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Tuesday, September 13th, 2011

FTC Shuts Down Illegal Payday Lender Wage Garnishment

The Federal Trade commission reported this week that it has halted a payday lender from attempting to garnish consumers’ wages without the necessary court order. The company, Payday Financial, LLC, reportedly did business under the names Big Sky Cash and Lakota Cash.

Sources note that, in order to garnish its customers’ wages, Payday Financial divulged information about alleged payday loan debts to their employers, which is illegal. The attempt to garnish wages also prevented customers from disputing the debts in court or working out a payment plan with the lender.

Wage Garnishment Rules

Federal law permits government entities to request wage garnishment for unpaid debts owed to the government; however, the law requires that private creditors (i.e. anyone other than the government) go through the court system if they want to pursue wage garnishment.

According to the FTC, Payday Financial sent customers’ employers paperwork designed to look like documents from the federal government requesting wage garnishment to repay debts. That move has led the FTC to charge Payday Financial with:

  • Misrepresenting their legal wage garnishment status to employers (in other words, lying about their legal ability to garnish the employees’ wages);
  • Lying about their communication with consumers (specifically, by indicating that they had already given the employees an opportunity to contest or pay the debt);
  • Illegally revealing the existence and amount of alleged debts without consumers’ consent or knowledge;
  • Violating the FTC’s Credit Practices Rule, which does not permit lenders to require that consumers consent to wage garnishment in the event of default; and
  • Violating the Electronic Funds Transfer Act, which prohibits payday lenders from requiring borrowers to authorize direct debit payment of loans.

Payday Financial has agreed to stop garnishing its customers’ wages until a court decides on the case.

Halting Wage Garnishment through Bankruptcy

Consumers who are dealing with legal wage garnishment have the option of filing for bankruptcy to prevent further withdrawal of funds from their wages. Personal bankruptcy includes a legal protection called the automatic stay, which prevents collection actions of all kinds for the duration of the bankruptcy case.

The automatic stay can halt:

  • Wage garnishment;
  • Debt lawsuits;
  • Foreclosure;
  • Repossession; and
  • Phone calls and mailings from creditors.

In bankruptcy, filers may have debts discharged or enter a repayment plan to catch up on past-due debts. Once a debt has been discharged or repaid in part through the bankruptcy court, creditors no longer have a legal right to collect on it (meaning they can no longer legally garnish wages to cover that debt).

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Posted in Predatory Lending | No Comments »

Wednesday, August 10th, 2011

Seven Mortgage Fraudsters In NJ Face Legal Trouble

Seven fraudulent mortgage modification services are facing cease and desist orders from the state of New Jersey, according to reports from NJ.com. The legal action comes from the state’s Department of Consumer Affairs and includes steep civil penalties against the firms.

Unfortunately, mortgage scams are nothing new and in fact have been fairly common since the housing market collapsed and adjustable-rate mortgages began to reset en masse. Here’s a look at how these particular companies allegedly scammed New Jersey residents:

  • Promise for negotiation: Scammers apparently piqued victims’ interest by offering to negotiate with their mortgage lenders on their behalf. This offer is understandably attractive to those homeowners struggling to make mortgage payments, who might be in danger of foreclosure or considering a bankruptcy filing to help ease their debt burden.
  • Collection of fees: Naturally, the scammers insisted on collecting payment for their work up front, before actually delivering on their promises. In many cases, consumer protection laws prohibit companies from collecting fees before performing any services.
  • Failure to follow through: Unsurprisingly, the scammers did not actually help victims adjust their debt. In fact, the seven companies weren’t even registered as debt-adjustment services, as the state requires, according to reports.

Debt Negotiation as a Bankruptcy Alternative

While New Jersey’s attorney general has now taken action to repair some of the damage these fraudsters caused, it’s likely that at least some victims endured serious financial hardship because of the scam.

On the (mildly) positive side, the scam provides an excellent opportunity to review some of the differences between debt adjustment services and personal bankruptcy.

