By Kenneth Long on March 31, 2011

General Electric filed an income tax return for 2010 claiming zero taxes owed. Did I hear that correctly? It is true, and it has a lot of tax reformers fuming.

GE's CEO affirms that the company abided by proper tax law when compiling its corporate tax return. He pointed to huge loses taken by subsidiary GE Capital as a major factor that allowed for a zero tax bill in 2010.

Boss Jeff Immelt for one assured investors and the public that expected gains in 2011 would be enough to require a substantial tax liability for that year. Immelt also admitted that U.S. tax code is seriously flawed, calling it "old, complex and uncompetitive." Immelt is one of many chief executives that believe the tax code should undergo a pretty serious overhaul.

GE filed over 7,000 tax returns in 2010. They were filed in various domestic and foreign jurisdictions. Foreign profits totalled $10.8 billion. However, since they claimed a loss of $408 million domestically, they are paying zero tax to the federal government.

As a true American, I understand it is my responsibility to pay my fair share toward the financial obligations of this country. I benefit from living in the best country in the world, which is protected by the best fighting force in the land.

That definition of "my fair share" is certainly up for debate. What tax policy is fair? Is it the fair tax? Is it a flat tax? Is the progressive tax system best?

I certainly do not have all of the answers on tax policy. I can state with great certainty though that tax policy that allows a global giant like GE to post huge global profits yet pay zero tax is indeed fundamentally flawed. When an average Joe must pay higher taxes than a profitable company like GE, there is officially a problem.

For the record, I have no problems with GE and its tax return. GE is a part of my own investment portfolio, and its value has risen 36% since I bought the stock.

By Kenneth Long on March 30, 2011

Now that tens of thousands of Californians have wasted their last remaining dollars on futile debt settlement plans, California is proposing a new fee cap on debt settlement services. The California Debt Settlement Consumer Act (SB 708) would limit such fees to a maximum of 15% of the savings provided by a debt settlement company.

Debt settlement companies are already prohibited from charging advance fees for services that often never materialize. The Federal Trade Commission's Telemarketing Sales Rule was revised to disallow such advance fees, making it a crime to charge advance fees on any debt settlement client who enrolled after October 2010.

California's proposed bill maintains the same ban on advance fees. It goes a step further by limiting the maximum fees that debt settlement companies may charge to just 15% of the savings. That means on a $5,000 debt that is successfully negotiated down to a $3,000 payoff, you would pay $3,300 to the company to settle the debt. They would keep $300 and send $3,000 to the collector.

Of course, you would still be on the hook for federal and state income taxes owed on the forgiven debt. When a debtor factors in the $3,000 settlement, $300 fee and estimated $700 in taxes (depends on tax bracket and other factors), it hardly sounds like much of a bargain to pay out $4,000 to settle a $5,000 debt. This is especially true when you consider that the debt was likely about $4,000 when you first joined the debt settlement company's plan, only to watch your balance continue to grow as fees were assessed and interest accrued. If this sounds bleak, consider that this example is one of the success stories. A failure rate above 90% shows just how futile debt settlement plans really are.

California legislators are only now beginning to see just how ineffective debt settlement plans really are. When you  also factor in the false and deceptive advertising that most debt settlement companies depend on to drive in new customers, it makes sense that California wants to rid itself of this scourge of the debt relief industry. California legislators are hoping that by banning the excessive fees charged by debt settlement scams, then the few "legitimate" debt settlement companies (if they exist) would remain to provide services. They are also hoping that debtors will turn to credit counseling before defaulting on their debts rather than throwing in the towel and enrolling in debt settlement or bankruptcy.

If California is successful in enacting this bill, it will likely mark the end of deliberate advertising for debt settlement services in California. Some debt settlement companies will likely still add customers from California that seek them out, but it is unlikely that localized advertising would ever pay off.

California's proposed Debt Settlement Consumer Act does more than limit fees to 15% of the savings. It also imposes new reporting and licensing requirements as well as costly penalties to violators. State Senator Ellen Corbett is the sponsor of the bill, which carries support by the Consumers Union and the Center for Responsible Lending.

By Kenneth Long on March 29, 2011

GHS Solutions, also known as Full Circle Debt Relief is the next of dozens of debt settlement companies that just cannot hack it now that they must actually earn their fees. They are laying off 112 employees, many of whom may need to settle their own debts now that they are without a job.

The Telemarketing Sales Rule restricted debt settlement companies by disallowing advance fees on services that often were never delivered. Instead, debt settlement companies may only charge a fee (normally 30% of the forgiven debt) upon successful settlement of that debt.

Debt settlement companies depended on the hundreds and thousands of dollars they received upfront from each enrolled client in order to pay the massive salaries of their executives, the high commissions of their sales staff and for the huge marketing budgets that drove in victims, or clients if you use their term.

