A quarter of U.S. employers aren’t able to keep up with the expense of matching employees’ 401(k) contributions, according to the results of a new Charles Schwab survey (more…)

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Since January, employers have been more likely to scale back employee salaries than to eliminate positions, a recent survey reveals. (more…)

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Two Arkansas women who have been sued for defrauding at least 139 people in a credit-repair scam have refused to respond to a judge’s order to pay $700,000 in penalties and have even started a new credit repair operation, the Arkansas Democrat Gazette reports (“State Wins Credit-Repair Fraud Case,” May 26, 2009).

For four years, Sherrye Mance and Tiffany Morris allegedly defrauded customers seeking the credit repair services of three of their companies. The women, who operated the three unincorporated businesses Financial Services Unlimited, Service Unlimited Inc., and Credit Counseling Service, have reportedly started running a new credit repair operation under the name “Fresh Start Credit Service.”

In a lawsuit, the Arkansas attorney general has accused Mance and Morris — who collectively owe their victims $127,565 — of charging customers for “services purported to improve a customer’s credit history, credit record, and credit ratings,” although these services were likely never “actually performed.”

Mance and Morris have, so far, refused to respond to the lawsuit, missed their court hearing, and failed to respond to a court injunction. Meanwhile, the Arkansas attorney general’s office has already started receiving complaints from California residents about the defendants’ new company.

Arkansas Attorney General Dustin McDaniel believes the two women still live nearby — Mance in a neighboring Arkansas county and Morris in Mississippi. McDaniel says he is exploring all legal options that would force the women to pay the penalty fees and repay the 139 affected customers.

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In one of the largest collection awards ever granted by a jury, a California couple has been awarded $500,000 in damages for being harassed and threatened by the debt collection agency Credigy Services Corporation, reports insideARM (“Jury Awards $500,000 to California Couple in FDCPA Case,” May 5, 2009).

Under the Fair Debt Collection Practices Act, which protects consumers against abusive collections tactics by debt collectors, Manuel and Luz Fausto were awarded $100,000 for actual damages and $400,000 in punitive damages, granted by a jury for “malicious and reckless disregard of the couple’s rights.”

The award stems from a dispute over the couple’s Wells Fargo charge card debt they thought they had paid off in the late 1990s, said the Faustos’ lawyer, David Humphreys of Humphreys Wallace Humphreys, P.C.

During the mid-1990s, the couple realized that their credit card balance was continuing to rise even though they were making payments on their account, but a local Wells Fargo branch denied their request to have the account frozen.

To resolve the situation, the Faustos went to a local debt settlement company that promised to negotiate a payoff of the credit card balance. The couple thought the account had been paid off in the late 1990s, after they made two money order payments.

Then in 2006, the couple was contacted by Credigy with a demand to pay $17,000. Even after a cease-and-desist notice was sent to a Brazilian affiliate of Credigy, the debt collection company still made over 90 threatening calls and sent innumerable letters to the Faustos’ home.

Debt collection attorney Manny Newburger says the jury award in this case is one of the largest given to a consumer under the FDCPA, noting that usually “there is little or no evidence of actual damages presented by the consumer.” In this particular case, however, the Faustos were able to document the harassing nature of Credigy’s practices, including the company’s baseless threats, having recorded the last phone call from the collector.

Newburger believes that the verdict in the Fausto case was based largely on state legislation and doesn’t think that the size of the award will motivate more consumers to sue debt collection agencies in the future.

“I think this verdict is indicative of what this jury thought of this particular case,” Newburger said, “but not of anything else.”

Correction: May 8, 2009

This post has been revised to reflect the following correction: The original post mistakenly referred to the $500,000 jury verdict as the largest award conferred upon a consumer under the Fair Debt Collection Practices Act. In fact, the $500,000 decision is among the largest FDCPA findings on behalf of a consumer, but not the singular largest.

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In response to the rising number of mortgage scams in his state, Missouri Attorney General Chris Koster announced a “zero tolerance” policy for companies engaging in misleading mortgage refinancing practices, according to press release from Koster’s office (“Attorney General Koster declares ‘Zero tolerance’ on Mortgage Scams,” April 20, 2009).

“This Attorney General’s office will have zero tolerance for any mortgage broker or refinancing lender that uses deception to lure consumers into doing business with them,” Koster said. “The Attorney General’s office will use all its powers to investigate and prosecute businesses that use deception and fraud in advertisements to Missouri consumers.”

Under the new campaign, Koster has already sued two businesses, Goldstar Home Mortgage and Oxford Lending Group, for sending misleading direct mail advertisements to consumers that encouraged homeowners to refinance their home loans.

Goldstar’s mail piece included the name of the homeowner’s bank at the top of the letter, which Koster argues made the homeowner’s own bank appear that it was encouraging homeowners to refinance with Goldstar. The company also marketed loans that were “inappropriate” for homeowners — loans that, in at least one case, would have left the homeowner with a mortgage worth more than the home itself.

Oxford Lending’s direct mail pieces stated that homeowners had a special opportunity to refinance under the “Economic Stimulus Act of 2008.” Oxford also used the U.S. Department of Housing and Urban Development’s label and name to suggest that the letter was coming from the government and not Oxford.

Koster warned Missouri homeowners to be cautious of any mail having to do with mortgage refinancing, loan consolidation, mortgage modification, and foreclosure relief. With interest rates at historic lows and foreclosures at record highs, Koster says homeowners, seniors in particular, who looking to save their homes are particularly vulnerable to these mortgage scams.

“Increasingly, mortgage brokers are using deceptive ploys to draw Missourians back into the refinancing game,” Koster warned. “Our goal is to alert consumers that these scams are out there and to sue every mortgage broker who crosses the line.”

