Collection Agency v. The Widow

The Debt Collector vs. The Widow
Viola Sue Kell thought her Social Security
benefits were safe in the bank. She was wrong.
By ELLEN E. SCHULTZ
April 28, 2007; Page A1

http://online.wsj.com/article/SB1177…we_banner_left

Heart surgery halted Viola Sue Kell’s work sewing carpets in a rug mill in 2001. It was the end of 40 years of cleaning motel rooms, restaurant jobs, “just hard stuff,” says Mrs. Kell, a 64-year-old widow. She applied for Social Security disability, and her monthly $827 benefit now is her only income.

But when Mrs. Kell tried to pay her mortgage and electric bills in 2004, her checks bounced. Every cent of the Social Security check, which went straight to her bank each month, had been taken by a debt collector that had garnished her bank account.

Federal law says creditors can’t take Social Security and Veteran’s benefits to pay debts. (See the assignment online.) Yet the practice is widespread. There is no established process for enforcing the federal prohibition.

When banks receive a garnishment order, their standard response is to freeze the customer’s account. Banks say it’s not their job to check whether accounts contain cash from exempt sources. Collectors also don’t treat it as their job. So the burden falls on Social Security recipients, typically elderly or disabled, who have suddenly lost access to their bank accounts and have no idea what to do.

In 2003, a debt collector decided Mrs. Kell in Alabama owed $125 on a three-year-old hospital bill. It obtained a court judgment and sent a garnishment order to her bank. The bank froze her account, which contained $679, all from Social Security. “I was scared to death,” Mrs. Kell says. “I didn’t have any way of getting any money.”

At a loss, she looked in the yellow pages for a lawyer. “I’m not very good with things when it comes to law. My husband took care of all that,” she says. She found a legal-aid office 60 miles away from her rural home and drove over the mountain with her bank statements and Social Security papers.

What Mrs. Kell didn’t know was that account holders can file a claim with a debt collector to have any funds that came from Social Security or Veteran’s benefits exempted. But federal law doesn’t say who should tell them this. Even Social Security’s Web site doesn’t. (See the relevant item in Social Security’s FAQ page.)

“The Social Security Administration’s responsibility for protecting benefits from legal process ends when the beneficiary is paid,” said a spokeswoman. She said if benefits are taken “as part of a legal process,” beneficiaries can cite the exemption “as a defense against such actions.”
[Chart]

Legal Services Alabama helped Mrs. Kell file an exemption claim, and her bank, First Federal in Fort Payne, Ala., released her account. The bank said it had frozen it because it must comply with court orders. “It’s not a bank’s place to raise an exemption claim for a customer,” said a First Federal lawyer. “It would be overwhelming.”

The garnishment process can be rewarding for banks. When they restrain an account, they collect a range of fees — for imposing the freeze, for the resulting bounced checks, or for short-term loans to prevent bounced checks. If the account contains Social Security, banks commonly collect these fees and their loan repayment out of those exempt funds. Banks argue that the ban on collecting debts out of Social Security benefits doesn’t apply to them.

Worsening the problem, paradoxically, is direct deposit of benefit checks. This is meant to make benefits more secure. It means “you can rest assured your money is safe,” says the Social Security Web site. (See the Web site.) Direct deposit became mandatory in 1999 unless beneficiaries opt out, and more than 80% of recipients of regular Social Security use it, as do a majority of disability recipients.

But direct deposit has had an unintended result: an infrastructure that makes it cheaper and easier for collectors to pursue elderly or disabled subjects of old debts. These people can be hard for collectors to find, sometimes because they’ve moved to retirement areas. But debt collectors, knowing that millions of retirees are having money sent straight to banks, can electronically ask a large bank if a given individual has an account with the bank anywhere in the U.S. If a direct-deposit Social Security account turns up, the collector garnishes it.

Mrs. Kell decided to get her Social Security check by mail, and had to drive 12 miles to cash the check at a Wal-Mart and buy money orders to pay bills. (Later, after her lawyer spoke to the bank, she resumed direct deposit.) She gets food donations from First Baptist Church and free garden seeds from a Methodist group. “I’m pretty well fixed for food,” Mrs. Kell says. Once she’s done paying off her debts, she says, she hopes to save enough money to visit her husband’s grave in Georgia.
Two elderly people discuss how collectors took their Social Security money from bank accounts to pay debts, and an attorney says there’s a lack of protection for such vulnerable individuals.

While collectors can take many of the steps to garnish an account electronically, it’s up to seniors and the disabled to file physical papers to prove their benefits are exempt. As a practical matter, if they don’t get help from a lawyer, they may not know their funds are exempt. And depending on the state they live in, if they don’t claim an exemption in time — generally between 10 and 30 days — benefits that were garnished can be lost for good.

Dolores and Robert Weise moved to a mobile home in Hernando, Fla., from New Windsor, N.Y., three years ago, looking for a cheaper place to live. Robert, a 70-year-old former paper salesman, was fighting colon cancer, and the medical bills “put us down the drain,” says Mrs. Weise, 65. She opened an account at a Florida branch of Wachovia Corp., which received their Social Security by direct deposit.

In July 2005, Mrs. Weise tried to withdraw $20 at an ATM for chemotherapy co-payments. But her account was frozen. The bank had received a garnishment order.

