Unsettling Debt
Philadelphia Weekly June 30, 2010 | Powell, Nick Sometimes paying what you owe isn’t enough.
Brian Yard grew up in Towanda, a small blue-collar town in northern Pennsylvania, where, he says, people are scrupulous by nature and pay their debts as a general principle. Yard, 61, says he never imagined that this ingrained morality would be put to the test.
Early in 2008, Yard was suffocating in credit-card debt. His credit rating, once in good standing, had steadily plummeted. For Yard, filing for bankruptcy suddenly looked like a feasible option. But then a barrage of debt-settlement solicitors started calling him every day, voices with hollow promises of eliminating bis mounting debt in less than three years. Yard says he had never heard of debt settlement before, so he ignored the calls.
Desperate to escape his financial woes, Yard finally picked up the phone one day in October 2008 and listened. Using powers of persuasion, a solicitor from Guardian Referral Network, a company “dedicated to helping individuals and families rid their lives of burdensome debt,” convinced Yard, a North Philh/ resident, to sign over his debt to a debtsettlement company. Willing to do almost anything to rid himself of the gnawing anxiety that had plagued him for months, Yard agreed. “When you’re between a rock and a hard place, you’re looking for a lifeline and you just kind of close your eyes and hope,” he says.
Acting as the middleman, Guardian Referral Network connected Yard with J. Hass Group, a debtsettlement company based in Arizona that, at the time, went by the name of JDH & Associates. A few days later, the company sent Yard a 20-page contract loaded with legal jargon and microscopic print.
At first, Yard put the documents aside, but the company persisted, calling him constantly and asking if he had signed yet. A month later, he signed the documents, which included a power of attorney that gave JDH the power to speak to Yard’s creditors on his behalf. “[The phone .representative] told me the first thing they do is let all the creditors know [that he enrolled in a debtsettlement plant and they send them the copy of a power of attorney,” Yard says. He adds that the company also told him to stop paying his credit card bills.
Two years later, Yard’s debt has grown by an additional $14,OOO and he’s been sued by one of his creditors.
Yard joins a long list of debtors being victimized by the predatory, for-profit debt-settlement industry.
Debt-settlement companies promise to work with credit-card companies to write down debtseven when most creditors openly avoid working with them. As a result, some will advise consumers to discontinue their credit payments, so as to ease the settlement process when a debt is transferred to a debt buyer or collection agency, which are generally more apt to negotiate with settlement companies. Subsequently, consumers are then slapped with lawsuits from their creditors for months of missed payments. These debt-settlement companies, many of which operate without accreditation, then hit consumers like Yard with thousands of dollars in egregious fees and hidden charges.
“I feel stupid,” Yard says. “I was looking for a lifeline and [debt settlement companies] throw you an anchor.” BEFORE BECOMING A pawn of this multimillion dollar industry, Yard described himself as “a normal person who managed things.” He worked a series of odd jobs before settling in as an assistant general manager for Capital Auto Auction in Northeast Philadelphia. While at work, he says he suffered debilitating injuries to his back, wrist and neck after falling off of a platform. Yard was put on worker’s compensation and at that point, viewed retirement as a comfortable option. “I had a couple of retirement plans- I had done OK investing,” he says. 1 had a SEP IRA and a traditional IRA, then I got a settlement from workman’s comp. I took the money from that and I invested it in stocks.” Yard says he invested his settlement money in bank stocks since “everybody was making money” off of them. He figured that if he were ever in dire straits, he could sell the stocks and live off of what he had left. Then, in October 2008, when the banks started to crumble, Yard’s nightmare scenario became a harsh reality.
“At the time, every night you turn on the TV, Citibank is going bankrupt, Bank of America is going bankrupt, so I sold them [the stocks] for practically nothing.” With 90 percent of his stocks wiped out and without any steady income, aside from the Social Security disability checks, Yard began running up tabs on seven different credit cards. He also began supporting bis girlfriend, who moved in to his home with her three children. When her 17-year-old daughter got pregnant, Yard depleted one of his retirement accounts to help her out. By the tune Yard signed on with JDH, he was $50,000 in debt. see here capital auto auction
Based on records provided by JDH & Associates/J. Hass Group, Yard began making monthly payments of $816.64 to the debt-settlement company, including a $39 maintenance fee. These fees were laid out in the contract.
