Continued from PART 1 OF THE DEBT RESISTORS MANUAL
VIII. FRINGE FINANCE CREDIT PRODUCTS AND SERVICES:
CREDIT FOR THE PRECARIAT
Wall Street bankers have always tried to distance themselves from the taint of loan-sharking and other fringe financial services. For most, non-bank lending still conjures up images of dilapidated storefronts on the edge of town, surrounded by vice and petty criminality. But if you’re one of the 12 million Americans who took out a payday loan in the past year, it’s more likely that you did it in a suburban strip mall or cyberspace. It’s even possible that you got it from a bank—five large banks, including Wells Fargo, have begun to offer payday loans.
PAY DAY LOANS: HOW SHORT-TERM LOANS BECOME LONG-TERM DEBTS
- Although they seem to be worlds apart, in reality these markets are interconnected and overlapping; the biggest players in all segments of fringe finance are publicly traded, national corporations. Today, around 20% of all users of “alternative” financial services (AFS) also use traditional banks. Whether sourced in prime credit or subprime, student loans or pawn loans, the profits of our indebtedness flow to the 1%. But the 99% is waking up to the bait-and-switch. This chapter covers the debt traps encountered outside of the federally insured financial institutions: AFS credit products and services such as payday loans, pawn loans, auto-title loans, “rent-to-own” agreements and refund anticipation loans (RALs). Like traditional banks, these businesses provide ready access to cash and/or credit. However, their services are substantially more costly than those typically offered by major banks, and they frequently involve even more unfair, abusive and deceptive practices. Enabled by government at all levels, the poverty industry preys on the poor. For a long time the working poor have been its main target, but the Great Recession has supplied millions of new marks: people with busted credit, people who are desperate for cash and people who have fallen from the ranks of America’s disappearing middle class. At a time of unprecedented inequality, poverty and precarity, unprincipled money lenders are poised to make a killing; stealing from people who have nothing means indebting them, possibly for life. During the 1990s, deregulation tore through every segment of the U.S. financial system. Lending standards were loosened, increasing the availability of credit on Main Street as well as Malcolm X Boulevard. The resulting proliferation of high-cost subprime loans was celebrated as the “democratization of credit.
- ”The rolling back of core financial consumer protections created an unprecedented opportunity for financial extraction—the prospect of making money off of people who have no money. On the fringes of finance, money comes easy, but debts are built to last. Given the state of household finances, rising demand for “Quick Cash, Few Questions Asked!” should come as no surprise. Having maxed out their credit cards and bank credit lines, people increasingly rely on AFS providers. Most AFS borrowers are unbanked, which includes about 20% of African Americans and 20% of Latino/as. But now 21 million borrowers are “underbanked,” meaning they use AFS in combination with traditional banking services.
- About half of AFS users have incomes below the poverty line. This means that a large percentage of the customer base of the so-called “poverty industry” is not poor. In fact, it’s quite possible that many of the underbanked not too long ago qualified for prime mortgages and boasted incomes considerably higher than the national median. These are sure signs of precarity: insecure and unpredictable living conditions, which harm material or psychological welfare. Compared to traditional bank loans, fringe lending has its own peculiar set of tricks and traps. But like any extension of credit, it involves a set of expectations about the future. When we sign on the dotted line, we’re assuming that things will get better, that our financial situation will improve enough to make repayment possible. Lenders exploit borrowers’ dreams. In fringe finance, the aspirations are simpler and more immediate, like having a way to get to work, buying groceries for your kids, bailing your cousin out of jail or treating your aging mother to lunch on her birthday. Nearly half of workers in the United States report living “paycheck-to-paycheck.”
- In other words, at least 60 million of us are one setback away from economic ruin. After years of insufficient income, we’ve drained our savings just to cover necessary expenses. Those of us who’ve never been able to accumulate savings already depend on short-term credit to get by. In other words, we’ve gone into debt in order to live. In the early 1990s, there were fewer than two hundred payday lending stores in America. Today there are 23,000—more than McDonald’s—making payday lending a $50 billion industry. The deregulation of interest rates at the end of the 1970s, which removed all caps and limits on interest, set the stage for the “rise of payday.” Today, fifteen large corporations, which together operate roughly half of all loan stores, dominate the industry. Of these fifteen, six are publicly-traded companies: Advance America, Cash America, Dollar Financial, EZ Corp, First Cash Financial, and QC Holdings. Having witnessed the rapid and socially destructive effects of these loans, fifteen states have renewed consumer protections and rolled back authorizations of payday loans, eliminating payday loan storefronts. Another eight states have limited the number of high-cost loans or renewals that lenders may offer. The reforms’ effectiveness, however, has been limited by the advent of unlicensed online payday lending, which now comprises 35% of the market and allows for even more egregious practices. The appeal of payday loans is the flip side of the barriers to traditional banking: convenience, ease of transaction and few questions asked. Payday loans are small-credit loans marketed as a quick and easy way to tide borrowers over until the next payday. However, the typical storefront payday loan leaves borrowers indebted for more than half of the year with an average of nine payday loan transactions at annual interest rates over 400%. And if you think that’s bad, try 800–1,000% APR in the case of online payday loans.
- Make no mistake: payday lending is legal loan-sharking. The aim is to prolong the duration of debt in order to extract as many fees as possible; this is known as “churning,” and doing this every two weeks makes up 75% of all payday loan volume. Typically, payday loan debt lasts for 212 days. Repeated payday loans result in $3.5 billion in fees each year.
- Payday loans are carefully structured to bring about this result. The catch is the “balloon payment,” a well-known predatory practice. When you take out a payday loan (normally $100 to $500), you put down collateral (e.g., a postdated check or electronic access to your bank account) equal to the loan amount plus a fee ($15 to $35 per $100 borrowed). At the end of the typical two-week loan period, you either repay the total owed or renew the loan for another two weeks. Few borrowers (only 2%) are able to make the balloon payment, so instead they pay only the fee and renew the loan, which grows in size due to compound interest.
- With every renewal, the “balloon” grows bigger, making repayment ever more difficult. In the meantime, the lender goes on extracting fees every two weeks, and pretty soon, you’ve repaid the amount of the original loan (the principal), yet you are forced to continually renew the loan until you can repay the hugely inflated balance in one lump sum. According to the Federal Trade Commission, a number of online lenders obtain borrowers’ bank account information in order to deposit funds and later withdraw the repayment, with a supposed one-time fee.
- In actuality, withdrawals occur on multiple occasions, with fees each time. The FTC cites a typical example where someone borrowed $300 and, after the lender withdrew many times, the borrower was ultimately expected to pay $975. As you can see, with payday loans, the term “debt trap” takes on a whole new meaning. The payday industry lobby group, which misleadingly calls itself the Community Financial Services Association (CFSA), tries to get some cover for its predatory behavior by warning, “Payday advances should be used for short-term financial needs only, not as a long-term financial solution.” In actuality, the vast majority of borrowers (69%) use payday loans for everyday expenses, just to get by. A recent Pew survey shows that only 16% of borrowers actually used them in emergencies.
- All of the evidence consistently shows that borrowers do not use this hazardous product as prescribed and thus endanger their financial lives. This amounts to financial malpractice. Still, 12 million Americans have used payday loans over the past year. And who can blame them? If you have lousy credit and need cash fast, a short-term, no-credit check loan seems like a lifeline, just like the ads promise. No doubt, the loans offer short-term relief, but in exchange for long-term financial harm. According to the CFSA, “payday advance customers represent the heart of America’s middle class.
