Rebuilding credit

Here are a few tips on how to get back in the good graces of the credit agencies. Remember that no matter what your financial situation, it’s important that all bills be paid in a timely fashion.

• If you did file bankruptcy, make sure that the reaffirmed pre-bankruptcy debts are paid in a timely fashion. Although a bankruptcy filing will stay on one’s credit report ten years (chapter 7) and (seven years for chapter 13), new credit history has greater weight than old history.
• Open a checking or savings account, as this will show creditors that you can handle money responsibly.
• Apply for a gasoline card, as this is relatively easy to obtain. Always make sure the charges are paid off monthly as to show a record of responsible bill paying and so that the monthly interest fees don’t add up.
• Apply for a secured credit card. This type of credit card is secured by a deposit account owned by the cardholder. Typically, the cardholder must deposit, and keep a balance of between 100% and 200% of the total amount of credit desired.

It’s important that you know its ok to use that newly acquired credit card. Minimal use can prove to be beneficial for small purchases that can easily be paid off in full. Not only does this show responsibility, bills paid in full and one time will look real good on the credit report. And by all means make sure you live within your means!!!

THE WHITE HOUSE
Office of the Press Secretary
________________________________________________________
FOR IMMEDIATE RELEASE May 22, 2009

FACT SHEET: REFORMS TO PROTECT AMERICAN CREDIT CARD HOLDERS
President Obama signs Credit Card Accountability, Responsibility, and Disclosure Act

WASHINGTON – Today, President Obama signs the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, marking a turning point for American consumers and ending the days of unfair rate hikes and hidden fees.
Americans need a healthy flow of credit in our economy, but for too long credit card contracts and practices have been unfairly and deceptively complicated, often leading consumers to pay more than they reasonably expect. Every year, Americans pay around $15 billion in penalty fees. Nearly 80 percent of American families have a credit card, and 44 percent of families carry a balance on their credit cards. To tackle these problems, the Administration moved swiftly with the Congress to enact reforms.

“With this new law, consumers will have the strong and reliable protections they deserve. We will continue to press for reform that is built on transparency, accountability, and mutual responsibility – values fundamental to the new foundation we seek to build for our economy,” President Obama said.

In the Senate and throughout the campaign, President Obama called for measures to strengthen consumer protection in the credit card market. This legislation was made possible by the leadership of Chairman Frank and Representatives Maloney and Gutierrez in the House, and Chairman Dodd, Ranking Member Shelby and Senator Levin in the Senate. It builds on the strong first step taken by the Federal Reserve toward improving disclosures and ending unfair practices.

Principles for Long-term Credit Card Reform
•First, there have to be strong and reliable protections for consumers.
•Second, all the forms and statements that credit card companies send out have to have plain language that is in plain sight.
•Third, we have to make sure that people can shop for a credit card that meets their needs without fear of being taken advantage of.
•Finally, we need more accountability in the system, so that we can hold those responsible who do engage in deceptive practices that hurt families and consumers.
The Administration applauds the legislative efforts of both the House and the Senate. By working closely together, the House Financial Services Committee and the Senate Banking Committee were able quickly to enact strong protections that the President signs into law today. Below we highlight the critical elements of reform in this new law:
•Bans Unfair Rate Increases
•Prevents Unfair Fee Traps
•Plain Sight /Plain Language Disclosures
•Accountability
•Protections for Students and Young People
Key Elements of the Credit CARD Act of 2009
Bans Unfair Rate Increases: Financial institutions will no longer raise rates unfairly, and consumers will have confidence that the interest rates on their existing balances will not be hiked.

