A wrap-up of stories and posts you might have missed or overlooked -- the ones below the fold.
Let's say I loaned you $500. It's a friendly loan, so we agree to some terms and you start sending me a check every month. I'm a little fickle however, so I keep changing the date I expect your check to arrive, arbitrarily change the interest rate, and charge you fees when you're late or when I feel like it - or simply claim I never got your payment. What should have been, in theory, five simple payments of one hundred dollars has now become a convoluted mess of fuzzy math, bad accounting, and erroneous made up fines. Because I keep adding to your original debt payments have gone on for close to a year and have included dozens of confusing communications and frustrating phone calls. One day, out of the blue, you get a letter from me with a court date and a statement for $2000 I claim you now owe me.
If you don't show up for the court appearance, I win by default and you owe me $2000 for a $500 loan. If you do show up, you're going up against me and a stack of affidavits signed by my friends and family swearing that you owe me two grand. So here's the question: Do you come to court and fight me?
Of course you do. I'm a lunatic. Most people would fight against a blatant attempt to rip them off, but according to a recent article in The New York Times the credit card industry has been pulling stuff like this on a pretty regular basis. According to the article, the debt collection industry has been a heavy user of "robo-signed" affidavits. Remember the robo-signing debacle with mortgages? You know, that little blip in the news about pizza delivery guys, Walmart greeters, and hairdressers being paid minimum wage to sit in a room and sign off on fraudulent documents as Vice-President of corporations? Remember the $26 Billion dollars that was supposed to go homeowners that never really made it to anyone? Well, it's back and it appears the banks have been doing the same thing with credit cards.
The Times article covers how credit card companies frequently file erroneous lawsuits, in many cases stating that a customer owes money when they've paid off the balance, or balance is inaccurate. And unlike foreclosure-land, where even after the revelation of widespread and varied mortgage abuses, most judges remained pro-bank, when it comes to credit card debt, the conduct of lenders is so bad that judges are actually showing some signs of skepticism.
From "Problems Riddle Moves to Collect Credit Card Debt" - NYT:
As they work through a glut of bad loans, companies like American Express, Citigroup and Discover Financial are going to court to recoup their money. But many of the lawsuits rely on erroneous documents, incomplete records and generic testimony from witnesses, according to judges who oversee the cases.
Lenders, the judges said, are churning out lawsuits without regard for accuracy, and improperly collecting debts from consumers. The concerns echo a recent abuse in the foreclosure system, a practice known as robo-signing in which banks produced similar documents for different homeowners and did not review them.
Hopefully, unlike the recent case of Goldman Sachs walking away from any liability or accountability for their role in the financial crisis banks will be held accountable in court for their blatant abuse of coustomers. Matt Taibbi at Rolling Stone had a good piece titled, Goldman Non-Prosecution: AG Eric Holder Has No Balls in which he points out:
You know that look a dog gives you when you show it something confusing, like an electric razor or a lawn sprinkler? That's the look federal prosecutors give when companies like Goldman wave their attorneys' sanctifying opinions at them. They scratch their heads and say: "Oh, wow, well since this was signed in Australia by three millionaire lawyers wearing magic invisibility cloaks, it really isn't fraud! They're right!"
As one high-profile attorney currently working on a closely-watched case involving a Wall Street bank put it to me yesterday: "With these Justice guys, everything the Wall Street lawyers say makes perfect sense to them, no matter how dumb it is.
It's the same look a lot of judges get when you talk to them about the Mortgage Electronic Registration System (MERS), securitization, or clouded chains of title. Credit card debt however, is a little more clear cut and easy to understand. You borrow a certain amount of money at a certain rate of interest and pay it back in a certain amount of time. There's not a lot of wiggle room when it comes to this and nowhere near the amount of moving parts that come with a mortgage. According to the article, interviews with dozens of state judges, regulators and lawyers showed lenders trying to collect money that had already been paid or that companies had increased the size of the debt by adding erroneous fees and fines.
The Tampa Bay Times reported earlier this month that JPMorgan Chase was reporting inflated and inaccurate balances in thousands of customer accounts:
A former employee and whistle-blower at JPMorgan Chase said that after she discovered and reported to managers that inaccurate balances were found in nearly 23,000 delinquent accounts, she was fired from her assistant vice president job. The U.S. Office of the Comptroller of the Currency is investigating the claim. In a review of lawsuits filed by credit card and other companies, the Federal Trade Commission's division of financial practices found some of the industry's lawsuits were based on incomplete or false paperwork.
