Claims of debt fraud soaring

By CHRISTINE STAPLETON

Palm Beach Post Staff Writer

Saturday, October 25, 2008

First, Roberta Krassner’s husband died. Then she was diagnosed with cancer. Finally, a debt relief company called and offered her some good news: help with the five-digit balance on her credit cards and renegotiating her adjustable-rate mortgage to a fixed rate.

She was alone. She needed help and it sounded like a good idea. So Krassner, who describes her age as “senior citizen,” signed a contract in February. It allowed the company to automatically withdraw $349 from her bank account every month, about half her Social Security check.

Krassner, of Lake Worth, said the company did very little for the $1,750 she paid. As for her credit card debt, the company “made a couple of calls” and came back to her with a proposal to make a reduced, lump-sum payment of $5,000 – an amount she could not raise, she said.

The company did secure a fixed-rate mortgage with an interest rate that added about $100 to her monthly mortgage payment. She expects the bank will file for foreclosure next month.

“I’m not that savvy. … I didn’t know what I was signing,” said Krassner, who got a new Social Security number and established a new bank account to stop the automatic withdrawals. “This is highway robbery, thievery.”

Krassner is one of about 1,700 debtors who filed debt-fraud complaints with the Florida Attorney General’s Office during the first nine months of this year. There were 893 complaints filed in all of 2007.

Attorney General Bill McCollum announced this month that his office is investigating the unregulated debt relief industry. Until he can persuade lawmakers to impose rules, McCollum hopes lawsuits his office has filed and its investigations “send a message to this industry that preying on consumers in financial distress will not be tolerated,” according to an Oct. 15 statement.

The Attorney General’s Office has filed five lawsuits and is reviewing or investigating more than 30 others, including one involving Outreach Housing LLC, a Broward County company that does business in Palm Beach County.

More than 100 of the 600 homeowners who filed complaints said Outreach Housing told them to make a partial mortgage payment of 60 percent to the company, which would work with lenders to reduce their mortgage debts. The company failed to do so, according to the Attorney General’s Office.

That scheme is typical of debt relief fraud. The solicitations come in the mail, appear in newspapers and on the Internet, at bus stops and, most frequently, in telephone calls to a debtor’s home. The company offers to reduce interest rates, modify loans, set up reduced payment plans or settle debts for pennies on the dollar.

Clients are charged hefty upfront and monthly fees and told to stop making payments to creditors and instead send the payment to the debt relief company. Few or no payments or negotiations occur and clients are left with more debt, damaged credit and, often, higher tax bills.

“If it sounds too good to be true, it is,” said Michael Galvin, vice president of communications for the Better Business Bureau Serving Southeast Florida & the Caribbean. Debt relief complaints filed in South Florida this year are nearly double what they were for all of 2007, from 370 to 724, Galvin said.

Some victims have seen relief. A week ago, the Attorney General’s Office reached a settlement in a case against Hess Kennedy Co., a Broward County law firm. The law firm promised to provide legal services to more than 18,000 debtors, including 1,900 Florida residents, and cancel their debts for a fraction of what they owe.

Clients were told that the firm had audited their accounts and discovered they were the victims of numerous violations of the Fair Credit Billing Act. The firm sent notices to the credit card companies disputing all the charges. It then told its clients to stop paying their credit card bills and that the card companies could not take action against them. That claim was wrong, and some victims became the target of lawsuits and other legal actions.

Americans owe more than $950 billion in credit card debt, up from $915 billion last November. As more people use their credit cards to pay other bills, fewer are making their monthly credit card payments. In August, banks and credit card companies reported writing off 6.8 percent of credit card balances as uncollectible, up from 4.61 percent the same time last year.

“A lot of people are in a panic – what do we do?” said Andre Bernstein, a certified credit counselor at Credit Card Management Services, a nonprofit company in West Palm Beach that counsels debtors. Many people think that if they default on their credit cards and the lender writes off the loss, the collection agencies will stop calling, Bernstein said.

What people don’t know is that their debt is often sold to a collection company, which can try to collect or sell the debt to another collection company, Bernstein said. Always ask who owns the debt, he suggested.

“If that person does not do anything, that’s going to wreck their credit,” Bernstein said. Research is the key to finding reputable debt relief, Bernstein said. “People need to understand that if they are getting calls they should not give out their Social Security number or other vital information until they have researched the company.”

Many searches can be done online. The Florida Department of Business and Professional Regulation Web site has business registration information. Financial licenses can be verified on the Florida Office for Financial Regulation site.

The Attorney General’s Office also provides information on its site about companies it has taken action against.

Finally, the Better Business Bureau provides complaint history against local and national companies, along with a rating. For example, the company that Krassner hired has had 50 complaints in the last three years and a B-minus rating from the bureau.

“You know, doing this on my own I’ve made so many mortal mistakes,” Krassner said.

Warning signs

Beware of companies that:

• Guarantee they can remove your unsecured debt or promise unsecured debts can be paid off with pennies on the dollar.
• Claim that they work for a credit bureau or that using their services will let you avoid bankruptcy.
• Require upfront fees in excess of $50 or monthly fees in excess of $40 per month.
• Tell you to stop communicating with your creditors or that creditors never sue consumers for nonpayment of unsecured debt.
• Do not provide a monthly accounting of payments made to your creditors.
• Promise no negative impact on your credit report or that they can remove negative information from your credit report and create new credit history.
• Say they represent your credit card’s ‘card services’ or ‘account services’ departments.
• Do not require a written contract or have a refund and cancellation policy.

About debt collectors

• Debt collectors are allowed to contact you in person or by mail, telephone or fax and must send written notice of the amount you owe within five days. The notice also must explain actions to take if you believe you do not owe the money.
• You can stop debt collectors from contacting you by writing a letter to the agency requesting them to stop. After that, the agency may contact you only to confirm receipt of your letter or to notify you of specific actions the creditor is pursuing.

Debt collectors cannot:

• Call you at work if the collector knows your employer disapproves.
• Contact you before 8 a.m. or after 9 p.m. without your consent.
• Harass you with threats, including damage to your property or your reputation, or advertise the debt.
• Use profanity or harass you with repeated or continuous calls.
• Imply that they are attorneys.
• Say that you have committed a crime or misrepresent the amount you owe.
• Indicate that the papers sent to you are legal forms.
• Tell you that they work for a credit bureau or that they will seize, garnish, file a lien or lawsuit or sell your property or wages unless the creditor has the right and intends to do so.
• Threaten you with arrest if you do not pay your debt.

Source: Florida Attorney General’s Office