[redirect] Things to keep in mind when settling a debt

This blog confuses me a bit. It’s a blog about debt settlement and credit restoration, apparently sponsored by a credit repair organization, but that tells readers to avoid credit repair organizations. I don’t get it.

Still, these tips on negotiating settlement terms are very helpful (see them after the jump):
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Early Termination Fees Endangered!

Today is mooch-off-Consumerist day, and they have once again clued us in to a great consumer link. Idaho consumer lawyer Curt McKenzie represents the law firm of Greener, Banducci, Shoemaker, which is suing T-Mobile on the grounds that its early termination fee bears no relation to the damages suffered by T-Mobile in the event a customer cancels a contract before its expiration.

The law firm cancelled its T-Mobile contract for apparently poor service, and was charged a cancellation fee. But liquidated damages provisions in contracts–which is essentially what an early termination fee is–must bear some relation to the damages that would be suffered in the event of breach (early termination, in this case). The lawsuit alleges that since the fee does not change no matter when a customer terminates their contract, it cannot bear any relation to the actual damages.

The lawsuit may turn into a class action, which is good news for consumers. I applaud any measure that makes it easier to switch cell phone companies. Maybe then companies will concentrate on providing good service rather than making money on spurious fees. One has to wonder if early cancellations aren’t part of the plan, after all.

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Bank of America Calls the Cops On a Customer; the Internet Strikes Back

Consumers have been publicizing their complaints with businesses forever. These take many forms, but ever since the Internet went mainstream, there have been web pages devoted to publicizing consumer complaints. When the Consumerist blog started up last year, it quickly became a repository for consumer complaints. And it gets results on occasion.

Most recently, BoingBoing linked to a SFGate.com article about a scam victim who landed up in jail when he went to Bank of America to see whether the check from the scammer was legitimate or not. Angry BoingBoing readers have pledged to close over $46,500 in protest as of the time of this posting. Surely that isn’t enough to get Bank of America fired up, but perhaps the bad publicity will. BoingBoing is one of the most popular blogs on the Internet.

Consumerist editor Ben Popken recently appeared on 20/20 to talk about this phenomenon. We agree with him: anything that puts power back in the hands of the consumer is good.

BusinessWeek on Capital One’s Credit Trap

The Consumerist pointed us to an article by BusinessWeek exposing the credit card company’s strategy to get consumers to rack up overlimit and late fees. The article is good reading, but the gist of it is this: rather than give out one card with a reasonable limit, Capital One seeks out first-time credit card users, gives them cards with low limits ($300, $500, or so) that are quickly maxed. Then offer the same consumer a new card with a similarly low limit. Chances are good the consumer will go over limit on the first card, and the second, and the third, fourth, fifth, and so on, racking up overlimit fees around $35 per card, per month. Plus, a consumer who is late on one card is usually late on all of them, for another $35 per month.

Let’s see, $35 is 11.6% of $200, making the effective interest rate on your card over 140% yearly if a consumer stays over limit (more likely since the overlimit fee charge counts as part of the credit). And if you are late, too? There’s another $35. You do the math. Overlimit and late fees are clearly more profitable than straight interest. Why settle for a 20% interest income when you can get 300% from a naive, first-time credit card user?

HUD Goes After Housing Insurance Companies for Discrimination

The Department of Housing and Urban Development has charged Erie Insurance Goup and five independent insurance agencies with violating the Fair Housing Act. According to the HUD charge, they provide inferior products–or no products–to homeowners in predominantly African-American neighborhoods.

Read the full article after the jump.

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TheMobileSolution Sells Consumers on Shifty Cell-Phone Plans

I don’t usually watch Fox news, but tonight I caught an investigative report about The Mobile Solution, a mall-kiosk cell phone store. The problem, of course, is that most cell phone users are already in the middle of a contract with their cell phone provider. The solution? Lie.

Employees of The Mobile Solution claim to have been trained to tell customers that they can pay $10/month rather than an all-at-once cancellation penalty, or that for $6/month, they can put their phone in “vacation mode.” Both of these options are completely made up, of course. Just a way for a company to take advantage of less-knowledgeable consumers.

The Mobile Solution’s weak statement after the jump.

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New “FICO Expansion” Credit Score

Fair Isaac recently launched a new credit scoring model, the “FICO Expansion” credit score. The FICO Expansion score is aimed at providing a credit risk number for the “millions of Americans who have little or no credit information on file at Equifax, Experian and TransUnion.” According to Fair Isaac’s press release, some pretty important lenders have been test-driving the new score for some times, including: DaimlerChrysler Financial Services, Freddie Mac, HSBC, and First Franklin.

So is this good or bad for consumers? As usual, some good, some bad. On the one hand, it probably means that a substantial portion of the population can now get credit even if they have little in the way of credit history. Fair Isaac seems to think the scoring system is a pretty good predictor of good credit. On the other hand, my guess is that anyone with a FICO Expansion score is going to get fleeced on interest rates. Plus, the subprime lending market is large and shady. There are going to be a lot of subprime lenders out there who are salivating at the prospect of the commissions they will be able to earn for writing a lot of high-interest, bad-idea loans.

If this has any effect, I’m guessing it will give a big push to debt collectors, predatory lenders, and the rising tide in home foreclosures because people borrow money they can’t afford to pay back, either on their own or at the urging of unscrupulous lenders and agents.

Auto Insurance Consumers are Shopping Around

According to Progressive CEO Glenn M. Renwick, “[t]here is a power shift to the consumer” prompted by the ease of obtaining insurance quotes online. Auto insurance premiums are going down. That’s right. Down. This is, of course, contrary to nearly every other segment of the insurance market, and great news for consumers.

The full MarketWatch article after the jump.

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Beginning of a Disturbing Trend?

I have received two calls in the last two weeks from people who were improperly served in connection with a debt collection. The first is a college student who has never lived with his mother. The law firm’s process server, however, turned up at his mother’s house with a summons and complaint. She refused to accept service, telling the process server that her son has never lived at that address. The process server told her to take it anyway, that he just needed a signature. And so the lawsuit begins.

In the second case, the summons and complaint just showed up on the porch of the debtor’s father’s house. It was dated some twenty days before it was found, and none of the family ever saw a process server. Plus, the debtor has not lived with her father in nearly a year.

Service was improper in both cases, of course, but under Minnesota’s ridiculous laws, the first debtor’s bank account has been garnished even though he was never properly served and the debt collecting law firm never filed the lawsuit. I’m sure the same fate is in store for the second debtor unless we can move quickly enough to get the case thrown out.
I hope these are isolated incidents, but I am concerned they demonstrate the willingness of debt collectors to shirk the rules in order to increase their financial gain.

The Benefits (?) of Tort Reform

Following up yesterday’s post about tort reform in Texas, TortDeform posted a letter to the editor of the Bluefield Daily Telegraph (WV). West Virginian Gilbert Bailey says “So much for the promise of less expensive insurance premiums . . . .”

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