- ”This particular industry talking point has truth to it. The core market for payday loans are people with regular incomes and/or bank accounts who are expected to “secure” their loans with pay stubs, benefit stubs, or personal checks—that is, the growing class of the underbanked. A recent survey of payday loan users conducted by the Pew Center finds that most borrowers are white, female and from twenty-five to forty-four years old. However, certain groups disproportionately use payday loans: those without a four-year college degree, home renters, African Americans, those earning below $40,000 annually and those who are separated or divorced.
- People of color are targeted for exploitation by payday lenders and fringe finance more broadly. Like other forms of AFS, the immense expansion of payday lending has overwhelmingly taken place in communities of color. In California for example, Black people are more than twice as likely as whites to live within one mile of at least one payday lender.
- The CFSA and leading payday lenders have for years cultivated relationships with Black leaders and organizations—lawmakers, celebrities, elders of the civil rights struggle— as part of their lobbying and marketing campaigns.
- “Just like they target minority groups to sell their products, they target minority groups to make their products look legitimate,” says critic Keith Corbett, executive vice president of the Center for Responsible Lending.
- Contrary to claims that payday lending represents the “democratization” of credit, the kind of credit payday lenders are selling leads only to cycles of ever-growing debt. WAyS oUt With payday lenders you are dealing with the worst of the worst. These are people who know they are charging rates of interest that ought to be illegal, that used to be illegal, that have always been illegal in just about every other country that has ever existed in the world. While it is best to avoid payday loan officers entirely, when dealing with one, it is important to remember: this person knows that what they are doing is wrong. If they have any human decency, they are secretly wracked with guilt; even if they don’t, they are terrified that the world will figure out what they are really up to and recognize it as a criminal activity, since that’s what it really ought to be. If you have outstanding debt with a payday lender, remember:
- Payday loans are unsecured debt. This is any type of debt or general obligation that isn’t collateralized by a lien on specific assets, like a house or car. In the event of default, the lender has no legal claim on your assets, no matter what the debt collectors say.
- Many people default, and expectations of that outcome are built into the business model. The typical “risk premium” (the cost increase required to compensate for credit risk) is so high that even with 15–20% default rates, payday lenders are highly profitable.
- In the event of default, lenders’ only means of retaliation is to report the event to a credit agency. They commonly try to persuade borrowers that repayment of payday loans strengthens credit—the industry even funds research to peddle this myth—but it’s not true. Reports of any transactions with payday lenders will harm your credit. And if you’re taking out one of these loans, odds are your credit is already damaged.
HOW TO DEFAULT ON A LOAN
It should go without saying that executing the following plan is high risk. Think and act carefully!
- Take out a loan with an online payday lender. Create a new email address and obtain a prepaid cell phone; use that information on the application. For extra protection, use a computer at the library. If there is a call center that wants to talk to you, get someone else to speak since they might record your voice.
- When you sign up for a payday loan, you enter into an agreement between yourself and the provider that they have the right to take money from your bank account or charge your debit card automatically when your due date arrives. Only give them the right to one specific bank account or debit card.
- Wait until they decide to debit you. Then call them up, ask why you were charged and tell them that you never filled out this application for a loan. Granted, this argument is more difficult if you used a payday loan before; you want to make it seem as if your financial situation is good enough that you don’t need one.
- If you keep fighting, they will refund you. Fraud happens all the time on the internet, so your claims are perfectly plausible. If they persist, say that you’re going to call the relevant regulatory agencies. Many times they will cave in because most online payday loan companies do not want to get the government involved. If this works, then you’re in the clear! You get free money, your credit score is unharmed and debt collectors will not harass you. However, payday loan providers might not believe you and keep charging you the outrageous rates. To default: If you choose to pay via bank account transfers, then move all of your funds from that bank account to other accounts. If you choose to pay via debit card, then cancel the debit card. The most annoying thing is that you’ll have to deal with debt collectors. This is why it is essential that you don’t supply your actual phone number or email address; that way, they’ll just send you direct mail, which you can always throw away. If they have your actual phone number or email address, they will harass you to no end, in which case just keep ignoring them. They are trained liars. (For more advice on dealing with debt collectors, see Chapter IX.)
The following information comes from an anonymous former payday loan employee:
- Identify a group of people planning to move between any of the four countries: United States, Canada, England, and Australia. Have each person take out a number of payday loans.
- Once you get about $10,000 in loans, move the money to different bank accounts so the companies don’t have access to it.
- When you move to another country, your credit score will be a blank slate and you’ll have free money to fight the system.
- With about a thousand people willing to travel between the four countries, you can take out a few major international pay loan providers, like Wonga and Enova Financial.
PAWN SHOP AND AUTO TITLE LOANS
Unlike payday loans, a pawnshop loan is when a borrower gives property to a pawnbroker to secure a small loan. The loan is generally for one-half of the item’s value. If the borrower is able to repay the loan with interest by the due date—typically between one and three months—then the item can be retrieved.
- The average pawnshop loan is for $70, and approximately one out of every five pawned items are not redeemed.
- According to a survey by Think Finance, approximately one-quarter of eighteen- to thirty-four-year olds who are un- or underbanked use pawnshops.
- Because U.S. citizenship and regular income are not required for pawn loans, they are particularly appealing to undocumented immigrants and others who might have difficulty obtaining loans through traditional financial services. Ten states do not require any cap on monthly interest rates and forty states do not require the return of pawned items.
- A car-title loan is a similar product to a pawnshop loan, but even more egregious—so much so that it is prohibited in thirty-one states.
- A borrower in this case exchanges the title to their automobile for cash. The vehicle can still be driven, however. Typically the loan is for about one-quarter of the vehicle’s value. If it is not repaid with interest within thirty days, the lender could repossess the car or extend the loan for thirty more days and add further interest. When annualized, the rate of interest for title loans is in the triple digits, and often exceeds 900%.
- LoanMax, an auto-title lender for which Reverend Al Sharpton of all people did a television commercial, says its average loan is $400.
- Suppose you take a $400 title loan from them. Thirty days pass and you can’t pay the $520 you now owe. Instead of repossessing your car, the gracious lender decides to renew the loan. And then again. And again. Title loans are renewed on average eight times per customer.
- Therefore, within a typical time frame, you may end up owing nearly three-and-a half times what you originally borrowed! Having property repossessed and incurring further debt are the tragic yet predictable consequences of obtaining a loan through pawning. Payday loans and other examples laid out in this chapter are no better. The information provided above offers a glimpse of how these loans dig people into deeper desperation. Despite state regulations such as APR caps, these alternative financial services are inherently predatory and cannot be modified to be substantially less harmful to borrowers. Pawnshop loans and car-title loans should be avoided at all costs. However, so long as viable alternatives remain inaccessible to those typically targeted by such institutions—traditionally low-income communities of color, but increasingly Millennials of all backgrounds
- —the problem will remain and intensify. At the conclusion of this chapter, we contemplate a handful of suggestions for obtaining cash without having to be on the receiving end of predatory lending practices.
Rent-to-own (RTO) lenders offer appliances, electronics and other items which, as the name suggests, people can eventually own. This is different from credit purchases where the customer immediately gains the title to the product. Aaron’s and Rent-A-Center are two of the biggest such companies; their mascots are a self-proclaimed “lucky” dog and Hulk Hogan respectively. On both company websites, product prices are not listed; you must provide some personal information, such as the last four digits of your Social Security number, in order to even receive a quote. Aaron’s explicitly states that their stores are “strategically located in established working class neighborhoods and communities,”25 which is a euphemism for exploiting poor people and people of color. This predation is also unabashedly reflected in RTO companies’ own annual reports. Despite having fewer than half the number of customers as payday lenders, the RTO industry generates a similar revenue.26 What accounts for high sales?
