect earlier this year and ends many abusive credit card company practices, gives you the right to settle your credit card debt?

Not in there, Dorman said.

Making up news

The inaccurate press releases are published on Atomic5 and i-Newswire by FreeDebtSettlementAdvice.com, where you are invited to enter your name, address, phone number and email to get free debt help. The Columbus, Ohio address listed on the news release does not exist.

What does exist is a recent crackdown on the credit card debt settlement industry by the FTC. It may be that action that some in the debt settlement business hope to misrepresent to the public.

Starting on October 27, 2010, for-profit companies that sell debt relief services over the telephone may no longer charge a fee before they settle or reduce a customers credit card or other unsecured debt.

Three other Telemarketing Sales Rule provisions to take effect on September 27, 2010, will:

• require debt relief companies to make specific disclosures to consumers;

• prohibit them from making misrepresentations;

• and extend the Telemarketing Sales Rule to cover calls consumers make to these firms in response to debt relief advertising.

The rule is not being made to make it easier for consumers to settle their credit card debt, but to make it harder for them to get ripped off by companies promising they can help.

This rule will stop companies who offer consumers false promises of reducing credit card debts by half or more in exchange for large, up-front fees, said FTC Chairman Jon Leibowitz. Too many of these companies pick the last dollar out of consumers pockets and far from leaving them better off, push them deeper into debt, even bankruptcy.

In the meantime, consumers should take information from debt settlement advertisements and "news" releases with a large grain of salt.

In Florida, Attorney General Bill McCollum says he's stopping two such firms, at least temporarily. McCollum says his office has obtained a temporary injunction against Texas-based Credit Solutions of America, Inc., and Credit Solutions of America, LLC.

A Florida court ruled that these companies are prohibited from charging Florida residents an unfair up-front fee for purported debt settlement services. The ruling was issued from the bench earlier this week, and a written order will follow.

"Financially strapped Florida consumers are turning to these so-called debt-relief businesses as a last resort to try to regain control of their finances, only to lose more money in excessive up-front fees with little or no relief from their debt," McCollum said. "This ruling represents significant progress in reigning in these abusive practices."

Advance fees targeted

This is the second temporary injunction obtained by McCollum in recent months prohibiting debt settlement firms from charging Floridians unlawful fees. In April, Clearwater-based American Debt Arbitration (ADA), and Arizona-based Nationwide Asset Services, Inc. were similarly prohibited from charging unlawful fees.

The lawsuits against Credit Solutions and ADA were both filed in October 2009, and each petitions the court for full victim restitution, permanent injunctive relief, and civil penalties for violation of Florida's Deceptive and Unfair Trade Practices Act. The Attorney General's Economic Crimes Division is pursuing these enforcement actions, and litigation remains active.

Just last month, the Federal Trade Commission (FTC) announced the adoption of a new rule to protect consumers in credit card debt who seek debt relief help. Consistent with changes recommended to the FTC, beginning this October, for-profit companies that sell debt relief service by phone will be prohibited from collecting any fees before successfully settling or reducing a consumers outstanding debt obligation.

Additionally, starting in September, the FTC will require companies to disclose how much the process could cost and how long it may take consumers to see results.

The new rules will help curb deceptive and abusive practices in debt relief services sold through telemarketing, according to Consumers Union, the nonprofit publisher of Consumer Reports.

"Most debt settlement companies charge big fees up front even though most consumers don't get the help they expect," said Lauren Bowne, staff attorney for Consumers Union's Defend Your Dollars campaign. "These new rules will help protect consumers who are already drowning in debt from being ripped off by debt settlement companies that fail to provide any relief. But more needs to be done to ensure that the amount of fees charged for debt settlement services are fair."

Most debt settlement companies market their services through Internet, television, or radio advertising. The advertisements typically promise to reduce debt substantially and urge consumers to call a toll-free number to find out more. Once the consumer signs up, the debt settlement company takes its fees over the first half of the contract period.

The FTC reports that nearly two-thirds of consumers who enroll in debt relief services, most of whom pay an advance fee, end up dropping out of the programs within the first three years without getting the help they paid to receive.

Bad advice

Debt settlement companies usually advise consumers to stop paying their creditors and to instead set up a special account to build savings that will be used in the future to negotiate a settlement. As the consumer deposits savings into the account, the debt settlement company withdraws money to cover its fees even though it hasn't reached a settlement with creditors. By stopping payments to creditors, the consumer ends up with a worse credit score, additional penalty fees and more interest charges.

While debt settlement companies claim they settle millions of dollars in debt for consumers, they have not revealed how much debt remains unsettled. The Better Business Bureau announced that it would stop calling debt settlement services "inherently problematic" if a company could show that it met several conditions, key among them that at least one half of its customers saved as much money as was paid in fees. The GAO reported in April 2010 that two debt settlement trade associations called that standard "unrealistic."

What they do

The FTC's new regulation banning advance fees will go into effect on October 27, 2010, and takes a key step forward by addressing the timing of the fees. Under the new rules, a debt settlement company will earn fees when it reaches a settlement on at least one of the consumer's debts that the consumer agrees to in writing. Fees cannot be collected until the consumer has made at least one payment to the creditor as a result of the negotiated agreement.

Fees can be held in a dedicated account before that time but all unearned fees must be returned to the consumer if he or she decides that the debt settlement program is not working out or cancels the program. Debt settlement firms can require a dedicated account only under certain conditions, including that the account must be set up and maintained by the consumer at an insured financial institution. The consumer will be entitled to earn interest on the account and can withdraw the funds at any time without penalty.

Beginning on September 27, 2010, the FTC rule requires that debt settlement companies make certain pre-contract disclosures, including how long it will take to get results and how much it will cost. The new rules cover calls consumers make to debt settlement firms in response to advertising as well as telemarketing calls made by firms. However, the FTC's new regulation does not apply to in-person sales or to Internet-only sales, so Congress or the states will have to act to apply the new rules to those debt settlement contracts.

Michael Calhoun, president of the Center for Responsible lending, praises the new regs, but believes more needs to be done. "While the FTC's new rule helps end one of the most egregious practices of the debt settlement industry, states can do more to curb others, such as charging unreasonably high fees that are not tied to performance and doing so without assessing if a potential client is likely to benefit from a debt relief program."

Two federal bills (S. 3264 and HR 5387) have been introduced in Congress to limit debt settlement fees to a one-time $50 fee and five percent of the savings from each final settlement.

"The effective ban on up-front fees promotes fair, transparent markets," he concluded. "Consumers should pay for performance, not promises. The FTC has made clear it agrees."

According to Cuomo's investigation, LHGR violated state and federal debt collection laws and, under the agreement, must immediately reform its business practices and pay $125,000 in penalties and costs. The action is the latest in the state's continuing probe of illegal practices in the debt collection industry.

"This company's business model was to harass consumers by calling them multiple times a day, continuously calling them at work after being told not to, and repeatedly calling even after the alleged debt was disputed," Cuomo said. "It is unacceptable for debt collection companies to use illegal tactics for their own profit and we will continue to put a stop to the practice."

Massive violations

Here are some of the actions that Cuomo says violated the law:

• An LHR collector called an Oswego resident up to 16 times in one day in an attempt to collect a 10-year old debt that belonged to her husband. When she questioned the debt to LHR, the collector said, "You must not know your husband that well then." The collector illegally told her she would be arrested, have a lien put on her house, her vehicle confiscated and wages garnished.

• LHR wrongly targeted a Lackawanna man for a debt he did not owe.

• LHR collectors called a Georgia resident 10 times per day in an attempt to collect a debt that was allegedly inflated to more than triple the original amount owed.

• LHR tried to recover a debt from a Mississippi man that was actually owed by his ex-wife. After explaining this and telling LHR to stop calling him, the collector told the man he would call every day at 8 a.m. until the bill was paid.

• LHR repeatedly called a California-based Iraq war veteran over a $2,500 cell phone contract from a company he never signed up with. Despite being provided proof that the debt was not his and that he was serving overseas at the time the company claimed he signed the contract, LHR collectors continued to call him.

According to the federal Fair Debt Collection Practices Act and the New York State debt collection and consumer protection laws, a debt collector cannot pose as an attorney, threaten lawsuits or other legal action which cannot be taken, tell a consumer they have committed a crime or will be arrested, or talk with third parties except to get location information.

The law further requires collection agencies to send a written notice within five days of initial communication with the consumer explaining how he or she can dispute the debt. If properly disputed, the collection agency must stop all collection attempts and send verification.

By Mark Huffman
ConsumerAffairs.com

May 26, 2010
Consumer debt, including credit card debt, is at an all time high, and that has led to an explosion of questionable "debt settlement" companies that claim they can almost magically solve your debt problems. All you have to do is pay a hefty fee, in advance.

If only it were that easy. For people drowning in debt, the siren song from the debt settlement marketer can sound enticing. Desperation leads many consumers to reach out to these companies, only to find they are left in even worse financial shape.

If you are overwhelmed by debt, you probably should talk with someone for advice -- but not someone who is trying to sell you an expensive service. To help you weed out the scammers from those who may actually be able to help, here are six signs that the debt settlement company is a scam.

1. They claim they will contact your creditors and settle you accounts for "pennies on the dollar"

How do they do that -- wave a magic wand? Why is your credit card company, for example, going to happily agree to accept taking a loss on your account. They probably won't, until they have exhausted all their options.

2. They claim to "Guarantee 100 percent success"

Think about that one for a minute. Does any enterprise ever achieve 100 percent success at anything? To believe that, you would have to believe that the debt settlement company has a magic formula.

3. They tout a "new government program" to bail out credit card debtors

By now everyone has heard all about the various "bail outs" and many people have obviously wondered why they aren't getting bailed out. Debt settlement companies want you to believe that the government -- President Obama in particular -- has come up with a program to provide money just for you.

4. They promise they can stop all debt collection calls or lawsuits

Consumers being harassed by bill collectors find this pitch almost irresistible. Unfortunately, no one can stop a legitimate debt collector from contacting you about a legitimate debt, as long as they follow the rules. If you think a debt collector is being abusive, you should contact your state attorney general, not a debt settlement company.

5. They charge you a full fee, in advance

Scammers like to get paid in advance. In fact, they insist on it. They want to have received all your money before you figure out you've been scammed. Many states have recently passed laws prohibiting advance fees for debt settlement services. Whether your state has or not, its never a good idea to pay in full in advance.

6. They tell you not to contact creditors

A scammer will tell you not to talk to your creditors because they don't want you to get correct information. As long as they can keep you in the dark, they can keep extracting fees. In fact, if you are in over your head, you should talk to your creditors about your situation and express a willingness to set up a payment plan.

To deal with your debt you have to start somewhere, and that somewhere is usually with a budget. Work out a realistic plan to make ends meet, putting money aside to work down your debt.

If you need someone to talk to, a credit-counseling agency can advise you on managing your money and making a budget, and usually can offer free education materials. Find a credit counselor through a college or university. Or contact the National Foundation for Credit Counseling , a 50-year old organization that carefully screens member firms.

Responding to escalating consumer complaints, more and more states are beginning to get tough with debt settlement firms.

Many of these companies promise desperate consumers they can help them reduce their credit card and other debt, but often charge hefty up-front fees and offer little in the way of help.

In Illinois last week the General Assembly gave final passage to a bill to prohibit debt settlement firms from engaging in unfair and abusive practices. The measure now moves to the Governor's desk for his signature.

"Debt settlement operators target hardworking people with crushing credit card balances. They claim they're able to pay off your debt for a fraction of what's owed, but most times, this turns out to be a scam," said Illinois Attorney General Lisa Madigan. "They take your money and almost never reduce your debt. This legislation provides Illinois consumers with the strongest protection in the nation by stopping debt settlement operators from getting paid without providing a legitimate service. This law will allow them to collect a fee only when they settle your debt."

The bill prohibits debt settlement companies from charging upfront fees, except for a one-time $50 enrollment fee. Instead, debt settlement companies can collect a fee only when they settle a debt, and even then they can charge no more than 15 percent of the savings achieved.

Madigan said the legislation was crafted in response to the sharp rise in complaints against deceptive debt settlement operators. The complaints led Madigan to investigate and file seven lawsuits beginning in 2009 against debt settlement companies targeting Illinois consumers.

Oregon settlement

In Oregon, meanwhile, Attorney General John Kroger has announced an agreement with Credit Solutions of America (CSA) that cracks down on the Texas-based debt settlement company's alleged practice of charging high upfront fees and encouraging consumers to quit paying their creditors.

"CSA's existing Oregon customers may be entitled to a partial refund if they are not satisfied with the service they get," Kroger said.

CSA is the largest debt settlement company in the country and has a national client base. Oregon consumers complained that CSA charged very high up-front fees and encouraged clients to stop paying their creditors. There were frequent allegations that a lack of effort on behalf of CSA resulted in litigation and costs levied against consumers.

Kroger says Oregon's new law prohibiting such up-front fees was a very important tool in obtaining a resolution to this case. House Bill 2191 protects consumers by limiting fees the companies can charge, preventing misleading advertising, and requiring better disclosures, among other things. The law also requires debt management companies to register with the Department of Consumer and Business Services.

As a result of this settlement, four Oregon consumers will receive a total of about $2,600 in restitution. In addition, 800 Oregon consumers who are current clients of CSA are promised a refund of pre-paid fees proportional to any success the company had in resolving their debt if they are not fully satisfied with services rendered by CSA.

Earlier this year Minnesota sued American Debt Settlement Solutions, Inc. of Boca Raton, Florida; Debt Rex USA, LLC of Dallas, Texas; FH Financial Service, Inc. of Dallas, Texas; Morgan Drexen, Inc. of Anaheim, California; Pathway Financial Management, Inc. of Garden Grove, California; and State Capital Financial, Inc. of Hallandale Beach, Florida, claiming the six companies violated the state's new debt settlement law.

The phony debt collector scam appears to be making a comeback. Officials in at least one state have seen a recent rise in reported fraudulent and threatening debt-collection calls.

"Consumers need to be extremely careful when they receive calls concerning debts they do not believe they have incurred," said Colorado Attorney General John Suthers, whose office has seen a rise in complaints over the last two weeks.

The scam works like this: a scammer contacts consumers at random, or maybe from a "sucker's list," and pretends to be a debt collector. According to the rash of complaints in Colorado, the calls are coming from "unknown" phone numbers or "000-000-0000."

According to the complaints, the alleged debt collectors are threatening consumers with lawsuits or "showing up at their place of work" unless they pay off an alleged debt. The calls claim that consumers have incurred hundreds or thousands of dollars in debt but can settle for a significantly lower sum.

The collection calls have informed consumers that they, the collection agency, are in possession of consumers personal identifying information, including their Social Security numbers.

In almost all cases, these "debts" are bogus, but many consumers are so rattled by the call and the aggressiveness of the pitch they end up supplying a credit card or bank account number.

Colorado and many other states have debt collection laws that provide consumers with abundant protections aimed at keeping them safe from aggressive or unfair collection practices. When dealing with debt collection agencies, phony or real, remember:

• If a collection agency or debt collector threatens you in any way, hang up and file a complaint with the Office of the Attorney General in your state.

• If a collection agency or debt collector declines to provide you with a record of the debt, hang up and file a complaint.

