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Affirms Decision Vacating $2.5MM Award to Debt Collectors; Finds Letters are Not Fraud

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Accounts receivable entities which are inundated by seemingly auto-generated dispute letters have been paying close attention to the case filed by CBE Group, Inc. (CBE) and RGS Financial, Inc. (RGS) against Lexington Law (Lexington) and Progrexion, Inc. What at first seemed like a significant win for entities being flooded with these letters has seemingly ended with the opposite result.

Here’s a recap of the saga: in 2017, after years of receiving massive amounts of letters with consumer signatures that appeared to be auto-generated and not sent from the actual consumers themselves, CBE and RGS filed a lawsuit against Lexington and Progrexion. The suit alleged Lexington and Progrexion (as Lexington’s agent) committed fraud by making the letters appear to be from consumers when the letters were actually sent by Lexington on templates created by Progrexion. In July 2019, a jury returned a verdict awarding a total of 2.5 million dollars in actual and punitive damages to CBE and RGS, finding that the practice amounted to fraud, including by failing to disclose material facts.

What happened after the verdict?

After the jury came back with its award, Lexington and Progrexion filed post-judgment motions asking the District Court to set aside the jury’s verdict. In February 2020, the District Court granted the motions and overturned the jury verdict primarily on the basis that Lexington’s engagement agreement with its clients (1) allowed Lexington to send letters on its client’s behalf in their names, and (2) advised each client that the letters “will not be identified as being sent by Lexington.”  The District Court reasoned that since Lexington had the legal right to sign its client’s names, it did not make any false representations, material or otherwise when it sent the letters (a false representation is a requirement for a fraud claim).  

CBE and RGS appealed, and on April 1, 2021, the Fifth Circuit Court of Appeals affirmed the District Court’s ruling, confirming that as a matter of law, Lexington’s conduct did not amount to fraud. The Fifth Circuit also focused on the language of Lexington’s engagement agreements and rejected CBE and RGS’s contention that there was no true attorney-client relationship between Lexington and its clients. Instead, the Court noted that the engagement agreements had not been shown to be invalid, and even if Lexington’s clients misunderstood the terms of the engagement agreement, they were still bound by it. Like the District Court, the Fifth Circuit concluded that since Lexington was operating with its clients’ consent, it did not make any false representations when it sent the letters, nor did Lexington create any false impressions requiring disclosure.

Further, the court held that the fraud claims must fail because CBE and RGS did not “justifiably rely” on the alleged misrepresentations since their internal policies and procedures require them to investigate and respond to dispute letters sent by consumers third parties alike. Regarding Progrexion, the Court held “there is no evidence that Progrexion sent dispute letters; rather the evidence is that Progrexion provided template letters to Lexington [] for its use, hence Progrexion cannot be liable for fraud since it like Lexington law did not make any material misrepresentations.”

insideARM Perspective

As we stated when the District Court vacated the judgment in 2020, this is an unfortunate ruling in the fight against a practice that ultimately harms consumers. Legitimate debt collectors understand the importance of accurately reporting account information to the credit bureaus, and they build robust compliance processes and procedures to ensure they are reporting correctly and are able to investigate quickly—and, if necessary, correct—disputed information. It is believed that many credit report disputes, such as the ones from credit repair organizations, are not legitimate; instead, they are an attempt to remove correct, but unwanted, derogatory items from credit reports. If debt collectors are flooded with these illegitimate disputes, it makes it more difficult to separate the wheat from the chaff and help consumers who have legitimate disputes.  Maybe there is a different legal theory to pursue in this battle, but the Fifth Circuit has made clear that if the credit repair organization is acting in accordance with its engagement agreement, a fraud suit may not be successful.



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If you need a co-signer, you’re not ready | Business

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My fiancée and I want to make an offer on a house. She has a lot of late payments and a bad credit record, though, but she is working hard to manage her money better and get out of debt. I don’t make enough money to get a home loan by myself, and I have some debt to pay off, too. In order to help us out, my aunt and uncle said they are willing to co-sign a mortgage loan for us. What do you think of that idea?

Here’s a simple, solid piece of advice for anyone looking to make a purchase of any kind. If you need a co-signer, you’re not ready to make that purchase—period. I’m not trying to beat you up or anything, but it’s way too soon for you two to be thinking about buying a home. I mean, for starters you’re just engaged right now.

When a lender requires a co-signer, it basically means they don’t believe you’ll pay back the money. And besides, you two don’t need a house now or right after you get married. The two of you should get married, and live in a decent, inexpensive apartment for a while. During that time, you both need to work hard on paying off all your debt. After that, save up an emergency fund of three to six months of expenses. Then, start setting aside cash for a down payment on a modest home.

When it comes time to buy a home, I recommend a 15-year, fixed rate loan with a down payment of at least 10%. Twenty% is better, because it will help you avoid having to pay PMI (private mortgage insurance). Make sure the monthly payments on the loan are no more than 25% of your combined take home pay. Keeping the payments at 25% or below will make it easier to address other important financial issues, like saving and investing.

Your aunt and uncle are obviously generous people, Evan, but they’re a little misguided in their offer. At this point, helping you two buy a house — something you obviously can’t afford —would be a huge burden instead of a blessing.

Dave Ramsey is America’s trusted voice on money and business, and CEO of Ramsey Solutions. He has authored seven best-selling books. The Dave Ramsey Show is heard by more than 11 million listeners each week on more than 550 radio stations and digital outlets. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.

