Following congressional hearings last spring on the questionable practices of numerous agencies within the credit counseling industry, California authorities have settled with two such agencies accused of false advertising and other consumer rights violations. Yesterday, The Mercury News reported that Integrated Credit Solutions and Lighthouse Credit Foundation have settled for $1.9 million, and that California consumers may be eligible for refunds from this settlement.
As this article points out, the rise in consumer debt in this country has triggered the spawning of a new generation of credit counseling companies all over the country, many of which claim not-for-profit status with the IRS while partnering with for-profit management companies. In addition to tax law violations, allegations of excessive fees and false and misleading statements are surfacing in connection with these agencies.
The standard advice given to consumers is that we should check out credit counselors with the Better Business Bureau, the National Foundation For Credit Counseling, the Associaton of Independent Consumer Credit Counseling Agencies. It's a sad state of affairs that we have to be so suspicious when dealing with companies whose supposed mission is to counsel desperate people. But until Congress finally passes legislation to protect consumers against the baser motives of many of these outfits, I'm afraid there's no better advice to give.
If you go into the Ameridebt website, you'll see the following message:
Unfortunately, AmeriDebt is no longer accepting new clients.
However, if you are looking to get help with your debt,
you may want to consider 800CreditCardDebt.com
Ameridebt has been under attack for deceptive practices by the Federal Trade Commission and several states. Regulators and customers allege that Ameridebt deceived its customers by charging high fees and operating as a non-profit concern while its real motivation was to make profit for its founders. The chapter 11 filing came after a settlement of $8 million in a class action suit was tentatively approved by an Illinois state court. Of course, that $8 million won't go very far considering there are 500,000 customers that have been ripped off by Ameridebt. The Washington Post reports that the FTC has objected to the settlement on the grounds that even if half of the 500,000 potential class members file a claim, that would result in a payment of a maximum of $32 per person.
Ameridebt and other credit counseling outfits are still under investigation by the IRS in connection with their non-profit status. With so many of these outifts under attack for deceiving customers, you really have to think twice and do your homework before turning over your last dollars to these "non-profits."
It only takes 3 minutes or so to process your department store credit card at the register, and you get a whole 10% off your purchase that day. Sounds irresistible -- you get the card, save your 10%, pay the entire balance when the bill comes. A good deal, right? The last time I fell for this, I forgot I got the card, and when the bill came, I threw it out with the junk mail, and ended up paying a late fee the following month. After paying the late fee and the interest, I probably ended up paying 20% more than the purchase price, which means I paid a premium of 10% over the purchase price rather than getting a 10% discount. And that was just one card. It's not that difficult to get 12 of these, or 25, or 40. At that rate, it's a full-time job just keeping up with the bills. If you have more than 5 department store credit cards, chances are, you're not paying off the balance each month. With interest rates approaching and sometimes exceeding 20%, what kind of deal is that?
I got a call the other day from a collection agency, and while I was talking to the guy who called me, I could hear all these voices in the background, as if the agents were sitting on top of each other. One particular voice came through loud and clear. The guy was yelling into the phone, as if parodying a loan shark in a bad television movie, "A hundred bucks a month just doesn't cut it, buddy! You better come up with something better than that. Don't waste my time!" I couldn't believe it. I proceeded to make an offer of settlement for a client, and the guy I was talking to mumbled something to the yeller (who turned out to be his superviser), and the yeller grabbed the phone from him and started shouting at me in the same manner. When I calmly asked for information about his identity and location, he bellowed into the phone that I didn't need know that. I guess there's nothing in the Fair Debt Collection Practices Act about tone of voice or demeanor. Collectors have to be careful about the kinds of threats they make over the phone, but are they free to yell and scream and sound like mafia? I wonder if the ability to sound threatening is a job requirement in this particular company. If you can say "Have a nice day" in a way that conveys the idea, "I'm coming over to break your leg," you're hired. Recently, I heard from someone who couldn't pay his debts because his wife became very ill for a long period of time. One night, he ended up giving a collector permission to empty out his bank account. When I heard that story, it astounded me, but now I understand a little better how that could have happened.
I was deleting the latest spam sent by debt counseling companies when I noticed something new -- Christian debt relief. Many people, when faced with financial tragedy, will turn to God for comfort and answers. So, it wouldn't surprise me if someone seized upon this vulnerability as a new angle for competing in this business. I checked with the Better Business Bureau, and to my surprise, found that this particular company is a member of the BBB, and has no negative, unresolved reports. So, who knows?
