If you’re like most Americans, you probably carry some significant debt. In February, the average American was over $78,000 in debt, including credit cards, car loans, and home mortgages. And the average American with credit card debt had an outstanding balance of almost $16,000. In fact, the debt can be some much that some people have to turn to professional debt management firms for help. But there is a way to give yourself some personal debt relief, whether you get professional help or not.

The so-called “debt snowball plan,” coined by Dave Ramsey, uses psychology to help folks get out of debt. Normally, financial experts recommend paying off high-interest debts first because you’ll typically owe less over the long term. However, the debt snowball plan recommends that you pay off low-balance debts first so that you build up the confidence you’ll need to maintain long-term momentum on your way to debt freedom. Here’s how it works:

• Organize all of your debts and arrange them from lowest balance to highest balance
• Make all your minimum monthly payments on all of your debts, but pay as much extra as you can on the debt at the top of your list so you can pay it off faster
• Once the lowest-balance debt at the top of your list is paid in full, transition that payment as an additional monthly payment on the second debt on your list — in other words, don’t decrease your total monthly debt payment; use the extra money you no longer need to pay on your first debt to help pay down your second debt faster
• Once your second debt is paid in full, transition its monthly payment (which will be the amount you had been paying on your first and second debts combined) as an extra monthly payment on your third debt
• Repeat these steps as necessary; by the time you reach your final, largest-balance debt, you’ll be paying significantly more than the minimum amount each month (in fact, the total of all your other debt payments combined, plus the minimum monthly payment of your final debt)

Paying off your lowest-balance debt quickly and then transitioning that monthly payment to your second debt, and then the monthly payment from your first and second debt to your third debt, and so on, will help keep you motivated to get debt free as soon as possible.

Have you tried the debt snowball plan? Let us know how it worked for you. We did it, and it worked great for us.

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One of the nation’s largest medical debt collection firms is under fire for its highly controversial and allegedly illegal tactics, which include working with hospitals to staff emergency rooms with agents who use “stop lists” to demand payment from debtors who seek treatment, even for life-threatening conditions.

Accretive Health contracts with some of the largest hospital systems in the United States to collect their debts. But according to hundreds of documents released Tuesday by Minnesota Attorney General Lori Swanson — who filed a lawsuit against the debt collection firm in January — the company’s business practices paint the firm as having a boiler room mentality and a policy of routinely obstructing patients’ access to medical care.

Documents show that, in order to have patient debts collected by Accretive Health, hospitals must agree to turn over the management of their front-line staffing (including patient registration, scheduling, and billing) and back-office collection activities to Accretive Health. Once that happens, Accretive Health staffs hospitals with agents, who routinely use confidential patient health records to try and wrangle money from debtors.

The agents, who are indistinguishable from medical staff members, take down sensitive information, including patient health information, and ask incoming patients to make a credit card payment. Internal documents also show that if incoming patients don’t have credit cards, agents are told to say, “If you have your checkbook in your car, I will be happy to wait for you.”

Accretive Health debt collection agents, who call themselves “financial counselors,” are instructed by upper management to stall patients entering the emergency room until they have agreed to pay a prior balance, according to the documents released by Swanson.

The documents also reveal a boiler-room mentality by upper management, which instructs agents to use a so-called “stop list” to identify supposed debtors, much in the same way that the FAA uses a no-fly list to track passengers who are supposed security risks. If agents don’t collect, they’re told they will be fired, according to documents and agent statements.

“It is absolutely stunning that the company has systematically trampled on patient rights, perverting the charitable mission of a hospital,” Swanson said (“Debt Collectors Sued Over Emergency Room Tactics,” Idaho Statesman, April 25, 2012).

Firm: We Have ‘Great Track Record’ of Helping Hospitals Enhance Quality of Care

Documents show that hospital employees feel that patients are “harassed mercilessly,” discouraging some from seeking life-saving treatments, and that medical care at the hospitals that contract with Accretive Health has declined precipitously. But the debt collection firm dismissed such claims as “country club talk.”

“We have a great track record of helping hospitals enhance their quality of care,” an Accretive Health spokeswoman said.

Last year, publically-traded Accretive Health reported $29.2 million in net income, up 130 percent from a year earlier.

Swanson’s lawsuit against the company charges Accretive Health with violations of the Health Insurance Portability and Accountability Act for inappropriately accessing confidential patient health records.

It is unclear if the hospitals that contracted with Accretive Health were being investigated for providing agents of the company with access to those confidential records.

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The Attorney General of Ohio filed a lawsuit Thursday against a California-based mortgage debt relief operation that allegedly scammed Ohioans out of thousands of dollars in advance fees in exchange for false promises to lower consumers’ mortgage payments and prevent foreclosures.