Mrs. Weise didn’t know Social Security was exempt and the bank didn’t tell her, according to an account from her that is supported by correspondence among Mrs. Weise, the bank and the debt collector. The bank told her to take up the matter with the collector, a New York firm called Mel Harris & Associates.

The collector also didn’t tell her funds were exempt, according to Mrs. Weise. But she says it told her that if she authorized her bank to wire it $3,109 for an old credit-card debt, Harris would lift the garnishment order.

Collectors obtain such orders by suing debtors, usually in small-claims court. These clogged courts issue the orders routinely if the named debtor doesn’t show up or fight the request, for any reason. Sometimes, the reason is that a summons was sent to an old address. In the Weises’ case, the garnishment order shows the summons was sent to an outdated address in New York state.

At her bank, Mrs. Weise says, “I was on my knees. It was like our last dollar. I didn’t even have money to buy gas to get home.” Distraught, she authorized the bank to send Mel Harris the money. The bank then unfroze her remaining funds, minus a $108 processing fee.

Mel Harris declined to comment. Wachovia said it couldn’t comment on a customer because of privacy rules but is “committed to protecting the safety of our customers’ funds while complying with state and federal law.” It said state codes provide instructions for customers to claim their exemptions. “We are required to honor valid garnishment orders and are simply following the rules and regulations set forth in federal and state laws,” said a bank spokesman.

However, the garnishment order for the Weises’ account stated: “Funds defined as ‘exempt’ or otherwise excluded under applicable law must not be restrained under this notice.” The Wachovia spokesman said banks “are not in a position to determine the character of funds at any given point in the account.”

Garnishment orders often originate with big debt buyers that acquire large portfolios of old debts written off by credit-card firms, retailers and so forth. In the Weises’ case, a debt buyer had purchased a batch of old credit-card debts and hired Mel Harris to try to collect them. Debt buyers and collectors obtain millions of garnishment orders each year.

A trade group representing debt buyers said they have “a positive role in the economy, returning to creditors a portion of their investment, which benefits consumers in the form of more credit and lower interest rates.” Barbara Sinsley, general counsel of the group, DBA International, added: “It isn’t the intention of debt buyers to garnish exempt funds.”
BANKS COLLECT TOO

As James Cain found out, banks are tapping into Social Security funds too. But the banks’ rationale is that they just “offset” money owed them — they aren’t really collecting debts.

Legal-aid offices say they often get calls from frantic seniors wrestling with collectors who’ve frozen their Social Security money and won’t let go. The offices say some collectors appear to automatically deny exemption claims and drag out the process until the oldsters give up or die.

Cloette Rice, 79, faced possible eviction from her nursing home in late 2002 after a collector garnished her bank account three times, seeking repayment of a department-store debt incurred before she had a stroke. A social worker at Ebenezer Ridges Care Center in Burnsville, Minn., repeatedly wheeled Ms. Rice to her office and put her on the speakerphone to the bank, collectors or Social Security. “She was just so completely stressed out about it,” says the social worker, Kimberly Worrall.

A legal-aid lawyer filed repeated exemption claims over nine months with the collector, a law firm in Plymouth, Minn., called Messerli & Kramer P.C. The law firm said on more than one occasion that it hadn’t received the paper work. It denied the exemption.

At a resulting court hearing, a judge, after a three-month delay, agreed Ms. Rice’s funds were exempt and ordered Messerli & Kramer to return $1,472 and pay Ms. Rice $100 for disregarding her claims in bad faith. The law firm did so. But two days later, it filed a garnishment order again — the fifth time it had done so.

“Mrs. Rice said this caused her more stress than having her stroke,” said Kathleen Eveslage, of Southern Minnesota Regional Legal Services. “They basically made her last days hell.” In November 2003, she died.

About a year later, Minnesota’s attorney general sued Messerli & Kramer, alleging that it repeatedly garnishes accounts containing exempt funds and unlawfully denies exemption claims. Messerli & Kramer said it can’t comment during the suit, pending in Dakota County district court. (See Minnesota’s suit, and Messerli’s response.)

“These people keep garnishing because they know many will just walk away, especially these poor little old ladies, who need their dollars when they get them,” said another target of Messerli & Kramer, Thomas Bender. An 84-year-old disabled veteran of two wars, he uses a walker and a wheelchair, disabilities due partly to a back injury incurred while flying dive-bombing missions in Korea.

For a time, he once collected debts himself, for a credit union. Yet even he didn’t know how to protect his Social Security. After his home-based travel-agent business folded in 2001, the Richfield, Minn., widower fell behind on car payments to Ford Motor Credit Co. He surrendered the car, but the creditor turned the remaining debt over to Messerli & Kramer, which demanded he pay a balance of $5,757.

Mr. Bender offered to work out a repayment plan, but the collector got a default judgment against him and garnished his credit-union account, which contained his Social Security and his Veteran’s benefits.

He sent an exemption claim, attaching a letter from the Social Security Administration. Messerli & Kramer rejected the claim, saying he had “failed to provide sufficient proof that the funds withheld are exempt.”

New Scam To Be Aware Of . . .

There’s an especially clever credit card scam making the rounds.

The scammer calls and says, “This is so-and-so from the fraud department at Visa (or MasterCard). My badge number is 12460 (or whatever number they make up). Your card has been flagged for an unusual purchase pattern, and I’m calling to verify. This would be for your Visa card issued by (name of bank).