The documents show that JDH withheld the first three payments as a fee for their services. Each subsequent payment was placed in a trust account that would be used for settlement payments to credit card companies. Over the next 15 months, the company received 48 percent of the payments, and it deposited the remainder into a bank account for settling debts via NoteWor??d Servicing Center- a Bend, Ore.-based payment processing company that recently had its accreditation license yanked by the Better Business Bureau- which charged Yard a mysterious $200 management fee, the only fee not detailed in Yard’s contract with the debtsettlement company.
Months passed and Yard’s debt burden only seemed to weigh heavier. He called the debt-settlement company to complain, and the following day a representative called back: One of the creditors had agreed to a “time sensitive” settlement offer. They agreed to take $2,525 on a $5,500 bill. Yard gave the green light to settle.
Yard was not as successful with his other credit cards because he stopped making his credit-card payments. Subsequently, he was sued by one of his creditors.
The creditor demanded that Yard pay $14,313 on his original debt of $11,8OO. When he turned the lawsuit over to JDH’s legal department, they responded with a settlement offer of $9,546- 81 percent of the original debt and 67 percent of what it ballooned to. Yard reluctantly said yes, reasoning that this was his largest debt. A week later, the settlement company informed Yard that the credit-card company had rejected the offer.
Growing increasingly weary with the arrangement in April, 2O1O, Yard called Kerry Smith, an attorney with Community Legal Services in Philadelphia. “There’s really some question here as to how much the debt settlement company is doing,” says Smith, who works with dozens of clients like Yard. “Mr. Yard is really unique in that he’s so dedicated to trying to make this work that he’s put hi half of his income. He’s the rare consumer that actually accumulated money in a savings account and yet it doesn’t seem like [JDH] were doing anything until he called them.” J. Hass Group is not an accredited organization, largely due to what company CKO Jeff Hass believes to be “blacklisting” by the Better Business Bureau, an organization whose board members, he says, are made up of bankers and competitors in the credit-counseling industry. “We were in the process of being accredited [by the Better Business Bureau] and [our grade] went to an F because they believed we weren’t part of a credible business,” Hass says.
The Bureau has processed more than 100 complaints against J. Hass Group since February 20O8. Additionally, Florida’s Attorney Generai Bill McCoUum investigated J. Hass Group CEO Jason Hass, Jeffs son, last June for violating a statute forbidding debt management or credit-counseling services from charging upfront fees in excess of $50. The case was closed after the money was refunded.
Jeff Hass attributes the fallout to miscommunications between his company and creditors. He says that consumers are often too skittish and wind up assigning blame to the debt-settlement company.
“When JDH or J. Hass calls and tells [consumers] one thing, and any other creditor calls them and tells them they never communicated with us and they don’t settle with us, who are you going to believe? Then after four or five months they get a summons, and we have the ability to negotiate and settle those, [but] the customer gets so rattled they seek an attorney and wind up declaring bankruptcy, and once they have that bankruptcy, they blame us for everything.” As for advising Yard to stop making his credit-card payments, Hass denies that his company would have said that. “We don’t tell people not to make their payments. [Yard] decided not to, or at the time he came in, wasn’t making his payments,” he says. “I cant prove or disprove that, [but] the people who do marketing for us are explicitly told that is not something they can say.” THE DEBT-SETTLEMENTindustry has a nationwide reach and has, for the most part, evaded effective federal and state regulation, largely thanks to relentless lobbying. The perceived ambiguity between nonprofit debt management and for-profit debt-settlement companies is a prime example of the industry’s disingenuous nature.
Debt-management plans are designed to distribute a consumer’s money to creditors on a monthly basis, negotiating deals with credit-card companies for payment arrangements, often with a set interest rate. Debt-management companies and creditcounseling services do a financial analysis of every consumer to make sure they can afford the monthly payments.
Debt-settlement companies, however, charge exorbitant monthly fees over a twoto three-year period, regardless of whether the consumer has the means to make such payments, and allows money to accumulate in a special “trust account,” which is often administered by a different entity. When enough money has been pooled, the company contacts the creditors and begins to negotiate the settlement, which usually ranges from 25 to 50 percent of the original debt. But with such high fees, consumers often sink further into debt, and the majority of debtors end up not finishing the program.
The ongoing recession has helped foster the debt-settlement boom.
