Payday lenders constantly look for ways to attract vulnerable and desperate borrowers who are often locked out of traditional lending markets. They are looking for opportunities to sell high-priced payday loans to the working poor.

Payday loan operators are discovering that the brick and mortar (storefront) payday loan operation is incredibly risky. Imagine signing a 5 year lease and hiring staff only to have your state’s legislature outlaw usurious loans. You can be put out of business almost overnight.

In order to protect themselves from state regulation, payday lenders are discovering ways to isolate themselves from this regulation. An industry giant known as Western Sky Financial is based on a Native American reservation. Western Sky claims that it is not subject to state laws and is instead subject to regulation by the sovereign Cheyenne River Sioux Tribe. States such as Colorado disagree.

Other fraudulent schemes operate from Caribbean outposts. Most of these operators mask their identity. Many of them are Americans who attempt to evade regulation by simply hosting a website offshore. Meanwhile the profits are funneled right back into their personal accounts.

The delivery methods of payday loans are what makes these loans possibly the biggest fraud on the radar for 2012. Email spam has always been a lucrative delivery method for sourcing payday loan leads. Some loan commercials have become more popular even on mainstream television channels, including ESPN.

Finally, we are seeing an increase in the use of robotexting, a method in which a computer is used to send out thousands of text messages to cellular telephones in order to lure unsuspecting consumers to payday loan websites. Payday loan robotexting is increasingly being used to promote these predatory loans.

The owners of these websites hide behind offshore website hosting companies that provide shelter and anonymity for the owners. They rarely provide legitimate information on public website directories. Some provide fake information in violation of ICANN policies while others subscribe to private registration through use of a proxy, a method which is legal and fairly common.

Some states such as West Virginia have gone after payday lenders that sell illegal loans to citizens of their states. Others like North Carolina refuse to investigate violators who sell the loans online, choosing only to regulate brick and mortar lenders.

Regardless of which scams are the most popular in 2012, you would do wise to steer clear of any business transaction from less than transparent operators. Checking the Better Business Bureau for a reliability rating can often be your best (though not perfect) defense from scammers and crooks.

Apparently the fee does not apply to ATM withdrawals. A single purchase will  trigger the $5 fee for that month.

Consumers agree that they do not like the fees. However, the fees are not so unsavory that they are planning to leave Bank of America.

Instead, we are seeing another trend. Many customers including this author are making the switch to an alternate account with another institution.

If Bank of America does not waive my fee on a monthly basis, then I will simply stop using it for debit transactions. My credit union does not assess any fees, which makes it a perfect switch.

Another expected trend is one that Bank of America and others are definitely in favor of. They believe that customers will begin using their Bank of America credit cards instead of their debit cards. This benefits the bank, since this opens the door to finance charges that were not possible when customers depended on their debit cards.

For more information about the new fees, Debtors Unite is keeping up with the developments on the $5 monthly debit card fee at Bank of America. They are also following the regulatory unrest over the fees which Senator Durbin is personally monitoring.

• Falsely claimed to be lawyers, investigators, detectives, and mediators
• Threatened consumers with arrest, jail, and lawsuits
• Threatened to seize the assets of consumers
• Inflated the amount allegedly owed
• Attempted to collect debts from consumers not knowing if the consumer actually owed the debt
• Targeted family members of consumers, wrongfully disclosing the existence of alleged debts to family members, and attempted to collect the alleged debts from family members
• Harassed consumers through repeated and constant calls, using abusive language
• Levied unauthorized charges on the credit card accounts of consumers

Common tactics utilized by Lowinger’s debt collectors focused on calling the family members and military personnels’ commanding officers as a way to embarrass the service member and extort payment. Contacting any person other than the debtor for purposes of shaming the individual are illegal. A debt collector may only contact a family member or employer for the sole purpose of requesting contact information for the debtor, and only if the collector has not previously obtained proper contact information for the debtor. Any other information release is illegal.

Lowinger’s collectors would actually identify a service member’s commanding officer for the purpose of threatening to call, and in some cases, subsequently calling the commanding officer in order to pressure the service member to repay the debt. Unfortunately, this illegal practice has a history of being widely utilized by companies that specialize in lending and debt collections to military personnel.

