Debtor Talk: The Blog.

Wanna' run your own credit repair site? Be careful.

2008-03-17T21:07:00.002-04:00

Do it wrong, and you may well be violating the Credit Repair Organizations Act (CROA). Like...having affiliates may well be a bad idea:

Anyone who deals with credit repair needs to be careful and make it clear that there are no conflicts of interest and/or hidden affiliations with any entity or person who does credit repair and accepts or can be reasonably assumed to perform such activities for a fee. By having such undisclosed arrangements, it could well lead to trouble under the CROA (Credit Repair Organizations Act). Even if one does not accept fees for their own credit repair works, if one were to affiliate with an entity that does, they may well end up covered by the Act [See §403].

Per Sec. 404, "Prohibited Practices":

(4) engage, directly or indirectly, in any act, practice, or course of business that constitutes or results in the commission of, or an attempt to commit, a fraud or deception on any person in connection with the offer or sale of the services of the credit repair organization.

Seems to be a "stretch"? Maybe, or maybe not: If the "not for fee" (note that I did NOT say "not for profit" since not for profit organizations can and do charge fees) affiliate--if they are shown to be an affiliate--could be considered fraudulent or deceptive if what the affiliate does is, in essence, provide "cover" for the CRO.

3.) This FTC opinion which deals with affiliate advertising and deception for non-disclosure. The FTC Opinion states in pertinent part:

[A]n act or practice is deceptive under Section 5 of the FTC Act if: 1) there is a representation or omission of information that is likely to mislead consumers acting reasonably under the circumstances; and 2) that representation or omission is material to consumers. ... A representation or omission is material if it is "likely to affect [consumers'] choice of, or conduct regarding a product." ...The Commission presumes certain categories of claims to be material, including express claims and claims the seller intends to make. ...

The main question the petition presents is whether it is deceptive in violation of Section 5 of the FTC Act to fail to disclose that a marketer is paying' a sponsored consumer to make claims to other consumers about the marketer's product.'
In addressing similar concerns, the Commission's Endorsement Guides state that "[w]hen there exists a connection between the endorser and the seller of the advertised product which might materially affect the weight or credibility of the endorsement . . . , such connection under Section 5, even if the paid relationship is clearly disclosed....

The Endorsement Guides look to whether the connection between the seller and the endorser is likely to have a material effect on the weight or credibility of the endorsement, that is, if the "connection [between them] is not reasonably expected by the audience."

In other words, even though YOU might not charge for services yourself, the mere fact you take money from someone who is associated with your site who does can leave YOU liable for CROA violations. Whether you hide it or are in the open. It's a credibility issue. After all, people do not expect "splogs" (blogs which are really advertising) and discussion boards which are really disguised ads; to give the wrong impression not only impacts such credibility but may well violate the CROA.

And, when it comes to violating the CROA? You don't want to go there.

"Maxed Out" movie maker tells the truth about credit and collections.

2008-03-17T21:00:00.002-04:00

This video is a recording of a question-and-answer segment by James Spurlock at a Google seminar. He is the film maker who made "Maxed Out" and explains here the background behind the movie and answers questions about credit, debt, and collections (No he did NOT go into debt to make the movie, despite some rumors floating around on the Internet.):

Here are some points he makes during the session:

The most surprising thing?

1.) Income has nothing to do with the credit issuer's decision whether to issue credit or not. It's ALL in the FICO score for the lending decision. All the income information is used for? For collections purposes if one defaults (read: deciding whether the creditor should sue or sell the debt). In other words, the days of the friendly banker/credit issuer who would lend one money, as the old saw goes, if one could prove one dies not need it, is over.

[A note from DT: Even when "manual" processing is involved, it's the credit score that is the #1 item the credit issuer looks at. The advantage of manual processing is that it gives the consumer a chance to explain why the situation is as it is and might help convince a credit grantor to issue a credit line/credit anyway.]

2.) Assigning blame for the debt mess? More than enough for both sides, but the fact is that consumers make decisions thinking the creditor will not rip them off...not so. In fact , creditors love people who may well not be able to pay: "Front-loading" (Definition here also here) and punitive fees pay the loan back early and the rest is "gravy" they are loathe to lose. Even if there is a default, and they are not yet paid back?
Tax law and debt sales make up for the majority of the loss.

3.) The fear that the drying up of "easy credit" will result in economic "meltdown"? Not that simple; it's a political thing that is more fear-mongering than a real possibility.

4.) Best advice to reliably stay out of hopeless debt?

a.) Don't...have children, get ill, etc.

b.) Do not count on being able to pay it back because life can...go from "Awesome!" to "Aw s*it!" very quickly and there may be no way to control that or to be able to put enough away to clear out the mess if things do "go south". The "be frugal and you can pay them back" mantra is...a bunch of sh*t for most people.

Why do you think we hear about the "frugal" ones who paid it back once they got into credit trouble for whatever reason? It's the (relatively) rare situation that is "newsworthy", not the usual for the rest of the "maxed-out" population.

New source for case law: PreCYdent .