Unsurprisingly, there’s a whole host of fees when using RTOs. Charges often include “security deposits, administrative fees, delivery charges, ‘pickup payment’ charges, late fees, insurance charges, and liability damage waiver fees.
- ”These costs are generally not revealed to customers. Less than a third of U.S. states require disclosure of the total cost to own, and even then, many of these aforementioned charges are underestimated. With all of that on top of an average APR around 100%, consumers typically pay between two and five times more than if they had purchased the same item at a retail store. On average, RTO customers spend an extra $700 a year.
- Failure to pay in full, or defaulting, results in the repossession of the product and loss of any money previously put toward the item.
- Only eleven states require any cap whatsoever on the price of products or APR at RTO lenders.30 Items available at rent-to-own stores are readily available elsewhere, in some instances for one-fifth of the price; however, this may require saving up until one can afford the retail value rather than resorting to paid installments. If you need a computer, for example, consider borrowing one or using one at the library until you can pay for it at a not-so-predatory store. It also might mean being willing to relinquish a bit of luxury and buy items secondhand. Either way, it ultimately beats the pitfalls of RTO lenders. There are also many items that you can simply obtain for free, although it may require waiting for just the right moment and taking time to do some research. Websites like the Freecycle Network (freecycle.org) and the free section on Craigslist (craigslist.org) have made this process much more convenient and accessible.
REFUND ANTICIPATION LOANS (RALS)
Refund Anticipation Loans (RALs) are yet another type of loan to exploit the unbanked and underbanked. For the lender, the profits are high and the risks are low. Many tax preparation companies offer this service. For those expecting much-needed cash from a tax refund but who cannot wait several weeks for it, an RAL is an appealing quick solution. A taxpayer can receive the full amount of their anticipated tax refund sometime between two minutes and two days. Like other fringe finance loans, RALs have a triple digit APR. Suppose you’re expecting a tax refund that approximates the average in the United States in 2011, which was $2,193.31 Rather than wait to receive the refund, you take out an RAL at a tax preparation company. In six weeks, you receive your refund and at this point, assuming the APR is “only” 200%, you’ll need $728.25 in addition to your refund in order to pay back your loan. With a bank account, your tax refund could be deposited directly in less than two weeks, but of course that’s not an option for the unbanked.
Filing taxes online, if possible, expedites the receipt of one’s refund. This approach may meet the needs of those requiring cash in the immediate present without having to lose so much money in the long run; however, receiving a refund check presents its own problems if you don’t have a checking account (see the section on CCOs in Chapter VII). Another approach is to attempt avoiding having a tax refund at all. Until you find institutions in your neighborhood lending money free of charge to you, why should you in essence lend to the IRS at 0% APR? Instead of getting a large sum once a year in the form of a tax refund, you can spread that amount out amongst your paychecks. This requires adjusting your withholdings on your W-4. If you don’t have investments or itemized deductions, it would be simple to calculate how many exemptions you should claim in order to avoid a tax refund without getting a liability. Regardless of how many dependents you have, you can still claim, for example, five dependents for planning purposes. (When filing taxes, you would legally need to write the actual number of dependents.)32 Many websites, including the IRS website, feature a withholding calculator to help you make a more informed decision about this approach.
Throughout the last two chapters, several strategies have been raised for avoiding or beating the various institutions that offer fringe finance. These chapters have been written with the understanding that viable alternatives are hard to come by in many areas. In the course of doing research, we have often found that the recommended alternative to one segment of the fringe finance industry is frequently another segment. For example, in warning against the dangers of refund anticipation loans, the suggestion is often to instead obtain a prepaid debit card. We have to work together toward rendering all such institutions obsolete, toward a situation where people can have basic needs met without immense sacrifice. Notably, at least one-quarter of unbanked households in the United States do not use any fringe finance products or services.33 That is, over two million households are getting by without a checking account, without subprime loans, without cashing checks at CCOs, and without pawning their items.
These households in particular have experiences worth sharing and learning from. It is our desire that others reading this manual can provide their own strategies, which can be compiled and included in later editions. The unbanked and underbanked can in certain instances avoid subprime loans. This may mean asking to borrow from friends or family, seeking emergency community assistance, and, if an option, asking your employer for advanced payment. Selling unwanted items on Craigslist or at thrift stores and consignment shops is a more reliable source of cash than pawning. Moreover, it’s important to consider what you need the money for in the first place. Is there an alternative at a cheaper price, or perhaps a free alternative even? Will buying something secondhand suffice? Is it worth obtaining something immediately if it means paying more? While these questions are important for individuals to contemplate in order to avoid or minimize the harm done by AFS providers, we must go deeper. The Debt Resistors’ Operations Manual, after all, is about collective action and radical transformation. While they may be designated as “fringe,” the payday loan companies, the rent-to-own stores, the pawnshops and the check cashing outlets are all central to the debt landscape we are describing in this manual. We must come together to work toward the eradication of these venal institutions while creating better ways of obtaining what we need.
Financial justice research and advocacy for low-income and underrepresented communities:
Center for Responsible Lending (responsiblelending.org) Consumer Action (consumer-action.org) The Consumerist (consumerist.com) Consumers Union – Defend Your Dollars (defendyourdollars.org) LawHelp.org National Consumer Law Center (nclc.org) Neighborhood Economic Development Advocacy Project (NYC) (nedap.org)
For filing complaints and reading complaints of other consumers:
Consumer Protection Financial Bureau (consumerfinance.gov/complaint) Ripoff Report (ripoffreport.com)
ARtiCleS And bookS General
The Brookings Institution, The Higher Prices Facing Lower Income Customers, August 18, 2006 (tinyurl.com/DROMBrookings). Candice Choi, “Reporter Spends Month Living Without a Bank, Finds Sky-High Fees,” Huffington Post, December 11, 2010 (tinyurl.com/DROMChoi). Sharon Hermanson and George Gaberlavage, The Alternative Financial Services Industry, AARP Public Policy Institute, August 2001 (tinyurl.com/DROMHermanson). Dick Mendel, “Double Jeopardy: Why the Poor Pay More,” National Federation of Community Development Credit Unions, February 2005 (tinyurl.com/DROMMendel). Federal Deposit Insurance Corporation, National Survey of Unbanked and Underbanked Households, December 2009 (tinyurl.com/DROMFDIC02). Gary Rivlin, Broke USA: From Pawnshops to Poverty, Inc., How the Working Poor Became Big Business, (New York, NY: HarpersCollins, 2010). “The Truth About Immigrants’ Banking Rights,” NEDAP (tinyurl.com/DROMNEDAP03). John Ulzheimer, “Are Pawn Shops, Rent-to-Own and Other Loan Alternatives Worth It?” Mint Life, January 30, 2012 (tinyurl.com/DROMUlzheimer).
Regina Austin, “Of Predatory Lending and the Democratization of Credit: Preserving the Social Safety Net of Informality in Small-Loan Transactions,” American University Law Review, 53, no. 1217, (August 2004) (tinyurl.com/DROMAustin). Nick Bourke, Alex Horowitz, and Tara Roche, Payday Lending in America: Who Borrows, Where They Borrow, and Why, Pew Charitable Trusts, July 2012 (tinyurl.com/ DROMBourke).
