By Kenneth Long on February 24, 2012

AT&T is in serious trouble over its existing policy of throttling 5% of its "unlimited" plan users well before they reach excessive use levels. Matt Spaccarelli becomes the first of what is sure to ignite a firestorm of small claims lawsuits against one of the big cellular providers.

Spaccarelli won in small claims court against AT&T, successfully challenging AT&T's practice of throttling back the download speed for data hogs. The judge agreed that AT&T's policy of throttling back substantially the connection speed of users based on their initial data usage substantially violated the spirit of their contracts.

AT&T was found liable in the judgment for $850, an amount based on the judges calculation of overage charges over the remaining term of his contract. Interestingly, Spaccarelli sued for $10,000, which is the amount that AT&T specifies that a customer would receive at a minimum if they won an award in arbitration.

We will be watching closely to see what the upcoming judgments against AT&T will be. Spaccarelli v. AT&T resulted in an award of $850. It sets a precedent that establishes that AT&T's policy violates the spirit and terms of their contract.

There may be some serious awards of $10,000 or more if judges side with the plaintiffs and follow the terms of the contract in regards to the awards. This language was put into place to offset the aingst of not being able to qualify as a class action.

On the surface, AT&T's anti-class action requirement may seem like a strong protection. However, at Debtors Unite, we recognize how consumers can level the playing field by beating AT&T through sheer numbers.

When Bank of America tried to begin charging $5 monthly debit card fees, their customers exploded into protests against the policy. While Bank of America was not alone, this protest forced all big banks to give up plans for the consumer-unfriendly practice.

AT&T's throttling policy covers 5% of its smartphone users in any given month. That's a minimum of 850,000 customers that have a precedent to support a small claims court lawsuit against AT&T.

That is why Debtors Unite is proposing an unofficial class action barrage of small claims court lawsuits against AT&T. AT&T must provide counsel at each individual court session in order to defend itself. If it fails to do so, it automatically loses the case (default judgment).

If AT&T customers who have been affected by throttling of data simultaneously band together and file individual small claims court lawsuits against AT&T, this could hit AT&T in a big way. For this reason, we are declaring March 2012 to be sue AT&T month.

If you have experienced data throttling similar to that of Matt Spaccarelli, we encourage you to take your fight to small claims court and beat AT&T at its own game. They successfully prevented a class-action lawsuit, but they cannot stop hundreds of thousands of their disgruntled customers (no shortage here) from upholding their rights and setting the record straight through small claims courts.

Matt Spaccarelli, we salute you. You helped to set the precedent. We hope that you will cheer along your fellow customers as they fight back against a company that has embraced consumer-unfriendly policies. March 2012 is National Sue AT&T Month!

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Disclosure: I (Kenneth Long) am also an AT&T wireless customer. While I have not yet experienced deliberate throttling of my data speeds by AT&T, I have experienced my own frustrations with serious disruptions in service. Should my data usage become throttled by AT&T, I will immediately file my own lawsuit against Goliath in small claims court and report on my experience.

By Kenneth Long on February 22, 2012

Callers from India have been committing egregious violations of the federal Fair Debt Collection Practices Act. After $5 million has already been taken in the scam, the Federal Trade Commission has finally tracked down the firms behind it and are shutting it down.

On February 13, the FTC filed a lawsuit against American Credit Crunchers LLC, Ebeeze LLC and owner Varang K. Thaker. Federal investigators claim that the defendents have orchestrated a massive fraud in which thousands of consumers were called and threatened with any number of illegal actions.

Debtors Unite previously reported on the Federal Crimes Investigation Unit, in which debt collectors were falsely stating that they were government employees. Additionally, we have focused on the fake debt collection agency scam that falsely accuses innocent consumers of owing nonexistent payday loan debt. Rather than risk legal action or damaged credit, many consumers paid the amounts due.

It turns out that American Credit Crunchers was the primary entity behind the scam. Collection agents were calling consumers and threatening lawsuit, arrest and imprisonment if the debts were not paid.

In some cases, the consumer had a payday loan but had already repaid the loan. In many situations, the consumer never owed any payday loan debt.

To further intimidate the victims, callers advised that they were with official sounding government investigation departments. Some of the fake identities included:

• Federal Department of Crime and Prevention
• Federal Crimes Investigation Unit
• federal investigator
• local police department detective

Victims who sent in money could have avoided becoming another statistic had they verified that the claimed debts were actually legitimate. Debt collectors are required by federal law to supply verification of any debt that they are trying to collect on if the debtor requests validation. Debtors may ask for validation when the collection agent calls, but they are encouraged to send a validation request by mail so they have a copy for their records.

As far as American Credit Crunchers is concerned, they will now be crunching numbers on a possible prison sentence for owner Varang K. Thaker. Their assets have been seized so that regulators can attempt to maintain some hope for partial refunds to victims of the scam.

By Kenneth Long on February 20, 2012

The Minnesota Department of Commerce has hit NCO Financial with a $250,000 fine for failing to properly screen its employees. Officials claim that convicted felons had been allowed to contact debtors at 49 collection agencies that are owned by NCO Financial Systems Inc.

