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Heating up

What is making consumers increasingly hot under the collar?

When it comes to complaints about consumer credit, foreclosure rescue scams are the fastest-growing reason to be steamed, according to a recent survey by three leading consumer protection organizations.

“I wish I could say I was surprised,” says Susan Grant, director of consumer protection for the Consumer Federation of America. But as more Americans fall behind on their mortgages, there is a growing roster of scam artists who view these vulnerable families as ripe for ripping off.

Grant’s organization, along with the National Association of Consumer Agency Administrators and North American Consumer Protection Investigators, sponsored the study. Here is a sampling of some of the things consumers find most offensive, along with advice with on how to protect yourself.

That’s disputable

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The offense: billing and fee disputes. It’s hard to live without debit cards and credit cards, but mistakes in billing can cost you and harm your credit score if you don’t proactively address problems.

The defense: Closely examine the bill. Any charges you didn’t make? Did your APR get changed without your approval? Don’t delay disputing charges, because there may be a time limit for complaints.

Second, review your credit report and notify the credit bureaus of any outstanding disputes. The report should reflect any bills you are contesting without impacting your credit score, says Stuart Rossman, director of litigation for the National Consumer Law Center.

Third, know the law. For instance, banks can’t charge ATM or debit card overdraft fees unless you opt in for the coverage, says Diane Standaert, legislative counsel for the Center for Responsible Lending. If you didn’t say they could, then make sure they don’t.

If none of this works, contact your state or local consumer protection agency, Grant says.

Foreclosure’s poseurs

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The offense: confusing mortgage and foreclosure-related fraud. The potential for problems begins the minute you start shopping for a home loan and continues for 30 years or until you pay off the mortgage, whichever comes first. Meanwhile, the recession has brought a record number of foreclosures — and complaints about foreclosure rescue scams.

The defense: Shop around. You don’t have to shop until you drop for a mortgage, but do enough comparisons to give you confidence that you’re getting a good deal. Even government-sponsored programs like FHA can have varying fees from different lenders, says Standaert.

Read the fine print — and the big print. Most importantly, read the summary page mandatory with all home-related loans, says Ruth Susswein, a deputy director with Consumer Action. It tells the rate and under what circumstances it can change.

What if you fall into foreclosure? Be careful who you ask for help. Find a HUD-certified counselor through the National Foundation for Credit Counseling. If a foreclosure specialist asks for money upfront or instructs you to pay him instead of the mortgage company, go elsewhere. And don’t be afraid to ask your lender directly for a loan modification.

Impaired repair

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The offense: credit repair scams. Unemployment is rising, and so are complaints about “credit repair services” that promise you new or improved credit. The problem: There is no licensing for this industry. “You need to be very cautious,” says Rossman, of the National Consumer Law Center.

The defense: Know how scammers operate. Susswein says there are three common cons. One, they falsely claim they can get lines erased from your credit report. “That’s bogus,” she says. Second, walk off if someone says they can get you a new Social Security number, she advises. And third, don’t deal with anyone who suggests you become an ‘authorized user’ of a stranger’s credit card account.

Rossman says another clear warning sign is when someone demands upfront payment for their services. And be skeptical if a credit repair adviser suggests you convert your unsecured debt, like credit cards, to a secured loan, like a home mortgage. You could be giving up some consumer protections.

Finally: Think of credit repair like home repair — a potential DIY project. To start, read Bankrate.com’s credit repair checklist.

Relief pitchers

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The offense: debt relief rip-offs. Sinking in debt can cause consumers to panic. And that’s perhaps why they are increasingly complaining about debt-relief scams that do little but can cost a lot. There are legitimate operators in this field, but you need to know how to tell the difference.

The defense: Don’t pay upfront. During the depths of the recession, some debt relief services would directly contact consumers. But starting Oct. 27, 2010 debt relief agencies that call you or invite you to call them can’t charge a fee until they have actually resolved the debt. “This is huge” for consumers, says Susswein.

Also, remember that there are credible people who can help you with debt relief. So go with established players. One safe bet is finding a nonprofit agency affiliated with the National Foundation for Credit Counseling. Its website can help you find a counselor. Another resource is the Association of Independent Consumer Credit Counseling Agencies.

Predatory perpetrators

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The offense: predatory lending. People who can’t get credit are particularly susceptible to becoming victims of easy credit schemes that carry astronomical hidden costs.

The defense: Predators win when you don’t do your homework. So check out the options when shopping for auto or home loans. To protect your credit score, it’s best to make these multiple applications within 14 days of each other.

Steer clear of auto title loans and payday loans. Standaert of the Center for Responsible Lending says a few states limit interest rates on these types of debt, but most don’t. As a result, they can sometimes cost you up to four times what you initially borrowed. Check out credit unions, finance companies and even charitable organizations for alternatives.

With prepaid cards, know exactly what the post-purchase costs are, says Standaert. Some have reasonable fees, but others “work very similar to the structure of a payday loan,” she says.

A collector call

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The offense: abusive and/or illegal debt collection practices. Collection agents can be intimidating, and with the economy in tatters many companies are getting more aggressive about collecting on overdue debts. But you need to make sure they don’t step over the legal line when dealing with you.

The defense: First, make sure it’s your debt. Bill collectors may be looking for someone with a name similar to yours. Demand written proof it’s your debt. If it is, verify that they are still within the legal time limit to collect. The statutes of limitations vary by state.

Know your rights. Learn what collectors can — and can’t — do in your state. Good sources include the state attorney general’s office, a local consumer affairs office and a nonprofit counseling agency. There is also the federal Fair Debt Collection Practices Act, which is designed to insulate you from third-party collectors. Read “Are Collection Agents Treating You Fairly?

Additional resources

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Looking for more information consumer credit and debt? Read these Bankrate stories.

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