“Did you purchase an anti-telemarketing device for $479.99 from a marketing company based in Arizona?” the scammer asks. Of course, you reply “no,” and the caller says OK, they will have to issue a credit.

The scammer continues: “This is a company we have been watching, and the charges generally range from $297 to $497, just under the $500 purchase pattern that flags most cards. Before your next statement, the credit will be sent to (and here he says your address). Is that address correct?” You say yes, that’s your address. (The scammer already has your card number and address — but what he wants is the security code on the back of your card.)

The scammer continues by telling you he’s starting a fraud investigation. “If you have any questions, you should call the 1-800 number listed on the back of your card (1-800-VISA) and ask for the security department.” He gives you a six-digit “control number” for your case.

And now, the important part: The caller then says, “I need to verify that you are in possession of your card.” He asks you to turn your card over and look for some numbers. (There are seven numbers; the first four are part of your card number, and the next three are the security numbers that verify you are the possessor of the card. These are the numbers you sometimes have to use to make online purchases.)

He asks you to read the three numbers to him. After you do, he replies, “That is correct; I just needed to verify that the card has not been lost or stolen. Do you have any questions?” After you say “no,” the scammer thanks you and hangs up.

You’ve said very little, and the guy never asked you for your credit card number.

If you get a call like this, hang up, call your credit card company and file a police report.

One Billion Pledged to Stave Off Foreclosures

  

By Dina ElBoghdady and Nell Henderson

Washington Post Staff Writers
Thursday, April 12, 2007; Page D01

Neighborhood Assistance Corporation of America, an 18-year-old housing advocacy group, yesterday announced it would commit $1 billion to refinancing the loans of lower-income people at risk of losing their homes.

The financing will come from CitiGroup and Bank of America, which have been lending money for years to borrowers screened by the nonprofit group. NACA, of Boston, said it had helped put 50,000 people in homes since its creation.

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“If we put people in the front door and they’re being forced out the back door, then we’re not stabilizing neighborhoods, which is part of our mission,” said Bruce Marks, the group’s chief executive.

The announcement comes as lawmakers, lenders and others with a stake in the housing sector scramble to stave off a wave of foreclosures. Foreclosures and delinquencies are rising largely because of problems in the subprime segment of the mortgage market, which caters to people with blemished credit records, little money for a down payment or other factors that put them at greater risk of default.

In recent weeks, minority advocacy groups, which say their constituencies have been hit hardest by the crisis, have called for a six-month moratorium on foreclosures. Lawmakers have vowed to take action to ameliorate the housing problems but haven’t offered details. And lenders, eager to avoid foreclosures, say they have modified loans for some troubled homeowners, with mixed success.

“The great balancing act is to make sure we preserve homeownership opportunities while at the same time not delaying the inevitable,” said Larry B. Litton Jr., chief executive of Litton Loan Servicing.

Whether any of these measures will forestall a national housing disaster, with many people being forced out of their homes, has yet to be seen. But as the 2008 presidential election approaches, the pressure is on to make progress.

Mark Zandi, chief economist at Moody’s Economy.com, recently culled data collected by Equifax, one of the nation’s major credit bureaus. He found that 2.87 percent of residential mortgages were at least 30 days delinquent as of the last week of March. That’s the highest rate since the two companies began collecting the data in 2000. The Mortgage Bankers Association has found the rate is considerably higher for subprime loans, exceeding 13 percent in the most recent survey.

In recent years, with the housing market booming, subprime loans grew rapidly as many people rushed to buy homes anyway they could. But many of them are now having trouble making the payments, and the softening market has meant they cannot easily sell their homes or refinance their loans.

Experts advise borrowers who have trouble meeting their payments to contact their lenders immediately to work out a plan. Lenders say they have a financial interest in cutting a deal because the alternative, foreclosing on homes, is costly to them and their investors.

A report released yesterday by Congress’s Joint Economic Committee said that each home foreclosure imposes an average $78,000 in costs on homeowners, lenders and local communities.

The effects are compounded as foreclosures multiply in some neighborhoods, dragging down property values and slashing local government revenues through unpaid property taxes, utility bills and other fees, the report said.

Foreclosures also add to the inventory of homes, further softening real estate values in areas already suffering from an oversupply. As values drop, more borrowers get in trouble.

Sen. Charles E. Schumer (D-N.Y.), the committee’s chairman, plans to propose legislation that would provide “hundreds of millions of dollars, maybe more,” in federal money to help borrowers avoid foreclosure by refinancing mortgages they cannot afford.

That money should reach borrowers primarily through community nonprofit groups that are already helping homeowners refinance burdensome mortgages, Schumer said. But he has not worked out the details of whether banks and other groups would be conduits for the aid or where the money would come from. Schumer has said it might come from a federal appropriation or perhaps the Federal Housing Administration or mortgage financiers Fannie Mae and Freddie Mac.

NACA, the housing advocacy group, applauded the proposal, saying it has a better track record of keeping people in their homes than subprime lenders, whom it characterized as predators that mislead borrowers into taking on loans they cannot repay.

NACA requires that people who ask for its help attend intensive housing counseling workshops. It also assesses the person’s ability to own and maintain a home. It then helps the person obtain a mortgage with one of its partner lending institutions, the biggest ones being CitiGroup and Bank of America.