• If you dispute a debt a collection agency attributed to you in a timely fashion, the collection agency must provide some proof that you actually owe the debt before contacting you again.

• If you would like to have a collection agency stop calling you at work or home, you must send a letter to the collection agency. A phone call is not sufficient. Once a collection agency receives your letter, they are barred from contacting you.

• If you inform a debt collector that you are not the subject of the debt, it must stop calling you.

• You do not have a right to make partial payments unless the collection agency agrees to such an arrangement.

• When dealing with debt collectors, keep copies of all of your correspondence, including any payments.

• After you have asked a debt collection agency to stop contacting you, for whatever reason, it may contact you only via a lawsuit.

The ads for credit card debt settlement companies make it sound pretty easy. If you have $10,000 or more of credit card debt, these firms say they can negotiate with your lender so that you can walk away from all but a small percentage of the money you owe.

Are these promises on the level? The Better Business Bureau calls the debt settlement industry one fraught with "inherent problems." That's a diplomatic way of saying some of these companies are outright scams. In recent months several have been targets of legal action by state attorneys general.

The typical debt settlement business model requires an upfront payment from a distressed consumer. For that payment, the company agrees to negotiate on the consumer's behalf with the credit card company. Sometimes the company makes an effort to negotiate a reduction in debt, sometimes it simply disappears with the money. The consumer is left with less money and more debt, along with a severely damaged credit rating.

But a debt settlement firm that says credit card companies will negotiate a lower balance isn't necessarily lying. Lenders will, in some cases, do just that. However, the consequences for the consumer aren't particularly pleasant and need to be weighed against paying off the legal debt.

Expect more collection calls

To begin the process, the consumer stops paying his credit card bill for at least six months. Almost immediately the collection calls begin and the consumer's credit rating takes a hit.

At the end of six months the credit card company will likely write off the debt as a loss. However, you will still legally owe the debt and your credit score falls even further. It is at this point that credit card debt settlement companies say they go to work, negotiating with your credit card company to agree to lower the amount owed, in exchange for the agreed-upon amount to be paid.

However, the Federal Trade Commission (FTC) notes that it can take years for these debt settlement firms to get around to negotiating with your lender. In the meantime, late fees and interest are accumulating. Oh yes, those calls from collectors will continue. In fact, the credit card company might sell your "uncollectible" debt to a more aggressive debt collector.

Should you decide to go the debt-settlement route, the FTC says you would be much better off negotiating with the credit card company directly. You would save the large up-front fee and the percentage of the reduced debt the company usually demands as a final payment.

Seek good advice

Before taking that step, however, the FTC suggests you consider the move carefully and get expert advice. Reputable credit counseling organizations advise people on managing money, bills and debts, help them develop a budget, and usually offer free information and workshops.

They should discuss your entire financial situation with you, and help you develop a personalized plan to get you out of the hole. Finding reputable credit counselors has recently become more convenient because the new credit card law requires credit card issuers to include a toll-free number on their statements that directs cardholders to information about finding nonprofit counseling agencies. The federal government maintains a list of government-approved organizations , by state, at the website of the U.S. Trustee Program.

Debt settlement companies that make the process sound simple and relatively painless should be avoided. According to the FTC, some "red flags" include ads that tout some alleged government program or "guarantees" it can reduce your debt or makes other promises. However, the biggest tip-off of all is the requirement that you write a large check to them before they start work.

As the recession drags on, more and more states are taking action against these firms. In Minnesota, Attorney General Lori Swanson has filed six lawsuits against separate out-of-state companies that promised to help consumers, but left them in worse financial shape.

The lawsuits are the first filed under a state law passed last year to regulate so-called "debt settlement" firms doing business in Minnesota. The suits accuse the six companies-based in Florida, Texas, and California-of signing up Minnesota consumers without being licensed by the State, in some cases charging cash-strapped people fees of hundreds or thousands of dollars more than allowed under state law.

The lawsuits were filed against American Debt Settlement Solutions, Inc. of Boca Raton, Florida; Debt Rx USA, LLC of Dallas, Texas; FH Financial Service, Inc. of Dallas, Texas; Morgan Drexen, Inc. of Anaheim, California; Pathway Financial Management, Inc. of Garden Grove, California; and State Capital Financial, Inc. of Hallandale Beach, Florida.

Swimming in debt

"Many people owe money on their credit cards and are struggling to keep up with their bills because of the bad economy," said Swanson. "People who are swimming in debt are often desperate for a life preserver, but they should know that debt settlement companies usually just anchor them down with even more financial problems. No consumer should ever do business with an unlicensed debt settlement company."

According to the Federal Reserve, American consumers owed nearly $2.5 trillion in credit card and other consumer debt (not including home mortgages) as of November, 2009. The debt settlement industry took off a few years ago as consumers faced high levels of credit card and consumer debt and a recession that made it difficult for many people to keep up with their bills.

Debt settlement companies tell consumers to stop paying their creditors and instead place the money that would have gone to creditors in a bank account, which the debt settler will supposedly use to negotiate a reduction in the consumer's debt.

The Better Business Bureau calls the debt settlement industry one fraught with "inherent problems." Debt settlement companies often ask consumers to pay origination and monthly fees of thousands of dollars, but their recommendations often leave consumers in even worse financial shape. For example, debt settlers typically recommend that consumers stop paying their bills so that the debt settler can negotiate reduced payments with the creditors.

Ruined credit and collection lawsuits

Consumers who stop paying their bills, however, usually end up with ruined credit and often face collection lawsuits, garnishment, and debt collection calls. In addition, when a consumer stops making payments on their credit card and other bills, late fees and interest accrue, and the amount of the loan swells. Meanwhile, the debt settlers are profiting from fees that could have been used by the consumer to pay bills.

The lawsuits allege that the companies signed up Minnesota consumers for debt settlement contracts after August 1, 2009, the effective date of the new state law, without being registered with the Minnesota Department of Commerce, as required by state law. Minnesota law limits the origination and monthly fees that may be charged by licensed debt settlement firms.

Depending on the amount of the consumer's debt and the method they choose to pay the debt settler, state law generally caps the origination fee that may be charged by the debt settler at between $200 and $500 and caps the monthly fee that may be charged by the debt settler at between $50 and $75.

The State of Illinois has filed individual lawsuits against four debt settlement companies, claiming that the defendants are engaging in deceptive marketing practices, charging excessive fees and doing little or nothing to improve consumers' financial standing.

Along with these suits, Madigan has proposed legislation that would crackdown on the industry's abusive practices.

"These companies are unfairly luring financially strapped consumers with misleading claims that they can effectively eliminate consumers' debt," Madigan said. "The reality is that, after enrolling in a debt settlement program, consumers too often find themselves in even worse financial straits. It's time to clean up this industry so that people struggling to pay off their debts aren't being sold a false bill of goods."

The Attorney General's Consumer Fraud Bureau has recorded a sharp rise in consumer complaints against debt settlement companies that claim they can significantly reduce consumers' credit card debt and provide them with an alternative to bankruptcy protection.

ConsumerAffairs.com has also received a number of complaints about debt settlement companies. Kathleen, of Tollhouse, California, reported last November she had problems dealing with a company called Guardian Credit Solution.

"We paid them $4490.00 to do a loan modification, which they never did," she told ConsumerAffairs.com. "Then one of their employees kept calling us telling us if we went into their Debt Settlement program then they could get a better deal for us on our loan modification. So we signed up for that and they got another $2395.88 of our money. They were going by the name Green Credit Solutions and then changed to Guardian. The debt settlement part of their firm was going under Green Credit Law Center and then changed to Erickson Law Group."

Familiar story

Typically, after consumers enroll in debt settlement programs, the companies charge excessive upfront fees and advise consumers to stop paying their credit card bills. For the first several months, significant portions of consumers' monthly payments are applied to the debt settlement company's fees, making it difficult for consumers to save enough money to be used for settlement purposes.

As a result of not paying their credit card bills for months, credit card companies add fees and penalties to consumers' credit card balances and often even begin collection efforts to recoup the debt, all of which puts the consumers in a worse financial situation. In many instances, while consumers were enrolled in debt settlement programs, credit card companies have sued the consumers to collect the balance on the consumers' accounts.

Madigan's lawsuits name the following defendants:

&#149 Clear Your Debt, LLC, Swiftrock Financial, Inc., Orion Processing, LLC, and two managing members, Derin Scott and Shannon Scott. The defendants operate the businesses in Austin and Lago Vista, Texas;

&#149 Endebt Solutions, LLC, d/b/a DebtOne Financial, based out of Long Beach, Calif.;

&#149 Debt Consultants of America, Inc., and its owner Robert J. Creel of Dallas, Texas; and

&#149 American Debt Arbitration of Clearwater, Fla., ADA President and Director Glenn P. Stewart, and Phoenix-based Nationwide Asset Services, Inc., NAS President and Director William Anderson, and Secretary and Director Gary K. Brown.

In each case, Madigan's complaint alleges that the defendants have violated the Illinois Consumer Fraud and Deceptive Business Practices Act by misrepresenting the services they can provide to consumers and the impact that those services will have on consumers' credit.

Each complaint asks the court to enter a permanent injunction barring the defendants from engaging in debt settlement in Illinois and order the defendants to pay restitution for aggrieved consumers, civil penalties of $50,000 for violating the Consumer Fraud Act, an additional $50,000 penalty for each violation committed with the intent to defraud, as well as a $10,000 penalty per violation committed against a person 65 years or older.

Last October 40 Attorneys General signed a letter to the Federal Trade Commission asking the agency to tighten regulation of companies offering debt relief services to consumers. The FTC is currently reviewing a new rule proposal to amend the current Telemarketing Sales Rule.

Kansas Attorney General Steve Six is warning consumers about a debt collection scam in which apparent fake debt collectors are impersonating law enforcement officers in an effort to extort money. He's urging consumers not to make payments to these scamsters.

The scammers most often claim they are attempting to collect a debt related to an Internet payday loan obtained by the consumer, but which the consumer never repaid. Consumers say they have never obtained such a loan or paid off the loan years ago.

The scam artists have most recently identified themselves as ACS, National Affidavit Processing Department and United Financial Crime Division, but may use additional phony names. It appears the phone numbers used by the scammers are "spoofed" numbers, so that the number appearing on a consumer's caller ID is not the actual number of where the call originated. It appears the calls in question may be originating from outside the United States.

When questioned, the individual calling refuses to disclose the full name or address of the collection agency he claims to represent. These scammers have been able to provide consumers with identifying information, such as the consumer's social security number, home address, e-mail address, names of family members and the consumer's computer IP address.

Since the callers are able to provide valid personal information, consumers may become confused and believe they are being contacted in regard to a legitimate debt.

If the initial debt collection scam is unsuccessful, the scamsters keep at it, often calling back months later posing as law enforcement officers or officers of the court. Typically, they threaten the consumer with arrest for fraud or some other fictitious crime unless the consumer agrees to immediately wire money via Western Union.

The phony cops try to frighten and confuse consumers into compliance by using legal sounding terms such as "We're filing an affidavit against you" or by stating a lawsuit has been or is in the process of being filed against the consumer.

A hallmark of each scam has been calling consumers repeatedly at their place of employment. This scam hit home when an employee of the Kansas Attorney General's Office was repeatedly called both on her cell phone and at work.

Despite the employee's repeated verbal disputes, the caller refused to provide any identifying information to allow her to send a written dispute. The scammer also continued to call her numerous times a day regarding a payday loan she denied obtaining. Two months later, she was again contacted by telephone by an individual identifying himself as an "officer".

"I denied owing the debt and refused to pay without being provided validation of the debt," said the employee. "I was then told, 'If that's the case, I will have local law enforcement come to your place of business and drag you out kicking and screaming.'"

"It is important for consumers to know their rights under the law," Six said. "If a consumer is receiving calls from a debt collection company and believe it is a scam, I encourage them to contact our office immediately."

Under the Fair Debt Collection Practices Act (FDCPA), collectors are required to send consumers a written notice within five days of the initial contact. The notification should contain information such as the amount of the debt, the name of the creditor to whom the debt is owed and a statement informing the consumer they have thirty days to contact the debtor in writing to dispute the debt or request validation of the debt.

In addition, legitimate debt collectors are prohibited by the (FDCPA) from making false or misleading representations, such as the consumer has committed a crime, implying nonpayment will result in the consumer's arrest, or using the threat of violence.

Alyson Rye of West Union, WVa., was alarmed when a telemarketer from Clear Financial Solutions repeatedly badgered her to accept his offer to reduce the interest rates on her credit card debt. He even led her to believe that he had Chase Bank on the line and tried to negotiate an interest rate reduction.

Chase later confirmed that no such call was made.

Although Rye never accepted its offer, Clear Financial Solutions charged $999.00 to her credit card bank, which prompted her to complain to West Virginia's Attorney General McGraw. Her complaint and others prompted an investigation of Clear Financial Solutions of Orlando, Florida.

Because of that probe, McGraw's office has entered into settlement agreements with three companies offering a variety of debt relief services, including Clear Financial Solutions, and its owner, Chris Rubini, Financial Freedom of America, Inc. of Dallas, Texas, and Financial Solutions Legal Center, of West Palm Beach, Florida.

Collectively, the settlements will result in cash refunds of more than $214,000 to 226 West Virginia consumers. All three companies also agreed to discontinue providing debt relief services in West Virginia in the future.

McGraw said Clear Financial Solutions offered a service known as "debt negotiation," in which consumers are promised a reduction in interest on their credit card debt for a one-time fee that ranges from one to two thousand dollars. Debt negotiation companies claim they try to generate savings by arranging balance transfers on new credit cards. Many consumers report that no services are provided.

In contrast, Financial Freedom of America and Financial Solutions Legal Center offered a service known as "debt settlement." In this approach, consumers stop making payments to the credit card banks and try to accumulate savings in an account that the debt settlement company will use to negotiate lump sum settlements of less than the amount owed on each account.

Most debt settlement companies charge substantial upfront fees, monthly service fees, and additional contingency fees based upon a percentage of the amount allegedly saved by a settlement. Consumers frequently complain that debt settlement companies settle few, if any, accounts, that they continue to receive calls from debt collectors, and are often sued by their creditors while they were enrolled in this program.

"Consumers who seek help with financial problems on the Internet or from high pressure telemarketers are more likely to find trouble rather than a solution to their problems," McGraw said.

By Mark Huffman
ConsumerAffairs.com

October 27, 2009
The attorneys general of 40 states have asked the Federal Trade Commission to tighten regulation of companies offering debt relief services to consumers. The FTC is currently reviewing a new rule proposal to amend the current Telemarketing Sales Rule.

The move follows a number of individual actions by various states. Earlier this month, Illinois Attorney General Lisa Madigan sued Credit Solutions of America (CSA) and its CEO Douglas Van Arsdale. The Attorney General's complaint alleges that the company falsely claims that its services can help to reduce consumers' credit card debt by 50 percent.

Madigan's lawsuit contends the company continually fails to negotiate with consumers' creditors even though consumers cease to pay their creditors directly and, instead, make months of upfront payments to CSA. As a result of CSA's failure to take any effective debt settlement action on behalf of consumers, according to Madigan's lawsuit, creditors frequently sue consumers to collect on the outstanding balances.