•Bans Retroactive Rate Increases: Bans rate increases on existing balances due to “any time, any reason” or “universal default” and severely restricts retroactive rate increases due to late payment.
•First Year Protection: Contract terms must be clearly spelled out and stable for the entirety of the first year. Firms may continue to offer promotional rates with new accounts or during the life of an account, but these rates must be clearly disclosed and last at least 6 months.
Bans Unfair Fee Traps:
•Ends Late Fee Traps: Institutions will have to give card holders a reasonable time to pay the monthly bill – at least 21 calendar days from time of mailing. The act also ends late fee traps such as weekend deadlines, due dates that change each month, and deadlines that fall in the middle of the day.
•Enforces Fair Interest Calculation: Credit card companies will be required to apply excess payments to the highest interest balance first, as consumers expect them to do. The act also ends the confusing and unfair practice by which issuers use the balance in a previous month to calculate interest charges on the current month, so called “double-cycle” billing.
•Requires Opt-In to Over-Limit Fees: Consumers will find it easier to avoid over-limit fees because institutions will have to obtain a consumer’s permission to process transactions that would place the account over the limit.
•Restrains Unfair Sub-Prime Fees: Fees on subprime, low-limit credit cards will be substantially restricted.
•Limits Fees on Gift and Stored Value Cards: The act enhances disclosure on fees for gift and stored value cards and restricts inactivity fees unless the card has been inactive for at least 12 months.
Plain Sight /Plain Language Disclosures: Credit card contract terms will be disclosed in language that consumers can see and understand so they can avoid unnecessary costs and manage their finances.
•Plain Language in Plain Sight: Creditors will give consumers clear disclosures of account terms before consumers open an account, and clear statements of the activity on consumers’ accounts afterwards. For example, pre-opening disclosures will highlight fees consumers may be charged and periodic statements will conspicuously display fees they have paid in the current month and the year to date as well as the reasons for those fees. These disclosures will help consumers make informed choices about using the right financial products and managing their own financial needs. Model disclosures will be updated regularly based on reviews of the market, empirical research, and testing with consumers to ensure that disclosures remain clear, useful, and relevant.
•Real Information about the Financial Consequences of Decisions: Issuers will be required to show the consequences to consumers of their credit decisions.

◦Issuers will need to display on periodic statements how long it would take to pay off the existing balance – and the total interest cost – if the consumer paid only the minimum due.
◦Issuers will also have to display the payment amount and total interest cost to pay off the existing balance in 36 months.
Accountability: The act will help ensure accountability from both credit card issuers and regulators who are responsible for preventing unfair practices and enforcing protections.
•Public posting of credit card contracts: Today credit card contracts are usually available only in hard copy and not in plain language. Now issuers will be required to make contracts available on the Internet in a usable format. Regulators and consumer advocates will be better able to monitor changes in credit card terms and evaluate whether current disclosures and protections are adequate.
•Holds regulators accountable to enforce the law: Regulators will be required to report annually to the Congress on their enforcement of credit card protections
•Holds regulators accountable to keep protections current:
◦Regulators will be required to request public input on trends in the credit card market and potential consumer protection issues on a biennial basis to determine what new regulations or disclosures might be needed.
◦Regulators will be required either to update the applicable rules, or to publish findings if they deem further regulation unnecessary.

•Increases penalties: Card issuers that violate these new restrictions will face significantly higher penalties than under current law, which should make violations less likely in the first place.
Cleans Up Credit Card Practices For Young People at Universities. The act contains new protections for college students and young adults, including a requirement that card issuers and universities disclose agreements with respect to the marketing or distribution of credit cards to students.

By The U.S. Federal Reserve recently issued new rules that limit late-payment fees imposed on credit-card holders.

The rules represent the third and final stage of the Fed’s implementation of the Credit Card Accountability Responsibility and Disclosure Act (CARD) of 2009, which was enacted in May 2009.

This is what you need to know:

As of Aug. 22, 2010, your credit-card issuer generally cannot charge you a penalty fee of more than $25 the first time you have a check returned, make a payment late or go over your credit limit, according to rules issued by the Federal Reserve Bank on June 15, 2010.

• There are two exceptions to the $25 limit: 1) if you have “engaged in repeated violations,” or 2) if “the issuer can show that a higher fee represents a reasonable proportion of the costs its incurs as a result of violations,” the Fed said in a statement.

Fed Issues New Credit Card Rules

What You Need to Know About New Credit Card Rules

Gail Hillebrand of Consumer Reports Magazine breaks down the new Credit Card Act of 2009.
• As of Aug. 22, card issuers can no longer charge you a penalty fee that exceeds the dollar amount associated with your late payment. Which means a card-issuing bank can no longer charge a $39 fee when you are late making a $20 minimum payment. The fee cannot exceed the amount of the minimum payment.

• As of Aug. 22, card issuers can no longer multiple penalty fees based on one late payment.
President Barack Obama signed the credit-card law to roll out in three stages.

Provisions already in effect include giving consumers the right to reject rate increases within 45 days and to pay off balances at current rates. Companies also must mail bills 21 days before due dates, up from 14 days.

In addition to the Fed rules announced in early June, the Center for Responsible Lending released a study on credit-card late fees last month. It analyzed data on the top 100 credit card issuers collected during the summer of 2009.

