Asset Acceptance LLC, which buys millions of consumer accounts for pennies on the dollar, was sued by the FTC for allegedly making a series of misrepresentations when attempting to collect old debts. The alleged misrepresentations included everything from falsely claiming it could substantiate ownership of debts, to providing information to credit reporting agencies that it knew may be inaccurate, to threatening consumers with debt collection lawsuits when it knew the age of the debt made it immune from legal action because the statute of limitations on the debt had expired (“Under FTC Settlement, Debt Buyer Agrees to Pay $2.5 Million for Alleged Consumer Deception,” FTC press release, Jan. 30, 2012).

The FTC’s complaint alleged violations of the Federal Trade Communications Act, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act. Under the terms of the settlement, Asset Acceptance must investigate disputed debts, notify consumers when debt is placed on credit reports, disclose to consumers that it will not sue for debts that are too old, which are referred to as “time-barred” debts.

“Most consumers do not know their legal rights with respect to collection of old debts past the statute of limitations,” said David Vladeck, Director of the FTC’s Bureau of Consumer Protection, in a statement. “When a collector tells a consumer that she owes money and demands payment, it may create the misleading impression that the collector can sue the consumer in court to collect that debt. This FTC settlement signals that, even with old debt, the prohibitions against deceptive and unfair collection methods apply.”

As a result of the lawsuit against Asset Acceptance, and to help inform consumers of their rights concerning old debts, the FTC has released a new publication for consumers, “Time-Barred Debts: Understanding Your Rights When It Comes to Old Debts.”

Consumers who believe they have been the victim of a scam or who wish to report fraudulent, deceptive, or unfair business practices can file a complaint in English or Spanish by calling toll-free (877) 382-4357 or by filling out the FTC’s online Complaint Assistant.

Further Reading

Complaint for Civil Penalties, Injuntive and Other Relief: United States of America v. Asset Acceptance LLC. Filed January 30, 2012.

Consent Decree: United States of America v. Asset Acceptance LLC. Filed January 30, 2012.

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Many financial experts were quick to bash Orman’s Approved Card, which is issued by The Bancorp Bank, for being, in one expert’s estimation, “the cream of the crap” of the prepaid debit card market, which targets lower-income consumers who are less likely to understand the pros and cons of prepaid debit cards. However, other financial experts have come out in support of Orman’s card, and prepaid debt cards in general, arguing that they’re no worse than checking accounts and, in some ways, are actually better.

Like other prepaid debit cards, Orman’s Approved Card charges a $3 monthly fee (as opposed to typical monthly fees of between $8 and $15 for other prepaid debt cards). The card, also like other prepaid debit cards, charges a litany of other fees, including fees to add money to the card any way other than direct deposit, out-of-network ATM fees, and other small transaction costs. At first glance, it looks like prepaid debit cards such as the Approved Card are fee hogs designed to charge consumers as much money as possible to access their own cash. Checking accounts, on the other hand, which often offer free debit cards, appear to be better choices for consumers.

Not so fast, says one financial expert.

How Prepaid Debit Cards Measure Up to Checking Accounts

Jennifer Tescher, president and CEO of the Center for Financial Services Innovation, a trade organization that helps develop products and services for low-income consumers without bank accounts, says that prepaid debt cards are actually better choices for some consumers and often charge fewer fees than checking accounts (“Why Do Prepaid Debit Cards Have Such a Bad Rap?” American Banker, Jan. 24, 2012).

As virtual bank accounts, Tescher explains, prepaid debit cards are actually pretty good citizens of the banking world. They can only be loaded with “good” funds (that is, cash that the consumer has already acquired) and unlike checking accounts, which often allow overdrafts in exchange for significant fees, and credit cards, which allow consumers to take on significant debt, consumers who use prepaid debit cards can’t spend what they don’t have.

Additionally, the cards can be used to make purchases, pay bills, send money home, and save. Some prepaid debt cards, like Orman’s Approved Card, also come with a wealth of online money management features, such as personalized dashboards that analyze spending patterns, set bill pay notifications, and set up “goal funds” for saving money.