Madigan said her office has seen a sharp rise in debt- and credit-related consumer complaints. Over the last few years, her office has received more than 12,000 complaints regarding debt and credit issues.

Problem increases as economy fails

Last year, at the height of the economic downturn, consumer debt-related issues surged to the top category of complaints filed with the Attorney General's Consumer Fraud Bureau, including credit card debt, abusive collections and deceptive debt settlement practices.

Consumers with debt settlement complaints typically report that, after they enroll in debt settlement programs, the firms charge excessive upfront fees and advise consumers to stop paying their credit card bills.

All too often, consumers report that after they make many upfront monthly settlement payments, the debt settlers fail to negotiate with consumers' credit card companies. As a result, the credit card companies add interest, fees and penalties to consumers' credit card balances and begin collection efforts to recoup the debt, which in turn negatively impacts consumers' credit reports. In many instances, credit card companies have sued consumers enrolled in debt settlement agreements in an attempt to collect the balance of the consumers' accounts.

'Failing to deliver'

"In an ever-building wave of ploys and scams on consumers, debt settlement and debt negotiation companies promise to help consumers eliminate or reduce their debts, but often fail to deliver on these promises," said Ohio Attorney General Richard Cordray. "Tougher regulations will help to rein in some of the most deceptive and unfair practices in this industry."

Among other things, the new rule proposes:

• Prohibiting debt relief companies from charging fees until they have performed services. Requiring improved disclosures to consumers, including informing the consumer of the length of time it will take to settle debts and what the costs will be.

• Prohibiting misrepresentations, including misleading statements concerning fees, success rates, and the impact the services will have on a consumer's credit history.

• Extending the Telemarketing Sales Rule so that it covers incoming calls made to debt relief companies in response to advertisements.

The Ohio Attorney General's Office has received more than 600 complaints involving debt relief services since January 2007 and through its complaint resolution process has recovered more than $320,000 on behalf of consumers. ConsumerAffairs.com has also received hundreds of complaints over the years about debt settlement firms, including Credit Solutions of America.

"We signed up with Credit Solutions 3 months ago. We have made 3 payments of 600+, and they have done nothing for us," Virginia, of Inlet, N.Y., told ConsumerAffairs.com. "All creditors have contacted us and said we could negotiate directly with them. We have also been threatened with a lawsuit."

The letter of support was sent to the FTC on behalf of Cordray as well as attorneys general from Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Guam, Hawaii, Idaho, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Vermont, Washington, West Virginia and Wyoming.

The Attorneys General of the 50 United States regularly stay in close contact on major issues, but are acting more and more in concert when it comes to consumer protection these days.

A case in point is what appears to be a coordinated crackdown on abusive debt settlement companies.

Last week New York Attorney General Andrew Cuomo won a lawsuit against against Nationwide Asset Services, barring it from doing business in New York unless its posts a $500,000 performance bond to protect consumers. Over the course of the summer, he took action against a number of New York-based firms that he said were engaging in abusive and illegal debt settlement practices.

Meanwhile, Florida Attorney General Bill McCollum announced his office has filed two lawsuits on behalf of Florida consumers against five debt settlement-related companies. According to the complaints, the businesses promised consumers they could pay off their debts for a fraction of the amount owed, but instead collected large up-front fees and left customers with little or no money to pay creditors.

"These victims were hit with a one-two punch: they paid substantial up-front fees for services not provided as promised, then ended up with increased debt, ruined credit, lawsuits, bankruptcy and more," McCollum said.

One of the lawsuits was filed against Texas-based CSA-Credit Solutions of America, Inc., a self-proclaimed debt settlement industry leader. The lawsuit alleges that CSA unlawfully charges significant advance fees before completing or, in many instances, commencing performance of its debt settlement services. CSA offers to settle consumers debts at approximately 50 percent of their balance within 12-36 months and, according to the lawsuit, falsely represents the success rate of its program.

Under the CSA plan, consumers are instructed to stop paying their creditors and start a savings account, supposedly to accumulate enough funds to allow CSA to negotiate a lump sum payoff of the debt. However, for the first three months, CSA allegedly withdraws 85 percent of the funds for its own fees, leaving the consumers with little or no money to negotiate a settlement with their creditors.

Additionally, while the consumer is trying to save enough for the lump sum payoff, he or she may suffer increased penalties for nonpayment to creditors, lawsuits, damage to credit scores, bankruptcy and more. McCollum's office has over 140 complaints, but estimates the company has thousands of Florida victims.

The second lawsuit filed names Clearwater-based ADA of Tampa Bay, Inc., which does business as American Debt Arbitration. The lawsuit also names the companys principal Glenn P. Stewart, as well as Arizona-based entities Nationwide Asset Services, Inc., Service Star, LLC, and Universal Debt Reduction, LLC.

The lawsuit alleges the defendants promise to help consumers pay off their debts at significant savings, but fail to adequately disclose the true cost of their services. Also allegedly withheld from consumers is the fact that the companies collect at least the first three months of payments as fees, in violation of Florida law, before the consumer can start accumulating any funds for settlement and before any services begin. During the savings period, consumers are counseled to cease all payments to and communications with their creditors. As a result, consumers suffer great financial harm and can be subject to increased penalties and lawsuits.

Because these companies do business nationwide, its not surprising they have attracted the scrutiny of so many attorneys general. In Illinois, Attorney General Lisa Madigan sued Credit Solutions of America in early October. West Virginia Darrel McGraw sued Able Debt Settlement in August.

Debt settlement firms are not new, but have proliferated in recent months as the economy plunged and more consumers struggled to pay credit card bills.

Consumers are drowning in debt and unscrupulous "debt settlement" companies, advertising on radio, television and the Internet, are making the situation worse, says Illinois Attorney General Lisa Madigan.

Madigan, like many of her peers in other states, has recently stepped up the pressure on what she calls "an abusive debt settlement industry." She's proposed legislation that would make it harder for the worst players to operate in Illinois and has filed suit against a Dallas company she said was employing deceptive marketing practices and charging excessive fees without effectively improving consumers' financial standing.

"With credit card debt at an all-time high, increasing numbers of families have become prime targets for debt settlement companies who lure consumers in with elaborate, deceptive promises to dramatically reduce consumers' debt," Madigan said. "Based on my office's lawsuits and investigations of this industry, we've learned that consumers seldom, if ever, see their debts settled and often end up owing more than the credit card debt they originally incurred."

The proposed legislation seeks to ban all debt settlement companies from operating in Illinois, unless they meet the following requirements:

• provide true, individualized credit counseling;

• charge no up-front fees;

• obtain a license and a bond;

• disclose to consumers the risks involved in entering into a debt settlement contract; and

• provide a written contract and a right to cancel the contract.

Madigan said her office has seen a sharp rise in debt- and credit-related consumer complaints. Over the last few years, the Attorney General's office has received more than 12,000 complaints regarding debt and credit issues.

Last year, at the height of the economic downturn, consumer debt-related issues surged to the top category of complaints filed with the Attorney General's Consumer Fraud Bureau, including credit card debt, abusive collections and deceptive debt settlement practices.

Consumers with debt settlement complaints typically report that, after they enroll in debt settlement programs, the firms charge excessive upfront fees and advise consumers to stop paying their credit card bills.

All too often, consumers report that after they make many upfront monthly settlement payments, the debt settlers fail to negotiate with consumers' credit card companies. As a result, the credit card companies add interest, fees and penalties to consumers' credit card balances and begin collection efforts to recoup the debt, which in turn negatively impacts consumers' credit reports. In many instances, credit card companies have sued consumers enrolled in debt settlement agreements in an attempt to collect the balance of the consumers' accounts.

The lawsuit was filed against Credit Solutions of America (CSA) and its CEO Douglas Van Arsdale. The Attorney General's complaint alleges that the company falsely claims that its services can help to reduce consumers' credit card debt by 50 percent.

Madigan's lawsuit contends the company continually fails to negotiate with consumers' creditors even though consumers cease to pay their creditors directly and, instead, make months of upfront payments to CSA. As a result of CSA's failure to take any effective debt settlement action on behalf of consumers, according to Madigan's lawsuit, creditors frequently sue consumers to collect on the outstanding balances.

Chris, of Laytonville, Maryland, signed up with Credit Solutions after seeing the company advertised on the Oprah Winfrey Show.

"They told me to stop paying my creditors and to forward all collection calls and notices to them," Chris told ConsumerAffairs.com. "Yeah right! That did nothing! Phone calls night and day from creditors, most of which stated that they don't and will not work with Credit Solutions."

Madigan's lawsuit charges defendants with violating the Illinois Consumer Fraud and Deceptive Business Practices Act by misrepresenting the services that the company can provide to consumers and the effect the services will have on consumers' credit.

The state is seeking a permanent injunction barring the defendants from engaging in debt settlement in Illinois and asking the court to order the defendants to pay restitution for aggrieved consumers, civil penalties of $50,000 for violating the Consumer Fraud Act, and an additional $50,000 for each violation committed with the intent to defraud.

This is the third lawsuit that Madigan has filed this year against debt settlement firms, following complaints against SDS West Corporation and Debt Relief USA.

Turns out Debt Relief USA could have used a little debt relief itself. The Texas based company is in bankruptcy, leaving hundreds of distressed clients in the lurch. Pam, of Newport, Tennessee, is one of them.

"Saw the ad on TV, called them and signed a contract," Pam told ConsumerAffairs.com. "Now I am being sued and they are closed. I need my money back to settle with my creditors."

Pam may be in luck.

Texas Attorney General Greg Abbott has taken legal action to recover $4.6 million that he says Debt Relief USA wrongly withheld from its clients in Texas and other states.

In June, Debt Relief USA Inc. of Addison filed for bankruptcy protection in the Northern District of Texas. As a result, more than 2,500 financially distressed customers did not receive the debt relief they were promised. In fact, debtors' problems were exacerbated by the bankruptcy because some of Debt Relief USA's clients received no assistance and are now being pursued by collection companies.

According to investigators with the Office of the Attorney General, the firm targeted individuals with thousands of dollars in unsecured debt, promising customers it would render them "debt-free in as little as 36 months."

Under Debt Relief USA's model, debtors stop paying their debts in order to save the money they would have paid creditors over time. Instead, they paid monthly installments to Debt Relief USA, which promised to later negotiate discounted pay-offs with creditors.

However, Abbott says his investigation concluded that the company assessed an "administration fee" of about eight percent of each customer's total debt, as well as monthly "maintenance fees" of up to $40. If the company successfully settled a debt, it then charged a "negotiation fee" of 13 percent of the amount of debt saved.

According to court documents the state filed with the bankruptcy court, Debt Relief USA collected "set-aside" funds from its customers. However, the Texas Finance Code prohibits set-aside funds unless a company is licensed or registered and has posted a bond with the Office of Consumer Credit Commissioner. Abbott says Debt Relief USA failed to meet the legally mandated registration and bond requirements.

As a result, the Attorney General has filed a proof of claim in the bankruptcy case seeking restitution for financially harmed debtors and the return of any fees paid to Debt Relief USA by current or former clients.

In addition, the Office of the Attorney General moved to protect the defendant's clients' privacy by successfully arguing that their names and confidential information be removed from the public record. Further, the Attorney General successfully moved to have the bankruptcy case converted from a Chapter 11 reorganization to a Chapter 7 liquidation with a neutral trustee appointed by the court. The trustee's duties will include liquidating the debtor and paying claims to creditors.

Investigators with the Office of the Attorney General say they found that Debt Relief USA often never contacted creditors on behalf of their "clients," which ultimately damaged its customers' credit reports and even led to debt collection lawsuits by creditors. Debt Relief USA customers risked the ongoing accruals of late fees, interest, over-limit charges and other fees associated with the creditor's account.

Therefore, even in the event of a settlement, customers often owed significantly more on their accounts, which reduced their overall debt settlement savings. In addition, any savings realized under a settlement would be subject to taxation, since these are considered "income."

In addition to restitution, the Attorney General seeks civil penalties of up to $20,000 per violation of the Texas Deceptive Trade Practices Act, as well as attorneys' fees.

Consumers who believe they may qualify for restitution call the Office of the Texas Attorney General's toll-free complaint line at (800) 252-8011.

New York Attorney General Andrew Cuomo is going after another Buffalo-based debt collection operation.

In June the Attorney General's Office obtained an order a nationwide collection operation that consisted of at least nine debt collection companies across Western New York, run by Buffalo resident Tobias Boyland. According to the complaint, Boyland's employees violated state and federal law by routinely posing as law enforcement officials, threatening to arrest consumers and throw them in jail unless they made arrangements to pay the company immediately.

This week Cuomo filed a lawsuit seeking to shut down another Buffalo-based debt collection operation consisting of 13 debt collection companies run by Buffalo residents Omar Smith, Narvell Benning and Keith Marshall. The announcement has a similar ring.

According to the complaint, the Benning-Smith Group's employees violated state and federal law by routinely posing as law enforcement officials and threatening to arrest or to physically harm consumers unless they made arrangements to pay the company immediately.

Additionally, the Benning-Smith Group allegedly made abuse and humiliation a trademark of their collection practices by verbally abusing consumers and, in some instances, sexually harassing them. To date, the Attorney General's Office said it has identified more than a thousand instances in which the Benning-Smith Group breached state and federal statutes.

Cuomo's lawsuit, filed Tuesday in Buffalo Supreme Court, seeks to shut down all of the Benning-Smith Group's operations in the Western New York.

"This company made lies, threats and abuse their calling cards in their efforts to manipulate and take advantage of consumers already facing tough economic times," Cuomo said. "They did everything they could to demean and humiliate their targets, stooping so low as to sexually harass and verbally abuse individuals nationwide. My Office will continue to protect consumers by making it clear that companies like this one will not be permitted to operate in the State of New York."

Cuomo said the investigation revealed that collectors regularly demanded payment for non-existent debts or substantially inflated the amount owed on an actual debt. Using their false law enforcement identities, collectors coerced and cajoled terrified consumers into agreeing to make payments. Frightened at the prospect of arrest and humiliation, consumers authorized withdrawals from their checking accounts, sent Western Union moneygrams and/or money orders out of fear, the complaint says.

In one instance, a Benning-Smith collector allegedly kept repeating the name of a consumer's daughter, describing various sexual things he would do to her unless the debt was paid. Another collector told a female consumer that if both she and her husband would engage in sexual acts with him, he would pay their debt himself. Collectors routinely called consumers "drunks," "scumbags," "deadbeats," and, in one instance, "a low-life piece of trash."

The federal Fair Debt Collection Practices Act, the New York State debt collection and consumer protection laws prohibit the following conduct: posing as an attorney, threatening lawsuits or other legal action which cannot be taken, saying a consumer committed a crime or will be arrested and talking with third parties except to get location information.

These statutes also bar the use of deception and harassment in collection practices. The law further requires collection agencies to send a written notice within five days of initial communication with the consumer explaining how he or she can dispute the debt. If properly disputed, the collection agency must stop all collection attempts and send verification.

Consumers often make the mistake of paying a firm that says it can stop bill collectors from harassing them. It's usually a waste of money. They would be better off calling their state attorney general, who in most cases will take on these bullies for free.

