Parker Waichman LLP Injury Alerts
Scam Artists Prey on Victims of Troubled U.S. EconomyApr 1, 2009
Companies promising to resolve your credit problems or buy your scrap gold are likely to do little more than line their own pockets with your money
In good times or bad, scam artists are always at work figuring out ways to rip-off honest people. Whether it’s a $50 billion Ponzi scheme engineered by a Bernard Madoff, identity theft, or selling non-existent items on the internet, there is no end to the types of fraudulent or misleading conduct some people and companies are willing to engage in regardless of the harm and anguish they cause their innocent victims and their families.
As America slowly recovers from a devastating recession, near record unemployment, wave after wave of home foreclosures, and the failure of many of its oldest and largest companies and banks, scam artists have found a number of ways to capitalize on the misfortune of others.
Two widespread scams, which are being extensively advertised on TV, radio, and the internet as well as in newspapers and magazines, are specifically designed to target the most financially vulnerable members of the public. These are the companies promising to turn your “scrap gold” into piles of cash and the “debt settlement” or “credit solution” firms, which claim they have the ability to greatly reduce or eliminate your outstanding credit card and loan balances in a relatively short period of time. Unfortunately, the evidence is just the opposite.
Credit specialists: More “hype” than help for the financially strapped:
Most people who have run into serious credit problems want to payoff what they owe and have no desire to file for bankruptcy, ruin their credit, or be looked on as deadbeats. Thus, the promises of credit “specialists” who claim to be “certified” counselors of one type or another can be irresistible, especially if you’re being hounded by creditors and are having a hard time putting food on the table or gas in your car.
The TV, radio, and internet ads for these firms claim they can stop the collection calls, negotiate lower interest rates, consolidate numerous loans or credit card balances into one low monthly payment, and even get creditors to take a small fraction of the money you owe as payment in full. Of course, such miracles do not come cheaply and these companies (or individuals) require payments that often deplete what little cash reserves their clients have, thereby leaving them in a deeper financial crisis than before.
Currently, some 2,000 “debt settlement” companies are operating in the U.S., which represents a 300% increase since only a few years ago; and, unlike in the past, when these firms were somewhat subdued in their advertising, they now saturate the airwaves and print media with enticing ads promising financial salvation including restoration of a high credit score within a relatively short time.
While some of these companies achieve modest results for a small percentage of their clients, such an outcome is hardly typical. In most cases, the company collects a substantial fee, which can range up to (or exceed) 15% of the total debt owed. Thus, if you owe $45,000 in credit card debt, which is actually less than many people owe, you could wind up paying a debt settlement company $6,750 for nothing.
Complaints are being made in record numbers to state consumer protection agencies (usually administered by the Attorney General’s office) and have risen as much as 400% in some states within the past two years.
The predicament many people find themselves in is a “perfect storm” of circumstances that include: (1) too much credit acquired over the past 5-10 years when banks and credit card companies opened accounts with no regard to a consumer’s ability to pay; (2) regular increases in credit lines without any real need for additional credit on the part of the consumer; (3) the institution of severe penalties in the form of late fees and increased interest rates for late payments; (4) the doubling of the minimum payment on many accounts; (5) the decrease in income in many households due to unemployment of one or both wage earners, “givebacks” to employers that result in diminished income as a result of the employee having to pay for benefits which were previously provided by their employer, and no pay raises or bonuses for extended periods of time; and (6) higher credit balances brought about by using credit cards to pay for necessities (such as food and gasoline), which increased in cost at a far greater rate than ever before.
Significantly, the banks and credit card companies themselves are so burdened with bad debt that they have become highly resistant to requests by consumers to reduce interest rates or outstanding amounts. Thus, in most situations, they only consider compromises from consumers with high credit scores. Of course, people with high credit scores are usually not in financial trouble.
