Perhaps it's synchronicity, but Armed Liberal's posts on bankruptcy and retail politics got me thinking about credit cards and debt, so when I was scrolling through the AP wires, the headline Government Sues Debt-Settlement Firm caught my eye.
From the FTC's press release:
The Federal Trade Commission has filed a complaint against a group of defendants masquerading as a nonprofit debt negotiation organization that has made millions of dollars deceiving consumers into enrolling in their debt negotiation program by promising to reduce their debts. The FTC alleges that National Consumer Council's (NCC) business practices violate the FTC Act, which bars deceptive practices, and have harmed consumers throughout the country. The FTC also charges that the defendants violated the Telemarketing Sales Rule (TSR) by calling consumers who placed their phone numbers on the National Do Not Call Registry. At the FTC's request, a U.S. district court judge has issued a temporary restraining order barring the defendants' illegal activities.This is also the FTC's first case involving the new National Do Not Call Registry.
According to the FTC, the defendants fail to tell consumers that in the debt negotiation program, defendants often will not begin negotiating a consumer's debts for six months or longer, and that creditors' collection efforts not only do not stop, but often become more aggressive. The FTC also alleges that the defendants fail to disclose other negative consequences, including that: a) consumers' accounts will become delinquent; b) late fees, penalties, and interest may accrue on their debt; c) consumers' creditors may sue to collect on debts, and if a judgment is obtained, may garnish consumers' wages; d) creditors may raise the interest rates applicable to accounts because no one is making minimum monthly payments on the accounts; e) in those instances where defendants negotiate a reduced debt amount, consumers may be liable for federal and state taxes on the amount their debt is reduced; and f) in those instances when defendants negotiate a reduced debt amount, a negative "settled for less than full amount" notation may appear on their credit reports.As the FTC was careful to note in their press release, this is not a finding that the National Consumer Council has actually violated the law, just that the FTC has reason to believe that it has. If the NCC is actually doing everything that the FTC alleges, though, they make credit card companies look like angels in comparison.The FTC further alleges that the defendants take hundreds of dollars from consumers' monthly payments as fees, which they do not always disclose, and that consumers' monthly payments will not be applied to their trust accounts until these fees are paid in full. As a consequence, many consumers are shocked to see that after making hundreds of dollars in monthly payments to defendants, their debts actually have increased.
Ironically enough, this was the sort of the thing that was addressed in the Moran Amendment to the 1999 Bankruptcy Reform Act which required more disclosures of debt relief agencies who help people pay off their bills so they can avoid bankruptcy. It was also a provision in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2001:
Source:
http://www.congress.gov/cgi-bin/cpquery/R?cp107:FLD010:@1(hr003):
In a nutshell, what we have is legislation that (a) requires more people to pay off their debts rather than discharging them (something AL claims he supports) based on their income, (b) requires more disclosures from lenders (something AL claims he wanted as part of any sort of bankruptcy reform) including internet lenders, © creates more oversight over credit counseling organizations to protect those who use them from being ripped off, and (d) enhances oversight over those who are charged with administering bankruptcy.
How this can be considered “anti-consumer” by any rational and informed person, much less reflect poorly on Representative Jim Moran, is astounding.
This new act was supported heavily by the banking and credit card industry which should tell us something of its intent and whether it is in the best interests of all or merely one segment of society.
The inability of the poorer credit card holders, for example, to permanently discharge debt and begin their life anew, flies in the face of everything we've previously thought about bankruptcy.
While the generalization of forcing all to pay off their debt, over time through arrangements made between debtor and creditor, strikes the imagination as one of fairness and responsibilitiy, the fact remains that the poorer income classes will be most impacted by this legislation and be unable to discharge their debt as they will continue to be saddled by substantial payments which impact heavily on their ability to pay for basics such as food, shelter, and medical attention.
If before it was too easy to file for bankruptcy protection (in the eyes of the credit industry) it has now become too hard for lower income persons to do so. There appears to have been no attempt to reach a middle ground and legislation that the credit card people, especially, have been pushing for in recent years has been accomplished through passage of the referenced act.
