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Consumer Protection Against Creditors

Deceptive and Abusive Credit Practices Targeted by State Governors

While most of the laws governing credit transactions, debt collection, credit reporting and the like are federal laws and enforced by federal agencies, many states have supplemental statutes of their own.

In some cases, those state statutes extend greater protections to consumers than do the comparable federal statutes.

Below you'll find information about recent actions by state governmental agencies against companies those agencies say violate consumer protection statutes to enhance their own profits at the expense of consumers.

Bass Prelitigation Services Sued by the Florida Attorney General's Office

The attorney general's Economic Crimes Division received many complaints from the Better Business Bureau claiming Bass Prelitigation Services used aggressive and illegal tactics to collect debts owed from its customers. Owners Frank and Evelyn Jackson and their company, Jackson Phillips & Associates are also named in the suit that cites violations of the Florida Deceptive and Unfair Trade Practices Act and the Florida Consumer Collections Practices Act as well as the Federal Fair Debt Collections Practices Act.

Employees of both companies were reported as impersonating attorneys and state investigators. At the same time, the employees used abusive methods and attempted to collect fees greater than the original debts.

Attorney General Bill McCollum requested the court require the company cease operations and discontinue all future operations in Florida. Additionally, the complaint seeks restitution for the victims and penalties of $1.2 million.

Minnesota Health Systems Settles Abusive Debt-Collection Practices Lawsuit

A class-action lawsuit filed against Fairview and Allina Minnesota health systems was settled last week. The not-for-profit hospitals will provide discounts on unpaid medical bills or offer vouchers for future medical care for uninsured patients. The lawsuit was filed against the hospitals in 2005 for improper debt collection practices. It alleges the group billed uninsured patients at higher rates than the prices it negotiated with insurance companies. The settlement states that up to 200,000 patients may be eligible for the settlement benefits. The settlement covers patients treated between February 1999 and April 2005. This lawsuit was filed just a few months before the Minnesota State Attorney General reached agreements with other hospital systems to provide price breaks to uninsured patients.

New York City Fighting Unscrupulous Debt Collectors

The Department of Consumer Affairs canceled around $800,000 in debts owed by consumers to certain collectors. The debts that were canceled were claims not backed up by any proof. The officials want to send the message that unfair debt collection tactics will not be tolerated in New York City.

West Virginia Payday Loan Company Agrees to Discontinue Illegal Debt Collection

Advance America and affiliates agreed to a settlement with the West Virginia Attorney General's office. Complaints against Advance America ranged from coercive payment collection techniques involving threats of criminal charges to calling third parties and making in person visits to consumer's homes. Since payday lending is not actually allowed in West Virginia, the branch offices are operated in surrounding states such as Kentucky, Pennsylvania and Virginia.

The payday lender agreed to immediately stop engaging in these types illegal collection practices. The Attorney General Darrell McGraw is satisfied with the agreement and expects Advance America to now comply with its own policies and procedures that are in place to insure compliance with West Virginia law.

Deceptive Credit Card Offer and Abusive Collection Practices Halted by Texas Attorney General

In 2004, the Texas Attorney General filed suit claiming Cross Country Bank and Applied Card Systems, now known as Applied Card Bank, used misleading advertising, charged hidden fees and used abusive debt collection tactics.

The Attorney General argued the companies preyed on consumers with bad credit and told them this card would improve their credit history. Initially, consumers were offered a $2500 credit line from Cross Country Bank. Instead their first bill only showed a line of $350 but some consumers had already charged more than this amount. The bills also included $150 start-up fee and other hidden charges.

These additional fees actually made some of the cardholders unable to pay their bills. Along came the affiliated company Applied Card Systems to start the collection effort that sometimes included threatening or obscene phone calls. These types of collection methods are illegal under Texas Finance Code, Chapter 392.301 which states: "In debt collection, a debt collector may not use threats, coercion, or attempts to coerce..." and it goes on to list specifically prohibited types of threats.

The suit is settled now and Applied Card Bank has agreed to pay $1.3 million to Texas and also pay restitution to consumers who got a card between Jan 1, 2002 and July 30, 2004, went over the credit limit and only used the card for 17 days after the first billing. These consumers will receive a credit of all charges and fees. Consumers must submit a request for the refund by mid-April and can call 1 (800) 252-8011 to make the request.

Cross country Bank is also required to contact the major credit reporting agencies to correct any information previously reported by the bank negatively about each consumer eligible. The agreed final judgment also contains a permanent injunction in which the defendants must comply with the strict debt collection guidelines and no longer mislead consumers about the credit card terms in their advertising campaigns.

Debt Collector Investigated By Both the Illinois Attorney General and the Minnesota Department of Commerce

Illinois Attorney General Lisa Madigan filed a lawsuit against Arrow Financial Services, LLC of Niles, Illinois in January 2007. Arrow is accused of violating the Illinois Consumer Fraud and Deceptive Business Practices Act.

The specific charges brought by the Illinois Attorney General include the following:

• Attempting to collect debts previously discharged in bankruptcy
• Attempting to collect old debts past the statute of limitations
• Using abusive collection tactics
• Refusing to provide proof of debts to consumers

Madigan filed the action after reviewing complaints against the debt buyer by consumers. Since 1999, the Illinois Consumer Fraud Bureau recorded 669 consumer complaints against the company.

