Attorneys General in other states should take notice. Massachusetts has successfully barred online payday loan operations from the state. Nationwide Cash and Paragon Funding must cease taking on new clients in Massachusetts, pay fees to the state and forgive the outstanding loan balances of Massachusetts residents.

Attorney General Martha Coakley announced settlements with both companies who were operating illegally at the time. Nationwide Cash must pay $10,000 to the state while Paragon Funding owes $5,000.

Customers in Massachusetts must be completely forgiven by both companies. That means they entire outstanding balance owed must be wiped clean. Collection efforts must cease. Any negative credit records must also be erased according to the terms of the settlements.

Interest rates on some loans reached as high as 700% APR for Nationwide Cash borrowers, and 1095% APR for Paragon Funding customers. Both are exceedingly high rates of interest and illegal given the state's limit of 12% APR for unlicensed lenders.

Other states that have enacted strong consumer protection laws have failed to protect their residents from online payday loan companies. When I contacted North Carolina's AG, the representative claimed that while they had banned storefront payday loan companies, the law did not cover out-of-state lenders that sourced such loans online. North Carolina and other states would be wise to examine the Massachusetts case, since it proves that such laws can be enacted and enforced on a state level.

Customers should understand that in no circumstance is a payday loan justifiable. Such oppressive loans never help to improve a situation. Instead they only delay and intensify the inevitable pain of insolvency.

For legitimate payday loans, credit unions are becoming leaders in providing short term payday loan style products, yet with interest rates often 15% APR or lower. Some such as North Carolina's State Employees Credit Union also include a savings component designed to help reduce the reliance of such loans over time.

If you are considering a payday loan, instead look to a credit union to inquire about payday loan alternatives and membership requirements. If you are struggling with unsecured debt payments, then a credit counseling agency might be a good alternative also.

Kudos to Massachusetts for kicking those rogue lenders out of the state. For other customers of Nationwide Cash and Paragon Funding, you have little recourse but to try to pay off the loans as soon as possible. Otherwise, you risk damaged credit and possible judgments.

The Fair Debt Collection Practices Act (FDCPA) protects Americans from harassment during collection attempts. For Allied Interstate, their repeated violation of the FDCPA put them in a difficult position--trying to explain to the Federal Trade Commission why they failed to validate debts as required by federal law.

When a debt collector contacts you in an attempt to collect on a debt, they are required to investigate any claims that you do not owe a debt. You actually have 30 days to request verification of the debt when you receive your first notice of collection.

According to the FTC, Allied Interstate repeatedly failed to verify disputed accounts. Instead, they repeatedly called in violation of the FDCPA, sometimes hanging up and even calling third parties to reveal the debt. Calling a third party (neighbor, family, employer) is illegal except in an attempt to track down the contact information of the debtor. Debt collectors are prohibited from revealing the debt to outside parties. Still, many debt collectors routinely do this purposefully in an attempt to disgrace or embarrass the debtor so that they pay up to make the calls go away.

To date, this $1.75 million settlement for FDCPA violations is second only to the $2.25 million paid by Academy Collection Service in 2008. NCO Financial paid a $1.5 million fine in 2004 for violations of the FDCPA. In that case, similar allegations of failing to verify the debt were made, although the FTC claimed that NCO also was changing the date of last delinquency in order to extend the collectible life of the debt.

Debt collector calling the wrong person. Forum: Have you ever been harassed by a debt collector when you did not owe the debt?

If a debt collector contacts you on a debt that you do not owe, you should inform the agent that you do not owe the debt and request them to investigate your claim. If the collector fails to provide proof that you owe the debt, then you have no obligation to pay. If they continue to contact you with attempts to collect on a debt that you do not owe, you have additional rights to force them to stop.

While taking them to court is certainly one of those rights, it might not be convenient for most people. Instead, a good first step is to file a formal complaint with the FTC. Filing a complaint with your state's Attorney General can also be helpful, since they will investigate your complaint individually with the collector. Normally when the AG requests validation, even a rogue debt collector will normally back off and leave you alone.

West Virginia Attorney General Darrell McGraw identified the First Secure Management debt relief scam after investigating numerous complaints filed by state residents. Debtors were called by telemarketers who claimed that First Secure Management would lower their interest rates, guaranteeing a minimum savings of $2,000.

Debtors paid nearly $1,000 to First Secure Management in vain hopes of saving at least twice that in interest. The savings never materialized leading to the complaints being filed.

West Virginia investigators linked First Secure Management with another firm, Arizona-based Allied Corporate Connection. Investigators made the discovery that the private mailbox used by First Secure Management was leased by Allied Corporate Management. Owner Lisa Miller failed to comply with an investigative subpeona from the Attorney General, leading to a lawsuit to ban Millers companies from doing business in West Virginia.

First Secure Management is listed as a debt settlement company with the Better Business Bureau serving Central, Northern and Western Arizona. Not surprisingly, their BBB rating is an "F".

