Even at this late date, shady debt collection continues
Another pitch to watch for is promises to reduce IRS tax debt
Last time we looked at the phenomena of ongoing debt-settlement scams, despite the FTC's actions last year to rein in such schemes run by companies that use cold-calling and telemarketing techniques. Often times, these schemes are pitched as alternatives to bankruptcy, even though unscrupulous companies can leave consumers worse off while filing for bankruptcy protection puts the power of the U.S. Bankruptcy Code in your corner.
A March 11 piece at CreditInfoCenter.com recaps the situation and provides a timeline of significant headlines, plus a list of suspect companies.
Debt collectors and the 'automatic stay'
Besides getting derailed from a legitimate bankruptcy filing by a debt-settlement scam, consumers facing bankruptcy can also be harassed by crooked debt-collection companies. Of, once the bankruptcy petition is filed, all creditors must observe the automatic stay order, which prevents any further contact with the filer--under threat of federal repercussions.
Consumers can report suspect companies and also sue on their own behalf
However, even without filing for bankruptcy protection, consumers can sue violators of the Fair Debt Collections Practices Act (FDCPA). If they prevail, consumers can recover up to $1,000 per violation.
Additionally, consumers can report violators to state and federal authorities, including the Federal Trade Commission (FTC). Numerous complaints resulted in a recent FTC action that includes a record fine against debt collector West Asset Management. According to a March 16 release:
FTC levies record fine of $2.8 million
A leading debt collection company has agreed to pay a civil penalty of $2.8 million to settle Federal Trade Commission charges that its aggressive collection techniques violated federal law. As part of its efforts to protect consumers affected by the struggling economy, the FTC alleged that West Asset Management, Inc. violated the FTC Act and Fair Debt Collection Practices Act.
According to the FTCs complaint, thousands of consumer complaints have been filed against West Asset Management Inc., which employs 1,500 debt collectors in 13 states and one offshore location. West Asset Management debt collectors allegedly violated the Fair Debt Collection Practices Act by calling consumers multiple times each day, often regarding accounts that did not belong to them, and sometimes using rude and abusive language. The FTC further charged that West Asset Management also illegally disclosed the existence of consumers debts to third parties and ignored consumers written demands that West Asset Management stop calling them.
A dirty-laundry list of allegations
The FTC's investigation showed that "West Asset Management has collected on more than 24 million accounts on behalf of clients in the healthcare, telecommunications, consumer credit, and government service industries." As a result of the investigation, the agency made several specific allegations, including that the company:
- withdrew funds from consumers bank accounts or
- charged their credit cards without consent and
- falsely claimed that consumers would be sued, arrested, or have their property seized for nonpayment of their debt; additionally that WAM
- falsely claimed that partial payments would be accepted as full settlement on accounts
- and that negative information would stay on consumers credit reports until debts were paid.
Other debt-collection companies have had FTC actions taken against them, including Allied Interstate and Credit Bureau Collection Services.
Similar schemes await, promising IRS tax help
Someone in trouble might run across another niche of abusers, those promising to help with income tax arrearages. According to an April 26 piece at examiner.com:
While the Federal Trade Commission has cracked down on debt settlement and loan modification firms that charge upfront fees, little has been done to rein in tax resolution companies that promise to reduce IRS liabilities. The FTC has allowed a number of these operations to continue while making a determination whether the agency has authority over them.
Tax relief companies have increased late night advertising and Internet promotions promising to settle delinquent IRS debt for pennies on the dollar. Several of these companies are under investigation for deceptive practices.
Florida Attorney General Pam Bondi has initiated a civil inquiry into Texas based Tax Masters and South Carolina based JK Harris and Company following the receipt of 26 and 92 complaints respectively. These companies solicit clients nationwide promising to reduce anxiety and debt to the IRS.
Many complaints and angles to play
According to the story, the Texas and Minnesota Attorneys General also filed civil actions against Tax Masters in 2010, and is a subject of an 18-state suit involving allegations of misleading tactics, false claims of expertise and "that the company failed to provide refunds for clients it was unable to help."
Another wrinkle? Sometimes the suspect company is not the one actually perpetrating the shenanigans, but rather a third party that is advertising the "services."
Another problem is that state law varies and although debt-settlement and loan-modification companies may be regulated, tax-resolution companies might not be. Apparently, that's the case in Florida.
Best bet? Hire professionals to help
According to the IRS, taxpayers may be represented before that agency by three types of professionals: enrolled agents (EAs), certified public accountants (CPAs) and licensed attorneys. Each must pass certain written qualifications as well as maintain a schedule of refresher courses.
If debt-collection schemes or IRS taxes are part of your bankruptcy case, your bankruptcy attorney can advise you on the best course of action.
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