By Kenneth Long on May 30, 2013

American Debt Settlement Solutions advertised that it could reduce huge debts just by utilizing their service. In the end, it turns out the company was just a big scam, just like so many other debt settlement companies. Now they cannot afford to pay a settlement against them, which would be about $500,000.

Debt settlement firms routinely claim that they can settle your debts for much less than you owe. The truth is that most successful settlements are for at least 50-60% of what is owed. Even worse is the fact that only a very small portion of debt settlement clients actually succeed in settling a debt. Most fail and fail miserably.

American Debt Settlement Solutions took the false claims a bit further. Instead of claiming that they could settle your debts in about 3 years, which is usually how long it takes to even come close to saving up a 50% balance, they promised they would begin settling debts within 3 to 6 months. Investigators claim this almost never occurred.

A major pattern of violations occurred as the firm charged huge up-front fees for services. This illegal activity was addressed by the FTC Telemarketing Sales Rule and the Dodd-Frank Act. Debt settlement firms may no longer charge the high upfront fees that were typical of American Debt Settlement Solutions.

Pushy sales representatives pressured clients into signing debt settlement agreements and paying these upfront fees. In many cases, the clients were clearly unable to proceed with the repayment plan of the agreement, yet were still pressured into paying the enrollment fees and enrolled into a program they would be unable to complete.

The actions against American Debt Settlement Solutions are being taken by the Consumer Financial Protection Bureau. Director Richard Cordray announced the action against the firm in a press release. Court approval will be necessary to force the company to cease operations, pay a civil penalty and any portion of a settlement that the court deems the defendant is able to pay.

Clients of the embattled debt settlement firm should immediately request a refund. There is little hope of ever receiving any of your money back. Still, if you are one of the first clients to ask for your money back, you are likely the only ones potentially able to receive a full or partial refund.

Otherwise, it would take a court order to seize all remaining assets of the company to provide partial refunds. Previous cases where this occurred resulted in clients receiving only a small fraction of what they had paid in. The most likely truth is that you will never receive those funds, nor will they be used to pay your debts. Instead, they may have already been spent by the owner or are pledged to his legal defense team.

While many clients will likely be upset, this is only one instance of dozens of cases against rogue debt settlement firms. In fact, the entire debt settlement industry is imploding after investigations revealed how futile such arrangements really are. Even the legal operations suffer from dreadful success rates.

Unfortunately, most clients would have been much better off speaking with a credit counselor. Either they could have found out how to manage the debt on their own, repaid it through a debt management program or been able to get protection from their creditors by hiring an attorney. Credit counseling is a better option because you get a truthful assessment of your situation and then are provided potential options. Had those clients gone to a more reputable debt relief service provider, they would likely not be in this situation.

By Kenneth Long on April 1, 2013

A buyer of distressed debt and its law firm must repay $799,958 to debtors who were charged $18.95. This mandatory fee was charged for telephone payments, even though other types of payments did not incur the fee.

Security Credit Services LLC was accused by the Federal Trade Commission of deliberately misleading its debtors into believing that they had to pay a $18.95 fee to pay by phone. Many debtors paid the fee believing that it was mandatory.

An agreement with the FTC reveals that Security Credit Services agrees to refund all of those fees charged, a total of $799,958. This amount represents the total that the debt collector must provide in restitution to those who were charged. The firm is permanently prohibited from implying that debtors who wish to make a payment must pay the fee in order to make a payment.

Additionally, a law firm that Security Credit Services contracted out for collection activities has been ordered to cease all illicit threats of legal action. Jacob Law Firm PLLC had reportedly threatened certain clients with a judgment or other legal actions, even though it had no reasonable intentions to do so. These "empty" threats are a violation of the Fair Debt Collection Practices Act (FDCPA).

The FDCPA requires that a firm that threatens legal action must actually intend to do so if the debtors leaves no other option. In some cases, courts have ruled that a law firm failed to prove that it intended to pursue legal action based on a lack of prior legal action in similar cases.

The FTC did not reveal in depth the nature of the violations of Jacob Law Firm other than to bar the firm from making threats to sue if a debt is not repaid. This is usually an indication that the firm violated the FDCPA by making threats to sue when it had no intention of doing so. Such threats have been deemed intimidation and are illegal under federal law.

The settlement with the FTC does not prevent victims of intimidation by Jacob Law Firm from suing the debt collector. FDCPA violations are punishable by a $1,000 civil penalty for each instance. I have successfully collected money from a debt collector who harassed me for someone else's debt, so you may certainly find that you have enough evidence to pursue your own FDCPA lawsuit.

By Kenneth Long on March 15, 2013

You may be stressing over your credit card debt. If you only owe $5,000, then the good news is that this is relatively easy for most people to repay. Of course, if money is tight, then you may find it difficult to repay given the usual approaches. Here's a hint:  Sending an extra $25 a month is not the way to reach your goals.

Most debtors believe that they are aggressively repaying a credit card by throwing a few extra bucks at it each month. Sure the amount going to the principal balance is much greater, but at that rate you could still spend years trying to pay it off. Chances are, a new financial emergency will strike before your balance ever reaches zero.

Here's an example. The average minimum monthly payment on a $5,000 credit card (assuming 18% APR) is about $125. Sending in just the minimum monthly payment could take a decade or more, since the minimum required payment drops as your balance drops. If you lock in your monthly payment at $125 and treat it like an installment loan, then it would take about 62 months (just over 5 years) to repay the debt.

So what does an extra $25 do? Well it only drops your repayment period to about 47 months (nearly 4 years). Paying $175 a month ($50 extra) will eliminate your debt in 38 months (just over 3 years). If you can squeeze out another $25 to make a $200 payment, then your debt will be gone in 32 months (almost 3 years). You probably get the point by now.