A review of the First Secure Management website revealed the following disclaimer:

Based on this disclaimer, it appears that clients of First Secure Management are paying nearly $1,000 to do something on their own. They could get better education from a credit counseling agency for free.

The source of the Attorney General complaint is that while the website says one thing, their telemarketers were saying much more. They were claiming to be able to lower clients' interest rates and guaranteed savings of at least $2,000.

While First Secure Management may be blocked from West Virginia, they are still able to operate in other states. Debtors should evaluate any claims to make sure they understand what a service will actually do for them. Additionally, a quick check with the Better Business Bureau can often uncover any red flags before you sign up or send money!

Debt settlement companies do not lower interest rates. Credit counseling agencies can often intervene to help you obtain lower interest rates, but they do so with your creditors permission. They cannot promise to lower your rates, and any company that makes such a promise is likely a scam.

American Tax Relief claimed to be able to reduce the income tax bills of their clients. Their television commercials were compelling. To further attract clients, they mailed postcards to solicit the business of those hit with federal tax liens.

An investigation by the Federal Trade Commission concluded that 20,000 consumers paid upfront fees for worthless tax relief services. Fees ranged from $3,200 to $32,000.

Clients made multiple payments, but often received nothing in terms of services. Often the first clue that they had been ripped off was the unreturned phone calls.

Instead of providing legal representation to help negotiate tax bills with the Internal Revenue Service, many clients were left to fend for themselves. There were allegations that when work was done, that it was completed by unlicensed employees rather than attorneys.

There were issues of unauthorized bank drafts and charges made to clients' credit cards without permission. When clients protested, calls were ignored and refunds were rarely provided.

The first clue should have been the outrageous claims made by American Tax Relief. No entity can help you settle your IRS debt for pennies on the dollar. If you believe such claims and fail to check out the company's reputation, then you share some of the blame for your situation. The Federal Trade Commission and states' Attorneys General also share some blame, since scams of this magnitude should be shut down before they grow to such levels. It took the discovery that American Tax Relief failed to pay their own income taxes to finally put them on the radar.

To verify the claims made by American Tax Relief or any other company, always check their rating with the Better Business Bureau. Also, research the company to look for positive and negative comments from their clients. Just a few minutes of researching tax relief scams and reviews of legitimate providers can save you thousands of dollars in fees and some sleepless nights.

For American Tax Relief, this may be the end of the road. Owner Alex Hahn has had his assets frozen, and the same has been done to the company's assets. American Tax Relief bilked customers out of $60 million. It is expected that Hahn's $3.4 million home in Beverly Hills will be seized, along with the two Porsches, a Ferrari, two Mercedes, a Bentley and a Rolls Royce. FTC Consumer Protection director David Vladeck pointed out that the owners of American Tax Relief didn't even buy American.

If you were a client of American Tax Relief, consider telling your story. Make sure you avoid providing any emails or telephone numbers in your comment.

Recent regulatory restrictions have sent the debt settlement industry into a tailspin. At issue, companies that source clients by telephone cannot charge advance fees which have historically added up to thousands of dollars. Instead, they may only charge fees once services have been rendered.

With an October 27, 2010 deadline established by an amendment to the Telemarketing Sales Rule, debt settlement trade associations have been trying to help their rogue members deal with the restrictions. For the record, no legitimate debt settlement company would ever charge upfront fees equal or greater to several months worth of payments.

There was talk about shifting operations offshore. Presenters at the 2010 TASC (The Association of Settlement Companies) Conference promoted offshoring of operations as a way of continuing to bilk debtors out of their last remaining dollars without fear of prosecution by U.S. regulators. Their basis of this suggestion is case studies on the offshoring of payday lending (Bermuda) and virtual casinos (Dominican Republic, Costa Rica, Panama).

Shift in Objective

Debt settlement companies and their marketers are still pursuing many of the same indebted consumers who are at risk of legal action due to nonpayment of overdue debt. Now it appears that many have shifted their objective to pushing clients into bankruptcy rather than trying to enroll them into a marginally profitable debt settlement scheme. There just isn't much money in it anymore now that settlement companies are supposed to actually earn their fees.

Some debt settlement companies are already hiring and retraining sales personnel to promote bankruptcy as a means for getting rid of debt. Bankruptcy is still a way for these companies to draw hundreds or thousands of dollars in upfront fees out of each client. Those upfront fees are what they need to drive their huge marketing budgets.

In terms of what is in a client's best interests, many will be better off filing for bankruptcy before they throw away thousands of dollars in debt settlement fees. Others though will find that they went overboard when all they were looking for is debt help from a reputable provider.

For most clients, the only reasonably effective method for checking if a company is reputable is to check their Better Business Bureau rating. Still, there are some other sources of information that can be objective, such as contacting their state's Attorney General to inquire about prior complaints. For most debt settlement companies, either check would reveal a trail of unsatisfied customers.