2008-03-17T20:42:00.006-04:00

We have been informed about a new (and free!)case law database. It's named " PreCYdent":

The link above will take you to the home page. You can search without joining the site as a member. Is it worth it to join? Yes; becoming a PreCYdent member will give you access to a greater choice of services and is highly recommended; you can even upload case law to the site as a member if you wish.

To make it even easier to use PreCYdent, we have added a widget from PreCYdent in the sidebar.

NOTE: We do not own nor have a financial interest in PreCYdent. We are just satisfied users. :)

Continued collection when an account is not verified but reassigned?

2007-12-10T18:24:00.000-05:00

This entry came from Bud Hibbs'website. This is a comment about NCO Financial Systems and a Consumer Comment made by someone who allegedly asked for validation and apparently wanted the CA to "quit playing on their phone" (all calls are inconvenient) per the FDCPA:

Date: December 23, 2006

I received correspondence from NCO attempting to collect a charged off debt from Capital One. I immediately sent them a validation letter. In this letter I requested that no telephone contact be made and contact was only to be in writing by US Postal mail. Today I received correspondence from Forster & Garbus that Capital One Bank has referred the account to them with a notation that I wished all communications to cease and desist. Since they cannot communicate they are left with no alternative but to institute a lawsuit as instructed by their client. I do not owe what they claim I owe and I'm not paying them a dime until I get validation of the debt. I am tired of being threatened with lawsuits from these jerks with no validation of the debt.

NCO apparently sent the account back to CapOne who then decided it was time for the sh*t to hit the fan...eh...sue for the debt.

Some remarks here:

1.) While there are questions often raised asking if lawsuit can be filed if timely validation was requested and has not yet been received, this is apparently not the case here. NCO appears to have returned the account to CapOne, who then retained Foster & Garbus to litigate the matter.

NCO was within their rights under Federal law (and almost all state laws) to not get validation but to simply return the account to the client. So, no FDCPA violation here.

2.) Forster and Garbus (lovely "sharks"...eh...fine members of the legal profession and the creditors' rights bar...)is wrong here: This was NOT a full C&D (Cease and Desist) letter, but a DV with the "inconvenience clause" and they should have known that. Therefore F&G made a false and misleading statement by saying that one had been issued and therefore there was no choice but to file suit.

2a.)There is also no indication this consumer timely DV'd Forster and Garbus themselves once F&G got the collection account. If the consumer did not, then it can be reasonably assumed that a charge of "continued collection activity" would not stand up to judicial scrutiny.

3.) A clear violation here is that F&G has threatened to file suit. Yet apparently they had not yet done so despite repeated collection attempts. There is a good chance the consumer here could claim that F&G was threatening an action they were not intending to take.

Mortgage issuers are finding out about the "Law of Unintended Consequences".

2007-12-10T18:18:00.000-05:00

They asked for changes in the BK law. They got them in 2005. Two years later...they are finding out that people would rather pay someone else. This article from "Bloomberg.com" tells particularly of one sub-prime mortgage lender who is getting shafted a lot more recently:

Bankruptcy Law Backfires as Foreclosures Offset Gains (Update1)

By Kathleen M. Howley
©2007 Bloomberg L.P.. All Rights Reserved.

Nov. 8 (Bloomberg) -- Washington Mutual Inc. got what it wanted in 2005: A revised bankruptcy code that no longer lets people walk away from credit card bills.

The largest U.S. savings and loan didn't count on a housing recession. The new bankruptcy laws are helping drive foreclosures to a record as homeowners default on mortgages and struggle to pay credit card debts...said Jay Westbrook, a professor of business law at the University of Texas Law School in Austin...

``Be careful what you wish for...They wanted to make sure that people kept paying their credit cards, and what they're getting is more foreclosures.''

...The surge in foreclosures has cut the value of securities backed by mortgages and led to more than $40 billion of writedowns for U.S. financial institutions.

Securitization is common these days. However, those securitized loans can make it very difficult to "prove" the security interest in court. One judge in OH threw out fourteen foreclosure cases filed by Deutsche Bank recently because they could not prove even who owned the security interest for the loans. ( Case is posted here.)

[T]he amount of money owed on U.S. credit cards with payments more than 30 days late fell to $7.04 billion in the second quarter from $8.37 billion two years earlier, according to data compiled by Federal Deposit Insurance Corp.

In the same period, the dollar volume of repossessed homes owned by insured banks doubled to $4.2 billion... led by defaults in subprime adjustable-rate mortgages, according to the Mortgage Bankers Association in Washington.

How nice (NOT!). Get paid for unsecured debt...and get stuck with a lot of collateral in foreclosure?? That's what seems to be happening and is definetly unwelcome: Banks/mortgage issuers DO NOT WANT to be landlords!

Although, IMHO, this dark cloud may have, ironically, a silver lining as the insolvent homeowner comes to grips with the fact that money can only stretch so far and divestiture of an asset that has become a "White Elephant" may well be the best option:

`Let the House Go'

People are putting their credit card payments ahead of their mortgages, said Richard Fairbank, chief executive officer of Capital One Financial Corp., the largest independent U.S. credit card issuer. Of customers who are at least three months late on their mortgage payments, 70 percent are current on their credit cards, he said.

