West Virginia Attorney General Darrell McGraw

West Virginia Attorney General Darrell McGraw is at it again… in a good way. McGraw has been on a mission to shut down payday lenders and their collection agencies that operate in his state. McGraw’s office began their crackdown on the internet payday lending industry in 2005.

Since then, McGraw’s office has successfully concluded 75 investigations of Internet payday lenders and their collection agencies, which have netted a total of $1,784,772.82 in cash refunds and cancelled debts for 6,612 West Virginia consumers.

Now, McGraw has sued not only 7 online payday lenders, but also 5 of their accomplice collection agencies. The really great thing about this is that McGraw is not just going after the lenders, but also their collection agencies.

The problem with online payday loans is that they are illegal in many states (and some are illegal in all states, as they operate offshore), yet they are using legitimate, licensed U.S. collection agencies to do their dirty work.

Read the rest of this entry »

Alabama State Flag

Alabama collection lawsuits are up almost 4 times according to court documents for the U.S. District Court for North Alabama. Many of these cases are related to collection agencies collecting from the wrong person, and certain companies seem to have a very high rate of suits.

Unifund tops the list with 26 suits filed in the last 12 months in North Alabama alone. Behind them is California’s Midland Credit Management with 22 suits in the last year. Here is an excerpt from the article in the Birmingham News:

California-based collection agent Midland Credit Management was sued by a woman living in Limestone County.

The problem? The woman was getting regular phone calls from Midland Credit’s bill collectors. Among the messages left by the collectors, according to the suit: “Trash like you need to pay your bills and stop ignoring them.”

The real problem was that the woman didn’t owe $1,492 to a furniture dealer for a debt allegedly incurred in 2003. Midland Credit Management was never able to substantiate the debt with receipts or signed credit agreements or other documentation, despite repeated requests, the suit said.

A spokesman for Midland Credit’s parent company, San Diego-based Encore Capital Group, said the corporation doesn’t comment on collections lawsuits. The case, like many, was settled under confidential terms.

Of course it was settled under “confidential terms.” That’s the standard method of operation for many of these collection agencies. Consistently and systematically break the collection laws that are there to protect consumers and settle any lawsuits that come up as fast and quietly as possible. Then, the lawyers representing consumers get 75% of the settlement money. Unethical collection agencies just view these lawsuits as a cost of doing business. Until there is greater enforcement from state agencies or the FTC, consumers will continue to suffer from collection harassment, while lawyers and collection agencies reap the profits.

**Read the full Birmingham News Story**

Charles Schumer, US Senator from New York

Earlier this month, we posted on the New York Times article regarding agencies that collect on dead people’s debt.

Well, it appears that US Senator Charles Schumer from New York has read the article as well (or maybe he heard about it here?) and has called for a Federal Investigation into collecting on dead people.

It is probably unlikely that there will be an actual investigation or that anything will come of this, but we can always hope. Either way, it is certainly positive to see the respected US Senator shine some light on this despicable practice but bottom-feeding collection agencies.

In a letter to Federal Trade Commission Chairman Jon Leibowitz, Schumer writes:

I am dismayed to learn from recent media reports that some debt collection companies have made it a practice to attempt to collect unpaid credit card balances – and perhaps other types of unsecured debts – from the families of the deceased…

I find it shocking that a debt collection company would determine that it is worth causing profound anguish and embarrassment in order to collect debts that are sometimes as low as $50, or which result in a payment of $15 a month from a widow or widower who is struggling to make ends meet. If a debt is large enough to be worth collecting, there are legal ways to obtain payment.

First, if a surviving family member has also signed for the card, that family member will be obligated to pay the debt. Second, an unsecured creditor such as a credit card issuer can obtain payment from the estate of the deceased through a routine probate proceeding, after the holders of secured debt – such as mortgagors– are paid. This practice of harassing living family members for upfront payments results in putting credit card issuers in the front of the line to get money from an estate, rather than after those who hold secured debt.

Given that the FTC receives more complaints about debt collection companies than any other American business, I hope and expect that you will be thorough in your investigation of this matter.

I could not have said it better myself Senator Schumer.

We’ll keep you updated if there are any developments on this issue.

**Complete press release and letter to FTC Chairman Leibowitz**

While the IRS has stopped working with private collectors, many local District Attorney’s offices have not. A company called American Corrective Counseling Services provides for-profit services to local District Attorney’s offices, including Los Angeles County. The company sends out letters on District Attorney’s letterhead threatening prosecution and jail time for writing bad checks, even though there is little chance that the District Attorney’s will ever follow through with any action. They also charge hundreds of dollars in fees and share a portion of them with the DA’s offices they contract with.

Now if a private debt collector makes threats that they do not intend to or have the means to follow through on, they are in violation of the Fair Debt Collections Practices Act or FDCPA and can pay hefty fines. However, apparently those rules don’t apply to District Attorney’s and ACCS, since they joined together to convince House Rep. Barney Frank to support exempting them from FDCPA in 2006.