In 2003, Citigroup made available $3 billion in mortgage loans to NACA through 2013. Bank of America, which has worked with NACA since 1995, committed at least $6 billion through 2015.

The group traditionally found the money was best used to finance new home loans for low- and moderate-income buyers. But with the mortgage crisis unfolding, it decided that $1 billion should be used to refinance the loans of people preyed upon by abusive lenders. The group expects to refinance about 7,000 mortgages — a small number, given estimates that more than 1 million homeowners nationwide could be at risk of foreclosure.

Lenders and other companies that manage mortgages say they’re trying to do their part to remedy the foreclosure mess. They say their hands are sometimes tied because many mortgages have been packaged into huge bonds and sold to investors, so that the terms are not easily altered.

But rules on that have been relaxed a bit, which has allowed EMC Mortgage, a Texas subsidiary of Bear Stearns, to create a 50-person “mod squad” to work with troubled borrowers to modify their loans, sometimes by reducing the interest rate.

Litton Loan Servicing said it too is modifying a record number of loans.

Litton’s chief executive said his company modifies about a thousand loans a month versus about 200 a year ago. About one in three of those loans ultimately fails, but the tradeoff is worth it, he said.

“If we foreclose, we lose 50 cents on the dollar generally, and the cost to restructure the debt is typically a heck of a lot lower than that,” Litton said. “That’s our motivation.”

Asset Acceptance Reveals Costs . . .

Collection Agency Asset Acceptance Reveals How Much They’re Paying For Charged-Off Debts

Published March 1st, 2007 in Debt Buyers. Tags: No Tags.

Collection agency and debt buyer Asset Acceptance Capital Corp. has said it will close two of its offices: one in Michigan and one in Maryland. This comes on the heels of their most recent earnings report.

The company increased their investments in purchased receivables by 33.9 percent for the full year 2006 from 2005 levels, and saw revenues increase 14.3 percent. But the interesting point is that during the fourth quarter of 2006, the Company invested a record $62.2 million to purchase charged-off consumer debt portfolios with a face value of $2.5 billion, which means that Asset Acceptance is buying debt at 2.46 cents on the dollar.

Bud Hibbs Take on Debt Purchasers

Debt Buyers in Trouble?

Since late 2006, it has become abundantly clear the debt buying industry, aka bottom feeders, appears to be in early stages of decline.  The changes going on in the debt collection industry seem to indicate the market is saturated with too many players, while the amount of paper (portfolios) available have shrunk to an all time low. The results of this trend are already beginning to negatively affect the industry. 

In 2005 and 2006, we witnessed a steady growth of those getting into the debt collection industry. Anyone with a few dollars, or who could borrow money, found it easy to set up shop with the dreams of instant wealth. In areas such as Buffalo, NY, attorneys like Terrance D. McKelvey succumbed to the dreams of renting out their law licenses in return for a commission earned by collectors who could threaten legal actions on behalf of a ‘law firm’ to consumers. McKelvey, like most others, found himself in far away places, such as Birmingham, Alabama defending the FDCPA violations these debt collectors brought down on him, which cost him a lot more than he bargained for. Yet others in WNY still hold out for that elusive paycheck, convinced history won’t repeat itself, at least not in their case.

In Huntington Beach, CA, Shekinah, another of the more egregious organizations appears to be hanging by a thread. Most of the experienced collectors have jumped ship, realizing they are in deep water. They changed the name to Capital Recovery Services (CRS) in an attempt to secure more portfolios. Owner Cecilia Trent is reportedly deep in debt and facing numerous legal actions (including tax liens) whilst attempting to steer this sinking ship out of deep waters. SHEKINAH’S name and reputation have drawn the ire of consumer lawyers from across the nation who hold them accountable for their illegal debt collection practices.

Another CA debt collector that is barely a shadow of his former self is Marauder Corp/aka CPS Investigations. Owner, Ryon A. Gambill, apparently never learned what an out of control ego can do to you and how it affects his business. Gambill barely registers a pulse anymore in an industry where he once thought himself a pit bull. His outlandish rants, claims, criminal abuse of consumers and the system caught up with him in a fury of lawsuits and judgments that will forever follow him as one of the worst debt collectors in America.

The movie Maxed Out (see: www.maxedoutmovie.com ) made its debut in March, 2007 to rave reviews from across the country. Consumer groups such as NACA, (the National Association of Consumer Advocates) and the National Consumer Law Center (NCLC) have endorsed this documentary as the film anyone with a credit card should see. Maxed Out was made available to both houses of Congress, leading to several big credit card executives testifying on Capitol Hill. Their statements and the attitude of consumers has our elected officials listening.  Senator Carl Levin of Michigan is taking steps toward further actions about the credit card industry. Check out the movie which is now in wide release.  It will be available from Net Flix on June 5^th. The companion book is now available from Amazon.com.

Network news has also jumped on the subject; we worked with NBC and ABC News on stories they broadcast about credit card abuse of consumers. An NBC affiliate invited me to appear on a five part story detailing not only the credit card industry, but the illegal lengths debt collectors will go to in collecting on debts. One show we were involved in broadcast a tape recording of a debt collector threatening to kill a debtor over a debt.

