The Politics of Debt

Last month we posted an article on Facebook about the Consumer Financial Protection Bureau. The article, I think it was from the Washington Post, was a simple, concise recitation of the many hurdles the CFPB has been facing over the last year or so. It talked about their actions against Wells Fargo and the fact they have not pursued a single matter in the the last year. Moribund under it’s new director, was how the article put it, I think.

It was a straightforward article, it reported that the CFPB wasn’t working and speculated on whether or not it had a future.

We posted it with a heading wondering about the future of CFPB an the effect that could have on clients and law firms that do what I do. Short and sweet, the caption on that came with the link said it all, or so I thought. I should note that we’ve posted about the CFPB in the past and always received thoughtful, insightful comments.

As we began to with this post. Then, it was shared.by at least 6 of our followers (thank you!). Then some of the people it was shared to shared it as well. Which was all great … until about three days in.

That’s when we started getting vile comments. Really nasty stuff. For a while we erased the offensive comments and banned their ‘authors’ from the page. But, it got to be too much and we had to drop the post from Facebook. That’s why we can’t show an image of it here.

The comments, some remarkably, if not terribly creatively profane, revolved around the very invocation of Elizabeth Warren’s name, though a few went deeper into the ‘libtards’ plot to destroy banking and Wall Street.

Here’s the thing: before we erased, blocked, and banned we checked out each offender’s home Facebook page. It’s stunning, by the way, how many people ignore Facebook’s privacy settings and leave everything out there for anyone.

There was not a banker, broker, arbitrager, Axe Capital employee, investment banker, mortgage company exec, wolf of wall street, master of the universe, or even one of their lawyers in the lot of them. They were all regular people – a few retired state employees, a couple of people on disability, a mechanic, a teacher, and the like. They had very little in common other than having time to comment on a Facebook post from a law firm in Connecticut and despising, violently, the CFPB.

Okay, they had one more thing in common – they were the exact same demographic that Wells Fargo targeted in their schemes over the last few years. The schemes the CFPB identified, punished, shut down.

Here’s another thing: I deal in debt and foreclosure every day and I can attest to the fact that debt – personal debt – has nothing to do with anyone’s political affiliation. it has a lot to do with sudden unemployment, unforeseen death, divorce, illness, and a dozen other out-of-the-blue-soul-and-financial-crushing events very few people have  a (or can) plan for.

Politicians and lobbyists can divide along ideological lines and fight things like the CFPB out in Congress and in the airwaves of public opinion. But when someone, a regular someone, is blindsided by, well, life, and is facing losing their home (and more), there are no ideological lines.

There’s just trying to fix it.

Psychology & Debt

From Got Debt, Dispatches from the Front Lines of America’s Financial Crisis

The more I work with people with debt, the more patterns I see. This has been an interesting way to observe that the psychology of having debt that can’t be repaid is almost universal no matter what the demographic.

The biggest part of having too much debt that plagues the average American, especially when someone gets to the point where they can’t repay it, is what I’ll call the “boogeyman in the closet” phenomenon.

This is the fear that something terrible will occur THE MINUTE someone can’t make a payment on their bills. The belief that missing a payment due date on a credit card is going to cause the sky to fall, it’s going to cause instant public shame, AND on top of that, the boogeyman is going to come out of the closet or out from under the bed and GET YOU.

I know that this boogeyman is real because of the questions I get and the things people tell me based on their assumptions (or on the gobbledygook they read on the internet or that they get from their brother-in-law).

The boogeyman comes in the form of:

“If I miss my credit card payment, can they take my car?”

“If I’m overdue on my credit cards will they put a lien on my house?”

“Will my boss know?”

“Will they garnish my wages?”

“Will they take all my retirement?”

And, the big one,

“Can I be arrested?”

I’m heartbroken when I hear the fear that plagues people who can no longer make credit card payments, but am hopeful and encouraged, in a weird way, by their fear response. These questions signal to me genuine concerns about personal financial stability, reputation and a moral sense of right and wrong.

It shows that the average person, the majority of people, want to pay their bills, and want to pay them on time. I find that reassuring on many levels.

The answer to all the above questions is No. Some of those things can happen after several steps occur and usually only if someone ignores those steps or does not take advantage of their right to participate in those steps.

The state of mind that comes from the fear of not being able to pay bills is like that of a child hiding under the blankets in the dark while trying to fall asleep. The hard part is getting people to understand that they have control and that the boogeyman does not exist.

