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FTC Settles $26M Enforcement Action Against Credit Card Payment Processor

posted on 2015-05-15 by H. Scott Kelly and Michael E. Lacy

On May 5, the Federal Trade Commission obtained court approval of a settlement against CardFlex, Inc. and its CEO and President, Andrew Phillips, and Executive Vice President of Operations, John Blaugrund.  The lawsuit, captioned FTC v. CardFlex Inc. et al., No. 3:14-cv-00397 (D. Nev.), involved allegations that the defendants operated a $26 million credit card scheme by connecting consumers with another company known to be scamming customers.

According to the FTC, CardFlex partnered with iWorks, which allegedly tricked customers into paying monthly fees for non-existent services – including the use of fine print in its agreements to force customers to pay recurring monthly charges of up to $60 for online plans and services.  The FTC alleged that the defendants knew about iWorks’ deceptive practices and still helped it open nearly 300 merchant accounts under dozens of corporate names.

Under the settlement agreement, the defendants would pay $3.3 million (though that sum would be suspended pending a $150,000 deposit), the forfeiture of more than $1.2 million in jewelry, a Ford pickup truck, gold coins, and furniture, and a check on the truthfulness, accuracy, and completeness of financial statements and related documents.  The individual defendants are also permanently banned from acting as an independent sales organization or sales agent for a variety of services involving money-making opportunities, fraud prevention, and risk monitoring, and they must undergo a screening process before working with high-risk clients.




Think Credit Reports Are Too Expensive to Use as an Ongoing Due Diligence Tool? Think Again

posted on 2015-05-06 by Matthew Debbage, Creditsafe U.S.A.

A business credit report is most often used by credit and collections professionals at the beginning of a new client relationship to determine a company’s risk level before issuing a line of trade credit. But after that their usage tends to dwindle, largely because of the notion that obtaining reliable credit data is too expensive.

SunGard Corporate Liquidity’s Credit & Collections Global Benchmarking Study found a huge disparity in how much money companies spend on credit bureau data, based on their budget. According to the study, in 2014, 26 percent of companies with over $1 billion in revenue spent more than $150,000 annually on credit bureau data, while 29 percent of companies with under $1 billion in revenue spent less than $25,000 annually on credit bureau data. As you can see, the decision to purchase business credit data might appear to be contingent on a company’s financial wherewithal.

What’s unfortunate about this approach is that to get the most out of credit reports, they need to be used as an ongoing risk management tool, allowing you to spot any changes to your customer’s risk profile or payment behaviors and take action before they become a bigger issue. For instance, a credit monitoring service can provide regular alerts about any significant or sudden changes to a company’s financial status or credit health before the problem spirals into a bigger one, such as its credit rating, credit limit, payment behaviors, directors or legal filings.

Now for the silver lining. Credit reports have become more affordable in recent times, making it possible for businesses of all sizes to get more use out of them than they once could. Here are the primary factors driving down the costs:

-          The Internet – The delivery of credit reports via the Internet has made access for businesses more affordable by reducing or eliminating paper trails and speeding up the process of obtaining reports.

-          Flexible, subscription-based pricing models – Typically, a company would have to spend hundreds of dollars to get just one individual business credit report on a customer. Doing this quickly adds up. But now companies can sign-up for a subscription-based credit reporting service, allowing them to view credit reports on all of their customers, as often as needed.

-          De-monopolization – For decades, companies that needed reliable business credit information would have to turn to one of the big bureaus to obtain it, like Dun & Bradstreet or Equifax. But, this is quickly changing as more credit reporting bureaus are arriving on the scene to give American businesses more options, availability and pricing.


For these reasons, business credit reports are no longer just reserved for large companies with big pockets. If cost has held you back in the past from utilizing credit reports as a regular part of your risk management strategy, it doesn’t have to anymore.

About the Author

Matthew Debbage is the president of Creditsafe’s U.S. operations, overseeing the company’s expansion into the U.S. market. Creditsafe is the world’s most-used supplier of online company credit reports. Nearly 5,000 companies in the U.S. use its credit reports, ranging from small businesses to large, global concerns like Staples, Ryder and Nestle. Debbage, with more than 15 years of experience in market entry strategies, has successfully led the research, planning and launch of a number of operations in markets around the world, making companies more efficient and profitable.




NC Senator Michael Lee Might Be a Debt Collection Idiot

posted on 2015-04-30 by Steve Rhode
North Carolina is trying to pass legislation which will roll back protections for consumers who have bad debt purchased by debt buyers.

Senator Michael Lee from Wilmington, North Carolina is the sponsor of S.B. 511, titled Proof Required for Debt/Fees, which efforts to rollback the requirement the bad debt buyer must have detailed information about where and when the debt originated and details on how the fees were calculated, before suing the consumer.

I can only assume Senator Lee is just an ill informed legislator. Because either he doesn't care about to baseless claims his constituents face from bad debt buyers or he is becoming a cheerleader for debt collectors.

