By David Dayen, a lapsed blogger, now a freelance writer based in Los Angeles, CA. Follow him on Twitter @ddayen
At one level, a crackdown on foreclosure rescue scams and not the overarching mortgage and foreclosure fraud is like letting the arsonist who set fire to the house go while busting the guy who took five bucks off the dresser before the house started to burn. Nevertheless, these scams do represent some of the worst elements of our society, featuring the kind of people who see suffering and vulnerability and think about dollar signs. One of my first entrees into this world of foreclosure nightmares was through a friend who had fallen behind on his payments, and then paid somebody up-front money to help him secure a loan modification. That person did nothing to help and then skipped town with the cash.
So it’s good to see CFPB finally take a crack at this, in conjunction with the Federal Trade Commission and 15 states (Eric Schneiderman’s press release gives a sense of the activity around this). These scams are basically all the same: empty promises about obtaining a modification in exchange for up-front cash, with all the promises broken down the road. In this case, the offending parties happen to be law firms, who made the impression on the victims that they would provide legal representation in securing a modification. It gives a bad name to the legal aid societies and counselors who do actually help homeowners, and scars the entire industry.
Here are CFPB’s filings, against Clausen & Cobb Management Company, The Mortgage Law Group and Hoffman Law Group, which was actually filed jointly with Florida Attorney General Pam Bondi, who filed three other lawsuits against foreclosure rescue scammers. This act of protection for homeowners against financial predators just happens to coincide with an election year!
While I have nothing against a sweep of this magnitude against those who prey upon the weak, it obviously would have had a stronger impact when foreclosure starts spiked in 2008 and 2009. Not like the evidence wasn’t out there at that time.
And I do have the sense that this comprises fighting the last war. Foreclosure rescue scams have given way to student debt rescue scams. Just ask Sarah Bloom Raskin, now #2 at Treasury:
As higher-education debt swells to a record $1.2 trillion, Raskin, 53, is alert to parallels to the mortgage crisis.
Back then, “we would see signs on telephones polls with 1-800 numbers urging homeowners to call to stop foreclosures. People generally got into more trouble when they used those services,” she said in an interview. Driving past the same telephone poles recently, she saw signs “urging people to call a 1-800 number for helping paying student loans.”
The linked story mostly covers these Treasury efforts to partner with tax preparers to identify at-risk student borrowers and inform them of lower payment options (i.e. do student servicers job for them, as I discussed in a prior NC post). But student debt settlement companies do in fact exhibit the same predatory behavior as their foreclosure rescue counterparts:
Illinois is expected to become the first state to bring legal action against debt settlement companies in connection with their student loan practices, contending in two separate lawsuits that Broadsword Student Advantage and First American Tax Defense duped vulnerable borrowers into paying for help that never arrived.
In her suit against the companies and their operators, Lisa Madigan, the Illinois attorney general, contends that the businesses lured borrowers into paying hundreds of dollars upfront, and in the case of Broadsword, $49.99 a month after that, according to copies of the lawsuits reviewed by The New York Times. The companies often misled customers about those fees, according to the suits, and in some instances feigned affiliation with federal relief programs.
In a particularly cruel twist, Ms. Madigan said, the companies sometimes charged customers for debt assistance that they could have received free from the Education Department.
Complaints to the FTC about debt settlement companies exceeded 200,000 in 2013, so the problem is widespread. Frequently the companies advertise with the suggestion of a government imprimatur: one company in Illinois called their service “the Obama Forgiveness Program,” claiming that Congress passed it. No such program exists.
The other easy marks in our klepto-conomy are soldiers, often young people with families making little pay in financially and emotionally stressful situations. Paul Kiel laid out yesterday how USA Discounters lures soldiers with cheap credit, and then files thousands of lawsuits in their local jurisdiction, hundreds if not thousands of miles from the customers themselves.
Should customers fall behind, the company transforms into an efficient collection operation. And this part of its business takes place not where customers bought their appliances, but in two local courthouses just a short drive from the company’s Virginia Beach headquarters.
From there, USA Discounters files lawsuits against service members based anywhere in the world, no matter how much inconvenience or expense they would incur to attend a Virginia court date. Since 2006, the company has filed more than 13,470 suits and almost always wins, records show.
“They’re basically ruthless,” said Army Staff Sgt. David Ray, who was sued in Virginia while based in Germany over purchases he made at a store in Georgia.