Last week, the Senate Governmental Affairs Committee held a hearing on its investigation of debt counseling companies. The 5-month investigation revealed what many people working in consumer rights have known for a long time -- that the non-profit status of numerous debt counseling companies belies the fact that they're entirely in the business to make profit for their founders and/or affiliated for-profit companies. The rise in the number of new debt counseling companies has kept steady with the rise in consumer debt, one man's desperation becoming another man's opportunity for ill-gotten fortune. An executive of AmeriDebt, Andris Pukke, refused to answer certain questions, invoking the Fifth Amendment (the Federal Trade Commission has sued AmeriDebt). The IRS is investigating 50 debt counseling businesses for abuse of federal tax laws, which may lead to revocation of tax-exempt status as well as criminal prosecution. While it would be way too optimistic to believe that when the dust settles, only honest debt counseling companies will be left, these investigations will hopefully serve as a wake-up call not only to participants in this industry of vultures, but to unwary consumers everywhere.
So, I'm planning this trip to London, and it turns out that some of the online hotel discounters charge in British pounds, not in dollars. No problem, right? I'm thinking, reasonably, that whatever the exchange rate is on the day the charge is registered to my account should apply. But something makes me hesitate (paranoia induced by -- well, the reality of this blighted world), so I decide to research whether this is yet another area where the credit card companies get me when I'm not looking. (I readily admit that for someone who works in a debt-related field, I can be astoundingly naive. I can hear the seasoned veterans from creditboards.com tsk, tsking. "Of course, there's is a hidden charge, you idiot.") It turns out that there are actually several possible layers of hidden fees, depending on the type of card I use, the bank it goes through, and the type of transaction. If I buy a pork pie at a pork pie stand or whatever, and I charge it to my Visa, a 1% fee is tacked on as a currency exchange fee. But it doesn't stop there. The issuing bank might charge another 2% (maybe more, how do I know?). Then, there are the additional fees for withdrawing cash from a foreign ATM -- some charge a 4% cash advance fee on top of the 2% transaction fee.
According to an article on bankrate.com, some credit card companies and banks don't charge these outrageous, hidden fees. But, people are warned to call to confirm this before taking a trip because companies have a tendency to change their policies. Here's what surprised me -- according to this same article, this information shouldn't discourage travelers from using credit cards overseas because the fees charged to consumers exchanging cash or traveler's checks are even higher (can be 5% to 8%). Credit card companies get wholesale rates (which they try hard not to pass on to us). At least when I walk into a bank with dollars in hand and exchange them for pounds, I know what the fees are. What exactly is the service provided by my bank for the 2% it charges on foreign credit card transactions, given that the conversion has already taken place by the time it reaches the bank? The answer is -- nothing. It's like being pick-pocketed, only I won't even know how much they've taken.
Dishonest debt counseling and consolidation companies are in the news all the time, and their growing presence overshadows the presence of those companies that have been around for awhile and are reputable. In most instances, debt "counseling" is a misnomer. Most of these businesses (even those with a good record) are no more than repayment services that take your credit card debts, consolidate them (often at a reduced interest rate), and pay them for you on a monthly basis from the money you pay to the service. Given that this is what they do, and that this is how they make their money, their employees are not trained to analyze whether you should be consoidating your debts at all. In some instances, the best advice may be to pay nothing to most of your creditors, but you're not likely to hear this kind of advice from a debt counseling company.
Still, debt counseling is going to become an important resource for consumers if bankruptcy reform legislation is enacted because fewer people will qualify to have their debts immediately discharged in bankruptcy. Existing companies and those that haven't even emerged yet will be poised to take advantage of more innocent people who believe they have nowhere else to turn.
So, how do you find the good ones? There's no rating system that I've ever heard of, so individuals are left to choose by process of elimination. You can go to discussion forums like creditboards.com and post an inquiry and get responses from people who've been through it. At a minimum, you should check with the Better Business Bureau to see if a particular company is a member (don't deal with any that are not members), and to see if there are any bad reports. You'll find that many of these outfits are not even registered with the BBB, and that they have negative reports which have not been responded to. So, you do your process of elimination by knocking off your list any companies that spam you incessantly, checking with the BBB, and asking lots of questions. And if you feel hesitant about moving forward with debt consolidation, that may be your instinct for self-preservation kicking in. Pay attention to it.
As promised, I looked into two major credit forums, creditboards.com and creditnet.com. Creditnet, as I mentioned before, is an industry site, but creditboards is run by real people and I highly recommend it as a place to go for practical advice about your credit. I've been carrying on an email conversation with the original owner of the site, who is now one of four owners. Interestingly, creditboards is a spinoff from creditnet. When creditnet was taken over by "credit industry trolls," this group created its own email group on yahoo and then, as interest grew, expanded into the new discussion forum format. Creditboards pays its expenses through donations from ordinary people. It gets no funding from credit card companies, banks or debt consolidation outfits.
I've been impressed by the level of discussion on creditboards. There's a minimum of unpleasant postings from judgmental types, and a sense of a collective effort to help those in need of guidance in the predatory world of credit. There are forums on credit, student loans, auto financing, and mortgages. If you go into the main listing of forums, you'll see a page for "Newbies" which contains several introductory postings on how to get started in understanding your credit reports and correcting errors, and how to participate in the forums to get answers to your questions. Regular posters report on how they're doing on paying off debts, repairing their credit reports, and dealing with nasty collectors. It's a large, supportive community. I'll be there regularly putting in my two cents and looking for good tips to pass on. The credit industry is so poorly regulated that "professional" advice may not be as good as the information you get from the street, from the people who've been through the battles that you may be fighting.