Bankruptcy alternatives:

  • Are not regulated as strictly as bankruptcy: At both the federal and state level, there are laws designed to protect consumers from scammers like the ones that struck in New Jersey. But, as this mortgage scam shows us, it’s fairly common for fraudsters to break those laws. Bankruptcy, on the other hand, follows the same set of laws no matter where in the country a filer lives. Those laws are published online where filers can easily access them.
  • May affect credit differently than bankruptcy: One reason many people seek non-bankruptcy alternatives to eliminating or reducing debt is because of the negative perceived impact that bankruptcy can have on a credit score. But assuming your credit won’t be hurt by debt settlement or debt negotiation is a gamble: if you work with a less-than-trustworthy company, you may end up losing money and hurting your credit.
  • Do not offer the legal protections that bankruptcy does: One major benefit of bankruptcy is that filers know that they can expect certain protections (e.g. from creditor contact and collections) after they file their case. No such legal protections exist for bankruptcy alternatives.

Bankruptcy is not right for everyone, but it’s an important and powerful debt-relief option to consider for those in financial distress.

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Posted in Home Foreclosure, Predatory Lending | 1 Comment »

Wednesday, August 3rd, 2011

Payday Lender Pays Big for Misdeeds

The Federal Trade Commission has scored another win for consumers. Last week, it convinced a federal court to rule that payday lending company Swish Marketing must pay $4.8 million as a penalty for tricking consumers into buying expensive debit cards they didn’t want.

The case highlights abuses that consumer advocates continue to fight against, including deceptive online advertising and negative-option marketing. Here’s a look at the case and what the FTC’s action might mean.

  • Online payday lending: The company’s web site reportedly claimed that it matched online consumers with payday lenders to meet their needs.
  • Hidden products attached: When consumers completed the online loan application, they were apparently directed to a screen that included four additional offers. Of these, three offers had a “no” box checked and one had the “yes” box checked. In some cases the additional offers were presented as a “bonus.”
  • Automatic charges: Customers who didn’t notice the “yes” box or who didn’t read the fine print ended up with a debit card that automatically connected to their bank account and charged them $54.95.

Expensive Products, Debt-Ridden Buyers

In addition to being illegal, deceptive marketing practices like the ones Swish Marketing engaged in tend to prey on those who can least afford them. In many Chapter 7 cases, for example, some of the unsecured debt that filers discharge comes from payday loans.

Payday loans are short-term, high-interest loans that often lead to serious debt for those unable to make ends meet. They provide an immediate source of cash but come with a high price tag in the long run.

Penalties for the Payday Lender

Thanks to the FTC’s action, Swish Marketing and its owners are now prohibited from:

  • Misrepresenting relevant facts about a product or service. Its improper sale of debit cards failed to explain how customers would be charged and how much the product would cost.
  • Improperly identifying a product as a “bonus.” The previous offer didn’t provide sufficient information about the “bonus” debit card, which left consumers unable to make an informed decision about whether or not they wanted such a “bonus.”
  • Charging consumers without disclosing privacy plans. Related charges against the company addressed the fact that it reportedly sold or shared customer information without warning that it would do so.
  • Failing to make sure affiliates follow the rules. From now on, Swish will be held responsible for the actions of any company it works in tandem with.

The FTC did not report how the $4.8 million will be distributed. In many similar cases, funds are used to refund money consumers lost as part of the scam.

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Posted in Predatory Lending | 1 Comment »

Monday, June 20th, 2011

Sympathy for Debt Collectors?

Anyone who’s been harassed by debt collectors during tough financial times may have a hard time swallowing the latest request from the debt collection industry: give them a break. But the collection industry’s trade association has a fair point to make about its workers – they’re not all bad.

And, as happens too often, the bad apples in the group have given the whole industry a rotten reputation. Consider this troublesome info (reported in the New York Times):

  • Many debt collectors have to use fake names when they work because clients frequently threaten them. An alias protects them from anyone who might actually take action.
  • Most debt collectors have stories of being shouted at, called names and belittled while on the job.
  • In many cases, debt collectors are, in fact, trying to get money that we consumers agreed to pay.