To make matters worse, Lowinger held herself out to be an agent of the Department of Justice.  She threatened arrest by military police and dishonorable discharge from military service if payment was not made immediately. Additionally, she threatened loss of security clearance and court martial.

Fortunately, the filing of felony charges against Stephanie Lowinger will remove one rogue company from the much maligned debt collection industry. New York Attorney General Andrew Cuomo has been the leading force in attacking some of the worst violators of consumer protection laws. As a result of the investigation, Lowinger is facing 4 years in prison on a criminal charge plus a civil lawsuit with the purpose of shutting down her firm.

Before August 15, 2010, financial institutions could automatically cover your expenses when you used your debit card and spent more than your remaining balance. For years consumers have been clamoring to stop this practice, wanting those debit charges to simply be denied. If you attempt to overstep your lending limit with a credit card, they will deny the charge…many consumers wanted the same to happen with debit cards as well.

The problem is not with the protection (which in essence turned the debit card into a credit card in many cases, or else simply withdrew the needed money from a linked savings account) but with the fees associated with it. At about $30 a pop, a day of shopping could turn into a $150 ordeal…on top of the money you were already spending (that you thought you had).

So should you opt-in like your bank or credit union wants? They do make it sound good…like you will be left out if you do not join. We all like to join in. However, they have their own profits to consider, and fees are a big area where they see profit.

The new Federal Reserve law was designed to protect consumers…and it will, if you do not opt-in.

How should the rule change how you treat your debit card? If you regularly use your debit card, you need to always be aware of your account balance, so you won’t face being denied at the register. This is a good practice regardless, and helps you keep a handle on your spending.

If you are unsure whether you have enough in your account to cover your expenses, either choose wisely to not purchase the item, or put it on a credit card. But if you put it on a credit card make sure you will shortly have the money in order to pay the balance in full. Getting charged interest and fees by the credit card company is no more in your interest than paying fees to your financial institution!

So while the financial institutions spin it to sound like they are offering you protection, what they are really asking you to do is give them permission to charge you fees. The good thing is that to opt out, you simply have to do nothing.

This removes one potential source of confusion that likely led to overdrafts from customers who thought their account balance was as high as what was posted in “Account Activity.” Now all transactions appear on that page.

Prior to May 2010, Bank of America would omit any pending or completed scheduled bill payments for the current day from the “Account Activity” listings. This resulted in an overstated account balance.

As anyone knows, when your actual account balance is lower than what you believe it is, you run a higher risk of over-drafting your account. Such a discrepancy in account balances has likely resulted in millions of dollars in overdraft fees over the years.

This change to Bank of America’s online account management console aids transparency and improves accuracy of account information. A better informed customer is better able to plan future payments and ensure they will have enough money in their account.

While Bank of America has finally embraced full transparency of their online banking, other major financial institutions have not. Since regulatory interference is unlikely, it will be up to the competitive market to put pressure on those banks that still do not provide a true balance to their customer.

Indeed, the entire Bank of America online banking experience is much improved. Users now have direct access to all linked accounts, including checking, savings, money market, credit cards and even investment accounts through Banc of America. Having access to all accounts facilitates payments and moving money around. It still takes a day to transfer funds from checking to investment banking, but I imagine this barrier will soon fall as well.

Allegro is one of many large debt settlement companies that skirt consumer protection laws. According to Alabama Attorney General Troy King, Allegro violated the Deceptive Trade Practices Act and the Sale of Checks Act.

Owner Keith Anderson Nelms plead guilty to violating multiple rules of professional misconduct. His Alabama law license was subsequently suspended.

Allegro failed to obtain a license from the Alabama Securities Commission, yet offered debt settlement services to Alabama residents. Approximately 175 of 15,000 total clients were Alabama residents.

Allegro made false, deceptive and misleading claims to customers in regards to its services. One such claim was that since Allegro was run by an attorney, that they would be able to achieve superior results over what other debt settlement companies could provide. The court came to a different conclusion:

Defendant’s debt settlement program failed to reduce consumers’ debt in most cases, negatively affected consumers’ credit ratings, and subjected customers to increased lawsuits and collection activities by creditors. It was deceptively unclear to Allegro consumers that Allegro Law would collect its fees in full before any funds were used to pay creditors.