Daniel Brook, “Usury Country: Welcome to the Birthplace of Payday Lending,” Harper’s, April 2009 (tinyurl.com/DROMBrook). “Give Me a Little Credit: Short-Term Alternatives to Payday Loans,” Cash Net USA, March 2012 (tinyurl.com/DROMCashNet). Stephanie Mencimer, “Civil Rights Groups Defending Predatory Lenders: Priceless,” Mother Jones, August 1, 2008 (tinyurl.com/DROMMencimer).
Pawnshop and auto title loans
Christopher Neiger, “Why Car Title Loans Are a Bad Idea,” CNN, October 8, 2008 (tinyurl.com/DROMNeiger). “Title Loan: Don’t Risk Losing Your Car,” Center for Responsible Lending, 2011 (tinyurl.com/DROMCRL). Valerie Williams, “Auto Title Loans: Are They the Best Alternative for Fast Cash?” Suite 101, September 2, 2010 (tinyurl.com/DROMWilliams).
“Alternatives to Rent-to-Own Shopping,” Consumer Reports, June 2011 (tinyurl.com/ DROMConsumer01).
Refund anticipation loans (RALs)
William Perez, “Adjusting Tax Withholding from Your Paycheck,” About.com (tinyurl.com/DROMPerez).
NO TES 1. “Bank Payday Lending: Which Banks and Where?” Center for Responsible Lending, 2011 (tinyurl.com/DROMCRL2). They call them “direct deposit loans,” but don’t be fooled; they’re just as bad. 2. Regina Austin, “Of Predatory Lending and the Democratization of Credit: Preserving the Social Safety Net of Informality in Small-Loan Transactions,” American University Law Review 53, no. 1217, August 2004 (tinyurl.com/DROMAustin). 3. Federal Deposit Insurance Company, 10. 4. Jacquelyn Smith, “New Survey Finds Fewer Workers Living Paycheck-To-Paycheck This Year,” Forbes, August 15, 2012 (tinyurl.com/DROMSmith). 5. Nathalie Martin, “Online Payday Lenders Seek More Respect and Less Oversight: Call Them What You Like, They are Still 1,000% Long-Term Loans,” Credit Slips, July 26, 2012 (tinyurl.com/DROMMartin). 6. “Fast Facts: Payday Loans,” Center for Responsible Lending (tinyurl.com/DROMCRL3). 7. “Fast Facts: Payday Loans.” 8. “Fraudulent Online Payday Lenders: Tapping Your Bank Account Again and Again,” Federal Trade Commission, April 2012 (tinyurl.com/DROMFTC02). 9. Bourke, Horowitz, and Rouche, 5. 10. Daniel Brook, “Usury Country: Welcome to the Birthplace of Payday Lending,” Harper’s, April 2009 (tinyurl.com/DROMBrook). 11. Bourke, Horowitz, and Rouche, 5.12. William C. Apgar, Jr. and Christopher E. Herbert, U.S. Department of Housing and Urban Development, Subprime Lending and Alternative Financial Service Providers: A Literature Review and Empirical Analysis (Washington, D.C.: GPO, 2006) (tinyurl. com/DROMApgar), I-41. 13. Stephanie Mencimer, “Civil Rights Groups Defending Predatory Lenders: Priceless,” Mother Jones, August 1, 2008 (tinyurl.com/DROMMencimer). 14. Mencimer. 15. The content in this section is modified from: Anonymous payday loan insider, e-mail to author, July 29, 2012. 16. “Give Me a Little Credit: Short-Term Alternatives to Payday Loans,” Cash Net USA, March 2012 (tinyurl.com/DROMCashNet), 2. 17. Sharon Hermanson and George Gaberlavage, The Alternative Financial Services Industry (Washington, D.C.: AARP Public Policy Institute, 2001) (tinyurl.com/ DROMHermanson), 2. 18. “Millennials Use Alternative Financial Services Regardless of their Income Level,” Think Finance, May 17, 2012 (tinyurl.com/DROMThink). 19. Signe-Mary McKernan, Caroline Ratcliffe, and Daniel Kuehn, Prohibitions, Price Caps, and Disclosures: A Look at State Policies and Alternative Financial Product Use (Washington, D.C.: The Urban Institute, 2010) (tinyurl.com/DROMMcKernan), 6. 20. “Title Loan: Don’t Risk Losing Your Car,” Center for Responsible Lending, 2011 (tinyurl.com/DROMCRL). 21. Hermanson and Gaberlavage, 7. 22. Howard Karger, “Swimming With the Sharks,” AlterNet, January 10, 2006 (tinyurl.com/DROMKarger). 23. “Title Loan: Don’t Risk Losing Your Car.” 24. Think Finance. 25. Jim Hawkins, “Renting the Good Life,” William and Mary Law Review, 49, no. 6. 2008 (tinyurl.com/DROMHawkins), 2059. 26. Rivlin. 27. Hermanson and Gaberlavage, 2. 28. Rivlin. 29. John Ulzheimer, “Are Pawn Shops, Rent-to-Own and Other Loan Alternatives Worth It?” Mint Life, January 30, 2012 (tinyurl.com/DROMUlzheimer). 30. McKernan, Ratcliffe, and Kuehn, 6. 31. Christine Dugas, “Tax Refunds Being Used to Pay for Bankruptcy Filings,” USA Today, April 13, 2012 (tinyurl.com/DROMDugas). 32. Anonymous accounting insider, e-mail to author, August 20, 2012. 33. Federal Deposit Insurance Company, 29.
IX. DEBT COLLECTION:
DON’’T FEED THE VULTURES
It goes without saying that none of us wants to hear from a debt collector. While once largely the province of organized crime, debt collection has attempted to go somewhat legit. This is not to say that today’s collection agencies don’t resort to strong-arm tactics, including harassing phone calls and threats that are often illegal. Given the complexity of debt collection laws and regulations that vary state to state, there are hundreds of ways a debt collector can engage in illegal practices, including but certainly not limited to harassment. The key is to know your basic rights, and to record abusive and illegal practices. In many cases, your debt can be erased (due to collection agency misconduct) or reduced. In some cases, you might even have the right to sue for damages. Collection agencies are counting on you to not do your homework. They are counting on you to be an easy mark and to be overwhelmed by Kafkaesque bureaucracy, harassment and shame. Our current economic downturn only amplifies the problem. Everyone has less money and more debt. Debt collectors themselves are making less money and this is a recipe for more aggressive and increasingly illegal tactics. Even if the collection agency does not engage in activities and techniques that are technically illegal, they are likely to use intentionally obfuscating tactics. If this sounds like the kind of thing that we’re all used to from credit card fine print and gym membership terms, that’s because it is. While this chapter can’t tell you everything you need to know to handle your specific situation, it can provide a basic outline and point you to resources that can help beat the system that wants you to fail.
WHAT IS A COLLECTION AGENCY AND WHY ARE THEY CALLING YOU?
