“This company was run by people who lied, bullied, and preyed on vulnerable Americans struggling to resolve their financial situation,” Cuomo said. “Pretending to be a police officer, threatening to throw consumers in jail — these practices are despicable as they are illegal.”

Operating under the name Final Claims Asset Locators, among several other names, the debt collection agency had its collectors pose as law enforcement officials who told debtors they were being arrested.

In a recorded conversation, a debt collector even told a debtor, “Make sure you have somewhere for your kids to go. Lock up your house. Get some clean clothes, because you’re not coming home anytime soon.”

The debt collection agency was owned by a former drug dealer and convicted felon Tobias Boyland, who also went by the name “Bags of Money” and who served 13 years for armed robbery. Boyland was arrested this week on a weapons charge after authorities found him carrying a loaded, unlicensed pistol and after finding an AK-47 rifle and $34,000 in cash in his house.

Boyland also owns a modeling agency, has released a rap album, has written a self-help book called “Thug Motivation,” and has advertised his business on a billboard using an image of himself in a gladiator outfit.

Find information on debt relief and other debt management options at ThinkDebtRelief.com

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The Federal Reserve, the Obama administration, and Congress were all commended by IMF, the Washington-based lender that has helped rescue the economies of Pakistan and Iceland, for their efforts to salvage the economy with a “well-targeted” stimulus package.

In fact, the report showed that the stimulus package will raise the gross domestic product, the value of goods and services produced in the United States, by 1 percent this year and by 0.25 percent in 2010, pointing to the likelihood of a “gradual” recovery.

Despite the IMF predicting a solid upturn in the economy in the next year, it still sees the U.S. unemployment rate topping 10 percent next year and sees a successful exit plan from the financial rescue programs as essential to the country’s recovery.

“The combination of financial strains and ongoing adjustments in the housing and labor markets is expected to restrain growth for some time, with a solid recovery projected to emerge only in mid-2010,” the staff review of the IMF report stated.

The IMF projects that public debt will nearly double from 2009 to 2011 to 75 percent of the gross domestic product, putting significant pressure on the Treasury bond rates, which are currently low, making it easier for prospective homebuyers to get low mortgage rates.

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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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“In the previous two decades, our credit scores have become more important over time,” said personal finances expert Liz Pulliam Weston (”Rules Have Changed for Consumer Credit,” Chicago Tribune, April 19, 2009). “Then in the past year, it’s suddenly become critical.”

She warns that if consumers don’t pay attention to these recent credit developments they could make some costly mistakes that could negatively affect their personal finances.

1. Credit Scores

The overhauled credit markets have polarized the world of credit scores: now there’s good credit and bad credit and relatively little in between. Consumers with good credit have seen little to no effect on their financial lives, while consumers with less than stellar credit are increasingly facing higher interest rates, more stringent loan terms, and disqualification from all types of loans — home, auto, student, etc.

The Recommendation: Don’t take on any more debt and start paying off your existing debt.

2. Credit Benchmarks

The qualifications for good credit and bad credit have also shifted. About a year ago a 700 to a 720 FICO credit score — the most widely used credit score formula — was considered acceptable for most consumer loans, and a 620 FICO score was considered subprime and subject to less favorable terms. Today, consumers need a 740 to a 760 credit score to get the most consumer-friendly loan and credit card terms, and consumers with a 660 to 680 score are considered subprime.

The Recommendation: Pull your credit report to see if there are any unforeseen blips or mistakes that could have dinged your score. You can get a free copy of your credit report from each of the major reporting bureaus once a year at annualcreditreport.com. For a free estimate of your credit score, you can use some of the new credit simulators at Bankrate.com, Quizzle.com, or Credit.com to get an idea of where you stand, but if you’re considering taking out any new loan you may want to use a site like MyFICO.com to pull your actual credit score and see where you really fall on the new scale.

3. Credit Limits

Consumers with lower credit scores are having their credit limits slashed by credit card companies, which can severely throw off your credit utilization ratio — the ratio of your available credit to how much you’ve borrowed — and consequently, lower your credit score.

The Recommendation: Consumers with good credit scores, 750 and above, can try negotiating with their creditors to reinstate lines of credit, if need be. Creditors are more willing to accommodate consumers with good credit since they are harder to come by in this recession.

4. Card Cancellations

In addition to lowering limits, credit card companies are shutting down lines of credit due to low use, which may be one of the few credit changes to hurt consumers with good credit.

