Ontario to crack down on debt-settlement agencies
Amid sky-high consumer debt, it’s a disturbing sign of the times: a growing number of Canadians are being duped by unscrupulous debt-settlement companies.
Horror stories from debt-laden consumers who have turned to such operators for help, only to find themselves even further in the hole or being sued by their creditors, are prompting the Ontario government to crack down with new legislation to be introduced Thursday.
Already Alberta, Manitoba and Nova Scotia have regulations on debt-settlement companies. The rules in the country’s most populous provinces are meant to protect some of the “most vulnerable consumers” from “unfair business practices,” according to Ontario Consumer Services Minister Tracy MacCharles.
Debt-settlement companies negotiate with creditors on behalf of consumers and arrange payment schedules or settlements. Consumers pay fees to the companies for their services.
By the end of last year, the average consumer debt load (not including mortgages) in Canada reached a record $27,485, a 5.9-per-cent year-over-year jump, according to credit monitoring firm TransUnion.
Those who prey on desperate consumers looking to wipe away their debts or restore credit ratings have sprung up in droves recently in Ontario.
“The Ministry of Consumer Services became aware of an upward trend in consumer inquiries and complaints about debt settlement companies in 2011, with the trend continuing into 2012,” said Bryan Leblanc, a spokesperson with the minister’s office.
Complaints sometimes come from consumers who’ve discovered the debt-settlement companies they’ve turned to haven’t been paying their creditors much, if anything.
Jeffrey Schwartz, executive director of the non-profit Consolidated Credit Counseling Services Canada, Inc.,noticed the same trend after he says tough legislation in the United States sent “fly by night” operators to Canada to find more “fertile ground.”
Credit Solutions of America – Sued by Florida Attorney General
Credit Solutions of America is another of a long line of Debt Settlement companies currently in hot water with State Attorney Generals throughout the Country for unfair and deceptive business practices. As is almost always the case, the unfair and deceptive practice stems form the structure and the amount of fees charged to consumers upfront. In the case of Credit Solutions of America, after 17 months in their program, nearly 50% of client payments would actually go toward their fees. (What a Deal huh)Credit Solutions ScamSure this information might be disclosed in the contract, but as with most of these programs, the telemarketer/salesman that talked the consumer into signing up, likely didn’t spend much time explaining this aspect of the program. Instead they tend to focus on telling the consumer how blissful their life will be once they start making payments to them. It usually isn’t until 6 months down the road, that the consumer realizes, none of the promises are coming true and most of their money has been stolen in upfront fees by the settlement company. That is typically when the complaints reach the Attorney Generals Desks.
Debt Settlement Nightmare for Phoenix Woman
Another consumer gets SCREWED by another Debt Settlement Company. Read to Believe, its TRUE!!!
AZfamily.com reported today the story of Rosie Stewart who found herself in $175,000 worth of credit card debt after her business fell victim to the economic downturn. Like many people she turned to a debt settlement company that was big on promises but short on results. Essentially she paid this company Ram Financial Services over $12,000 dollars and received nothing but a lawsuit form one of her creditors.
Debt Settlement Complaints Sadly this is how the majority of these vulture debt settlement companies operate, and consumers learn this the hard way. Before seeking financial help from any company, you must review the contracts in detail and never sign anything that you don’t fully understand.
Debt Relief USA files Bankruptcy – Clients get Burned
100 bucks burning Unfortunately this is going to be an all too common headline in the coming months. With Debt Settlement companies ripping off consumers at an alarming rate, the FTC and state regulatory bodies are taking notice and stepping up enforcement. Debt Relief USA recently filed for bankruptcy citing several investigations by state attorney generals and federal authorities as the reason for closing their doors and filing bankruptcy.
Why were they being investigated? Because they were doing what most debt settlement companies are doing. Ripping off consumers! Charging large fees upfront, stretching out client programs for 4 years, misleading consumers, getting them sued and not providing the promised services among other things.
So this is great news for future consumers that will not be able to fall victim to Debt Relief USA. What about their current clients? Well unfortunately they got screwed. In a letter from the Texas Attorney General sent to each current and former client of Debt Relief USA he states:
“IF YOU ARE A CURRENT DEBT RELIEF USA CUSTOMER (the company was holding your “set-aside” funds in order to settle your debts): The Texas Attorney General is working with the Chapter 7 Trustee to ask the Bankruptcy Court to refund your “set-aside” funds to you as fully as possible. Because of the limited funds in the estate, it is unlikely that you will receive a refund of any fees that were paid to the company“.
You can read the actual letter here
If you just paid a debt settlement company 5 or 10 thousand dollars in fees, how would it feel to get a letter like that in the mail?
If you are a victim of this company what can you do about getting your money back? Nothing. You can’t do a single thing but wait and hope that when the bankruptcy attorneys are finished taking all of the money out of the company, there will be a little left to refund consumers. I hate to be pessimistic here, but speaking from personal experience, there is almost never any money left for consumers. The case will stay tied up in bankruptcy court until there is no money left to fight over.
Read More here:
Legacy Debt Solutions vs Credit Solutions – Who Can Bankrupt a Client Faster?
Legacy Debt Solutions Hiring a debt settlement company using a front loaded fee model endorsed by TASC and USOBA is more likely to lead a consumer to Bankruptcy then to a successfully completed settlement program. There are various reasons why this is unfortunately true, but one of the most obvious to me is that debt settlement salespeople for the most part, always recommend debt settlement, regardless of whether or not it actually makes sense given the financial circumstances of the client.
The following is an actual case study of a client that I am currently assisting, and her first hand experiences calling debt settlement salespeople for financial assistance. This information is reprinted with permission and I will simply call my client Jane.
In this article I am going to be picking on Legacy Debt Solutions and Credit Solutions, because Jane happened to be enrolled in both of these programs at the time she called me. That’s right; she was enrolled in 2 debt settlement programs at the same time. Luckily she only recently enrolled in them and hadn’t yet paid the 1,000’s of dollars in fees they were going to collect in the coming months.
I have already shared a little bit of Jane’s experiences in a prior article. TASC – Just Another Marketing Gimmick There you can read about how it was she came to be involved in both of these settlement programs at the same time. Neither one of these programs made any sort of financial sense for Jane, yet in that article you will see why it is clear that TASC doesn’t really have much to do with protecting consumers and how salespeople use TASC to push consumers into bad financial decisions.
What really pissed me off about Jane’s story was that in the first 5 minutes of our initial consultation it was obvious that Jane’s financial circumstances where such that a debt settlement program was the last thing she should be enrolled in, let alone two of them.
During my initial interview Jane disclosed that she was retired and lived on a small social security check, and an investment account which she took a principle draw from every month for the majority of her income. When I asked about the amount in the account I was shocked to hear that at her current rate of withdrawal she would deplete the entire account within 12 to 18 months.
Wait a minute? Some salesperson from Credit Solutions and then also Legacy Debt enrolled her into a 4 year program at over 1,000 dollars a month, collecting all of their fees upfront, knowing that she was going to be out of money completely in 12 to 18 months? No. They never even asked about her income. They didn’t care where the money came from, or how long it would last or anything other than, can you enroll right now and start paying a monthly payment?
Credit Solutions of America sends me a Cease and Desist Letter
Credit Solutions of America I recently received an email from Credit Solutions of America which contained a Cease and Desist letter. I was actually surprised because I had never even done an actual review of Credit Solutions. However, they obviously felt that I was doing something that they didn’t like and wanted me to stop. The following is a copy of the Cease and Desist letter along with my responses.