Here is what you need to know from the study:

• Strongly consider getting a credit card from a credit union, rather than a bank. The CRL study released found that credit unions charged a median late fee of $20 compared to banks’ $39 for late fees. Credit-card banks – institutions that primarily focus on credit cards – tended to charge significantly higher fees. Large banks also tended to charge higher fees.

• Don’t respond to mail solicitations, especially blank checks offering cash advances. Credit-card issuers that are aggressive in areas outside of pricing – such as heavy mailing of new account solicitations or mailing of cash advance checks – tended to charge higher late fees.

• Although credit-card issuers often claim their losses from non-payment of credit card debt drive higher prices, the CRL study found “credit losses are a very weak predictor of late fee amounts.

Of 28 variables examined in the study, credit losses had the second lowest correlation with the level of late fees. Losses have absolutely no relationship with fee levels when other factors are taken into account, the study found.

Other things you should know about credit card late fees:

• From January 2003 to December 2007, the average late fee charged by large card issuers rose 17% to $35.24, according to CardWeb.com.

• In 2007, lenders collected a record $18.1 billion in credit card penalty fees, up 69% from 2003, according to the R.K. Hammer consulting firm.

• Households with incomes below $25,000 are twice as likely to pay credit card rates of more than 20% than those earning $50,000 and five times more likely to pay such rates than those earning $100,000, according to a 2006 study by the Demos public policy research group.

Lower-income, single and minority borrowers were also more likely to pay late fees than others were, the study found.

• The typical U.S. household has 11 credit cards and owes $11,211 on them, according to CardTrak.com.

As millions of Americans have fallen behind on paying their bills, debt collection law firms have been clogging courtrooms with lawsuits seeking repayment.As millions of Americans have fallen behind on paying their bills, debt collection law firms have been clogging courtrooms with lawsuits seeking repayment.

Few have been as prolific as Cohen & Slamowitz, a Woodbury, N.Y., firm that has specialized in debt collection for nearly two decades. The firm has been filing roughly 80,000 lawsuits a year.

With just 14 lawyers on staff, that works out to more than 5,700 cases per lawyer.

How is that possible?

The answer to that question is at the heart of a growing debate over the increasing use of the nation’s legal system to collect on bad debts.

Like many other firms, Cohen & Slamowitz relies on computer software to help prepare its cases. While many of the cases represent legitimate claims, critics say the lawsuits are too often based on inaccurate or incomplete information about the debtor or the amount owed.

Already, some state legislators and judges have tried to crack down on collection lawsuits, and on Monday, the Federal Trade Commission weighed in, saying the system for resolving disputes over consumer debts was broken and in need of “significant reforms.”

The commission, which says debt collection is its top consumer complaint, proposed that states require collectors to include more information about debts in their lawsuits, including a breakdown of the current balance by principal, interest and fees, and the relevant terms of the original credit contract, if not the contract itself.

The agency also urged states to adopt measures to make it more likely that consumers would show up in court to defend themselves; currently, most do not, resulting in default judgments.

“We are pushing very hard to make certain that debt collectors have sufficient substantiation, particularly when a consumer challenges the debt,” said David Vladeck, director of the commission’s Bureau of Consumer Protection.

The commission, which has limited authority to write debt collection rules, urged states to take action because most collection cases are filed in state courts.

The litigation boom has been propelled by fundamental changes in the way debts are collected, particularly for credit cards. In recent years, credit card companies have increasingly sold off debt they have considered uncollectible to debt buyers, usually for 5 cents or less on the dollar.

The debt buyers, in turn, may try to collect the debt themselves using traditional practices like sending letters or making phone calls to a consumer to try to arrange a payment plan. Increasingly, they are choosing to sue instead.

Collection law firms are able to handle such large volumes of cases because computer software automates much of their work. Typically, a debt buyer sends a law firm an electronic database that contains various data about consumers, including name, home address, the outstanding balance, the date of default and whether interest is still accruing on the account.

Once the data is obtained by a law firm, software like Collection-Master from a company called Commercial Legal Software can “take a file and run it through the entire legal system automatically,” including sending out collection letters, summonses and lawsuits, said Nicholas D. Arcaro, vice president for sales and marketing at the company.

No group has definitive statistics on debt collection lawsuits, but federal regulators, collection lawyers and judges say the numbers have increased and are straining the court system.

Most consumers fail to show up in court, and those who do rarely have a lawyer. A court judgment gives debt buyers the ability to collect on the debt through actions like wage or property garnishment.