According to Better Business Bureau of Southeast Florida and the Caribbean spokesman Mike Galvin, 184 complaints were recevied over 3 years regarding the company's business practices. Most complained that despite paying anywhere from $1,000 to $5,000 in fees, they received no significant reductions in their debt.

The company advertised debt settlement plans through the following venues:

• www.ghsdebtsolutions.com
• www.debtsettlementsource.com
• www.fullcirclereliefnow.com

Debt settlement companies have come under fire for falsely claiming to be able to reduce debt, when most clients see no reductions at all. Even successful clients often end up paying as much or more than they owed when they first enrolled with the companies.

These debt settlement scams victimize so many desperate debtors. In the end, they are left with a history of defaulted debt, legal processes against them, empty bank accounts and feelings of regret.

Clients are much better off if they complete credit counseling before they default on debt, or if they speak with a bankruptcy attorney to prevent legal action against them. Rogue debt settlement companies simply cannot deliver on theri promises.

By Kenneth Long on March 29, 2011

Colorado Attorney General John Suthers has taken action against a national payday lender that has violated Colorado lending laws. Western Sky Financial provides payday loans with interest rates approaching 300%, yet it failed to obtain the necessary license to provide loans to Colorado residents above the 12% statutory limit.

Despite media reports that Western Sky Financial is owned by the Cheyenne River Sioux Tribe, the firm is actually wholly owned by tribal member Martin A. Webb. This time Webb has found himself named in the suit as its principal owner, and Colorado wants the firm to make things right.

Solvency Shark Stewart Pelto first uncovered Western Sky Financial's smoke and mirrors marketing blitz. He was obviously stunned by the revelation from the spokesperson claiming "yes, it's expensive." While payday lenders subtly post their interest rates as required by the federal Truth in Lending Act, it is unusual for an advertisement to so candidly reveal that the loan is an expensive product.

Still, despite all of the candid advertising, the company still finds itself on the wrong side of the law. Colorado code requires that a lender obtain a license prior to offering any loan with an interest rate in excess of 12% APR. By failing to obtain a license, Western Sky Financial's loans are in violation of Colorado's Uniform Consumer Credit Code.

Over 200 loans were already made to Colorado residents, all of which are in violation of state law. Loans of $400 to $2,600 were made with terms ranging from 7 to 36 months.

This case represents an important legal challenge to the sovereignty of native American tribal companies. Several payday loan companies have recently become affiliated with tribal governments as a ploy to circumvent states' payday lending laws. In this case, the lender Western Sky Financial is not actually owned by a tribe, but rather by an individual tribal member.

It is expected that owner Martin A. Webb will have to concede to laws that were broken in Colorado. However, you can bet that other payday lenders are closely watching in order to make sure they take the steps necessary to shield their firms from consumer protections. More importantly, they will be taking every precaution to attempt to hide behind tribal sovereignty as a means for evading consumer protections and bypassing state usury laws.

By Kenneth Long on March 28, 2011

Minnesota Attorney General Lori Swanson has filed suit against Midland Funding LLC. She claims the junk debt buyer provided false and fraudulent evidence of debts owed to Minnesota courts.

Swanson's complaint stops short of stating that Midland Funding intentionally mislead the courts through deliberate false filings. Instead, she states that flaws in the company's use of automated processes resulted in inaccurate, unproven and sometimes false documentation being supplied to the courts.

Debt buyers like Midland Funding purchase portfolios of consumer debt from creditors for pennies on the dollar. Between Midland Funding and it's parent corporation, Encore Capital Group Inc., have purchased $54.7 billion in consumer debt at a cost of $1.8 billion. That amounts to about 3 cents on the dollar.

In order to maximize profits, Midland Funding has been automating just about every aspect of debt collection possible. That has historically included the use of predictive dialers for their collection agents and automated letter generation for mailing notifications.

Midland Funding has taken a step similar to other large scale debt buyers to increase efficiency by streamlining its process of providing proof of debt to the courts. By automatically generating proof of the debt, each affidavit is computer generated based on information on file for each account that explains the source of the original debt. Affidavits are robosigned and then submitted to the courts without manual review of each file to determine the accuracy of the information submitted.

The trouble with this approach is that mistakes are made, and there is no system for detecting and fixing errors before they find their way into the court system. The result is that many consumers find that legal action has been pursued against them by mistake. Some debts were not accurately submitted. Others were never owed by the defendant in the first place. Still, the result was the same, leaving consumers burned with bad credit and legal action on a false or inaccurate debt.

Swanson's office released a statement declaring that the robosigned affidavits lacked accuracy. She stated they were implemented by Midland Funding "as a way to speed up the collection process."

Immediately following the lawsuit filing, parent company Encore Capital Group released the following statement:

Still, the attorney general cited sworn testimony from multiple employees who signed up to 400 affidavits daily even though they had not verified the accuracy of the debt, and in some cases never even read the affidavits prior to signing off on their accuracy. Midland is already facing a class action lawsuit.

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Join the Discussion at the Credit Forum: Has Midland Funding treated you fairly as a debtor?