How to Recognize a Payday Loan Collection Scam

I'm hearing stories more and more often these days about payday loan collection scams. And it is unfortunately happening to people who have already paid off the loan or who have had it discharged in bankruptcy.

What happens is the scammer gets just enough information about a real payday loan debt to construct a threat. The scammer then sends an email or calls, relying on ignorance about how collection laws work, and playing on fears or guilt about exposure. They also often threaten "federal" or even "criminal" action.

These are almost always scams. But how can you be sure? If the email or the caller uses poor English, it is likely a scam. Read the email out loud. If it sounds like it was written by someone who barely understands English, you can safely assume it was written by a fake bill collector. If the call or email is threatening and mentions possible criminal actions, it's almost certainly a scam. If the email or caller says things about "suspending a social security number" it is definitely a scam. 

The more serious the threats and the more complicated the demands are, the more likely you are dealing with off-shore predators and not a genuine bill collector.

I would never reply to one of these emails. That only shows the the scam artist that you're a live target and will probably just convince them to send you more frightening and false emails. But you can test a collection caller by asking for a "written statement on the account" and ask that it be mailed to you. There are collection laws that require the lender to cooperate when you ask for a written statement on your bill. If the caller will not assist with this, you can safely assume that the call is an attempt to swindle you.

In my next post, I'll discuss how you can fight back if you've been victimized by a bill collection scammer. But for now, just be sure to understand that there are more and more of these scammers out there and not every collection call or email is legitimate.

About the author: Dan Cooke

Minnesota Judgment Removals are Back to $5 Each, Where They Belong

For anyone with an adverse, prior Minnesota State Court judgment against them, the process of removing that judgment record from a credit report just got a whole lot less expensive.

Under Minnesota Statute Section 548.181, anyone who was sued in the past and wanted to petition for removal of the judgment record only has to pay the Court clerk $5 per judgment for the service. Because the mere record of a prior judgment can dramatically hurt someone's credit score and ability to obtain a loan -- particularly a home mortgage loan -- being able to remove the judgment record is important. While judgment records cannot be removed until paid or otherwise discharged, after they are satisfied or discharged they can be. But you have to take action to do it yourself. Otherwise, the written record of the judgment could still stick around as a blot on your credit.

Long ago, the Minnesota legislature recognized the importance of this by enacting the $5 fee for each removal. The problem is that a few years back, County Court Administrators across the State decided on their own to interpret the law to allow them to not only charge $5 for the judgment removal, but a full Court filing fee as well -- the same fee that was charged to anyone wanting to file papers to start a lawsuit. These fees vary by County but are often $300 or more. What this meant is that if you had a few judgments against you that you took care of and simply wanted to clean up your credit history, it could cost you well over $300 per judgment to do so. And mortgage lenders often required this step before allowing any home lending, even to refinance.

The Courts were essentially grabbing cash from folks who as a group are not particularly wealthy and who were simply trying to clean up their credit history by using a Court service that takes all of three minutes. That cash grab ends August 1, 2015. As part of the recent Omnibus public safety finance and policy bill signed into law by Governor Dayton, the statutes are being clarified to state that Court Administrators cannot charge more than $5 per judgment removal.

Some of my colleagues worked very hard to get this bill passed into law. The $5 fee is fair and its return is a welcome sight.

About the author: Dan Cooke

Image credit: Teresa Boardman

Income Inequality Reality Check

For those of you who wonder why we need bankruptcy laws, there is an excellent essay about income inequality in today's Star Tribune by my colleague Ronald Lundquist.

I think we'd all like to live in a world where no one ever has to file bankrutpcy. We do need the bankruptcy safety net if we want to live in a society that encourages entrepreneurship and job creation (otherwise, it would be too risky to start a business). But the sad byproduct of delining wages and salaries is that we may be about to see an uptick in bankruptcy filings by regular, hard-working employees.

About the author: Dan Cooke

The Right Way to Monitor Your Credit

2014 was a banner year for huge consumer data breaches. From news of the Target attack in January to the massive Home Depot credit and debit card thefts, we all learned that identity and credit card theft is becomming a bigger and bigger problem for all of us.

Retailers commonly respond to data breaches by offering free credit monitoring services. Do they help? Maybe, but probably not as much as you think. They will help if it is too difficult for you to look through your own free credit report and make sense of everything listed in the report. While some of the services offer identity theft insurance, most of that coverage only duplicates coverage consumers already have, under existing laws or credit card zero liability rules.

The monitoring services normally do not tell you if a new wireless service has been taken out in your name, and they do nothing to monitor your bank accounts or retirement account transactions. They also don’t watch for fraudulent charges on your existing credit card accounts. And they don’t stop tax fraud, medicare fraud or Social Security fraud. The monitoring services will not alert you if a bad guy uses your social security number to nab your tax refunds.

In short, the credit monitoring services will only catch a small percentage of the crimes that can be committed with a consumer’s identity. And the free credit monitoring services might also give you a false sense of security, leading to further problems if you don’t take other basic steps to protect yourself.

