January 2009 Archives

To its great credit the Virginia General Assembly this 2009 session passed HB 2261, a bill  designed to expand the Consumer Protection Act's coverage of mortgage foreclosure prevention scams.  Unscrupulous foreclosure avoidance companies often require desperate consumers to pay in advance for their services and then do little or nothing to really help.  When the General Assembly first recognized this and other dangers in foreclosure prevention programs, which are often nothing more than schemes to milk consumers' last dollars before they take their homes, it treated them as illegal only if a fee was taken prior to a settlement on a sale of a consumer's residential real property.  The new provisions make  advance fees illegal even if there is no sale of the real estate.


Consumers should also be pleased that when the General Assembly passed the original legislation that brought prepaid foreclosure prevention schemes into the Consumer Protection Act, it prohibited mandatory arbitration clauses.  The legislature's recognition that all arbitration clauses are not good should give consumers hope that lawmakers will expand prohibitions or limitations of such clauses into other areas of consumer protection law.

To its great credit the Virginia General Assembly this 2009 session passed HB 2261, a bill  designed to expand the Consumer Protection Act's coverage of mortgage foreclosure prevention scams.  Unscrupulous foreclosure avoidance companies often require desperate consumers to pay in advance for their services and then do little or nothing to really help.  When the General Assembly first recognized this and other dangers in foreclosure prevention programs, which are often nothing more than schemes to milk consumers' last dollars before they take their homes, it treated them as illegal only if a fee was taken prior to a settlement on a sale of a consumer's residential real property.  The new provisions make  advance fees illegal even if there is no sale of the real estate.


Consumers should also be pleased that when the General Assembly passed the original legislation that brought prepaid foreclosure prevention schemes into the Consumer Protection Act, it prohibited mandatory arbitration clauses.  The legislature's recognition that all arbitration clauses are not good should give consumers hope that lawmakers will expand prohibitions or limitations of such clauses into other areas of consumer protection law.

In an economy built on credit, Virginians with bad credit are exceptionally vulnerable to credit repair scams. Even unsophisticated consumers know that bad credit increases the cost of borrowing, or makes it impossible for them to obtain goods and services. Bad credit also leads to secondary problems when it squeezes a household budget, reduces the consumer's purchasing power, and jeopardizes the budget. This can happen when the interest rate on an existing debt is modified as a consequence of an adverse change in credit. And so, every year millions of consumers seek assistance from thousands of businesses that promise to help to improve or repair credit.  Not all of these are helpful, and many are money making scams.


There are three basic strategies employed by credit repair organizations.  Some companies offer credit repair or improvement services as their primary service. One example is the credit repair clinic--an organization that claims that it will--for a fee--contest negative information in consumers' credit reports resulting in fewer errors and a boosted credit score. Many of these "clinics" are over-priced and ineffective. Worse, if consumers follow illegal advice the clinic gives, they can get into legal trouble. In others schemes, credit repair is a collateral benefit of a program that attacks an underlying problem such as debt, through a mechanism--such as a debt management plan-- that resolves the first problem and may eventually result in improved credit. These organizations often offer to "re-age" your credit card accounts, to remove references to late payments, but in truth, it is the credit card company that does the re-aging, not the credit counselor.


Yet another category of credit repair service--one that doesn't really merit being referred to as a "service"--is the practice of selling a good, such as a laptop computer or a used car, together with a loan. If the loan is paid off under its terms, the timely stream of loan payments can indeed boost a sagging credit score.


The good news is that savvy consumers can avoid credit repair scams. Visit the FTC's website for some tips on how to determine whether you're dealing with a good organization or not. Smart shoppers for any service insist on a contract in writing that provides the payment terms for the services, including the total cost; a description of the services the company will perform; a statement as to how long it will take to achieve the result promised; and any guarantees offered. The law regulating credit repair organizations requires each o f these things and more. If you have been involved with the credit repair organization beyond the first three days of your membership, you should show the contact to an experienced consumer protection attorney. And if you're in the first three days, of the contract, you should be able to cancel the contract without the help of lawyer using the the three day "cooling off" period the act provides for.

In an economy built on credit, Virginians with bad credit are exceptionally vulnerable to credit repair scams. Even unsophisticated consumers know that bad credit increases the cost of borrowing, or makes it impossible for them to obtain goods and services. Bad credit also leads to secondary problems when it squeezes a household budget, reduces the consumer's purchasing power, and jeopardizes the budget. This can happen when the interest rate on an existing debt is modified as a consequence of an adverse change in credit. And so, every year millions of consumers seek assistance from thousands of businesses that promise to help to improve or repair credit.  Not all of these are helpful, and many are money making scams.


There are three basic strategies employed by credit repair organizations.  Some companies offer credit repair or improvement services as their primary service. One example is the credit repair clinic--an organization that claims that it will--for a fee--contest negative information in consumers' credit reports resulting in fewer errors and a boosted credit score. Many of these "clinics" are over-priced and ineffective. Worse, if consumers follow illegal advice the clinic gives, they can get into legal trouble. In others schemes, credit repair is a collateral benefit of a program that attacks an underlying problem such as debt, through a mechanism--such as a debt management plan-- that resolves the first problem and may eventually result in improved credit. These organizations often offer to "re-age" your credit card accounts, to remove references to late payments, but in truth, it is the credit card company that does the re-aging, not the credit counselor.


Yet another category of credit repair service--one that doesn't really merit being referred to as a "service"--is the practice of selling a good, such as a laptop computer or a used car, together with a loan. If the loan is paid off under its terms, the timely stream of loan payments can indeed boost a sagging credit score.


The good news is that savvy consumers can avoid credit repair scams. Visit the FTC's website for some tips on how to determine whether you're dealing with a good organization or not. Smart shoppers for any service insist on a contract in writing that provides the payment terms for the services, including the total cost; a description of the services the company will perform; a statement as to how long it will take to achieve the result promised; and any guarantees offered. The law regulating credit repair organizations requires each o f these things and more. If you have been involved with the credit repair organization beyond the first three days of your membership, you should show the contact to an experienced consumer protection attorney. And if you're in the first three days, of the contract, you should be able to cancel the contract without the help of lawyer using the the three day "cooling off" period the act provides for.