In West Virginia, a woman authorized an Ohio collection agency to charge $5,000.00 to her credit card because the company was threatening to have her daughter arrested at work. The same collection agency told another consumer that his daughter would be "arrested for fraud of the federal government" unless she made an immediate payment of $5,000.00 toward a student loan.

Such strong-arm collection tactics are effective, but much like holding a gun to someone's head, they are illegal.

It is precisely this type of conduct that West Virginia Attorney General Darrell McGraw says he seeks to stop by filing a lawsuit against the company that allegedly made these threats to several West Virginians, National Enterprise Systems, Inc. ("NES") of Solon, Ohio.

McGraw's complaint alleged a wide range of other unlawful conduct, including adding unlawful collection fees to tuition owed by students to West Virginia colleges and universities. The suit asks the court to order NES to cease its abusive practices, to pay civil penalties to the state, and to award restitution to consumers who were victimized.

The firm, it turns out, targets consumers nationwide. Rachael, or Norwalk, California, says she received harassing phone calls at work, where she is not permitted to accept personal phone calls.

"Dispite my many request for this company not to call me, they continue to do so," she told ConsumerAffairs.com. "When I explaine to them that I can't have these phone calls, they are always rude and aggressive."

"Failure to pay a debt is not a crime and companies that make such false threats have violated both state and federal debt collection law.," McGraw said. "My office will not tolerate abuse and harassment of consumers who may be in debt through no fault of their own. The Legislature has authorized my office to enforce the laws that prohibit such conduct, and we intend to do so, particularly when the unlawful conduct is as extreme as has been alleged against National Enterprise Systems."

The operators of a debt collection firm will pay $225,000 to settle charges with the Federal Trade Commission. The FTC accused the company of using false threats and other unlawful tactics to collect consumers' debts.

According to the FTC complaint, the defendants, who had about three million consumer accounts and collected debts in every state, told consumers their nonpayment of debt would result in garnishment of consumers wages, arrest, or legal action., none of which was true.

The FTC alleged that the defendants used illegal and abusive debt collection methods: they called consumers before 8 a.m. or after 9 p.m.; called their workplace when the collectors knew or had reason to know that the calls were inconvenient; told employers, co-workers, relatives, and neighbors about the consumers' debts; continued calling after receiving consumers written demands to stop; and used harassing and abusive tactics such as calling many times a day, calling right back after a consumer hung up, and using profane or other abusive language.

Consumers filed hundreds of complaints with the FTC, the Metropolitan New York Better Business Bureau, various state attorneys general, and the defendants, according to the complaint. The defendants often failed to address the law violations alleged in the complaints and often dismissed complaints without significant investigation or disciplinary action against employees, the FTC said.

Even in the face of substantial evidence of debt collection violations, the defendants collectors often went unpunished or merely received a warning, the complaint stated. The settlements prohibit the defendants from further violations of the FTC Act and the Fair Debt Collection Practices Act.

The settlement with Oxford Collection Agency, Inc., doing business as Oxford Management Services; Richard Pinto; Peter Pinto; and Charles Harris imposes a civil penalty of $1,060,000, all but $225,000 of which will be suspended. The settlement with Salvatore Spinelli, individually, and d/b/a Salvatore Spinelli, Esq., Attorney-at-Law, also imposes a $1,060,000 civil penalty, which will be suspended based on his inability to pay.

The full judgments will become due immediately if the defendants are found to have misrepresented their financial condition. The settlements also contain record-keeping and reporting provisions to allow the FTC to monitor compliance with the orders.

New York Attorney General Andrew M. Cuomo today shut down a nationwide collection operation that consisted of at least nine debt collection companies across Western New York, run by Buffalo resident Tobias Boyland, the latest in Cuomo's probe of debt collection practices.

According to hundreds of consumer complaints filed with law enforcement agencies across the country, Boyland's employees violated state and federal law by routinely posing as law enforcement officials, threatening to arrest consumers and throw them in jail unless they made arrangements to pay the company immediately.

Under the terms of the court order obtained today by Cuomo's office in Buffalo Supreme Court, Boyland's operation will shut down all of its companies in the Buffalo area. Attorney General Cuomo also announced that his office executed search warrants on four of the operations known locations and on Boyland's residence. When investigators from the Attorney General's Office arrived at the residence, they found a loaded, .380 semi-automatic pistol on Boyland's person. Boyland was taken into custody by the Erie County Sheriff and the Office of the Erie County District Attorney will handle the resulting gun-possession case.

"Plain and simple, this company was run by people who lied, bullied and preyed on vulnerable Americans struggling to resolve their financial situation," Cuomo said. "Pretending to be a police officer, threatening to throw consumers in jail — these practices are as despicable as they are illegal."

According to Cuomo's lawsuit, Boyland, a convicted felon, and three other individuals ran numerous debt collecting companies that operated out of at least four locations in Western New York.

The debt collection agencies operated under several names across the Buffalo area, including: Central Resource Management, Final Claims Asset Locators, Final Control Asset Locators, Interchange Payment Solutions, Next Step Services, Portfolio Asset Assurance, Silverbay Services, and Teleport.

Their collectors routinely made scripted telephone calls designed to intimidate consumers into paying their debts. The debt collectors pretended to be law enforcement officers and threatened consumers with arrest and incarceration if they failed to pay. These employees also falsely informed consumers that they were being sued in civil court.

Cuomo's investigation revealed that collectors regularly demanded payment for non-existent debts, demanded payments for debts that had already passed the statute of limitations, or substantially inflated the amount owed on an actual debt.

Using their false law enforcement identities, collectors coerced and cajoled terrified consumers into agreeing to make payments. Frightened at the prospect of arrest and humiliation, consumers authorized withdrawals from their checking accounts, sent Western Union moneygrams and/or money orders out of fear. Consumers were intentionally given misleading names, addresses and telephone numbers that led them to believe the businesses were located far from the Buffalo area.

The federal Fair Debt Collection Practices Act, the New York State debt collection and consumer protection laws prohibit the following conduct: posing as an attorney, threatening lawsuits or other legal action which cannot be taken, saying a consumer committed a crime or will be arrested and talking with third parties except to get location information. The law further requires collection agencies to send a written notice within five days of initial communication with the consumer explaining how he or she can dispute the debt. If properly disputed, the collection agency must stop all collection attempts and send verification.

Earlier this month, Cuomo announced settlements with three Western New York-based debt collection companies to reform their deceptive methods. He also subpoenaed nearly twenty companies and law firms operating as debt collectors throughout the state. His office shut down two collectors for threatening and intimidating consumers into paying debts that they did not owe. In early May, Cuomo announced a lawsuit against two debt settlement companies for fraudulent business practices and false advertising by selling misleading debt settlement plans that very rarely deliver the promised benefits to consumers dealing with debt.

A West Virginia judge has issued an injunction, blocking Able Debt Settlement of Irving, Texas from doing business in the state. Attorney General Darrell McGraw sued Able Debt Settlement last month, saying consumers paid Able for services they never received.

Able claims to settle consumers' debts for less than 50 cents on the dollar. Able charges consumers thousands of dollars for its services, but makes no effort to settle consumers' debts and then refuses to refund their money, McGraw charges. Instead of having their debt paid off, consumers are left with ruined credit and unpaid bills.

Debt settlement companies usually claim to negotiate with consumers' creditors to repay outstanding debts, at a deep discount. Consumers are instructed to stop paying their creditors and to make monthly payments to the debt settlement companies instead. The premise behind debt settlement is that creditors will eventually be willing to settle outstanding debt for pennies on the dollar.

With this injunction, Able is prevented from conducting any business in West Virginia, including any manner of debt settlement. Judge Irene C. Berger further ordered Able to contact its customers in West Virginia and advise them Able was prevented from operating in West Virginia. Finally, Judge Berger ordered Able to post a notice on its Internet website that its debt settlement services are not available in West Virginia.

McGraw's consumer protection division started an investigation of Able in 2007 and previously obtained a temporary injunction against the company when it refused to comply with the investigation. Able tried to stop McGraw by, twice, asking the West Virginia Supreme Court to intervene. The Court refused Able Debt Settlement's petitions, allowing McGraw to continue the investigation.

"Debt settlement companies that promise to negotiate debts on behalf of consumers and fail to provide any services will not be allowed to operate in West Virginia," said McGraw. "Consumers who need assistance with paying their bills should either consult an attorney or seek the services of a non-profit credit counseling agency."

Charging that they offer consumers "false hope" while charging "tremendous fees," New York Attorney General Mario Cuomo has launched a nationwide investigation of debt settlement companies, which he said too often prey on consumers who have fallen onto financial hard times.

A lawyer who represents an industry trade group said Cuomo was engaging in "a P.R. stunt."

Today, millions of hardworking Americans are finding themselves imprisoned by debt. In response, a rogue industry has stepped in, offering consumers false hope, charging tremendous fees, and leaving them in a worse financial situation, Cuomo said. Our mission is clear: to hold unscrupulous businesses accountable; to rein in a renegade industry; and to ensure that people are not victimized when faced with financial hardship.

Cuomo said he has issued subpoenas to 14 debt settlement companies and one law firm: American Debt Foundation, Inc.; American Financial Service; Consumer Debt Solutions; Credit Answers, LLC; Debt Remedy Solutions, LLC; Debt Settlement America; Debt Settlement USA; Debtmerica Relief; DMB Financial, LLC; Freedom Debt Relief; New Era Debt Solutions; New Horizons Debt Relief Inc.; Preferred Financial Services, Inc.; U.S. Financial Management Inc. (d.b.a. My Debt Negotiation); and the Allegro Law Firm.

The subpoenas include requests designed to uncover the companies fee structures, how many people have benefitted from the companies services, and what kind of relief the companies are actually providing.

Cuomo is also currently investigating Nationwide Asset Services, Inc., based in Phoenix, Arizona, and Credit Solutions of America, Inc., based in Addison, Texas.

Debt settlement companies typically promise to negotiate with credit card companies and other lenders on consumers' behalf. Most charge an initial fee of 15 percent or more of the initial debt.

But Cuomo said the debt settlement plans are often "inherently flawed" and he said that, based upon consumer complaints, it appears that many consumers are being misled regarding the nature of the services offered by these companies. For example, he said that some companies falsely represent that they can reduce consumers credit card debt by as much as 75 percent through negotiations with creditors.

The debt settlement plans are generally premised on consumers aggregating savings, over one to three years, from which both the payment of the companys fees and any negotiated settlement are to be made. Yet most consumers who are targeted by these companies are unable to meet the savings requirements because of their precarious financial situation, Cuomo charged.

Some of the companies also urge consumers to seek additional sources of funds through means such as selling their blood plasma, mowing lawns, cutting down on car insurance, and borrowing from their neighbors and church. Even for those consumers who can meet the requirements set out by a plan, their amount of aggregated savings is ordinarily insufficient to settle their debts, Cuomo said. As a result, many consumers find themselves worse off financially because of these debt settlement plans.

Consumer advocates say that many consumers would benefit more from working directly with their creditors, seeking credit counseling, or consulting an attorney about filing for bankruptcy. Additionally, even when enrolled in a debt settlement plan, consumers are often still subjected to collection efforts and lawsuits filed by their creditors. Consumers are even told not to discuss their debt situation with creditors.

On April 14, 2009, Cuomo arrested the owner of Long Island-based American Legal Process for allegedly providing sewer service to thousands of New Yorkers owing debt. According to the Attorney Generals criminal complaint and civil suit, this company failed to properly notify individuals that they faced debt-related lawsuits. As a result, individuals would unknowingly default and have judgments entered against them, without the chance to defend themselves.

Reader reviews of debt settlement services

Illinois Attorney General Lisa Madigan warned consumers facing significant credit card debt about the risks of debt settlement offers as she announced two lawsuits filed against debt settlement firms.

Madigan's lawsuits allege that the companies — SDS West Corporation, Aliso Viejo, Calif. and Debt Relief USA, Inc., Addison, Texas — engage in deceptive marketing practices, charge excessive fees and do little or nothing to improve consumers' financial standing.

"Too many people who find themselves under a mountain of credit card debt are tempted to turn to debt settlement companies that often worsen their financial problems," Madigan said. "After being enticed by these companies promises to reduce debt, consumers too often end up owing more than their original credit card debt."

Madigan said her office has seen an increase in advertisements for debt settlement companies that promise to significantly reduce consumers credit card debt and provide them with an alternative to bankruptcy protection. Typically, after consumers enroll in debt settlement programs, the companies charge excessive upfront fees and advise consumers to stop paying their credit card bills.

Despite this advice, the debt settlement companies fail to begin negotiations with consumers credit card companies for several months. As a result, credit card companies add fees and penalties to consumers credit card balances and often even begin collection efforts to recoup the debt, all of which puts the consumers in a worse financial situation.

In many instances, while consumers were enrolled in debt settlement programs, credit card companies have sued the consumers to collect the balance on the consumers accounts.

The lawsuits filed by Madigan name:

• SDS West Corporation, an Aliso Viejo, Calif.-based debt settlement agency; Bruce Hood, the Chief Operating Officer of SDS West; SDS West's Chief Executive Officer, Raymond Dorso; Nationwide Support Services, Inc., an Irvine, Calif.-based debt settlement servicer; and Joanne Garneau, President of Nationwide Support Services; and

• Debt Relief USA, Inc., a debt settlement firm based in Addison, Texas and Kelly E. Reilly, the President of Debt Relief USA.

SDS West

According to Madigan s complaint, SDS West and its business partner Nationwide Support Services inform consumers that their debt mediation services will help to reduce consumers debt by nearly 50 percent and that consumers will be debt-free in 12 to 36 months.

SDS West primarily markets the business partnership s debt settlement services, while Nationwide Support Services allegedly conducts the settlement negotiations with creditors. Madigan's complaint alleges that most consumers are unaware that Nationwide, not SDS West, performs the actual negotiations on their behalf.

The defendants tout their services as universally better than credit counseling and bankruptcy protection, and they allegedly promise consumers that they will contact all the consumers credit card companies and negotiate substantially reduced settlements of the outstanding credit card balances. From 2006 to the present, hundreds of Illinois consumers have enrolled in the defendants debt settlement program.

When consumers enroll in the program, they allegedly are instructed to stop making payments to the credit card companies and, instead, make monthly payments to the defendants program in order to build up a lump sum for use by Nationwide Support Services in negotiating a settlement with the credit card companies.

However, the first payments go toward a substantial fee of approximately 15 percent of the consumers total credit card debt. Consumers also are charged a monthly $50 maintenance fee. Madigan s complaint alleges that consumers did not understand (1) that their monthly payments would be used to pay fees before any performance of services on their behalf, and (2) that it takes several months to accumulate a lump sum payment to begin negotiating a payoff with the credit card companies.

Debt Relief USA

In the second lawsuit, Madigan alleges that Debt Relief USA promised consumers that its services would help reduce credit card debt by 40 to 60 percent and that consumers could be debt-free in as little as 36 months.

However, according to the complaint, Debt Relief USA failed to negotiate substantial reductions on most consumers accounts. Madigan s complaint alleges that most Illinois consumers dropped out of the program before Debt Relief USA settled any debt on their behalf, but after the consumers paid Debt Relief USA s nonrefundable fees.