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California’s unemployment rate hit a record 11.2 percent in March, leaving 2.1 million people jobless — the highest level since World War II, according to a report released last week (“State Unemployment Rate Highest Since 1941,” San Francisco Chronicle, April 18, 2009).

The March figure surpasses the 11 percent unemployment rate the state reached during the early 1980’s recession, says Patti Roberts, spokeswoman for the state’s Employment Development Department. The March unemployment rate approaches the 11.7 percent unemployment rate the state had in January 1941.

While last month’s unemployment rate for the state was significantly higher than the national figure of 8.5 percent for March, California had the 4th highest rate of unemployment in the country, perhaps due to the decline in real estate.

“California’s higher rate of job loss is primarily the result of greater exposure to the housing downturn,” said Stephen Levy, director and senior economist at the Center for the Continuing Study of the California Economy in Palo Alto.

Forecasters Vary on Outlook

The unemployment rate is grim and many Californians have been affected by job losses, “But on the other hand things are not really as bad as you might think,” said Chris Thornberg of Beacon Economics, a California real estate and economic forecasting firm.

Thornberg believes that these job losses can be attributed to the slump in consumer spending over the last year, and sees spending starting to stabilize in the near future along with the job market.

But Jerry Nickelsburg, an economist with the UCLA Anderson Forecast, believes that in all likelihood, the job market will continue to get worse before it gets better. He predicts California’s jobless rate will reach a high of 12 percent before it begins to decline sometime in 2010.

“Unemployment will likely creep up through the end of the year,” Nickelsburg said, “because employers will want to see that the increase in demand is strong before they hire.”

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After some 10 million consumers with poor credit saw their credit lines reduced earlier last year, responsible consumers with good credit are now seeing the same credit card limit reductions as credit card issuers move to insulate themselves from defaults, reports USA Today (“Lenders Slash Credit for Responsible Borrowers,” April 2, 2009).

Approximately 22 million cardholders — all of them consumers who have kept up on their credit card payments, have paid their bills on time, and have maintained their credit — have had their accounts closed or credit limits cut, according to a recent report by Fair Isaac, the creator of the FICO credit score.

Typically, lenders have targeted those with poor credit but as the economy has continued to unravel, lenders have changed their definition of risk, says Josh Lauer, a professor at the University of New Hampshire who is writing a book on credit reporting.

Consumers who have high credit scores tend to use their credit cards less and carry low balances, says Fair Isaac’s Careen Foster, which may be why they’re now being targeted by lenders.

And consumers who pay their bills on time aren’t a very profitable demographic for lenders since these consumers tend to pay few credit card fees, adds John Ulzheimer, president of consumer education for Credit.com. Even though these cardholders are less likely to default, lenders must still set aside reserves in case consumers stop making payments on their loans.

When credit card companies close a consumer’s accounts or reduce a consumer’s credit limit, it can increase the proportion of available credit a consumer is using and bring down his or her credit score, making it harder to qualify for any type of loan in the future, especially for a consumer who already has bad credit.

The good news for those who have been responsible with their credit is that, according to the Fair Isaac report, card companies’ recent credit line reductions have had very little impact on these consumers’ credit scores, perhaps because these consumers have had their credit limits cut by only 5 percent.

Bank analyst Meredith Whitney estimates that by 2010 banks will have slashed another $2.7 trillion of available credit on consumer cards. With lenders continuing to tighten their credit standards, Ulzheimer says cardholders, even those with good credit, can’t afford to be complacent about their credit scores.

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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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In order to offset record delinquencies and rising charge-offs, credit card companies are continuing to hike up penalties and, in many cases, double fee amounts for certain cardholders, reports USA Today (“Bank Credit Card Fees Keep Going Up,” March 15, 2009).

By the end of 2008, almost 6 percent of all credit card accounts were at least 30 days late, the highest percentage of delinquent accounts the Federal Reserve has recorded since it began tracking credit card defaults in 1991.

These defaults are forcing card issuers to incur significant expenses both at the time of collection on delinquent accounts and later when the companies have to write off these accounts due to non-payment. To recover a portion of their projected losses before they occur, these companies are choosing to pass the buck to at-risk cardholders through higher fees and penalties.

Consumers may not see relief for penalty rates or for late or missed payments until 2010 when new Federal regulations go into effect that will alter the way credit card companies do business, The Washington Post reports (“Accelerating Debt,” March 22, 2009).

Currently, credit card issuers are getting away with charging an average late-payment penalty rate of almost 27 percent, according to a 2008 survey by advocacy group Consumer Action, and may end up collecting as much as $21 billion from cardholders as a result of these higher penalty fees, estimates Robert Hammer, chairman of the consulting firm R.K. Hammer.

Elevated fees “are a recognition of risk going up,” Hammer says. Financial institutions “are not going to watch their costs go up and take no action.”

Fees Double For Some

Earlier this year, American Express raised its late fees from $29 to $39 for corporate cardholders who were 45 days late on their payments, USA Today reports.

Wells Fargo customers who withdraw funds from their credit cards inside the bank branch have seen their fees double from $10 to $20, and likewise those who withdraw credit card funds from the Wells Fargo ATM have seen their fees double from $5 to $10.

In January, JPMorgan Chase levied a $10-a-month fee on about 400,000 cardholders who had carried a high balance for more than two years and who had made little effort to pay it off. Minimum payment requirements for these customers jumped from 2 percent of their account balance to 5 percent, forcing cardholders to pay more than double what they owe on their accounts each month.

“[Card issuers] have been very much damaged by this economic downturn and tightening of credit and all the losses that their banks have faced,” said Bill Hardekopf, chief executive of LowCards.com, a credit card review site. “If you as a consumer do anything to increase your risk, you will probably very quickly be hit.”

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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 (more…)

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