Debt Relief Blog » credit card debt

Missouri Attorney General Sues Texas Debt Relief Company

lhillery — Thu, 11 Jun 2009 20:38:56 +0000

Missouri Attorney General Chris Koster has taken legal action against a Texas debt settlement company, filing a lawsuit against Credit Solutions of America for illegally charging consumers for debt relief services the company never provided, his office announced in a press release last week (“Attorney General Koster Files Suit to Stop Company for Falsely Promising Credit-Card Debt Help,” June 2, 2009).

Credit Solutions of America, based in Richardson, Texas, advertised that it could cut consumers’ credit card payments in half, reduce their other monthly bills, and get them out of debt within three years, Koster says. But although the company collected hefty fees from consumers with the promise of delivering those debt reduction results, Koster charges that Credit Solutions of America never provided the advertised debt relief services, leaving its customers in a worse financial situation than before.

According to the Attorney General, Credit Solutions of America charged its customers fees that amounted to about 15 percent of their total debt, collecting those fees through an initial upfront payment and then through subsequent installment payments that it took directly from customers’ bank accounts.

The state of Missouri prohibits companies from collecting fees for credit services prior to the services being performed in full. Moreover, says Koster, the company wasn’t even legally registered to do business in the state.

“Credit Solutions of America promised real relief to consumers who were in financial straits because of high credit card debt,” Koster said. “We will continue to aggressively pursue the unacceptable business practices of these companies that offer false promises and deliver only harm.”

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Consumers Charging Less, Paying Off More of Their Debt

lhillery — Mon, 08 Jun 2009 22:03:34 +0000

A new report shows that consumers are charging less to their credit cards while also paying down the balances on those cards.

The Federal Reserve reported last week that revolving credit — which is made up almost entirely of consumer credit card debt — fell by $8.6 billion in April, an annualized rate of 11 percent (“Fed: Credit Card, All Consumer Spending Declines,” CreditCards.com, June 5, 2009).

This is the seventh straight month of declines in revolving credit since October 2008 and the longest pullback in revolving credit balances on record since the Federal Reserve began reporting on consumer credit in 1968.

“The trend is certainly toward having less revolving consumer credit outstanding,” said Cynthia Ullrich, senior director at Fitch Ratings in New York.

Overall consumer debt, which also includes nonrevolving debt like auto loans and student loans,, dropped by a total of $15.7 billion in April, for an annualized rate of 7.4 percent — the second largest contraction in consumer debt in history (“Consumer Debt Plunges by $15.7 Billion in April,” MarketWatch, June 5, 2009).

Consumer debt has decreased by $43 billion in just the last three months, after jumping by $131 billion in 2007.

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NY Attorney General Sues 2 Debt Settlement Firms

lhillery — Wed, 20 May 2009 22:44:08 +0000

Two debt settlement companies have been sued by New York Attorney General Andrew Cuomo on behalf of 20,000 New York consumers, as part of Cuomo’s probe into the debt settlement industry. Credit Solutions of America, Inc. in Texas and Nationwide Asset Services, Inc. in Arizona are both facing charges of fraud, deceptive practices, and false advertising, Reuters reports (“New York AG Sues Texas, Arizona Debt Settlement Firms,” May 19, 2009).

CSA is accused of defrauding 18,000 New York customers out of about $17 million in fees over a five-year period from January 2003 to September 2008.

Through marketing and advertising campaigns CSA promised to reduce customers’ debt by 60 percent, but Cuomo’s office found that only an average of 1 percent of CSA customers actually saw these results.

CSA, the self-proclaimed largest debt settlement firm in the country, instructed its customers to make monthly contributions to a savings account instead of making their debt payments and to ignore calls from creditors, which often drove customers further into debt and failed to result in a successful resolution. The New York Times reports that the debt settlement firm even suggested that its customers sell their blood plasma, mow lawns, and borrow from their neighbors to drum up funds for their savings account (“2 Firms Accused of Fraud in Debt Settlement,” May 19, 2009).

Lawyers representing CSA said the debt settlement company “disputes liability over the complaints and supposed practices” because the alleged fraud occurred during a 12-month period when the company was under different ownership. The company has also faced litigation in South Carolina, Idaho, and Texas.

