Attorney General Chris Koster testified today before the Senate Commerce Committee.
The topic? Mortgage and credit fraud.
Read more about it on the Columbia Business Times Blog. And you can read his full statement after the jump.
Senate Commerce Committee Talking Points
“The Economy and Fraud:
Protecting Consumers During Downward Economic Times”
Thank you Mr. Chairman,
I appreciate your bringing attention to the problems we are seeing
across the nation from scams and fraudulent activities borne directly
from the current recession.
I will focus my comments today on what we in Missouri see as a
particular threat to our citizens. The threat is this: companies and
individuals who specialize in servicing, or preying upon, consumers who
have significant credit card debt or unsustainable mortgage debt.
Foreclosure Consultants and Debt Settlement Firms claim to consumers
they can cut principal in half, reduce monthly payments by hundreds of
dollars, or eliminate debt altogether. And they claim that this process
is virtually pain free.
All that is required of a consumer is a few thousand dollars in
up-front fees so the companies may utilize their special
“expertise.” Consumers are led to believe these settlement
companies know the “secrets” of negotiating away a consumer’s
Unfortunately, the real secret here is that these companies are
offering a service that consumers could do for themselves, or that
non-profit credit counselors will perform for free or a modest fee.
Moreover, one of the primary strategies relied upon by these debt
settlement and mortgage companies is to convince consumers to stop all
payments to and communications with his or her creditors, which of
course leads to long-term damage to the consumer’s credit rating and
hundreds, if not thousands, of dollars in additional fees and debt.
In the end, to the extent that these companies provide any service at
all, debt settlement and mortgage modification companies often offer a
service that leaves a consumer no better off than where the consumer
Real people are being harmed by these companies. In Missouri, our
Complaint Unit has seen a sharp increase in the volume of complaints
related to foreclosure rescue scams:
In 2007 and 2008 combined, the Missouri AG’s office had a total of 25
complaints. However, in just the first six months of this year, we’ve
already received more than three times as many complaints as we saw in
2007 plus 2008, combined.
For debt settlement complaints, there has been a similar spike.
Consumers are being lured to these debt settlement and foreclosure
consultants by outrageously deceptive advertising. And you will be
interested to know that much of the advertising we are seeing seeks to
co-opt the authority of the federal government.
Tens of thousands of direct mail pieces are distributed every day in
Missouri offering debt settlement or foreclosure relief that purports to
distribute money from the “Economic Stimulus Act of 2008 [or 2009].”
These advertisements typically are replete with federal seals from the
Department of Housing and Urban Development and the Federal Housing
Administration, and logos that generally appear to be from the federal
government. Eagles and flags abound on these advertisements.
In fact, I personally received an offer for enrollment in a “Payment
Reduction Program” that, and I quote, was “created in conjunction
with the Government Economic Stimulus Act of 2008.” The advertisement
looked like it came from the federal government in that it purported to
be a “Form 008-S” and the subject line read “HR 5140 Government
Economic Stimulus Act of 2008.”
Unfortunately, too many consumers are fooled by these tactics. Those
who are fooled are, no doubt, in the most desperate financial
Missouri takes seriously its enforcement of laws enacted to address
these issues: our Merchandising Practices Act, our Foreclosure
Consultant Act, and more specifically, our state’s ban on up-front
Missouri’s ban on up-front fees for foreclosure consultants and
credit repair firms represents a particularly effective enforcement tool
These services are often only profitable if the settlement company
charges a large up-front fee. A ban on such fees not only discourages
companies with suspect motives from entering the market, but makes
proving a violation quite easy, thereby enabling swift injunctive
So where do we go from here?
I would raise for your committee’s consideration the following
First, most AG’s would, I believe, support a federal ban on up-front
fees related to mortgage rescue and debt settlement firms. In Missouri,
we have seen so many examples of settlement companies that either never
earn their fees or companies that simply pocket the upfront fee and then
Second, do not shy away from applying to the same up-front fee
restrictions to lawyers and law firms that specialize in debt settlement
work. Although a caveat may need to be drawn around certain bankruptcy
court practices, what is good for the goose is nonetheless good for the
Third, continue to provide the FTC with additional tools against
settlement companies that claim the imprimatur of the federal
government: the use of governmental symbols and logos in ads, the strong
inferences that these solicitations come from HUD or the Federal Housing
Administration, or the claim that the solicitation has been sent as a
directly result of the economic stimulus act. These advertisements are
gross deceptions and should be punished as such.
Finally, continue to restrict advertisements and solicitations around
reverse mortgages and particularly sale-leaseback arrangements. In
Missouri, advertisements for these products are increasingly frequent
and increasingly bold. In most instances, they take the last remaining
asset of an individual or family in desperate financial shape, and offer
to liquidate it at a firesale price. Yet vulnerable consumers, most
notably the elderly, have great difficulty assessing the decision to
liquidate their home late in life, and at such disadvantageous terms.
In my six months as Missouri’s Attorney General, I have been
continually amazed at the lengths crooks will go in an attempt to scam
innocent people out of their money. However, in these tough times, with
so many desperate consumers needing help, a perfect climate now exists
for such financial scams to thrive.
I encourage your committee to consider bold and bright line enforcement
measures, to make scammers using these fraudulent tactics think twice,
and to give enforcement agencies, such as my own, the strongest tools
possible to prosecute them.
Thank you for your time today.