``What we conclude is that people are saying, `Honey, let the house go,''' but keep the cards, ...

It appears that the credit card companies are getting what they wanted since it's more difficult to qualify for CH 7 bankruptcy protection AND CH 13 plans do not take into consideration that adjustable rate mortgage do just that...and rarely in the direction of "down". Yes, the rate of CH 13 failures are not all that different than they were before (two-thirds of debtors not being able to complete the plan), but it appears the reason for the failure comes down to being able to pay the mortgage because the living allowances under the new BK law were really set up for the IRS for use in "Offers in Compromise" and not bankrupt debtors' reorganization plans.

And, this did not lower the rate of BK filings, either:

Bankruptcies Increase

Personal bankruptcies rose 48 percent to 391,105 in the first half of 2007 from a year earlier and Chapter 13 filings accounted for more than one-third of those, according to the American Bankruptcy Institute. In the first half of 2005, they were just 24 percent of the total.

So, guess who found out about the "Law of Unintended Consequences"?

`Unintended Consequence'...

``The law had an unintended consequence of taking away a relief valve...'' said Rod Dubitsky, head of asset-backed research for Credit Suisse Holdings USA Inc. in New York. ``It's bad for the mortgage borrowers and bad for subprime investors because it means more losses.''

So, the lenders have some choices,none they wanted to see:

1.) Restructure loans so people can afford them without going BK.

2.) Have the BK law changed to allow for changes in mortgage payments.

3.) Or... avoid the problem in the future by being choosier about who they lend to to begin with even if it means they make fewer mortgages and more people have to rent for a longer period of time.
---------------------------------
1.) Bankruptcy Law Backfires as Foreclosures Offset Gains (Update1), Kathleen M. Howley, Bloomberg.com, November 8, 2007,© 2007 Bloomberg L.P.. Available here.

2.) "Unintended Consequences", Norton, Rob, 'The concise encyclopedia of economics', Copyright: Design and coding ©: 1999-2002, Liberty Fund, Inc. Content ©: 1993, 2002 David R. Henderson. Page available here.

Debtor wants to pay the debt, but needs to restructure. Or go BK; creditors seem to want the latter.

2007-11-23T14:42:00.000-05:00

This story from Great Britain points out what can happen when a debtor tries to have the debt restructured; it also tells of a process that might be worth setting up in the U.S.. Posted originally on the "This is Money" website (U.K.):

Credit & loans - Dealing with debt
Why won't lender let me pay my debt?
Helen Loveless, Mail on Sunday
7 October 2007

© 2007 Associated Northcliffe Digital Ltd

Tom Rose is up to his eyes in debt. But unlike some in the same nightmare situation, he wants to pay back every penny.

The problem is, he cannot afford to do that unless he enters into an agreement to freeze the debt, but his lenders will not let him. He now faces the real possibility of bankruptcy.

Retailer Tom (not his real name) owes more than £55,000 in loans and credit card debts. His problems began when a change of job led to a big pay cut. At first he borrowed more money with the intention of consolidating his debt. But then, like so many people slipping into the red, he could not afford more than the minimum repayments. His debt continued to grow.

After taking advice from an insolvency practitioner, Tom applied to enter into an individual voluntary arrangement. Under the terms of an IVA, those owing more than £15,000 agree to pay back a percentage, or all, of the money owed, typically over five years.

The practitioner's role is to negotiate with lenders to freeze interest payments so the debt does not keep growing. Despite offering to pay back 100% of his debt in return for a freezing of his interest payments, Tom was knocked back by one of his largest creditors, Marks & Spencer Money. It refused to agree to the IVA - as is its right.

This is a similar situation to what can happen if one tries to set up a payment plan through a CCCS here in the U.S.; the creditor need not accept the plan, and as a result, the plan can fall through.

Tom, who lives in Surrey, is not alone in seeking the refuge of an IVA. In the first quarter of this year, 11,300 people entered into such arrangements - an increase of nearly 50% on 2006.

But experts say that banks and credit card companies that used to accept IVAs if borrowers agreed to repay as little as 25% of the sum owed, are increasingly taking a hard line, leaving those with severe debt problems to flounder.

HSBC bank now accepts IVAs only if at least 40p in every pound is repaid, while Student Loans Company insists on at least 80p in the pound.

Crisis-hit Northern Rock rejects most IVA applications, say insolvency practitioners. Abbey, Barclays and credit card giant MBNA reject proposed IVAs from customers on benefits. Some refuse IVAs where borrowers are thought to be too old. Ronan Duffy of national insolvency practitioner McCambridge Duffy says: 'Lenders are increasingly rejecting IVAs even for people who genuinely want to repay their debts.

'We have had cases when there is an offer to pay 45p in the pound, only for the banks to then sell on the debt for less than 10p in the pound.'