Dear Mr. Day:
If you feel that my blog has false and misleading statements, then I am glad that you brought that to my attention and I will be happy to look into the statements that you claim are false and misleading and will correct them or clarify them accordingly. The content featured on my website is not intended to do damage to the reputation of credit solutions by the use of defamatory tactics. The purpose of my website is to make observations and educate consumers about what is going on in the debt help industry. To the best of my knowledge, all of my facts are accurate, however if I find information that you point out to be incorrect, then I will be sure to correct and or clarify the information.
Express Debt takes 17,000 – Settles Nothing – Refuses Refund and Threatens to Sue Client
on January 3, 2011
Express Debt Settlement
Is $17,000 for nothing, a fair deal?
You find yourself struggling to pay over $100,000 in credit card debt. Desperate and confused you turn to Express Debt Settlement (EDS) under the promise that they will cut your debt in half and lower your monthly payments. With comforting and reassuring words, they tell you how they will employ the Law Office of Simon & Bocksch to negotiate with your creditors and get them off your back for good. You are only responsible for 1 easy monthly payment every month for the next 5 years and your debt problems will be history.
Express Debt Settlement Review
Not sure what else to do, you agree to the plan only to find that two years later you have paid Express Debt Settlement over $17,000 in fees, nothing has been settled for less than you owed, you have already received 3 lawsuits and one of them has turned into a wage garnishment. Throughout the entire process the creditors continued to call and harass you, and every time you contact Express Debt you are simply told to keep sending in your payments because you don’t have enough money saved to settle any of your accounts.
You start to question the validity of this service and wonder why Express Debt could not settle a $1,900 account before it turned into a wage garnishment. Soon you realize that the only thing Express Debt and Simon and Bocksch have done for the $17,000 in fees is made your situation worse. In a panic and with your creditors threatening even more lawsuits, you request a refund so you can seek an actual solution.
How would you feel if you then received this email from Ari Dinov, the President of Express Debt in response to your request for a refund: (Bold emphasis added by me)
I am glad you have sent a dozen emails in the last 2 weeks because this is all evidence that I have, that you are constantly harassing me and my company. I am advising you to stop immediately or I will have no choice but to file a lawsuit against you for slander, defamation of character and harassment. Like I mentioned to you previously you signed a 5 year contract with my company and you are only 1/3 of the way through, your expectations have been unrealistic especially because you knew that your fees are collected in their entirety upfront as referenced in the customer agreement that you read and signed. I have further advised you that it would be in your best interest to remain in the program because your fees have already been paid and we will be able to settle some of your accounts in the next few months, however you keep harassing me, my company and my employees with “insane” acquisitions and metaphors . I am giving you 1 final warning to stop or the next time you hear from me will be from my attorney’s filing suit against you.
Debt Settlement vs Debt Consolidation
Debt Settlement is the process of offering a lump sum in one or just a few payments that is smaller than the outstanding debt.
Debt Consolidation is the process of “working with your creditors” to establish a more manageable payment plan over a long duration.
There are a number of issues that should be considered when thinking about Debt Consolidation:
– It only is an option for a small segment of consumers.
– It involves a long duration (usually years) thereby increasing the likelihood of default due to a life event such as health issues or job loss.
– It typically only reduces the interest rate, not the balance, you have to pay the fees to the company negotiating, and thus is usually financially the weakest of all debt options.
– Oftentimes if you deal with a less than reputable debt consolidation company they do not tell you if one of your debts does not want to negotiate. Anecdotally we have had more clients than we can count relate stories to us of a creditor not accepting the deal, the client never knew, that is until they were served with a lawsuit.
– Sometimes people think that their monthly payments to the Debt Consolidation companies are going to their creditors right away when in fact the company is taking the payments, subtracting their fees, and saving the rest of the money until they have enough to offer lump-sum payments (i.e. Debt Settlement) to the creditors. There is no guarantee in this instance that any of the debts will be settled, even after years of making payments, and more importantly there is no protection, one or more of your creditors can and typically do initiate a lawsuit in the mean time.
– DO NOT EVER take a secured debt (like a 2nd Mortgage or HELOC on your home) to pay off your unsecured debt. Ok, that might be an overstatement and there could be a situation where doing such a thing makes sense, but we have yet to see it.
– DO NOT EVER, take out a loan or cash out a retirement to pay off your unsecured debt. Ok, this isn’t quite as bad as taking a 2nd out on your home, but it still ranks high. Before you waste your retirement make sure this is your only option.
– DO NOT EVER, borrow money from a family member or friend at a lower rate to pay off your unsecured debt without speaking with an attorney. While this may be a good option it may shut the door forever on your legal remedies.
The bottom line is that Debt Consolidation works well and is only a good option for a very small segment of the consumer. Typically the best person served by Debt Consolidation is:
– Higher income household;
– Someone who can still pay with reduced interest rates (typically because the banks have just bumped them up 15%);
– Limited or no access to a lump sum for a traditional settlement offer.
– A person for whom bankruptcy (likely a Chapter 13 Reorganization) is not an option.
– Someone with access to a lower interest rate unsecured loan either from a bank or family member. Though see the above warning about borrowing from family members.
Beware of Debt Help Scams – Office of Financial Empowerment
Many companies send offers to help you solve all of your debt problems quickly for a low fee.
Sounds like a good offer, right?
WRONG. Unfortunately, if an offer seems too good to be true, it usually is. Many of the companies promising to help you with your debt problems will actually cause more grief in the long run. Learn how to spot the signs of a scam.
Signs a “debt help” company is trying to pull a scam:
It promises to remove all of your debt.
FACT: Debt does not disappear unless you pay it off. Any company that says it can get rid of your debt is trying to rip you off.
It encourages you to take out a new loan without reviewing your financial situation.
Though many companies offer legitimate debt consolidation plans, a company that does not fully review your financial situation but tells you immediately to take out a loan is most likely trying to scam you. Likely, they will charge you their loan fees and interest on top of your current debts.
It requests substantial monthly service fees.
If you’re already struggling with debt payments, you should not add to your expenses by paying someone to manage debt that you can work out yourself or in consultation with a free or low-cost credit counselor
It tells you to stop making payments or contact your lenders.
FACT: Often, lenders are willing to work out a repayment plan with you. If the company tells you not to contact lenders, it might be withholding valuable information.
It asks you to sign blank forms or sign over your property’s ownership.
NEVER sign blank paperwork.
NEVER sign agreements that you don’t understand.
Unfortunately, there have been cases where homeowners think they are signing documents to help repay their debt but are actually signing over the deed to their home.
Remember: If the company is unwilling to explain the paperwork or answer your questions, do not do business with them. Read More here: http://www.nyc.gov/html/ofe/html/help/beware_debt.shtml
What’s the difference between a credit counselor and a debt settlement company?
Both offer services to help if you are having trouble making payments on your debts. Credit counseling services are different from debt settlement companies in a number of ways:
Credit counselors Debt settlement companies
Usually non-profit organizations For-profit companies or law firms
Advise you on managing your money and debts and help you budget your payments Offer to arrange settlements of your debts with creditors or debt collectors
Reach up-front agreements with your creditors to ensure that the creditors will not pursue collection efforts or charge late fees Often have no up-front agreements with creditors
Usually do not negotiate any reduction in the amounts you owe – instead, they can lower your overall monthly payment Typically offer to pay off your debts with lump sum payments that are less than the full amounts you owe
Do not advise you to stop paying your debt, but may help negotiate your monthly payments Usually require that you stop paying your creditors to succeed in a debt settlement program
Credit counseling organizations are usually non-profit organizations that advise you on managing your money and debts. They usually offer free educational materials and workshops. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.
