At a conference of state attorneys general on Tuesday, Cordray said that the CFPB is developing a rule that would allow for formal federal supervision of debt collectors, a first in the industry. Under the rule, the bureau would be able to send examiners on-site to debt collection firms to take a look at their operations and determine if the firm is complying with the law. The proposed rule comes on the heels of the CFPB’s February announcement that it plans to supervise all debt collection firms in the U.S. with more than $10 million in annual receipts.

Cordray characterized some debt collectors’ methods as “just unconscionable” and that “the worst practices undermine our basic humanity, turning people into mere account-ledger entries and spawning treatment that flatly disregards all common courtesy on the way to violating the law.” Cordray noted that the supervisory efforts under the new rule would cover more than 60 percent of debt collection market activities.

“We will set forth our expectations through public examination procedures, encourage robust compliance programs, communicate expectations confidentially to the entity throughout the examination and rating process and ensure appropriate corrective action where necessary,” Cordray said. “By comprehensively assessing large collectors, as well as many of the bank creditors who originate the debt, supervision would allow us to understand and address the systemic problems posing risks to consumers” (“New Consumer Watchdog Agency Targets Debt-Collection Practices,” The Wall Street Journal, March 6, 2012).

Debt collection remains a top source of consumer complaints, despite action over the years by the Federal Trade Commission and state officials, as the number of Americans with debt under collection has increased dramatically over the past decade to 30 million. Cordray said that the CFPB would bring a new tool to the fight against illegal activity and fraud in the debt collection industry and that the bureau would rely on cooperation with federal and state agencies, including the FTC and state attorney’s general, to “transform this situation” and affect change in the debt collection industry in a more lasting way.

According to the lawsuit, Prestige Financial Solutions and its principal, Amy Thompson, failed to comply with a series of disclosure requirements mandated by the Colorado Uniform Debt Management Services Act (DMSA). The alleged violations of state debt relief law included failing to inform consumers of their right to cancel contracts without penalty and failing to provide consumers with refunds upon cancellation. The debt settlement company also was allegedly operating without a debt relief license, which is unlawful in Colorado (“Attorney General Announces Consumer Protection Lawsuit Against Westminster-Based Debt Settlement Company,” Office of the Attorney General of Colorado press release, Jan. 9, 2012).

“In these difficult economic times, some Colorado consumers have turned to debt management providers for help,” the lawsuit said. “Debt management providers encourage consumers to default on their debts and then promise to assist the consumers by settling the consumers’ debts for pennies on the dollar. But after paying thousands of dollars to a debt settlement provider, consumers often discover that the provider has done nothing — or very little — to improve the consumers’ financial situation” (“Colo. AG Sues Debt Settlement Company,” Legal Newsline, Jan. 9, 2012).

The lawsuit seeks to suspend or revoke Prestige Financial Solutions’ debt relief license in Colorado and issue a permanent injunction barring the defendants from providing debt management services to Colorado residents in violation of the DMSA. The lawsuit also seeks civil penalties, restitution for alleged victims, and court expenses and attorneys fees.

Further Reading

Notice of Duty to Answer: State of Colorado v. Prestige Financial Solutions, Inc. Filed Jan. 6, 2012.

Deputy Attorney General Leslie Grey filed the amended complaint in Erie County Court Thursday against Unicredit America Inc. president Michael J. Covatto. Covatto’s half-brother, vice president Anthony D. Covatto, was added to the complaint in June. Attempts to also add Covatto to the complaint in June failed because he had filed for Chapter 13 bankruptcy protection just days earlier. But in November, chief U.S. Bankruptcy Court Judge Thomas Agresti ruled that Covatto’s personal bankruptcy didn’t insulate him from the Attorney General’s Bureau of Consumer Protection (“AG Files New Lawsuit Against Erie’s Unicredit,” Eire Times-News, Jan. 9, 2012).

In October, 2010, the state filed a lawsuit against Unicredit for alleged deceptive practices the company used to confuse and coerce consumers, including using employees dressed resembling sheriff deputies to hand-deliver phony “hearing notices” that threatened consumers with imprisonment if they failed to show up for bogus court “hearings” or “depositions” that were held in a fake courtroom built at the company’s offices. The fake courtroom was quickly closed and the business shuttered a month later.