“What they are hoping to recover is the full dollar on some of it,” said Robert J. Hobbs, deputy director of the National Consumer Law Center, an advocacy group. “On most of it, they are hoping to recover 40 or 50 cents on the dollar. And they are hoping to do it with as little work as they can.”

Critics say the business model for some debt buyers and law firms relies on such huge volumes of legal actions that mistakes and abuses are inevitable, in part because the lawsuits are often based on little more than a defendant’s name, address and alleged balance.

“It’s the factory approach to practicing law,” said Richard Rubin, a New Mexico lawyer who represents consumers against debt collectors.

Lawsuits are sometimes filed against the wrong people, critics say. Other times, they say, the amount owed is incorrect or includes questionable fees and interest that has been added to the balance.

In addition, it is not always clear if the debt buyer filing suit legally owns the debt, since debt portfolios are often sold several times.

Some collection lawyers complain that new requirements being imposed are holding them to higher standards than even the original creditors.

“In actuality, it’s impossible to comply with,” said Pedro Zabala, a North Carolina lawyer, speaking of a law passed last fall that requires more documentation to file suit.

Fred N. Blitt, the president of the National Association of Retail Collection Attorneys, which represents more than 700 law firms, said the increase in collection cases was an inevitable result of the huge number of people who are not paying their bills. Given the volume of cases, Mr. Blitt maintained that mistakes were few.

“The reality is, if people owe the money, they should pay it,” he said.

Cohen & Slamowitz declined to be interviewed for this article. In a 2009 deposition for a case accusing Cohen & Slamowitz of pursuing a debt that had already been paid, a partner at the firm, David A. Cohen, said the firm had 14 lawyers, though it also hired numerous outside lawyers to appear in court on a per diem basis. It also employed 30 to 40 legal secretaries and paralegals and about 60 people trying to collect debts, he said.

The firm filed 59,708 cases in 2005, 83,665 in 2006, 87,877 in 2007 and 80,873 in 2008, records from the lawsuit show.

As the case load has increased, some state legislators and judges have started to demand more information on the debt.

In addition to the new law in North Carolina, which requires third-party debt collectors to provide more proof of the debt, like an itemization of charges and fees, some local judges are challenging lawyers who are not prepared to back up their claims.

At a civil court hearing in Brooklyn in March, Judge Noach Dear demanded documents from Cohen & Slamowitz supporting its claim that Herman Johnson of Brooklyn owed $3,797.27 in credit card debt. Mr. Johnson disputed the claim.

“What proof did you have that this is the true gentleman that you were trying to pursue?” the judge asked David Robinson, a lawyer for Cohen & Slamowitz, according to a transcript.

“Just his Social, his date of birth, and his address and the account,” Mr. Robinson said.

“That’s all you have?” the judge said. “So if you have somebody’s Social number, date of birth and address, you could sue them without any other information?”

Mr. Johnson’s case was dismissed, and Judge Dear last month issued an order requiring, among other things, that Cohen & Slamowitz provide further proof of a debt if a defendant challenged the firm’s claim.

In an interview, Judge Dear said he did not think the order would necessarily result in a large drop-off in lawsuits. But, he said, given Cohen & Slamowitz’s size, he hoped it would persuade other law firms to follow suit.

“I think personally it will weed out the cases that are no good, and then we’ll get the defendants that truly do owe a debt,” he said.

Few have been as prolific as Cohen & Slamowitz, a Woodbury, N.Y., firm that has specialized in debt collection for nearly two decades.As millions of Americans have fallen behind on paying their bills, debt collection law firms have been clogging courtrooms with lawsuits seeking repayment.

Few have been as prolific as Cohen & Slamowitz, a Woodbury, N.Y., firm that has specialized in debt collection for nearly two decades. The firm has been filing roughly 80,000 lawsuits a year.

With just 14 lawyers on staff, that works out to more than 5,700 cases per lawyer.

How is that possible?

The answer to that question is at the heart of a growing debate over the increasing use of the nation’s legal system to collect on bad debts.

Like many other firms, Cohen & Slamowitz relies on computer software to help prepare its cases. While many of the cases represent legitimate claims, critics say the lawsuits are too often based on inaccurate or incomplete information about the debtor or the amount owed.

Already, some state legislators and judges have tried to crack down on collection lawsuits, and on Monday, the Federal Trade Commission weighed in, saying the system for resolving disputes over consumer debts was broken and in need of “significant reforms.”

The commission, which says debt collection is its top consumer complaint, proposed that states require collectors to include more information about debts in their lawsuits, including a breakdown of the current balance by principal, interest and fees, and the relevant terms of the original credit contract, if not the contract itself.