One of the first steps when counseling someone about their debt is to ascertain the level to which this fear is clouding their judgment and preventing them from being able to have a conversation about the real facts about their debt.

Their fears cause them to make less educated and less desirable decisions when it comes to dealing with their debt. They usually default to doing what they think they should do to not hurt their credit score. This includes doing what they think they should do to pay everyone at least something each month. When payment becomes difficult, they start having conversations with their creditors and think that what the creditors tell them (i.e., skip a month, or just pay $10 or $20 instead of the actual minimum payment) is official and overrides the requirement under the credit card agreement to make their actual payment. They are very vulnerable in this phase and even more so if they do skip payments and an account goes to collection.

By the time an account goes unpaid for about three months, a creditor will usually assign it to another company for collection. The exception is for car payments- not paying for more than a month or two puts you at serious risk of repossession of the vehicle, even if the creditor gives you verbal permission to make a late payment or a partial payment.

The good part about when a credit card account goes to collection is that by then the average person realizes there’s no boogeyman. Their car is still in their driveway, there’s no foreclosure sign in front of their house, their name isn’t posted in front of town hall, and no one has shown up to put them in a stockade on their front lawn. But a new phase has begun.

The typical debt collector in the U.S. may not actually even be in the U.S. The collection industry has consolidated considerably in the last decade (especially since the financial crisis of 2008-09) to where large percentages of unpaid accounts are sent to just a few collection companies. These are third party companies that are assigned portfolios of accounts, and the most common tactic for attempting to squeeze a payment or two out of the consumer is with phone calls.

Although the “fear of boogeyman” phase is typically over by this point, the vulnerability and susceptibility remains. They’re out of the woods, so to speak, but a sense of “I’m a bad person” takes over which makes them susceptible to abuse and harassment from debt collectors.

Things That Never Go Away

In Sunday’s New York Times, Jake Halpern revisited collection agencies. Not the boilerroommoviecollection agencies you’d normally think of, but the collections agencies that buy old debt and go after it with a vengence, They buy it for pennies on the dollar, use boiler rooms out of movies like … well, Boiler Room, to collect on it, seldom report the payments, resell the debt … as John Oliver showed a few months ago, the cycle never ends.

Halpern points out that President Elect Trump wants to roll back Dodd-Frank. A perhaps unintended consequence of this would be the almost complete unfettering of the collection industry. 

With that in mind, we thought a look back at one of our first blog posts would be in order – because some things never go away.

Last Monday a friend of mine received a phone call on his cell phone from an unidentified Rhode Island number. He went to college in Providence, has friends there, answered.

rattman_paper
Script from a ‘collection’ company a few dozen times removed from the debt.

This is what he got – “Hi, Mr. Loman, this is an attempt to collect a debt, anything – yada, yada, yada … can you confirm the last four digits of your social?”

“No.”

“Is it ‘5555’?”

“Perhaps.”

“Okay, well, I have an account here from Verizon, you owe twelve hundred dollars.”

“I’ve never had a Verizon account.”

“Well, sure, but it could also be from -”

“Could be?”

“From any one of the following companies now part of Verizon …” the guy then read off a very long list of companies, a list that pretty much summed up the telephone industry of the 21st Century.

“No,” my friend answered.

“No? Whattaya mean, no?”

“I don’t owe anything to anyone on that list.”

“Says here you do.”

“Then it’s wrong.”

“Look, Biff, I have it right here and -”

My friend has a law degree and a long history of dealing with total BS, so it finally hit him to ask, “Wait a second, what’s the date on this supposed debt?”

The guy on the phone fumbled around, Biff could hear papers being shuffled, murmurs of other voices from the boiler room, then, “Yeah, got it here, 2003.”

“You’re calling me about a twelve year old debt?”

“Well, no, see, we just received it -”

“Yeah, well, then it sucks to be you, have a nice day, don’t ever call again.”

Continue reading Things That Never Go Away

Debt Games

wargamesI asked a friend to dive into the wild and wacky world of all things financial on the web.

He’s in his 50s, has three kids, a decent credit score, couple of credit cards, student loan, leased car. Pretty run-of-the-mill-doing-okay-not-drowning-in-debt (today) Mid-America – though he calls it ‘depressingly normal.’