Note: Although most of them are non-profit, credit counselors may charge fees for a debt management plan to pay off your debt and take those fees out of the payments you make to them.
Credit counselors may help you organize a “debt management plan” for all your debts. Under a debt management plan you make a single payment to the credit counselor each month or pay period. The credit counselor then makes monthly payments to each of your creditors.
Under debt management plans credit counselors usually do not negotiate any reduction in the amounts you owe – instead, they can lower your overall monthly payment. They may do so by getting the creditor to increase the time period over which you can repay a loan (for example, five years). They may also get creditors to lower the interest rates. Although most credit counselors are non-profits, they may charge fees for their services that they take out of the payments you make to them.
Debt settlement companies offer to arrange settlements of your debts with creditors or debt collectors for a fee. They typically offer to pay off your debts with lump sum payments that are less than the full amounts you owe. For example, for every $100 of a loan that a creditor agrees to forgive, the debt settlement company will charge you some portion in fees.
While credit counselors reach up-front agreements with your creditors to ensure that the creditors will not pursue collection efforts while you’re in the credit counseling debt management program, debt settlement companies often have no such up-front agreements with creditors.
Tip: Beware of debt settlement companies that charge up-front fees in return for promising to settle your debts.
Warning: Many debt settelment companies will instruct you to stop making payments to your creditors. If you stop making payments, you may face collection efforts, late fees and penalty interest charges. These fees and charges will cause your debts to grow larger. In this way, debt settlement may cause your total debt-load to grow, even if the debt settelement company settles one or more of your debts.
If you stop paying your debts, your creditors will likely begin collection efforts and will start charging you penalty fees and interest. Debt settlement companies say that law suits and debt collection efforts are key factors preventing clients from successfully completing a debt settelment program.
Beware Debt Settlement Companies
You’ve probably seen the ads for debt settlement companies.
They claim to help you get out of debt.
But, reports “Early Show” consumer correspondent Susan Koeppen, some are cashing in – and they’re not helping their clients.
Consumer advocates across the country are being flooded with complaints about some debt settlement companies, Koeppen points out, with millions of Americans deep in credit card debt.
So, stresses Koeppen, be careful whom you turn to for help.
Koeppen told the story of one Minnesota couple claiming they wound up worse off after dealing with a leading debt settlement company, Credit Solutions of America. The company disputes their story.
But Illinois Attorney General Lisa Madigan tells CBS News the debt settlement industry, as a whole, is targeting vulnerable consumers. “You would be more likely to settle your debt by buying a lottery ticket than by signing up with a debt settlement company,” Madigan says.
Madigan has filed suit against seven debt settlement companies in the last year, and is one of six attorneys general targeting Credit Solutions of America, with allegations including “fraudulent, deceptive, and illegal practices” and “false advertising.”
E-mail Susan Koeppen
Susan Koeppen’s Twitter page
“We want them out of business, she says. “We don’t want debt settlement companies to be in a position to rip off people, hard working people who, in this economy, are really struggling.”
In statements to CBS News, Credit Solutions claims to have “helped more than tens of thousands of U.S. consumers” and ” … settled over $1.2 billion in consumer debt.”
What should consumers struggling with credit card debt do?
First, advises Koeppen, consider negotiating directly with creditors. You can also seek help from a non-profit credit counselor through the National Foundation of Credit Counseling.
Also high on the caution list, Koeppen points out: companies that want to charge you a big fee upfront, or pay a lot of fees. Also be wary of ones that guarantee they can help settlem your debt, and ones that tell you to cut ties with your creditors and stop paying your bills.
Read More here: http://www.cbsnews.com/news/beware-debt-settlement-companies/
Debt Collector RSB Equity Group Enters into $13 Million Settlement with the Governor’s Office of Consumer Protection
ATLANTA, GA – John Sours, Administrator of the Governor’s Office of Consumer Protection, today announced that RSB Equity Group, LLC, an Atlanta-based debt-buying company, and its principal Roy Mullman, have entered into a settlement with the Governor’s Office of Consumer Protection (“GOCP”), resolving charges that the company committed multiple violations of the federal Fair Debt Collection Practices Act and the Georgia Fair Business Practices Act. GOCP has alleged that RSB Equity Group repeatedly harassed and deceived consumers by:
Threatening consumers with arrest or imprisonment if they did not pay an alleged debt;
Falsely representing that consumers had committed fraud or criminal acts and that a lawsuit was about to be filed unless the debt was paid;
Refusing to send consumers written proof of alleged debts owed;
Falsely identifying themselves as “attorneys” or “investigators” rather than disclosing that they were, in fact, debt collectors;
Contacting consumers about alleged debts at the consumers’ place of employment;
Contacting third parties and divulging information about the debtors’ accounts;
Collecting or attempting to collect amounts that were unauthorized and illegal;
Calling consumers before 8:00am or after 9:00pm
Under the settlement, RSB Equity Group will not be allowed to collect sums due under the 11,803 accounts it owns, representing a total of $13,054,667.16 in purported consumer debt. The settlement also requires the respondents to pay a $10,000 civil penalty and to reimburse GOCP for investigative and legal expenses in the amount of $5,000.
“Debt collectors that employ abusive, deceptive and illegal tactics in the State of Georgia will deservedly have tough consequences to face,” says Administrator Sours.
Busted! Payday Loan Prosecution Threats Are Illegal
handcuffsWe don’t have debtors’ prisons in Indiana. But some collectors threaten bad check charges for payday loan debt. Can you really be thrown in jail?
With a payday loan, the borrower usually writes a post-dated check for the loan amount plus the lender’s fees. After the borrower’s next payday, the lender deposits the check.
If the money’s not in the bank, the check is going to bounce. The payday lender will then try other ways to collect the loan, like sending the debt to a collection agency. I’ve had more than one bankruptcy client tell me he or she received a call from a debt collector who threatened prosecution if the payday loan wasn’t repaid.
Here’s What the Law Says
The threat of criminal charges can sound believable because Indiana has a law that makes “check deception” a crime. This law says, “A person who knowingly or intentionally issues or delivers a check, . . . knowing that it will not be paid . . . , commits check deception, a Class A misdemeanor.” Does this mean the police will be on their way? No.
The same law has an exception: “A person does not commit a crime” if “the payee or holder [here, the lender] knows that the person has insufficient funds to ensure payment or that the check . . . is postdated” (my emphasis). So the easy answer is that no crime was committed because the borrower’s check was post-dated.
But let’s read the middle part again. There’s also no crime if, when the check is written, the lender “knows that the person has insufficient funds to ensure payment.” Didn’t the payday lender know the borrower wrote the check without enough money to cover it? After all, if the borrower had the money in the bank, then he or she wouldn’t have taken out a payday loan!
The collector’s threat is bogus. Even worse, it’s illegal. Why? Under the federal Fair Debt Collection Practices Act (FDCPA), a debt collector can’t say or imply that “nonpayment of any debt will result in the arrest or imprisonment of any person.” This is just one of your many FDCPA rights.
How to Fight Back
So what can you do when a collection agency’s threat crosses the line? Here are three options:
Hang up the phone. You don’t have to talk with a debt collector if you don’t want to.
Drop a dime. The Federal Trade Commission and the Consumer Financial Protection Bureau accept complaints about collection agencies that violate the FDCPA.
Call a lawyer. The FDCPA gives you the right to sue debt collectors who break the law.
You don’t have to tolerate abusive collection tactics. If a debt collector tries to push you around, it’s time to push back.
