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Friday, 3 April 2009

Don't Get Taken

by Laura Rowley

Several times in the past month I've received a recorded call from "Heather" with "Card Services" offering to lower the interest rates on all of my credit cards to 6.9 percent. She then instructs me to "press 1" to be transferred to a live agent.

Perhaps you've received the same call. Heather, who also goes by "Cathy," is ubiquitous. She brazenly contacts consumers on the National Do Not Call Registry. She's been featured in a YouTube video. A blog called Stopping Heather is devoted to discovering her identity and, as you may have guessed, shutting her down.

Exploiting People in the Worst of Times

It's a rip-off that's exploiting strapped consumers in the worst of times. Florida State officials, who have filed civil suits to stop the schemes, say the telemarketers typically operate from a "boiler room" full of young, unskilled, minimum-wage workers (who are known to curse and hang up when their services are refused). The agents mislead consumers into believing the firm can negotiate directly with creditors to lower credit card interest rates.

And what are they actually selling? In many cases, a common-sense, debt pay-down plan that can be found in any personal finance book (including my own): Stop using credit cards, and pay extra money toward the highest-rate card. For instance, if a consumer has three credit cards with different interest rates, he should pay the minimums on time, directing as much extra cash as possible toward the highest-rate card. When that's paid off, he takes the extra money earmarked for the first card and applies it to the second card, working his way down.

The telemarketers "have a software program and type in the person's credit card information and debt information, and punch out a savings based on that approach," says a spokesperson for the Florida Attorney General's office. "That's what the consumer gets in the mail. They charge $1,000 for a service that's worth two cents, and sometimes double the charges because they're desperate to make their weekly and monthly quotas."

The Scam Is Spreading

The scam is proliferating from state to state: Workers learn the operation and then open their own franchises, sometimes paying a percentage of the profits to an individual who gets them started, according to Florida authorities.

U.S. consumers have $800 billion in revolving debt on credit cards. Robert Manning, professor at the Rochester Institute of Technology and author of 'Credit Card Nation', says the scams are multiplying as credit card companies unilaterally raise interest rates, even when consumers haven't changed their behavior with the card.

"If your interest rate goes up, your minimum payment goes up -- and lots of people are trying to pinch pennies," he says. "A lower-rate credit card sounds like right thing to do, so a lot of people who think they are doing the right thing are falling into a trap they didn't know existed."

The Florida Attorney General filed a civil complaint against one telemarketer, IXE Accelerated Financial Centers, and its two owners, Jaime Hawley and Ivan Estrella (a.k.a. Ivan Torres). It charges them with violating the Florida Deceptive and Unfair Trade Practices Act and the state's Telemarketing Act, and seeks thousands of dollars in penalties.

Details of a Complaint

IXE claims it has been in business since 1991, but it has only been operating for a year, according to the complaint. (The company's Web site is still active.) Calling itself a "banking center," IXE promises that "licensed financial specialists" will negotiate with the consumer's lenders to reduce interest rates and get them out of debt "three to five times faster than your current rates."

The complaint says the firm charged consumers from $695 to $995, and told them they could save from $2,500 to $5,000 in 30 days or receive their money back. Those who asked for their money back or refused to sign the written contract they received in the mail did not receive refunds, the complaint says.

Consumers' credit cards were charged by a variety of other company names, including Dynamic Financial Resolution; Financial Trust Resources; Computer ER of Florida; Financial Discount GRO Ozone Park N.Y.; and Bank Tech Process, according to the complaint.

When I spoke to the Card Services agent who called me, he said his firm was a division of Experian, the credit reporting bureau. "We have pre-negotiated contracts with all 550 credit card lenders," he said. "There's no out-of-pocket expense to you, this is free of charge. We get paid from the card lenders by the interest and finance charges we save you."

Warning: Stay Vigilant

Experian is "not in the credit card business and does not provide account numbers to unauthorized companies," says Susan Henson, director, public relations. "Experian regrets that consumers have been targeted by this company and warns consumers to stay vigilant about protecting their identity and credit by only providing personal information when they themselves initiate a credit transaction." The credit bureau advises consumers who have given Card Services their personal information to place a fraud alert on their credit file.

The Federal Trade Commission received 1.2 million consumer complaints in 2008. The FTC's list of "credit and loan phone scams" doesn't include the pitch from Heather and Cathy, although consumer protection offices in several states have issued warnings on their Web sites about the swindle. Florida authorities say the scam operators can shut down, move, and reopen fairly easily under another name or in another state.

Bottom line: Never give credit card information over the phone to someone who calls you. Get any offers mailed to you in writing before you agree to any service. Read the contract and make sure you are dealing with a brick and mortar establishment, and check with the Better Business Bureau before doing business with the firm. If you need debt relief, seek help from a non-profit such the National Foundation for Credit Counseling.

"The only entity that has that authority to reduce interest rates is the bank issuing that card," says Manning. Consumers should call the bank directly and ask for a lower rate, and if that is unsuccessful, contact a local credit union and see if they can transfer the balance to a lower-interest card that has no balance-transfer fees.

"We previously had one extreme of underwriting tools --- basically, if you had a pulse, you got a loan," Manning says. "Now it's the exact opposite, and it's hurting people who are good credit users."

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