The Recommendation: Make sure to occasionally use the cards that you keep in the “back of your wallet” — charging some purchases at least a few times a year — and promptly pay off the balances on these cards in full.

5. FICO Score Formula Changes

One of the three major credit reporting bureaus, TransUnion, has begun using Fair Isaac’s new FICO score formula, which places more emphasis on your credit utilization and ignores overdue balances of less than $100. It’s unknown when or if the other credit bureaus, Equifax and Experian, will follow suit.

The Recommendation: Keep balances to below 30 percent of your available credit, and if possible, try to bring your credit utilization down to 10 percent to get better interest rates and more favorable borrowing terms on consumer loans.

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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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Spurred on by an unemployment rate that could reach an unprecedented 8 percent this year, consumer spending fell six straight months ending in December, dropping to a low 3.5-percent annual pace last year. The Christian Science Monitor reports that consumers haven’t pulled out of the local economy to this extent since the recession of 1974 (“In Tough Times, U.S. Consumers Forging New Behaviors,” Feb. 2, 2009).

At the same time, consumer savings levels — which jumped to a six-year high in the final quarter of 2008 — are expected to take a sharp upward turn this year, the Commerce Department reports, now that a leveling off of home values and a drying up of credit markets have prevented consumers from being able to borrow like they used to.

While Ken Mayland, president of ClearView Economics, doesn’t expect personal savings levels to reach 8-to-10 percent of disposable income as was the case before the 1990s, he points to the 3.6-percent savings rate seen in December as an indicator of a more realistic picture.

“We’re going to see a new consumer emerge from this rubble,” Mayland said.

Boosting Consumer Spending Will Require Major Changes

Economists predict an upturn in consumer spending this year, but almost half of all Americans surveyed this month in a Diageo/Hotline Poll still say that they don’t expect the economy to get back on track for at least another two to four years.

And while the proposed stimulus package facing Congress is intended to encourage consumer spending, experts say consumers won’t start spending again until investor and consumer confidence is jumpstarted by a few key shifts in market trends:

• A cut in taxes that, under the stimulus package, would be reflected in employees’ pay stubs
• A freeing up of credit allowing for more consumers to refinance their mortgages
• A stemming of home price declines and home foreclosures
• An increase in incentive programs offered by businesses that entice consumers to spend

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The company says the new formula, updated for the first time since it was introduced in 1989, will improve the predictability of defaults by 5 to 15 percent (“New Credit Scoring System Ready for ’09,” Kiplinger Business Resource Center, Dec. 12, 2008).

FICO scores will still range from 300 to 850 points, but Fair Isaac estimates that borrowers could see their scores increase or decrease by more than 20 points, because the formula “has a few more gray areas fleshed out,” says Ginny Ferguson, a member of the board of the National Association of Mortgage Brokers.

Two of the three major credit reporting bureaus will start using the new formula by the spring.

Who Benefits from the New FICO

Borrowers with minimal credit problems: The new formula is more forgiving to borrowers with infrequent hiccups on their credit, ignoring small collections under $100, and is less punishing to individuals with one major transgression on their credit report, such as a charge-off or repossession, if their credit history is otherwise strong. Fair Isaac says the new formula will create a greater distinction between these borrowers and those who are habitually delinquent.

Borrowers who keep their credit accounts open and active: The new FICO formula will look more favorably on individuals with multiple open accounts, but will come down more harshly on those who have had their accounts closed — a more frequently occurring scenario now that lenders are targeting and shutting down the unused and unprofitable accounts of thousands of borrowers.

Who Loses Out with the New FICO

Authorized Users: More than 30 percent of U.S. credit card holders — some 60 to 70 million consumers — “piggyback” on someone else’s credit. These authorized users — often young adults or spouses — rely on a relative’s credit to help jumpstart or bolster their own credit history. The new FICO formula won’t eliminate this option, as had once been proposed after people began abusing the option, but it will make establishing credit as an authorized user a more difficult and lengthier process.

Borrowers with little available credit: With lenders slashing credit limits across the country, millions of individuals could see their scores drop based on the new FICO formula, which will be even more sensitive than the classic FICO to how much available credit borrowers use. Even borrowers who diligently pay off their balance each month could see their scores dip.

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The Fed’s new purchasing program will be overseen by The Federal Reserve Bank of New York, which will work with four investment managers — BlackRock Inc., Goldman Sachs Asset Management, PIMCO, and Wellington Management Co. — to purchase more than $500 billion in mortgage-backed securities from government–sponsored mortgage holders Fannie Mae and Freddie Mac.

