May 20, 2014

Financial transaction complaints are widespread

Consumer complaints about products and services logged with various government agencies in 2013 run such a wide gamut that it makes you wonder if there is any such thing as a risk-free financial transaction.

“I’d be hard-pressed to come up with one,” said Rebecca Branch, deputy director of the consumer protection division of the New Mexico Attorney General’s Office. “I’d have to think on that for a long time.”
BRANCH: “They call it zombie debt”

BRANCH: “They call it zombie debt”

Mortgages generated the most complaints by far at the Consumer Financial Protection Bureau, a federal agency established four years ago to make financial products more user friendly for consumers. Rounding out the top five are debt collection, credit reporting, bank accounts and services, and credit cards.

Identity theft generated the most complaints at the Federal Trade Commission’s Consumer Sentinel Network in 2013. New Mexico ranked 19th among states for having the highest rate of identity theft complaints at 69.4 for every 100,000 residents.

Used-car sales topped consumer complaints at the state Attorney General’s Office, whose recent attempt at requiring more due diligence by licensed used-car dealers is being contested in state court by the New Mexico Auto Dealers Association.

Rounding out the office’s top five are debt collection, car repairs, cellphone service and general retail sales.

The state list goes on to include a variety of both scams and common activities such as using a debit or credit card, going to a doctor’s office or having work done on the house.

The Consumer Financial Protection Bureau’s list of consumer complaints goes to the heart of consumerism, since they all involve our use of various mainstream financial instruments.

Mortgage complaints, which made up 37 percent of the bureau’s total, fell mostly into two categories:

Nearly two-thirds involved homeowners who were unable to make their payments and were encountering problems with a mortgage modification or foreclosure.

A quarter involved problems with loan servicing, particularly after a homeowner’s mortgage is transferred from one servicing company to another. Existing mortgages are repackaged and sold all the time, so this can happen to anyone.

Debt collection generated the second-highest number of complaints at 19 percent, with a third of them involving a debt that the consumer claimed he or she didn’t owe. Complaints about debt collection also ranked second highest on the AG’s list and the FTC’s Consumer Sentinel Network.
FEFERMAN: Credit reports can be costly

FEFERMAN: Credit reports can be costly

“One of the biggest problems in debt collection is the emergence of debt-buying companies,” said Richard Feferman, a consumer-rights lawyer in Albuquerque.

These companies buy bad consumer debt after the original holders of the debt – a bank on a credit card account, for example, or a store that provided financing for the purchase of merchandise – have given up trying to collect it, he said.

“It’s sold for pennies on the dollar, so that anything that’s collected is just gravy,” Feferman said. “Some of the debt is so old, it’s beyond the statute of limitations for collection through the courts.”

This secondary market for bad consumer debt has led to an overall increase in debt-collection activity because the bad debt stays active longer. The increased collection activity, in turn, has led to increased consumer complaints about debt collection.

“They call it zombie debt,” Branch said. “It keeps coming back to life.”

The Consumer Financial Protection Bureau’s third-highest producer of consumer complaints is credit reporting, with three-quarters of the complaints citing incorrect information on individual credit reports. Credit reporting also shows up on the AG and FTC lists, but at lower rankings.

The three largest and best-known credit-rating bureaus – Equifax, Experian and Trans Union – are just the tip of the iceberg for a segment of the financial system that processes more than 54 billion updates to more than 200 million consumer-credit files each year.

The bureaus make money by selling credit reports on individuals to a wide range of businesses, ranging from lenders to landlords, that are considering doing business with the individuals. Mistakes on the reports can be costly, even devastating, to consumers.

“Credit scores are your access to improving your lot in life,” Feferman said.

A December 2012 FTC study said 26 percent of consumers had potential errors on their credit reports at one of the big three credit-rating bureaus. At least in anecdotal terms, fixing an error on a credit report can prove easy or almost impossible.

Used-car sales have been a top draw for consumer complaints on the AG’s list for years, with the most common issue being licensed dealers selling cars that have been extensively damaged in accidents without fully disclosing the damage to buyers.

At his law practice, Feferman said, “This is our everyday fraud.”

A pattern of some auto dealers failing to disclose damage prompted the attorney general to issue a rule in January requiring dealers to inspect used cars and, in writing, disclose prior damage or alterations to buyers, Branch said.

Based on the state Unfair Practices Act, the rule was two years in the making.

“Some dealers have embraced it,” she said.

A petition to block the AG’s rule was filed in February and is pending in state District Court in Torrance County by the dealers association and three dealerships, including Tillery Chevrolet-GMC of Moriarty.

In general, the petition says the inspection rule is outside the AG’s scope and contradicts the Unfair Practices Act.