This clampdown is creating big problems for some customers, says David Rankin of insolvency practitioner One Advice in Sale, Manchester. 'The tough line that providers are taking means many people will either be forced into bankruptcy or informal debt management plans where interest payments are not frozen. For some, it will take up to 40 years to clear their debts,' he says.

Which is actually what the "hard-liners" want! The truth is the principal on any loan is really is intended to act as a "loss-leader" does in the supermarket: Get the bodies in the door. The real profit is in the interest and fees over time.
Fees and interest the lender wants to come in for as long as possible, a guaranteed income stream.

Adrian Nicholas runs Debt Mediation Services, set up this year to fight for those turned down for an IVA. He has already taken on more than 150 cases. He believes that lenders are pushing debtors into expensive debt management plans purely for accounting reasons.

'Under accounting rules, IVAs must be registered as a bad debt on a lender's balance sheet, even though some, or all, of the debt will be repaid,' he says. 'But there is no requirement to count informal debt management plans as a bad debt, even though it could take up to 40 years for creditors to get back their money, if at all.'

Aha...here's the sticking point: Just as in CH13 bankruptcy here in the U.S., the lenders have to write the debt off as a bad debt, which makes the "bottom line" look not so good. However, if the plan is an informal one--more along the lines of the CCCS (Consumer Credit Counseling Service) or a FDIC Rule 5000 rehabilitation plan, the creditor in the U.K. need not write off the debt at all.
(This is unlike the U.S.; Rule 5000 would force a write-off (absent rehabilitation of the account) within 180 days of the triggering event, usually a contract default.)

Tom's creditors include American Express, M&S Money, Barclaycard and Co-operative Bank. All agreed to accept his IVA application except M&S Money, with whom he has a £22,000 loan. In an email to Tom, M&S Money said it was rejecting his 100% repayment offer because he would be 'incurring additional fees' and 'more debt than is necessary'.

Bullocks, M&S Money! How would someone who is working out a debt--and getting the opportunity to pay off what is owed interest-free on the balance as of the date the plan is approved--end in "in more debt than is necessary' and incur additional fees, especially when fees are not allowed to be charged? Oh, I get it...it's because YOU are not allowed to get the fees...the insolvency practitioner does. Nice of you to be so "concerned", but the fee for that service would be far lower than the default interest rates you would charge...just because these fees are not going to come to YOU...!

M&S Money refuses to comment on individual cases, but says: 'We have seen no increase in the number of IVAs rejected, but we believe it is crucial that people in financial difficulties have access to independent advice, for example, from a charity.'

An insolvency practitioner is an accountant, an expert with money management. I would think a creditor would rather deal with one of those than the courts in BK or some fancy clerk. This excuse--needs access to independent advice--smells of an attempt to force the "informal" plan that will bring in the interest and fees forever to creditors like them...along the lines of the American CCCS a.k.a "The Bill Collector That Dare Not Speak That Name".

Like this business:

Debt Mediation Services has taken on Tom's case, but his debts are mounting by the day.

Tom says: 'I want to repay everything I owe, but I am being prevented. The banks promote the easy lending culture, but then turn their backs when people have problems.'

Or, as the owner of Debtorboards--Flyingifr--might say, when the consumer's back is to the wall, the creditors will nail the consumer to it...
------------------------

Thanks to Debtorboards and this DB thread for the lead.

For more information about IVAs and the Insolvency Practitioner, see here.

Why won't lender let me pay my debt? Helen Loveless, Mail on Sunday 7 October 2007
© 2007 Associated Northcliffe Digital Ltd; Available here.

Continued collection when an account is not verified but reassigned?

2007-10-18T23:25:00.000-04:00

Date: December 23, 2006

I received correspondence from NCO attempting to collect a charged off debt from Capital One. I immediately sent them a validation letter. In this letter I requested that no telephone contact be made and contact was only to be in writing by US Postal mail. Today I received correspondence from Forster & Garbus that Capital One Bank has referred the account to them with a notation that I wished all communications to cease and desist. Since they cannot communicate they are left with no alternative but to institute a lawsuit as instructed by their client. I do not owe what they claim I owe and I'm not paying them a dime until I get validation of the debt. I am tired of being threatened with lawsuits from these jerks with no validation of the debt.

How one should NOT handle a deposition!

2007-10-04T21:57:00.000-04:00

These videos are an object lesson in how NOT to handle oneself in a deposition!

Exhibit A: Verbal Shootout at the O.K. Courthouse?

Exhibit B: Caught in a lie? (Warning: Some language NSFW.)

Exhibit C: Did the deponent/defendant have some "good ganja" before the depo?

She sure was rather confused...::rolleyes::

Exhibit D: Hey...can't a lawyer get a word in edgewise?

I would not have wanted to be the court reporter for that one!

No...it's NOT good form for a deponent to assault another, either. (Where is the Bailiff/Sheriff when you need them? )

Student loans are becoming pricey lessons in economics.

