A woman from Katy, Texas, near Houston, has taken the fight against unscrupulous debt collection companies into her own hands.

Georgia Strong filed a lawsuit Saturday in Harris County District Court against her cell phone company and two associated debt collection companies. The lawsuit alleges that Strong was harassed by Superior Asset Management and Pinnacle Financial Group as they attempted to collect a debt owed T-Mobile USA Inc. that the collectors allegedly never verified (“Katy Woman Accuses T-Mobile, Debt Collectors of Harassment,” Ultimate Katy, Aug. 31, 2011).

According to the lawsuit, Strong was initially contacted by Superior Asset Management over a supposed outstanding balance of more than $361 on her T-Mobile account. In November 2010, Strong sent a letter to Superior Asset Management, through an attorney, informing the debt collection company that she had retained counsel and demanding that the company send all future correspondence to her attorney, including verification of the supposed debt.

A month later, Strong received another debt collection letter directly from Superior Asset management. The letter failed to contain verification of the supposed debt.

In February, Strong received a debt collection letter from Pinnacle Financial Group. Through an attorney, Strong allegedly sent Pinnacle Financial Group a cease-and-desist letter stating that she was represented by an attorney and asking for verification of the supposed debt. Strong allegedly never received any such verification.

In her lawsuit, Strong accuses T-Mobile of violating Texas debt collection laws by using third-party debt collection companies. The lawsuit also accuses Superior Asset Management and Pinnacle Financial Group of violating federal debt collection laws and of negligence. Strong is seeking $66,000 in damages and court fees.

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A California debt relief company entered into a settlement agreement Wednesday with the Attorney General of New York over improprieties in its debt settlement business practices uncovered by an investigation that began more than two years ago.

Debtmerica LLC, based in Santa Anna, then known as Debtmerica Relief, was one of 14 debt relief companies targeted for investigation by then New York Attorney General Andrew M. Cuomo in May 2009. Cuomo launched a nationwide investigation of the debt relief industry after receiving complaints that companies were charging huge advance fees for misleading programs that often left consumers in worse financial shape.

In a May 2009 statement, Cuomo said that some debt relief companies were falsely promising that they could settle consumers’ credit card debts by as much as 75 percent. To help pay for exorbitant advance fees and monthly fees, some debt relief companies were allegedly telling customers 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” (“Attorney General Cuomo Announces Nationwide Investigation Into Debt Settlement Industry,” Office of the Attorney General of New York press release, May 7, 2009).

Under terms of the settlement agreement with current New York Attorney General Eric T. Schneiderman, Debtmerica must comply with Federal Trade Commission (FTC) rules that went into effect in October 2010 that regulate the business and marketing practices of debt settlement companies and prohibit them from collecting advance fees. The settlement agreement also requires that Debtmerica pay $175,000 in refunds to New York customers and $25,000 to reimburse investigative costs incurred by the attorney general’s office.

In a statement, Debtmerica said it disagreed with some of the conclusions drawn by the attorney general’s investigation and noted that it restructured it business model last fall to fully comply with the new FTC rules. The company said that it blamed unscrupulous competitors for problems in the debt relief industry and said that it was working with regulators at the state level to make sure that all debt relief companies follow FTC regulations (“Debtmerica Reaches Resolution With the State of New York,” Debtmerica LLC press release, Aug. 24, 2011).

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West Virginia Attorney General Darrell McGraw announced Wednesday that his office had reached a settlement agreement with a Delaware-based payday lender and its defunct debt collection agency for making and collecting illegal Internet payday loans.

The settlement agreement with Internet payday lender Government Employees Credit Center (GECC) and P.D. Recovery, a now-defunct debt collection agency used by GECC, will provide significant debt relief for W.Va. residents taken by the illegal operation. In all, the settlement agreement results in more than $300,000 in cancelled debts and interest charge refunds for 348 consumers.

Internet payday loans are short-term loans or cash advances that typically must be repaid within 14 days. The loans are typically secured by giving payday lenders permission to electronically take payments from consumers’ checking accounts every two weeks. Consumers who can’t pay the full amount when due are often required to pay a fee, which is usually 25 percent of the amount borrowed, to roll over the loan and avoid default. The need to roll over the loan places consumers into “debt spirals” in which checking accounts are continually drained but the loan principal never goes down, resulting in auto fee payments that continue indefinitely.