The complaint by Ohio Attorney General Mike DeWine accused Christopher Rojas of Irvine of regularly changing the name of his business when complaints began to surface in an attempt to hide his fraudulent activity from consumers.

“This individual takes thousands of dollars up front but fails to provide promised services,” DeWine said in a statement. “He also changes his business names regularly so he can keep operating in the same pattern without consumers catching on” (“Ohio Attorney General Sues Over Scam Foreclosure Fix Scheme,” Huntington News, April 19, 2012).

According to the complaint, Rojas has done business as National Juris Solutions, US National Legal Solutions, Weston & Wyatt, Merrill & Warren, and Legacy Holdings Group.

Rojas has been charged with failure to deliver, a violation of Ohio’s Consumer Sales Practices Act, and charging excessive fees in violation of the Debt Adjusters Act. DeWine is seeking injunctive relief, consumer restitution, and civil penalties.

In a statement, DeWine reminded Ohioans who are worried about making their mortgage payments to consider some basic advice:

• Never pay up-front fees for mortgage debt relief or foreclosure prevention services. By law, mortgage debt relief companies are prohibited from charging and accepting fees until consumers receive and accept a loan modification offer from their lenders.
• Research businesses before giving them any money or information. Make sure to check with the Better Business Bureau and the Ohio Attorney General’s Office to see if consumers have filed any complaints.
• Free foreclosure assistance is available from Save the Dream Ohio. For more information, visit www.savethedream.ohio.gov or call (888) 404-4674.

Consumers who believe they have been treated unfairly or have been the victim of fraud are encouraged to file a complaint online with the Ohio Attorney General’s Office or by calling (800) 282-0515.

Further Reading

Complaint and Request for Declaratory Judgment: State of Ohio v. Christopher Rojas. Filed April 17, 2012.

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America’s college students may need some major credit card debt relief in the near future, according to a recent study of financial literacy on campus.

The study, “Financial Literacy and Credit Cards: A Multi Campus Survey,” conducted by researchers from five U.S. universities, was published this April, coinciding with Financial Literacy Month. The study found major problems with U.S. students’ understanding of credit cards and credit card debt:

• Seventy percent of students have credit cards
• Five out of six of those students are unaware of their cards’ interest rates
• Seventy-five percent of those students don’t know what their late-payment fees are
• Seventy percent of those students don’t know what their over-balance fees are

As a result, more than 90 percent of college students who have credit cards are carrying monthly credit card debt. Perhaps more shocking was that nearly all of the 725 students who participated in the 2009 survey were business majors.

“Our students lacked even basic financial knowledge of a common credit tool that many of our students used every day,” the study said. “There is no way to describe these results as a success in education of financial literacy” (“Survey: Students Fail the Credit Card Test,” Fox Business, April 16, 2012).

There were several other troubling findings in the study as well:

• Credit card use “has snowballed in the last decade” on campus; in 2004, the average student credit card debt was $946, but by 2009 the average had climbed to $4,100
• Nearly a third of college students with credit cards had more than one card
• Only 9.4 percent of students paid their credit card debt in full each month, a steep decline from 32 percent in 2003
• Only 14.6 percent of students claimed to know their interest rates
• Demographically, younger students used credit cards more than older students; students who had taken an ethics class were more aware of interest rates, and employed and married students tended to be more responsible users of credit cards

In the end, the study’s conclusions were disturbing. “This result may also explain part of our national problem with credit,” the study said. “If our college students do not understand credit costs, what can we expect from the larger portion of our society without a college education?”

“These results should serve as a wakeup call for both our college students and our college outreach efforts into the community to train people about the costs of credit. It is clear the status quo of financial literacy is a failure.”

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On the heels of reports that the head of the top regulator of Fannie Mae and Freddie Mac has softened his stance on providing mortgage debt relief for underwater homeowners, two U.S. Senate Republicans are urging the government to instead use the mortgage debt relief funds to pay down the national debt.

Republican Senators David Vitter of Louisiana and Jim DeMint of South Carolina sent a letter Tuesday to Treasury Secretary Timothy Geithner criticizing the Obama administration for encouraging federally-backed mortgage giants Fannie Mae and Freddie Mac — which together hold 60 percent of all U.S. home mortgages — to provide mortgage debt relief via loan principal reductions to struggling homeowners.

Edward DeMarco, the head of the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, has been stubbornly against principal reductions, despite frequent calls by the Obama administration and Democratic lawmakers to provide them as a means to help struggling homeowners stay in their homes. However, DeMarco seemed to take one step back by saying recently that offering homeowners reductions on their mortgage principal balances may make sense after all, but that more study was needed.