The agency also urged states to adopt measures to make it more likely that consumers would show up in court to defend themselves; currently, most do not, resulting in default judgments.

“We are pushing very hard to make certain that debt collectors have sufficient substantiation, particularly when a consumer challenges the debt,” said David Vladeck, director of the commission’s Bureau of Consumer Protection.

The commission, which has limited authority to write debt collection rules, urged states to take action because most collection cases are filed in state courts.

The litigation boom has been propelled by fundamental changes in the way debts are collected, particularly for credit cards. In recent years, credit card companies have increasingly sold off debt they have considered uncollectible to debt buyers, usually for 5 cents or less on the dollar.

The debt buyers, in turn, may try to collect the debt themselves using traditional practices like sending letters or making phone calls to a consumer to try to arrange a payment plan. Increasingly, they are choosing to sue instead.

Collection law firms are able to handle such large volumes of cases because computer software automates much of their work. Typically, a debt buyer sends a law firm an electronic database that contains various data about consumers, including name, home address, the outstanding balance, the date of default and whether interest is still accruing on the account.

Once the data is obtained by a law firm, software like Collection-Master from a company called Commercial Legal Software can “take a file and run it through the entire legal system automatically,” including sending out collection letters, summonses and lawsuits, said Nicholas D. Arcaro, vice president for sales and marketing at the company.

No group has definitive statistics on debt collection lawsuits, but federal regulators, collection lawyers and judges say the numbers have increased and are straining the court system.

Most consumers fail to show up in court, and those who do rarely have a lawyer. A court judgment gives debt buyers the ability to collect on the debt through actions like wage or property garnishment.

“What they are hoping to recover is the full dollar on some of it,” said Robert J. Hobbs, deputy director of the National Consumer Law Center, an advocacy group. “On most of it, they are hoping to recover 40 or 50 cents on the dollar. And they are hoping to do it with as little work as they can.”

Critics say the business model for some debt buyers and law firms relies on such huge volumes of legal actions that mistakes and abuses are inevitable, in part because the lawsuits are often based on little more than a defendant’s name, address and alleged balance.

“It’s the factory approach to practicing law,” said Richard Rubin, a New Mexico lawyer who represents consumers against debt collectors.

Lawsuits are sometimes filed against the wrong people, critics say. Other times, they say, the amount owed is incorrect or includes questionable fees and interest that has been added to the balance.

In addition, it is not always clear if the debt buyer filing suit legally owns the debt, since debt portfolios are often sold several times.

Some collection lawyers complain that new requirements being imposed are holding them to higher standards than even the original creditors.

“In actuality, it’s impossible to comply with,” said Pedro Zabala, a North Carolina lawyer, speaking of a law passed last fall that requires more documentation to file suit.

Fred N. Blitt, the president of the National Association of Retail Collection Attorneys, which represents more than 700 law firms, said the increase in collection cases was an inevitable result of the huge number of people who are not paying their bills. Given the volume of cases, Mr. Blitt maintained that mistakes were few.

“The reality is, if people owe the money, they should pay it,” he said.

Cohen & Slamowitz declined to be interviewed for this article. In a 2009 deposition for a case accusing Cohen & Slamowitz of pursuing a debt that had already been paid, a partner at the firm, David A. Cohen, said the firm had 14 lawyers, though it also hired numerous outside lawyers to appear in court on a per diem basis. It also employed 30 to 40 legal secretaries and paralegals and about 60 people trying to collect debts, he said.

The firm filed 59,708 cases in 2005, 83,665 in 2006, 87,877 in 2007 and 80,873 in 2008, records from the lawsuit show.

As the case load has increased, some state legislators and judges have started to demand more information on the debt.

In addition to the new law in North Carolina, which requires third-party debt collectors to provide more proof of the debt, like an itemization of charges and fees, some local judges are challenging lawyers who are not prepared to back up their claims.

At a civil court hearing in Brooklyn in March, Judge Noach Dear demanded documents from Cohen & Slamowitz supporting its claim that Herman Johnson of Brooklyn owed $3,797.27 in credit card debt. Mr. Johnson disputed the claim.

“What proof did you have that this is the true gentleman that you were trying to pursue?” the judge asked David Robinson, a lawyer for Cohen & Slamowitz, according to a transcript.

“Just his Social, his date of birth, and his address and the account,” Mr. Robinson said.

“That’s all you have?” the judge said. “So if you have somebody’s Social number, date of birth and address, you could sue them without any other information?”

