Read the latest on Debt, Debt Settlement and Debt Repair.
Delaware County News Network (PA) ( 06/13/14 ) ; Morris-Louis, Markita
Indebted consumers often look to debt settlement firms to help them lower the amount they owe to creditors; but many end up in even worse financial condition, writes Markita Morris-Louis, general counsel with Philadelphia-based Clarifi. She describes how one client of the nonprofit had paid a third party $1,000 to settle $18,000 in debt, but the company never made progress in negotiating with the creditors. This is one of the reasons, according to Morris-Louis, that it is time to end such practices in Pennsylvania.
On June 17 in the state legislature, the House Commerce Committee is expected to move Senate Bill 622 to appropriations. However, Morris-Louis says the Debt Settlement Services Act has flaws that could keep consumers vulnerable to unscrupulous debt settlers and should be altered to fix these problems. She recommends that the bill set a meaningful limit on fees that settlement companies can charge in the state, based on the amount a consumer is able to save or reduce on their debt. It also should require debt settlement firms to consider the consumer's financial well-being, and his or her whole financial situation, to determine if debt settlement will really benefit; and they should have to review whether creditors are likely to actually settle.
Raleigh News & Observer (North Carolina) ( 05/16/14 ) ; Murawski, John
North Carolina Attorney General Roy Cooper has sued Chicago-based Legal Helpers Debt Resolution (LHDR), alleging that it ran an illegal scheme that swindled 412 state residents out of more than $1.1 million during a two-year period.
The company allegedly collected illegal advance fees for debt-settlement services that were never provided as marketed. The suit argues that LHDR advertised on the radio, online, and via mass mailings, vowing to have customers debt-free within four years. Claiming to be a national law firm, it pledged to assign an attorney to work with clients throughout the process. The lawsuit seeks to ban LHDR from conducting business in North Carolina and to require it to refund state residents.
Through this “classic advance fee scam,” as the lawsuit described it, the company took in more than $1.5 million from North Carolina residents and used only 15 percent of those funds to pay off customer debt. One victim was a Durham resident who paid LHDR about $2,500 to help her resolve $22,000 in credit card debt. The services were never rendered, and the company issued a $90 refund.
Reuters ( 04/08/14 ) ; Ax, Joseph; Raymond, Nate
In the first criminal case referred to U.S. prosecutors by the Consumer Financial Protection Bureau, Michael Levitis and his debt settlement firm Mission Settlement Agency pleaded guilty in Manhattan federal court to conspiracy charges of mail and wire fraud. In U.S. vs. Mission Settlement Agency, prosecutors accuse the firm of victimizing more than 1,200 people nationwide from 2009 to 2013 by charging them excessive fees while failing to help them reduce credit card and other debt.
As part of the plea agreement, Levitis -- who faces up to 10 years behind bars -- and the company will forfeit $2.2 million. The company faces another fine of as much as $4.39 million. Guilty pleas were issued by four other former Mission employees, and charges against a fifth are pending.
Cleveland Plain Dealer (OH) ( 02/02/14 ) ; Williams, Kalitha E.
Nearly 10 years ago, lawmakers passed the Ohio Debt Adjusters Act, intended to protect state residents from debt adjusters that imposed excessive fees and gave false hope to consumers mired in debt. Under the statute, fees are limited to no more than $75 for initial consultation, up to $100 annually for consultation fees, and no more than 8.5 percent of the debt or $30 -- whichever is greater -- for monthly fees.
These reforms were modest, writes Kalitha E. Williams, policy liaison for Policy Matters Ohio, and the debt adjustment industry remains profitable in Ohio as a result. Many indebted consumers seek financial relief, only to find their situation exacerbated after working with for-profit debt adjusters. These firms insist that clients stop making debt payments and fund
an escrow account to be used to negotiate with lenders. As the debts grow, consumers are hit with late fees and higher interest rates; and they often have to file for bankruptcy.
Williams writes that these conditions would worsen if House Bill 173 is passed. The proposal would lift the fee caps, on the grounds that federal protections have removed “bad actors” from the debt-adjustment industry. However, the last year alone has seen regulators such as the Federal Trade Commission, the Consumer Financial Protection Bureau, and the U.S. Attorney office in New York taking legal action against such companies.
The Center for Responsible Lending found that consumers only benefit from debt adjustment if they can complete the settlement of at least two-thirds of their debt. Consumers cannot know this before enrolling. A survey from the iA Institute found that nearly half of debt creditor and collector companies refuse to work with debt-settlement companies.
Cleveland Plain Dealer (OH) ( 01/19/14 ) ;
A new bill is pending in Ohio’s Senate, after passing the Ohio House of Representatives, that the Cleveland Plain Dealer editorial board calls "grotesquely anti-consumer." Substitute House Bill 173 purports to “regulate providers of debt settlement services” but actually would offer debt settlement a way to skirt current fee caps under Ohio's existing debt-adjusting law.
Debt adjusters claim to negotiate with creditors on behalf of indebted consumers, intending to persuade a creditor to accept less than the entire balance owed.
A bipartisan 2004 law, Substitute House Bill 420, was passed unanimously and now regulates debt adjusters in Ohio. It forbids debt adjusters to charge “a periodic fee or contribution more than 8.5 percent of the amount paid by [the] debtor each month or $30, whichever is greater,” according to the office of Attorney General Mike DeWine. This law also appears to force debt settlement service providers to observe the monthly 8.5 percent or $30 fee cap, unless the proposed H.B. 173 becomes law.
digtriad.com ( 09/16/13 ) ;
U.S. postal inspectors are warning consumers to be wary who they pick to help them manage heavy debt. U.S. Postal Inspector Robert Clark says some firms are offering to settle debts for 45 percent of the debt. In one case, the company asked customers to sign a three- or four-year contract agreeing to the deal, stop talking to creditors, and make a monthly payment. However, 1,200 customers said the firm collected $2.2 million in fees and failed to dissolve the debt. Some customers never asked about the $49 in monthly fees due to the seemingly attractive deal they were being offered; and even when salespeople were asked about fees, they only answered with prepared statements.
The company owner had no regard for the complaints and was only concerned with signing up customers. Postal authorities say the best way to determine if a debt settlement company is reputable is if it discloses all fees up front and is not trying to expedite the contract process. A new law also requires companies to meet customers in person to sign a contract. Customers should also be aware they can work out payment options with credit card companies without outside help.
The Arkansas Supreme Court has overturned a judgment that Attorney General Dustin McDaniel won for the state against a debt collector. Last year, a Pulaski County circuit judge ordered Jack H. Boyajian to pay a $194,000 civil penalty for 776 violations of the Arkansas Deceptive Trade Practices Act. The state Supreme Court has now reversed and dismissed the order, however. McDaniel said, "While I respect the Court’s decision, I am deeply troubled by its far-reaching effect on Arkansas consumers and the likely harm that will result." The attorney general had filed a lawsuit alleging that Boyajian was "badgering and harassing" Arkansas residents to collect debts, sometimes threatening them with criminal action and sometimes targeting individuals who did not actually owe anything. Boyajian, an attorney licensed in California at the time, argued on appeal that his actions were carried out in the practice of law, making him exempt from the Deceptive Trade Practices Act. The Supreme Court agreed. Boyajian also was sued over his debt collection practices in Colorado, Connecticut, and New York.
Category: Payday loans