Cracking down on mortgage scammers
NEW YORK (CNNMoney.com) — While Congress and the Bush administration are focusing on bailing out struggling homeowners and financial companies, another group of federal officials are going after the people who helped propel the country into the mortgage crisis.
The FBI’s Mortgage Fraud Task Force, which works with federal, state and local law enforcement officials across the United States, has ramped up its work. Its targets: mortgage brokers, lenders, appraisers and professionals who defraud homeowners and bankers.
A federal grand jury is looking into three large players in the housing market – Countrywide Financial, IndyMac and New Century Financial – the Los Angeles Times reported last week. All three succumbed to the mortgage meltdown. The paper said that investigators are also looking into whether Countrywide founder Angelo Mozilo gave mortgage deals to powerful friends and politicians, including members of Congress.
In recent weeks, law enforcement officials have descended on those suspected of fraud. This month alone, mortgage professionals in Maryland, Florida, Washington and elsewhere have been charged with bilking lenders and homeowners out of millions of dollars.
These charges come on the heels of the U.S. Justice Department’s roundup of more than 400 people – accused of inflicting more than $1 billion in losses – who were caught up in the latest nationwide sweep named Operation Malicious Mortgage.
“Mortgage fraud and related securities fraud pose a significant threat to our economy, to the stability of our nation’s housing market and to the peace of mind of millions of American homeowners,” Deputy Attorney General Mark Filip said in June.
Mortgage pros involved in most fraud
Mortgage schemes come in many flavors, but the most common by far are conducted by industry insiders. Some 80% of all fraud losses involve collaboration or collusion by professionals, which is known as “fraud for profit,” according to the FBI.
Often the schemes involve inflated appraisals, falsified documents and fake buyers. The crooks take as much equity as they can out of a house before they stop making mortgage payments, usually leaving the lender stuck with the property.
In Las Vegas earlier this month, five people pleaded guilty in a scheme that cost banks $17 million. They were involved in recruiting people to pose as homebuyers, falsifying loan applications and then defaulting on mortgages. Six more people are awaiting trial in the case.
In other schemes, professionals steal people’s identities and credit histories to qualify for loans. Sometimes, the sham involves flipping a house from buyer to buyer, inflating its value, before abandoning it.
Outlaw debt collectors in WNY targeted by authorities
BUFFALO, N.Y. (WIVB) – A worker experienced in the debt collection field says only one thing matters to many in charge of debt collection businesses — paying up.
Ella Moore says that is all that mattered to the bad debt collectors she has worked for, and of the five collectors that have hired Moore, she said two of them were bad.
“Get the money at all costs,” Moore said. “We don’t care, whatever we got to do. Get that money!”
Western New York has seen more than its share of debt collectors getting busted. A raid at a Cheektowaga call center showing call center agents carting out the records of a Buffalo business accused of strong arming consumers into paying up.
In fact there are so many collection firms in Upstate New York, you could call the region the “Center of the debt collection universe”.
STORY | More debt collectors nabbed for shady collection.
“They tell them they are going to jail, they tell them they are going to be served,” Moore said. “Everybody in that whole place had a fake name except me.”
They also use technology to spoof someone’s Caller ID–to make them believe the call is coming from a judge, or the police. Moore said the threats might also be aimed at family members, or even employers.
“If they had, like a reference they would tell them that their reference is going to be subpoenaed to court, if they did not pay the debt,” Moore said.
Buffalo native Jake Halpern, a writer for The New Yorker magazine, just finished a book about western New York’s debt collection industry called, Bad Paper.
For Halpern, it is a personal issue.
“A debt collector was hounding my mother over a debt that she didn’t owe, and eventually she just paid it because they kept calling her work and calling her at home,” he said.
There are more than 300 debt collection companies in western New York and Halpern said they are mostly debt buyers, who purchase packaged debt–known as “paper”– for pennies on the dollar, collect as much as they can on the old debts, then re-sell those accounts.
“It is kind of a wild west,” Halpern said.
The most notorious of those collectors was Tobias Boyland, known as “Bags of Money”–an ex-con– whose associates would use false threats of arrest to get their money, false phone threats like this.
“Ma’am, we got an email from Jordan Hamilton which means you are going to cause your mother to go to jail,” Halpern said while explaining how many of the calls started. “We can get it fixed.”
Feds crack down on debt collection ‘factory’
Old debt doesn’t always go away. Collection companies buy it for pennies on the dollar, hoping to make a profit by collecting the uncollectable. But some of these firms use illegal and abusive tactics to get the job done.
Earlier this week, the Consumer Financial Protection Bureau announced it had filed a lawsuit against Frederick J. Hanna & Associates, a Georgia-based law firm it accuses of operating a “factory” that churned out more than 350,000 debt collection lawsuits since 2009.
According to the CFPB complaint, these lawsuits were filed without taking even the basic checks to determine whether the people they sued actually owed the debts.
The company denies all of the allegations. In a statement, managing partner Joseph Cooling said that the firm “takes great pride in its commitment to compliance with all consumer protection laws.”
Read More Hello, it’s me: Scammers’ latest tactic is a doozy
Consumer advocates tell CNBC they deal with so-called debt collection “lawsuit mills” on a regular basis.
“Frankly, it’s a business model for these debt-buying companies and the law firms that represent them,” said Claudia Wilner, senior staff attorney with the New Economy Project, an advocacy group in New York.
“The debt buyers find it very lucrative to file a lot of lawsuits at once, without doing a lot of work,” said Margo Saunders, staff attorney with the National Consumer Law Center. “They’re making so much money by violating the law, there’s little reason for them to comply.”
Feds: Bullying, lying debt collectors an epidemic
NEW YORK (AP) — The country is facing an epidemic of unscrupulous debt collectors willing to pose as law enforcement and threaten arrest to squeeze dollars out of Americans, a top prosecutor said Tuesday as he announced the arrests of seven people who worked for an Atlanta-area company.
U.S. Attorney Preet Bharara said the abusive practices have become so widespread that even a top FBI official in New York City got a call.
“This has become something of an epidemic,” Bharara told a news conference.
He described the workers at the defunct Williams, Scott & Associates LLC in Norcross, Georgia, as “ruthlessly persistent” as they badgered people in all 50 states from 2009 through April, collecting more than $4 million from over 6,000 victims.
He said the workers threatened people with imminent arrest unless they paid debts they sometimes didn’t even owe.
The company was shut down after the Federal Trade Commission brought a civil action against it earlier this year.
But Richard Frankel, a top FBI official in New York, said the workers quickly opened another company under a different name and were operating at the time of their arrests.
Frankel, who recently received a call at his FBI office from an abusive debt collection agency claiming it was the “IRS,” said the defendants in the scam unveiled Tuesday were “bullies with badges. The only problem was the badges were bogus.”
According to a criminal complaint, the employees falsely claimed they worked for, or were in contact with, the Justice Department, the U.S. Marshals Service, the FBI and sheriffs’ departments. It said victims were sometimes falsely told they would be arrested and be forced to surrender their drivers’ licenses if they did not call back or pay specified amounts immediately.
Bharara said the company’s employees tried to create an appearance of legitimacy by routinely using bogus legal terminology, including what he described as his personal favorite: “The statute of limitations on your civil legal rights has expired.”
The employees also sent documents meant to look like they were sanctioned by the government, according to court papers.
In one instance, a victim received a document containing the seal of the U.S. Department of State with language underneath saying: “Warrant Services Association, A Division of the Federal Government Task Force,” which Bharara called “a government task force that didn’t actually exist.”