New Consumer Protection on the Horizon?

Right now, the Fair Debt Collection Practices Act outlines what debt collectors can and cannot do. The Federal Trade Commission (FTC) regulates the industry, but has little power to punish offenders or tighten rules.

That could change starting this July, though. The Consumer Financial Protection Bureau will start actively playing the role outlined for it in 2010’s consumer protection law. Part of that role is regulating the debt collection industry, which has some debt collection workers worried.

Activists on both sides of the issue have highlighted problems with the 1977 FDCPA:

  • Since its passage, it hasn’t changed much to acknowledge new technologies like mobile devices or email.
  • The fine for violations has stayed constant at $1,000, which today doesn’t significantly deter debt collectors.
  • Many debt collectors are two or three times removed from the original creditor, which can frustrate and confuse consumers.

What to Do When The Debt Collector Calls You

It’s important to understand your rights and responsibilities as a consumer. Certain debts (like those discharged in bankruptcy and those whose statute of limitations has expired) cannot legally be collected. Other debts are the debtor’s responsibility to pay.

One debt collector interview in the Times commented that it was much easier to work with consumers than to yell at them. In many cases, admitting you don’t have the money to pay a debt can save everyone a lot of hassle. Once you’ve determined the facts, a debt collector might be able (and willing) to work toward an alternate payment schedule or some other debt modification.

And people who are really in over their heads financially may want to start making phone calls themselves – to a bankruptcy lawyer.

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Posted in Economic News: How Are We Doing? | No Comments »

Wednesday, June 15th, 2011

What Do You Know about Taxpayer Identity Theft?

You’ve probably heard of the crime known as identity theft, in which a criminal uses someone’s sensitive information (like Social Security Number, credit card number, or bank account information) to make fraudulent financial transactions.

But have you heard about the newest version of this nefarious crime? It’s called taxpayer identity theft and, according to the Government Accountability Office (GAO), it’s become five times more common in the last two years. It works like this:

  • The identity theft uses someone else’s SSN to get a job: People may do this for a variety of reasons, including criminal records or illegal residential status. Regardless, it can wreak havoc on the victim’s life and finances.
  • The identity thief files his taxes early: Most legitimate taxpayers tend to wait until later in the season to file, so getting the paperwork in early increases a thief’s chances of going undetected.
  • The victim files his tax return: When the victim of taxpayer identity theft submits his forms to the IRS, he finds out his forms have “already” been submitted. That is, forms with his information have been submitted by someone else.
  • The victim has to sort everything out: According to sources, this can mean hours of phone calls to government agencies, credit card issuers and banks in an effort to clear up the confusion. In many cases, victims have to wait up to six months to get any tax returns owed them.
  • The IRS distributes an official form: To help the victim with future confusion the identity theft is likely to cause, the IRS offers victims an official document (the 14039 form, or the IRS Identity Theft Affidavit).

Protecting Yourself from Identity Theft

As identity theft victims know, sorting through the mess left by an identity thief is not for the faint of heart. Identity theft can cause:

  • Credit score damages: Identity thieves can open new credit accounts, max out existing cards, drain bank accounts and more, depending on what information they get. All these can hurt a credit score. (Note: credit reporting bureaus will remove such information, but it takes a lot of legwork on the victim’s part.)
  • Bankruptcy: Even though there are protections in place to prevent identity theft from leading to bankruptcy, many filers indicate that a stolen identity was one factor that led them to file.
  • Criminal troubles: Depending on what kinds of actions an identity thief engages in, a victim can be mistakenly apprehended by law enforcement agencies. Like most identity theft consequences, this can generally be cleared up, but not without effort on the victim’s part.

The bottom line? Identity thieves are constantly thinking of new ways to get their hands on sensitive information. Be careful with yours.