Although debt settlement companies want to portray themselves as a better alternative than bankruptcy, in reality, bankruptcy is often the better course since it extinguishes all dischargeable debts and truly gives the debtor a clean slate. The “stigma” attached to bankruptcy is more fiction than fact and is a throwback to a time when being in financial trouble was frowned upon by society in general. Today, some of the countries oldest and most revered companies have succumbed to bankruptcy (some more than once) and tens of millions of people are in one degree of financial distress or another.
Debt settlement companies never tell consumers that the so-called “services” they claim to provide are nothing more than the very same steps that can be taken by the client himself. In fact, any good bookstore has a number of publications which can guide you through every aspect of getting out of debt, avoiding overspending, and establishing good credit.
One of the best books available is called “Credit Repair” by Robin Leonard and John Lamb, Esq. (published by NOLO, Berkeley, CA). This book contains easy to follow chapters on: (1) Assessing Your Debt Situation including a section on understanding your options; (2) Avoiding Overspending; (3) Handling Existing Debts; (4) Cleaning Up Your Credit File; (5) How Creditors and Employers Use Your Credit Report; and (6) Building and Maintaining Good Credit. The book also contains extensive directories of credit and debt counseling agencies, state consumer protection agencies, where to complain about credit discrimination, federal fair credit reporting and credit repair organizations provisions, forms and letters, and a comprehensive CD-ROM for use in creating your own documents.
Thus, while settlement companies want you to believe they are your “last resort” before bankruptcy, quite the opposite is true. You have it within your power to control your own destiny if you are willing to do a little homework and follow the instructions laid out in any number of excellent publications (costing less than $30) or by agencies and organizations that do not charge for their services.
At a recent forum, an executive of the American Bankers Association, representing the credit card industry, referred to debt settlement companies as being “very harmful” to both creditor and consumer.
As with most things in life, the difference between theory and reality is significant. Debt settlement companies proceed under the assumption that if a consumer stops paying all of his or her credit cards and sets up a bank account for the sole purpose of paying off all outstanding credit lines, the creditors will meekly agree to take a fraction of what is owed to them now as opposed to risking getting nothing at a later date.
Although the average consumer sees this plan as being logical, credit card companies are becoming less and less likely to go along with it. In fact, as soon as you stop paying your bills (even the minimum amounts) creditors step up their efforts to collect what is rightfully owed to them, including fees, penalties, increased interest rates, which keep piling up. Needless to say, while this is happening, your credit score sinks dramatically.
In addition, the settlement company will insist on being paid part of their fee even before they do anything for you. They will also set you up on a payment plan in order to be sure that their fee is paid every month regardless of what is actually being done to help you. Thus, you can find yourself paying hundreds of dollars a month to the company over the course of several months or even years. Many companies simply stop working or slow their efforts down to a crawl once you begin paying them.
Many debt settlement companies have been successfully pursued by the Attorneys General of a number of states, with the result that thousands of consumers have gotten refunds. Some states, like Texas, have sued one or more companies for engaging in false, deceptive and misleading acts and practices. Such lawsuits are based on misrepresentations of success rates and compromise figures.
Of course, while you attempt to get the company to work harder or faster, or while you pursue a complaint against the company with the appropriate state agency, the credit card companies keep tacking on penalties and interest and sending in negative information to the three credit reporting companies. In some cases, consumers have wound up owing several times as much to the credit card companies as they did before hiring the debt settlement exert.
Turning scrap gold into cash: A fairytale if ever there was one
While “spinning straw into gold” is a feat reserved for fairytales, turning your scrap gold into piles of cash is just as unlikely to happen despite the claims of TV, radio, internet, and newspaper ads to the contrary.
As the weakened economy forces millions of Americans to seek ways to raise cash for rent, food, gas, and other necessities as well as to pay for such things such as medical bills and prescription drugs, an entire industry of unscrupulous companies that offer cash for “scrap” or “junk” gold has sprung up.
Although millions of dollars are being spent to advertise these companies and improve their image, the reality remains the same; they are only looking to rip off desperate people.
In concept, the whole process seems reasonable enough. You find broken, incomplete, unused, or mismatched gold jewelry, which you then and send to a “dealer” who correctly appraises it and then offers you a fair market price for it. At approximately $900 an ounce, this all sounds like an easy way to raise a considerable amount of cash if you have several unwanted pieces of gold jewelry just lying around the house.