From 2005 to 2008, at least 470 Illinois consumers enrolled in the Debt Relief USA program. When consumers enroll in the Debt Relief USA program, the defendants allegedly instruct consumers to stop paying their credit card bills and, instead, pay a monthly fee to Debt Relief USA based on how much they owe.

The defendants allegedly apply the first several monthly payments toward Debt Relief USA s upfront fee of up to 10 percent of the consumer s credit card debt. The defendants also apply each monthly payment toward Debt Relief USA s monthly maintenance fee of $29.95 to $39.95. The remainder of the monthly payment goes into an escrow account until enough money accrues to make a settlement offer to the credit card company, which often takes several months.

During this time, the complaint alleges, Debt Relief USA fails to attempt to settle any debts on consumers behalf. In addition, when Debt Relief USA reaches a settlement on one of the consumer s accounts, the company charges the consumer a settlement fee that is equal to 13 percent of the amount by which Debt Relief USA was able to reduce the consumer s debt through settlement negotiations.

In both cases, Madigan s complaints allege that the defendants have violated the Illinois Consumer Fraud and Deceptive Business Practices Act by misrepresenting the services they can provide to consumers and the impact that those services will have on consumers credit. Each complaint asks the court to enter a permanent injunction barring the defendants from engaging in debt settlement in Illinois and to order the defendants to pay restitution for aggrieved consumers, civil penalties of $50,000 for violating the Consumer Fraud Act, and an additional $50,000 for each violation committed with the intent to defraud.

Credit counseling

Madigan encouraged consumers in financial trouble to consider credit counseling instead of debt settlement services. The Attorney General advised consumers to look for credit counseling services that charge modest fees and provide true financial and budget counseling based on a consumer's personal circumstances.

In some instances, credit counselors may recommend that a consumer consult a debt management service, which will set up a debt payment plan based on the consumer s income, expenses, and debts. The consumer then makes one monthly payment which the debt management service provider then distributes to the consumer's creditors.

The crackdown continues on companies that promise distressed consumers debt relief but provide only more trouble. West Virginia has filed suit against Able Debt Settlement, Inc. of Irving, Texas, seeking injunctive relief and restitution for consumers who paid for debt settlement but only received ruined credit and debt collection calls.

Able Debt Settlement, formerly of Dallas, Texas, claims to settle consumers' debts. Many consumers find out, however, that Able Debt Settlement doesn't settle debts and then refuses to refund the very large fees it charges.

West Virginia Attorney General Darrell McGraws Consumer Protection Division started an investigation of Able Debt Settlement in 2007 and obtained an injunction against the company when it refused to comply with the investigation. Able tried to stop McGraw by twice asking the West Virginia Supreme Court to intervene. The Court refused Able Debt Settlement's petitions, allowing McGraw to continue the investigation.

Although debt settlement services are unrestricted in some states, West Virginias law regarding debt settlement only permits for-profit companies to charge a fee of two percent of the payments made by consumers. In his complaint, McGraw is alleging that Able Debt Settlement was charging more than the two percent fee allowed by state law and not settling debts.

"Debt settlement companies that simply sign consumers up, take their money and then fail to negotiate debts on behalf of consumers will not be tolerated in West Virginia," McGraw said. "Consumers in desperate financial situations should consult an attorney or non-profit credit counseling agency before paying any money to an unknown debt settlement company."

The debt settlement industry has arisen as consumer credit card debt has ballooned in the past few years. Debt settlers claim to make repayment plans to help consumers repay outstanding debts, at a deep discount, to avoid being sued or filing for bankruptcy. Monthly payments are then made by consumers to the debt settlers, who are supposed to then negotiate with creditors to reduce the amount of debt owed.

The nation's credit crisis and deepening recession has put more and more consumers in debt and increased their vulnerability to companies making big promises about debt relief but who deliver very little.

In November 2007, Regina Bays of South Charleston answered her telephone and heard a recorded message from a company guaranteeing to reduce her credit card debt by at least $2,500.00. At the end of the recording she was connected with a salesperson for PDM International, Inc., who promised to send her additional written information about the debt relief program.

Although she was interested, Ms. Bays did not sign up for the program. Nonetheless, she later learned that PDM of Bedford, Texas, had charged her credit card $990.00. When Bays was unable to cancel the service, she filed a complaint with West Virginia Attorney General Darrell McGraw's Consumer Protection Division.

McGraw says his office has entered into a settlement with PDM that will result in refunds of $35,345.00 for 38 West Virginia consumers. In addition to PDM's questionable promise to reduce consumers' credit card debts, McGraw's office also alleged that PDM was engaging in telemarketing sales without a business license or surety bond as required by state law. Importantly, PDM did not give consumers an unconditional right to cancel at least seven days after the telephone sale, as required by West Virginia law.

"Consumers should always be wary of telephone calls from strangers who offer products and services that sound too good to be true," McGraw said. "Thanks to the complaint of Regina Bays, my office was alerted to PDM's practices and we were able to obtain refunds for all aggrieved consumers."

As thousands of consumers discover each year, shady companies that promise to get rid of your credit card debt always fail to deliver. It turns out that getting rid of that debt is a lot harder than they say.

Your state attorney general, on the other hand, can sometimes wipe the slate clean, especially if there is something about the debt, or the way it is being collected, that bends or breaks the rules.

In West Virginia, for example, Attorney General Darrell McGraw has entered into a settlement agreement with Financial Credit Services ("FCS"), a debt purchaser based in Palatine, Illinois, that purchased canceled debts of $6,675,474.64 for 1,451 West Virginia consumers.

According to FCS, the defaulted credit card accounts in question were originally owed to numerous mainstream credit card banks, including Bank One, Citifinancial, Chase, GE Capital, Household, MNBA, and Providian.

McGraw began an investigation of FCS in January, 2007 after receiving consumer complaints disclosing that it was collecting debts in West Virginia without a license. The complaints also disclosed that FCS threatened to file suit and report debts to credit bureaus when it did not intend to take these actions. The attorney general also alleged that FCS did not have any verifiable proof of the debts that it sought to collect other than computer spreadsheets.

In addition to relieving consumers of the alleged indebtedness, FCS also agreed to refund all payments it collected, which so far amounts to only $2,481.00. The amount actually collected was likely small because FCS said it only contacted three per cent of the consumers.

"My office remains concerned about the debt purchasing industry, which typically purchases accounts for pennies on the dollar and rarely obtains any proof of the debt that would be admissible as evidence in a court, McGraw said. "This practice is troublesome because state and federal laws require that collection agencies be able to verify a debt when disputed by consumers, an important obligation to consumers that debt purchasers can rarely meet."

More Scam Alerts ...

West Virginia residents recently found a mailing from a group called Citizens Against Lawsuit Abuse in their mailboxes, prompting a brisk response from the state's attorney general, Darrell McGraw, who says the mailing "crossed the line."

McGraw takes issue with the mailing's assertion that he represented three plaintiffs in a lawsuit and is keeping the money for his own use. McGraw says the lawsuit was brought on behalf of all the citizens of West Virginia who have been affected by the addictive and abusive effects of OxyContin.

The settlement proceeds were distributed according to the Court order, and a majority of the money has been used to fund day report centers across the State. Every dollar spent on a day report center saves the county in which it is located $7 in regional jail costs, McGraw says.

And just who, or what, is Citizens Against Lawsuit Abuse?

CALA, according to incorporation papers filed with the West Virginia Secretary of State's office, is a non-profit business group organized for a common business purpose. Registered as a 501(c)(6) corporation under the Internal Revenue Code, CALA is not required by law to reveal its funders.

"If consistent with the experience in other states, CALA's main source of funding is in fact business interests which the Attorney General's office is required to regulate," McGraw's office said in the Consumer Alert. "CALA's misrepresentation of what it is should call into question its true motives and purpose."

CALA has local chapters in a number of states. According to SourceWatch, an online project of the Center for Media and Democracy, the CALA chapters are "grassroots" groups created by industries and businesses to give the appearance of a groundswell of public desire to alter the legal system to make it harder to bring lawsuits for injuries and illnesses caused by hazardous products.

SourceWatch contends that Philip Morris has been a primary backer of the group.

More Scam Alerts ...

While government statistics show consumer spending is holding steady, some economists fret about the rising level of debt Americans are putting on credit cards, and whether or not theyll ever be able to pay it off.

The Associated Press reported this week that its analysis of data from credit card lenders shows a big spike in the number of accounts more than 90 days in arrears. Thats the delinquency period when most debt is turned over to collection agencies.

As more consumers fall behind on credit payments, states are grappling with increasing activity of so-called debt counselors and debt settlement services.

In West Virginia, Attorney General Darrell McGraw has won a court order temporarily forbidding a Florida law firm from offering debt settlement services in the state.

McGraw says the firm, Hess Kennedy, of Coral Springs, Florida, claims to assist consumers who are struggling financially to make payments to their creditors. McGraw said he has seen more of this increasingly common, and sometimes controversial business as consumer credit card debt has ballooned in the past few years.

Debt settlers such as Hess Kennedy make repayment plans to help consumers repay outstanding debts, at a deep discount, to avoid being sued or filing for bankruptcy. Monthly payments are then made by consumers to the debt settlers in turn for which the debt settlers claim to negotiate with creditors to reduce the amount of debt owed.

Although debt settlement services are unrestricted in some states, West Virginias law regarding debt settlement only permits for-profit companies to charge a monthly service fee of two percent of the payments made by consumers.

Although McGraws investigation is incomplete, the attorney general says it appears that Hess Kennedy was charging more than the two percent fee allowed by state law.

"Although the debt settlement approach to debt relief may work for some persons, the service has legal consequences and should only be offered by persons licensed to practice law in West Virginia, McGraw said.

My office will continue to scrutinize the debt relief industry in an effort to protect consumers who are already facing dire financial circumstances from paying excessive fees for services that may leave them in worse shape than before."

Lawyers at two consumer groups are lambasting the debt collection industry for engaging in abusive tactics and for pursuing consumers even when shown that they have the wrong person or the debt has been paid.

Debt collectors believe they can make more money when they intimidate, threaten criminal prosecution, harass, and collect fees and charges far in excess of the real debt," the National Consumer Law Center (NCLC) and the National Association of Consumer Advocates (NACA) said.

"Even more startling, debt buyers have learned to work the system to win judgments and coerce payments even when they have the wrong person or lack any evidence that the consumer owes the debt, NCLC and NACA wrote in a filing with the Federal Trade Commission.

I thought I had heard it all, said John Fugate, a Texas consumer attorney whose story was described in the comments. The debt collector told the nine-year-old child of my college friend, who is the victim of identity theft, that they were going to take her mommy away forever.

The Fair Debt Collection Practices Act was passed in 1977 to prohibit such abusive debt collection tactics. The FTC has solicited comments on the state of debt collection for a workshop October 10-11, which will take a 30-year look back at how well the Act has worked.

Though the Act has had some success, the Senate report describing the problems that prompted Congress to pass the law in 1977 could have been written today, said Ira Rheingold, Executive Director of NACA.

The phenomenal growth of the debt buyer industry -- which did not exist 30 years ago -- has also increased the abuses tremendously, said Lauren Saunders, Managing Attorney of NCLCs Washington, DC, office.

Debts that may be a decade or more old are now sold in bundles to debt buyers for pennies on the dollar. Debt buyers then file cases by the thousands in overworked courts. The courts typically enter default judgments even if the collector has no proof that the consumer owed the debt, that the amount owed is legal and correct, or even that the debtor being sued is the right person, she added.

Debts often are sold from one collector to the next, and the collector rarely keeps critical information such as proof of the original debt, a record of payments made, or efforts the consumer made with the previous collector to resolve a dispute.

It is an Alice in Wonderland nightmare for consumers to find their old records, convince the debt collector that they have made a mistake, take time off work to go to court, and then have to begin the process all over again after the debt is sold to the next collector, said Dick Rubin, a consumer attorney in New Mexico.

The comments also point out that, in a marked change from 1977, credit is often pushed on people who are already in strained financial circumstances.

Frequently, creditors make their profits not from the regular repayment of the debt, but from the piling on of abusive fees and penalties. From the lack of underwriting to creditor practices that encourage default, debt collection becomes inevitable, the comments said. The comments describe abuses with credit cards, mortgage servicing, and payday loans.

Some consumers across the country are being contacted by a company called Midland Credit Management and told the company has purchased their Citibank USA credit card debt. In some cases, the consumers are being offered a discount to settle the debt.

Some people will undoubtedly just send them a check. I called the company and asked for the fraud department and stated I was giving them one chance to verify before sending everything to my Attorney General's office, Richard Gunter, a ConsumerAffairs.com reader, said.

Gunters suspicions were aroused because he didnt have a Citibank USA account, and hadnt for over two decades.

After speaking with someone at Midland Credit Management and disputing the charge, he said he was promised the account would be deleted. Indeed, a week or so later Gunter said he received a letter telling him he, in fact, owed no money.

Midland Credit Management is a subsidiary of Encore Capital Group, a publicly traded company. It makes money by approaching banks and credit card companies and purchasing their charged off -- or, bad debt -- for pennies on the dollar. Since the credit card company considers the account uncollectible, it's only too happy to get something for it.

Why would Encore Capital and its subsidiaries, like Midland Credit Management, pay good money for bad debt? Because chances are, if consumers are pressured to pay it, many will, even if the creditor is not legally allowed to sue.

For the first three months of 2007, Encore Capital Group reported gross collections of $90.5 million, earning a profit of $5.7 million.

When banks charge off debts, its usually because they consider it uncollectible. While the debt remains valid, the legal remedies to collect it have dimished. Often, the statute of limitations has expired. When that happens, the creditor is no longer able to take the borrowers to court, but unless consumers know this when the new bill collector calls, they are likely to quickly fold under heavy collection pressure.

Its not illegal to collect debt whose statute of limitations has expired, as long as the debt collector is complying with the law, said Craig Shapiro, an attorney with Horwitz, Horwitz & Associates in Chicago. They cant threaten to sue or threaten to garnish the consumers wages, for example, because they dont have that right.

What To Do

What should a consumer do when contacted by a debt collector who claims to have purchased the consumers debt from another lender?

The first thing they should do is demand proof that the claim is legitimate, Shapiro told ConsumerAffairs.com.

For starters, they should require, in writing, the name and address of the original debt holder, the account number, the date of the last transaction, and the amount of the original debt. As consumers, they have a right to that information.

If the statute of limitations has expired on a debt, it cannot be entered on the consumers credit report. If the new creditor threatens to report non payment to the credit agencies, it is a violation of the Fair Debt Collections Practices Act.

Each state has its own statute of limitations on old credit card debts. The statute of limitations refers to the period after which creditors cannot sue you to collect the debt. The length of time is calculated from your last payment date or last activity date, which is why it is important for consumers to receive that information from the debt collector.

Consumers who pay the debt, no questions asked, are likely paying money they are not legally required to pay. Gunter says a little skepticism is a healthy thing.

It just looked weird to me because they offered a 25 percent discount for immediate payment, he said. Anyone with a Citibank card may have paid it thinking they were getting a good deal.

The FTC's complaint claims that since 2004 the defendants have sold debt reduction services through Web sites and television and radio advertisements with claims such as "Reduce Debt Now," "Eliminate Harassing Calls," and "It's Free."