A collection agency often works on behalf of an original creditor (OC). An OC can be a department store, a credit card company or a rent-to-own furniture shop, just to name a few common examples—basically wherever you took out a credit card or loan. When bills go unpaid, the OC contracts with collection agencies or third-party debt collectors to collect the debt. In many cases the collection agency simply takes a commission of every debt it collects on behalf of the OC. Another likely scenario is that the collection agency has bought your debt outright from the original creditor, such as a credit card company after a period of non-payment. Many banks are required by law to charge off unpaid debts after a designated period of delinquency. The original creditor may sell your debt to a collection agency, but the collection agency doesn’t pay full price. In fact, it will almost certainly pay much less, usually 2%–25% of the debt’s face value. So if you owe $1,000, the collection agency might pay $150 for the right to collect that $1,000 from you. The credit card company may also claim your debt and all the interest and fees you have accrued as a write-off in its financial filings. In short, the collection agency is essentially buying the right to take a gamble on your debt, debt that the OC may have already charged off. But they aren’t just buying your debt. They are buying debts of hundreds, even thousands, of people like you.
For their gamble to pay off, they only need to convince enough debtors—through legal means or otherwise—that we must pay them. The collection agency might also tack on additional late fees and interest all while harassing you by phone and by mail to collect. hoW A ColleCtion AgenCy thinkS It is key to understand how collection agencies think if you want to know how to best engage with them.1 First, it is usually pointless to go back and contact the original creditor. The original creditor almost certainly has an agreement with the collection agency that prevents them from negotiating directly with you. Collection agents often receive little training beyond, “Here’s your desk, your phone and computer—now go make some money.” Many collection agency workers’ pay is tied to a monthly quota of how many debts they can collect and it is common for collectors to employ more aggressive and illegal tactics toward the end of the month. Because they work on monthly commission, collection agency workers are also most likely to pursue the people with the largest debts and the people who seem most likely to pay. It is important to remember that you are the most important variable to a collection agent. To quote one message board familiar with their tactics, “It is your fears, your fantasies, your partial understanding of the truth that empowers the debt collector and each of these is a weapon to be used against you.
By carefully stating half-truths and letting your imagination run away . . . ” It is also important to note that there are two common types of collection agencies: letter writers and just plain “collection agencies.” Letter writers basically just write letters directing you back to the original creditor to make your payment. Collection agencies require you to pay them directly, often so they can be assured they will get their commission from the OC. Either way, they must include a mini-Miranda in their letters or read it during their phone calls. If they do not, you may have grounds to sue. If your first contact with a collection agency is over the phone, the mini-Miranda warning should sound something like this:
“Hello, I am [name of collector]. I am [or “this office is”] a debt collector representing [creditor]. Information obtained during the course of this call will be used for the purpose of collecting the debt.”
If your first contact with the collection agency is via mail, the mini-Miranda should look something like this:
“This correspondence is an attempt to collect a debt. Any information obtained will be used for that purpose. Unless within 30 days of your receipt of this notice, you notify us that you dispute the validity of this debt, it will be assumed to be correct. If you notify this office within thirty days that you dispute the validity of the debt, we will obtain verification of the debt or a copy of the judgment. If you request it within 30 days, we will provide you with the name and address of the original creditor (if different from the current creditor).”
- Do not ignore the call or letter. The biggest mistake people make when they get a letter or call from a debt collection agency is to ignore them and hope they will go away. Because you have 30 days to contest the debt, you must act immediately. If you ignore the contact, you are by default agreeing that the debt is legitimate. Whether the debt is legitimate or not:
- Write a letter to the office of the collection agency or attorney and state that you
- (a) dispute the bill; and that
- (b) you want a full accounting of the monies claimed to be owed. The Fair Debt Collections Practices Act of 1996 (FDCPA) requires they contact the original creditor to secure full account detail. Without a confirmed accounting of this debt, they cannot return to the collection process.
- Write a letter to the office of the collection agency or attorney and state that you
- In responding to a call, advise the collector that you
- (a) are disputing the debt and that you are doing so in writing to his/her offices; and that
- (b) you do not want to receive a call from this agency at your place of work and that they can only contact at your home (or on your cell phone if you don’t have a home telephone) between the hours of X and Y. There is a decent chance that you may not hear back. Remember, the collection agency is most likely to pursue the people they think are most likely to pay. You may have to continue to write to them, and even threaten to sue. (See Appendix D for sample letters.) StAtUte oF limitAtionS on debt In every state there is a statute of limitations (SOL) for outstanding debts—a limit on the number of years in which a creditor may attempt to pursue payment. Each state is different so you should check.
- 3 Some states, like Kentucky and Ohio, have extremely long periods (fifteen years for written debt agreements) while states like Mississippi and North Carolina have much shorter periods (three years for written debt agreements). If there is a dispute about which state’s laws apply, you can be assured that the collection agency will argue for the state with the longer period. When does the SOL clock start? The SOL clock starts running on the date of the last activity of your account. This is often the date of your last payment but—and this is key—it may also be the date when you entered into a payment agreement or simply acknowledged liability for the debt. This is why it is key to always contest liability.
- If your debt is beyond the SOL you can contest the debt on these grounds and, should you want to play offense, you can also attempt to set up the collection agency for a FDCPA violation and hit them with a suit. knoW yoUR FdCpA violAtionS Even if your debt falls within the SOL, there is a good chance the debt collector will engage in abusive or deceptive practices that are illegal under the FDCPA, but it is up to you to know your rights, be vigilant and document any violations. Violations are grounds for dismissing debt and related lawsuits. Some common FDCPA violations There are countless ways to violate the FDCPA and the longer you engage with your debt collector or agency (while continuing to dispute the debt—this is very important), the greater the chance you will catch them in the act. Unfortunately (or fortunately if you are a debt collector) only a small fraction of violations go reported. You do not need a lawyer to contest debt obligations or report FDCPA violations; you can take action on your own and even win damages.
- Due to an absence of regulations and enforcement, debt collectors routinely break the law, verbally abuse and threaten debtors. These practices are rampant in an industry that is run like the Wild West. Here are just some of the very dirty tricks that debt collectors use: Recently debt collectors have “embedded” themselves in hospitals—like reporters in a war zone—coordinating with hospital staff to make bedside visits. While patients are often at their most vulnerable, sick or injured and naked except for a hospital gown, these debt collectors will attempt to shake them down for money. Jessica Silver-Greenberg writes, “To patients, the debt collectors may look indistinguishable from hospital employees, may demand they pay outstanding bills and may discourage them from seeking emergency care at all, even using scripts like those in collection boiler rooms.”
- It is common for debt collectors to call pretending to be police officers and claim that they have a warrant to arrest a debtor if they don’t pay up. Debt collectors will often continually harass people for debts they don’t owe or have already paid or for those that have already been dismissed in court. Collectors frequently target the wrong person, mistaking one person for someone else with the same or similar name.
- Debt collectors will lie and say that they are calling on behalf of debt relief agencies, learn all about a debtor’s situation and collect all of their personal information, and then use it against them. Collectors have been known to illegally call employers and inform them of employees’ debts. In the most extreme cases, debt collectors have made disturbing threats to seriously harm debtors and their families.
- Although illegal, these tactics are rampant. Even debt collectors who follow the law can legally mislead you or trick you in other ways. Credit card companies have started data-mining cardholder’s purchases and using software to create psychological profiles of them. These profiles are then used by debt collectors to psychologically manipulate debtors to pay more than they otherwise would have to, including artificial late fees that would otherwise have been waived. This tactic, although manipulative and immoral, is completely legal. After using a psychological profile to swindle one debtor out of an additional $2,000, debt collector Rudy Santana explained, “It’s all about getting inside their heads and understanding what they need to hear.
