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.