And when debt card fees are compared with those charged by checking accounts, the cards come out on top, Tescher says. The fee schedule of Orman’s Approved Card, for example, lists 20 possible fees. While that seems like a lot, the checking account disclosure from Chase is three pages long, includes seven footnotes in tiny type, and lists 29 possible fees, including two whole sections on check and debit overdrafts and associated fees, which aren’t possible with prepaid debit cards.

And yet prepaid debit cards are being painted as the bad guys.

According to Tescher, overcoming the vast consumer skepticism about banks and financial services brought about by the financial crisis — skepticism that is, in many cases, deserved — is the major obstacle to a clear and honest discussion about prepaid debit cards. Until the bar is raised industrywide and consumers start trusting banks and financial services, prepaid debit cards will be stuck in a negative news cycle, Tescher says.

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The cease-and-desist order was issued to A American Debt Consolidation in New Iberia on Jan. 24 by the Louisiana Department of Justice, Office of the Attorney General, Public Protection Division, Consumer Protection Section. The order was issued after the Better Business Bureau of Acadiana reported that the debt relief company advertised credit repair services on its website. The BBB regularly monitors Acadiana business that require special state licensing to ensure that they comply (“Cease-and-Desist Order Issued for Credit Repair Company,” The Advertiser, Jan. 30, 2012).

In light of the finding and the subsequent order from the Attorney General’s Office, the BBB of Acadiana is warning residents to use “extreme caution” when doing business with credit repair companies that promise to erase bad credit histories:

• Beware of promises that your credit history will be clean following credit repair services
• Beware of companies that charge advance fees before performing any service
• Do not follow the instructions of companies that tell you to avoid contacting the three major credit reporting agencies
• Do not pay credit repair companies for services you can perform for free
• Do not follow a credit repair company’s suggestions to use and Employee Identification Number instead of your Social Security number to invent a new credit history

The BBB cautions residents that, in general, the only way to improve bad credit is to pay bills on time and legally dispute inaccurate information appearing on credit history reports.

Residents that believe they have been the victim of a credit repair scam or wish to file a complaint against a debt relief company or a credit repair company can visit the Attorney General’s office at ag.state.la.us. To file a complaint or report a scam with the Better Business Bureau, residents can visit bbb.org.

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The FTC sued Phoenix-based Premier Nationwide Corporation and its owner, Eric C. Synstad, for allegedly charging consumers hundreds of dollars in illegal up-front fees in exchange for false promises that the company would significantly reduce their debt by either reducing the interest rates on their current credit cards or provide them with low-interest credit card consolidations (“At FTC’s Request, Court Freezes Assets of Telemarketing Operation,” Federal Trade Commission press release, Jan. 18, 2012).

The FTC’s complaint alleges that when Premier Nationwide Corporation cold-called consumers, the company said that, in exchange for an up-front fee ranging from $149 to $599, it could consolidate debts on a new credit card with interest rates as low as 9 percent or work with a consumer’s existing credit card issuers to obtain lower interest rates and monthly payments. The company also promised consumers that it would provide full refunds — minus a 20 percent “processing fee” — if it could not significantly reduce consumers’ debts.

However, consumers who signed up for the credit card debt consolidation service were simply provided with a list of banks and told to apply for low-interest credit cards on their own. Meanwhile, consumers who signed up for the interest rate reduction service were told they would have to pay an additional monthly fee to a different company that would provide the actual service. In many cases, consumers who sought promised refunds were denied.

The FTC alleges that the defendants violated the Federal Trade Commission Act and the Telemarketing Sales Rule, which prohibits companies that sell debt relief services over the phone from charging fees before achieving promised results.

The U.S. district court has ordered Premier Nationwide Corporation to halt its illegal conduct while the FTC moves forward with its case.

The FTC encourages consumers who believe they are a victim of fraudulent, deceptive, or unfair business practices to file a complaint in English or Spanish by visiting the FTC’s online Complaint Assistant or by calling toll-free (877) 382-4357.

Further Reading

Complaint for Injunctive and Other Relief: Federal Trade Commission vs. Premier Nationwide Corporation, et al. Filed January 2, 2012.

Proposed Ex Parte Temporary Restraining Order: Federal Trade Commission vs. Premier Nationwide Corporation, et al. Filed January 3, 2012.