DeMarco’s comments prompted the letter by Vitter and DeMint, in which the Senators argued against the Obama administration’s plan to use some of the $46 billion set aside for the 2008 Troubled Asset Relief Program (TARP) on foreclosure prevention. The pair said that big banks holding second mortgages will be the ones that benefit from write-downs, not homeowners. The plan “will pay off the mega banks with taxpayer cash in exchange for reducing the principal balance on some mortgages,” Vitter and DeMint wrote. “We write to urge you, on behalf of the taxpayers, to reconsider and, instead, return this money to the Treasury to pay down the national debt” (“GOP Senators: Forget Write-Downs, Pay Down Debt Instead,” The Wall Street Journal, April 17, 2012).

Michael Steagman, a Treasury housing official, said prior to the Senator’s letter that he disagreed with the notion that big banks, instead of homeowners, would reap the benefits of mortgage principal reductions.

“Principal reduction is by no means the solution for all borrowers struggling to pay their bills,” Stegman said. “But it is smart economic policy for some, and where it is we should provide that help.”

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A measure of mortgage debt relief may be on the way for struggling U.S. homeowners.

Under pressure from Congressional Democrats, Edward DeMarco, the head of the Federal Housing Finance Agency — the top regulator of Fannie Mae and Freddie Mac, which together hold 60 percent of America’s home mortgages — said that offering mortgage debt relief to underwater homeowners via a reduction on their home loan principal balances may make sense after all, but that more study was needed.

DeMarco has been stubbornly against principal reductions, despite frequent calls by many Washington lawmakers to allow them. Although DeMarco’s recent comments may have opened the door to the idea of principal reductions on home mortgages, he repeated the reasons why he has been opposed the idea, including concerns over a moral dilemma in which homeowners who aren’t in trouble flood lenders with demands of principal reductions (“FHFA Chief DeMarco Loosens Up a Bit on Principal Reduction,” MSNBC, April 10, 2012).

Shaun Donovan, Secretary of Housing and Urban Development, told a Senate panel earlier this year that increasing data showed that mortgage debt relief via principal reduction would be good for homeowners, investors, and communities. Principal reductions would “allow people to pay [their bills], stay in their homes and increase the value of those mortgages,” Donovan said.

Meanwhile, private lenders are offering principal reductions to their borrowers. “Private lenders are doing it for an increasing share of their [mortgage portfolios] when it makes sense,” said Andrew Jakabovics, a research director at Enterprise Community Partners, Inc. “If [Fannie Mae and Freddie Mac] aren’t willing to do it there are plenty of investors who are buying these notes because economically it makes a lot of sense.”

But DeMarco, thus far, hasn’t been persuaded. Instead, DeMarco has said that borrowers have a moral obligation to repay their mortgages. “The far larger group of underwater borrowers who today have remained faithful to paying their mortgage obligations are the much greater contingent risk to housing markets and to taxpayers,” DeMarco said.

As a result of DeMarco’s position — which he holds despite the government having propped up the money-losing mortgage agencies with more than $150 billion in taxpayer funds — the FHFA has offered only interest rate deductions, loan term extensions, and principal forbearance, which postpones the repayment of a portion of a loan balance, but doesn’t permanently reduce it. For his part, DeMarco cited data on Fannie Mae’s loan modifications showing that lowering monthly payments is a more effective way of preventing defaults than reducing principal balances.

Since the U.S. housing market collapse in 2006, the value of American homes has plunged $7 trillion dollars, leaving about 11 million homeowners owing more on their homes than they’re worth.

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A federal court has agreed to a $3.89 million default judgment against a collection of mortgage debt relief firms that allegedly defrauded homeowners out of thousands of dollars in exchange for false promises to modify their mortgages and prevent foreclosures.

Samuel Paul Bain and three of his mortgage debt relief companies — U.S. Homeowners Relief Inc., Waypoint Law Group Inc., and American Lending Review Inc. — were sued by the Federal Trade Commission for allegedly charging consumers up to $4,250 in exchange for promises to reduce their mortgage payments, interest rates, and sometimes even their loan balances. According to the lawsuit, however, the companies in reality were scams that collected hefty up-front fees while failing to deliver any mortgage modification or foreclosure prevention services (“FTC Action Leads to Court Order,” FTC press release, April 6, 2012).

There were initially nine defendants in the FTC’s lawsuit. Six have already settled FTC charges. Under the order, which resolves the lawsuit against U.S. Homeowners Relief, Bain and the remaining three companies are required to pay $3.89 million in refunds and fines and, like the other six defendants, are permanently banned from selling any mortgage assistance or debt relief products or services.