Debt buyers used to pay an average of 2 to 3 cents on the dollar for portfolios of accounts being sold by creditors. That price had stayed steady until the fourth quarter of 2006, when it began to rise. I compare debt buying now much the same as a barrel of oil. Like crude, the portfolios are now subject more to the whims of the market, losing the stability it once enjoyed. At the Debt Buyers Association (DBA) conference held in Las Vegas in February, the biggest complaint from those seeking to purchase debts was the shortage of available portfolios and the declining quality of the paper made available. One owner of a mid sized agency told me that not only was there a shortage of paper. but the quality of the portfolios offered was grossly misrepresented. He found accounts were much older and of lesser quality than the sellers indicated.

One organization suffering from this shortage is AFNI, Inc. of Bloomington, IL fka/Anderson Financial Network. They are collecting on a large portfolio of old telephone accounts from such deceased names as GTE, Sprint and others from the mid 1990’s. This distressed collection of old, mostly worthless and out of statues debts usually precedes a massive layoff of employees under the excuse they are cutting back to meet the slowing market conditions. AFNI is not alone, NCO, the biggest in the nation is also working very old portfolios while scrambling to find more paper. In the past week we have seen debt buyers paying more than 7 cents on the dollar and expect this will increase greatly in the next quarter.

A major reason for the shortage of portfolios is that consumers are changing their relationships with credit card issuers. When the Office of the Comptroller of the Currency (OCC) mandated that minimum payments would double at the first of the year and the lobbyist driven Bankruptcy Reform Act passed in October, consumers decided to tighten their belts and adjust their spending habits. This has resulted in a decline of defaults on credit cards, which coupled with the proliferation of the debt buying industry in 2005 and 2006, has created a severe shortage of portfolios for the number of players in the market. What this means for the industry is there will be significantly fewer debt collectors around in December, 2007, than there were in January, 2007 as the food supply is dwindling. One well known industry attorney who represents some of the largest players told me the result of this shortage will be an increase of lawsuits filed against consumers to collect these debts.  I agree with his assessment, for that is a reasonable and financially sound way for debt buyers to recoup their investment. But that also means there won’t be as many debt collector jobs available as the demand for collectors dries up.

One major organization already experiencing this problem is Wolpoff & Abramson, Baltimore, MD. Sources tell us more than 500 employees have been terminated since early February and more layoffs are scheduled as they sell off the debt buying divisions such as Great Seneca Financial, to Asta Funding, of NJ. The sale was reportedly for $30 million, which is great for Ron and Stuart, however the nightmare the purchased paper will create for Asta Funding and subsidiary Palisades Collections could make the purchase price look like pocket change. W&A reportedly told employees that the layoffs resulted from the shrinking market of available portfolios, the bidding wars now on for new paper and the costs associated with collecting on them. W&A grew very fast when they struck a deal with the former MBNA Bank to buy their charged off accounts. The majority of those accounts were allegedly bound by an arbitration agreement, which resulted in a bedroom arrangement between W&A and the National Arbitration Forum (NAF) of Minneapolis, MN. MBNA was purchased by Bank of America, who chose another road for collections, so W&A set up a stable of subsidiary organizations to buy and arbitrate /litigate accounts such as: Great Seneca Financial, Colonial Credit, Platinum Financial Services, Monarch Capital, Centurion Capital Sage Financial, Hawker Financial and others.

W&A would purchase huge portfolios for tens of millions of dollars in retail value then set up an assembly line of paper pushers to churn out legal documents in numbers that were mind boggling. These manufactured documents were then sent out to an attorney network. The attorney then filed lawsuits on those accounts which earned them a percentage of what they collected. The vast majority of W&A MBNA accounts went to arbitration with the NAF, resulting in millions of dollars in monthly profits for W&A. Arbitration was very frustrating as most consumers and attorneys either knew nothing about it, or felt it was purposely designed to deny consumers their legal rights. An attorney who teaches law at a prominent Texas university once told me that it would likely take a case to reach the U.S. Supreme Court before the grip of arbitration could be loosened. That statement was true at the time, however events and the pompous attitude of the NAF has begun to turn the tide on arbitration. At a recent consumer law conference, (attended by the largest group to ever participate), the issue of arbitration was viewed as a problem that could be addressed and even defeated, given time and education. Consumers who are faced with this problem are advised to seek assistance from websites such as: www.givemebackmyrights.com and    www.naca.net where professional consumer attorneys can be found.

The problem with arbitration. The NAF is swimming in cash, much like a Las Vegas casino. NAF is paid $250 per claim by the debt collectors who purchase accounts that are “allegedly” covered by an arbitration clause. The documents they require can be licensed/purchased by the Claimant (debt collector) and filed electronically from the collector to the NAF offices in Minneapolis. The NAF then finds attorneys, retired judges, etc. to handle the claims. They are paid a fee of $250/per hour, with the expectation they will hear six cases per hour. It is done in secret, behind closed doors, with the consumer losing all the rights they might have had in a courtroom. To counter this secretive event and to hold the NAF responsible for their actions, consumers are now being urged to demand an in-person hearing where you live, so that you can contest the authenticity and/or lack of documents, including the NAF’s problem of EVER providing documents that the parties have agreed to arbitration. What the arbitrator gets in almost every case are copies of billing statements and a (really bad) xerographic copy of an arbitration agreement that looks like it was done on a post office copier. It is a joke from the get go; the arbitrators who ‘rubber-stamp’ these awards may be guilty of making false statements and should be held accountable for their actions. Nice work if you can get it, four hours a day, at home, earn at least $1,000.00/day, just keep the ink wet.