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Posted in Identity Theft | 1 Comment »

Wednesday, June 1st, 2011

The Harsh Reality of Car Title Loans

Legislators and consumer advocates have taken stands in recent years against payday loans, largely considered one of the most nefarious financial traps available to low-income consumers. But more recently, some worried analysts have taken up the torch of another type of absurdly high-cost loan: car title loans.

According to a recent post at CreditSlips, this type of loan can wreak serious financial havoc on consumers who can least afford to lose money. Here’s a look at some of the troubling numbers.

How Title Loans Work

Car title loans work like this:

  • A borrower enters the lender’s storefront in need of cash.
  • The lender originates a secured loan with the borrower’s vehicle as collateral. (According to sources, lenders will typically offer dollar amounts of no more than 40 percent of a vehicle’s value.)
  • Interest rates on car title loans can reportedly top 300 percent, meaning that most borrowers end up paying far more than their car’s value in interest payments over the repayment period.
  • If a borrower cannot afford to make payments, the lender has the legal right to repossess the vehicle used to secure the loan.
  • Some lenders, it seems, also sell used cars (no doubt those repossessed from customers unable to pay).

The Hidden Dangers of Car Title Loans

As most people can see, the risk of losing your car to a car title lender is pretty high, especially given the astronomical interest rates charged and the typically limited financial means of most title loan borrowers.

But, according to a recent study, the actual cost to title loan borrowers seems to be higher than expected. Sources note that:

  • At some auto title lenders, the repossession rate stands at 13.1 percent of loans - that means 1 in 8 people who go in for a loan end up getting their vehicle repossessed by the lender.
  • The typical auto title borrowers will take out between 3 and five loans from a given title lender. This means that most borrowers apparently return more than once to take on high-interest, high-risk loans.

Know Your Options

While car title loans may seem like the only way out of a tight financial spot, it’s important to understand the high risks associated with them. If you’re struggling with serious debt (or know someone who is), consider seeking the help of a bankruptcy lawyer or credit counselor for guidance.

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Posted in Predatory Lending | 2 Comments »

Wednesday, May 11th, 2011

Lawsuit Alleges Mortgage Fraud by Deutsche Bank

News reports this week announce that the U.S. Department of Justice has initiated a lawsuit against Deutsche Bank, one of the world’s largest, claiming that the institution lied to federal regulators in order to secure taxpayer-funded insurance for less-than-secure mortgages.

Here’s a look at the details and some of the underlying issues.

The Charges against Deutsche Bank

According to the lawsuit, Deutsche Bank and its subsidiary MortgageIT:

  • Initiated risky mortgage loans to homebuyers. Some of these loans may have been subprime, and since their initiation, sources indicate, about a third have defaulted.
  • Lied to federal regulators. While the loans themselves may have been a bad move financially, what interests prosecutors is what happens next: that Deutsche Bank allegedly lied to officials with the Federal Housing Authority (FHA) in order to secure insurance for the shoddy loans.
  • Got taxpayer-backed insurance for questionable loans. Because of its reportedly false claims that it was evaluating its mortgages for default risk, Deutsche Bank managed to secure FHA funding (which comes from tax dollars) for the questionable loans.
  • Required money from the government when the loans defaulted. Now, as many as 12,500 of Deutsche Bank’s loans have apparently defaulted (meaning that the homes have gone into foreclosure), leaving the government responsible for covering the losses. The money goes to those investors who own the mortgage debt. Sources note that, to date, defaulted Deutsche Bank loans have cost the government more than $386 million.

Because of all these allegations, the Justice Department is reportedly suing the bank for $1 billion, an amount that represents the dollar amount lost plus individual penalties for each mortgage that went into default.

What Mortgage Lending Rules Were Broken?

The government’s lawsuit charges that Deutsche Bank and MortgageIT failed to follow the rules required of anyone interested in federal mortgage insurance. These rules require lenders to:

  • Annually verify various records of mortgage borrowers, including credit reports, incomes and record of employment. This measure is to make sure borrowers are not at risk of defaulting.
  • Examine any loan that goes into default shortly after being originated in an effort to prevent and eliminate careless lending techniques.
  • Act in the government’s best interest, because any money needed to guarantee loans that defaulted would come directly from taxpayers’ pockets.