He added: “Now, after years of threatening false arrest, these defendants are the ones who now find themselves in handcuffs, facing the loss of their own liberty. We are far from finished looking at the seedy side of debt collection. It affects too many people.”
March of The Zombie Foreclosures
Nearly 7,000 stagnating foreclosure cases lie dormant in Palm Beach County
Kimberly Miller, Palm Beach Post
zombie foreclosures haunt Palm Beach
Zombie foreclosures haunt Palm Beach County
Nearly 7,000 stagnating foreclosure cases lie dormant in Palm Beach County’s courts, creating a payment-free limbo for some homeowners but a stain of vacant and abandoned homes in deteriorating neighborhoods.
These sleeper files, which have remained inactive for a year or longer, date as far back as 1997, according to documents provided to The Palm Beach Post by the clerk of courts.
But most are from the early years of the housing crash when lenders feverishly sought to repossess homes, unaware that the frenetic pace would cause a second crisis based on faulty documents and unlawful corner-cutting.
While an unknown number of dormant files are mistakes, such as one party forgetting to request a dismissal after an agreement is reached, others remain open but unmoving because of homeowner bankruptcy, loan modification negotiations or bank neglect.
“I have no idea what’s going on and I’m not pushing it,” said Robert Feinson, a Jupiter resident whose case has sat idle since November 2010, more than two years after his lender initially filed for foreclosure against him. “Right now, we’re just waiting to see who is going to make the next move.”
The 6,927 zombie files make up about 17 percent of Palm Beach County’s 39,252 foreclosure cases.
The banks with the largest number of dormant cases include Bank of America (670), JPMorgan Chase (602) and Deutsche Bank (546).
After 10 months of inaction, a homeowner, or the court itself, can seek a dismissal of the foreclosure based on non-prosecution . If the bank fails to react within 60 days, the case can be thrown out and the bank forced to start over.
It’s a move Palm Beach County Chief Judge Peter Blanc said might begin in earnest this summer after a one-time bump in state funding allows him to hire additional judges to tackle foreclosures and get rid of “deadwood.”
Judges Tackle ‘Foreclosure Mills’
Updated Nov. 30, 2007 11:59 p.m. ET
Law firms handling thousands of foreclosure cases on behalf of mortgage lenders and servicers are drawing criticism from judges, who say roughshod filing practices are trampling borrowers’ rights.
Lawyers operating so-called foreclosure mills often are paid based on the volume of cases they complete. Banks and mortgage servicers often contract with such firms to handle foreclosures; the pay in Ohio, for example, is around $1,000 a case.
The firms are typically small but may handle thousands of cases a year. Using computer software, they plug in variables such as a borrower’s name, address and mortgage amount to generate a suit. Firms compete for business in part based on how quickly they can foreclose.
“In general, most of the firms that practice this kind of law do a very good job,” said Peter Mehler, a Cleveland-area lawyer who handles foreclosures on behalf of mortgage servicers. But in the “gold rush” to get a piece of the growing business, some firms “have cut corners.”
Lately, judges are faulting law firms for what has become a common practice: filing a foreclosure suit, in states that require them, without showing proof that the plaintiff actually holds the mortgage and has the right to foreclose. (Such plaintiffs are often banks that act as trustees for investors of securities backed by mortgages.) The situation occurs in part because mortgage documents and the contracts between borrowers and lenders may change hands multiple times and may not be assigned to the plaintiffs at the time the suits are filed.
This month, a state judge in Cincinnati dismissed a foreclosure lawsuit brought by Wells Fargo Bank because the bank filed the suit before it had acquired the mortgage. In dismissing the case, the judge sent a warning letter to the bank’s law firm, John D. Clunk Co. LPA, in Hudson, Ohio. Judge Steven E. Martin wrote that it was “troubling” that the plaintiff “and its counsel filed the lawsuit with no basis whatsoever” and that firm must not do so again.
The law firm didn’t respond to requests for comment. Wells Fargo declined to comment.
Several federal judges have dismissed dozens of suits on similar grounds; some fault the attorneys involved. In an October dismissal of 14 foreclosure suits filed by Deutsche Bank National Trust Co., a federal judge in Cleveland rebuked the lawyers'” ‘Judge, you just don’t understand how things work,’ argument.” Deutsche Bank declined to comment.
Mr. Mehler of Cleveland recently wrote in an essay for a trade group that “it has been commonplace in the mortgage-banking industry to commence foreclosure proceedings without” proper documentation.
Judges are also fining firms for filing motions in bankruptcy court on behalf of creditors, making inaccurate claims about what debtors owe.
In the Houston area, three judges have sanctioned or considered sanctions against a prominent creditors’ firm, Barrett Burke Wilson Castle Daffin & Frappier LLP, which annually handles thousands of foreclosure actions in bankruptcy court. Last year, Judge Marvin Isgur imposed sanctions of $65,000 on the firm and $1,000 on one of its attorneys for systematically shifting attorneys’ fees of $650 per case from its creditor clients to consumer debtors and later giving false testimony about its conduct.
In June, in a Victoria, Texas, bankruptcy case, Judge Wesley Steen imposed a $75,000 fine on Barrett Burke for filing computer-generated pleadings that were “grossly erroneous” and “gibberish.” The judge wrote that the firm has “become over reliant” on the software and its attorneys are “allowing their signatures to become affixed to pleadings that they have not adequately reviewed.”
Another Houston judge is considering sanctions against the firm in part for filing a motion in a pending case that misstated what the debtor owed by thousands of dollars. A final decision hasn’t been made.
“We have taken many steps to eliminate the problems that we had in the past, and…our practice is in line with what courts would like us to do,” said partner Michael Barrett.
Last year in New Jersey, a bankruptcy-court judge fined Marlton, N.J., firm Shapiro & Diaz LLP $125,000 after finding dubious signatures on certifications that vouched for the accuracy of filings. The judge initiated an investigation after the firm filed a default notice on behalf of a lender, which incorrectly said the debtor owed $15,229 in arrears. A lawyer representing the firm declined to comment.
Write to Amir Efrati at email@example.com
Report shows 35 percent of Americans facing debt collection
A new report shows that more than 35 percent of Amercians have debts and unpaid bills that have been reported to collection agencies.
The Urban Institute’s “Delinquent Debt in America” report further notes that roughly 1 out of 20 people with a credit file are at least 30 days late on a credit card or other non-mortgage account.
Students are especially hard-hit.
Genny Munoz, a counselor at Cal Poly Pomona who also administers students loans, said 3.6 percent of the student loans issued there over the past three years have gone into default.
“Most students who graduate probably have about $27,000 of debt,” she said.
Some are luckier than others.
Sarah Beshir, a student at Pasadena City College, owes about $7,000 in student loans. But she figures she’ll pay that off fast enough once she graduates and gets a job.
“I’m majoring in political science and getting my master’s degree in engineering,” the 22-year-old Altadena resident said. “It will really depend on the kind of job I get, but I think I’ll be able to pay it off in two or three years.”
She may be in a minority.
A companion report from Urban Institute reveals that in September 2013 the total average debt per American with a credit file stood at $53,850. The amount of debt in collections among Americans varies widely from less than $25 to more than $125,000. But the average amount owed is $5,178, the institute said.
People who owe significant amounts of money often struggle to pay their monthly utility bills and meet other financial obligations. That can lead to financial stress, health risks and insolvency if the debts aren’t repaid.
And there are other far-reaching effects. Delinquent debt can also lower credit scores, which are used to determine everything from eligibility for jobs and access to rental housing and mortgages, to insurance premiums and access to future credit.