The Minnesota Department of Commerce also investigated Arrow and determined the company engaged in 15 violations of Minnesota law. The department published this partial list of the violations in a statement issued November 28, 2005:

• Withdrawing money electronically from a debtor's checking account without authorization and after two separate requests by the debtor to stop. Arrow also collected more money than the creditor had authorized.
• Continuing to contact debtors at their places of employment after receiving notification to stop. In one case, a debtor sent 5 letters (3 certified) and 3 emails that specifically stated that the debtor's employer prohibited phone calls at work. Arrow also falsely told a debtor that such requests had to be in writing.
• Disclosing a debtor's information to a third party - in this case, a co-worker at the debtor's place of employment was told about the debt and Arrow's attempt to collect.
• Failing to establish procedures when screening collector applicants prior to submitting to the commissioner for registration as required by law. In one case, Arrow submitted a debt collector registration to the department that included documentation that showed the applicant did not qualify for licensure due to a recent felony conviction. Arrow also allowed an unlicensed debt collector to contact a Minnesota debtor prior to receiving a debt collector license.
• Failing to respond to the department's request for information, failing to provide responses from individual debt collectors and failing to provide copies of the debtor work logs. Arrow failed to respond to initial contact letters and certified letters from the department requesting responses to several complaints in violation of Minnesota law.

In November 2005, the Minnesota Department of Commerce imposed a $125,000 civil penalty against Arrow and required the company prepare a strict compliance program to prevent employees from engaging in illegal debt collection activities in the future.

Abusive Debt Collection in New York

New York Attorney General Eliot Spitzer sought to stop the abusive debt collection practices of JBC & Associates, P.C., JBC Legal Group, P.C., Boyajian Law Offices P.C., and Jack H. Boyajian by filing a lawsuit against the companies. An investigation by Spitzer's office showed that the companies have been attempting to collect dishonored checks issued by consumers to retail merchants. Some of the retailers actually went out of business years ago.

Spitzer charges consumers have engaged in illegal practices including these cited in a press release from the Attorney General dated June 21, 2006:

• Repeatedly calling consumers to demand payment on debts that JBC refuses to verify as legitimate;
• Falsely representing the amount of the alleged debt and attempting to collect more than is allowed under state law. Specifically, numerous consumers complained that JBC demanded amounts such as "statutory fees" that, at times, doubled the alleged debt, together with threats to seek "appropriate relief before a court";
• Falsely threatening to file lawsuits when, in fact, the company commences lawsuits in far fewer than one percent of its case files and, for many debts, any such lawsuit is time-barred. New York State law provides a six-year statute of limitations for actions brought for the collection of dishonored checks;
• Falsely representing or implying that the dunning letters have been reviewed by and are from an attorney admitted to practice in New York State. Spitzer's investigation revealed that no attorney, let alone one admitted to practice in this state, is meaningfully involved in each case each time a letter is sent to collect an alleged debt;
• Falsely accusing debtors of criminal activity and making threats such as "putting a warrant out for arrest" or asking the consumer if he/she "looks good in stripes"; and
• Harassing consumers in other ways such as calling late at night, calling them at work, using abusive language, and contacting neighbors, relatives and employers about the debtor.

Spitzer's office is seeking a court order requiring these collection companies repay amounts collected greater than the legitimate debt all the New York consumers affected.

Illinois State Attorney General Charges Leading Edge Recovery Solutions for Unfair Debt Collection

Leading Edge Recovery Solutions, a national collection company based in Chicago, Illinois, collects debts for credit card and installment debt companies. Illinois Attorney General Lisa Madigan filed a lawsuit on Wednesday against the company accusing them of using intimidation and misrepresentations to persuade consumers to make payments.

Some of the debts Leading Edge was collecting were never owed by the consumer or were up to 20 years old. A statute of limitations prohibits debt collectors from pursuing older debts. The company is also charged with using abusive language and contacting consumers at their place of employment.

Low Income Customers Allegedly Targeted in California Refund Anticipation Loan Operation

In February 2006, California Attorney General Bill Lockyer filed a lawsuit against H&R Block for allegedly providing Refund Anticipation Loans (RALs). The lawsuit stated H&R was in violation of 15 state and federal laws for marketing the RALs to mainly low-income families. The lawsuit also charges H&R Block with participating in deceptive debt collection schemes under the guise of the RAL program. Some customers found themselves in collection proceedings when their refund application was denied.

Lockyear was quoted as saying, "Millions of Californians have placed their trust in H&R Block, and unfortunately H&R Block has repaid them by violating that trust. In marketing and selling these expensive loans, H&R Block has profited greatly, but deceived consumers, violated their privacy rights and taken money from California families who can least afford it. This lawsuit seeks to hold the company accountable for unlawful business practices, prevent future violations and compensate victims."

Jackson Hewitt, Inc. agreed to pay $4 million in consumer restitution and another $1 million in a settlement with the California Attorney General's office.

While the details of the case are complicated, the settlements will provide up to $30 per RAL purchased from 2001 to 2004. This amount is meant to provide restitution to the consumers who suffered from the debt collection scheme. Jackson Hewitt will also pay $500,000 in civil penalties and $500,000 for the Attorney General's investigation expenses.