The civil penalty paid by NCO represents violations that were committed by convicted felons who were employed by NCO subsidiaries. Many of these actions were violations of state laws as well as the Fair Debt Collection Practices Act.

This really brings into question the safety of consumer information. Debt collectors have access to quite a bit of personal information. Furthermore, debtors who provide credit card or bank account information are opening themselves up to potential theft or fraud. Debt collection firms must make sure that they are properly screening employees who will have access to such sensitive client information.

According to the Minnesota Department of Commerce, not only did NCO fail to properly screen applicants for criminal backgrounds, they also failed to notify regulators when they discovered that felons employed by NCO committed FDCPA violations. In one case, an employee even stole funds from an incentive program.

Commissioner Mike Rothman released the following statement:


Commissioner Rothman added that “turning loose convicted felons on vulnerable Minnesota consumers is a dangerous recipe for fraud and financial abuse.” The actions by his department send a powerful message to all debt collectors that they need to ensure they have taken adequate safeguards to protect the consumers that they are contacting.

Debt collection violations are still quite widespread among collection agencies. As a result the biggest agencies are big targets for state and federal regulators who are fighting abusive collection tactics that are frequently used against consumers.

By Kenneth Long on February 16, 2012

Note: Debtors Unite has no affiliation with MoneyMutual and definitely does not directly market or endorse its products or services.

Montel Williams is one of many celebrities that have endorsed questionable financial products that are targetted at poor families. This time he endorses MoneyMutual as a source of much needed short-term cash.

MoneyMutual is not a direct lender though. Instead, it is an advertising service that connects vulnerable families with predatory loan companies that are willing to take advantage of the desperate.

MoneyMutual claims it is not a broker for such loans, yet they connect borrowers with lenders. That is the definition of broker, making their claim a bit dubious.

What makes their advertising approach particularly reprehensible is that they specifically mention that as long as you are making minimum wage or are on Social Security that you can be approved. These are precisely the situations where repayment of a high-interest loan is extremely difficult.

Families that are in poverty do not have the financial means to repay predatory loans. They should not be taking out such loans. Instead, if they do not have enough money to get by, they need to either cut out unnecessary expenses ($100 cell phone bills, expanded cable channels, fast food) or attempt to earn more money.

Their website claims that "Montel Williams associates himself only with products that help people live better physically, spiritually, financially and emotionally." Endorsing predatory loans is doing nothing to help people live better financially or emotionally. They end up scared and depressed when their financial situation is further hammered by usurious interest charges.

What is the Cost?

Most loans are anywhere from $200 up to $1,000, making them a bit smaller than the intermediate term loans that Western Sky Financial promotes. The shorter term makes a higher interest rate more likely. Since these are payday loans, you can expect to pay the historical average of 391% APR, or roughly 11 times the normal state usury limit of 35%.

If you took the average price of a McDonald's Big Mac sandwich of $4.20, it would cost you $16.42 if you bought a Big Mac using funds from your payday loan. Are you sure you really need to borrow money through MoneyMutual or any other payday loan service/provider/broker/etc.?

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Price of Big Mac estimated from The Big Mac index courtesy of The Economist.

By Kenneth Long on February 15, 2012

A large number of debtors routinely contact Freedom Debt Relief to help them escape the cycle of debt. They want to believe that the debt settlement company can help them negotiate drastic reductions in their debt balances. In reality, they save almost nothing while further damaging their credit.

The company claims that their fees are only about 7% of your enrolled debt each year. For a 4 year program, that works out to approximately 28% of your enrolled debt. On $20,000 in enrolled debt, you could pay as much as $5,600 in fees.

That may be acceptable to you if you believe they can settle for pennies on the dollar. Debt settlement companies used to make such untrue claims prior to federal regulators enforcing new limits on such false and deceptive trade practices.

One such requirement is making sure consumers have realistic expectations on what the firms can actually do. Freedom Debt Relief reveals this in the small print at the bottom of their website:


So using our previous example, you could expect to settle $20,000 in debt for about $10,000. After factoring in fees of $4,200 you would only save $5,600. There is one more dirty little secret that they do not have to tell you about.

The Internal Revenue Service considers forgiven debt to be a taxable form of income. If you are in the 28% tax bracket, you would have to pay $2,800 in federal income taxes on your forgiven debt. You would find out this dirty secret once you received Form 1099-C in January of the following year.

So after paying $10,000 in settlements, $4,200 in fees and $2,800 in taxes, your total savings would be $3,000, or only about 15% of your total debt. Now if they told you upfront that you could only reduce your debt by 15%, would you really jump into their program?

Plus, do not forget that these companies do nothing to prevent legal actions. You face potential judgments, liens and bank levies on your own. Also, remember that your balances continue to increase while you are on the plan, further eroding what you though were "savings."

A quick review of Freedom Debt Relief reveals that they are moderately upfront about the costs. They are not BBB Accredited but currently hold a C rating at the BBB. While this is a fairly negative rating for most businesses, it is actually above average for the frequently maligned debt settlement industry.

The facts are that while the company is a better player in the debt settlement industry, the industry itself is largely a farce. Debt settlement companies cannot negotiate better deals than you can. They do not have relationships with your creditors any more than you do. They simply send form letters on your behalf, which you could easily do yourself using sample templates.