When consumers call a toll-free number, they are encouraged to enroll in a "debt consolidation program" if their unsecured consumer debt is up to one month overdue, or to enroll in a "debt settlement program" if overdue more than a month.

According to the complaint, the defendants promise to consolidate the consumer's debts and negotiate with creditors for lower interest rates, such as "between zero and 9 percent," or lump-sum settlements, such as "fifty cents on the dollar" or "50 to 60 percent" of the consumer's total unsecured debt.

They allegedly fail to obtain the promised debt reductions in violation of Section 5 of the FTC Act, and many of their clients experienced more debt due to accumulated interest, late fees, and finance charges.

The complaint also states that, during initial telephone sales, the defendants assert that consumers will not have to pay up-front fees before the defendants begin obtaining the promised debt relief. They also represent that participation in their program will stop creditors from calling or suing them to collect debt.

Instead, the Commission maintains, they generally require consumers to pay, in monthly payments, eight percent of the consumer's total debt before the defendants contact creditors. The complaint also alleges that the defendants often do not contact creditors or debt collectors at all, and that consumers who enroll in the program continue to receive collection calls.

The court issued a temporary restraining order against Debt Set Inc. ("Debt Set Colorado"), Debt-Set ("Debt -Set Nevada"), Resolve Credit Counseling Inc., William Riggs, Michelle Tucker a/k/a Michelle Mangan, Lee Tucker a/k/a Leo Mangan, and Isaac Khan a/k/a Issac M. Khan or Ishaq Mohammad Khan. The order freezes the individual defendants' assets and appoints a temporary receiver over the corporate defendants.

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Illinois Attorney General Lisa Madigan has filed suit in Cook County Circuit Court alleging that a debt collector used unfair tactics and deceptive practices to collect money from consumers.

Madigan's lawsuit names Arrow Financial Services, LLC, of Niles, Illinois. Madigan sued another collectiona agency, Leading Edge Recovery Solutions, earlier this month.

Arrow is a debt buyer and attempts to collect monies ranging from approximately $100 to over $10,000 per debt from consumers nationwide.

Since 1999, Madigan's Consumer Fraud Bureau has received 669 consumer complaints against Arrow.

Madigan's lawsuit charges Arrow with multiple violations of the Illinois Consumer Fraud and Deceptive Business Practices Act.

The suit specifically alleges that Arrow attempts to collect on time-barred debts over ten years old, attempts to collect on debts that have been discharged in bankruptcy or that have been settled, engages in abusive practices in an attempt to collect, such as using profanity, attempts to obtain payment without proof of debt, refuses or fails to provide proof of debt, illegally contacts consumers' family members and workplace, and withdraws money without authorization from consumers' bank accounts.

Madigan's suit contains a number of specific examples of consumer complaints concerning Arrow's conduct.

For example, according to Madigan's lawsuit, Arrow allegedly contacted one Franklin Park, Ill., consumer through the mail, informing him that he owes approximately $600 on a Montgomery Ward account that he had cancelled ten years ago.

Soon thereafter, the consumer allegedly began receiving calls and notices regarding the debt approximately once a week for several months at a time.

When the consumer explained to Arrow that he had cancelled the credit card ten years ago and did not owe any debt, Arrow responded that if he once owned the credit card, then he was obliged to pay for the debt. The consumer disputed the debt and asked for written proof. In response, Arrow threatened to sue the consumer and never provided any evidence of the debt allegedly owed.

Arrow's conduct has come to the attention of other state enforcement offices.

In November 2005, the Minnesota Department of Commerce imposed against Arrow Financial Services, LLC, a $125,000 fine, the largest civil penalty ever imposed against a collection agency licensed in Minnesota.

As part of this process, Arrow was required to implement a compliance program to:

(1) designate a compliance officer in charge of all regulatory compliance matters,

(2) implement a training program for all Arrow debt collectors, which includes the Fair Debt Collection Practices Act and Minnesota debt collection laws,

(3) require Arrow debt collectors to sign a statement in which they acknowledge training completion, which includes debt collection law, and

(4) establish written policies and procedures for screening debt collector applicants and conduct criminal background checks.

"Consumers should not be harassed or intimidated by unscrupulous debt collectors. We are focused on protecting Illinois consumers and others affected by businesses that use unfair and deceptive debt collection tactics," Madigan said.

Madigan's lawsuit asks the court to prohibit Arrow from engaging in deceptive debt collection activities and further violating Illinois' consumer protection laws. The lawsuit seeks a civil penalty of $50,000 and additional penalties of $50,000 for each violation found to have been committed with intent to defraud.

Finally, Madigan's lawsuit asks the court to order Arrow to pay restitution to consumers and to pay all costs for prosecution and investigation of this case.

Illinois Consumers who believe they have been the victim of unfair or deceptive debt collection practices or another consumer fraud can download a complaint form at www.IllinoisAttorneyGeneral.gov/consumers or call the Attorney General's Consumer Fraud Hotline at one of the following numbers:

Chicago: 1-800-386-5438; TTY: 1-800-964-3013
Springfield: 1-800-243-0618; TTY: 1-877-844-5461
Carbondale: 1-800-243-0607; TTY: 1-877-675-9339
Spanish Language Hotline: 1-866-310-8398

Consumers can get tips to protect themselves against unfair or deceptive debt collection practices on Madigan's website at www.illinoisattorneygeneral.gov/consumers/debtcollection.html.

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According to a recent survey by Consumer Reports, 23 percent of Americans will not pay off their holiday debt until March or later, equaling $14.6 billion in interest-accruing debt. Over one-quarter of Americans use credit cards most often when holiday shopping, contributing to the $63.6 billion charged on credit cards throughout the shopping season.

"With the average household saddled with $9,000 in credit debt already, anything that significantly adds to that impost could be potentially devastating," said Tod Marks, senior editor, Consumer Reports.

Marks and other financial experts prescribe discipline and a systematic approach to personal finances as the best way to eliminate debt. It starts with setting some goals for the new year.

"Without your financial goals, you don't really have the proper motivation to get out there and save. Without a plan, you aren't getting anywhere. If you don't set financial goals, you may never see financial independence," advises Martin Lukac, with RateEmpire.com, a consumer banking marketplace.

To get out of debt, financial experts suggest a four pronged approach:

• Analysis look at what you own, what interest rate you are paying, and when you would like to be able to retire the debt.

• Budget eliminating or reducing your debt will not happen without some sacrifice. Unless you come into a windfall of cash, the money to pay off the debt will have to come from your current cash flow. Look for places were you can save money from your current expenses and be disciplined about applying that savings toward paying off your debts.

• Be Bold It never hurts to ask for a little help. Call your credit card company and see if you can obtain a lower rate. This time of year lots of people shop for new cards, and credit card companies are mindful of that. If they refuse you, then become one of those people shopping for a lower rate card and transfer your balance.

• Raise CashLook for possessions that you can sell and generate cash. Use the cash to make a large payment on one of your credit cards.

Financial experts caution that there is no easy, painless way to get out of debt. For that reason, it is wise to be highly skeptical of the advertised claims of some so-called debt counselors. Numerous complaints to ConsumerAffairs.com tell of situations where paying large fees and following the advice of a debt counselor actually made the situation worse.

What if you are starting the new year in serious financial trouble, made worse by a binge of holiday credit card spending?

The U.S. military, which is dealing with the growing credit management problems among its enlisted ranks, urges an honest confrontation of the problem. Contact your creditors and let them know you are having difficulty. Many will be willing to work with you, and long as they get regular payments.

Adding to the many issues facing the American military today, thousands of soldiers are being denied overseas active duty because of severe debt and financial problems.

The chief culprit appears to be high-interest predatory lending, which will be at least partly reined in by new Congressional legislation.

The Navy, Marines, and Air Force have reported a steady increase in soldiers who have lost security clearances due to severe financial problems, according to an Associated Press report.

The numbers rose from 284 in 2002 to over 2,600 in 2006 between the three branches, with every indication that the trend is continuing.

The Army, responsible for the vast majority of forces currently engaged in Iraq and Afghanistan, refused to share its records of clearance loss with the AP.

Although reasons for soldiers' increasing indebtedness ranged from low pay to financial irresponsibility, high-interest "payday loans" were first on the list. Payday lenders entice borrowers into drawing advances on their next paycheck, at extremely high interest rates.

Some payday lenders charge interest of 15 percent on a two-week loan, which averages out to a yearly annual percentage rate (APR) of 390 percent.

Because of the generally low military pay and usurious interest rates, many military personnel fall deeply into debt with just a single payday loan.

Military members and their families are particular targets of predatory lenders, as they receive a steady income, but their pay is so low that any unexpected expense may require them to take out loans, according to the Center for Responsible Lending.

A Skinflint Congress

Last year the Department of Defense issued a warning that predatory lending was keeping troops from being effective in the field, as they were distracted by their financial problems.

The military stepped up its financial counseling services to urge personnel not to spend any bonuses or advances exorbitantly, and to avoid payday loan centers.

The continuing problems with predatory lenders led President Bush to sign legislation on October 19 that would cap the APR of payday loans at 36 percent nationwide.

Congress also authorized a 2.2 percent pay raise for armed forces personnel before adjourning for the election season. The pay raise was criticized as minuscule, given the added costs soldiers and their families have to deal with in times of war.

States Take Action

States are also taking action against predatory lenders for both military and civilian residents.

California's Attorney General Bill Lockyer filed a $2 million lawsuit against local payday lender Fast Cash for suing borrowers for triple the amount of the loan if they had insufficient funds available when they wrote checks to pay it off.

North Carolina recently finalized a series of agreements with lenders to change their practices, leading many of the companies to leave the state. State Attorney General Roy Cooper called it "the end of predatory lending" in North Carolina.

The Center for Responsible Lending estimated that payday loans cost American families upwards of $3.4 billion annually.

In congratulating Congress and President Bush for passing the new legislation for soldiers and their families, CRL President Michael Calhoun urged them to "extend these protections to all of America's working families."

The State of West Virginia has reached a settlement with an Arizona-based credit counseling agency it accused of unlawfully charging state residents. Attorney General Darrell McGraw said the settlement with Debt Free will result in $300,000 in refunds to more than 1,000 consumers.

McGraw announced the settlement with Help Ministries Incorporated, which does business as Debt Free, a credit counseling agency based in Mesa, Arizona. Debt Free's primary service consisted of arranging monthly payment plans known as "debt management plans" to assist consumers facing dire financial circumstances.

West Virginia law caps the allowable fee for administering debt management plans at 7% of the monthly payment amount. However, McGraw said Debt Free previously charged monthly service fees in excess of 7% as well as a one-time "set-up" fee that was not distributed to creditors.

Debt Free also charged several other fees not permitted by West Virginia law, including a monthly fee for funds handling, a fee for "credit education," and an administrative fee of $20.00 for failed electronic debits.

McGraw's settlement with Debt Free marks the third such settlement that McGraw's office has reached with credit counseling companies in the last twelve months.

McGraw's office previously entered into settlements with Debt Management Credit Counseling Corp., of Boca Raton, Florida, and Cambridge Counseling Credit Corp. of Agawam, Massachusetts.

A credit counseling service and related companies and individuals have agreed to pay $926,754 to settle Federal Trade Commission charges that they made false claims about their debt management program and violated the FTC's Do Not Call Rule.

According to the FTC, Credit Foundation of America, Inc. (CFA), and its associates sold debt management services nationwide through unsolicited, recorded messages left on home telephones, falsely claiming that consumers were pre-approved for a program to consolidate their credit card debts to a single monthly payment at a much lower interest rate.

When consumers responded to the calls, they were encouraged to enroll in a debt management plan, regardless of their individual circumstances. Many enrollees were not appropriate candidates for debt management plans and lost the large enrollment fees the defendants charged.

"When it comes to debt-related problems, a 'one-size fits all' solution should raise a red flag," said Lydia Parnes, Director of the FTC's Bureau of Consumer Protection. "Debt management programs work best when they are tailored to consumers' particular circumstances."

In marketing its debt management program, CFA also intruded on the privacy of millions of people who did not wish to be called. The FTC says CFA solicited prospective clients primarily through auto-dialing equipment that delivered recorded messages, placing more than three million telemarketing calls each week.

Many of the consumers called had placed their names on the National Do Not Call Registry. Others had futilely requested to be placed on CFA's in-house do not call list.

According to the complaint, although CFA claimed to be exempt from the do-not-call requirements of the FTC's Telemarketing Sales Rule (TSR) because of its tax-exempt status with the Internal Revenue Service, CFA mainly generated profits for related for-profit companies and individuals. Therefore, it is subject to FTC jurisdiction and must comply with the TSR, regardless of the form of its corporate organization.

The complaint charges CFA with acting as part of a for-profit enterprise to generate substantial revenue from the fees paid by consumers, along with TTT Marketing Services, Inc., Sure Guard Credit Corporation, Inc., Anthony P. Cara, Todd A. Rodriguez, and Walter F. Villaume (CFA defendants).

The complaint also names CFA telemarketing agents Credit Defenders of America, Inc., Credit Shelter of America, Inc., Robert Brown, and Bryan E. Taylor. The complaint contends that the California-based defendants misrepresented that consumers were pre-approved for participation in a debt management plan with particular creditors or were guaranteed acceptance in a debt management plan at a particular interest rate or payment level by particular creditors.

It further states that the defendants misrepresented the benefits that consumers would receive, including that the interest rates consumers paid would be reduced to as low as zero percent; that the consumers would receive debt management services before their next credit billing cycle; and that the defendants' credit counselors would provide consumers with individualized credit counseling.

According to the complaint, the CFA defendants violated the TSR by calling consumers on the National Do Not Call Registry and by failing to place consumers' names on in-house do not call lists when requested. The complaint also maintains that they failed to pay for access to the Registry.

To resolve the charges, CFA, TTT Marketing Services, Inc., Sure Guard Credit Corporation, Inc., Anthony P. Cara, Todd A. Rodriguez, and Walter F. Villaume agreed to pay $250,000 in civil penalties and $606,754 in consumer redress.

Credit Defenders of America, Inc. and its owner, Robert Brown, agreed to pay $70,000 in consumer redress. Credit Shelter of America, Inc. and its owner, Bryan E. Taylor, agreed to a judgment of $102,540, which has been suspended due to their inability to pay. It will be imposed if they are found to have misrepresented their financial condition.

West Virginia has reached a settlement agreement with Cambridge Credit Counseling Corp. of Agawam, Massachusetts, that will result in refunds of $250,000 to hundreds of West Virginia consumers who were overcharged for the company's services.

Cambridge targets consumers facing dire financial circumstances and offers to help them make payment agreements with creditors, commonly known as "debt management plans."

Consumers seeking help with debt increasingly go to the Internet seeking solutions.

Online, consumers find an endless stream of companies with slick web sites providing little to no help for these cash-strapped consumers and charging exorbitant fees for services that they may or may not provide.

West Virginia Attorney General Darrell McGraw's office said it determined that Cambridge was providing a legitimate service that genuinely assisted consumers in making debt management plans with their creditors.

However, prior to October 2005, Cambridge charged consumers an up-front fee that was not used to pay off the consumer's debt and was also charging consumers a monthly service fee of 10 percent.