- ”knoW yoUR RightS With all of this in mind, it’s important to know what debt collectors legally can and can’t do. Below is a basic list to help protect you:
- A debt collector can only call a third party once about you unless it believes the third party gave it false information the first time.
- Contacting you before 8:00 AM or after 9:00 PM is illegal.
- You must tell a collector not to contact you at work by sending them a cease and desist letter (see Appendix D, sample letter #2). You must send this certified mail and keep a copy for yourself so you have proof of receipt. If the collection agency contacts you again, other than to advise you of their intent to take action, then they are violating the FDCPA.
- Under no circumstances does a default on a car loan equal theft. It can not be reported to law enforcement. Legal repossession is the creditor’s right.
- If you do not want to be in contact with a debt collector, then that’s your right. It doesn’t cancel the debt but it is your right not to speak with debt collectors. • A debt collector cannot sell a debt to another collection agency with full knowledge that it has expired (see SOL) or is in dispute.
- A debt collector may try to lead you to believe that you have no grounds for requesting a validation of debt (see Appendix D, sample letter #2).
- A debt collector may try to represent themselves as an attorney or law firm even if they are actually not an attorney or law firm. Regardless, it is important to remember that collection attorneys also have to follow the FDCPA just like collection agencies.
- If a debt collector sends an initial notice advising you of your right to a validation of debt, then they cannot demand payment within the next thirty days.
- A collector cannot call your job and tell your HR department that they need your work information (wages, schedule) unless a valid suit was filed by them and tried in a court of law with a judgment in their favor. Until this happens (if it happens), they cannot contact your HR department or place of work, even if they claim to be looking for information to sue you.
- It is not unheard of for debt collectors to use fake case numbers and fake lawyers to scare an alleged debtor into paying. Of course, this is in clear violation of the FDCPA.
- Regardless of whether the initial contact is via mail or letter, the collector must provide you with a mini-Miranda (see above). The mini-Miranda should also be on each and every communication you get from a debt collector.
- A collector is not allowed to reveal information about the envelope’s contents on the outside of the envelope for others to see. Words such as “past due” or “collections” are in clear violation of the FDCPA.
- A debt collector cannot impersonate a law officer or claim they can throw you in jail for not paying your alleged debt.
IDEAS FOR COLLECTIVE ACTION
There are two main ways to fight back against debt collectors: letter writing and lawsuits for violating the FDCPA. Both could be made into mass actions that attempt to overwhelm debt collectors while also helping us reduce our debts. With the right organizational structure, debtors being chased by a common debt collector or debt collection agency can coordinate a welltimed, well-thought-out letter writing campaign. If many debts with the same collector are disputed, it will clearly disrupt and possibly halt their business. As far as we know, this has never been tried. If a collector violates the FDCPA (which won’t be hard to find out), a class-action lawsuit could be organized. As usual, we recommend you consult a lawyer before considering this.
Carreon and Associates (carreonandassociates.com) The Consumerist (consumerist.com) Debtorboards (debtorboards.com) Fighting Collection Agency Debt (collectionagencydebt.blogspot.com) National Consumer Law Center (nclc.org) Written Off America (writtenoffamerica.com)
Jude Chao, “How to Report Collection Agency Abuse,” eHow (tinyurl.com/DROMChao). “Debt Collection FAQS: A Guide for Consumers,” National Association of Consumer Advocates (tinyurl.com/DROMNACA01). “Debt Collection Info Packet,” NEDAP, 2006 (tinyurl.com/DROMNEDAP04). Alex Henderson, “‘Am I Going to Have to Kill You?’: The Horrific Ways Abusive Debt Collectors Threaten and Harass Their Victims,” AlterNet, April 17, 2011 (tinyurl.com/DROMHenderson). Lynnette Khalfani-Cox, “How to Handle Rude and Abusive Debt Collectors,” AARP, January 16, 2012 (tinyurl.com/DROMKhalfani) “Know Your Rights When You Owe a Debt,” National Association of Consumer Advocates (tinyurl.com/DROMNACA02). Patrick Lunsford, “Debt Collectors Pursuing More than 14 Percent of Americans,” Inside ARM, February 29, 2012 (tinyurl.com/DROMLunsford). Chris Morran, “Debt Collectors Real & Fake: Top List of Most-Blocked Phone Numbers,” The Consumerist, August 6, 2012 (tinyurl.com/DROMMorran01). Chris Morran, “4 Things Debt Collectors Won’t Tell You,” The Consumerist, October 18, 2011 (tinyurl.com/DROMMorran02). “Predatory Lending Practices,” National Association of Consumer Advocates (tinyurl. com/DROMNACA03). Yves Smith, “How to Beat Vulture Debt Collectors,” Naked Capitalism, August 16, 2012 (tinyurl.com/DROMSmith3).
NO TES 1. “The Psychology of Collections,” Professional Recovery Personnel, Inc. (tinyurl.com/ DROMPRP). 2. “Debt Settlement Letters and Sample Letters on Debt and Credit,” Debt Consolidation Care (tinyurl.com/DROMDCC). 3. LaToya Irby, “State-by-State List of Statute of Limitations on Debt,” About.com (tinyurl.com/DROMIrby). 4. Jessica Silver-Greenberg, “Debt Collector is Faulted for Tough Tactics in Hospital,” New York Times, April 24, 2012 (tinyurl.com/DROMSilver6). 5. “As a Result of FTC Action, Two Defendants in Abusive Debt Collection Case are Banned from the Industry, Will Surrender Assets,” Federal Trade Commission, March 15, 2012 (tinyurl.com/DROMFTC3). 6. Charles Duhigg, “What Does Your Credit-Card Company Know About You?” New York Times, May 12, 2009 (tinyurl.com/DROMDuhigg).
IT’’S BETTER THAN NO THING (SOMETIMES)
Bankruptcy, for some people, sometimes, can be a way to fight back against the creditors and escape a life of indebtedness. It is basically the modern version of debtors’ protection (yes, like consumer protections), but as with any set of legal codes, it reflects the society that created it. And let’s remember that it was created by an economic system predicated on maximizing profit at all costs. Accordingly, the protections that bankruptcy offers are anything but clear or straightforward. Bankruptcy can save lives and offers some people a world of relief. But there are many forms of debt relief out there, and bankruptcy is just one of them—a very legal one at that. Many prefer the route of “private” debt settlement or negotiation, others seek credit counseling or debt management programs, others fall prey to schemes plunging them further into debt and still others simply stop paying and walk away or go off-grid. This chapter aims to lend some clarity as to what possibilities bankruptcy offers, as well as to its limitations.
A SHORT HISTORY OF DEBT FORGIVENESS
Debt forgiveness has a long history. The Bible is literally full of passages about jubilees and other cancellations of debt. The Qur’an also advocates debt forgiveness for those who cannot pay. Of course not every society has protected its citizen debtors. In Ancient Greece, debtors unable to pay often lost their entire families to debt slavery. Even though the right to declare bankruptcy was legislated here in the United States at a much later date than in other industrialized countries, its application has been more debtor-friendly than most. On the whole, bankruptcy in the United States has been used by businesses more than individuals. Bankruptcy laws in favor of businesses were repeatedly passed and repealed throughout the 19th century. The first truly modern bankruptcy laws in the United States appeared during periods of “economic downturn” in the 1890s and 1930s.