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Under a consent judgment approved by Wake County Superior Court Judge Howard Manning, The Consumer Law Group of Boca Raton is barred from offering any debt settlement or debt negotiation services in North Carolina and is has agreed to pay $600,000 in refunds to North Carolina consumers. Additionally, the Consumer Law Group agreed not to collect $600,000 in charges from North Carolina consumers and pay the state $50,000 to cover its legal expenses (“Bogus Law Firm Gives Up $1.2 Million Taken From NC Consumers,” Office of the Attorney General of North Carolina press release, Jan. 24, 2012).

Cooper filed a lawsuit against the Consumer Law Group in Oct. 2010 after an investigation by his office revealed more than 650 North Carolina consumers had paid the so-called law firm significant up-front fees for debt relief, debt settlement, and debt negotiation services but had received little or no help. Under state law, it is illegal for debt relief companies to charge advance fees, but many companies try to skirt the law by claiming to be law firms.

The investigation found that the Consumer Law Group deceptively claimed that its services were performed by attorneys and that its debt relief program was sponsored by the federal government. The Consumer Law Group told consumers to not pay their debts or talk to creditors and to pay the company instead. However, because the company rarely worked out debt settlement agreements, many consumers were actually left worse off than before and some were even sued by their creditors.

“Debt relief scams take advantage of struggling consumers, adding to their burden instead of helping them get out of debt,” Cooper said in a statement. “I’m pleased that we’ve been able to win money back for these consumers, money that can hopefully help them pay off bills and get on better financial footing.”

For more information or to file a complaint about the Consumer Law Group or othe debt relief companies, North Carolina residents can call the Attorney General’s Consumer Protection Division toll-free at (877) 5-NO-SCAM or fill out a consumer complaint form online.

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The personal finance celebrity says she wants to change the credit rating system to reward people who have only one credit card or who pay with cash and that her Approved Card, which is issued by The Bancorp Bank, is just the thing to usher in such sweeping changes. However, Orman only “hopes” that credit-rating firm TransUnion, after a two-year data-reporting trial, will decide to use the card’s cash transaction history on credit reports.

Orman’s prepaid debit card, which comes with a series of fees — including a base $3 monthly fee, fees to add money to the card any way other than direct deposit, out-of-network ATM fees, and a series of other small fees and transaction costs — was slammed by many financial experts. John Ulzheimer, president of consumer education for SmartCredit.com, called the talk show host’s card “the cream of the crap” of the prepaid debit card market, which targets lower-income individuals who may not understand that they can get a debit card from a bank for free while bypassing usage fees at the same time.

But now Orman and the editors of O, The Oprah Magazine, are taking heat over the promotion of Orman’s card in the magazine. In response to a question earlier this month from Ron Lieber of The New York Times about whether Orman thought the viewers of her CNBC show would be troubled by the profit she made off of their everyday transactions — and that providing her own product to compete with the banks and credit cards she often criticizes might be a conflict of interest — Orman said that she promised not to promote her card on air.

However, in the February issue of O, Orman mentioned her Approved Card at length in columns she herself wrote. The first mention was in response to what appears to be a question from a reader who is trying to help her son with his credit history. More than half of Orman’s answer discussed the Approved Card, even though it doesn’t currently assist with building a user’s credit history and may never do so. The second mention comes in an essentially advertorial sidebar called “You Are Approved to Save Money” that touts the features of the Approved Card that Orman says she’s most excited about.

When Lieber contacted Orman to ask about her self-promotion in O, Orman said in an email that she “will respect the editorial rules of CNBC” and not talk about the card on her show, but that she would talk about her card anywhere she could.

“Because unless people get it and USE IT, then my mission of changing credit scoring in this country cannot be accomplished,” Orman said. “You seem to suggest it is unethical to talk about it. Well my friend, I think it would be unethical NOT to talk about it. This credit system in this country has got to change. And I am an evangelist for change” (“Suze Orman Takes to O Magazine to Promote Her New Card,” The New York Times, Jan. 23, 2012).