McGraw’s office began investigating GECC in 2006 after complaints that the company was making illegal Internet payday loans in West Virginia. The investigation found that GECC charges a 25 percent fee on each two-week loan, equal to an annual interest rate of 650 percent. State law sets the maximum interest rate on such loans at 18 percent annually.

McGraw’s office also opened an investigation into P.D. Recovery after learning that GECC had hired the debt collection company, a subsidiary of Dollar Financial Group, to collect GECC’s defaulted accounts. The investigation found that P.D. Recovery wasn’t licensed for debt collection in West Virginia (“Attorney General Darrell McGraw Recovers Over $300K for WV Consumers,” Office of the Attorney General of West Virginia press release, Aug. 24, 2011).

In addition to providing refunds and cancelling debts, the terms of the settlement agreement prohibit GECC and its owner, Vincent Keith Ney, from making or collecting Internet payday loans in West Virginia. Under an earlier settlement agreement, Dollar Financial Group and its owner, Jeffery A. Weiss, are prohibited from debt collection activities in West Virginia until the company obtains a business license and surety bond as required by the State Tax Department.

The settlement marks the latest effort by McGraw’s office to reign in Internet payday loans, which are illegal in West Virginia. To date, McGraw’s office has recovered $2.7 million in refunds and cancelled debts for 8,497 consumers.

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The attorney general of New York has stepped in to provide $3.5 million in debt relief for victims of a scam run by a shopping mall kiosk that targeted soldiers.

Almost a thousand soldiers fell victim to a pricing and financing scam run by the ironically-named retailer SmartBuy, which Attorney General Eric Schneiderman said used a kiosk and a small storefront at the Salmon Run Mall near Fort Drum, N.Y., to rip off soldiers stationed at the base.

According to Schneiderman’s office, the company bought electronic equipment such as gaming systems, flat-screen televisions, and laptops from discount retailers like Costco, Walmart, and Sam’s Club. The company then marked up the merchandise by as much as 325 percent and aggressively sold the wildly-inflated electronic equipment to soldiers. However, the company refused to take cash payments and instead pressured buyers into payment contracts with hidden fees and extraordinarily high interest rates of between 10 percent and 25 percent. Over the life of the company’s payment contracts, total interest payments averaged 244 percent (“A.G. Schneiderman Secures Financial Relief for Hundreds of Debt-Ridden Soldiers,” Office of the Attorney General of New York press release, Aug. 16, 2011).

In one case, a soldier ended up $6,000 in debt for a computer that cost $1,200. In another case, a soldier who later served in Iraq bought a 47-inch LCD TV for $4,632 plus 12 percent interest when it cost only $1,100 at Sam’s Club.

“This company took advantage of service members using deceptive practices and roping them into high-interest contracts and ruining their credit ratings,” Schneiderman said. “The last thing any soldier should have on their mind is the fact they were the victim of a scam back home that haunts them when they are overseas. They’re easy victims for some types of scams.”

Kiosks in Eight States Were Allegedly Just Storefronts for Financing Companies

Under terms of the debt settlement agreement, bankrupt California-based Rome Finance Co. Inc., one of several financing companies associated with SmartBuy, will release 995 soldiers from $3,530,090.58 worth of financing contracts in the state of New York and will take steps to repair soldiers’ credit histories (“NY Attorney General Settles Soldiers’ $3.5M Debt,” The Wall Street Journal, Aug. 16, 2011).

Litigation against other associated financing companies, including Britlee Inc., Integrity Financial of North Carolina Inc., Rome Finance Co. LLC, and Frisco Marketing of N.Y. LLC — all of which are solvent and do business as SmartBuy and SmartBuy Computers and Electronics — is pending in New York State Supreme Court.

SmartBuy attorney Gabe Nugent said the allegations against the company are baseless, although he said the company, based in Fayetteville N.C., is in transition and no longer sells consumer goods.