Clearly the screwing over of servicemembers did not end with the foreclosure crisis. A bipartisan set of lawmakers released an unusual piece of legislation this year called the “Servicemembers Civil Relief Act Rights Protection Act,” which basically says that companies cannot hide behind arbitration agreements to shirk responsibilities under the SCRA, which include interest rate caps on certain products and a guarantee not to sue active duty soldiers on financially related matters while they serve overseas. This obviously highlights a recent trick from these companies to get around SCRA restrictions.
To flip P.T. Barnum’s quote on its end, there’s a financial predator born every minute, always on the prowl for vulnerable, trapped populations that they can hoodwink. Taking years to muster up the resources to go after just one group of them won’t cut it.
About 7 or 8 years ago – ( at the start of HARP and HEMP and the other fake government programs), there were a couple of former loan brokers I was acquainted with who started out thinking that they were actually going to help people avoid foreclosure. They “knew” the loan business and they “knew” many of the lenders – how hard could it be. They ran into all of the problems we now know about – such as the servicers denying having received paperwork and doing everything possible to avoid an actual modification. Being semi-ethical even if not too smart, the people I was talking about quit the business at about the time that state government was making it illegal to even offer loan modification services.
Interestingly, as I remember it, the emergency legislation prevented anyone from offering modification services except law firms. The law firms had no better luck actually getting modifications, but some of them wrote their agreements so that if they failed in the modification effort, they fulfilled their obligation by recommending or providing bankruptcy services. And since there was zero chance of a successful claim against the law firm, they were able to provide the $1,000,000 bond required by the legislation. I may not have all of the details exactly right, but as we used to say, it’s “close enough for government work”.
yea, election year grandstanding.
The administration has essentially spent the last 6 years cultivating a plentiful supply of “vulnerable, trapped populations” on which “the people who see suffering and vulnerability and think about dollar signs” can prey, arsonists – plenty of them see suffering and think dollar signs, and I would include those setting/fanning fires for profit via wars – and minor scammers alike.
Kill two birds with one stone- plenty of fodder for gross and petty kleptocrats, and, when in need (election year? distraction? a little good MSM PR?), have the petty ones to come down on.
Whenever I read in the MSM about any administration faux-indignation about any scammers preying on the little guy, the vulnerable in this country, I want to vomit.
Not me. I want to reach for my guillotine.
I assume this means everyone with a “Support our Troops” bumper-sticker will be boycotting and picketing USA Discounters and other scam businesses like them, right?…right?
Don’t get me started on that vapid, reflexive, uncritical militarist meme, dip. It’s too early for my head to explode.
ha ha ha -right!
boycotting and picketing sounds commie.
and when it comes to these scammers, the “Support our Troops” troops are oblivious to these and don’t care to know- unless it gets personal, ie a family member gets scammed…
“klepto-conomy.” Good one.
One could even try making it into a single word. Kleptoconomy. And see if it enters the language with enough launchings.
Along with ponziconomy, moneyconomy, etc.
Not a scam of the faux loan-mod sort but definitely predatory: Big Lots and Kmart are now “leasing” furniture. Disappointing but not surprising to see subprime predation migrate from mortgages to auto loans to discount retailing. It’s a sign the faux recovery built on continued wage suppression and increasingly predatory credit expansion is running out of victims.
pam bondi is doing what ?