Dave Ramsey is America’s trusted voice on money and business, and CEO of Ramsey Solutions. He has authored seven best-selling books. The Dave Ramsey Show is heard by more than 11 million listeners each week on more than 550 radio stations and digital outlets. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.

 

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Dave says: If you need a cosigner, you're not ready – Northeast Mississippi Daily Journal

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Dave says: If you need a cosigner, you’re not ready  Northeast Mississippi Daily Journal

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How to improve your credit score in 2021: Easy and effective tips

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If you’ve ever wondered “What is my credit score?” it’s probably time to find out. Having a good credit score can make life a lot more affordable. If you’re about to buy a house or car, for example, the higher your credit score is, the lower your interest rate (and therefore, monthly cost) will probably be.

Your number may also be the deciding factor for whether or not you can get a loan and ultimately determine if you are even able to buy something you want or need.

So, yes, the goal is to have the highest possible credit score you can, but increasing the number doesn’t just happen overnight. There are important steps to take if you want to increase your score, and the sooner you start working on it, the better.

“If you’re trying to increase (your credit score) substantially to accomplish a goal, you’re really going to have to have as much lead time as possible,” said Thomas Nitzsche, director of media and brand at Money Management International, a nonprofit financial counseling and education provider that advises people on how to legally and ethically improve their credit score on their own.

If you have fair credit and you’re trying to improve the number for a house purchase, for instance, you’ll want to start working on it at least a year in advance, he explained to TMRW.

But even though that sounds like a long time away, you can (and should!) start doing things right now to bump that number up. Below, see seven things you should do — and not do — to help improve your credit score:

1. Review your credit report

Review your credit report and look for errors that might be hurting your score. Morsa Images / Getty Images

The first thing you’ll want to do is pull up a copy of your current report so you know where you stand. You can get free reports from all three agencies — TransUnion, Experian, and Equifax — at annualcreditreport.com. Nitzsche said it’s important to take a moment and understand the financial snapshot of where you are today and where you want to be.

You’ll also want to take some time and look for any errors on your report, which could negatively impact your score. “If your name is misspelled, that’s not going to hurt your score,” he explained. “But if you see a late payment or missed payment (that’s in error), or maybe you have an account that should be reporting but isn’t, then that’s a problem and that will impact your score.”

If there is an error, you should dispute it and try to provide as much proof as you can.

One other thing: You can also ask a creditor to remove an issue if it’s been corrected (i.e., if you paid off a collection debt). Nitzsche said it doesn’t hurt to ask and the worst thing they could say is no.

2. Have good financial habits

“The biggest part of your credit score is payment history, so the most critical thing is never missing a due date,” Nitzsche said. Set up a monthly autopay or add all due dates to your calendar so you never miss a bill.

You can also achieve a higher score when you mix different types of accounts on your credit report. It may seem counterintuitive to get extra points for having debt in the form of student loans, mortgages and auto loans, but as long as you’re paying them off responsibly, it shows that you’re reliable.

3. Aim to use 30% or less of your credit at any given time

Know your credit limit and aim to only use 30% or less of it for a better credit score.Tim Robberts / Getty Images

Know your credit card limit, and try not to use any more than 30% of that number each month, otherwise your score could lose points for too much credit utilization.

Another thing you can do is ask your bank to increase your limit. “That will give you more flexibility to spend more,” Nitzsche said. You could also pay it off twice a month to keep the balance low. But he does warn that you never know when the balance is going to be reported to the bureau. It can happen at any point during the month, so it might be the day after you make the payment or the day before. “You don’t necessarily want to use the card and pay it the next day because that doesn’t give the bureau the chance to know that you’re using it,” he said.

4. Avoid requests for new credit

If you’re looking to increase your score around the time you want to buy a house or car, you won’t want to open up a new line of credit, like a retail card, credit card or loan. That’s because “hard” credit inquiries like those can lower your score, and sometimes it comes down to a few points over whether you’re approved or what your rate will be, Nitzsche said.

“Soft” credit inquiries, like when an employer checks your credit or when you pull your own report, won’t affect your score.

5. Keep all accounts open, even ones you don’t use anymore

Even if you don’t use that credit card from college, it’s a good idea to just keep it open because closing it could hurt your score. Nitzsche explained that you’ll be dinged some points for each account that is closed. If you want or need to mentally break up with a card, just cut it up instead.

6. Build your credit if needed

If you haven’t established credit yet, you might not even exist … in the credit report space, that is! “If someone has never fallen in delinquency on any subscriptions or utilities or never had collections on anything and they have not utilized credit cards or loans in the past seven to 10 years, they may not have a credit profile at all,” Nitzsche said. “That presents a challenge when you want to buy a home.”

If this sounds familiar, you may have to get a secured credit card where you put down a deposit, he advised. “You still have to make payments and use it responsibly. Not all banks offer them but you can usually check with your local bank or credit union.”

7. Reach out for help

If you want personal guidance on boosting your credit score, make an appointment with a credit counselor.kate_sept2004 / Getty Images

There are many apps and credit-monitoring services that can help you stay on top of your credit score. You could also reach out to a professional credit counselor who can help you navigate your specific situation. (Here’s a good resource about finding a reputable service.)

One last thing: Nitzsche warned that everyone should beware of credit repair scams that claim to be able to increase credit scores for an advance fee to get accurate negative information removed (even temporarily) from credit reports.

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