Schneiderman’s office has referred over 200 cases to attorney’s generals in other states. In addition to New York, SmartBuy had operated near military posts in California, Colorado, Georgia, North Carolina, Oklahoma, Tennessee, and Texas.

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An embattled, bankrupt Texas debt relief firm that was sued by the Texas attorney general for scamming customers out of millions of dollars has now been sued by the Federal Trade Commission (FTC) for unfair and deceptive business practices and fraud.

The FTC filed a lawsuit Thursday against Addison-based Debt Relief USA Inc. for allegedly violating Section 5 of the Federal Trade Commission Act. In its lawsuit, the FTC claimed that Debt Relief USA falsely promised between 2005 and 2009 that it could provide credit card debt settlement services that would result in consumers only having to pay creditors “pennies on the dollar” for debts they owed. According to the company’s advertising, consumers could use its debt relief services to eliminate 40 percent to 60 percent of their debt, avoid bankruptcy, and become debt free in 24 to 36 months.

However, the FTC alleged that the company, in fact, had no “special relationships with creditors” and couldn’t “negotiate significant discounts for consumers,” as advertised. The company, which charged advance fees, monthly fees, administrative fees, and negotiation fees for debt relief services the FTC alleged were usually never rendered.

The FTC’s lawsuit seeks injunctive relief and consumer restitution, as well as a permanent ban against Debt Relief USA and officers Kelly Reilly, Alvin Bell, James Wojick, and Valerie Leath from offering debt relief services (“Two Years After Addison-Based Debt Relief USA Went Bankrupt, the Feds Take an Interest,” Dallas Observer, Aug. 18, 2011) .

Debt Relief USA was sued by Texas Attorney General Greg Abbot after the company filed for Chapter 11 bankruptcy protection in July 2009. Abbot’s lawsuit forced the company into Chapter 7 bankruptcy liquidation shortly thereafter. In December, Abbot’s office announced that Debt Relief USA had settled its lawsuit for $4.7 million, $3.7 million of which would go to reimburse customers the company had bilked.

Further Reading

Complaint for Permanent Injunction and Other Equitable Relief: Federal Trade Commission v. Debt Relief USA Inc., et al. Filed August 17, 2011.

Federal Trade Commission, “Federal Trade Commission Act Section 5: Unfair or Deceptive Acts or Practices.”

“Texas Attorney General’s Office Obtains Court Order Returning $3.7 Million To Financially Struggling Consumers,” Office of the Attorney General of Texas press release, Dec. 2, 2010.

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The Ohio attorney general on Tuesday sued a Florida-based debt relief company for allegedly bilking Ohio residents in a foreclosure relief scam.

In his lawsuit, Attorney General Mike DeWine alleged that American Residential Law Group charged advance fees from $1,395 to $3,350 in exchange for purportedly helping consumers avoid foreclosure by working with lenders to modify their mortgages or otherwise adjust what they owed. However, the debt relief firm “often failed to perform the services listed in the contract.”

The owners of American Residential Law Group, Oscar Estevez and Joel Jacobi, are also named as defendants. There is no indication in court filings that either man is a lawyer.

According to contracts that consumers sign with American Residential Law Group, Estevez and Jacobi claim their business “employs professional negotiators with expertise in dealing with lending institutions regarding mortgages on residential/commercial real estate.” The contracts promise that the firm will “perform a detailed market analysis of the subject property and the surrounding areas … perform a loss liquidation analysis on the subject property,” and “attempt to successfully negotiate” with lenders to secure mortgage modifications or otherwise adjust mortgage debts (“State Sues to Stop Foreclosure Scam,” Courthouse News Service,” Aug. 18, 2011).

Once consumers paid advance fees to American Residential Law Group, the company allegedly failed to perform debt relief services of any value, often leaving customers in foreclosure. DeWine said the company also failed to communicated with customers and didn’t return customer phone calls and emails. When customers asked for refunds, the company allegedly refused.

DeWines’ lawsuit seeks an injunction against American Residential Law Group, as well as customer restitution, legal costs, and fines of up to $25,000 for each violation of consumer law and the Debt Adjusters Act.