“Let’s put it this way, roofers have business throughout the year. If a hurricane hits, roofers get ridiculously busy all at once,” says Andrew Goode, regional vice president of the Better Business Bureau’s Philadelphia branch. “In this case, [debt settlement] is a phenomenon that’s been around seven years now, but they go gangbusters when the economy sours. Their growth is explosive.” The industry went through a vast expansion in the early part of the decade, partly due to a dramatic change in the fee structure that most settlement companies employed. The old model had companies collecting a I percent retainer as a deposit with the other fees contingent on actually settling a debt. Under the current blueprint, companies generally charge a flat-rate fee of upward of 15 percent of the total debt to be paid on a monthly basis. Most of these new-model companies registered as non-profit organizations, even though their practices resemble those of predatory for-profit firms.
Pennsylvania legislators have taken stabs at regulating debt-settlement companies starting with a 2O07 law that gave the Department of Banking regulatory power over for-profit companies and forced them to apply for proper licenses. Joseph Leighton, a lobbyist for Pugliese Associates (a Pa. lobbying firm), advocated for the passage of this bill. “The whole point behind the legislation, to create a regulatory framework for operating a debt-management company in the commonwealth so that consumers were adequately protected,” he says.
Leighton says he worked to educate a number of legislators on the benefits of debtmanagement services, including the Department of Banking and State Rep. Dwight Evans, who ended up being the main sponsor of the bill and shepherded it through the House. “This was an industry that was not regulated at all in Pennsylvania and so this legislation set up the ability for the administration to set up some rules and regulations,” says Evans’ press secretary, Johnna Pro.
But before the ink had dried on the legislation, The Association of Settlement Companies (TASC), a conglomerate of debt-settlement organizations, filed a preliminary injunction that prevented the state Department of Banking from enforcing the law. TASC had previously blocked similar, far-reaching legislation in Texas and was successful, at least in part, in rolling back reform in Pennsylvania, too. A state court blocked the banking department from regulating the fees that debt-settlement companies can charge. But the court did give the agency the right to issue licenses.
According to TASC’s website and membership directory, they count Guardian Referral Network, the company that roped Brian Yard, as a member of their organization. This despite the fact that they are not at all involved in the debt-settlement process except f to provide a communication line between debtors and creditors and to connect a client with a debtsettlement company.
Despite the anti-regulatory actions, David Leuthold, executive director of TASC, says he wants the debt-settlement industry regulated, wants consumer protections and wants organizations like J. Hass Group barred from operating. go to site capital auto auction
These statements ring hollow when his organization’s website boasts of road-blocking regulatory legislation that would “seriously impact the ability to perform debt settlement.” Leuthold is also the CEO of Century Negotiations, a Pa.-based debt-settlement company that had its accr?©ditation revoked by the Better Business Bureau hi January. According to State Sen. Kim Ward, whose district includes North Huntingdon, where Century is located, Century came to her to and asked if she could do something “to make sure they were regulated and that they looked legitimate.” AS UNEMPLOYMENT CONTINUES to rise and the economic crisis persists, many Philadelphians are becoming pawns of a multimu?¬ion dollar debt-settlement industry that preys on the desperate using tactics that skirt legality. By using shadowy contractors who advertise relentlessly on local radio and television stations, debt-settlement companies have the leeway to make deceptive claims about the “success rates” of programs that would dupe even the most sophisticated of consumers.
Olga Cuevas is the antithesis to this argument: A consumer who, despite being underwater on five credit cards made her payments like a responsible debtor. Cuevas, also a North Philly resident, appears older than her 57 years, her wrinkles an indelible reminder of a lifetime of hardship as a working-class immigrant.
She never owned a credit card, partly because her husband had always warned her about the dangers of personal debt. Soon her husband died in 2005, Cuevas, a former machine operator, contracted a bone disease that left her unable to work. With no income besides her monthly Social Security disability checks of $825, Cuevas started signing up for credit cards. Five to be exact.
She gave one of the cards to her son in Texas. Medical bills stemming from his diabetes combined with an accident that left him with significant hearing loss ied to a series of missed payments. Now faced with an insurmountable level of debt and meager income, Cuevas began making the minimum payment each month on each card.