This type of information will eventually appear on additional pages of this website. But, since I get alot of questions about credit reports and what debt collectors are allowed to do, I want to recommend two webite pages that can answer many of these questions. One is on the FDIC website: Credit History 101: The ABCs of Credit Reports and Credit Scores. The other is on the FTC website: Fair Debt Collection, which explains what types of actions debt collectors are permitted to take in trying to collect, who they may and may not contact about your debt, what they may and may not say once they do contact you (for instance, they cannot threaten you or make false statements about your debt), and how to report improper debt collection activities.
Unfortunately, there appears to be no rule against general obnoxiousness or against sending letters in pretty yellow envelopes that look like they might contain birthday greetings.
Contrary to what some believe, the great majority of people who file for bankruptcy protection do so out of pure desperation, after all other avenues of repair have been exhausted. It often follows job loss, divorce, illness, or other family tragedy. When you file for bankruptcy, you have to appear at a "meeting of creditors" where a trustee asks specific questions about your debts and assets, after which he invites your creditors to ask equally probing questions. Trustees are not always sympathetic, warm individuals. All of your financial documents filed in the bankruptcy case are public information, and anyone can look them up. Worse, a special investigator from the Department of Justice may decide (sometimes inexplicably) to investigate a particular aspect of your financial life to determine whether you're an honest debtor or someone trying to take advantage of the system. It's a demoralizing process any way you look at it, and no one in his right mind would do it unless it's absolutely the only reasonable way out of a horrible situation.
Now comes bankruptcy reform legislation (actually it's been coming for some time) to make it even worse for people who are suffering as it is. It's a complicated piece of legislation, but if it passes, the upshot for many people who are legitimate candidates for bankruptcy will be that they'll have to meet impossible standards in order to be discharged from debts. Meanwhile, credit card companies will continue to be permitted to use predatory methods for getting our business, which, by the way, makes them a ton of money despite reports that we're defaulting left and right. Yesterday, the Center for American Progress published on its website an article by bankruptcy expert Elizabeth Warren, Kicking the Middle Class When It's Down, pointing out how this legislation seeks to protect the rich and to allow credit card companies to profit from their unethical practices even after bankruptcy.
I don't know if other states have tried this, but legislation has been proposed in Kentucky to restrict credit companies from soliciting students on college campuses. They would be required to obtain parental permission, though the grant of permission wouldn't make the parents liable for the ensuing debt. I'm in favor of this sort of legislation in principle because, God knows, credit card companies aggressively go after vulnerable, cash-poor students. No wonder so many kids come out of college with a mountain of debt, and bags under their eyes to prove it. Something is definitely wrong with a society that allows this to happen. It's like selling cigarettes to elementary school children. It's hard for struggling students to resist the temptation of "free gifts," frequent flyer miles, and borrowing against the promise of lucrative summer jobs. And, of course, there's no education about financial management in high school, so college students are easy prey. They start out in life as tenant farmers to their credit card debt. Rest assured, though, the credit card companies will find a way around such rules.
I've noticed two discussion boards that are recommended from time to time by people participating in the money discussion on craigslist. One is at www.creditboards.com and the other is at www.creditnet.com. Creditnet.com is a commercial site and clearly identifies itself as such -- you can apply for credit cards from the site. There's an area for merchants and an area for consumers. I haven't checked the discussion boards on that site yet, but have joined to check it out. Of course, I have a natural inclination to be skeptical of a commercial website that purports to be a community forum. I'm not sure whether creditboards.com is also a commercial site. It doesn't identify itself as such, and from what I can see, there's no identification of ownership at all. Creating a discussion board certainly would be a clever way for credit card companies to gather information about consumer behavior and attitudes. I'm going to follow the discussions on both of these sites and see where they lead, and also do some research to find out about ownership of creditboards.com.
Everyone is familiar with debt consolidation companies and their close cousins, the debt settlement companies (which negotiate your balances down rather than simply consolidating your current balances). If you aren't, you haven't looked at your spam in a very long time. Recently I've noticed another (possibly new) type of service -- debt elimination. I'm looking into it because, unfortunately, even if you can find an honest company, debt consolidation doesn't work for everyone. The monthly payments are high, and you have to pay a service charge on top of your monthly debt payments. With debt settlement, you may lower your balances, but you have to pay the lowered balances in a lump sum or over a short period of time. If you had that kind of money, you probably wouldn't have been in default in the first place.
From what I've gathered so far, companies that purport to provide debt elimination use to their advantage the various laws that protect consumers, like the Fair Debt Collection Practices Act. Certainly, based on the stories I've heard, many people are victimized by unlawful collection practices. It's worth researching. Mainly, I want to know who owns these companies and what interests they're affiliated with, how they operate, and what they charge for their services. More on this later.