In fact, the court found that instead of providing legal services as claimed, Allegro instead referred all cases to a third party that did not practice law, yet made claims to the contrary. This was a violation of the Deceptive Trade Practices Act.

These are the summary findings of the court in regards to Allegro:

(1)consumers were led to believe that Allegro Law, LLC was a law firm providing legal services, when in fact, consumers were not provided legal services; (2) consumers believed that Allegro was located in New York, when it was located in Prattville, Alabama; (3) consumers were not aware that they would be charged a fee of 16 percent of their total debt enrolled in the program and that 100 percent of their monthly bank drafts would go toward payment of that fee until the fee was paid in full; (4) consumers were deceived about the effectiveness of Allegro’s program and the certification of Allegro’s services; and (5) consumers were directed to stop making payments to creditors, which resulted in increased interest rates, late fees, further damage to their credit ratings, and additional and increased collection activities by their creditors.

Allegro clients are unlikely to see most of their money. It is unlikely that the court appointed receiver will receive substantially more than the $12 million seized so far. Splitting that $12 million between 15,000 unhappy customers would result in an average refund of $800. Once you count the legal bills of the receiver, the average could be far less.

For information about filing a claim for a refund, view the contact information for the court appointed receiver. Make sure you share your story so that you can warn others away from a similar fate.

The Purpose

When Capital One and any other credit card issuer encounters an account holder who falls 180 days delinquent, they are required by federal law to charge off the account as an uncollectible bad debt. This is written off as a loss, of which a portion is recovered by selling it to a debt collector.

Attorneys, debt buyers and collection agencies often purchase these accounts for pennies on the dollar and pursue collection activities against the debtor. There is no limit on how long they can pursue collection of the debt.

There is however a limit to how long they can pursue legal action against the debtor. The statute of limitations on a debt prevents a debtor from being sued over an old debt. A lender or their agent must pursue a judgment before the statute of limitations expires. This can vary considerably by state.

The AG’s office is specifically charging that Capital One extended what it claimed were credit offers to these debtors. However, it charged that many of these credit offers were for only $1. The catch was that the debtor had to transfer their old “expired” debt over to the new card, thereby re-aging the debt. Attorney General Darrell McGraw had harsh words for Capital One:

Capital One’s practice of offering nominal extension of credit, if and only if, the consumer agreed to pay off a debt too old to be sued on is tantamount to loan sharking.

Any debtor that agreed to this credit “offer” would be subject to new legal action on a debt that was previously off limits. They would have been at a disadvantage, since the old balance would once again be subject to fees and interest.  If the client wanted more available credit, they would have to pay down the old balance to well below the credit limit.

To further complicate matters, many of these accounts were charged a $59 annual fee. This annual fee was charged on the second billing cycle, thereby making account holders mistakenly believe they had more available credit. The annual fee would frequently cause clients to go over their credit limits, thereby incurring an over-the-limit fee.

West Virginia residents may contact the Attorney General at 1-800-368-8808 for more information.

Refund checks began going out December 30, 2009 and most customers whose claims were approved received their refunds by the second week of January. Refunds were far less than what people were hoping for.

It is a real shame that these families were victimized in their time of need by a company that misrepresented its capabilities. These families were promised savings of well over 50% on their debt. Instead, they lost 75% or more of their deposits due to fraud.

From a consumer protection perspective, I really feel for these families. I know that they have been robbed in the worst way, and that many of these families will not be able to recover from this financial blow anytime soon.

One difficult part is watching customers believe the outrageous claims made by Hess Kennedy and other debt settlement companies. The claims they make are often in violation of several state and federal laws.

However, the most difficult part of this entire situation is knowing that these families could have avoided the loss if they had simply checked the reputation of Hess Kennedy before signing a contract. If they had, they would notice that Hess Kennedy had an “F” rating with the Better Business Bureau.