Consumers need to become pro-active, and hold anyone who purchases a debt to the full limits of the law. Every collection account should be disputed, by sending the debt collector a certified demand, within thirty days of receipt of the initial collection notice a letter stating the following:

    -I dispute this account.

    -Send me all documentation that validates your claim.

    -This documentation should include copies of a cardholder’s agreement that contain my signature and a copy of any agreement that binds me to arbitration.

    -You are to cease all collection activity until you comply.

That invokes federal law, the Fair Debt Collection Practices Act, forcing the collector to cease all collection activity and gives the consumer the opportunity to review whatever documents they may have. Don’t be surprised if you never receive a response, especially from entities such as: LVNV Funding, Resurgent Capital, First American Investment and most of the bottom feeders because the documents don’t exist. Others, such as Unifund will send you manufactured documents that may still have wet ink on them.  Some, such as NCO and Collect America (CACH, CACV) attempt to comply with whatever they have or are able to retrieve. Most will simply ignore your request, continue collecting and making threats. Others like Mann-Bracken will file an arbitration claim hoping they can pay their $250 fee and walk away with another ‘rubber stamped’ NAF claim.

Many debt buyers will simply go ahead and file a lawsuit, banking on you not showing up in court,  and winning an easy judgment by default. It is VERY important anyone sued by a bottom feeders show up to question the documents and charges.  We have found an overwhelming number of debt collection attorneys never go to court because it is too bothersome or they are ill prepared to answer any questions. I always recommend that if you are sued, utilize the services of a local consumer law professional from NACA at: www.naca.net  These are the BEST consumer lawyers in America, they have direct access to a wealth of information regarding the debt buyers who sue and the attorneys they use.  With daily experience in the FDCPA battlefield,  a NACA attorney can offer you expert advice and assistance.  

Debt buyers typically like to place information on your credit files, and then wait for you to try to purchase a home, a car or refinance, then hit you with a highly inflated figure. Of course, anyone considering paying a debt buyer should be aware that payment will NOT get the account deleted from your credit files, nor can a debt buyer change anything being reported by the original creditor. If they tell you your credit will change, it will be deleted, or they can get the original creditor to do so…

THEY ARE LIARS!   Get their promises in writing before making payments.  If they offer a statement along these lines…”We will notify the credit bureaus to indicate a paid status…” you should know it will NOT help your credit report or credit scores.  Unless they commit in writing to: ‘ACCOUNT WILL BE DELETED” save your money. Never forget that debt collectors are paid a commission to get your money, once they have it, they will not give what was promised. Once you give up that money, you lose all your bargaining position, so don’t pay until or unless you get something in return. There is a special group of consumer attorneys who go after credit bureau violations, you can reach them at: www.myfaircredit.com Always dispute a debt buyer on your credit report who fails to validate as: “not my account” with all three credit bureaus.

I expect to see a large number of debt buyer, bottom feeder organizations being purchased, filing for bankruptcy or simply closing their doors, as the pool of available paper gets smaller in time. Groups such as NACA, NCLC, My Fair Credit, My Fair Debt, Give Me Back My Rights and the publicity being generated by Maxed Out will educate consumers to options they were never aware of. Fighting a bottom feeder with the assistance of NACA professionals, taping their calls where legal, demanding validation, making arbitrators show up in person, will all serve to strengthen your position and give you an arsenal of tools to level the playing field. As one bright attorney told a judge during a hearing on a purchased debt case …

‘IT’S NOT ABOUT WHETHER OR NOT MY CLIENT OWES THIS DEBT…

IT’S ABOUT THE RULE OF LAW!’

The rule of law allows you to enforce your rights, to make them prove it up, validate their claims, show up, explain how they arrived at what they claim is owed, prove they have the authority to act, and force them to comply with state and federal statutes. It also allows you to collect from those who hide behind the telephone to harass, oppress, intimate and extort monies.  I saw a case where a woman was told she would be arrested for not paying a debt and her kids would be turned over to foster care.  She taped the call and contacted a NACA attorney.  He started the settlement offer at over $200,000 with the collection agency. While they eventually settled for less, the collector was fired, and justice prevailed.  The law works, but you must use the tools that make the law work.

New ID Theft Prevention For WA Residents

By Jolayne Houtz
Seattle Times staff reporter

Washington consumers would have more control over their credit information if a credit-freeze bill passes the Legislature next week.

State Attorney General Rob McKenna calls it the most important consumer-protection bill to come out of this legislative session.

“Allowing consumers to freeze access to their credit puts the strongest tool in their hands” to protect them from identity theft, McKenna said.

The law appears poised to pass and would allow any consumer to tell credit bureaus to freeze access to their credit, preventing credit bureaus from releasing their credit information without the consumer’s consent.

That would keep identity thieves from being able to use stolen personal information to open new credit accounts in their victims’ names, consumer advocates say.

Current law permits only victims of identity theft or data breaches to request a credit freeze — something McKenna likens to allowing the installation of deadbolt locks only after a homeowner is burglarized.