Laudable, on the surface, features of the act with regard to credit counseling, etc. are a sham and coverup. All of us can agree that people should always pay their bills and meet their responsibilities. But there are circumstances, perhaps major medical expense which is uninsured, which can weigh heavily on the backs of lower income persons.
Instead of what might be characterized as a step in the right direction becomes a leap in the wrong direction with the banks and credit card companies getting everything they wanted in this legislation.
In a nutshell the "protections" are pretty much cosmetic while the additional burdens and obligations on consumers aren't. It's a more or less explicit example of the asymmetric economic effects that William Vickrey won the 1996 Nobel for delineating.
I should also add that, because it has the effect of reducing the income of lower-income people, often below povert, that it will increase not only poverty, but also the cry for socialistic and welfare services that are designed to ameliorate the effects of poverty, rather than actually reducing poverty, and therofere the need for socialistic welfare programs. So, even in that sense, it's a step in the wrong direction. If it also facilitates the de-capitalization of the middle-income worker I'd say it's more than a step in the wrong direction... it's a leap.
In other words it's not only mendacious, it's foolish public policy. And kudos to both A.L. and Celeste for putting it out in the open.
Steve wrote:
True, by making it harder for a narrow segment of creditors to dump the costs of the debts they incurred onto the backs of lenders and borrowers who pay their debts, the new act clearly benefits a larger segment of society.
Not really, Chapter 7 bankruptcy has always been a form of legalized theft and the proposed changes that would prevent some people from legally stealing money that they borrowed while agreeing to pay it back, does nothing to change what we’ve always know about bankruptcy. What the law does do is require some of these individuals to file Chapter 13, which reorganizes their debt (e.g. stopping interest accumulation and requiring the debtor to agree to a plan for repayment) and requires them to make at least an honest effort at paying it back over three to five years at which point the remainder can be discharged. In so far as the proposed act would move more people into the Chapter 13 option, it is an improvement.
Utter rubbish. The law would require more people to file Chapter 13 Bankruptcy before they could go to Chapter 7. Chapter 13 Bankruptcy requires that they make payments from their disposable income which is after payments for necessities such as food, shelter, and medical care.
Source:
http://www.abanet.org/publiced/practical/books/family_legal_guide/bankruptcy_7_13.pdf
Actually this is a middle ground approach as it still (wrongly) allows the Chapter 7 option while (rightfully) requiring more people to try Chapter 13 first where they make at least an honest effort to repay the debts they incurred from their disposable income.
Obviously Steve does not in fact agree that “people should always pay their bills and meet their responsibilities” as evidenced by the way that he has tried to misrepresent the contents of the act and mislead people about Chapter 13.
Please show us where in the Act this has been changed.
The act is actually a pretty decent compromise in that it (a) requires more people over a certain income level to opt for Chapter 13 before they can try Chapter 7, (b) provides some oversight over debt counselors for people who are trying to make an honest attempt to meet their obligations, © tightens disclosure requirements for lenders (I’m agnostic about such regulations), and (d) make several improvements in how business bankruptcies are dealt with. Granted those who think that being a thief and not paying your debts is okay but those of us who believe in personal responsibility, have no problem with it.
I can't really give a firm opinion on H.R. 333, because the summary of the bill wasn't terribly informative, and the actual text of the bill is nearly incomprehensible. It reads like Kerry answering an interview question on a hot-button issue... while he's drunk. It's so full of exceptions, dependent clauses, and unspecified formulas that it could be interpreted in just about any manner.
My commentary is really about the abusive practices of the groups that people turn to before they file for bankruptcy. Credit counseling companies are a frequent last stop before someone files for banktruptcy, and it seems worse to me, that someone would come to them for help managing their debt, and instead get suckered into even more.
Thorley Winston
"Not really, Chapter 7 bankruptcy has always been a form of legalized theftpt..."
And therein lies the rub. While you or I might not consider bankruptcy under any circumstances, there are others who may not have such luxury.