Mr. Johnson’s case was dismissed, and Judge Dear last month issued an order requiring, among other things, that Cohen & Slamowitz provide further proof of a debt if a defendant challenged the firm’s claim.

In an interview, Judge Dear said he did not think the order would necessarily result in a large drop-off in lawsuits. But, he said, given Cohen & Slamowitz’s size, he hoped it would persuade other law firms to follow suit.

“I think personally it will weed out the cases that are no good, and then we’ll get the defendants that truly do owe a debt,” he said.
The firm has been filing roughly 80,000 lawsuits a year.

With just 14 lawyers on staff, that works out to more than 5,700 cases per lawyer.

How is that possible?

The answer to that question is at the heart of a growing debate over the increasing use of the nation’s legal system to collect on bad debts.

Like many other firms, Cohen & Slamowitz relies on computer software to help prepare its cases. While many of the cases represent legitimate claims, critics say the lawsuits are too often based on inaccurate or incomplete information about the debtor or the amount owed.

Already, some state legislators and judges have tried to crack down on collection lawsuits, and on Monday, the Federal Trade Commission weighed in, saying the system for resolving disputes over consumer debts was broken and in need of “significant reforms.”

The commission, which says debt collection is its top consumer complaint, proposed that states require collectors to include more information about debts in their lawsuits, including a breakdown of the current balance by principal, interest and fees, and the relevant terms of the original credit contract, if not the contract itself.

The agency also urged states to adopt measures to make it more likely that consumers would show up in court to defend themselves; currently, most do not, resulting in default judgments.

“We are pushing very hard to make certain that debt collectors have sufficient substantiation, particularly when a consumer challenges the debt,” said David Vladeck, director of the commission’s Bureau of Consumer Protection.

The commission, which has limited authority to write debt collection rules, urged states to take action because most collection cases are filed in state courts.

The litigation boom has been propelled by fundamental changes in the way debts are collected, particularly for credit cards. In recent years, credit card companies have increasingly sold off debt they have considered uncollectible to debt buyers, usually for 5 cents or less on the dollar.

The debt buyers, in turn, may try to collect the debt themselves using traditional practices like sending letters or making phone calls to a consumer to try to arrange a payment plan. Increasingly, they are choosing to sue instead.

Collection law firms are able to handle such large volumes of cases because computer software automates much of their work. Typically, a debt buyer sends a law firm an electronic database that contains various data about consumers, including name, home address, the outstanding balance, the date of default and whether interest is still accruing on the account.

Once the data is obtained by a law firm, software like Collection-Master from a company called Commercial Legal Software can “take a file and run it through the entire legal system automatically,” including sending out collection letters, summonses and lawsuits, said Nicholas D. Arcaro, vice president for sales and marketing at the company.

No group has definitive statistics on debt collection lawsuits, but federal regulators, collection lawyers and judges say the numbers have increased and are straining the court system.

Most consumers fail to show up in court, and those who do rarely have a lawyer. A court judgment gives debt buyers the ability to collect on the debt through actions like wage or property garnishment.

“What they are hoping to recover is the full dollar on some of it,” said Robert J. Hobbs, deputy director of the National Consumer Law Center, an advocacy group. “On most of it, they are hoping to recover 40 or 50 cents on the dollar. And they are hoping to do it with as little work as they can.”

Critics say the business model for some debt buyers and law firms relies on such huge volumes of legal actions that mistakes and abuses are inevitable, in part because the lawsuits are often based on little more than a defendant’s name, address and alleged balance.

“It’s the factory approach to practicing law,” said Richard Rubin, a New Mexico lawyer who represents consumers against debt collectors.

Lawsuits are sometimes filed against the wrong people, critics say. Other times, they say, the amount owed is incorrect or includes questionable fees and interest that has been added to the balance.

In addition, it is not always clear if the debt buyer filing suit legally owns the debt, since debt portfolios are often sold several times.

Some collection lawyers complain that new requirements being imposed are holding them to higher standards than even the original creditors.

“In actuality, it’s impossible to comply with,” said Pedro Zabala, a North Carolina lawyer, speaking of a law passed last fall that requires more documentation to file suit.

Fred N. Blitt, the president of the National Association of Retail Collection Attorneys, which represents more than 700 law firms, said the increase in collection cases was an inevitable result of the huge number of people who are not paying their bills. Given the volume of cases, Mr. Blitt maintained that mistakes were few.

“The reality is, if people owe the money, they should pay it,” he said.