These laws were largely about saving companies and businesses deeply in debt. Businesses in the United States have always taken advantage of bankruptcy, especially in recent years, as companies have used it as a pretext to get out of pension obligations and to break union contracts. But starting in 1978, the United States passed a law that made it significantly easier for individuals and families to get similar benefits and protections. In the 1980s, people began to take more advantage of this possible liberation from debt. In the 1970s, just over one in a thousand Americans filed for bankruptcy every year. That began to rise dramatically over the course of the next decade. By 1990, the rate had tripled to three in a thousand; by the late 1990s, it was up to five.
A tAle oF tWo ChApteRS Over the last thirty years, the conflict over bankruptcy law has been a fight between creditors and debtors. It has largely been “a tale of two chapters”: Chapter 7 and Chapter 13 of the Bankruptcy Code. Accordingly, there are two basic options if you are considering filing for bankruptcy, and they are named after the relevant sections of the law. With a Chapter 7 bankruptcy, all your eligible debt is wiped away (or “discharged”), and that’s it. The huge downside is that your non-exempt assets (these vary by state, but often include basic things like your house, car, etc.) are also liquidated. With a Chapter 13 bankruptcy, disparate debts are consolidated into a single sum owed to the bankruptcy court, and a rigorous payment plan is set up (usually lasting three to five years). The monthly payments are for many a substantial and unbearable burden, but all creditor efforts at collection must stop. Foreclosure actions are also suspended during a Chapter 13 bankruptcy proceeding (unlike a Chapter 7), although they can be resumed once the case is completed. Many people choose Chapter 13 over Chapter 7 in an attempt to save their homes, cars and other non-exempt assets. The downside is that you must then commit most of your “disposable income” to repaying your debts. This in essence means living in dire poverty for three to five years to satisfy what are likely illegitimate loans and criminal interest rates (the average interest rate on credit card debt is now around 13%). Still, the fact is that many, if not most, Chapter 13s fail during the payback period, ultimately becoming counterproductive and leading to more debt. It’s not hard to see why the creditors prefer it to Chapter 7. Unfortunately, bankruptcy can only eliminate or lessen some types of debt. Consumer debt (credit card, auto, stores, etc.) and medical debt are the major forms, but it can also eliminate other unsecured loans such as payday loans.
A major victory for the creditors, however, is that the law prevents you from eliminating student debt, tax debt or mortgage debt. the CReditoRS Fight bACk The credit industry was alarmed by the boom in bankruptcies over the last thirty years, and it began a vast lobbying and propaganda campaign to tighten up the code. The line was that a moral rot was spreading throughout the culture, and all the old moral lines about paying your debts were falling by the wayside along with all the other “traditional values.” Industry lobbying to cut back bankruptcies came up short at first. During the Clinton years, bankruptcy overhaul bills were introduced but never made it all the way through Congress. The efforts finally paid off in 2005, when George W. Bush signed the preposterously named Bankruptcy Abuse Prevention and Consumer Protection Act. The original draft of the legislation was done by Morrison & Forrester, a San Francisco-based law firm for the credit card industry. But don’t think that “bankruptcy reform” was just a Republican effort—one of the main supporters who ensured this bill got passed was none other than current Democratic Vice President Joe Biden. The effect of this bill was to make it harder and more expensive to file for bankruptcy. But don’t let that scare you away—it’s still quite viable (if it’s the right option for you). The reform has been very good for creditors. Although there was a spike in bankruptcy filings in the year or two leading up to the passage of the bill—nearly seven out of every thousand Americans filed in 2005, an all-time record—filings then collapsed to just two per thousand in 2006. Filings soon began rising again, but even during the Great Recession of 2008, the filing rate never broke above five per thousand , essentially where it was in the late 1990s, when both the unemployment rate and debt levels were well below where they’ve been in recent years. According to a little statistical model we have put together, this “reform” has blocked over six million bankruptcies from being filed. (There would have been over 14 million filings instead of eight million.) And a study by the Federal Reserve Bank of New York—hardly an institution known for being hostile to creditors—suggests that tight ening up the bankruptcy code also increased the number of foreclosures, because many debtors were denied this avenue of relief.2 the bAttle oveR ChApteR 13 Before the 2005 “reform,” you had the option of choosing which chapter to file under.
Under the guise of “abuse prevention,” however, the new law denies the Chapter 7 route if your income is above your state median. (The median income is the one right at the middle of the distribution; half of all households are above the median, and half are below. State medians run from about $37,000 in Mississippi to $66,000 in Connecticut, with the national median around $50,000.) Of course, you could have an above-median income in an expensive region like New York or San Francisco and not be living large at all. But despite the restrictions on Chapter 7 filings, they still account for about 70% of all bankruptcy cases, which isn’t much different from the pre-reform share. The 2005 reform also increased the amount of documentation required to file—tax returns, pay stubs, household budget information, and so on. Because of that, and the increased amount of time that lawyers now have to devote to a bankruptcy filing, fees have risen dramatically. The new law also requires you to complete a counseling course offered by a government-certified provider.
All of this contributed to lower filing rates than we would have seen otherwise. It is clear that in the name of “abuse prevention,” the creditors and the government are forcing people to either not file for bankruptcy at all, or if they do, to file for Chapter 13. And it is not hard to see why. Chapter 13 is, in many ways, another creditor scam. Unlike Chapter 7, creditors often recover up to 30% of the original loan with Chapter 13. Many of those who file for Chapter 13 end up completely failing: the rate of “discharge” (getting one’s debts forgiven) is around 30% according to most studies, and at most 50% according to others. If your Chapter 13 filing fails, you are left in a worse situation than where you started.3 And from here it only gets worse. One detailed law study found that bankruptcy laws, specifically Chapter 13, implicitly favor a certain profile, an “ideal debtor,” who is usually white and married. Most bankruptcy laws tend to favor wealth over income, ownership over renting, formal dependents over informal dependents and heterosexual married couples, all of which have significantly higher rates in white communities. Before 2005, African Americans filed for Chapter 13 nearly 50% of the time, compared to less than 25% by whites. Why, you may ask? Here’s one explanation: a study found that when all other factors are equalized (identical financial cases), lawyers are twice as likely to steer Black clients toward Chapter 13 than they are white clients. The study could find no other cause besides racism in all forms: conscious, unconscious, structural and institutional. It is an uphill battle if you are an African American debtor: in another display of overt racism, you are 20% more likely to have your Chapter 13 cases dismissed by a judge.
This discrimination has had a major impact on African American debtors—they often avoid the option of bankruptcy altogether and seek other solutions: hiding, adopting aliases, refusing to pay and/ or relying on highly predatory fringe financial services. It may appear at first glance that the 2005 act actually began to equalize the playing field across race and gender by introducing the fairly objective “means test,” but it has, on the contrary, continued the trend of favoring wealth over income and made the whole process more intimidating and more expensive.4 Who FileS FoR bAnkRUptCy? And Why? The banks, government and media would have you believe that people file for bankruptcy to scam the system, or because they are financially irresponsible. This is nonsense of course. Elizabeth Warren made her career by clarifying these myths around bankruptcy: most bankruptcies are simply not caused by financial carelessness but by major life misfortunes such as unexpected joblessness, illness or divorce. The major social reason for the rise in bankruptcy over the decades has been the rise in consumer debt burdens, and the major reasons for the rise in these debts are the stagnation of average incomes, the elimination of caps on interest rates starting in the late 1970s and massive public sector service cuts. The line of argument advanced by the credit industry ignores the source of the debt to begin with: in a time of vulnerable work markets and mass cuts in basic social services, most people have no choice but to accrue debt to simply survive.