The FTC encourages consumers to report fraudulent, deceptive, and unfair business practices by filing a complaint in English or Spanish using the FTC’s online Complaint Assistant or by calling the FTC toll-free at (877) 382-4357.

Further Reading

Default Judgment and Order for Permanent Injunction and Other Equitable Relief: Federal Trade Commission v. U.S. Homeowners Relief Inc., et al. Filed February 13, 2012.

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In what can only be described as a bit of irony, the nation’s largest debt relief company, embattled in recent years for its allegedly deceptive business practices involving the use of franchises to avoid state laws regulating attorney-model debt relief operations, was sued by a debt resolution franchisee for allegedly deceiving the franchisee and violating state law.

Legal Helpers, an Illinois-based debt relief company, has had several legal actions filed against it in recent years, including a lawsuit in Ohio and a class action lawsuit in Washington, alleging that the company set up debt resolution franchises in all 50 states that were supposed to be directly overseen by attorneys in those states but were, in fact, nothing more than shells designed to maintain the appearance of attorney involvement. The suits alleged that Legal Helpers used the shell franchises, which had no actual connection to the attorneys in question, to avoid limitations on debt help firms that employed lawyers to provide debt relief services, including state licensing limitations, and to take advantage of ubiquitous state laws that allowed attorneys to avoid advance-fee limitations placed on non-attorney debt relief firms.

Now one of Legal Helpers’ shell franchises, Velocity Processing Debt Resolution, based in Frisco, Texas, has filed a class-action lawsuit against Legal Helpers (as well as the law firm of Macey, Aleman, Hyslip & Searns, partners Thomas Macey, Jeffrey Aleman, Jeffrey Hyslip, Jason Searns, and Dallas attorney C. Bryan Fears) over allegations that the debt resolution company fired Velocity Processing, without due cause and in violation of Illinois franchise law, after Velocity Processing helped build Legal Helpers into a national organization (“Franchise Sues Big Debt Relief Firm,” Courthouse News Service, April 9, 2012).

According to Velocity Processing’s complaint, the defendants sold franchises to debt help firms like the plaintiff’s to take advantage of state and federal laws that make it easier, and more profitable, for attorneys to provide debt relief services. In exchange, franchisees would get marketing help from Legal Helpers and service debt resolution accounts under the Legal Helpers brand. However, “Once Legal Helpers built its national law firm up to a level that had between 15,000 and 20,000 clients nationwide, it terminated its relationship with each and every one of its franchisees on the same day with the same form letter without any notice and without establishing good cause for termination,” the complaint states. “By failing to provide notice and to establish good cause for termination, Legal Helpers violated the Illinois Franchise Disclosure Act.”

“Then, to the shock of everyone,” the complaint continues, “Legal Helpers instructed Global Client Solutions, the payment processor, to stop all contract payments owed to Velocity Processing and its various marketing affiliates. Indeed, given that all of the marketing work performed by the various marketing affiliates of Velocity Processing was completed at the time of termination, Legal Helpers’ unlawful misappropriation of the money constitutes outright theft. For Velocity Processing, it is estimated that Legal Helpers has misappropriated between $800,000 and $1 million from Velocity Processing and its marketing affiliates. Of this amount, Legal Helpers was only entitled to $4,900 for outstanding ‘retainer fees.’ ”

Velocity Processing is seeking a temporary injunction against Legal Helpers while it moves forward with its complaint. Velocity Processing is seeking damages for wrongful termination of franchise, conversion of personal property, money had and received, and personal liability under the Illinois Franchise Act.

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At the height of the housing crisis, scammers targeted homeowners, offering to help rework the terms of their home mortgage loans to secure lower monthly payments and prevent foreclosures in exchange for hefty advance fees. In the end, the fraudsters didn’t provide the promised services. They simply took the money and ran. Now, scammers are targeting car owners, offering to rework the terms of their auto loans, also in exchange for hefty advance fees.

The Federal Trade Commission on Wednesday filed charges against two California-based auto loan modification operations, Hope for Car Owners and Auto Debt Consulting, for running separate scams against car owners. According to the FTC, the operations defrauded consumers by charging hundreds of dollars in up-front fees for bogus promises of reducing consumers’ monthly car payments and helping avoid repossession. Similar to mortgage modification scams, car owners were instructed to stop paying their auto lenders so that the companies would purportedly have leverage to negotiate with the lenders. To avoid repossession, customers were simply told to hide their cars.