Cohen & Slamowitz declined to be interviewed for this article. In a 2009 deposition for a case accusing Cohen & Slamowitz of pursuing a debt that had already been paid, a partner at the firm, David A. Cohen, said the firm had 14 lawyers, though it also hired numerous outside lawyers to appear in court on a per diem basis. It also employed 30 to 40 legal secretaries and paralegals and about 60 people trying to collect debts, he said.

The firm filed 59,708 cases in 2005, 83,665 in 2006, 87,877 in 2007 and 80,873 in 2008, records from the lawsuit show.

As the case load has increased, some state legislators and judges have started to demand more information on the debt.

In addition to the new law in North Carolina, which requires third-party debt collectors to provide more proof of the debt, like an itemization of charges and fees, some local judges are challenging lawyers who are not prepared to back up their claims.

At a civil court hearing in Brooklyn in March, Judge Noach Dear demanded documents from Cohen & Slamowitz supporting its claim that Herman Johnson of Brooklyn owed $3,797.27 in credit card debt. Mr. Johnson disputed the claim.

“What proof did you have that this is the true gentleman that you were trying to pursue?” the judge asked David Robinson, a lawyer for Cohen & Slamowitz, according to a transcript.

“Just his Social, his date of birth, and his address and the account,” Mr. Robinson said.

“That’s all you have?” the judge said. “So if you have somebody’s Social number, date of birth and address, you could sue them without any other information?”

Mr. Johnson’s case was dismissed, and Judge Dear last month issued an order requiring, among other things, that Cohen & Slamowitz provide further proof of a debt if a defendant challenged the firm’s claim.

In an interview, Judge Dear said he did not think the order would necessarily result in a large drop-off in lawsuits. But, he said, given Cohen & Slamowitz’s size, he hoped it would persuade other law firms to follow suit.

“I think personally it will weed out the cases that are no good, and then we’ll get the defendants that truly do owe a debt,” he said.

According to FICO,The credit scores of millions more Americans are sinking to new lows.

Figures provided by FICO Inc. show that 25.5 percent of consumers — nearly 43.4 million people — now have a credit score of 599 or below, marking them as poor risks for lenders.http://www.nwcdr.com/financial_warning_signs.htm It’s unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use.

Because consumers relied so heavily on debt to fuel their spending in recent years, their restricted access to credit is one reason for the slow economic recovery.

“I don’t get paid for loan applications, I get paid for closings,” said Ritch Workman, a Melbourne, Fla., mortgage broker. “I have plenty of business, but I’m struggling to stay open.”

FICO’s latest analysis is based on consumer credit reports as of April. Its findings represent an increase of about 2.4 million people in the lowest credit score categories in the past two years. Before the Great Recession, scores on FICO’s 300-to-850 scale weren’t as volatile, said Andrew Jennings, chief research officer for FICO in Minneapolis. Historically, just 15 percent of the 170 million consumers with active credit accounts, or 25.5 million people, fell below 599, according to data posted on Myfico.com.

More are likely to join their ranks. It can take several months before payment missteps actually drive down a credit score. The Labor Department says about 26 million people are out of work or underemployed, and millions more face foreclosure, which alone can chop 150 points off an individual’s score. Once the damage is done, it could be years before this group can restore their scores, even if they had strong credit histories in the past.

On the positive side, the number of consumers who have a top score of 800 or above has increased in recent years. At least in part, this reflects that more individuals have cut spending and paid down debt in response to the recession. Their ranks now stand at 17.9 percent, which is notably above the historical average of 13 percent, though down from 18.7 percent in April 2008 before the market meltdown.

There’s also been a notable shift in the important range of people with moderate credit, those with scores between 650 and 699. The new data shows that this group comprised 11.9 percent of scores. This is down only marginally from 12 percent in 2008, but reflects a drop of roughly 5.3 million people from its historical average of 15 percent.

This group is significant because it may feel the effects of lenders’ tighter credit standards the most, said FICO’s Jennings. Consumers on the lowest end of the scale are less likely to try to borrow. However, people with mid-range scores that had been eligible for credit before the meltdown are looking to buy homes or cars but finding it hard to qualify for affordable loans.

Workman has seen this firsthand.

A customer with a score of 679 recently walked away from buying a house because he could not get the best interest rate on a $100,000 mortgage. Had his score been 680, the rate he was offered would have been a half-percent lower. The difference was only about $31 per month, but over a 30-year mortgage would have added up to more than $11,000.