When Lieber contacted O for an explanation of the magazine’s editorial rules — and why they had let Orman blatantly promote her product at length, even though it doesn’t solve the reader’s problem, without providing context for Orman’s motivations — a magazine spokesman told him that Orman “has been a columnist for more than a decade, offering solid personal finance advice in our pages.” The spokesman went on to say that while the magazine’s columnists make recommendations, it’s up to the readers whether to follow them or not.

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However, there are some debt relief “companies” out there that exist only to take advantage of people who are in bad financial shape and are desperate for a quick turnaround. They prey on unwitting victims and take their money without providing any debt help, often leaving consumers worse off than before. Here are three quick tips for spotting and avoiding a debt relief scam.

1. Read the fine print and ask questions

The first thing you should do before signing up for a debt relief program is read all of the company’s documentation carefully, especially the fine print, and then ask as many questions as you can to clarify any points that aren’t 100 percent clear. Even legitimate companies can sneak something in the fine print that they’d rather not advertise up front, but for scammers it can be far worse. Most people don’t red the fine print, and scammers count on you to be one of those people. Don’t be. Read the fine print and ask questions like your financial life depended on it, because, in some ways, it just might.

2. Avoid companies that charge advance fees

Some debt relief companies try to charge you up-front fees to join their “program,” but advance fees are a big red flag. Most companies that charge advance fees will just take your money without helping you out, leaving you deeper in debt. It’s worth noting that, in most states, charging advance fees before rendering some types of debt relief services is illegal.

3. Beware of outlandish claims

Some debt relief companies make outlandish claims that simply aren’t true. Some debt relief firms claim to have a 90 percent success rate or claim that their program will help you become debt-free in a matter of a few short weeks or months. Other programs claim to have super-secret insider knowledge and connections that will allow them to wipe away most or all of your debt. Such fantastic claims are nothing more than predatory marketing tactics and many of them are being cited in lawsuits by state attorneys general against deceptive debt relief companies. Make sure to get all claims, promises, and proof of success rates in writing before you sign up for a debt relief program. If a company refuses, you’ll know it’s a scam.

Following these three simple tips may help you identify and avoid a debt relief scam, but the most important thing to keep in mind is that the best defense against fraud is an educated consumer. Read everything, ask questions, get everything in writing, and make sure you understand what you’re getting yourself into before signing up with a debt relief company. There are lots of good debt relief companies out there to choose from, but there are also some bad apples that can ruin the bunch.

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Under the federal tax code, money that you borrow to buy a home isn’t reported as income because of the obligation to repay the loan. However, if your home is foreclosed, resulting in a cancelation of your debt by the lender, the IRS requires that you report the canceled debt as income because you’re no longer obligated to repay it. The same holds true if you who receive mortgage debt relief services or otherwise have a portion of your home mortgage debt forgiven through refinancing; the amount of forgiven debt is considered taxable income.

However, the Mortgage Forgiveness Debt Relief Act allows delinquent homeowners who have received principal reductions to avoid paying income taxes on canceled or forgiven mortgage debt. If your lender agrees to a short sale, for example, you won’t have to pay taxes on the difference between the selling price and what you owe. At least until Dec. 31, when the act expires. Starting Jan. 1, 2013, all canceled and forgiven mortgage debt will once again be considered taxable income.

If you’re considering getting some mortgage debt relief, asking your lender for principal forgiveness as part of a refinance, or asking your lender for a short sale, now’s the time to do it, according to Florida Attorney Kevin Jurinski.

According to Jurinski, homeowners will have to work fast to get lenders to act in time for homeowners to take advantage of the tax relief act before it expires. “It’s not unusual that [getting your lender to agree] might take six months, nine months and I’ve had some that went over a year. That’s unusual, but you aren’t assured,” Jurinski said. “The idea is to move forward now. Don’t take the chance of waiting until the end of the year. Get your deal closed now” (“Realtors Pushing Short Sales,” WBBH, Jan. 16, 2012).

While there may be no hard-and-fast numbers when it comes to processing times for short sales or foreclosures, as of October it was taking lenders an average of 647 days to process a foreclosure, according to Lew Sichelman, a senior housing correspondent for SourceMedia and former real estate editor of the Washington Star.