2007-09-30T22:30:00.001-04:00

This "Business Week" story deals with the plight of college students who find that life after graduation might not be as "profitable" as they thought...and it's the student loans that helped pay the way through college that are pinching the pocketbook:

High-priced student loans spell trouble

By MARCY GORDON

Copyright 2000-2007 by The McGraw-Hill Companies Inc. All rights reserved.
...

While scholarship, grant money and government-backed student loans -- whose interest rates are capped -- have taken up some of the slack, many families and individual students have turned to private loans, which carry fees and interest rates that are often variable and up to 20 percent.

Many in the next generation of workers will be so debt-burdened they will have to delay home purchases, limit vacations, even eat out less to pay loans off on time.

I am sorry, but if this is all the new graduates are facing in order to repay their loans, it's difficult to cry for them. Their degrees should have gotten them better earning power, even if the first few years will be "cheap apartment, ride the bus and eat mac. and cheese" times. That, in part, is what the lenders were looking at when they issued the loans to begin with: The potential income stream.

Also, why did the borrowers (and their parents) not carefully READ all terms of the loans and simply refuse to borrow the money if the terms were not acceptable? This whining and moaning about the bill now simply makes the grads look stupid...and the lenders show sympathy to them...all the way to the bank!

Yes, the bank...and these private lenders will get their money back! Read on...

Kristin Cole, 30, who graduated from Michigan State University's law school and lives in Grand Rapids, Mich., owes $150,000 in private and government-backed student loans. Her monthly payment of $660, which consumes a quarter of her take-home pay, is scheduled to jump to $800 in a year or so...

"I could never buy a house. I can't travel; I can't do anything...I feel like a prisoner."

A legal aid worker, Cole said she may need to get a job at a law firm, "doing something that I'm not real dedicated to, just for the sake of being able to live."

Oh, boo hoo hoo! I feel SO sorry for people like this (NOT!). When one takes out a loan, one should borrow only that which they will be willing to earn the money to pay back. A job at Legal Aid for a new attorney should be only a "stop-gap" to getting a REAL job. One which will pay the loans AND make life a bit less of a "prison" while doing it. After all, people live on far less than she makes, and pay student loans, too.

It's stories like that which make the private student loan industry wealthy...and look a bit "seedy" at the same time. The reasons? Too many college students and high costs of education working together to lead up to the "perfect storm" of high debt loads:

[As far as financing college is concerned]...the dynamics were radically altered in recent years as tuition costs soared and sources of readily available and more costly private financing made higher education seemingly available to anyone willing to sign a loan application.

Students with no credit history and no relatives to co-sign loans (or co-signing parents with tarnished credit) were willing to bet that high-priced loans were a [decent] trade-off... But high-paying jobs are proving elusive ...

"This is literally a new form of indenture ...said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.

More than $17 billion in private student loans were issued last year, up from $4 billion a year in 2001. Outstanding student borrowing jumped from $38 billion in 1995 to $85 billion last year....

The guaranteed student loans (backed by the government) have a low limit on the total students can borrow to pay for their education ($23,000 total over four years) while tuition can be double or more of that amount. To fill in the gap? Enter from stage right: The private student loan market...starting with the biggest lender of them all, never mind the nastiest collection agency in America: Sallie Mae!

Sallie Mae, formally known as SLM Corp., has been on the winning side of the loan bonanza. Its portfolio of 10 million customers includes $25 billion in private and $128 billion in government-backed education loans. However, private-equity investors who had offered $25 billion to buy the company backed out last week, citing credit market weakness and a new law cutting billions of dollars in subsidies to student lenders.

Those investors made a big mistake, for unlike other forms of consumer loans, the student loan is truly almost 100% guaranteed to be repaid. This is no doubt why Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Wachovia Corp. and Regions Financial Corp. are also big players. Never mind that specialized student loan lenders, such as EduCap, Nelnet Inc., NextStudent Inc., Student Loan Corp., College Loan Corp., CIT Group Inc. and Education Finance Partners Inc are popping up like poison mushrooms after a rain.

Steady income and a future customer base in some cases are nothing to sneeze at!

There is not total joy in "Mudville State U. Financial Corporation, Inc.", however. Complaints about private loan marketing tactics are way up and Congress is considering ways to control that. The Senate Banking Committee, in August, approved a bill which would force lenders to disclose their terms and rates more clearly and fix the terms and conditions for 30-days afterwards to allow the borrowers to shop around.

Good luck getting that law passed, though. Also good luck if overburdened borrowers might want to get out from under by defaulting or filing BK:

A 2005 change to bankruptcy law puts private student loans on par with child support and alimony payments: Lenders can garnish wages if someone doesn't pay.

Under current bankruptcy law, it's almost impossible to discharge the student loan debt, whether the loan is private or public. Never mind that defaulting and attempting to walk away from the loans (informal BK) will help due to the fact that private student loans MUST be repaid, just as the government ones have to be. There are few ways to get out of THAT, either (short of 100% permanent disability).