Covatto has been appointed an assistant federal public defender, though no criminal charges have been filed against him. Covatto has repeatedly invoked his Fifth Amendment right against self-incrimination. Covatto’s bankruptcy lawyer has requested that Agresti dismiss the Attorney General’s claim. Agresti will hear argument on the request in federal court on March 5.

Although the Attorney General’s claim seeks fines and court costs, Agresti said the office couldn’t enforce any money judgment against Covatto without his approval.

The consumer information organization released it’s top 10 scams of 2011 on Wednesday, detailing the top scams from nine categories including identity theft, sales, check cashing, home improvement, and job offers. Mortgage modification scams ranked as the top financial scam of the year. In a tenth category, the BBB’s infamous Scam of the Year award went to a phishing scam in which millions of consumers got fake emails that looked like official notifications from the BBB (“BBB Names Top Ten Scams of 2011,” BBB press release, Jan. 4, 2011).

In schemes related to deceptive mortgage modification services, websites were often set up on the Internet that purportedly had a connection with the federal government’s U.S. Home Affordable Modification Program (HAMP), which was set up by the Troubled Asset Relief Program (TARP) to help homeowners facing foreclosure alter the terms of their mortgages, including things like lowering monthly payments or principal balances, so they can stay in their homes. However, the scammers had no connection or insider access to HAMP and were simply charging exorbitant fees for a service that HAMP provided for free.

“In challenging economic times, many people are looking for help getting out of debt or hanging on to their home, and almost as many scammers appear to take advantage of desperate situations,” the BBB said in a statement. “Because the federal government announced or expanded several mortgage relief programs this year, all kinds of sound-alike websites have popped up to try to fool consumers into parting with their money. Some sound like a government agency, or even part of BBB or other nonprofit consumer organization. Most ask for an upfront fee to help you deal with your mortgage company or the government (services you could easily do yourself for free), and almost all leave you in more debt than when you started.”

A total of $29.9 billion in TARP funds has been set aside for foreclosure prevention programs such as HAMP. Through the first 11 months of 2011, 756,407 homeowners nationwide received default notices on their home mortgages and 742,649 homes were repossessed. Various state and federal officials around the country brought actions against mortgage debt relief scammers in 2011. SIGTARP, the federal agency responsible for monitoring fraud in TARP, for example, shut down 125 alleged mortgage debt relief schemes in November that had advertised on the popular search engines Yahoo, Bing, and Google. The investigations as led to criminal charges against 17 people, including three sentenced to prison (“Foreclosure Crisis Spurs Epidemic of Mortgage Modification Scams,” Detroit Free Press, Jan. 4, 2011).

The defeated measure would have allowed bankruptcy court judges to modify the mortgage terms of a bankruptcy filer’s primary residence with the possibility of having the filer’s interest rate or principal balance lowered in a process known as a “cramdown.” Currently bankruptcy judges can only modify mortgages for second homes or investment properties.

While opponents of the bill, including the nation’s biggest banks and Republicans in the Senate, argue that the bankruptcy modification provision would increase lending costs for future homebuyers and, therefore, destabilize the housing market even further, supporters of the cramdown measure contend that it would help more than 1.7 million struggling homeowners to stay in their homes.

In spite of the defeat, the measure’s sponsor, Senator Dick Durbin, D–Ill., is determined to keep pushing for cramdown legislation that he says is needed. In the time since he’s been campaigning for bankruptcy code reform, Durbin says home foreclosures have jumped from 2 million to 8 million.

“I’ll be back. I’m not going to quit on this,” Durbin said. “At some point, the Senators in this chamber will decide the bankers shouldn’t write the agenda for the United States Senate.”

The measure is part of a larger Senate housing bill that includes a provision to revamp the Hope for Homeowners program and a proposal to temporarily increase the deposits guaranteed by the Federal Deposit Insurance Corporation, and which still has to be reconciled with the House’s version of the bill. House Democrats will most likely remove the cramdown measure from the bill to help get it passed by both houses of Congress.

Experian, one of the three major credit-rating bureaus, announced in January that it would be cutting ties this month with Fair Isaac, the creator of the three-digit credit score used by most lenders to determine a borrower’s credit worthiness.