Courts across the country are flooded with tens of thousands of cases. Most of the defendants represent themselves and are unable to afford legal representation. Judge Noach Dear, a civil court judge in Brooklyn, presided over as many as 100 such cases a day. A vast majority of the cases have no merit and no supporting evidence - it's a numbers game.
As Ira Metrick, a New Jersey consumer and foreclosure defense attorney puts it, "It's cheaper for the credit card companies to lose a few cases when they are questioned, compared to the expense of doing every case the right way."
Remember the bean counters and the Pinto? Why fix a whole line of exploding cars when only a few families are going to burn to death? It's cheaper to settle the law suits than it is to keep everyone safe.
As for proof of debt, the card companies play the same game that was played by the mortgage industry. Rather than provide tangible evidence of the debt, they provide bogus and illegal affidavits from "experts". Much like the mortgage robo-signing had its infamous signers - Linda Green probably being the most well-known, made famous by Massachusetts Registry of Deeds John O'Brien, the card companies have their own in-house forgers.
From OCC Probing JPMorgan Chase Credit Card Collections - American Banker
One of Chase's most prolific affidavit signers was Ruben Alcaraz, one of three San Antonio liaisons with the in-house collections attorneys, court filings indicate. By law, collection affidavits require the signer to be familiar with the bank's pertinent records. "Based upon my review of the Plaintiff's books and records of Defendant's account(s), I have personal knowledge of the facts set forth in the attached pleading," states one Pennsylvania card-debt affidavit signed by Alcaraz. "This verification is made subject to the penalties of [Pennsylvania law] relating to unsworn falsification to authorities."
Numerous former employees say that Alcaraz and his colleagues rarely if ever reviewed such files. They routinely signed stacks of affidavits on flights and in meetings, which in some cases were attended by Helaire, Lazinbat and Chase compliance staffers. Nobody objected, Almonte and others say. Alcaraz also describes himself in the court documents as an "officer of the bank" and an "Assistant Treasurer." High-level Chase management had instructed the staff to stop signing documents using such titles around the middle of the last decade, four Chase sources say. But Lazinbat ordered them to do it anyway. An operator for Chase's internal switchboard identified Alcaraz as a "business analyst."
It gets better. In March of this year American Banker reported that JPMorgan Chase sold $200 million of bad debt to collection agencies without actually providing any proof of that debt - you know those infuriating calls that come up as "unknown caller" you get twenty times a day when you're sitting down to dinner, at your desk, riding in your car, on a date, just getting up, etc.
As the originators of credit card loans, banks are at the headwaters of the rivers of bad debt that flow into the collections industry. Over the last two years, Bank of America has charged off $20 billion in delinquent card debt. The bank settles or collects a portion of that itself and retires other accounts when borrowers go bankrupt or die. An undisclosed portion of the delinquent debt gets passed along to collectors. Once sold, rights to such accounts are often resold within the industry multiple times over several years.
Much like the anti-homeowner/moral hazard argument that always seems to come up around these topics, I'm anticipating that we'll hear a flurry of comments about how irresponsible borrowers brought this on themselves and if everyone just paid their bills on time and read their contracts none of this would have ever happened. To that argument I submit that the deck is stacked against the consumer. I have seen due dates change at the drop of a hat, fees mysteriously appear on statements and balances more than triple in a matter of months. There is no such thing as an even playing field and for the most part the other side cheats.
Take this quote from the third page of the written testimony of Michael D. Donavan before House Subcommittee on Commercial and Administrative Law's hearing on the Federal Arbitration Act:
During the course of the litigation, the class action lawyers discovered that Providian intentionally had embedded the wrong zip code into the bar codes for the return bill payment envelopes to ensure that customer payments would be delayed and thereby increase the late fee revenues Providian could charge and collect.
Did you get that? In order to slam consumers with bogus fees, they made sure the payments were late.
Paperwork is often laughably incorrect and almost too obviously forged or fabricated:
In 2010, Discover sued Taryn Gregory for more than $7,000 in credit card debt. Ms. Gregory, of Commerce, Ga., had fallen behind on her bills, but said she had accumulated only $4,000 in debt.