So what can you do? By all means, review your credit card and bank account statements on a monthly basis. You should also check your own credit report every four months - it’s free. Make sure to clean up any errors you find. If you’ve been victimized in the past, you should also put a free 90-day fraud alert on your credit file. You can do this simply by filing a fraud alert — sometimes called a “security alert” — with any of the three major credit bureaus: EquifaxExperian, or TransUnion.

Another, even more secure option is to place a full security freeze on your own credit, which prevents anyone from opening a new account in your name (you can lift the freeze temporarily for your own needs with a PIN if you need to legitimately open a new account). The standards for placing a freeze vary by State - in Minnesota there is a $5 fee. Finally, consider opting out of unsolicited credit card or insurance offers to prevent mail thieves from using them. 

If you elect to have credit monitoring, there are free services available, such as Credit Sesame or Credit Karma. But remember that you cannot rely on credit monitoring alone.

Is some of this a pain in the rear? Sure. But once you get in the habit of checking your bank account statements, credit card statements (at least monthly) and credit reports (at least every six months), you’ll find that it’s an easy way to protect yourself.

About the author: Dan Cooke

Image credit: Simon Cunningham

Underwater Mortgage Lien Stripping Upheld

In a case originating in Minnesota, the Eighth Circuit Court of Appeals has upheld the legality of "lien stripping" wholly unsecured junior mortgages on residences in Chapter 13 cases. The decision follows earlier decisions in seven other federal appellate courts around the country, better settling the law for those of us who live in Minnesota. Congratulations are in order for local attorney Tim Theisen for his work on behalf of the homeowners in the case.

Homeowners with second or third mortgages that are underwater -- meaning the value of the residence is less than the amount owed on the primary mortgage(s) -- can rest easier in the knowledge that they can use a Chapter 13 reorganization plan as a means to removing those underwater mortgages entirely from their homes. For example, a homeowner who owns a home with a fair market value of $150,000 and a first mortgage with a principal balance of more than $150,000 could eliminate any additional mortgage debt on his or her home as part of a Chapter 13 filing.

There are, of course, other requirements that must be met before anyone with underwater mortgages can file a Petition under Chapter 13. But anyone with significant underwater mortgages on their residence may want to consider this avenue of debt relief, particularly if it means the difference between keeping and losing a home.

About the author: Dan Cooke

Image credit: Kevie

Car Loans are the New Tickets to Bankruptcy

23% interest on a motor vehicle loan? Even with today's low interest rates? How about 100%?

Over the past few years banks have been targeting people who used to be denied for car loans. Now, these folks are getting multiple car loan offers in the mail promising "easy credit". It can be tempting to sign up for one of these loans when your existing vehicle is on its last legs.

The trouble is the cost. Auto lenders try to get you to focus on the monthly payment instead of the true cost of the loan. Paying a total of $15,000 with interest for a car you bought for $7,500 might work out, but the $7,500 car is likely to need repairs and maintenance over the next few years and may even quit running before your car loan is paid.

The new wave of easy but expensive auto loans is being driven by banks that cannot make risky home loans anymore. They've turned to auto loans instead. Mortgages are now heavily regulated so car loans are a much easier place for banks and car financiers to rip you off. And that can happen to anyone paying 23% interest on an older vehicle that's out of warrantee.

Even more devastating are title loans, the quick cash loans you can get using your current vehicle as collateral. These loans often require payments of over 100% interest. I've seen title loan contracts charging 300% in interest. Most States, including Minnesota, prohibit title loans with interest rates that high but they are legal in Wisconsin. Many Minnesotans -- often desperate for cash to pay their rent -- drive over the border to get a Wisconsin title loan.

As you might imagine, the title lenders are doing very well. You don't have to be a math whiz to realize that a 300% title loan can quickly cost you more than your car is worth. If you borrow $2,000 at 300% interest and it takes you 12 months to pay off the loan, you're paying $6,000 in interest, or $8,000 altogether. If your car is worth less than $8,000, you might be better off letting the lender repossess the car than paying them back.

So what do you do? When you're in the market to buy or replace a vehicle, ignore the car loan offers you receive in the mail. Those offers are almost all going to have outrageous interest rates. And ignore the pushy finance guy who tells you that the interest rate he found is the "best you're ever going to get." These days, you can often find a better interest rate yourself by calling around. You can start with your bank or credit union. If you have bad credit, taking steps to clean it up before you apply can often get you a much better interest rate. This can save you thousands of dollars over the life of the loan.

What about when you're stuck with a title loan? Thankfully, there is a remedy in bankruptcy to deal with title loans that allows you to compel the lender to accept a more reasonable interest rate. If you borrowed money on a title loan and you can't afford the payments, this remedy can give you a way to keep your car.

If you need help with bad credit, credit cleanup, or with a terrible title loan, give me a call. We can probably help.

About the author: Dan Cooke

Image credit: Misfit Photographer