The Urban Institute study also highlights a disturbing trend: The share of Americans in collections has remained relatively constant, even as the country as a whole has whittled down the size of its credit card debt since the official end of the Great Recession in mid-2009.
Debt Collection Scam Made Threats, Extorted Money, Charges FTC
The police car was only 30 minutes away, the caller told Brenda Foster, 46. If she wanted to prevent her own arrest, she better cough up $300, ASAP, he said. Foster, a waitress who lives with her husband in Portage, Ind., panicked and grabbed her husband’s debit card to send the funds on the spot.
And with that, scammer Kirit Patel added more money to the $5.2 million in his coffers.
But on Wednesday there was good news for Foster — and 600,000 others — who received calls from Patel’s companies. In response to charges from the Federal Trade Commission, a district court temporarily shuttered Patel’s Tracy, Calif.-based operation, charging him and his two companies, Broadway Global Masters and In-Arabia, with violating the FTC Act and the Fair Debt Collection Practices Act.
The shutdown is part of an ongoing effort by the FTC to nail fake debt collectors, who are increasingly calling from overseas — Patel outsourced his phony debt-collection calls to a center in India — to pressure consumers into paying debts they don’t owe, or at least don’t owe to these callers.
“[The caller] tried to threaten me, and I let loose on him and kindly told him where to go and hung up on him,” recalled Wayne Foster, Brenda’s husband, who intercepted some of the calls.
Scammers use official-sounding aliases to deliver terrifying threats and pressure consumers to pay. It is illegal for debt collectors to misrepresent themselves or say they are with law enforcement; it is also illegal for them to use obscene or threatening language.
Diane Carson-Huff, 71, a retired probation officer who lives in Azusa, Calif., also received calls from Broadway Global threatening her with jail, arrest and the loss of her home for unpaid payday loans. Since she had taken payday loans in the past, Carson-Huff believed she might owe money. The scammers tricked the recent widow into paying almost $3,000 in two different payments. When they called for a third time and asked for $3,600, she said no. “They wanted me to buy Walmart money cards and give them the money with the [prepaid card] number,” she said.
Patel’s call-center operators even went so far as to email her a letter on letterhead from the Department of Justice.
But both Carson-Huff and the Fosters took action when the calls wouldn’t stop. Wayne Foster started to intercept the calls to his wife’s cellphone and filed a complaint with the Better Business Bureau in California, where Broadway Global Masters was located. Carson-Huff also did some research using caller ID on the phone numbers and tracked them down to an address for Broadway Global. She sent a return-receipt letter telling them she had filed a complaint with the FTC.
After they complained, Broadway Global returned their money. According to the FTC, the company has returned $1 million to consumers, leaving another $4.2 million outstanding. The FTC said it plans to move ahead with court proceedings and will seek the remaining refunds for customers.
Under the Fair Debt Collection Act, a collector must send a written statement that indicates how much money is owed within five days of first contacting a customer. By law, collection agencies cannot threaten arrest or harm or pretend to be some kind of legal enforcement officer or agency.
For a full list of guidelines about what is allowed consult the Federal Trade Commission’s website. Consumers can also file complaints with the commission or state attorneys general if they have been illegally pursued.
CFPB Files Suit Against Debt Collection Lawsuit Mill
Jul 14 2014
Georgia Firm Relies on Deceptive Court Filings and Faulty Evidence to Churn Out Lawsuits
WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau (CFPB) filed a lawsuit in a federal district court against a Georgia-based firm, Frederick J. Hanna & Associates, and its three principal partners for operating 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.
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. The CFPB also alleges that the defendants violated the Dodd-Frank Wall Street Reform and Consumer Protection Act, which prohibits deceptive acts or practices in the consumer financial marketplace.
Violations alleged in the CFPB’s complaint include:
Intimidating consumers with deceptive court filings: The firm files collection suits signed by attorneys when, in fact, the lawsuits are the result of automated processes and the work of non-attorney staff, without any meaningful involvement of attorneys. The resulting lawsuits misrepresent to consumers that they are “from attorneys.” This process allows the firm to generate and file hundreds of thousands of lawsuits. One attorney at the firm, for example, signed over 130,000 debt collection lawsuits over a two-year period.
Introducing faulty or unsubstantiated evidence: The firm uses sworn statements from its clients attesting to details about consumer debts to support its lawsuits. The firm files these statements with the court even though in some cases the signers could not possibly know the details they are attesting to. In a substantial number of cases, when challenged, the firm dismissed lawsuits. Since 2009, the firm has dismissed over 40,000 suits in Georgia alone, and the CFPB believes it does so frequently because it cannot substantiate its allegations.
Through this lawsuit, the Bureau seeks to stop the alleged unlawful practices of the Hanna firm and its three principal partners. The Bureau has also requested that the court impose penalties on the company and its partners for their conduct and require that compensation be paid to consumers who have been harmed.
The full text of the complaint can be found at: http://files.consumerfinance.gov/f/201407_cfpb_complaint_hanna.pdf
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.
State statutes of limitation for credit card debt
By Connie Prater and Fred O. Williams
CreditCards.com compiled this state-by-state listing of credit card debt collection statutes of limitations. Click on a state; more information will appear below the map. See notes and explanations.
The chart shows the time limit on revolving credit accounts such as credit card agreements. Most state laws and codes do not refer specifically to “credit cards” or “credit card agreements.” Instead, the statutes tend to use general terms such as “written contracts” or “open accounts.” State laws are subject to change.
Judges deciding specific cases may interpret state laws differently; those court rulings may then be overturned. Judges also may rule on which state’s law should apply — the one where the consumer resides, or where the card issuer is located.
While the federal Truth In Lending Act defines credit cards as “open-end credit plans,” that’s irrelevant to the discussion of state statutes of limitation. State laws are concerned with contracts and agreements, and how long they may be enforced.
The most recent full update of the chart was in March 2013, with minor updates in October 2013 and May 2014. Write to Editors@CreditCards.com to report updates or corrections.
See “How to tell when credit card debt legallly expires” for tips on sorting out whether your debt is too old to be legally collectible.
What a statute of limitations is, how it works
Creditors and debt collectors have a limited time window in which to sue debtors for nonpayment of credit card bills. That limit is set by a state’s statute of limitations. These laws exist to protect people from claims being brought after evidence has disappeared. Anyone with unpaid credit card debt should know their state’s statute.
“In most states, the statute of limitations period on debts is between three and 10 years; in some states, the period is longer,” according to the U.S. Federal Trade Commission (FTC). Debts that have lingered longer than the statutes allow are often referred to as “time-barred debts.”
“If a debt collector sues you to collect a time-barred debt, you can have the suit dismissed by letting the court or judge know the debt is, indeed, time-barred,” according to the FTC.
Debt collectors and consumer advocates, however, caution that the statute of limitations (SOL) does not prevent debt collectors from attempting to collect on debts. They just cannot successfully sue to collect the debts — assuming the debtor shows up in court to assert his or her rights.
Debt doesn’t go away just because it goes beyond a time threshold.
— Mark Schiffman, ACA International
“Debt doesn’t go away just because it goes beyond a time threshold,” said Mark Schiffman, vice president of public affairs at ACA International, the collection industry’s largest trade group.
Mary Spector, an associate law professor at Southern Methodist University’s Dedman School of Law in Dallas, says many consumers ignore court notices about old debts and end up losing cases that might otherwise be thrown out of court because the statute of limitations has run out.
“In Texas, it’s usually up to the defendant to show that the debt is time-barred under the statute of limitations,” Spector says. Her advice: Don’t ignore the court papers and get a consumer lawyer to represent you.