West Virginia's "debt pooling" statute that governs debt management plans prohibits companies from charging up-front fees and caps monthly service fees at seven percent of the consumer's monthly payment to the debt management plan.

"Despite concerns about Cambridge's practices in the past, Cambridge has demonstrated that it is now one of the 'good guys' in an industry that is coming under increasing scrutiny by state and federal regulatory agencies," McGraw said.

"My office plans to continue its vigilance over the debt relief industry to ensure that West Virginia consumers receive the genuine help they need and are not further victimized by companies that take their money and run."

West Virginia has gone to court to stop a Florida collection agency from trying to collect debts supposedly based on magazine subscription purchases.

West Virginia Attorney General Darrell McGraw took the action against Check Game Solutions and its President, Catherine Key of Vero Beach, Florida.

McGraw says problems began when CGS's client, Universal Subscription Agency, sent vendors into West Virginia selling magazines door to door.

Consumers were taken in by the young vendors' pleas for assistance in meeting sales quotas, and wrote checks on the spot to purchase subscriptions for various magazines.

Some consumers regretted the purchase right away and, when they could not find the salesperson in their neighborhoods, decided to stop payment on their checks.

Under West Virginia law, contracts for multiple magazine subscriptions can be canceled at any time and for any reason.

Instead of canceling the purchases, McGraw says Universal hired CGS to send debt collection letters to consumers, accusing the consumers of writing the magazine company bad checks. In one case, CGS threatened to turn the debt over to the "Worthless Check Division" of the "State Attorney's Office," a fictitious entity made up by CGS to frighten consumers.

CGS has never obtained a license to conduct business as a collection agency in West Virginia, and has failed to post a bond as required by law.

McGraw's office attempted to resolve complaints against CGS informally, but he says CGS refused to settle the matter. McGraw said his office had no other choice but to sue CGS.

In his suit, McGraw seeks a preliminary injunction barring CGS from conducting any debt collection activity in West Virginia until the case can be resolved, and asks that the Court eventually order restitution, debt cancellation, and civil penalties.

A California collection agency has agreed to release West Virginia consumers from $3.5 million in credit card debt turned over to it by Cross Country Bank. It's the latest skirmish in a long-running feud involving West Virginia Attorney General Darrel McGraw and Cross Country.

McGraw said that Midland Credit Management, Inc. of San Diego purchased about 3,500 charged-off accounts from Cross Country Bank, based in Wilmington, Delaware.

Attorney General McGraws office began investigating Midland in 2004 after receiving complaints from West Virginia consumers who had been sued or contacted by Midland to collect debts originally owed to Cross Country Bank.

Cross Country Bank is a credit card bank that markets high interest credit cards to consumers with bad credit histories. McGraws office settled its lawsuit against Cross County Bank on June 21, 2005.

McGraws office questioned the propriety of collecting the accounts based upon the same concerns that led to his lawsuit against Cross Country Bank.

As a result of these concerns, the Attorney General requested that Midland close all of the accounts with a zero balance and notify credit bureaus to delete all references to the account from consumers credit records. Midland agreed to do so in the settlement announced by McGraws office.

"I commend Midland for promptly doing the right thing after we brought our concerns about these accounts to its attention," McGraw said. "As a result of our agreement with Midland, approximately 3,536 West Virginia consumers have been relieved of all further obligations to pay $3,548,539.80 in credit card debt. Because the accounts have also been deleted from credit records, consumers will no longer be denied access to new credit as a result of these accounts.

West Virginia Attorney General Darrell McGraw has sued Mandatory Poster Agency, Inc., a Michigan corporation. The poster company called itself "The West Virginia Labor Law Poster Service" and sent a written solicitation to employers in West Virginia offering posters regarding workplace safety and employee rights.

While state and federal laws require that the posters be displayed in the workplace, they may be obtained free of charge by contacting the West Virginia Division of Labor. The poster company charged $59.50 for a set of posters and $5.75 for shipping and handling.

Some employers believed that the poster company was a governmental entity. The poster company also held itself out as having a physical business location in South Charleston, West Virginia but, in reality, the address was just a post office box.

In 2001, Attorney General McGraw investigated the same individuals operating under the business name of West Virginia Mandatory Poster Agency. That investigation culminated in a signed agreement. In the agreement, Mandatory Poster Agency, Inc. promised to clarify that the posters may be obtained free of charge from appropriate governmental agencies and that its business was not a government agency.

Recently this company sent out solicitations that were similar to those that prompted the 2001 investigation by the Attorney General. The business name of the poster company, however, was changed from the West Virginia Mandatory Poster Agency to the West Virginia Labor Law Poster Service.

Nevertheless, the defendant did not clearly and conspicuously disclose in its 2005 solicitations that the posters may be obtained free of charge from the appropriate governmental agency and that, in fact, it was not a government agency. The Attorney Generals Office received complaints from West Virginia citizens that the solicitation appeared to be from a governmental organization.

"This business is masquerading as a governmental organization in order to sell posters for outrageous amounts," said Attorney General McGraw. "This deception is particularly problematic because the posters are free from legitimate governmental agencies."

The lawsuit, filed in Kanawha County, seeks injunctive relief, restitution for those affected, civil penalties, costs, and attorneys fees.

Anyone purchasing a poster from the West Virginia Labor Law Poster Service is encouraged to call Attorney General McGraws consumer protection hotline at 800-368-8808 or 304-558-8986.

Three operations that scammed consumers out of more than $100 million by falsely promising easy debt relief have settled Federal Trade Commission charges that their business practices were illegal.

The companies are the National Consumer Council, Debt Management Foundation Services and Better Budget Financial Services.

According to the FTC, in some cases, consumers debt, interest rates, and penalties increased and some consumers were forced into bankruptcy. The companies and their principals will pay more than $6 million combined in consumer redress and are permanently barred from making deceptive claims about debt-related services.

Two of the operations and their principals also are barred from engaging in abusive telemarketing practices, following FTC charges that they repeatedly called consumers on the National Do Not Call Registry.

"Consumers who want to get out of debt are looking for services to help relieve their financial troubles, not make them worse," said Lydia Parnes, Acting Director of the FTCs Bureau of Consumer Protection. "The FTC is committed to ridding the debt services industry of companies who shatter consumer confidence and hurt legitimate businesses ability to help consumers."

National Consumer Council

In May 2004, the FTC filed a complaint against a group of companies and individual defendants, fronted by National Consumer Council (NCC), a purported nonprofit organization, that solicited customers through an aggressive telemarketing and direct mail advertising campaign that falsely promised free debt counseling.

In fact, NCCs role in the scheme was simply to generate leads for the other defendants, who then charged consumers thousands of dollars in fees to enroll in their debt negotiation programs. The defendants deceptively claimed these programs were an effective way to stop creditors collection efforts and eliminate their debts.

The FTC alleged that the defendants failed to disclose important information to consumers before they enrolled, including the fact that very few people were able to reduce their debts through the debt negotiation programs; consumers would suffer late fees, penalties, and other charges; and that participation in the program might hurt their credit rating. A court-appointed receiver determined that less than two percent of the consumers who enrolled in the defendants debt negotiation programs 638 out of 44,844 consumers actually completed them.

The FTCs complaint also alleged that the defendants violated the Telemarketing Sales Rule (TSR), including the National Do Not Call Registry provisions, by calling consumers who had placed their phone numbers on the Registry and claiming that NCC was a nonprofit organization exempt from the Do Not Call requirements.

The complaint further alleged that some of the defendants violated the Gramm-Leach-Bliley (GLB) Act by failing to inform consumers how their personal financial information would be used.

At the FTCs request, a federal district court appointed a receiver over defendants National Consumer Council and its related corporate entities.

The receiver has returned approximately $24 million in consumer funds held in defendants trust accounts. The receiver also is winding down the corporations business operations.

Debt Management Foundation Services

In July 2004, the FTC charged Debt Management Foundation Services (DMFS), four related corporations, and the three individuals that control them with falsely representing that DMFS and its predecessors provided debt management services and that DMFS is a nonprofit corporation.

The FTC alleged that DMFS and its affiliates falsely represented that they could reduce consumers debts by 50 percent, reduce or eliminate interest on the debts, and provide assistance before consumers next credit card billing cycle.

The FTC charged that the defendants deceived consumers into paying up-front fees as high as $1,000 and monthly fees of $20 to $49. The FTC also alleged that the defendants violated the TSR by calling consumers whose phone numbers were registered on the National Do Not Call Registry.

The stipulated final order provides that the court-appointed receiver who took over DMFS and the four related corporations last summer will liquidate the companies.

Better Budget Financial Services

In November 2004, the FTC charged BBFS and its principals with falsely claiming they could reduce consumer debt by 50 to 70 percent and shorten the time period necessary to pay off the debt, in exchange for a monthly fee of $29.95 to $39.95 plus 25 percent of any money a consumer saved in a settlement with a creditor.

The stipulated final order requires Better Budget Financial Services, Inc., John Colon, Jr., and Julie Fabrizio-Colon to turn over assets totaling approximately $1.3 million to a court-appointed receiver.

They are barred from misrepresenting that they can reduce consumers debts; settle with consumers creditors once consumers accumulate a certain percentage of the total debt; and stop creditors from attempting to collect on overdue payments.

According to the FTCs complaint, the defendants advised consumers to stop paying their creditors and save their money in an ordinary bank account from which the defendants withdrew their monthly fee.

The defendants promised to settle consumers debts with their creditors once the consumers accrued a certain amount, such as one-half the debt, in their BBFS account. The defendants further claimed that they would contact consumers creditors and get them to stop collection attempts.

The FTC charged that few consumers had all of their debts settled by the defendants. In fact, consumers debts increased due to the imposition of late fees and penalties onto their accounts. Many consumers were sued by their creditors and many were forced to file for bankruptcy. Despite the defendants promises, collection efforts continued for consumers who followed BBFSs instructions and stopped communicating with their creditors.

The FTC also recently announced a settlement with AmeriDebt, Inc., a Maryland-based credit counseling firm that collected nearly $200 million in hidden fees from consumers across the country. AmeriDebt will shut down its operation and transfer all existing accounts to a reputable third party. For more information on the AmeriDebt case, see the press release dated March 21, 2005.

An operation billing itself as a debt negotiation company that promised to reduce consumers debt, negotiate with creditors, and stop harassment from debt collectors in exchange for various fees instead pocketed the fees and plunged consumers deeper into debt, according to the Federal Trade Commission.

The FTC charges that Better Budget Financial Services (BBFS) and its principals, John Colon, Jr. and Julie Fabrizio-Colon, have defrauded consumers out of hundreds or thousands of dollars each, causing many to be sued by their creditors and forcing others into bankruptcy.

The FTC has asked the court to award consumer redress to the victims. On November 3, 2004, the court entered a temporary restraining order halting the defendants allegedly illegal business practices, freezing their assets, and appointing a temporary receiver pending a preliminary injunction hearing.

This scam has had devastating consequences for consumers who thought they were taking the right steps to get out of debt, said Lydia Parnes, Acting Director of the FTCs Bureau of Consumer Protection.

They signed up for the defendants services in good faith and expected the company to act accordingly. Now the defendants have learned that reneging on a promise to help people settle their debt has serious consequences, too.

The FTC received substantial assistance in bringing this case from Massachusetts Attorney General Tom Reillys Consumer Protection and Antitrust Division.

According to the FTC, Massachusetts-based BBFS has advertised its services through Internet advertising and on its Web sites since at least August 2000. The defendants Web sites, www.betterbudget.net and www.termidebt.net, claim that BBFS can negotiate with consumers creditors to reduce their debt by 50 percent.

Consumers who contact the defendants are promised that the defendants will negotiate with consumers creditors for a non-refundable retainer fee, monthly administrative fees of $29.95 to $39.95, and 25 percent of any savings realized by a debt settlement. According to the FTC, consumers typically paid the defendants hundreds or even thousands of dollars in fees.

The FTCs complaint states that consumers who sign up with BBFS provide the defendants with a list of all their creditors and the total amount of their debt. The defendants then tell consumers to set up a special bank account and deposit a calculated sum into the account, which will be used to pay creditors and pay BBFS its monthly fee.

The defendants allegedly tell consumers to stop paying their creditors directly, claiming that consumers failure to pay their creditors will demonstrate a hardship condition that will enable BBFS to negotiate on their behalf. The defendants claim they will settle each creditors account once the consumer saves half the amount they owe on each debt.

According to the FTC, BBFS also tells consumers to sign power of attorney forms, claiming that the forms will enable BBFS to contact creditors on the consumers behalf and instruct debt collectors to stop calling consumers directly. The consumers are instructed not to talk to any creditors who contact them directly. Further, the defendants allegedly tell consumers that negative information may appear on their credit reports while they are working with BBFS, but that the information is temporary and that BBFS will direct consumers to a company to get assistance repairing their credit.

The FTC charges that, rather than negotiating with consumers creditors as promised, the defendants in numerous instances fail to contact creditors and debt collectors. Instead, consumers continue to be contacted by their creditors, receive repeated phone calls from debt collection agencies, and incur late fees and penalties on their credit accounts, increasing their debt and worsening their financial situation.

The FTCs complaint states that the defendants in numerous instances fail to negotiate with creditors even after consumers call to let them know they have sufficient funds set aside to pay a settlement. In many cases, consumers have been sued by their creditors, resulting in them paying substantial legal fees. According to the FTC, as a result of the defendants scam, many consumers have been forced to file for bankruptcy.

A Massachusetts law firm will pay $100,000 and revamp its business practices to resolve allegations that it violated state and federal debt collection laws.

The settlement, filed in Suffolk Superior Court, stems from allegations that Schreiber & Associates of Danvers, Massachusetts used a variety of unfair and deceptive practices - including harassing and embarrassing consumers, exceeding the number of permissible calls, and making unsubstantiated threats - to collect debts.

"Consumer debt is a growing problem in today's difficult economy," said Attorney General Tom Reilly. "Debt collectors too often ignore a consumer's rights. It's not okay to harass, threaten or mislead someone because they owe a debt."

Reilly said he pursued Schreiber & Associates after an investigation revealed that the company's collection practices violated state and federal debt collection laws, including the Massachusetts Consumer Protection Act, the Massachusetts Debt Collection Regulations, and the Federal Debt Collection Practices Act.

In the filing, Reilly alleges that debt collectors for the law firm used obscene language, harassed and embarrassed consumers, exceeded the number of permissible calls, disclosed debts to persons other than the debtor, made unsubstantiated threats against consumers, provided false or misleading information to consumers and failed to provide proof of the validity of debts.

Reilly said his office has received close to 250 complaints against Schreiber & Associates since 1999.

Under the terms of the settlement, Schreiber will implement new policies and procedures that go beyond the requirements of state and federal law. Among other things, Schreiber must: • designate a debt collection supervisor to ensure compliance with state and federal law;
• maintain records of all debt collection activities;
• record all telephone conversations with consumers;
• designate a mediation supervisor and implement procedures to mediate disputes with consumers with the assistance of AG Reilly's Consumer Complaint and Information Section;
• provide enhanced training to its debt collectors;
• record and confirm in writing oral payment authorizations from consumers; and
• immediately notify consumers if Schreiber learns that a debt has been paid, is not the consumer's obligation, or is otherwise illegitimate.

