New York AG Cuomo Closes Collection Agencies

New York Attorney General Andrew Cuomo is continuing his crusade against rogue debt collectors. His office announced on Wednesday that they have launched a statewide inquiry into debt collection agencies.

In addition, they have obtained a court order against Lamont Cooper and his two debt collection companies, Emanee Development, Inc. and Dial Tech LLC, under which the companies will shut down and Cooper will be forced to pay restitution to consumers statewide.

According to Cuomo’s Office, Cooper’s collections companies unlawfully lied to consumers, threatened to arrest them, and intimidated them into paying debts that they sometimes did not even owe. They would often call third parties like neighbors or employers to further embarrass and harass consumers. Emanee and Dial Tech allegedly did business under the names of various shell companies and fictitious law firms across the state, including: Claims Process Services, Claims America, CMC Recovery Services, Lomax & Barnes and Murray, Bradshaw & Associates.

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The world’s largest collection agency, NCO Group, reported results for the full year and fourth quarter 2008 Wednesday. The results?

Horsham, Pennsylvania’s NCO Group, Inc. reported a net loss for the full year 2008 of $337.1 million. In the fourth quarter of 2008 alone, the company reported a net loss of $286.6 million.

Mike Barrist, NCO Group Chairman and CEO, said that the company had achieved its objectives for the 2008 calendar year. The company’s EBITDA (earnings before interest, taxes and depreciation) for 2008 was $95.5 million. “As we continue to navigate through 2009, we believe NCO is well positioned among its peers within each of its core markets to capitalize on all available opportunities,” said NCO CEO Mike Barrist.

NCO Group acquired OSI in early 2008 and that acquisition contributed to the record revenue of $1.51 billion in 2008. $1.22 billion of that revenue was generated by NCO’s Collection Agency business. The company noted in an SEC filing that 60 percent of the ARM unit’s revenues were generated “from the recovery of delinquent accounts receivable on a contingency fee basis.” NCO also stated in an SEC filing that they spent $126.5 million purchasing debt portfolios in 2008.

In addition to being the world’s largest debt collector, NCO is infamous for a 2004 FTC Lawsuit which it paid the largest civil fine ever for an FCRA case, $1.5 million.

Dateline NBC and Chris Hansen aired a segment on Friday night that highlighted the growing debt problem in the United States and focused specifically on debt collection agencies and their shady collection tactics.

Harvard Law Professor and Debt Expert Elizabeth Warren

This episode is a must see for anyone interested in debt and debt collection. So, if you had better things to do on Friday night than sit around and watch TV shows about debt collection, the complete episode in 6 segments is below with a summary of content of each section.

The first two sections feature profiles of debt and an interview with Harvard Law Professor Elizabeth Warren. Professor Warren says in this segment that credit card debt is a huge problem in the U.S. today and is destroying the middle class. She sites the “tricks and traps” that credit card companies use to lure consumers into debt: “Credit card companies have put the loan sharks out of business… [they] would make Tony Soprano blush.” Pretty strong words against the credit card industry, but Professor Warren has never been afraid to take credit card debt issues on head on.

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Dateline NBC's Chris Hanson

Debt Collectors will get the Dateline NBC treatment on Friday night, March 27th at 10pm Eastern and Pacific. Reporter Chris Hanson, most famous for his work exposing child predators on “To Catch a Predator,” will “expose dirty tactics used by some collection agencies.” According to NBC, hidden cameras will be involved, so this should be a really interesting show to watch on Friday night.

The episode of Dateline is titled “Debt in America and Its Collectors” and is part of a series called “Inside the Financial Fiasco.” Collection agencies abusing consumers is a serious issue in our country and it is great to see Dateline NBC and Chris Hanson tackling this issue with their trademark style.

However, everyone is not so excited. Without even having seen anything but the preview (below), Patrick Lunsford of InsideARM is lamenting the fact that it will be unfair and biased, with this from his article on the show:

To pre-suppose that the show will be an unfair view of the ARM industry is a bit beyond us at this point. I seriously can’t imagine what manner of awfulness will be foisted upon the public in this segment. I guess that we should withhold judgment until the piece airs, but I can’t see a piece that touts itself as a hidden camera expose of the ARM industry being even-sided.

While it’s always great to see “foisted” used in an article, I’m not sure how Patrick already knows the show will be so unfair? Maybe, it’s because Patrick, as an InsideARM expert, is well aware that there are a lot of debt collectors out there breaking the law every day, and if Chris Hanson is on the case, he’s bound to expose a number of them on national TV Friday night. Even better than Patrick’s “warning” to fellow debt collectors are the comments below the post. Apparently it’s not required to take an economics class to be a debt collector.

Tune in on Friday night or check back here on Saturday for an update on the episode.

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.

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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**

New Jersey Debt Collectors Pressler & Pressler, LLP are under attack for their collection practices. A New Jersey consumer, Scott Mills, has exposed some of their tactics and publicizes their practices on his blog. His list of complaints against them is lengthy.

Well, it turns out Pressler & Pressler fought back and filed a claim against Scott Mills for libel. However, on Friday the judge dismissed the preliminary injunction motion in a victory for Mr. Mills.

To add insult to injury for Pressler, Scott’s website and his story were picked up by a Huffington Post blogger who wrote this article on Scott and his case.

Seems like a bad week for Pressler & Pressler. However, at least they’re not collecting on dead people! For more on their practices, see the video below:

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.