In essence, it may already be too late for homeowners to try and convince their lenders to process a foreclosure to take advantage of the tax relief act, Sichelman said. But that may not be entirely a bad thing, he said, because foreclosing or short-selling a home just to get a tax break may not be in everyone’s best interest (“Debt-Relief Window Closing Soon,” Chicago Tribune, Jan. 13, 2012).

Since different people have different tax situations, Sichelman said that homeowners who are facing a foreclosure or considering a short sale should consult a tax professional before making any decisions to press their lenders for such resolutions.

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News that Orman created the Approved Card, which is issued by The Bancorp Bank, is somewhat puzzling, considering that the personal finance celebrity has based her talk show career on giving supposedly good financial advice. With the Approved Card, you can have a debt card with low fees that allows you to track your spending, protect your identity with free monitoring, and get free credit reports.

However the card comes with a base $3 monthly fee and charges you additional fees, including fees to add money to the card any way other than direct deposit, out-of-network ATM fees, and other small transaction costs. In essence, Orman is pushing a debit card that charges you a minimum of $36 a year to access you own cash, a service that you usually get for free from you own bank. And since it’s a debit card, it does nothing to build your credit history. Orman has claimed that she wants to change the credit rating system to reward people who have only one credit card or who pay with cash. But she only “hopes” that credit-rating firm TransUnion, after a two-year data-reporting trial, will decide to use the card’s cash transaction history on credit reports.

Many financial experts simply don’t see the point. Some have gone even further and have blasted Orman’s card, and the prepaid credit card market in general, for being nothing more than a bad idea for consumers.

John Ulzheimer, president of consumer education for SmartCredit.com perhaps came out the strongest against the talk show host’s card, calling it “the cream of the crap” of the prepaid debit card market, which targets people with fewer funds who may not understand that that there are better ways to have the luxury of a debit card and bypass fees at the same time.

“You are still paying at least $36 a year to have access to your own money,” Ulzheimer said. “And you’re doing nothing to help with your credit” (“Experts Not Queueing Up for Suze Orman’s New Debit Card,” Investment News, Jan. 13, 2012).

Adviser Mike McGervey of McGervey Wealth Management LLC said that while a debt card “can have some merit in regulating spending,” he called out Orman for charging for a service most banks provide for free and for having a potential conflict of interest in pushing her own product. “It might be a conflict because people view her as potentially objective,” McGreavy said.

It’s worth noting that Orman, formerly a broker with Merrill Lynch Pierce Fenner & Smith Inc., Prudential-Bache Securities Inc., and P&I Equities Corp., hasn’t been registered with the Financial Industry Regulatory Authority Inc. since 1991 and is not a registered investment adviser.

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If you’re in need of debt consolidation, debt management, debt settlement, or other debt relief services, you should familiarize yourself with two basic but important rules put in place by the Federal Trade Commission to help separate the good guys from the bad guys and protect you against scams.

The Telemarketing Sales Rule was amended by the FTC to help protect consumers from fraudulent debt relief programs that are out there to take your money without providing any kind of real debt help. The Telemarketing Sales Rule bans companies that sell debt relief services over the phone from collecting upfront fees before they have actually negotiated, settled, or reduced your unsecured debt (usually credit card debt). If a company wants to charge you an enrollment fee or some other fee before they perform any work, tell them not thanks and hang up the phone because it’s illegal and almost certainly a scam.

The Mortgage Assistance Relief Services Rule also helps protect consumers against scams. The Mortgage Assistance Relief Services Rule bans companies offering mortgage debt relief, foreclosure relief, or mortgage modification services from charging upfront fees unless specific conditions are met. According to the rule, a debt relief company must provide you with a written offer from your mortgage lender or servicer that explains the key changes in the mortgage terms that would occur if you accepted the offer. Only if you agree to this written offer can a debt relief company then charge you a fee.

The FTC spends a lot of time going after crooked debt relief companies, but that doesn’t mean good ones aren’t out there. Good companies are out there and these two rules are there to help make sure you can identify the bad actors and that the FTC can prosecute them.

For more information on consumer protection rules and resources, or to file a complaint or report a scam, visit the FTC’s Bureau of Consumer Protection at www.ftc.gov/bcp.

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