“Now that the FTC and its partners have stopped hundreds of mortgage loan modification scams, fraud artists are moving to another loan modification scam, preying on consumers who are behind on their auto loan payments and facing repossession,” said David Vladeck, director of the FTC’s Bureau of Consumer Protection in a statement. “Despite promising to substantially lower consumers’ monthly payments, these schemes charge hundreds of dollars in up-front fees, leaving financially distressed consumers in worse shape than when they began” (“FTC Charges that Auto Loan Schemes Falsely Promised They Could Stop Consumers’ Cars from Being Repossessed,” FTC press release, April 4, 2012).

According to the FTC’s complaint, Hope for Car Owners charged $200 to $500 in advance fees to obtain loan modifications that would supposedly reduce borrowers’ payments by 30 percent to 50 percent. Auto Debt Consulting charged more ($350 to $799) to obtain modifications that would supposedly reduce borrowers’ payments by less (25 percent to 40 percent). As part of allegedly fraudulent and deceptive advertising and marketing practices by both companies, Hope for Car Owners allegedly used false success testimonials and Auto Debt Consulting allegedly offered a false 100 percent money back guarantee.

Auto Debt Relief Attractive to Scammers Because Car Loans Total More Than Credit Cards

The FTC has asked a U.S. district court to order the two auto debt relief companies to halt operations while the agency pursues its cases against them.

Auto Debt Consulting’s founder, Naythem Nafso, denied the FTC’s allegations. “Our services are absolutely outstanding,” he said in an interview. “We absolutely help and assist clients struggling with vehicle payments. And if we are unsuccessful we issue either partial or full refunds depending on how much work we did on the case” (“FTC Charges Two California Companies In Auto Loan Scam,” Huffington Post, April 4, 2012).

One of the reasons that auto loans has become a new target for scammers is that Americans owe a total of $730 billion in auto loans, more than the amount of credit card debt, which is $693 million. In 2009, the number of car repossessions peaked at 1.9 million as borrowers struggled to make payments.

The FTC offers a publication for consumers looking for help managing their auto loans: “Ads for Auto Loan Modifications: You May Be Able to Drive a Better Deal with Your Lender.”

Consumers who believe they have been a victim of a scam can file a complaint online in English or Spanish with the FTC’s Compliant Assistant or by calling (877) 382-4357.

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A Texas debt settlement firm and its owner have been ordered to pay $2.5 million in civil penalties and customer refunds for deceptive and fraudulent business practices in Vermont.

The judgment by Washington Superior Judge Michael S. Kupersmith against Dallas-based CSA-Credit Solutions of America LLC and its owner and CEO Doug Van Arsdale is the result of a lawsuit brought against CSA and Van Arsdale by Vermont Attorney General William H. Sorrell in July 2010. The lawsuit alleged that the defendants used unsubstantiated and deceptive results claims — such as “Reduce your debt 60% in seconds!” — to advertise their debt settlement services to Vermont consumers, which they would purportedly use to negotiate customers’ debts with creditors and convince creditors to allow customers to pay off those debts for less than what was owed. Additionally, the defendants allegedly “failed to properly notify consumers of their right to cancel their contract with the company; and did business in Vermont without first obtaining the required license from the Department of Banking, Insurance, Securities and Health Care Administration” (“Vermont Court Fines Debt Settlement Company,” Office of the Attorney General of Vermont press release, April 2, 2012).

However, according to the lawsuit, the debt settlement operation was a scam. In most cases, promised debt settlement services were not provided, even though the defendants charged Vermont victims up-front fees before negotiating with creditors. “The company might take years to get around to settling a single debt for the person, but long before that would have collected all of its fees associated with all of the debts that had been enrolled by the consumer,” said Assistant Attorney General Elliot Burg, who also noted that CSA has also been sued by the attorneys general of New York, Texas, Maine, Missouri, and Illinois (“Debt company ordered to repay Vermonters,” The Barre-Montpelier Times Argus, April 2, 2012).

“It’s an old adage at this point but when you see a promise online that seems like it’s just too good to be true,” Burg said, “it is too good to be true.”

Under terms of the order, the defendants must pay $2.07 million in civil penalties, $350,000 in full refunds to 207 customers, and pay $91,059 to reimburse attorney’s fees and costs. CSA and Van Arsdale are also barred from debt settlement, debt relief, and related businesses in Vermont unless they offer reasonable and factual substantiation for results claims and comply with the state’s right-to-cancel and debt adjuster licensing requirements.

Burg said that it was unclear if CSA was still in business but that the state would make every effort to collect the court’s judgment from the company and Van Arsdale.

Further Reading

Order: State of Vermont v. CSA-Credit Solutions of America LLC, et al. Filed March 21, 2012.

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