Cuomo has also charged Nationwide Asset Services with falsely advertising that it could reduce customers’ debt by 25 to 40 percent. But of the 18,000 New York customers it enrolled between January 2005 and May 2008, Nationwide settled the debts of less than 2,000 of these customers.

“Today’s lawsuits send a clear message that we are prepared to rein in this unregulated industry and protect New Yorkers who are proactively trying to work their way out of debt,” Cuomo said in a statement released by his office (“Attorney General Cuomo Sues Debt Settlement Companies for Deceiving and Harming Consumers,” May 19, 2009).

Cuomo’s two lawsuits are part of a larger probe of the debt settlement industry announced earlier this month in which he subpoenaed 17 debt settlement companies in addition to Nationwide and CSA.

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5 Ways to Spring Clean Your Finances

lhillery — Fri, 03 Apr 2009 23:20:17 +0000

After you’ve packed away all your winter coats, scarves, and turtlenecks and dusted off all your t-shirts, shorts, and flip-flops for spring, keep that spring-cleaning momentum going and tackle your bills, your financial files, and your debts. By taking better hold of your finances, you may be able to find ways to save throughout the rest of the year.

Review your credit
Pull your free credit report from each of the three major credit reporting agencies — Equifax, Experian, and TransUnion — at annualcreditreport.com for free once a year. Check your credit reports for any inaccuracies, discrepancies, or expired records and report any errors to the individual credit bureau whose information you want to dispute. Looking at your credit report every year will help you detect any signs of identity theft and help you see what actions you’ve taken that could be dinging your credit score and limiting your access to credit.
File your financial records
Gather all your bank statements, insurance and legal documents, and personal records and organize them in a file system that works for you. If you already have an organization system worked out, clean out the files you no longer need and take those documents to the shredder. Make copies of your most important documents and store them in a fire-resistant safe in your home or in a safety-deposit box at your bank.
Monitor your spending
Find out where you can weed out excessive spending. If you do online banking check to see if your bank breaks down your monthly expenses by category so you can figure out just how much you’re spending on that daily cup of coffee, those weekly movie rentals, and your monthly restaurant bills. Or try the old-fashioned method: carry around a pocket-sized notebook and record every purchase you make for a month. Once you know what you’re spending your money on, you’ll know where you can cut back.
Protect your assets
Work with a legal professional to draft a will. Whether your account balance is two digits or six digits, that money is yours to do with as you please so make sure your assets are taken care of in a manner you’re comfortable with.
Take stock of your debt
Calculate the total debt you owe between your credit cards, student loans, car loans, etc. Check with your lenders to see if they can lower any of your interest rates. Or see if you can advantage of today’s historically low interest rates by refinancing your home and auto loan. If your debt has ballooned out of control and your lenders can’t help, you may be able to reduce your balances through a debt settlement program.

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Credit Cardholders’ Bill of Rights Revisited by Senate

ekuhl — Mon, 30 Mar 2009 23:19:14 +0000

Lawmakers are attempting to resurrect the Credit Cardholders’ Bill of Rights legislation that died in the Senate last year in an attempt to provide relief for indebted credit card holders, reports Inside ARM (“Credit Cardholders’ Bill of Rights Gets New Life in Congress,” March 25, 2009).

Introduced by Sen. Sheldon Whitehouse, D-R.I., and Sen. Richard J. Durbin, D-Ill., H.R. 627 would protect consumers from credit card companies’ predatory lending practices by limiting their exorbitant interest rate increases.

“The standard credit card agreement gives the lender the power to bleed their customer through evolving and ever more crafty tricks and traps,” Sen. Whitehouse said in a Senate hearing last week (“Debating a Ceiling On Credit Card Fees,” The Washington Post, March 25, 2009). “Under this business model, the lender focuses on squeezing out as much revenue as possible in penalty rates and fees, pushing the customer closer and closer to the edge of bankruptcy.”

The proposed legislation would apply to those companies that raise card rates higher than 15 percent plus the current yield of a 30-year treasury bond, which is currently set at 18.5 percent.