The News & Observer says Lee believes rolling back the 2009 consumer protections, which "passed by a unanimous vote in the Senate because, on a bipartisan basis, people were troubled on behalf of taxpayers about what was happening in the courts," is a smart thing to do.

Lee's argument about making it easier for collectors to sue is that consumers can challenge the suit in court and demand proof. But we already know people are afraid and don't challenge these suits so Lee's position is effectively to retard common sense protections already in place for consumers.

In my opinion, this legislation is ill-advised, ill-conceived and unwarranted. Besides, what we are really talking about here is just making sure the bad debt buyer has the information on hand to prove this is a valid debt. The only logical reason to remove this requirement would be so the bad debt buyer is not required to have this information on hand.

And to make this situation even more ridiculous, Lee is listed as an attorney on his North Carolina General Assembly page.

Screen Shot 2015-04-29 at 5.39.39 PM

But maybe here is another clue what might be driving this slap in the face of North Carolina citizens. The website for Michael Lee, the attorney, says "The firm focuses on...debt acquisition."

Lee's idiotic sponsored bill wants to make a charge-off statement proof a debt is owed. Stricken as proof required by Lee's bill is the contract which must contain the signature of the defendant and copies of documents generated when the credit card was actually used. Left in the bill is just a requirement that to prove the debt, the debt collector needs "A copy of the contract, charge‑off statement, or other writing evidencing the original debt." Will a Post-It note be sufficient now?

And in order to get a summary judgment against consumers who already don't know how to defend themselves, all that will be required will be:

"The only evidence sufficient to establish the amount and nature of the debt shall be at least all of the following items:
(1) The original account number.
(2) The original creditor.
(3) The total amount claimed to be owed.
(4) An itemization of post charge‑off payments or credits, where applicable.
(5) The charge‑off balance, or, if the balance has not been charged off, an explanation of how the balance was calculated.
(6) An itemization of post charge‑off fees, where applicable.
(7) The date of last payment, where applicable.
(8) The amount of post charge‑off interest claimed, and the basis for the interest charged."

All of that appears to be easy to just pull from the air and write on that Post-It note rather than say, actually have proof and evidence to support the claim.

Senator Harry Brown from North Carolina is quoted as saying, "I think the intent of this bill is to find a balance between where we are today and maybe where we were before '09 ... I think the key point of this is, this is debt that someone has gone out and decided not to pay."

But even Brown is as clueless as Lee. This is not an issue about not paying a valid debt. It is an issue that the debt that is being collected or sued over is in fact a valid debt.

Lee appears to be sticking to his illusions this bill won't screw consumers, "The burden of proof is not shifted in this matter," Lee countered. "I'm getting a little frustrated there are so many misstatements coming out." - Source

Surely, simply asking that the bad debt buyer have the proof the debt is really owed with common sense documentation like statements and contracts is not a requirement that North Carolina lawmakers should try to dilute. What do you think?




Will Your Next Debt Collector Be a Robot?

posted on 2015-04-06 by Gerri Detweiler

 

Will Your Next Debt Collector Be a Robot?

Comments 0 Comments

Are the days of debt collectors sitting in cubicles “dialing for dollars” numbered? Debt collection, like many sectors of the economy, is starting to go digital. So if the idea of talking with a debt collector automatically puts your stomach in knots, you may be in for a pleasant surprise: In the not-too-distant future, your debt collector may be a computer.

William Lowe, director of operations for Gluu.org, a firm that writes and supports open source security software, has experienced this firsthand. A billing glitch with a vendor resulted in a rather large and unexpected balance that couldn’t be paid off immediately. The debt was turned over to TrueAccord, which calls itself an “automated debt recovery platform.” His first interaction with them was by phone, he says, but after that, he said it was “very automated — more a 2.0 experience.” Instead of cold calls, he says, he got emails.  “Rather than that back and forth haggle between a debt collector,” an online dashboard let him customize a plan, he notes.

Debt collection firms use technology today, including automated dialing systems (aka “robocalls”), skip tracing to find consumers, and predictive scoring to help them identify which consumers are most likely to pay. But in most debt collection operations there is still largely a human component, with collectors trying to talk consumers into paying as much as possible. Sometimes that works well; when collectors can establish a rapport with a consumer, they may even persuade them to pay their firm before others. But at other times, it can backfire, and result in angry consumers who are unwilling to pay, or even lead to violations of federal law designed to prevent harassment.

By contrast, the TrueAccord system is centered around an online dashboard that allows both the creditor and the debtor to view account balances, set up and manage a payment plan and track progress toward paying the debt 24/7. The approach appears to be working: In a March 2015 press release, the company said that in the past six months, it increased the amount of debt under management to $45M and is working with over 60 major companies to collect from more than 40,000 debtors.

Steven Mathis is one of those using the platform to pay off a debt. When Mathis left his corporate job to start his marketing company, Mathis Marketing, he dealt with the growing pains many new firms encounter and accumulated some business debt. He had every intention of paying back what he owed, and was turned off by the collection process in general, which he found “threatening, harassing, combative.”