 
Further Reading

Complaint: State of Ohio v. American Residential Law Group Inc. et al. Filed August 16, 2011.

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Some homeowners in New Jersey who are looking for debt help to avoid foreclosure might be able to get some assistance from a free state mortgage debt relief program.

The New Jersey Judiciary Foreclosure Mediation Program, signed into law at the end of 2009 by then New Jersey Governor Jon Corzine, helps resolve foreclosures and keep residents in their homes through collaborative mediation between the courts, the attorney general’s office, the Housing Mortgage Finance Agency, the Public Advocate, the Department of Banking and Insurance, and Legal Services of New Jersey.

In the program, troubled homeowners facing foreclosure are first referred to certified counselors from the U.S. Department of Housing and Urban Development and the state of New Jersey, as well as volunteer lawyers. The counselors and lawyers will work with lenders to try to find a solution that avoids foreclosure, such as waiving penalties or providing other mortgage options like loan modifications.

If an agreement between lenders and homeowners to resolve delinquent mortgages can’t be reached, the parties will be required to work with court-appointed mediators to try to reach out-of-court agreements for rehabilitating defaulted mortgages (“New Jersey’s Foreclosure Mediation Program,” Scura, Mealey, Wigfield & Heyer LLP press release, Aug. 12, 2011).

To qualify for the program, homeowners must meet several requirements:

• Homeowners must be residents of New Jersey who haven’t filed for bankruptcy
• The primary residence must be in default or foreclosure
• The property must be a one- to three-family residence

In January, New Jersey foreclosures were occurring faster than the national average, according to RealtyTrec, and online foreclosure resource. While nationally foreclosures were up 1 percent between December and January, they climbed 13 percent in New Jersey. Although total foreclosures in the state were down from a year ago, analysts said it was a ”false positive” due to a backlog of foreclosure paperwork and unethical mortgage practices.

For more information about the New Jersey Judiciary Foreclosure Mediation Program, residents can call (888) 989-5277 or go online at www.nj.gov/foreclosuremediation.

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Rules that regulate the business practices of some debt relief companies should be extended to all debt relief companies, regardless of tax status, one of the nation’s largest for-profit debt relief firms said Monday.

The comments by CareOne Services Inc., a Maryland-based company that provides debt relief services in 42 states, were formally delivered to the new federal Consumer Financial Protection Bureau (CFPB) as part of a public comment period that the bureau instituted to seek, among other things, input on defining certain terms to ensure compliance with consumer protection laws for debt relief providers passed last summer.

In July 2010, the Federal Trade Commission (FTC) passed new consumer protection laws that required debt relief companies to increase disclosures to consumers, restricted advertising, and prohibited advance fees. However, those rules applied only to for-profit debt relief companies, which make up about 15 percent of the industry. The other 85 percent of debt relief companies, which have a nonprofit tax status, were exempted from the laws (“CFPB Urged to Apply Existing Debt Relief Rules to All Providers,” CareOne Services Inc. press release, Aug. 16, 2011).

In a statement to the CFPB, CareOne president Mike Croxson said that the new FTC rules should be expanded to cover all providers of debt relief services, in part because any industry regulation is weakened if all participants in the industry aren’t regulated. “The primary goal of the CFPB is to protect consumers and one of the best ways to do that is create a level playing field where all providers of financial services are subject to effective consumer protection laws,” Croxson said.

Croxson said that uniform debt relief rules, specifically those that target telemarketing, need to be the first priority of CFPB oversight of the industry. “These [debt relief] providers may be nonprofits, but they make millions of dollars each year in consumer fees, while having few restrictions on how they interact with customers or potential customers,” Croxson said. “My hope is the CFPB will recognize the need to look beyond tax status and look at the services a company provides when deciding how to regulate this industry.”

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The attorney general of South Dakota is warning residents to be on the lookout for a debt collection scam operating in the state in which debt collectors pose as law enforcement officers.