This certainly seems like a double standard and could really be an issue with loans secured by a check, namely payday loans. DA’s and ACCS could be inadvertently helping payday loan collectors falsely threaten prosecution against consumers who simply defaulted on a high interest, unsecured loan.

Press Release
March 13, 2009

West Virginia Attorney General Darrell McGraw today announced that his office has entered into a settlement agreement with Brady and Caruso which will provide $9287.87 in refunds and $282,953.84 in debt cancellation for approximately 174 West Virginia consumers. Brady and Caruso, LLC, doing business as Brady, Caruso, and Associates, LLC, is a Nevada limited liability corporation that collects debts from its headquarters in Amherst, New York.

The Attorney General’s investigation was prompted by a complaint that a consumer received a collection call from Brady and Caruso but was not able to dispute the debt or determine whether she owed it because the collector could not verify the debt that she allegedly owed. Under federal law, debt collectors are required to send consumers a written notice within five days of their initial contact. The notice is required to provide the amount of the debt and the name of the creditor to whom the debt is owed. The consumer has 30 days from the date of this notice to dispute the debt in writing. If the consumer disputes the debt, the debt collector is required to provide verification of the debt, including the name of the original creditor, or a copy of the judgment. If the collector cannot provide such verification, it must stop all collection efforts. The Attorney General’s investigation of Brady and Caruso also revealed that it was not registered or bonded to collect debts in West Virginia.

The consumer also complained that the debt collector threatened to place a lien against her property if she did not pay the debt. Under West Virginia law, liens may not be placed against property unless the creditor first sues the debtor and obtains a judgment in court. West Virginia law prohibits the use of threats and coercion in debt collection and explicitly prohibits threatening that nonpayment will result in the taking of any action that requires a court order if the collector does not tell the consumer that it must obtain a court order before such action can be taken.

Under the terms of the settlement, Brady and Caruso will close all the West Virginia accounts, write those accounts down to a zero balance, take the necessary steps to delete any negative credit reporting in connection with those accounts, and refund any amounts paid on the accounts. The settlement also requires the collector not to resell the accounts. Consumers who are covered by this settlement will receive letters confirming the amount of debt cancellation and refunding any payments they made.

In a very disturbing case, the 7th Circuit has ruled in favor of debt buyers by upholding a lower court decision that MCM Capital Group did not violate the Fair Debt Collections Practices Act (FDCPA).   In Wahl vs. Midland Credit Management, the court decided that by referencing the total amount of debt purchased as the “principle” amount the debt buyer did not violate FDCPA’s requirement that interest and principle be itemized.

The basic story is that Ms. Wahl charged less than $70 to a BP credit card in the 80′s.  Due to a stroke, she was unable to pay the balance, so interest and fees started accruing at about $40 per month.  After Ms. Wahl’s $70 in gas debt had grown to $1,149 in debt, BP decided to sell the debt to a debt buyer.  The debt buyer then began adding it’s own interest, but reported the $1,149 as the “principle” balance and it’s own interest as the interest.

So, what the court affirmed is that if a debt buyer purchases the debt, they are under no obligation to provide the consumer with any information on how a $70 debt turned into $1,149 and can in fact report that debt as the principle balance.

From the 7th Circuit Court’s Decision:

The starting or original amount owed, she would say, was what she actually charged on the BP card. It follows that none of the interest, whether tacked on by BP or Midland, is part of the “principal balance.” And since Midland included the BP interest within the “principal balance” figure, it uttered a falsehood. But this logic ignores Midland’s role in the process entirely. The interest charged by BP was very much part of the principal balance in Midland’s eyes.
Midland obtained the entire BP debt,3 including interest, so the starting or original amount owed, as far as it was concerned, was indeed $1,149.09.

Regardless of the legal merits, this is certainly a very bad decision for the consumer or debtor.  Basically, a creditor can rack up all kinds of usurious fees and interest, in this case over $1000 for $70 borrowed, and then sell the balance to a debt buyer.  At that point, the debt buyer has no obligation to demonstrate how $70 turned into $1,149 and can refer to $1,149 as “principle.”

This sounds like a great decision for payday lenders operating illegally out of Costa Rica or Grenada, banks hiding behind “fees” to charge usurious rates and collection agencies that want to pursue old inflated debts.

PR: wait… I: wait… L: wait… LD: wait… I: wait… wait… Rank: wait… Traffic: wait… Price: wait… C: wait…

The IRS announced today that it will end its controversial, three year private collection experiment. The IRS had used three companies over the last three years to collect on back taxes that would otherwise be ignored by the government agency. IRS Commissioner Doug Shulman announced that the IRS would hire 1,000 new employees to fill the void created by private debt collection.

Read the FULL STORY HERE.