Consumers would have to pay $10 to each of the three major credit bureaus — Equifax, Experian and TransUnion — each time they want to place, remove or temporarily lift the freeze.

However, victims of ID theft and people ages 65 or older would not have to pay a fee to freeze their credit.

Credit bureaus would have to lift the freeze within 15 minutes of receiving the consumer’s request to do so. The law would go into effect in September 2008.

The 15-minute “thaw” gives consumers quick access to their credit if they’re shopping for a car loan, applying for a new credit card or opening other new lines of credit, McKenna said, and it keeps retailers from losing sales.

Under current law, credit bureaus have as long as three days to lift the freeze when consumers request it.

The bill is particularly good for seniors, said AARP lobbyist Lauren Moughon. “Many of them don’t need new credit, so freezing their credit is a smart idea,” she said.

A February survey by AARP Washington found 52 percent of Washington residents 18 and older were very likely or extremely likely to sign up for a credit freeze if it became available to everyone.

The credit-bureau industry did not actively oppose the bill this year. The industry joined auto dealers, retailers, banks and insurance agencies in blocking the bill last year.

“The industry has realized that this is the view of a significant number of states now,” said Cliff Webster, a lobbyist for the Consumer Data Industry Association.

Moughon said she thinks the industry also sees a potential for profit in the fees consumers would pay to freeze and thaw their credit reports.

Senate Bill 5826 passed the House unanimously earlier this week after a similar reception in the Senate. It now goes back to the Senate with mostly technical amendments. The Senate sponsor of the bill, Sen. Jean Berkey, D-Everett, said she does not oppose the amendments.

Gov. Christine Gregoire has not said whether she will sign the bill. Her staff said they need to review the legislation first, and they were not ready to comment on its prospects.

But most advocates involved in the issue said they anticipate Gregoire will approve it.

Consumer’s Find New Tool

Debtors can rent another’s credit line

Originally published April 6, 2007

When your credit scores don’t qualify you for the home mortgage you want, where do you turn? That’s an especially timely question now, as banks and mortgage companies tighten underwriting standards for applicants with less than perfect credit.

But federal and state authorities fear that some borrowers are turning to a fast-growing business on the Internet: companies that claim to boost credit scores by transplanting the credit DNA of people with excellent payment histories into the credit files of people with sub-par histories - ostensibly without breaking any law.

The companies claim to raise FICO credit scores by 50 to 250 points or more by adding low-scoring borrowers as “authorized users” onto the credit card accounts of people with FICO scores well in excess of 700. The positive payment information from such cardholders then flows into the files of the persons with sub-par credit.

Federal law permits authorized users to be added to credit card accounts. Typically the users are relatives or friends of the primary cardholder. For example, a parent might add a son or daughter onto a Visa card in order to provide access to credit for the child or for use in emergencies.

Federal law, however, does not limit the number or prescribe the type of authorized users permitted on any single account. Nor does it prohibit the rental or sale of authorized user designations. Exploiting that loophole, numerous companies have popped up on the Internet offering to buy and rent out the credit card “trade lines” or accounts of credit cardholders with high limits combined with perfect payment histories.

Big bucks - and a strong potential for fraud on mortgage applications - are involved. Some Web site promoters say they can add 80 to 120 authorized users onto a high-quality credit card account before banks or lenders get suspicious. Each account can rent for as much as $1,500 to $2,000 for a 180-day usage. The primary credit cardholder receives a cut of the rental fee, often hundreds of dollars for each authorized user added to the account.

The person seeking a higher credit score does not obtain actual access to the credit card. But within 30 to 90 days of being added to the account, the national credit bureaus incorporate the primary cardholder’s account information into the files of the authorized user. The score-raising attributes of the primary cardholder’s stellar payment record then flow through to the new user.

One company based in Tampa, Fla., recently solicited mortgage brokers promising FICO score boosts of 150 to 205 points for applicants “in as little as 30 days” for the “discounted” price of $750 per trade line.

That widely distributed pitch prompted one state financial regulator to issue a “fraud alert” warning that “consumers, brokers and lenders that complete, submit or participate in the completion and submission of an application for credit that contains misrepresentations or false information are subject to administrative actions and potential criminal penalties by the state.”

The Nevada Mortgage Lending Division termed the inflating of FICO scores through additions of authorized user accounts “deceptive” because it makes credit-impaired applicants appear to be more creditworthy than they actually are. Mortgage lenders might grant them lower interest rates and lower fees than they otherwise could obtain.

Some Web sites advertise and price high-quality credit card trade lines on the basis of their credit limits and time on the account. A site called AddaTradeline.com recently offered a card history with a $25,000 credit limit and 2 3/4 years of perfect payments for a fee of $1,025.

Adam Wheeler, who identified himself as the owner of AddaTradeline.com, based in Orange County, Calif., said his business “is legal, although some people might say it’s unethical.”

Wheeler insisted that his firm does not approve of efforts by clients to mislead lenders. “If they are going to lie to lenders,” he said, “that is not good.”

Asked for comment on the rental of trade lines to artificially inflate mortgage applicants’ FICO scores, Steven Baker, Midwest director for the Federal Trade Commission, would say only: “We are aware of it. We are concerned about it, and we are looking into it.”

Donald Girard, spokesman for Experian, one of the three national credit repositories, said “these are nothing more than new credit repair scams.” However, he said, Experian “does support authorized user relationships such as … parents helping a son or daughter establish credit with their first credit card.”