‘I Felt More Motivated’

But when one of his debts was turned over to TrueAccord, he says the interaction was much more positive. Working with them via email and online, he was offered a range of payments, and was able to customize them to fit his financial situation. It was a “completely different experience,” he says. And because it was more positive, “I felt more motivated to take care of it,” he notes.

New regulations around debt collection are expected to be announced by the Consumer Financial Protection Bureau and may open the door to approaches such as this by clarifying, for example, when and how consumers can be contacted by email. Some consumer advocates hope new regulations will require debt collectors to provide consumers with more information about balances and payment activity, and if that happens, this kind of technology could be poised to fill the gap. Of course, there are drawbacks: some consumers don’t have reliable Internet access, for example. Others may be trying to avoid dealing with their debt and no amount of technology will change that. And still others may prefer to talk with someone by phone. Yet that still leaves plenty of consumers would would welcome the opportunity manage a collection account the way they do other bills — online and automatically.

“The preference for digital is stronger with younger and tech-oriented crowds, and they grow in numbers and overall population,” says Ohad Samet, co-founder and CEO of TrueAccord. “However, the advantage of an automated and data-driven platform is that it can identify and use the consumer’s preferred channel — be it email, SMS or a phone call with a live representative — all channels that our system utilizes when appropriate.”

This isn’t the only company trying to change the industry though technology, of course. Another, Global Debt Registry, is working on creating a central repository of consumer collection accounts, and making that information available to consumers through a free consumer site, DebtLookUp.com. It currently allows consumers to research collection agencies and verify debts they owe to help them avoid scammers. It can track their debts even when they are sold to multiple collection agencies. (Consumers can also see how collection accounts are affecting their credit by getting their free credit report summary on Credit.com.)

How fast and far-reaching these changes will be remains to be seen. But for at least some debtors, it’s already night and day. Lowe, for example, says he’s never had a debt collector send him chocolates for Christmas. TrueAccord did.

More on Managing Debt:

Image: iStock




Bankruptcy is not the answer for student loan debt

posted on 2015-03-20 by Steve Rosen

Having a bankruptcy flagged in your credit file can make obtaining a credit card, taking out a car loan or applying for a home mortgage a nonstarter for years. It can also affect your ability to land a job.

Yet in a move that’s certain to be scrutinized, the Obama administration is weighing whether to loosen bankruptcy laws so some borrowers drowning in student loan debt could unload those burdens and start fresh.

The proposal is included in a recently unveiled White House initiative called the Student Aid Bill of Rights, which is aimed at providing more protections for federal student loan borrowers.

The initiatives, including a new online outlet for filing loan complaints, come amid growing concerns about the debt that college students are carrying after graduating. The average amount of student loan debt for 2013 college graduates was $28,400.

Unlike most debts, federal law prohibits student loans from government and private lenders from being forgiven in bankruptcy proceedings, except in cases of undue hardship. Even in those rare situations — and there are fewer than 1,000 people a year trying to get rid of student loans through the courts — a bankruptcy action can be expensive and cumbersome.

But the Student Aid Bill of Rights directs government officials to explore the possible expansion of bankruptcy options on federal student loans. No details have been released.

Why has the idea been floated?

“To make sure that more and more young people can afford to go to college and then afterward aren’t so burdened with debt that you can’t do anything else,” President Barack Obama said in a speech earlier this month at Georgia Tech University, where he unveiled the proposal.

Any bankruptcy law changes would have to be approved by the Republican-controlled Congress, so substantial pushback is likely.

One possible scenario, according to financial aid experts, is to allow borrowers with private student loans from financial institutions to take bankruptcy.

That’s a small subset — only about 10 percent of student loans are made by private lenders, according to the Credit Karma online financial services firm.

Given that bankruptcy can be one of the most negative items pinned to your credit report for as long as 10 years, why make it easier to enter the system, even as a last resort? What’s the incentive to fight to stay current on student loans if the problem can be wiped out in one fell swoop?

Better for former students to focus on a host of flexible repayment options and even loan forgiveness programs that have been expanded in recent years. Also, don’t forget that many credit counseling services provide free loan restructuring advice.

Other aspects of the new Student Aid Bill of Rights plan could ease the pressure on student loan borrowers and clamp down on lending industry repayment practices.

For example, the plan directs the U.S. Department of Education to create a website by July 1, 2016, so borrowers with federal student loans can file complaints about lenders, servicing companies, collection agencies, and colleges and universities.

Another benefit of the new program applies to borrowers who make higher monthly payments than required. Under the plan, the loan servicer will have to apply the extra funds to the student loan with the highest interest rate, unless directed otherwise by the borrower.

There’s another way to deal with all this student debt — one that gets lost in the policy debates.

It starts long before the kids head to college and involves a family discussion about money — the cost of attending college, the importance of picking schools that are not financial stretches, zeroing in on a degree that balances with the cost of education and understanding that paying back debts even a little at a time requires commitment.





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