The lawsuit claims that Deutsche Bank did none of these things and so is both on the hook for the money lost by the government and responsible for paying penalties for breaking the rules of engagement for obtaining federal insurance.

Some sources suggest that the Deutsche Bank lawsuit could be the first of many; after all, reckless lending techniques were fairly common during the housing boom that touched off the current recession.

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Posted in Home Foreclosure, Predatory Lending | No Comments »

Monday, May 9th, 2011

Study: More Drug Manufacturers Cutting Deals to Keep Prices High

The Federal Trade Commission announced this week that according to a recent study, there has been an increase in the number of drug companies engaging in pay-to-delay deals with generic drug producers.

The FTC has denounced the actions, and with good reason: medical costs are one major contributor to many personal bankruptcy filings of U.S. citizens. So how might these types of deals affect you and your family?

  • Background information: Once a drug company patents a certain drug, generic producers of drugs of similar chemical composition may file a challenge to the patent, with the goal of being able to produce a chemically similar (or identical) version to sell more cheaply.
  • How the deals work: If these challenges went to court, it’s possible that they would result in judges ruling in favor of the generic producers. In order to avoid that outcome (and thus secure the market for themselves for a longer period of time), some brand-name drug manufacturers settle out of court with generic drug producers.
  • Who makes money: Most settlements include an agreement that the generic manufacturer will not produce the generic version of the drug until a certain date; some settlements include a financial incentive from the brand-name manufacturer to lengthen the delay period (i.e. the brand-name manufacturer pays the generic manufacturer to delay its release of its cheaper product). The FTC found that in cases involving a payment, generic drug release waiting periods increased by an average of 17 months.
  • Who loses money: The FTC notes that in 2010, 22 name-brand drugs were targeted in pay-to-delay deals. The total number of such deals reportedly jumped from 19 in 2009 to 31 in 2010 (an increase of more than 60 percent).
  • What it costs us: The total dollar toll these deals have taken on Americans comes to $3.5 billion per year, according to FTC estimates. The difference comes from the fact that generic drugs can cost anywhere from 20 to 90 percent less than their name-brand counterparts. That’s a lot of money people could be putting toward paying down mortgages or credit card debt.

Are Generic Drug-Delay Deals Legal?

Anyone familiar with antitrust laws may wonder whether deals to delay competitive drugs are even legal in the U.S. The answer is a little murky. It seems that the FTC has filed a number of lawsuits against pay-to-delay agreements and has demonstrated its support of bills in Congress designed to eliminate such activity among drug manufacturers.

How can you take action? While there may not be much you can do about the problem of pay-for-delay agreements, if you’re worried about paying your medical bills, you can (and should) ask your physician whether generic versions are available any time you need medicine.

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Posted in Finance 101: Secure Your Future, The Law and Your Money | 1 Comment »

Tuesday, April 5th, 2011

Debt Collectors & New Media: What Rules Apply?

Debt collectors using new media to contact debtors, raising an issue that Consumer Financial Protection Bureau head Elizabeth Warren has indicated should be a top priority for lawmakers and attorneys general in every state.

A recent post from WalletPop.com highlights the issue, which has become more prominent and consumers - and marketers - embrace the latest technology.

Here’s a look at why this issue needs attention and how it might affect you.

Debt Collection Rules

Thanks to the Fair Debt Collection Practices Act, originally passed in 1978, debt collectors have to follow certain rules when contacting consumers about debts they owe. Generally, these rules are designed to make sure debtors are treated respectfully.