“There was nothing derogatory on his credit report,” Workman said of the customer. He had, however, recently gotten an auto loan, which likely lowered his score.

Studies have shown FICO scores are generally reliable predictions of consumer payment behavior, but Workman’s experience points to one drawback of credit scoring: the automated underwriting programs lenders use can’t always differentiate between two people with the same score. Another consumer might have a 679 score because of several late payments, which could indicate he or she is a bigger repayment risk. But a computer program that depends just on score won’t consider those details.

On a broader scale, some of the spike in foreclosures came about because homeowners were financially irresponsible, while others lost their jobs and could no longer pay their mortgages. Yet both reasons for foreclosures have the same impact on a borrower’s FICO score.

In the past too much credit was handed out based on scores alone, without considering how much debt consumers could pay back, said Edmund Tribue, a senior vice president in the credit risk practice at MasterCard Advisors. Now the ability to repay the debt is a critical part of the lending decision.

Workman still thinks credit scores alone play too big a role. “The pendulum has swung too far,” he said. “We absolutely swung way too far in the liberal lending, but did we have to swing so far back the other way?”

WASHINGTON,–U.S. consumer spending rose slightly more than expected in May even as savings touched their highest level in eight months, a government report showed on Monday.

The Commerce Department said spending edged up 0.25% after being flat in April. Analysts polled by Reuters had expected consumer spending to rise 0.1%.

Consumer spending is being closely watched to gauge the strength of the economic recovery after the government lowered estimates for the first quarter, holding back gross domestic product growth during that period.

A government report on Friday showed consumer spending, which normally accounts for 70% U.S. economic activity, rose at a 3% pace in the January-March quarter — slower than the 3.5% the government had estimated last month.

Spending adjusted for inflation increased 0.3% last month after being flat in April. Real spending on services increased 0.3%, while spending on goods rose 0.2%, reversing the prior month’s 0.1% decline, the Commerce Department said.

Personal income increased 0.4% after gaining 0.5% in April. Markets had expected income to rise 0.5% last month.

Real disposable income climbed 0.5% following a 0.6% increase the prior month.

The saving rate rose to 4.0% from 3.8% in April. Savings increased to an annual rate of $454.3 billion, the highest level since September. The report also showed the personal consumption expenditures price index, excluding food and energy, rising 1.3% in the 12 months to May.

The index, a key inflation measure monitored by the Federal Reserve, increased 1.2% in April

Our nation’s debt is staggering – over $13 trillion and counting – but the level of consumer debt is just as concerning, and is rising each day due to foreclosures, job loss and unexpected expenses. In fact, each American citizen’s share of the national debt is over $42,000 – and that’s on top of the personal debt they’ve already accrued. http://www.nwcdr.com/what_is_debt_consolidation.htm

States also have their own debt. According to data collected in the 2008 census, Massachusetts, Alaska and Rhode Island topped the list of most debt-ridden states, based on debt per capita. The three states with the least amount of debt are Tennessee, Georgia and Texas – but today’s numbers reflect that California is the most debt-ridden state, with more than $29 trillion in debt.

Totaling your personal debt – through credit cards, mortgages and other loans – can seem overwhelming. However, there are many ways for getting out of the red, and into the black.

Whether it’s credit counseling, debt settlement or bankruptcy, there are alternatives to living a life filled with calls from collectors. Seek help from a debt relief professional, and do what you can to take control of your finances. It may take a while – months, even years – but the accomplishment of living a debt-free life, or at least one where finances are controlled and budgets are adhered to, is well worth the effort.

Money management address the concepts of cash flow (a.k.a., budgeting), personal net worth and financial goal setting. Adults should be able to create a budget, analyze their net worth, and set short-term and long term financial goals.

Its all about managing cash flow. Generally speaking there are six components to a budget: Income, Taxes, fixed expenses, Varibale Exspenses, Periodic expenses and discretionary Expenses. Each part of the budget is essential to piecing together your entire financial picture. Leave one part out and there’s a gaping hole.

Budgeting includes three basic steps:

1. Listing income and expenses;
2. Evaluating where changes need to be made in the event the budget dosen’t balance.
3. Following through to maintain the budget.

NY press coverage from the USOBA conference !

http://www.nytimes.com/2010/06/19/business/economy/19debt.html?pagewanted=1&emc=eta1

MUST READ THIS ARTICLE!

Finally, more and more Debt Settlement Companies are going out of business due to the new regulations. I will will have more info in the days to come. Stay tuned! www.nwcdr.com