Attaching stigma to bankruptcy is a hallowed and favorite approach, especially to individual consumers. Credit card companies and banks declared it "too easy" to file for bankruptcy.
Now we have have "improved" means of screening bankruptcy candidates with the improvements such that the foregiveness of credit obligations to begin the "fresh start" heretofore promised under bankruptcy laws, the whole basis for their being in the first place as respects Chapter 7 filings.
Do your own web searches if you wish to find the consumer organizations which opposed the legislation and the credit card companies and banks who supported it. I've no interest in it. This legislation has been lying about the Republican congresses of the last 3 or 4 years, foiled in some cases simply by Congressional action which was otherwise occupied by "major legislation."
That it finally passed is in no way a small tribute to the substantial political contributions and lobbying power of the creditor organizations. Attempts to compromise the legislation, to take into account circumstances when unemployee (for whatever reasons) would make repayment difficult or impossible failed.
This legislation is the "all or nothing...we want to close all the loopholes" of a credit industry bent on proving the maxim: "bankruptcy has always been a form of legalized theft."
"My commentary is really about the abusive practices of the groups that people turn to before they file for bankruptcy. Credit counseling companies are a frequent last stop before someone files for banktruptcy, and it seems worse to me, that someone would come to them for help managing their debt, and instead get suckered into even more."
While credit is much too easy to obtain, the consumer has to a large extent abdicated his responsibility. It is absolutely the responsibility of consumers to educate themselves as to how much debt they can afford and how they will pay it back.
It is not uncommon for students to walk from student-loans and people to max out one charge card after another, ultimately declaring bankruptcy.
It would be a good thing if our schools taught some fiscal responsibility as well as fiscal management. But, with a 25% functional illiteracy rate in the U.S. this will be tough.
Lili -
I agree that it is the responsibility of consumers to figure out how much debt they can afford. I also recognize that some people are stupid, some are really bad at math, and some get hit with a situation they hadn't anticipated, and when they realize they're in over their heads, they go to see a credit counselor. I feel worse for people who end up in situations like this - people who are in serious financial trouble, but try to get it straightened out and pay off their debts rather than declare bankruptcy - when they end up with a credit counseling company that doesn't do its job and instead operates in a such a manner (by piling on undisclosed fees, etc) that it actually makes the situation worse.
Thought I would pile on, seeing as this thread is on the business I live in. Good comments, too folks. A couple of you seem to think that low income people will be hurt by this bill. I have not looked at the bill in a LONG while because it's so bogged down but I don't recall that the "safe harbor" clause was removed - people below the national median income don't have to get means tested. Our agency has data on thousands of consumers over many years - a complete demographic & financial profile not available anywhere else that I know of. We did an internal review a few years ago and a significant majority of the folks who were in our database would have sailed through and not have gotten snagged for means testing. Some Harvard and other college professors studied this issue too and found that the means testing would affect a surprisingly small number of people - makes you wonder if the bill would be worth the bureaucracy needed to enact it. There is some good data & studies on bk filers out there - among others, check out www.smrresearch.com.
The credit counseling & debtor education requirements of the bill are plain old good common sense. The government should not help people abandon their responsibilities without trying every way possible to meet them. Does anybody REALLY think that a continuing bankruptcy epidemic is good for our country? The dirty laundry in credit counseling is a valid issue though and it's deep and ugly. More on that later. No doubt that the bill would be the full employment bill for credit counselors - more on that too if you want.
One of you wrote: "This new act was supported heavily by the banking and credit card industry which should tell us something of its intent and whether it is in the best interests of all or merely one segment of society." Have you looked into the interests of those opposed? You will find a lot of lawyers groups and the opposing "consumers groups" are backed in a big way by lawyers groups too. Did you know that? There is a lot more to that side of the story, believe me.
The FTC saw through the NCC and saw that it was a big private enrichment scam. Good for them. Our agency had issues with those guys and we were glad to see that in their case what goes around comes around.
dianne@credit.org