After the suit was filed, Ms. Gregory, a 41-year-old child care assistant, asked Discover for proof of the balance. The resulting documents, which were reviewed by The New York Times, have inconsistencies. One statement, for example, says it was produced in 2004, but advertisements on the bottom of the document bear a 2010 date.
A couple of years ago I went to court for a $2600 Capital One credit card balance. It was one of those introductory cards with a $750 limit. In other words you have a maximum purchasing power of $750 until you pay off or pay down that amount. You couldn't buy $1000 worth of stuff, much less $2600. I sat in court for several hours (they call cases alphabetically around here) and watched as dozens of people lined up to speak to the collection agency's attorney. He asked each defendant one question: "How much can you pay each month?" Not one person questioned the debt nor did they ask for proof. They took an entire day off of work to agree to pay something because it was sent to them on official letterhead and was from a financial institution. When it was my turn, I asked for his proof of my debt. He shuffled through an enormous stack of papers and came up with, well, nothing. He showed me a statement from Capital One and I pointed out that a statement wasn't a proof of debt. It would be like me showing up at your house with construction paper and a crayon claiming you owed me that two grand from my previous example.
After some discussion and wanting to settle a legitimate debt, we agreed on a reasonable amount. I paid it, got a receipt and the debt was removed from my credit report.
There's no doubt that experiences like this are nerve racking. I had my share of dry heaves for two days anticipating my court appearance, but the thought of being railroaded and bullied out of more money than I actually owed just because the other guy is bigger than me and wants my lunch money was frankly unappealing.
The paperwork at the banks is horrendous. The mortgage mess has proven that. We've seen time and time again that bogus signatures, affidavits and forged documents have permeated our legal system and made a mockery of a legal system that we once saw as flawless and fair.
According to the New York Times article, nearly 95 percent of lawsuits result in default judgments simply because the person doesn't show up, and that's a win for the banks. A win that can result in garnered wages and frozen bank accounts for the card holder - something the credit card companies are apparently banking on.
Many judges said that their hands are tied. Unless a consumer shows up to contest a lawsuit, the judges cannot question the banks or comb through the lawsuits to root out suspicious documents. Instead, they are generally required to issue a summary judgment, in essence an automatic win for the bank.
"I do suspect flaws," said Harry Walsh, a superior court judge in Ventura, Calif. "But there is little I can do."
If you're facing a situation like this, there's quite a bit of legitimate help out there for consumers in need. You can check out the National Association of Consumer Advocates; Max Gardner's Bankruptcy Boot Camp has a list of graduates from all around the country; and we're putting together a directory of trusted attorneys over at Home Preservation Network. You can always drop us a line with the contact form if you can't find what you're looking for.
At the very least, show up in court, educate yourself and know your rights. Nathalie Martin over at CreditSlips.org had a great write up in which she points to a "fantastic paper" written by Professor Peter Holland at U Maryland Law, titled, "Defending Junk-Debt-Buyer Lawsuits." Download it, read it, and absorb it.
Et cetera: In an unrelated but pertinent story, I recently wrote about Wells Fargo freezing the bank accounts of some well-known and outspoken financial bloggers. The plot seems to have thickened with Comcast customers now unable to get to those sites. Aaron Krowne, the site's founder wrote in a post on August 15th, nearly ten day into the blackout:
So now we have to wonder: did Wells Fargo pull strings with COMCAST to "punish" ML-Implode by blacking us out to the major US broadband provider? Or -- even more disturbing -- are Wells and COMCAST both mere instruments of a concerted action being directed from even higher levels -- i.e. a harassment and subversion campaign by the government itself (and/or the masters of the all-powerful "banking cabal" -- who make the US federal government jump when they say "jump")?
Since COMCAST is by far the largest ISP, if "someone" wanted to send a signal to our plucky truth-to-power-speaking site by making it "disappear" as viewed from a single internet service provider, COMCAST would be the one to pick to send the clearest message -- horse-head-like.
You can read the entire post here. If you're a Comcast customer, we've posted it over at Home Preservation Network here, since as of the writing of this post the site is still inaccessible to Comcast customers. Three weeks should be more than enough time for one of the largest internet providers in the country to fix a DNS issue.
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