Court rulings may take precedence
To construct the map above, CreditCards.com examined statutes and judicial opinions and consulted legal experts to cover all 50 states and the District of Columbia. In most states, the statute of limitation is clear. In some, however, we could find no definitive answer because of ambiguities in state law or conflicts between the law and court rulings.
The uncertainty over when credit card debt expires arises because state laws governing contracts are interpreted by the courts when they are applied to individual circumstances, and those interpretations may change over time.
Credit Card Debt Statute of Limitations: A Guide to All 50 States
by Anisha Sekar
Debt collectors have only a limited window during which they can sue to collect. However, each state has a different period of collection, and moreover, certain circumstances can reset the clock and start the period afresh. Most states have debt collection periods of 3-6 years after the first missed payment, though some have statutes of limitation as long as 10 years. After that time, the unpaid debt is considered “time-barred,” meaning that a debt collector can’t sue for it. No matter where the debt collector is based, he’s bound by your state’s statute of limitations.
State-by-state statutes of limitation for credit card debt
Types of agreements subject to statute of limitations
Most states have different SOLs depending on the type of contract. For example, some differentiate between written and oral agreements; others separate open-ended accounts such as credit cards. Here are some typical contractual breakdowns:
Oral contract: An agreement made with spoken words that is either unwritten or only partially written. It is just as valid as written contracts, though harder to prove.
Written contract: As the name implies, a contract where the terms are fully put down and writing, and typically signed.
Promissory note: A signed and written agreement to pay a certain amount of money on demand at a specified time.
Open account: An account, such as a credit card, where the outstanding balance is not predetermined. Note that this is different from a promissory note because the repayment amount is not defined at the time of opening.
What happens after the statute of limitations expires?
After the statute of limitations expires, a debt collector cannot sue you for repayment of debt. However, they can continue to contact you about repayment. You can ask your debt collector if your debt is time-barred. The law requires that he answer truthfully, but he may decline to answer altogether. In that case, you should ask what his records show as the last date of payment – this serves to identify the date the clock starts ticking. If the collector refuses to give this information, send him a letter telling him you’re disputing the debt and wish to verify it. This will stop collection procedures until you get verification.
You can decide if you will pay a time-barred debt, but each potential course of action has its benefits and drawbacks. The FTC recommends consulting an advisor before making any decisions.
Do not pay any of the debt: Even though a collector can’t sue you to recoup the debt, they can continue contacting you unless you send them a letter telling them to stop. Refusing to pay your debts will also tank your credit score.
Make a partial payment: Paying off only some of the debt is a risky proposition, because in some states, if you pay any amount, the debt is revived and is no longer time-barred. This resets the statute of limitations clock, and debt collectors can sue you to collect the full amount plus any interest and fees that accrued during the SOL period.
Pay it off in full: Paying off the debt, even though you don’t have to, might help your credit score. Some collectors may be willing to accept a smaller amount than what’s owed, either in a lump sum or installments. However, make sure that you have a written and signed agreement with the creditor that paying this amount will settle your full debt before you begin repaying. Doing so will prevent the issues associated with a partial payment.
If you are being harassed by a creditor, contact your state attorney general or the FTC.
Fair Debt Collection Practices Act
State-by-state statutes of limitation for credit card debt
|Washington, D.C.||3 years||Source|
|Georgia||4 or 6 years||State law specifies 4-year period, but GA courts ruled in Hill v. American Express that debt can be collected for 6|
|Kentucky||5 or 15 years||No court decision on whether 5-year oral or 15-year written limitation applies|
|New Hampshire||3 years||Source|
|New Jersey||6 years||Source|
|New Mexico||4 years||Source|
|New York||6 years||Source|
|North Carolina||3 years||Source|
|North Dakota||6 years||Source|
|Rhode Island||10 years||Source|
|South Carolina||3 years||Source|
|South Dakota||6 years||Source|
|West Virginia||10 years||Source|
Publishing this description will not affect how the CFPB handles your complaint.
by FreeAdvice staff
The Fair Debt Collection Practices Act (FDCPA) is a federal law that protects consumers against the illegal practices of creditors. Various states have enacted their own versions of the FDCPA that may provide consumers with even greater protection. But, how do you know if you have a lawsuit against a debt collection agency that is harassing you?
Four Requirements for a Debt Collection Case
Steve Record on, an attorney from San Diego, California whose firm represents individuals who have been sued or harassed by debt buyers, told us that there are really four requirements to a debt collection case:
You have to be a consumer.
The debt must be a consumer debt. In other words, the debt has to be personal, family or household. A business debt doesn’t qualify.
It must be a debt collector who’s coming after you.
It must be a violation of a law such as the FDCPA, California’s Rosenthal statute (California’s version of the FDCPA) or other state statutes.
According to Record on, if those four requirements are met, they’ve probably violated the statute(s). He added that debt collectors are required to be truthful and treat debtors with fairness, dignity and respect.
What Can You Allege?
There are several causes of action that can be alleged against debt collectors who violate the Fair Debt Collection Practices Act and state statutes. Recordon explained:
The FDCPA is a strict liability statute. What that means is if they violate it, they’re liable. Under the FDCPA, there is a $1,000 penalty they have to pay to the debtor, along with attorneys’ fees – which I’ve seen go as high as $100,000.
Under other state statutes, you have what we call torts. Torts are civil causes of action such as the intentional infliction of emotional distress. There’s a lot of emotion going on in these collection cases and I see this in a pretty high percentage of them, particularly in the telephone harassment cases.
You may also have negligent infliction of emotional distress. If it’s not quite as bad, it may fall into the negligence side of it. There are also abuse of process and malicious prosecution cases where they sue on cases they know they can’t prove. Finally, you can also have invasion of privacy and libel situations as well.
Debt Collection Letters & “Misleading” Language
Debt collection letters should provide information about the original debtor, how much is owed and how to pay or dispute the debt. However, many debt collection agency letters contain misleading or incorrect information designed to confuse and intimidate debtors and a court recently ruled that when that happens – debtors can sue.
Reports of debt collectors trying to collect on debt that is very old or even no longer owed — called “zombie” debt — have been on the rise in recent years. These collectors (often called debt scavengers) purchase large amounts of old debt for pennies on the dollar, and then begin hounding the consumer to pay up.
Zombie debt and debt scavengers can be intimidating to unsuspecting consumers. Collectors use tactics to scare or trick people into paying these debts, often when the consumer no longer has any legal obligation to pay them.
So how can you avoid harassment by debt scavengers? Start by understanding what zombie debt is and how to spot common tactics used by debt scavengers. Then take steps to protect yourself. Here’s how.
What Is Zombie Debt and Who Are Debt Scavengers?
The term “zombie debt” is used to describe debt that is very old or no longer owed. In short, it’s debt that has come back from the dead to haunt you. Zombie debt is typically purchased from the original creditor (or even from another debt collection agency) for pennies on the dollar. The debt collectors, who are “scavenging” for debt, then try to get the consumer to pay the debt.
Lately, the incidence of debt scavenging has risen dramatically. Both established Wall Street investors and fly-by-night debt collection companies have bought delinquent debt in bulk. The older and less collectible the debt, the cheaper it is to buy — scavengers often pay less than a penny for every dollar of debt. So, these collectors can make money by collecting even a small portion of the debt.
What Kind of Debts Do Scavengers Try to Collect?
