After being accused by New York Attorney General, Andrew Cuomo, of using illegal scare tactics to “terrify” indebted Americans into repaying their debt, a Buffalo, N.Y., debt collection agency run by convicted felons has been shut down by state authorities (more…)

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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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The Supreme Court has agreed to take on a case that addresses the constitutionality of a provision in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that restricts “debt relief agencies,” including lawyers, from advising their clients to take on additional debt before filing for bankruptcy (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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New York State Attorney General Andrew Cuomo has subpoenaed 14 debt settlement companies and one law firm as part of an investigation into the debt settlement industry, a move that has been labeled a “P.R. stunt” by an industry lawyer, The New York Times reports (“An Inquiry Into Firms That Offer to Cut Debt,” May 8, 2009).

Robby H. Birnbaum, a debt settlement lawyer who is also on the board of an industry trade group, said late last week that the debt settlement companies named in the investigation were placed in an awkward position when they first learned of Cuomo’s inquiry via the media.

“The press release was issued before any of these companies even received subpoenas,” Birnbaum said, so initially the debt settlement organizations would have had nothing to respond to. The companies in question didn’t receive their subpoenas until after Cuomo’s office generated its press release.

Companies’ Services May Not Be Living Up to Their Advertising

According to The Times, Cuomo will be investigating to what extent the subpoenaed debt settlement firms provide the debt relief services described in their advertisements by examining the companies’ fee structures and client base. Debt settlement organizations negotiate with credit card companies to reduce a client’s debt balance and typically charge a fee of about 15 percent of the client’s debt.

“With all of the problems we face in this time of economic distress, it is outrageous that these firms are targeting those who are the most financially vulnerable,” Cuomo said through an aide.

The purpose of the inquiry is to “ensure that people are not victimized when faced with financial hardship,” Cuomo’s office stated (“N.Y. Attorney General Probes Debt Settlement Firms,” Reuters, May 7, 2009).

Cuomo’s new investigation stems from a previous inquiry by the attorney general into two firms, Texas-based Credit Solutions, the nation’s largest alleged debt settlement firm, and Nationwide Asset of Arizona. Credit Solutions was accused of engaging in “false, deceptive, and misleading acts and practices” in a March suit against the company, and Nationwide will soon be named in a suit and be accused of fraud.

Several Firms Welcome Industry Investigation

Cuomo’s current suit targets several debt settlement companies located across the nation and a single law firm:

American Debt Foundation Inc., American Financial Service, Consumer Debt Solutions, Credit Answers L.L.C., Debt Remedy Solutions L.L.C., Debt Settlement America, Debt Settlement USA, Debtmerica Relief, DMB Financial L.L.C., Freedom Debt Relief, New Era Debt Solutions, New Horizons Debt Relief Inc., Preferred Financial Services Inc., U.S. Financial Management Inc. (operating as My Debt Negotiation), and Allegro Law.

Several of the 14 firms named in Cuomo’s investigation have said they would welcome an investigation into the industry, which includes as many as 2,000 debt settlement companies nationwide. Some of these companies even went as far to say they would embrace tougher regulations in their industry, one that critics claim is under-regulated.

“The only companies that will suffer are those that don’t offer genuine value,” said Jeff Takle, a spokesman for a Massachusetts debt settlement firm.

Robert Linderman, general counsel for one of the firms named in the investigation, Freedom Debt Relief of San Mateo, Calif., echoed Takle’s sentiments and said, “We’re delighted the attorney general is seeking information from the industry.”

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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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Illinois Attorney General Lisa Madigan has filed lawsuits against two debt settlement companies for allegedly misrepresenting their services to consumers and failing to follow through on their obligation to settle their clients’ debts, according to a press release from the Illinois attorney general’s office (“Attorney General Madigan Sues Two Debt Settlement Firms,” May 4, 2009).

Madigan has charged debt settlement firms Debt Relief USA, Inc. and SDS West Corporation with violations of the state’s Consumer Fraud and Deceptive Business Practices Act, accusing the companies of deceptively marketing their services and of misrepresenting the impact those debt settlement services would have on clients’ credit.

According to one lawsuit, SDS West, along with its partner Nationwide Support Services, did not adequately inform its customers that their monthly payments would be applied to the company’s fees before the company would provide any of its promised debt settlement services — negotiations with a customer’s creditors for reduced payoff amounts. SDS West also failed to explain to its customers that they would have to make several months of payments before they would accumulate enough funds for the company to begin negotiating these settlement payoffs with the customers’ creditors.

In the second lawsuit, Madigan alleges that Debt Relief USA, which enrolled at least 470 Illinois customers in its debt settlement program between 2005 and 2008, did not “negotiate substantial reductions on most consumers’ accounts” and that most of its clients, having already paid the company’s nonrefundable fees, dropped out of the program before the company settled any of their debts.

Madigan is asking for permanent injunctions against both Debt Relief USA and SDS West that would prohibit them from engaging in debt settlement in the state of Illinois, along with court orders requiring each company to pay restitution, civil penalties of $50,000, and an additional $50,000 for each one of their violations that included intent to defraud.

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In what is turning out to be the worst recession since the Great Depression, many Americans are struggling to pay their bills as companies continue to shed jobs and the economy continues to contract.

In this recession, costly expenses like medical bills are taking a backseat to daily expenses like water, electricity, food, car, and mortgage payments. Now, as with credit cards, consumers are struggling to keep up with their medical bills and increasingly letting more and more of their bills go unpaid.

The Commonwealth Fund, a healthcare research foundation, reports that in 2007, 41 percent of adults were struggling to pay their healthcare bills, up from 34 percent in 2005 (“When Medical Bills Outpace Your Means, Seize Control Swiftly,” The New York Times, April 25, 2009). And it’s not just the uninsured who have fallen behind on their payments, nearly two-thirds of people with medical debt actually have health insurance.

Experts say, however, that there are ways to manage your medical debt even if you aren’t capable of paying it off right away.

1. Communicate with your creditor.

If you know you’re going to be late on one or more of your medical bills, let your creditors know. Just talking with them won’t obligate you to make a payment, but if your creditor is aware that you’re trying to stay on top of your debt you may be able to avoid collections, at least temporarily, and protect your credit.

2. Review your bills.

Keep a running tab of your doctor visits and medical procedures to accurately review your bills when they come in. Errors in medical billing can occur often, so if you find a discrepancy call your provider for an explanation. And remember that it can never hurt to resubmit bills to your insurer if you’ve been denied coverage.

3. Bring in extra help.

Try negotiating with your provider for a discount or for some leeway on repayment. If your creditor still won’t work with you, consider hiring a billing specialist who may be able to help you find errors in your medical bills and better understand the often-complex language of medical billing.

4. Avoid the plastic.

Don’t react with panic when you receive a late-payment notice by transferring your medical bill debt onto your credit card. Chances are if you can’t pay your medical bill now, you’re not going to be able to pay the credit card bill when it comes in later. And medical bill charges that stay on your credit card will immediately start earning interest, not to mention that charging a large sum to your credit card could negatively affect your credit score, if you’re carrying too high a debt load.

5. Know your rights.

Just because a medical bill goes to collections, doesn’t mean creditors have free rein to hassle you into paying; they have guidelines and rules to abide by — they can only call between 8 a.m. and 9 p.m. and they can’t scare you into paying the debt. Ask for the caller’s name and request that they send you the name of the creditor and the amount you owe in writing. Visit the Privacy Rights Clearinghouse for a guide to debt collection.

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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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