The truth is, if the borrower fails to repay, other "official" pieces of paper could well end up issued to the former student/borrower as well: A judgment and garnishment order. And the creditor WILL and CAN execute on them! In other words, it's a nightmare waiting to happen, to the delight (and profits) of Sallie Mae and OSI (a CA they bought recently of not-so-nice repute).

If you think that Guido the Loanshark's "enforcer" "Louis the Legbreaker" is scary enough, the borrower that defaults will be facing the institutionalized abuse and all around crappy attitude of Sallie Mae...and "she" has the law behind her to enforce her collection activities! No amount of consumer law litigation has worked to stop the abuses. From all too many reports I have seen from consumers, I would have to agree that "her" initials--"SM"--are all too appropriate a description of "her" attitude toward borrowers. The money is just way too good and settlements are just a cost of doing business...and continuing to give borrowers the business. In other words, I sincerely doubt that the industry will dry up and blow away anytime soon because of the guaranteed payment schedule and inability of the borrowers to get out from under the loans...although....

New regulations could dry up access to education financing, he and other industry executives argue. Some experts are skeptical, predicting waves of student loan delinquencies and defaults on what is outstanding.

"Should private student loans suffer the same sort of failure as (subprime) mortgages, as students graduate or drop out and find themselves unable to pay, we will do serious damage not only to the lives of many students but also to the economic and social fabric of our country that depends on college graduates for its strength," said Luke Swarthout at the U.S. Public Interest Research Group.

PIRG is wrong here. Student loans--unlike the sub-prime mortgage industry--have that "guarantee" (forced repayment by law) to back them up. Mortgage lenders and other credit issuers, in contrast, have no guarantees they will recover what they risked should the economy go "south" (that's why the high fees and interest rates or "front-loading" is so common).

Student loan lenders do. So, the student loan lenders will continue to grow and prosper if things continue as they are. IMHO, the only way these firms will quit the business is if the usury limit on such loans stops being...about the same as one's credit card rate (in the stratosphere whenever they can get away with it). Only if the "front-loading" is limited by law and their debt collection a$$h*les are made to "play nice" will the abuses--and the availability of private student loans--diminish.

Mandatory binding arbitration in consumer contracts=Railroading consumers!

2007-09-29T19:56:00.000-04:00

That, in essence, is what this study from Public Citizen (link originally posted at "Debtorboards") states. Not that we did not know that already...but just how "rigged" is the system?

How about THIS rigged? Some quotes--with comment--from the document:

First, is arbitration only forced on the actual party to the contract? No bloody way...

...Consumers are railroaded into arbitration even if their identity was stolen or they never agreed to take disputes to arbitration. [In all too many cases]the National Arbitration Forum, which routinely handles MBNA’s “collection” arbitrations, ignored repeated consumer protests that identity theft was the source of the alleged debt.

Note that NAF acts as the "enforcer" for MBNA here. They almost always are the arbitration forum for the credit industry; they are the biggest of them all.

How big? This 2003 report from the State of California shows just how big they are, and the volume of work they get:

...[T]he state of California in 2003...[required] arbitration providers to furnish some limited data [on their websites]...on each consumer arbitration case they handle. Even this information is obscured by the arbitration firms....

For the first time, we have comprehensively crunched data for the nearly 34,000 cases contained in NAF’s California reports...:

...With more than 1,600 part-time arbitrators on its national roster, NAF admits to handling more than 50,000 cases a year.2 In California alone, NAF handled 34,000 consumer arbitrations between Jan. 1, 2003, and March 31, 2007.

... NAF identified virtually all of its California cases as “collection” cases filed against consumers by credit card companies or firms that buy debts... Fifty-three percent of those cases involved MBNA credit card holders.

Note the sheer numbers: 50,000 cases A YEAR.
1,600 part-time arbitrators help handle the load...of collection accounts. That's right: NAF is, by their own admission, little more than a CA for the credit card companies and JDBs (junk debt buyers)!

• Corporations – not Consumers – Choose Binding Mandatory Arbitration: ...[C]onsumers chose to bring only 118 cases before NAF while corporations chose this business friendly forum nearly 34,000 times – 99.6 percent...

...In the more than 19,000 cases in which an NAF-appointed arbitrator was involved, 94.7 percent of decisions were for business.

Not only are the credit card companies the major--indeed, just about the only--players in the BMA (binding mandatory arbitration) game, but they win in almost 95% of the cases! No civil court is so biased in favor of plaintiffs as the arbitrators are to creditor claimants.

...Arbitrators have a strong financial incentive to rule in favor of the companies that file...because they can make hundreds of thousands of dollars.... The arbitrators are chosen by the arbitration firms ... Arbitrators routinely charge $400 or more an hour. Top arbitrators can charge up to $10,000 per day and some make $1 million a year....

Note the financial rewards for the busiest arbitrators. Guess why they are so busy:

...In California... 28 arbitrators handled nearly 9 out of every 10 NAF cases. This group ruled for businesses 95 percent of the time. Another 120 arbitrators handled slightly more than 10 percent...They ruled for businesses 86 percent of the time and for consumers 10 percent. Outside of California, there is no information that would allow consumers to even begin to assess the bias of an arbitrator.