Debt scavengers revive all kinds of debt in the hope of collecting at least part of it. Types of debt typically found in a debt scavenger’s portfolio include:
Debts where the statute of limitations has run. A creditor or debt collector has a limited number of years during which it can sue you for an unpaid debt — a time period called the statute of limitations. The statute of limitations varies by state and according to the type of debt. (To learn more about the statute of limitations and how to find the time limit for your debt, see Nolo’s articles Time-Barred Debts: When Collectors Cannot Sue You for Unpaid Debts and Chart: Statutes of Limitations in All 50 States.) Debt scavengers buy debts in which the statute of limitations has run, hoping that they can persuade (or trick) you into paying voluntarily.
Debt that isn’t yours. Some zombie debt is simply not yours — it might belong to someone with a similar name or could be the result of a creditor mistake (mistakes do happen, especially in this day of electronic databases). Some zombie debts are the result of identity theft. And, in some cases, debt that has been wiped from your credit record is sold to another debt collector that tries to bring it back to life and collect on it once again.
Debt that has been discharged in bankruptcy. Sometimes debt scavengers pursue debts that were legitimately discharged in bankruptcy.
What Tactics Do Zombie Debt Collectors Use?
Zombie debt collectors and debt scavengers often use illegal or questionable tactics to get consumers to pay old debts. Often, the goal is to trick the consumer into making a payment on a debt for which the statute of limitations has run. By making a payment — no matter how small — the consumer resets the statute of limitations on the debt and that lets the collector sue to collect the entire debt. This is why zombie debt collectors work hard to get you to pay a portion of the debt. Here are some examples of how they do this.
Promise to leave you alone in exchange for a small payment. Zombie debt collectors promise to back off if you pay a portion of the debt. Of course, once you make a payment and reset the statute of limitations, you can be sure the collector will come after you for the full amount. Or, if you never owed the debt in the first place, a payment could be construed as an admission that the debt is, in fact, yours.
Promise not to report the debt on your credit report. If a creditor charges off or sends your delinquent debt to a collection agency, that debt can remain on your credit report for seven years plus 180 days from the date of your delinquency. If you haven’t made a payment on your debt for years, but the seven-and-a half-year period hasn’t expired, it’s likely that the debt still appears on your credit report anyway. If the period has passed, the debt collector cannot now report the debt as newly delinquent in order to get it onto your credit report. (Unfortunately, some debt collectors do report old debts as new delinquencies. See “Re-age debts on credit reports,” below.)
If you have old, unpaid debts, you may be safe from a lawsuit to collect the debt. This is because a creditor or debt collector has a limited number of years to sue you for an unpaid debt. This time period is set by state law and is called the statute of limitations.
The time allowed varies greatly from state to state and for different kinds of debts. Under certain circumstances, this time period can be restarted. So be very careful when talking to debt collectors about old debts. If you say the wrong thing, you could extend the time the creditor has to sue you for the debt.
When Are Debts Time-Barred?
To determine if your debt is time-barred — that is, too old for a creditor or collector to sue you for it — you must do some legwork.
Determine what kind of debt it is. Is the debt based on a written contract, oral contract, or a promissory note (a written promise to pay money to somebody)? Is it a credit account? If so, is it open-end or closed-end credit?
Is the Account Open- or Closed-End Credit?
Determining whether an account is open-end or closed-end is not always easy. Generally, if you can use the account repeatedly, it’s open-end credit (also called “revolving credit”). Your payments vary depending on how much credit you have used in a certain period of time. The most common example of open-end credit is a credit card.
Closed-end credit usually involves a single transaction, such as the purchase of a house or car, and the payments are fixed in amount and number.
Many transactions fall somewhere in between open- and closed-end credit. Also, many creditors try to characterize a closed-end account as open-end, either to take advantage of a longer statute of limitations or to avoid providing the more extensive disclosures required for closed-end credit.
The statute of limitations for open- and closed-end accounts is often different. To complicate matters even more, the statute of limitations for an open-end account is not always clear. Some states have a special statute of limitations for credit card accounts. Others apply the statute of limitations for written or oral contracts to open-end credit.
Determine when the debt was due. This is when the statute of limitations starts ticking. For open-end accounts, the statute of limitations starts to run when the first payment was due.
Find the applicable statute of limitations. Statutes of limitations are set by state law. They usually range from about three to ten years and depend on the type of debt. To find out the statute of limitations for debts in your state, you can:
Check out Nolo’s 50-state chart: Statute of Limitations in All 50 States.
Consult a lawyer.
Check out your state laws, either by going to a local law library, contacting your state consumer protection agency (see Nolo’s article State Consumer Protection Offices to find your local consumer protection agency), or doing some research on the Internet. To find your state’s laws and get information about legal research, see Nolo’s Legal Research area.
If you fall behind on credit card payments, your state’s laws give the credit card company a limited amount of time to sue you for the balance. This is called the statute of limitations (SOL). However, credit card companies are finding ways around state SOLs. One way they do this is adding fine print in the credit card agreement that gives them more time to sue you.
What Is the Statute of Limitations?
The SOL is a rule that sets a time limit for bringing a lawsuit. The length of time that a creditor has to sue you on an unpaid credit card balance varies from state to state. In some states, it’s three years. In other states, it might be longer. It may also depend on whether you have a written credit card agreement with that creditor. To find out your state’s statute of limitations, check out Nolo’s 50-state chart: Statute of Limitations in All 50 States.
Normally, the clock starts ticking from the time you default on your agreement with the creditor. For example, if you defaulted, or stopped paying, on a credit card in September 2007 and you live in Ohio (which has a six year SOL for credit card agreements), then the creditor has until September 2013 to file a lawsuit against you.
Changing the Statute of Limitations Through “Choice of Law” Provisions
Some credit card companies have added language to their consumer credit agreements in an attempt to extend the statute of limitations. Creditors most often do this by using language that states something like “this agreement is governed by the laws of the State of _____.” This is legally called a “choice of law” or “governing law” provision. What that means is that no matter what state you live in, your rights and obligations—and the rights of the creditor—will be determined by the laws of the state that is identified in the credit card agreement.
When Credit Card Agreements Extend the SOL
In many instances, when a creditor has included a “choice of law” statement in your credit card agreement, it gives that creditor more time to sue. For example, if you live in California, the SOL is four years. However, if the creditor has opted for Ohio as its choice of law state, then the applicable statute of limitations follows Ohio law, and is six years. The credit card company may try to sue you for your debt beyond the four-year SOL. This may be perfectly legal.
When Credit Card Agreements Shorten the SOL
In some cases, a creditor may have shot itself in the foot by giving itself less time to sue you. For instance, if you live in Ohio but the creditor’s choice of law state is New Hampshire, then it may have shortened the time period to sue you. This is because New Hampshire’s SOL for a credit card debt is three years, as opposed to six years in Ohio.
Has the Creditor Violated the Fair Debt Collection Practices Act?
The FDCPA prohibits debt collectors and debt buyers from suing you for time-barred debts. And some state fair debt laws prohibit creditors from doing the same thing. This means that if a debt collector sues you for a credit card debt before the SOL in your state has expired, but after the SOL for the choice of law state has expired, it may have violated the FDCPA.
To learn more about FDCPA lawsuits and possible damages see Damages for FDCPA Violations.
The Nonresident Tolling Statute Exception
In some states, there might be an exception. If the choice of law state has a “nonresident tolling statute,” then the debt collector or debt buyer might still be able to sue you on a debt that would otherwise be time-barred by the law in the contract. This would come into play if the choice of law state had a shorter SOL than the SOL in your resident state.
Here’s what happens. The nonresident tolling statute says that because you are not a resident of the choice of law state, the choice of law state’s SOL is tolled or suspended. That means the collector can sue you in your home state, using your home state’s longer SOL.