First thing he did was, of course, to try to make a few bucks. Football season started a few weeks ago so Draftkings and FanDuel are all in with ad saturations and sponsoring shows on ESPN and the like. (What happened to last year’s uproar over them?)

He knows sports, follow the NFL, even reads a few things from writers who aren’t in the bag for the Patriots. So, he replied to the latest of the hundred or so Draftkings messages he gets a week.

This one was a free entry to a $10,000 payout. But it wasn’t. He clicked on it, filled out a imagelineup, submitted it, was informed that he had to deposit $10 for the future games he would undoubtedly want to play after the fun of the free game. The free game a few hundred thousand people were also playing, some with advanced math degrees and a full grasp of algorithms. So much for using sports knowledge is a path to riches.

lendingSo he turned to consolidating his debt. And maybe getting an extra few bucks to plop into his business. He clicked on one of the few hundred emails from Lending Tree sitting in his spam folder. He filled out a quick form – very easy – waited less than a minute and – *WOW* – he had offers. Lots of offers.

He could consolidate his credit card debt and – assuming he only paid monthly minimums – he would *SAVE* 60% per month. If he acted now. Plus, you get a next or $1000. He could click *DO IT!* now or he could read the fine print. Because he was doing this for me, he read the fine prin:. 36 months, $350 processing fee taken off the top of the loan, an effective rate of 30% – because it all went through Utah, a state with apparently generous usury laws – if they have them at all.

He could also shave off a hundred dollars per month for his auto lease by doubling the lease term from 36 months to 72. Lending Tree assured him that this was a great deal, so great he only had 48 hours to accept it. Having passed seventh grade math, he passed.

Because he signed up with Lending Tree he now gets two to three prescreened credit card offers a week. At a minimum. Most have fees, the lowest interest rate so far is 22%.

There’s more, but it’s all the same. He drew the line, though, at opening an account with Wells Fargo.

It’s pretty clear what the lesson is here, it’s a lesson from the 1980’s and a Matthew Broderick. Wargames. Which ended with this warning:

“The only way to win is to not play the game.”

About My Schoolhouse Rock Facebook Post

IMG_0209Earlier today, I posted an old Schoolhouse Rock video on my Facebook page.  You’ll either recognize it from your childhood or from recently studying for the AP Government test (and why not, it’s that good!), it’s the famous ‘How a Bill Becomes Law.’

I posted it because I spent yesterday at the Connecticut State House for the formal signing of a new law, one that I helped work on in the spring.

ImjustabillIt was the bill signing for a bill that, among many other things, will prevent debt collectors from –literally—whiting out evidence that they present to the court when suing consumers on credit card debt.  Yep, they were routinely whiting out entire sections of information on documents that they didn’t think was relevant—you or I couldn’t get away with that!  And now debt collectors can’t either.

It’s great that this was signed into law, it’s pretty amazing that we had to get a law passed to stop debt collectors from doing something that has always been legally and morally wrong for the rest of us. But, it was really nice to see our little Bill grow up.

It’s 9 Degrees Out … So, Hey, Baseball and Consumer Debt

BallFourI have a friend who is a huge baseball friend. Not Donald Trump Ya-uuuge, but real-life huge. He’s deep into baseball history, is still mad at Hollywood for changing the ending of The Natural, and makes a pretty good case that Jim Bouton’s Ball Four is one of the top five non-fiction baseball books of all time.

He makes an even stronger case that Ball Four is one of the best business books ever.

One story he tells from the book seems particularly relevant to my practice and clients. It goes like this:

Ball Four takes place over the course of the one and only year of the 1969 Seattle Pilots – one of the most forlorn major league baseball teams of all time. 

Late in the season the Pilots trade one of their very few legitimate major leaguers, Tommy Davis, to the Houston Astros.

Davis is thrilled to leave the gloom of last place and the almost daily rain delays of the even gloomier Sick’s Stadium for The Eighth Wonder of the World (the Astrodome) and a shot at the pennant.

A few weeks into his Astros’ experience Davis is so outwardly happy one of his new teammates, the intellectual flake and third baseman Doug Rader, can’t stand it any longer and asks him why.

Tommy goes off on a litany of wonderful things that have happened since he stepped off the plane from Seattle to be met by the Houston General Manager and a limo: ‘the Astro’s set him up in a fancy hotel until he could find a home; they flew his family down from Seattle first class, took his wife out to explore neighborhoods and school systems, are paying for meals and expenses while they’re waiting to find a house, have a moving company packing up their Seattle home and bringing everything down all DavisTommyexpenses paid, and a whole lot more. The Astros have, in fact, treated Davis so well he feels so indebted to them that he tells Rader he never wants to leave.