The arbitrators who find for the "repeat customers"--the credit industry--make out like bandits...and the ones who might actually think "arbitration" should equal justice?...

...Companies track how arbitrators rule, and do not choose arbitrators who do not rule in their favor. One NAF arbitrator, a Harvard law professor, was blackballed after she awarded $48,000 to a consumer in a case in which a credit card company filed a claim against the consumer....[After she was removed from other cases] she resigned, citing NAF’s “apparent systematic bias in favor of the financial services industry.”

Never mind that the record is nearly always "sealed":

...NAF is so keen to hide its work from the public and limit information about its decisions that its arbitrators do not generally issue a written decision unless one of the parties specifically requests and pays for it in advance. ...

...NAF also limits the access of parties in arbitration to key information that they would be allowed to obtain in court. And the sad state of the law makes it nearly impossible for consumers to appeal adverse decisions by arbitrators.

In other words, "discovery" is a dirty word at the arbitration firms; any allowable discovery is limited or nonexistent. Also true, not mentioned here, is that the expense of arbitration is placed on both the credit card companies AND the consumer who is dragooned into the process unwillingly--even if they simply default (the costs are added to the award...and they can add up to thousands of dollars easily. Contrast filing fees in a court of law, which can be less than $100.00 for a small claim, and a few hundred dollars at best (for an appeal or a filing to Federal Court).

Despite claims by the arbitration industry, the practice of BMA is NOT what the Federal Arbitration Act , originally codified during the 1920's, was intended to be used for. Used properly--all parties agreeing to arbitration voluntarily at the time a dispute arises to resolve the dispute without going to court--arbitration is not a bad thing. However, BMA clauses are set up at the outset, long before any dispute can arise, and they are written in "boilerplate" which is slanted toward the credit issuer/service provider! The consumer has little choice but to accept the clause; alternative providers of the good or service may not exist.

Even more insidious is the addition of such arbitration clauses to contracts in the form of addendums or codicils. These almost always take the form of a "bill stuffer". In microscopic print. In language that even a contract lawyer finds nearly impossible to decipher! This is done deliberately in the hopes the consumer will ignore the tiny piece of paper...or even throw it out and forget about it. Forgetting about such a "bill stuffer" can be disastrous: The only way to get out from the automatic imposition of the clause is to "opt out" by closing the account, either entirely or to new transactions after the deadline for refusal. A deadline that can be as short as 30 days! (And almost always is.) If the customer fails to respond? The clause is accepted by implication and becomes binding on them.

And, as the Public Citizen document states, arbitration is really not intended to solve disputes but to keep collection costs to a minimum and bypass the costs and delays of going to court to collect on alleged debts! These "Collection Agencies from Hell"--as all CAs--don't care one little iota whether the respondent (the "defendant" debtor) really IS the actual party to the contract from which payment is sought...and ID Theft victims are not the only ones that get screwed this way...anyone could be hung with an arbitration award--and the resulting judgment--simply because someone was a lazy (or lousy) "skip-tracer".

The FDCPA does not consider arbitration firms to be collection agencies...so no protection there.

If one was not served properly if at all? Too bad: There is no reliable way to vacate an arbitration award because of "sewer service". Neither is one likely to be able to stop the process once it starts, since almost all arbitration cases filed by creditors/JDBs will, like a Broadway show, go "on" no matter what. Even if the consumer objects on a timely basis and in a fashion provided for in the Rules of Procedure for the arbitration firm involved; NAF is notorious for this.

And, once that award is issued to the creditor? The hapless consumer may not even be able to stop the award from becoming a judgment!

However, sometimes even the creditor is right! In a recent Tennessee case--"Amsouth Bank v. Soltis"--the TN Appeals Court upheld a lower court decision which Amsouth won against the Soltises (Amsouth got a motion for summary judgment against the Soltises).

In this case--which has strong parallels with the tactics used by NAF and others--the
bank (in this case rightfully) refused arbitration they had not agreed to. In turn, the Soltises were not only evading their debts, but were actually attempting to make the bank pay THEM for "debts" allegededly owed the Soltises and due them but which the bank never incurred!

ERRATA and CORRECTION: I have changed the last paragraph. I misread the case at first, since the time line is confusing, and saw it as a case in which a consumer had refused arbitration but was put through the wringer anyway. In this case, the creditor was the victim of such an attempt by a consumer.

My bad!

Abe Lincoln on Lawyering: Words to the wise for the pro-se litigant.