when she was the local prosecutor she allowed a company with strong ties to one specific religious organization to take money from people across the country…taking money for phantom loan mods…didn’t seem to bother her then….the enterprise was stopped when the ILLINOIS AG office filed suit…and there is a company founded by members of that same religious organization that is to this day printing billions of dollars a year in fabricated mortgage assignments and placing magic stamps on financial instruments in the north tampa area…and she does nothing there to stop them…and she has a magic memo from MERS lawyers, morgan and lewis, which she refuses to release without a federal court order on a writ of mandemus to protect her overlords (the memo purports to explain why MERS is not committing fraud…but the little people wouldn’t understand)…
cares she not about the homeowners of florida, just wants to turn florida into a share cropper state…bah humbug…
and pray tell…which magic mushrooms do they feed you
“counselors who do actually help homeowners”
which counselors and where…HUD agencies get almost zero funding and they are trained by Banker controlled Neighborworks joke trainers who wouldn’t teach you how to get a loan mod if your life depended on it…
ackman, singer and paulson didnt just invest, they manipulated. They got the FAS to play stupid with rules with the help of jaba the hut (the honorable mr pitt), worked with the isda to bend the rules, spent money on lobbying to change laws on borrowings by poor people (re redlining…but that’s not illegal to do, now is it…). This crash was nothing but a smash and grab conversion and the bankers and the trio named above, helped lobby to make it impossible for anyone to help someone get a loan mod…unless they had a trust fund and had nothing better to do with their time…
if the CFPB cared one cent for the average homeowner, they would insist some federal police authority walk into the palm harbor and jacksonville offices of the two firms who continue to fabricate billions of dollars in make believe loan assignments and who regularly alter billions of dollars in financial instruments by placing tardy and fraudulent blank facsimile stamps on the back of homeowners financial instruments to process ownership conversion actions across the country…but one has to justify flying out to conventions and giving speeches to the little people…
now as to these dogs making money off our volunteer military…
from the USA discounters official response:
“When USA Discounters files suit…
we generally do not hire attorneys”
looked up the virginia beach clerks district court website…and…well…most of their actions seem to be some
strange garnishment…guessing they must have the gotten confessions of judgment from the members of the military….however…details details…I wish you had provided more details…was not able to figure out on such short notice how to get access to the virginia beach clerks official records which would be where the judgment would have to be filed by the clerk…but the interesting issues is the form used and how it is worded. even in virginia there are laws…
before the clerk can issue the writ of fieri facias there are items to follow along with…
…the most recognizable of the statutory requirements is the notice provision. The front page of any document purporting to evidence a debt on which the creditor desires to preserve the right to confess judgment must contain the following notice in boldface print of not less than 8 point font:
THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.
Second, the COJ Provision must identify by name each person being designated as attorney-in-fact, as well as the Virginia circuit court in which the confession of judgment is to be entered. The Office of the Attorney General issued a critical advisory opinion in November of 2010 finding that permitting “full power of substitution” for the named attorney-in-fact under a COJ Provision would violate public policy. In other words, only the attorney-in-fact who listed in the instrument has the ability to confess judgment against the debtor. Therefore, any COJ Provision purporting to allow a lender to appoint any of its officers as the attorney-in-fact (which officers have not been named in the document) is unenforceable. If the attorney-in-fact’s name does not appear in the COJ Provision, it will be futile to show up in court – the confession will not be allowed.
hmmm…so is the company practicing law without a license…????
is the virginia bar paying attention or do they want crackpot paralegals using their non action/lack of response in this matter to open up the door to the practice of law without a license…?
and finally…confessions of judgments in every jurisdiction I have had to deal with requires some type of “physical” connection with the debtor having actually lived in the state. One can not just “claim” jurisdiction against you by osmosis…if you have never lived in virginia, how exactly are you able to confess a judgment to a clerk from virginia…what jurisdiction does the clerk have against the person…
is the clerk in virginia beach following the proper procedures. How do they know what address to mail the notice to as required in the 21 days that a member of the military has to legally challenge the confession of judgment by making a simple defense and forcing a lawsuit…lack of personal jurisdiction would seem to be a simple argument…then the confession of judgment becomes a lawsuit…and since the members of the military are not from virginia mostly in these matters…there is no jurisdiction…one does not need to “volunteer” to be under the jurisdiction of the virginia court system…agreement not withstanding…there was no legal representation for these military members, I am sure…
and come to think of it…where the hell are the JAGS in this matter…??
if I can figure this out in less than an hour…who is asleep at the wheel…?
enough ranting…the mets won today…darn it…one more day that sandy alderson gets to keep his job…dratz…
You overlooked another growth area for financial predators: small business loans in the form of Merchant Cash Advances (MCA). MCA is often a last resort for financing for business owners who either have bad credit, can’t get a bank loan, or can’t get a bank loan fast enough. So the business owner agrees to pay a “lender” a cut of future sales, plus a fixed cost on top, to get a lump sum of money up front. Interest rates (on an APR basis) can be over 100%.
Loans to small businesses of less than $1 million are down 22 percent from 2007 because of tighter lending standards (according to Federal Reserve). As banks have pulled back from funding businesses directly, Wall Street investors funneled at least $1.7 billion in financing over the past two years to the high-rate lenders rushing in to fill the gap.
“This is like a payday loan for a business,” said Pat Fossett, a bankruptcy lawyer in Corpus Christi, Texas, making a comparison to costly cash advances for workers. “Unless they’re making a large profit to pay that high interest, they’re shooting themselves in the foot.”
See: how a Goldman Sachs Ethicist Because a High-Rate Lender for more info.
Companies in this space include:
kabbage.com (focus is on online merchants)
kalamatacapital.com (founded by former Goldman banker)
H O P