Attorney General Marty Jackley said in a statement that the scam is perpetrated by callers who claim they are attempting to collect a debt related to a payday loan that consumers supposedly obtained over the Internet. However, many of the consumers contacted by the fraudulent debt collection agents have never taken out a payday loan or have already repaid the loan in full (“Attorney General Jackley Warns of Debt Collection Scam”, Office of the Attorney General of South Dakota press release, Aug. 4, 2011).

According to Jackley, the scam’s perpetrators have most recently identified themselves over the phone as law enforcement officers. The individuals call victims’ homes, cell phones, and places of employment to attempt to collect the supposed debts. The callers refuse to provide evidence of the alleged payday loans. When victims question the callers or refuse to pay, the callers reportedly threaten victims with legal action, arrest, and, in some cases, physical violence.

The callers are attempting to obtain money by instilling fear, and their instructions should not be followed, Jackley said. To help deal with any suspicious caller who asks for money to pay back an alleged debt, Jackely’s office told consumers to take the following actions:

• Contact your banking institutions
• Ask the caller to send you information about the loan in writing
• Refuse to verify personal information such as bank account numbers, credit card numbers, or Social Security numbers
• To help safeguard your financial information, contact the three major credit-reporting bureaus — Experian, Equifax, and TransUnion — and request that an alert be placed on your file
• Contact local law enforcement if you have been physically threatened or feel you are in immediate danger

Jackley also reminded consumers that they’re entitled to a free credit report from the three credit bureaus once a year, which will allow them to monitor their credit history for fraudulent activity. The free reports can be obtained by calling (877) 322-8228 or by going online at www.annualcreditreport.com.

For more information about this scam, consumers are encouraged to contact the Attorney General’s Consumer Protection Division by calling (800) 300-1986 or sending an email to consumerhelp@state.sd.us. To file a complaint, consumers may visit atg.sd.gov/Consumers/HandlingComplaints.

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The Attorney General of Maine has reached a settlement agreement with a Texas-based debt relief company that allegedly duped customers into paying advance fees for debt settlement services that failed to provide advertised results.

Credit Solutions of America (CSA) and its owner, Douglas Van Arsdale, entered into a consent judgment that settles attorney general William Schnieder’s allegations that the company’s deceptive marketing and advance fee scheme violated the Maine Unfair Trade Practices Act.

According to Schneider’s office, in 2003 CSA began marketing debt relief services to Maine consumers by promising that it could negotiate with creditors to settle debts for a fraction of what was owed. In exchange for advance fees of up to 15 percent of the total debt to be negotiated, CSA claimed that it could reduce consumers’ debts by 40 percent to 60 percent. The company also claimed that enrollees in its program could be debt free in 36 months.

However, of the 561 Maine consumers who enrolled in CSA’s debt settlement program, only 6 percent had their debts settled for 40 percent of what they owed. In most cases the company held consumers responsible for the entire enrollment fee, regardless of the amount of total debt that was settled (“Debt Settlement Company CSA Settles Unfair Trade Practices Claims,” Office of the Attorney General of Maine press release, Aug. 9, 2011).

Under terms of the settlement agreement, CSA and Van Arsdale will no longer accept advance payments and will not enter into enrollment contracts with new Maine customers. The company will also pay a $150,000 fee to cover the cost of investigation and litigation. CSA will be allowed to continue providing debt relief services to Maine consumers in compliance with sate laws, including maintaining a license and bond through the Maine Bureau of Credit Protection, offering an approved consumer education program, and ensuring that debt management counselors are certified.

“Maine consumers in financial distress are particularly vulnerable to deceptive marketing of debt relief services,” Schneider said in a statement. “Despite CSA’s claims that consumers who enrolled in their program would be debt free in 36 months, the truth is that debt relief is not a quick fix.”

For more information about debt relief services, Maine consumers are encouraged to call the Federal Trade Commission at (877) 382-4357 or visit the agency’s website at www.ftc.gov/bcp/edu/pubs/consumer/credit/cre02.shtm.

For information about the licensing of debt relief and dent settlement firms operating in Maine, or to file a complaint, consumers can contact the Maine Bureau of Consumer Credit Protection by calling (800) 332-5829 or going online at www.maine.gov/pfr/consumercredit/index.shtml.

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