To which Doug Rader shakes his head slowly, puts a hand on Davis’ shoulder and says,”They had to do all that, Tommy, it’s in your contract.”

Neat story, but what does it have to do with my practice? Well, a lot actually. I get a lot of clients late into the process because they feel obliged to stick with trying to work things out with the bank, or collection company, or some other institution. They feel obligated because, like Tommy Davis, they think the bank is going out of its way to help them when, in fact, they are doing exactly what is required of them – and no more – under the terms of the contract that no consumer has ever read.

It gets in the way, this false but understandable sense of ‘gratitude’ during a time of great stress. It’s fine to try to ‘work it out with the bank,’ of course, but it’s important to do so from a position of knowledge. Talk to someone who knows.

I’m one of those people and my friend tells me that as far as my practice goes, I have a very high WAR – Wins Above Replacement. Now I just need someone to explain that to me.

 

 

2015: The Year in Themes

It’s been quite a year, in court, out of court, blogging, talking, consulting. Since I started putting my thoughts down early in the year a few themes have emerged, themes I’m sure I’ll continue to follow into 2016.

Looking forward to 2016 and many more posts. Happy New Year, and thanks for being a reader.

The Plague, Embalming in the Civil War, Detroit, and Internet Promises

He that maketh haste to be rich shall not be innocent. ~Proverbs 28:20

sherwood_thomas_practitioner-the_charitable_pestmaster-crop

Four things occurred when the Black Plague arrived in London in 1665. Those who could afford it were allowed to flee the city for a fairly hefty fee; everyone else either got ill or endured unlivable conditions; doctors, nurses, and clergy made heroic efforts to heal those they could and comfort those they could not; scammers descended on the city and made their fortunes.

Virtually instantaneous with the onset of the plague London was overrun with charlatans armed with herbs, potions, mysterious amulets, and every manner of fake cure or deterrent creative minds could conjure up.   They posted and handed out flyers but, of course, their best advertisement was their own good health. Or, they could point to their ‘success stories’ – the so far unafflicted.

Who could argue that their next door neighbor, healthy in the midst of disease, wasn’t that way because of the rabbit leg charm they bought a week ago? In the absence of any clue about what caused bubonic plague, who would take that chance if they had the cash to pony up?

Embalming, not yet a science or even much of an art, came into vogue in the North during the Civil War. Embalmers offered the opportunity for families to have their dead sons and fathers transported back from Southern battlefields for a proper burial. The government neither regulated nor paid for embalming.

Embalming dead soldiers quickly became ‘commoditized’ as the 100newspapers of the day quickly began to complain. Competition for bodies was fierce, flip through any period newspaper of the era and you won’t be able to miss ads that bashed the competition and made increasingly outrageous claims. Outright fraud – and worse – quickly followed, some bodies were embalmed without authorization, then held ‘hostage’ until the family coughed up $100 or so to liberate the body.

By the last year of the war it was so bad Ulysses S. Grant banned embalmers and embalming from all Union armies.

It’s pretty clear that throughout human history when something bad occurs three things happen in fairly quick succession: people cope, people help, and some people cash in and get rich.

The mortgage crisis, of course, was and is not immune to this. If anything, it’s worse. The power of computers, the Internet, everything else we enjoy about the Information Age has also been used by the scammers to profit. And, even when they don’t manage to succeed and lure in a new ‘client’ they manage to disseminate clouds of bad information that just buries the good.

1200x-1I see it every day, warn people, spend an inordinate amount of time debunking newly minted myths. My assistant, Heidi, just forwarded me an article about a scam in Detroit that’s as audacious as it is heartbreaking: getting people to lease-to-own abandoned homes, fix them up, pay for years, only to find out that the company has never paid the real estate taxes. Or the mortgages. Or anything. The real estate management company, the leasing company, the company holding the mortgages, and the financing company all had slightly different ownerships and were completely, totally removed from any responsibility.

This scheme looked spectacular on paper – well, on the website. The scammers promised the city it could clean up Detroit’s blighted neighborhoods, Detroit funded the company with public pension funds, lost them. It promised citizens of Detroit a home, it delivered foreclosure notices.