2007-09-17T12:33:00.002-04:00

I am copying this quote from a post by "Rottweiler" at "Debtor Talk" forums because it is a common-sense approach to litigation by Abraham Lincoln himself; it was posted originally at "Abraham Lincoln Online":

...The leading rule for the lawyer, as for the man of every other calling, is diligence. Leave nothing for to-morrow which can be done to-day. Never let your correspondence fall behind. Whatever piece of business you have in hand, before stopping, do all the labor pertaining to it which can then be done. When you bring a common-law suit, if you have the facts for doing so, write the declaration at once. If a law point be involved, examine the books, and note the authority you rely on upon the declaration itself, where you are sure to find it when wanted. The same of defenses and pleas. In business not likely to be litigated, -- ordinary collection cases, foreclosures, partitions, and the like, -- make all examinations of titles, and note them, and even draft orders and decrees in advance. This course has a triple advantage; it avoids omissions and neglect, saves your labor when once done, performs the labor out of court when you have leisure, rather than in court when you have not. Extemporaneous speaking should be practised and cultivated. It is the lawyer's avenue to the public. However able and faithful he may be in other respects, people are slow to bring him business if he cannot make a speech. And yet there is not a more fatal error to young lawyers than relying too much on speech-making. If any one, upon his rare powers of speaking, shall claim an exemption from the drudgery of the law, his case is a failure in advance.

Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser -- in fees, expenses, and waste of time. As a peacemaker the lawyer has a superior opportunity of being a good man. There will still be business enough. Never stir up litigation. A worse man can scarcely be found than one who does this. Who can be more nearly a fiend than he who habitually overhauls the register of deeds in search of defects in titles, whereon to stir up strife, and put money in his pocket? A moral tone ought to be infused into the profession which should drive such men out of it.

The matter of fees is important, far beyond the mere question of bread and butter involved. Properly attended to, fuller justice is done to both lawyer and client. An exorbitant fee should never be claimed. As a general rule never take your whole fee in advance, nor any more than a small retainer. When fully paid beforehand, you are more than a common mortal if you can feel the same interest in the case, as if something was still in prospect for you, as well as for your client. And when you lack interest in the case the job will very likely lack skill and diligence in the performance. Settle the amount of fee and take a note in advance. Then you will feel that you are working for something, and you are sure to do your work faithfully and well. Never sell a fee note -- at least not before the consideration service is performed. It leads to negligence and dishonesty -- negligence by losing interest in the case, and dishonesty in refusing to refund when you have allowed the consideration to fail....

Now, a comment from "Rottweiler":

Pay especial attention to the litigation section. Too many pro-se filers are using the courts as a combination lobbying firm and profit center, filing way too many suits. The questions that have to be answered are: "Do I really have a case? Do I need to sue? Am I suing for the right reasons, or because I am trying to get a windfall out of a deeper pocket?

In other words: Think before you sue. If there is a non-litigious way to solve your dispute that will get the job done, do it. Using the courts as a last resort, not the first, is the best way to do things.

A message to current and potential "Debtor Talk. net" users.

2007-09-17T12:08:00.000-04:00

The "Debtor Talk" discussion board is undergoing a "makeover" to make it more accessable and useful to everyone. Here are just a few of the most important changes that have been made so far:

As part of this process, we have reduced the number of categories and forums dealing with credit repair resources and/or discussions to nine:

1.) Three for source documents under the "Resources" category (read-only): Case Law, Statute Law, and Other Resources (not case or statute law)

2.) Two forums under the category "Credit Repair Discussions" to discuss topics or questions of concern, including discussion about the source documents (cross-linking to the source document when appropriate).

3.) Two forums dealing with how to improve one's credit rating post-repair under the category "Credit Restoration". Note the forums here deal with budgeting and savings and investments as well as obtaining new credit.

4.) A forum for Archived posts (generally inactive posts over 120 days old). This is to "discourage" reviving "zombie" posts by encouraging new threads on topic, a good idea since the credit repair world-and law--changes all of the time and updating material is essential and difficult to do well if old information/posts are used to do it. However, since the information is normally still of use and/or interest, we have chosen to leave these "zombie" posts in an "open" Archive rather than remove them.

We will also be adding Tags to the posts as time allows, both in the SMF Tags function (accessed by the "Tags" tab at the top of the index page and at the bottom of the threads (once they have been added). We have also added a function to add tags through Google--Googletags--accessed by the "Googletagged" tab at the top of the index page. (There are none as yet in Googletags, but there soon will be.)

There is also a search function available through a form at the top of each thread in addition to one on the Index page (this one searches the entire board).

A note we need to make: If you have bookmarked/linked to a DT thread in the past, you WILL need to update your bookmarks now and in the future (some threads might be relocated into other forums as time allows). We realize this is inconvenient (we need to do this ourselves in our individual user capacities, too), but is unavoidable given the limited capacity of SMF to automatically redirect an old link--limited like "none we know of".

We are checking the SMF site to see if there is a Mod existing that addresses this problem. If anyone out there knows how to fix the issue--and can tell someone who is far from expert at dealing with "raw" code how to make the modification without totally crashing the board--we would like to hear from you, either by e-mail @ rottwelr@debtortalk.net and/or debtortalk@gmail.com or by using the "Contact" form at "Debtor Talk" forums.

Hello.

2007-09-16T22:58:00.000-04:00

This is the "Debtor Talk" blog. Our purpose is to help people learn about--and deal with--credit and debt collection.

Any topic that appears on these sites is also fair game here:

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