Fair Isaac Corp., developer of the FICO score, said the “inappropriate use” of trade lines is “an industrywide issue,” and that the company is in discussions with the FTC.

Largest U.S. Subprime Mortgage Lender Belly-Up

By Jonathan Stempel

NEW YORK (Reuters) - New Century Financial Corp. filed for bankruptcy protection on Monday amid a surge in homeowner defaults, the biggest mortgage lender to collapse in the slumping U.S. housing market.

The Irvine, California-based company fired 3,200 employees, or 54 percent of its work force. It plans to sell most of its assets within 45 days through the Chapter 11 process.

New Century was the largest independent U.S. provider of “subprime” mortgages, or home loans to people with poor credit histories. More than 30 rivals have sold or closed similar operations in the past year.

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The demise of New Century came less than two months after the company first disclosed problems with delinquent and defaulted loans. It stopped making loans last month, after having made nearly $60 billion in 2006.

“We are only at the very beginning of the problems facing subprime,” said Sanford C. Bernstein & Co. analyst Brad Hintz. “This liquidity crisis is continuing.”

New Century filed for protection from creditors with the U.S. bankruptcy court in Wilmington, Delaware.

It said it agreed to sell its loan servicing business to hedge fund Carrington Capital Management LLC for $139 million, and some loans and other assets to Royal Bank of Scotland Plc’s Greenwich Capital Financial Products Inc. unit for $50 million.

More From Subprime Mortgage Lenders . . .

Subprime lenders push back

Leading lenders tell Senate Committee that loan resets have not led to big jump in defaults. Consumer advocates charge lenders steer clients into unaffordable deals.

By Les Christie, CNNMoney.com staff writer
March 22 2007: 6:26 PM EDT

NEW YORK (CNNMoney.com) — Everyone is blaming “explosive ARMs” for the crisis in subprime loans. But several spokesmen for the mortgage industry told Congress this Thursday that these variable mortgages have not contributed much to rising default rates.
Testifying at a Senate Banking Committee hearing, Sandy Samuels, an executive with Countrywide Financial, said the spike in recent delinquencies is not a result of the failure of hybrid ARMS, ones with low “teaser” rates and payments that jump explosively after the first two or three years. Countrywide is a leading provider of subprime loans.

The majority of hybrid ARMs have not yet gone through a reset, said Samuels. Samuels said that during the past five years Countrywide had issued approximately 540,000 of these loans with only 20,000 going into foreclosure.
Foreclosures can feed on themselves
Brendan McDonagh, CEO of HSBC Finance, another big subprime provider, and Andrew Pollack, president of First Franklin Financial, both reported few problems with delinquencies on the products.
Scott M. Polakoff, chief operating officer for the Office of Thrift Supervision, told the committee that problems in local economies are responsible for most of the problems, particularly in areas like Ohio, Pennsylvania and Michigan.
But according to consumer advocates at the hearing, ARMs have had an impact.
One consumer who spoke at the hearing, Jennie Haliburton, told of how she took out a mortgage on her home a few years ago. She told her mortgage broker that she could afford a payment of $700 a month. He convinced the retiree to bump that up to $800, and Haliburton took the loan without realizing even that payment would rise. “Next thing I know, I’m paying $1,100 a month,” she testified.
Most vulnerable markets
Another consumer, Al Ynigues, told the committee he trusted his mortgage broker, a longtime music student of his. “I asked for a 30-year fixed,” said Ynigues, “but as I was signing the papers I found out I could not get a fixed. The broker told me not to worry, that the rates could go lower.” Ynigues has seen his payment go from less than $2,100 to more than $2,300 already, and he’s afraid it will go higher yet.
These borrowers are far from alone. Janis Bowdler, a policy analyst with the National Council of La Raza, says the mortgage market is not working well for minorities. In the Latino population; foreclosure rates are at a record high.
Bowdler said that many families are steered to inappropriate subprime products.
Senator Robert Menendez, Democrat from New Jersey, reported that 52 percent of African Americans receive subprimes and 47 percent of Latinos do as well. Many, however, could qualify for a prime rate loan.
This kind of steering is not only pervasive, it’s deliberate, according to testimony from consumer rights attorney Irv Ackelsberg. “This fraud infested market has been producing little social benefit,” he says. “Mortgage origination practices are run over by greed.”
The lending industry members asserted that subprime loans have enabled many Americans to become homeowners; without them, first time buyers would not have had access to credit.
But Ackelsberg listed that as one of the myths about subprime borrowing.
Actually only 11 percent of subprimes are made to first time buyers, he says. The majority are homeowners convinced to refinance into inappropriate loans.
The second myth is that subprimes are good credit repair products. The pitch here is that by paying a subprime for a while, borrowers will increase their credit scores and soon transfer into a prime loan. Ackelsberg says there is scant evidence that this happens very often.
According to him, the entire subprime meltdown should come as no surprise to anyone. Subprime mortgage lending was the modern equivalent of a gold rush with home equity the gold. Furthermore, even though foreclosure stats are spiking, they represent subprime loans that have mostly not yet reset.
He guesses that as many as five million foreclosures may occur over the next several years, basically saying, if you think it’s bad now, wait until all those ARMs reset.
It’s going to be a bumpy ride.

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