Federal Reserve regulations set to go into effect in 2010 that will target predatory lending practices by credit card issuers would be expanded under the new Credit Cardholders’ Bill of Rights:

Prevent credit card companies from arbitrarily increasing interest rates on existing card balances

End the practice of “double cycle” billing that currently allows creditors to charge interest on debt that consumers have already paid on time

Prohibit lenders from advertising “fixed” rates unless the rates aren’t subject to change, or unless the fixed-rate period is clearly disclosed to the consumer

Forbid lenders from applying cardholder payments to higher interest rate debts last

Force creditors to accept payments made the following business day when the bills’ due date is a Sunday or a holiday

Require creditors to offer more reasonable cut-off times for on-time mailed payments

While banking industry advocates admit that some card issuers have engaged in harmful practices , they say the industry as a whole has not overstepped its bounds and that cardholders issuers could be hurt rather than helped by the new legislation.

If the bill passes, “the market response would simply be to restrict credit, raise interest rates and fees or both,” said Kenneth Clayton, senior vice president and general counsel of the American Bankers Association’s Card Policy Council, in a letter to the Senate subcommittee. “This would significantly hurt tens of millions of Americans at the very time they can least afford it.”

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Proposed Bankruptcy Reform Bill Would Protect Credit Card Customers

cprovencio — Thu, 26 Mar 2009 05:34:57 +0000

Lenders looking to collect on high-interest credit card debt from bankrupt consumers could soon be forced to negotiate better repayment terms with these consumers if key democratic senators are successful in pushing new bankruptcy reform legislation through Congress.

A bill proposed by Sen. Sheldon Whitehouse, D-R.I., would prevent lenders from making claims on a customer’s credit card debt during bankruptcy proceedings if the customer’s debt carried an interest rate that exceeded a certain threshold, the Associated Press reports (“Dems Seek Bankruptcy Changes on Credit Card Debt,” March 24, 2009).

The proposal, known as the Consumer Credit Fairness Act, would restrict lenders from pursuing debt in bankruptcy court that exceeds the sum of a set 15-percent base rate and the current yield on the 30-year Treasury bond. If the bill were to pass today, lenders couldn’t pursue credit card debt carrying more than an 18.5-percent interest rate. To prevent lenders from applying any “back-door” rates, the new set rate would also account for all possible penalty fees and charges lenders could demand, Reuters reports (“U.S. Bill Offers Bankruptcy Relief From Card Lenders,” March 24, 2009).

While Democrats believe their proposed legislation would help protect consumers from being squeezed by credit card companies while undergoing bankruptcy proceedings, Kenneth Clayton, senior vice president and general counsel for the American Bankers Association, warns that this type of bankruptcy reform could prompt lenders to restrict credit or further raise interest rates and fees.

Clayton says, “It’s absolutely the worst time to exacerbate our financial problems by enacting changes to the bankruptcy laws that would further contract credit.”

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Consumers Make Slightly Less End-of-Year Card Charges

lhillery — Sat, 14 Mar 2009 00:10:47 +0000

Credit card holders just barely bucked year-end credit card trends at the end of last year, charging less than expected and making slightly more of an effort to get caught up on their credit card balances compared to 2007, according to a recent anonymous survey of 27 million random TransUnion credit profiles.

The average credit card balance nationwide only rose one-third of 1 percent to $5,729 for the fourth quarter of 2008, compared to the 4-percent increase TransUnion recorded at the end of 2007. This marginal increase in credit card spending may be a sign that “consumers are becoming more conscientious about their credit card debt,” says Cliff O’Neal, TransUnion’s senior director of corporate communications (“TransUnion.com Quarterly Credit Card Analysis Reveals Delinquency Rates up 11 Percent from Previous Quarter,” TransUnion, March 9, 2009).

Similarly, delinquency rates — the measure of credit card borrowers who are at least 90 days past due on their accounts — rose only 1.21 percent at the end of 2008, a slightly smaller increase than the year-end figure of 1.36 percent for 2007.

Despite these slight improvements, TransUnion predicts that, as the unemployment rate continues to rise, Americans will continue to fall behind on their credit card payments, reaching a 1.8-percent delinquency rate by the end of this year.

However, the credit bureau is quick to point out that the survey also reveals that Americans are altering their credit-use and debt-repayment habits to possibly avoid being caught without available credit “in a pinch” as credit card issuers, in an effort to minimize their risk, are increasingly slashing credit limits and closing inactive credit accounts.

Discover has already closed 3 million inactive accounts and plans to close an additional 2 million, while Capital One is suspending the accounts of all borrowers who have not used their card in 12 months. Bank of America has closed all zero-balance accounts that have been inactive for at least one year (“Credit Card Issuers: Buy Something or Else!,” The Wall Street Journal, March 12, 2009).