I can promise you that if you choose to do business with a firm that has an “F” BBB rating, you are playing with fire. It is the government’s job to protect you from rogue companies, and they reacted by shutting down the Hess Kennedy and issuing refunds. However, tens of thousands of customers were still victimized. It is your responsibility to protect yourself, because government protections are not enough.

Therefore, please let the pain of these victims serve as a reminder to verify the claims of any company prior to doing business with them. For one, making sure the company is a bona fide charity is one helpful step. Most importantly though, see what their rating is with the Better Business Bureau. I personally shy away from any company with less than an “A-” rating.

Poor Timing

Citibank began mailing out thousands of notification letters on November 1 to notify cardholders that they would see their interest rates skyrocket to 22.99, 23.99 or higher beginning just 5 days before Christmas. This is poor timing at best, and is sure to upset a large number of account holders.

Not only are these rates substantially higher than the national average of 12.60% (Source: Creditcards.com) at the time of this article, they are variable. That means that as the prime rate increases, these rates will increase with it.

Fortunately, no one is expecting prime rate to increase for some time due to the weak state of the economy. That should at least be a minor reprieve. However, at 23% no one is sure to feel relieved.

Increase Does Not Affect Life of Balance Offers

Cardholders that took advantage of one of the special balance transfer offers which held the rate constant for the life of the balance should not worry. Those rates will not change as long as you keep your end of the agreement. The increase only applies to purchases and cash advances.

You should feel fortunate if you are locked in at a low rate for a balance. Those generous offers are history. Where 3.99% for the life of the balance was common just 2-3 years ago, their latest offer is 15.99% until January 1, 2011.

Such a move is likely to raise the ire of Representative Carolyn Maloney, who has steadfastly pushed for more rapid implementation of the Crdit CARD Act. While other banks have backed off a couple of months early, Citibank clearly is willing to take a chance of being targeted in order to lock in some extra profits for 2010 and beyond.

Right to Opt Out

If you would like to opt out, Citibank will allow you to keep your card open under the same terms until your card expires. In case you haven’t paid attention to your cardholder terms, your rate has likely already increased within the past year, meaning that opting out probably would not save you much.

While Citi may look bad for its untimely move, it should be noted that several other major credit card companies had increased interest rates months ago. Citi may be late to the party, but they have still embraced the interest rate increases that desperate cardholders have feared. It remains to be seen whether Citi will follow suit and adopt the changes mandated by the Credit CARD Act prior to the government imposed deadline.

What Are Old Debts?

An old debt as defined by the Act is any debt in which the statute of limitations has expired. While North Carolina lists a statute of limitations of 5 years for a promissory note, its open credit accounts may only be collected on following 3 years from the default. Oral and written contracts also have a statute of limitations of 3 years for North Carolina residents.

Other states have different rules on the statute of limitations on old debts. For more information, see the statute of limitations for each state.

Prior to this Act, debt collectors could generally continue with collection attempts even though the statute of limitations had expired. What this means is that the debtor had no legal obligation to pay and yet they still faced the phone calls and letters asking for payment. If they collection agency took them to court, the debtor could show up and declare that the statute of limitations had expired and that the debt was no longer collectible.

In recent years, the collection of expired debt has become big business. Many of these debts were purchased for a few cents per hundred dollars. Since they had almost nothing invested in the debt, nearly all of what they collected contributed to profits.

Many consumer advocates began referring to these expired debts as zombie debts, and those collection agencies that pursued them as zombie debt collectors. While the debts were essentially dead, they never seemed to go away.

Specifically, the Act forbids the collection of expired debt from any North Carolina resident. The Act states that no collection agency shall collect or attempt to collect any debt by use of any unfair practices. Such practices include, but are not limited to, the following:

When the collection agency is a debt buyer or is acting on behalf of a debt buyer, bringing suit or initiating an arbitration proceeding against the debtor or otherwise attempting to collect on a debt when the collection agency knows, or reasonably should know, that such collection is barred by the applicable statute of limitations.

As such, the Act forbids the collection of zombie debts. It is important to note that while a debt may no longer be collectible after the statute of limitations has expired, it may still remain on a credit bureau report for a full 7 years after the default.