But new communication devices and debt collection practices have raised questions about what should be legal. For example:

  • Pre-recorded messages: Many debt collectors have apparently begun leaving pre-recorded messages on voicemail accounts or home answering machines. While these messages have “disclaimers” that indicate a listener should hang up if the name in question is not their own, it’s easy to ignore that instruction and learn about another person’s debt (information that should be private, according to the FDCPA).
  • Facebook messages: Some debt collectors have reportedly contacted debtors and their friends and families over social networking sites, which is not explicitly prohibited by the FDCPA (because Facebook wasn’t around when it was made law), but which many insiders argue should be considered “embarrassing media.”
  • Text messages and cell phone calls: Other debt collectors are apparently using cell phone contact to reach debtors, a method that has raised the question of usage fees. Regulators are asking whether there should be restrictions on contact that debtors must pay for by the unit.

Proposed Regulations in Some States

As of now, a few states have begun to take action to regulate the new media debt collectors have been using. The Attorney General of New Mexico has reportedly announced that debt collectors must disclose to debtors the expiration dates for debts (that is, when collectors are legally prohibited from attempting to collect them).

In Massachusetts, Attorney General Martha Coakley has released a statement introducing proposed changes to that state’s debt collection rules, which would include:

  • Extension of collection rules to apply to new media, including online, text and recorded messages;
  • Amendment of the definition of a “household” to take into account use of cell phones and email addresses;
  • Extension of rules for primary debt collectors to apply to so-called passive debt collectors (who often buy expired debts cheaply and aggressively attempt to collect on them); and
  • Requirement for debt collectors to make a good faith attempt to determine whether a debt is too old to be legally collected.

Even if you don’t live in New Mexico or Massachusetts, you could see changes to debt collection laws and practices where you live in the near future. And, if you suspect that a debt collector has broken existing rules in attempting to contact you, don’t hesitate to contact a lawyer to learn more about your rights.

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Posted in The Law and Your Money | 1 Comment »

Monday, March 28th, 2011

The Latest on Debt Collection Laws & Rules

As you may already know, consumers in the United States are protected by a number of consumer protection laws designed to make sure merchants and service providers do not take more than a reasonable amount of consumers’ money.

One consumer protection law, the Fair Debt Collection Practices Act, outlines how debt collectors are permitted to do their job and puts certain restrictions on them. Each year, the Federal Trade Commission issues a report on the state of various consumer protection laws and its recommendations for modifications and changes in rules and enforcement.

Here’s a look at what the FTC had to say about 2010.

Debt Collection Complaints in 2010

Last year, consumer debt collection complaints topped the list, at 140,036 individual filings (an increase from 119,609 in 2009). Specifically, people identified these debt collection issues:

  • Repeated or continuous phone calls: Debt collectors are explicitly restricted from calling debtors repeatedly or with the intent to harass or annoy. Further, the FDCPA mandates that debt collectors can call only between the hours of 8 am and 9 pm local time.
  • Misrepresentation of a debt: Consumer complaints cited debt collectors who misrepresented the character, amount or status of debts owed, and in some cases demanded payments in amounts greater than those permitted by law. All such actions are prohibited by the FDCPA: debt collectors cannot lie about any aspect of a debt or about their legal authority to collect it.
  • Failure to provide adequate written documentation: The FDCPA requires that debt collectors send debtors written documents outlining the specifics of a debt and detailing the consumer’s rights regarding the debt and its collection. According to consumer complaints, though, many debt collectors are not adhering to these requirements.

Changes to Enforcement and Consumer Protection

Thanks to the implementation of the Consumer Protection Act in 2010, a new consumer rights bureau (the Consumer Financial Protection Bureau) will have authority to create and enforce (with help from the FTC) rules governing how debt collectors must operate. In future years, reports about the status of the FDCPA will be developed and issued by the new consumer protection bureau.

How to Take Action against Dishonest Debt Collectors

So what can you do if you’re plagued by debt collectors who don’t play by the rules? Take the following steps.

  • Learn your rights: Check out a summary of the rules debt collectors must follow so you know when your rights have been violated.
  • File a complaint: Visit the FTC’s complaint page to file a complaint electronically.
  • Get legal help: If a debt collector is harassing you during or after a bankruptcy filing (especially for a debt that was discharged in bankruptcy), you may want to enlist a lawyer to help.

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Posted in Predatory Lending, The Law and Your Money | 2 Comments »

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