“With all the messages out there about limits being reduced and interest rates going up, people have started to focus on making sure they manage the cards they have,” says Steven Katz, TransUnion’s director of corporate communications.

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Father, Son Take Down 450 Victims in Debt Relief Scam

lhillery — Wed, 04 Mar 2009 21:34:59 +0000

A father and son duo from Ohio, whose credit card debt relief scheme caused consumers to lose more than $2 million, have been sentenced to the maximum federal prison terms offered as part of their plea bargain, The Columbus Dispatch reports (“Father, Son Get Prison Time for Roles in Debt-Relief Scam,” Feb. 28, 2009).

A judge ruled that Chad Wickline, who founded a credit card debt relief company that marketed its services over the Internet, defrauded consumers by claiming that his company, Liberty Resources, could offer a “100 percent legal” strategy to eliminate credit card debts using a loophole in banking laws.

Wickline and his father, who got involved in the scheme “out of a father’s love for his son,” collected fees of a few hundred dollars to several thousands of dollars from more than 450 people. Thinking their debts were eliminated, many Liberty Resources customers stopped making payments on their credit cards and were later sued by their credit card companies. As a result of the scheme, some Liberty Resources customers had to file for bankruptcy and many experienced huge drops in their credit scores.

“Many of these victims will never recover,” said U.S. District Judge Algenon Marbley, who sentenced the two men to prison.

Despite Wickline’s claims that he started his business with “the best of intentions,” both he and his father each pled guilty to one count of conspiracy to commit money laundering, for which the elder Wickline will serve 18 months in prison. Wickline also pled guilty to one count of mail fraud and will serve 30 months for both charges.

Both guilty parties are being required to pay restitution, totaling $388,056 for Wickline and $228,958 for his father, along with federal income taxes plus interest and penalties on the money they received between 2002 and 2006 when the debt relief fraud took place.

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Ailing Banks Relying on Consumers to Come to Their Rescue

cprovencio — Mon, 23 Feb 2009 15:55:56 +0000

Consumers are hurting. Already battered by tightened access to credit, rising unemployment, and unaffordable mortgage payments, consumers are also contending with soaring credit card interest rates and fees.

To help offset their record losses, some of the nation’s largest lenders Capital One, Citibank, and HSBC are raising interest rates for millions of consumers with certain credit cards.

Capital One informed some of its borrowers that it is raising interest rates to 17.9 percent from 12.9 percent – a 5-percent increase – in order “to reflect the current risk environment,” says bank spokeswoman Pam Girardo. For consumers who owe $8,000 in credit card debt – the average debt amount an American household carries – the interest they would accrue on that credit card with the 17.9 percent interest rate, if they made no new charges on the card, would amount to $1,577 if they paid off the card in two years, or $3,260 if they paid off the card in four years.

JPMorgan Chase is tacking on a $120-a-year fee and is more than doubling the minimum payment – from 2 percent to 5 percent of the credit card balance – for hundreds of thousands of borrowers who have low fixed-interest rate cards. JPMorgan gave some of these borrowers a choice between accepting a higher interest rate of 7.9 percent on their promotional balance of 3.9 percent or making a higher minimum payment on top of the new monthly fee.

While the Federal Reserve and other bank regulators have approved new credit card regulations meant to protect consumers from interest-rate increases like these and other unfair credit card practices, the new rules aren’t scheduled to take effect until July 2010.

“We’re all going through an economic crisis right now, and we need reforms that will help consumers now,” says Bill Hardekopf, CEO of LowCards.com.

Sen. Charles Schumer, a member of the Banking, Housing, and Urban Affairs Committee, says the “type of tripwire pricing” lenders are engaging in “is predatory and must end.”

But Ken Clayton of the American Bankers Association cautions lawmakers that any additional crack down on banks could “send further chills in a market already in a deep freeze.”

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Experian to Cut Off Consumers’ Access to Credit Scores

lhillery — Mon, 09 Feb 2009 23:54:05 +0000

Americans may want to mark Feb. 14 on their calendars for a reason besides Valentine’s Day; it’s the last day consumers will be able to access their FICO credit scores on myFICO.com with Experian credit data included, The New York Times reports (“One Fewer Credit Score Accessible to Consumer,” Feb. 5, 2009).

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.”

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