This initiative to purchase securities came after the U.S. Treasury decided against its original plan to use its authority under the $700 billion bailout plan, the Troubled Asset Relief Program, to buy high-risk, subprime mortgage securities from the nation’s ailing banks. Treasury officials decided, instead, to use the money to invest directly in national banks whose books have been burdened by hundreds of billions of dollars in losses and write-downs.

The central bank says it plans to release further information about its new mortgage-securities purchases later this week. The Fed, of its own accord, had already bought nearly $100 billion dollars of mortgage-backed securities prior to the creation of the program.

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We’ve gotten so comfortable with our spendthrift ways, charging whatever we want onto our credit cards no matter the cost, that our sudden inability to buy on the fly has hit at the core of our personal identity, spawning feelings of depression and a barrage of irrational behaviors.

“We don’t buy products, we buy feelings. We’re buying the anticipation of the feeling that we think that product or service is going to give us,” Vaccaro said. “People start seeing their economic situation change, and it stimulates a sort of survival panic.”

Because our identities have been tied to our material possessions for so long, some mental health experts are anticipating that we may begin rebelling against these forced lifestyle changes by shopping more or even resorting to theft or violence.

But, Timothy Fong, a psychiatrist at the UCLA Neuropsychiatric Institute and Hospital, says stealing and aggression aren’t acceptable or healthy responses, and that this is the perfect opportunity for us to reform our old ways and establish new patterns for defining self happiness.

3 Strategies to Help You Ditch Your Spend-Happy Ways

Although the downturn may be painful, Vaccaro says, it represents a chance for us to become “a more discerning consumer” and move away from “irrational” and “careless” consumerism.

Here are three strategies to help you relearn how to buy only what is necessary:

1. Stop and think about every purchase. Step away from an item for a few minutes or even leave the store to avoid making an impulse buy. Taking the time to breathe may help you realize that despite today’s bargain basement prices on flat-screen TVs, or on a new car, these “status symbols” may not be necessities.
2. Take advantage of stores’ on-hold policies. If you don’t think you can stand the anxiety of walking away from an item for fear that it will be snatched up, put the item on hold as long as the store will allow. You may forget about the item altogether, which means you didn’t really need it, but if you decide to buy it, the store will have it waiting for you.
3. Keep the price tags on and keep a shopping journal. Write down all your purchases and their costs. When buying items that aren’t necessities, note how you felt when you bought the item. Check your entry a week later and see if you still feel the same excitement for that item now that you own it. If your feelings have changed and the item has lost its luster, you can return it with the price tag intact.

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The metropolitan area alone has seen 36 percent more filings in the third quarter of 2008, compared to the same period last year. Individual consumers and businesses, squeezed by mounting debt levels and rising unemployment numbers, have been filing for bankruptcy protection at a rate of 175 per day.

Nearly three-quarters of the 4,323 bankruptcy filings in Brooklyn’s Eastern District Court were personal Chapter 7 bankruptcies, compared to just 126 bankruptcies filed by area businesses. In the Southern District Court in Manhattan, failed investment bank Lehman Brothers and the discount retail chain Steve & Barry’s, were among the businesses looking to reorganize their debt as opposed to liquidating it this quarter — up 45 percent compared with the same quarter last year.

Along with an overall increase in filings, local bankruptcy lawyers have noticed a shift in bankruptcy filing trends: Lenders are seeking debt settlements earlier in the process, and debtors, who are now commonly middle-and upper-middle class, are increasingly forgoing the option of reworking their payment terms.

“We are seeing debt-collection efforts really being ratcheted up over the last couple of months,” said Jay Fleischman, a bankruptcy lawyer in Park Slope, Brooklyn. “What we’re seeing is the debts being sued upon far earlier in the process. That leaves consumers with the feeling that they don’t have the options they once did.”

And some experts say these record-high numbers are only going to increase over the next few months as the slumping economy continues to erode retail sales.

“A lot of us in the profession believe that once we get through the Christmas and holiday shopping season, that there will be a literal wave of ne Chapter 11 cases, largely in the retail arena,” said Michael Richman, chairman of the Manhattan bankruptcy law firm Foley & Lardner. “We’re going to see a continued increase on a regular basis for a long period of time, a period that’s going to outlast the recession, I think, for years.”

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