However to truly knock your debt out, there is a more aggressive approach. Hammer the balance with bigtime payments. This can be done through several methods.

First, consider selling off your old junk or jewelry to raise some quick cash. Depending on your stash, you could raise $500 or more in just a week's time. Ebay, Craigslist or even an old-fashioned garage sale can help you cash out and make a big dent in your balance (now just $4,500). Just add this cash to your normal monthly payment.

Second, earn some extra money. If overtime or extra hours is a possibility, this is the easiest method. A second job is normally not feasible for most people, especially when they have family commitments. However, a seasonal job can allow you to raise some extra cash over a brief period of just 1-3 months. Odd jobs such as handyman work, lawn mowing or babysitting can generate extra cash also. If you really gut it out, you could raise an extra $1,500 this season (balance now just $3,000).

If you don't do anything else, then you just put yourself in position to repay your debt in about 21 total months (less than 2 years). That assumes that you don't raise extra cash the same time next year. If you decide to do that, then you could be debt free in about a year. Just think, this was all done without cutting anything from your budget.

On a relatively small amount of credit card debt of just $5,000, you should be able to take control and make some changes. If you cannot manage these changes, then you may need debt management help.

Credit counseling might be a feasible alternative, especially if you are already struggling to meet the minimum payments on your credit card accounts. This can be even more useful when you are juggling multiple credit card accounts that add up to more than $5,000.

One clear sign of whether you can pay it off on your own is to look at the last 6 months. Were you able to reduce your balances on your own? Do you owe the same amount? Did your debt actually increase? These are all important questions to ask yourself. If you are making progress, then you are on the right track, and these tips could speed the process. If you are not seeing gains, then you need to make a change.

By Kenneth Long on February 15, 2013

Loan documents clearly state an APR of 120% based on the fee schedule. Yet according to a new lawsuit seeking class action status, claims of actual fees of up to and over 1000% APR are alleged. Fifth Third Bancorp has faced multiple lawsuits over fees for its Early Access deposit-advance loans.

What is Early Access? It is essentially a payday loan style product offered by Fifth Third to its existing customers. A basic qualification is that the customer routinely receives direct deposits into their bank account. The maximum loan amount is $1,000.

At issue is the fee itself. Fifth Third states that a $10 fee for every $100 lent equates to a monthly rate of 10% and an annual rate of 120% APR.

At issue is the time length of the loan. For customers who repay the loan in less than a month, their effective interest rate is substantially higher since the fee is the same. Those rates may be in violation of federal and state usury limits, which is what the lawsuits allege.

These short-term loans have traditionally been the bread and butter of payday loan companies. Some state legislatures have enacted laws that ban or substantially limit the fees and activities of payday loan companies.

However, in attempts to find new sources of income, many large and regional banks have begun to offer short-term loans. Regions Bank had utilized a loophole in North Carolina payday loan bans to offer similar loans over the internet to North Carolina residents. It has since ended the program due to efforts by the Center for Responsible Lending and other consumer advocates to curb such activities.

Consumers almost always have better options when they need short-term funding. Even the dreaded credit card cash advance has an APR of about a quarter of the cost of the Early Access loan.

While the short-term loan market is heating up with the inclusion of banks, not all news is bad. For example, North Carolina's State Employees' Credit Union provides a similar product with a 12% APR, which is less than a tenth of the cost. Still, this lower rate is an anomoly as lenders vie to gain lucrative market share, utilizing preemption loopholes to sidestep North Carolina's payday loan ban. One of the best known players is Western Sky Financial, which has faced numerous regulatory actions against its high fees.

All short-term lenders are on notice as they attempt to find the happy medium between increasing profits and avoiding regulatory or legal action. The result of lawsuits like these and other regulatory positions will have a dramatic influence on short-term lending markets as well as its players.

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Image adapted from original by Derek Jensen

By Kenneth Long on February 5, 2013

Goldman Schwartz, although not the law firm they claimed, threatened to take children into custody and charged bogus attorneys fees. Debtors were lied to and intimidated into making payments on payday loans or face imprisonment or other extreme illegal actions.

A federal court shut down Goldman Schwartz and froze the company's bank accounts and other assets. It ruled in favor of the Federal Trade Commission who asked for the action in response to an investigation into a high number of serious complaints against the firm.

Goldman Schwartz was based in Houston, Texas. Some of the payday loan companies that the firm collected bad debts for include Ace Cash Express, Advance America, Allied Cash Advance, Checkmate, First Cash Advance and MoneyMart.

Imagine being told that if you do not pay, that the Sheriff would be sent to your home to arrest you and put you into prison, and that you would lose custody of your children. The firm knew which hot buttons to press to get people to pay. The problem though is that the debt collector's tactics were grossly illegal.

The Fair Debt Collection Practices Act protects debtors from abusive debe collection techniques. It ensures that legitimate debt collectors play by a set of rules while attempting to collect on unpaid debts.

Goldman Schwartz allegedly committed other acts common to rogue debt collectors. These include claiming to be affiliated with law enforcement, using abusive language, harassing debtors over the phone, failing to adhere to legal calling hours, disclosing private details to employers and family, and finally, failing to provide verification of the debt to the debtor.

Any one of those acts could have resulted in $1,000 in damages payable to the debtor, if only they knew their rights. However, now that the debt collector's assets are frozen, you would have a very difficult time collecting on a lawsuit even if you won. A court appointed receiver is now in charge of all assets of the agency. Still, rogue debt collectors rarely pay out for violations.

The FTC successfully argued that the collection agency had such a widespread history of committing serious consumer protection violations that it warranted forced closure. The principals of Goldman Schwartz, including owner (not an attorney) Barry Schwartz are all banned from further debt collection activities.