"This agreement raises the bar for the entire debt collection industry in Massachusetts," Reilly said. "I am pleased that Schreiber is adopting these best practices and urge other debt collection companies to follow suit."

The settlement requires Schreiber to pay $20,000 in restitution to consumers, $70,000 in penalties, and $10,000 in attorney's fees and costs for the Commonwealth's investigation. Reilly's Office will determine and distribute restitution to injured consumers and contribute any remaining funds to the Local Consumer Aid Fund.

The president and owner of Schreiber & Associates, P.C., Attorney Jeffrey A. Schreiber, is also bound individually by the provisions of the Assurance.

This investigation is part of a larger initiative aimed at protecting consumers from unfair debt collecting practices. Debt collection consistently makes Reilly's annual top-ten list for consumer complaints. It ranked seventh on last year's list.

Over 1,000 West Virginia consumers got black smudges on their credit reports after defaulting on payments to Kirby vacuum's finance company. Now, those smudges are being swept up.

West Virginia Attorney General Darrell McGraw said his office has reached a settlement with United Consumer Financial Services Company of Westlake, Ohio, that removes all negative information it had reported to the three major credit bureaus about 1,157 West Virginia consumers. The customers allegedly defaulted on loans for purchases of Kirby vacuum cleaners.

McGraw says United Consumer Finance, a wholly-owned subsidiary of The Scott Fetzer Company, exclusively finances the high-priced Kirbys that are marketed through a nationwide dealer network that targets consumers with high-pressure, in-home sales presentations.

The settlement also relieved the affected West Virginia consumers from all further obligations to pay the charged-off accounts, an amount estimated to exceed $1 million.

McGraw's Consumer Protection Division began investigating the company in 2002 after learning that it had hired at least two unlicensed collection agencies to collect delinquent accounts in West Virginia. McGraw's office also found that United Consumer failed to furnish consumers with proper notice of their rights before reporting the defaulted accounts to credit bureaus, an action that harmed consumers' credit ratings.

The settlement alleges that United mailed unsigned computer-generated letters to consumers who allegedly defaulted on their accounts during the 1990s and up until May, 2002. This practice ended after the Attorney General initiated his investigation.

McGraw asserts that the required letter, which advises consumers of their important right to "cure" default, must be signed by a company official and must also include a notarized certificate confirming under oath that the letter was placed in the mail on the date indicated.

Actual proof of the date of mailing is important because the law requires that consumers be given 10 days from the date of the letter to cure the alleged default. Although UCFS denied that its notices were defective, the company agreed to reform its future notices in the manner requested by the Attorney General.

The settlement also charges United Consumer entered into contracts with Harris & Harris, now known as Business Credit Services, Inc., of Chicago, Illinois, and Receivable Recovery Management Corporation of Great Falls, Virginia, in 1993 and 1994, respectively, to collect delinquent accounts in West Virginia. The companies were not licensed and bonded to collect debts in West Virginia as required by the State Tax Department.

Although United Consumer denied that it was responsible for the companies' unlawful collection practices, it agreed to verify that all companies it hired to collect delinquent accounts in the future would be properly licensed and bonded.

A federal court has closed the National Consumer Council debt-counseling firm, after the Federal Trade Commission (FTC) accused the nonprofit firm and its for-profit affiliates of "misrepresentations and omissions."

In a statement, the FTC said National Consumer was "masquerading as a nonprofit debt negotiation organization" and charged that it "has made millions of dollars deceiving consumers into enrolling in their debt negotiation program by promising to reduce their debts" when in fact it did not.

In an April 23 lawsuit, the FTC "alleged that the companies violated the FTC Act by misrepresentations and omissions and violated other regulations and laws," according to a notice posted on the door of the firm's Santa Ana, Calif., offices.

A financial guardian has been appointed to take over the firm's operations. Also covered by the order are National Consumer's affiliates -- London Financial Group, National Consumer Debt Council, Solidium, J.P. Landis and Financial Rescue Services Inc.

National Consumer, which bills itself as an educational organization, advises debt-swamped clients to stop paying creditors. Instead, they make payments to National Consumer affiliates, which supposedly begin to negotiate with creditors after consumers' saved funds total about 25% of what they owe.

Vanessa of Aurora, Colo., fell for the pitch. She had built up large credit card debts while in college but was not behind on her payments. She began paying into the "trust fund" supposedly established for her by an NCCC affiliate. Eight months later, no payments have been made to the credit card companies and Vanessa is in trouble.

"My balances on these accounts are growing my leaps and bounds, one has increased $4000 in 8 months, my credit is horrible and I am being sued by three of four creditors," she said in a complaint to ConsumerAffairs.com.

According to the FTC, the defendants fail to tell consumers that in the debt negotiation program, defendants often will not begin negotiating a consumer's debts for six months or longer, and that creditors' collection efforts not only do not stop, but often become more aggressive.

The FTC also alleges that the defendants fail to disclose other negative consequences, including that:

• consumers' accounts will become delinquent;
• late fees, penalties, and interest may accrue on their debt;
• consumers' creditors may sue to collect on debts, and if a judgment is obtained, may garnish consumers' wages;
• creditors may raise the interest rates applicable to accounts because no one is making minimum monthly payments on the accounts;
• in those instances where defendants negotiate a reduced debt amount, consumers may be liable for federal and state taxes on the amount their debt is reduced; and
• in those instances when defendants negotiate a reduced debt amount, a negative "settled for less than full amount" notation may appear on their credit reports.

The Better Business Bureau says it has received more than 70 complaints from consumers around the country.

The company's unsolicited telemarketing calls have been a pain for consumers. They were also a factor in the Federal Trade Commission's decision to prosecute.

"These defendants demonstrate contempt for consumer privacy and the law," said FTC Chairman Timothy J. Muris. "The National Do Not Call Registry empowers American consumers to control the volume of calls they receive at home. We're pleased that the overwhelming majority of legitimate companies are complying with the Do Not Call Registry. Nonetheless, we will continue to pursue those that ignore consumers' wishes not to be called."

The Federal Trade Commission (FTC) has obtained a temporary restraining order against three corporate defendants in Secaucus, New Jersey, halting an alleged nationwide scheme to extract millions of dollars from consumers by falsely threatening them with arrest and prosecution unless consumers immediately pay off non-existent debts.

The complaint alleges the six defendants violated the FTC Act and the Fair Debt Collection Practices Act (FDCPA) by:

• threatening to initiate civil and/or criminal charges against consumers if they failed to pay the debt, when the defendants had no intention to do so;
• making harassing telephone calls and using abusive techniques to collect or attempt to collect the supposed debts;
• falsely claiming that consumers owed up to $130 more than the amount of the actual debt; and
• stating or implying that certain communications were from an attorney, when often they were not.

The complaint also charges the defendants with misrepresenting the amount of the debt when they added extra charges without telling consumers. In addition, the defendants allegedly failed to inform consumers of their right to receive more information about the debt or to dispute the defendants' claims prior to payment.

The following defendants are named in the complaint:

• Check Investors, Inc., d/b/a National Check Control (NCC), a New Jersey Corporation with its principal place of business in Secaucus, New Jersey;
• Check Enforcement, Inc., d/b/a Goldman Check Systems, of Secaucus, New Jersey;
• Jaredco, Inc., d/b/a Goldman & Co., of Secaucus, New Jersey;
• Barry S. Sussman of Fort Lee and Secaucus, New Jersey, principal of Check Investors, Jaredco, and Check Enforcement;
• Elisabeth M. Sussman (a.k.a. Elisabeth Rabin), wife of defendant Barry S. Sussman and a principal and sole director of Jaredco; and
• Charles T. Hutchins of Farmingdale, New Jersey, an attorney who has been general counsel to corporate defendants Check Investors, Check Enforcement, and Jaredco.

"Threats, lies, and harassment are never legitimate debt-collection techniques," said Howard Beales, Director of the FTC's Bureau of Consumer Protection. "In this case, they were the foundations of a fraud. These defendants not only extracted money that consumers didn't owe, but also falsely threatened them with criminal prosecution."

According to the Commission, between 1995 and the present, the defendants operated Jaredco, Check Enforcement, and Check Investors (the NCC defendants), firms designed to collect consumer debts for checks returned for non-sufficient funds (NSF checks). Since at least January 2001, the companies employed Hutchins as their general counsel.

According to the FTC, NCC first buys NSF checks at a substantial discount from large commercial retailers and others. It then collects payment on the checks - most of which are more than two years old - on their own behalf. NCC contends it holds more than three million NSF checks and makes initial contact with more than 150,000 consumers per month nationwide in order to collect payment.

NCC collects the debt through letters and telephone calls to consumers. The FTC alleges that for every purported NSF check, NCC demands immediate payment of a total sum that includes the face value of the NSF check and additional fees of $125 or $130, regardless of the amount of the original NSF check. While most states limit the amount a debt-collector can charge for an NSF check to about $30 per check, NCC typically charged consumers three to four times as much, according to the FTC.

For example, one woman allegedly wrote an NSF check for $22 to a pizza delivery company in 1999. Although she had already paid the debt, NCC contacted her in 2002 and demanded $152.

In its letters and phone calls to consumers, NCC does not explain the basis for the additional charges, the FTC alleges. NCC's letters to consumers lump together the amount of the initial check and the additional charges, identifying the debt as "Total Due," "Amount Due," or "Amount Required." These additional charges are illegal in many states.

According to the FTC, he letters also represent that NCC, or commercial clients of NCC, will bring civil and/or criminal action against the consumers unless they pay the full amount NCC claims they owe.

For example, one form letter sent to consumers under the letterhead "Charles T. Hutchins, Attorney at Law" warns that Hutchins' "client" is considering criminal and civil action against the consumer for issuing "fraudulent checks." Another form letter identifies itself as a "NOTICE OF INTENT TO RECOMMEND CRIMINAL PROCEEDINGS," stating, in part: "YOU ARE HEREBY ADVISED THAT CRIMINAL CHARGES ARE BEING RECOMMENDED AGAINST YOU."

Along with the threatening letters, the Commission alleges that defendants often called the purported debtor and his/her relatives as well, threatening arrest for check fraud if they failed to make immediate payment to NCC for the full amount demanded. These phone calls continued for up to six months, during which time the defendants allegedly failed to inform consumers of their right to verify the debt or file a dispute of the charges as required by the FDCPA.

Despite NCC's alleged threats to prosecute, the FTC is aware of no consumers who were ever arrested for failing to pay NCC.

The FTC complaint charges defendants with numerous violations of the FDCPA, which protects consumers from unfair or threatening debt collection practices, and the FTC Act, which prohibits unfair or deceptive acts or practices in or affecting commerce. The complaint contains seven separate counts:

Alleged FDCPA Violations

• Count I - communicating with third parties without permission;
• Count II - harassing, oppressive, or abusive debt collection;
• Count III - false threats of criminal and civil prosecution;
• Count IV - unfair and unconscionable practice of collecting amounts not authorized by law; and
• Count V - failing to notify consumers of their right to dispute and obtain verification that debt is actually owed.
  FTC Act Violations
• Count VI - falsely representing the debt owed which is not due;
• Count VII - falsely representing that: a) communications are from an attorney; b) nonpayment of the debt will result in imprisonment, garnishment of wages, or attachment of property; c) NCC will take legal action, and; d) the consumer has committed a crime.

In filing its complaint, the FTC seeks injunctive relief to stop immediately the alleged activities, disgorgement of ill-gotten gains, restitution and consumer redress as deemed appropriate by the court.

Assistance in the case came from: U.S. Postal Inspection Service; Postal Inspectors from the North Jersey/Caribbean Division; the U.S. Attorney's Office for the District of New Jersey; the Secaucus, New Jersey Police Department; and the following states -- Colorado, New Jersey, Maine, Minnesota, Washington, and West Virginia.

WASHINGTON, April 17, 2002 -- Houston-based United Recovery Systems, Inc. (URS) has agreed to pay a $240,000 civil penalty to resolve allegations that the company violated the Fair Debt Collection Practices Act (FDCPA).

The Federal Trade Commission said it was its first enforcement action against a debt collection company for allegedly violating the rights of Spanish-speaking consumers.

"Spanish-speaking consumers are a growing and vital part of America's economy. They deserve the same strong protection from abuse as other members of our society," said J. Howard Beales, III, Director of the FTC's Bureau of Consumer Protection. "Regardless of the language they speak, the FTC will protect the rights of all consumers."

According to the FTC's complaint, the company's debt collectors communicated with consumers at improper times or places, engaged in prohibited communications with third parties, harassed and abused consumers, and used deceptive practices to collect consumer accounts.

In addition to the civil penalty, the proposed consent decree to settle the FTC charges includes broad prohibitions on future FDCPA violations and would require URS to inform consumers in writing that they may stop the company from contacting them about the debt and may contact a special URS phone number or address should they have a complaint about the way URS is collecting the debt.

The settlement also includes a comprehensive consumer complaint and resolution program under which every consumer complaint about URS collection practices must be thoroughly investigated and responded to by the company.

In effect since March 1978, the FDCPA prohibits abusive, deceptive and unfair debt collection practices. For example, in an effort to collect a debt, a collector may not discuss the debt with anyone other than the consumer and certain other persons, such as the consumer's attorney or spouse. In addition, under the FDCPA, collectors may not make false statements, use obscene or abusive language, threaten to take legal action they cannot or do not intend to take, call consumers at work if they know it is inconvenient or not permitted by the employer, or call consumers at other times they know to be inconvenient to the consumer, such as before 8:00 a.m. or after 9:00 p.m.

Okay, so you know what they can't do, but they do it anyway. What steps can you take to prevent this abusive harassment? You don't have to move or change your phone number, but you will have to a bit of work to get it to stop. Here's what to do:

• Ask for written notice. Under the law, a collector must send you written notice stating the amount you owe and the name of the creditor. If within 30 days of getting this notice you send a letter stating you do not owe the amount, they may not contact you again. However, a collector may renew the activities if proof of the debt, such as a copy of the bill, is sent to you.

• Hang up the phone. No kidding, you can just hang up.

• Write a certified letter (return receipt requested) to the debt collection agency that is harassing you and tell them to stop. You have now begun your "paper trail." Keep a copy in a file labeled Debt Collection. Once the company has received your letter, they may not contact you again except to say there will be no more communication or to notify you that the creditor or the collection agency plans to take some specific (legal) action.

• File all collection letters and keep detailed notes of each call (times, location, language used, threats etc.). Make sure you get the person's name who is calling -- each time.

• Tape the conversation. Thirty-five states and the District of Columbia allow secret phone taping. You must ask permission from collector to tape the conversation if your state does not allow secret taping.

What can you do if you believe a debt collector violated the law?
You may sue a collector in a state or federal court within one year from the date the law was violated. If you win, you may recover money for the damages you suffered plus an additional amount up to $1,000. Court costs and attorney's fees also can be recovered.

A group of people may sue a debt collector in a Class Action Suit and recover money for damages up to $500,000, or one percent of the collector's net worth, whichever is less. Documentation is imperative to prove your case, though most judges know these practices are occurring frequently.

Where can you report a debt collector for an alleged violation?
Report any problems you have with a debt collector to your state Attorney General and the Federal Trade Commission. Many states have their own debt collection laws, and your Attorney General's office can help you determine your rights.