In July 2008, Cuevas signed up with the now-defunct Zero Debt Solutions Inc., a Florida-based debt-settlement company that had never received accreditation from the Better Business Bureau. Like Yard, Cuevas succumbed to persistent phone solicitations, multiple times every day. “They kept calling and calling, and they told me … that I’m going to spend almost my whole life paying just the minimum payment,” Cuevas says. “I asked, ‘Well, when are they going to finish [settling all her debt]?* They told me I was going to be off debt in three years.” Instead, under the 33- to 41-month program set up for her by Zero Debt Solutions, Cuevas sank further into the money pit. According to documents provided by her attorney, Cuevas made payments of $300 per month from July 2008 to April 2010, including a “”setup fee” of $399 over the first four months, all deposited into the pockets of the debt-settlement company. The next six months of the program saw 50 percent of her payments going toward her “enrollment fee,” totaling $900.
The settlement company set up a “special purpose banking account” for her through the Rocky Mountain Bank & Trust in Colorado, Monthly payments of $30O were deposited in this account, coupled with fees of $49 for service and 45 cents for every deposit. The company did settle one of her debts of $5,982 for $3,070, 48 percent of the original payment However, when factoring in the 29 percent commission that the company took, a total of $844, the actual settlement was only for $2067, a 34 percent savings.
Cuevas said she was kept in the dark throughout the entire process. She claims Zero Debt sent her a letter explaining that they would soon be settling one of her debts, but then never heard back from them. “They told me they were going to open the bank account to transfer the money from this bank to the other one,” she said, “I didn’t know about that [$3,000 settlement], if they did, I didn’t get it.” Records show that Zero Debt took Cuevas for $7,000, half of which were in fees. Cuevas also claims that the company told her to stop paying her creditors, having her sign a power of attorney so that they could negotiate on her behalf. When two of her creditors sued her for missed payments, Cuevas contacted Smith, the Philadelphia attorney.
“[Zero Debt Solutions] put her in a worse credit position because even though she was under water, she was still making her payments on time every month,” Smith says. “So now, they tell her to stop making her payments.” Smith adds that while all of the fees were outlined in the fine print of her contract, Zero Debt’s persistent phone harassment and the oral assurance of getting Cuevas out of debt in three years far outweighs whatever language they had in her contract.
“The sad part is, they really prey on people’s good will, literally, by taking all of [their] money,” she says.
THE BETTER BUSINESS Bureau has given up the fight to regulate this industry. It recently put debt-settlement companies in its “inherent problem” category, and companies like Noteworld have had their accreditation revoked simply for themselves with the industry.
On the national front, Sens. Chuck Schumer (D-N.Y.) and Claire MeCaskill (D-Mo.) recently introduced legislation that would prevent debt-settlement companies from collecting fees until debts are settled.
The Federal Trade Commission has proposed a debt-relief amendment to the Telemarketing Sales Rule. The amendment would require companies to disclose how long a customer must wait for a settlement. It also wants companies to state up front that a debt-settlement program will tank a debtor’s credit rating.
“The FTC is trying to show and have these entities prove [the statistics they provide], especially in their advertising,” said Patricia Hasson, president of the Credit Counseling Services of the Delaware Valley, a nonprofit debt-management organization. “You’ll see in a lot of their ing, 1We eliminated 70 percent of your and I think where the FTC is winning is that they [the debt-settlement companies] don’t have the data to support that.” Yet the debt-settlement industry is nothing if not resourceful: The companies do not make the advertisements that run on radio and television. Instead, the companies commission “lead generators” to handle the advertising, and many of the ads offer inaccurate information on fees and on settlements. These shadow games are particularly hard to police because it ates debt -settlement companies from any faulty advertising of their product.
“Instead of actually doing the debt settlement and consulting, [referral agencies] actually talk to you about the problem and then they recommend an outside agency,” says Goode of the Better Business Bureau. Goode says these companies often call themselves “life counselors” and often referral fees from the consumer they help and the company they recommend.
Now, Brian Yard and Olga Cuevas are ply statistics. According to numbers put out by TASC, more than 75 percent of consumers fail to complete their debt settlement program. Only 34.4 percent of consumers who started debt settlement three years earlier had either “substantially completed” their debt settlement plans or were still actively saving for settlements. Meanwhile, according to an industry survey done in September and October of 2009, the total amount in fees collected by TASC members was approximately $126 million.
[Author Affiliation] By Hick Powell feedback@philadelphiaweekly.com Powell, Nick