Unfortunately, as with all “too good to be true” scams, the theory has no relationship to the actual practice. This is because of the following factors, which are neither disclosed nor explained to the consumer.
· The companies fail to disclose how they actually price the gold you send them. The purity of gold determines its value. Thus, 24 karat (24K) gold is pure gold, 18K gold is 75% gold, 14K gold is 58.3% gold, and 10K gold is only 41.7% gold. Gold is weighed in pennyweight, with one pennyweight equaling about 1.555 grams. Because these companies do not disclose how much they are offering for a pennyweight of each grade of gold, it is impossible for you to have any idea about what your gold is actually worth. This allows the scrap dealer to assign any value it wants to your mixed pieces of gold.
· The “money-back guarantee” scam occurs when you opt to have your payment made by “direct deposit.” Most of these companies push for you to receive your payment that way claiming it’s faster and safer. What is not stressed is the fact that the terms of your agreement provide that, if you opt for direct deposit, you waive your right to receive your money back. You also waive your right to receive your items back if you opt for direct deposit.
· Inadequate insurance can be a serious problem since in order to get paid, you must mail your scrap gold to the company. Although you receive an “insured” mailing envelope, there is usually a very low limit on the coverage ($100 or so). Thus, as gold hovers around $900 an ounce, even one small piece of jewelry can exceed that value. In addition, the envelope itself is a perfect target for thieves since anyone looking at the envelope knows exactly what it contains.
· Your gold is usually intentionally undervalued since selecting the direct deposit option will waive a customer’s right t challenge the appraisal.
· If a customer disputes the value, the companies are immediately willing to double or triple their offer, which is still less than the gold is actually worth.
· The actual appraisals are hardly what you would describe as state of the art. In fact, a former employee of one of these companies claims the process is little more than guesswork by untrained workers using “a magnifying glass, a plastic container, a small weight pad, and a bottle of orangish fluid.”
· Although payment checks are usually dated within 24 hrs of the appraisal, they are held for three to four days in order to shorten the time a customer has to challenge the amount. (Usually 10 days from the date of the check). As one former employee states: “You generally receive your check around the 7th-10th business day, and the majority of the time Customers are outraged when they lay eyes on the amount of their check. Some Customer's even receive a check for 0.01 cents.”
· When packages are misplaced or lost after being received, the company will claim it never received them or that they were lost by the Postal Service. If this happens, the customer will be faced with the daunting task of pursuing an insurance claim. The customer will need to provide an itemized list of the contents of the package with a detailed description of each piece sent as well as a copy of the customer’s state-issued identification. At this point the limits of the insurance come into play and many disputes occur since this is the first time a customer will realize that the insurance is for less than the gold was worth.
· When a customer does make a timely complaint about the amount he or she received, the companies are prepared to offer up to three times the original payment. Depending on how much an operator can save the company off that higher figure, the company will pay the operator a bonus. If you do not accept the new offer, you must return your check and wait up to a month to receive your items back.
· These companies have no interest in any “sentimental value” or design associated with the jewelry they receive. Most of the gold is simply melted down. However, if a particular piece of jewelry is more valuable as is, there is nothing that requires the company to melt it down. Moreover, if a piece of jewelry contains precious stones or other valuable enhancements, you will not be paid for them.
So, the next time you see a smiling woman on TV telling you that she traded in her unwanted gold jewelry for “the vacation of a lifetime” or some celebrity spokesperson is pictures sitting in the midst of piles of gold telling you about the untold riches you have just lying around, consider the source and remember: “When something sounds too good to be true, it usually is.”
As always, if you believe you have been the victim of a consumer fraud, don’t be afraid to fight back by making a complaint to the appropriate agency in your state or by contacting Parker Waichman LLP at www.yourlawyer.com for a free consultation. (Note that a complete list of consumer protection agencies by state can be found at http://www.statutes-of-limitations.com/.