So, just a note that the foreclosure crisis is not over and the charlatans are still out there. Every time someone runs a Google search for ‘foreclosure defense’, or ‘debt consolidation’, or ‘credit card help’ they’re there to hand out that flyer that will most assuredly cure you.

Cinco de Mayo and Debts (Really)

More history of debt – I think we can all agree that Cinco de Mayo is a pretty fun day. A celebration of great food, drink, festive, upbeat.

IMG_0855What most people don’t know is how the holiday came to be. It’s not, as a lot of North-of-the-Border types believe, Mexican Independence Day. The 5th marks the Battle of Puebla in 1862 between French and Mexican forces in which a rag tag Mexican army of 2,000 routed a French army – and a division of the Foreign Legion – of 8,000.

That’s right, the French and Mexican armies fought a series of battles in the middle of our Civil War that eventually resulted in a French installed government ruling Mexico until 1866.

“Well, great, Sarah, thanks for the history lesson, it’ll probably be worth a drink or two in a bar trivia contest some day, but what does this have to do with debt?”

Everything, actually. Napoleon III’s invasion and eventual take-over of Mexico was, in fact, perhaps the largest repossession action in history.

After the Mexican-American War and a series of revolutions and civil wars, Mexico was mired in debt and was forced to suspend payments on its foreign debt. With the Civil War raging in the United States, Mexico’s European creditors didn’t have to worry about the Monroe Doctrine. The British and Spanish sent naval forces to Vera Cruz to register their displeasure, they quickly negotiated new repayment schedules. The French, however, were not so easily appeased (or maybe the new payment schedules with Spain and Britain left little for the French) and invaded.

Cinco de Mayo was a successful debt defense worth celebrating. It should be noted, however, that while it was a spectacular upset, the victory was fleeting and Mexico was, in effect, repossessed by the French for four very miserable years.

It was the military equivalent of firing off a strongly worded letter to a creditor, filing a complaint with the BBB, very satisfactually slamming the phone down on the subsequent toll free call, then watching the creditor exploit a rare loophole and still repossess your car.

I like to think I can be as ferocious as that rag tag Mexican Army when it comes to consumer debt, but I know I’m a lot more effective in the long run.

Still, I – and I hope my clients – have more reasons that tequila, great food and good company to celebrate Cinco de Mayo. It’s somehow . . . empowering.

Statistics and Empathy

To paraphrase one of the five worst* people who ever lived, ‘when something really bad happens to one person, it’s a tragedy; when it happens to a million, it’s a statistic.’

360_1929_crash_1028This is certainly true of foreclosures. At least today.

I bring this up because I am sometimes asked why I expend such time and energy defending foreclosure actions. I say sometimes because it’s only occasionally verbally stated, usually it’s expressed via ‘that look.’

‘That look’ – a slight crinkling of the eyebrows, a thin, quick frown, maybe a brief tilt of the head when I say what I do.

Unless, of course, they have been through foreclosure themselves or had family or friends involved. Then I get a knowing nod, smile.

Why? Because years ago, before I graduated high school, foreclosures were something that happened to ‘other people’ and in virtual secrecy. They were much, much rarer on the court calendars than they are today. And, it probably took a lot more to get a case to court. Banks and mortgage companies were much more likely to be local – another word for approachable. You could talk to your banker, lender, face-to-face, work things out.

Foreclosures then were small tragedies that happened in the very occasional neighborhood.

The financial meltdown of 2007-8 changed that. In months, millions of homeowners were at risk and failing quickly. Very, very few local banks and lenders exist anymore, corporations and computers took over years ago. Out of necessity, the foreclosure process became industrialized.

The people in the long lines and crowded hallways in the courthouses have become statistics. In the eight years since the meltdown the two largest foreclosure firms in the Greater Hartford area have filed over 70,000 foreclosure cases. And counting.

The great tragedy with that is individuals are lost. Completely. A file is a file is a statistic – win, lose, draw, but close the case.

So, when I get ‘that look’ I try to bring it back to the first or second person, away from that horrible third person ‘them.’ The easiest, most effective way is to point out the effect of this crisis on neighborhoods – “Well, would you want a foreclosed house in your neighborhood?  How about more than one?”

That takes it back to the first person pretty quickly. I can’t enforce empathy, but I can provide it, though I wish I didn’t have to.

*Maybe a future post will rank my top ten worst humans.