While the credit bureau has not indicated why it chose to make the drastic move, some experts have speculated that the break between Experian and Fair Isaac can be attributed to a “non-mutually beneficial relationship” that has existed between the two companies for some years. The souring relationship was exasperated by a 2006 lawsuit brought by Fair Isaac against Experian and the two other major credit bureaus, TransUnion and Equifax, Bloomberg reports (“Experian Will No Longer Offer FICO Score Access for Consumers,” Feb. 5, 2009).

Fair Isaac sued the three credit bureaus, along with VantageScore Solutions, a company created by the three bureaus to develop their own credit-scoring formula, for allegedly engaging in competitive practices that hurt the FICO brand. Fair Isaac later dropped Equifax from the suit, but litigation is still pending against the other three companies.

“The move isn’t unexpected, given the contentious nature of the lawsuit and the millions of dollars of credit score revenue that Fair Isaac recognizes each quarter from [its] partnership with Experian,” said John Ulzheimer, president for consumer education for Credit.com. “Experian has made a significant monetary investment in the market for consumer credit reports and scores. Fair Isaac is a competitor of theirs, so this eliminates one component of the competition.”

Experian will make available its proprietary three-digit credit scores to consumers on its website and consumers will still be able to get free Experian credit reports once a year at annualcreditreport.com. Lenders and banks will still be able to access FICO credit scores based on Experian’s data and make credit decisions based on these scores.

But, ultimately, consumers stand to lose the most, says Craig Watts, public relations director for Fair Isaac, since myFICO.com is the only source for consumers to view their FICO credit scores with Experian, TransUnion, and Equifax. “When one of those scores goes dark” Watts said, “consumers have lost a significant part of their ability to understand and manage their credit ratings.”

To protect yourself from being added to this list of displaced tenants, the Associated Press recommends three steps for checking up on your landlord’s financial stability:

1. Search county courthouse records. Sift through the district court or county recorder’s office records in person or online to see if they show that county has filed any foreclosure actions against your landlord. You can also check to see if there are any records indicating that your landlord has ever filed for personal bankruptcy.

2. Call the Better Business Bureau. Ask if there are any complaints on file against your landlord. Maybe previous tenants left with good reason: your landlord wasn’t financially responsible.

3. Look at your rental property with fresh eyes. Do a walk-through of your residence and look for any signs of neglect. Are there repairs your landlord hasn’t followed through on? A lack of maintenance on the home could be a sign that your landlord can’t afford the upkeep of the house or doesn’t want to spend the money to fix up a property that’s about to go into foreclosure.

If you discover that your landlord is headed toward foreclosure, check out our tips on what you can do to keep a roof over your head and soften the blow.

If you were the recipient of a couple of these duds, here are four ways to use your unwanted gift cards to your advantage:

1. Buy something for someone else. Get creative and find ways to use your card for another purpose. Know someone who is approaching graduation? Give them a head start on their professional wardrobe. Attending a baby shower? Get diapers, toys, or baby bottles.

2. Give them to charity. Donate your gift cards to a worthy cause and get a tax write-off without spending a dime. Chances are a nonprofit will be able to use the cards for their own purposes or get them in the hands of a deserving family.

3. Sell them or trade them online. Get cash for your cards or swap them for gift cards to other retailers on the websites Plastic Jungle and Swapagift.com, which also gives you the option of applying the balance on your gift card toward a bill payment.

4. Give them away as prizes. Turn your unwanted gift cards into door prizes for your New Year’s Eve party or give them away as game prizes the next time you host Poker or Bunko night.

Borrowers with a high credit score — 740 and higher — who have at least 20 percent equity in their home could see rates as low as 5.13 percent on a 30-year fixed-rate conforming mortgage, a mortgage that is not subprime, says Lou Barnes, a mortgage banker in Boulder, Colo., and they wouldn’t be charged points or an origination fee (“Mortgage Rate Hits a 4-Year Low at 5.47%,” The Wall Street Journal, Dec. 12, 2008).

Rates are so low that they may even tempt borrowers with credit scores between 660 and 700 to refinance, says Chris Freemott, a mortgage broker in Naperville, Ill., but, he warns, these borrowers could wind up paying as much as half a percentage point more than borrowers with higher credit scores. These less creditworthy borrowers would also likely get hit with extra charges levied by Fannie Mae and Freddie Mac, two of the nation’s largest mortgage holders.