There has been a lot of talk about the role of medical debt in bankruptcies in the past few years—and for good reason. Medical debt is a major factor in bankruptcies. But it is not the only factor. Bankruptcy is not “caused” by any one type of debt. Most individuals and families filing for bankruptcy have auto debt, credit card debt, mortgage debt, student debt and also medical debt. The debt burden that households have been forced to take on is impossible to bear. Bankruptcy and mass default in this system are structurally inevitable—bankers make loans they know we can’t pay! And it would be a mistake to think, either pre- or post-2005, that the U.S. bankruptcy laws and proceedings are fair across lines of gender, race and class. Far from it. In terms of gender, it’s a complicated story. While the rates of bankruptcy filings are far higher for women, especially single and/or divorced mothers, they also benefit from the structure of bankruptcy laws. Individuals with child support obligations (usually men) who declare Chapter 7 are freed up to then satisfy these obligations, since consumer debt can be discharged but child support cannot. However, after the 2005 act, bankruptcy became more difficult for everyone, both single mothers and those with child support obligations. And all of this begs the question: why are so many single mothers (especially African Americans) declaring bankruptcy? And instead of looking for policy solutions or resorting to moral chiding, how can we avoid these situations of indebtedness in the first place? We haven’t seen these questions asked in any serious public forum. In addition, there have been several reports in the last decade about the connection between race and bankruptcy. Anyone connecting the dots between race, predatory lending and the 2008 financial crisis shouldn’t be surprised by these results. Neil Ellington, executive vice president of a credit counseling agency in Raleigh, N.C., had this to say on the matter of race and bankruptcy: “The same underlying issues that created the problem in mortgage lending, with minorities paying higher interest rates than their white counterparts having the same loan qualifications, are present in all financial fields.”5 So how bad is it? One study, focused on a neighborhood in Chicago, found that the rate of filings by African Americans is triple that of their white counterparts. The reasoning isn’t completely clear, but it’s not hard to speculate: Black people have found themselves systematically targeted by financial predators who are taking advantage of the hundreds of years of material oppression that African Americans have faced in the United States. Beyond predatory lending, African Americans are targeted by fierce debt reduction schemes, rescue scams and shady financial products promising to save them from their debt burdens.6
IN THIS SOCIETY, EVERYONE WANTS YOUR MONEY
Anyone struggling with debt and/or contemplating bankruptcy is likely to confront a lot of dubious operators. Worst of all are the characters who advertise on late-night TV or on the web, offering debt-relief schemes. (Google the term “debt relief ” for examples.) In the words of Charles Juntikka, a Manhattan-based attorney who handles many bankruptcy cases, “I’ve never seen one that was legitimate.” Most operate at the margins of the law or beyond. Our advice: avoid them like the plague. But there are also more legitimate groups and financial advisors who will offer you still-dubious advice against filing for bankruptcy. The standard claim is that bankruptcy is an emotionally wrenching experience that will ruin your credit for years. According to these sources, you’ll find it difficult or impossible to get a credit card or a mortgage after filing for bankruptcy. You might even find that it “carries a stigma in your community,” according to the National Foundation for Credit Counseling (NFCC), a trade association for the advice industry. Better to tighten your belt and negotiate repayment plans with your creditors, they say. For example, one advocate, Dave Ramsey, who dispenses advice from the perspective of the religious right, suggests selling everything but the bare necessities to placate the creditors. And they are right in one sense; bankruptcy is no picnic. But neither is “private” debt negotiation or settlement. Few people have the audacity and emotional strength to fight with creditors for months, especially without a lawyer. Groups like the NFCC have been suspiciously silent about releasing data showing success rates in private negotiations, debt settlement plans and other alternatives to bankruptcy. It’s hard to know who to trust when everyone wants your money.
Organizations like the NFCC will say terrible things about bankruptcy because they’re funded by the financial industry and other private sector interests. While they divulge few exact details about their funders, the program for its most recent conference thanks sponsors including Bank of America, Chase, Citi, MasterCard and Experian (the credit rating agency). The conference also featured “breakout sessions” for creditors and a Creditors’ Day (as if the other days of the year weren’t creditors’ days). It goes without saying that advice dispensed by NFCC member organizations is not likely to be debtor-friendly. NFCC’s ideals can be seen in the winners of their most recent Client of the Year Award, Jerry and Sue Bailey of Jackson, Michigan. The Baileys “refused” the temptation of “walking away” from $92,000 in credit card debt, opting instead for a repayment program engineered by NFCC member firm GreenPath. They admit that paying off their debt was a struggle, but it was one “worth making.” GreenPath (which, incidentally, paid its CEO about $600,000 in 2010) and other NFCC member firms are precisely the ones who run the counseling programs filers are required to attend.
So who can you trust? Bankruptcy lawyers? Let’s not forget that they make money off of debtors too. The only conclusion to arrive at is that every situation is different, and you should research the options that make the most sense for your situation. And the real conclusion is that we shouldn’t have this debt in the first place. So, ShoUld i File FoR bAnkRUptCy oR not? Mr. Juntikka (the lawyer quoted above) rejects claims by the credit industry and the academics and counselors on their payroll that the rise in bankruptcy filings over the last couple of decades is the result of spreading moral rot and a growing indifference to debt. Most people are close to their credit limit or behind on their payments—at a time when banks can raise the money they lend you for close to 0%—and getting rid of that rapidly compounding debt can be deliverance for many. Compound interest can be like a god demanding endless sacrifices with no reward. If you have a $5,000 balance at 18% and make only the minimum payment, it will take you almost twenty-three years to pay off the debt, and it will have cost you nearly $7,000 in interest. Bankruptcy can reduce your credit card balance to zero in a matter of months—and put an end to calls from collection agents too. There are consequences, of course, but being informed and doing it right often makes it worth the risk. Most Americans are afflicted with a deep sense that not servicing our debts is immoral and suffer immense amounts of guilt over falling behind. Worse still is the common myth that filing for bankruptcy means losing everything. It isn’t totally false, but every state has a list of exempt assets, and Chapter 13 is designed so that some can actually save their non-exempt assets. We recommend you research all of this carefully. In the end, filing for bankruptcy can be a tremendous relief. Mr. Juntikka points out that his clients have suffered visibly. He describes very vividly the emotional state of debtors when they first arrive at his office. They’re miserable—sleeping badly, signs of stress written all over their bodies.
As they get through the process of filing for bankruptcy, their demeanor changes dramatically. “They’re sitting up straighter, their faces look better.” And it’s easy to see why—the biggest relief bankruptcy offers is the “automatic stay” provision. In this provision, creditors and their debt collection goonies have to stop harassing you until the bankruptcy filing is completed and the court has ruled. In Chapter 13, the trustee assigned to your case ensures that you no longer have to deal with creditors as you pay back your debt for those three to five years (again, only if you are in the minority that successfully completes your plan). It can cost as much as $3,000 to file for bankruptcy these days (Chapter 13 is more expensive), which, for people who are barely getting by, is a lot of money. You may be able to find a cheaper lawyer and get your costs down. Or you can often get free legal representation by contacting your local bar association. It is possible to do it yourself using manuals and forms provided by the likes of Nolo.com, but it can be a complicated process (which is how the banks want it). And the failure rates without a lawyer are astonishing: 97% of Chapter 13s failed without a lawyer! So, we recommend getting a lawyer before filing; research carefully how to find a good one. It’s worth the money. And it can’t hurt to know the law a bit before you go—the study about lawyers discriminating against African American debtors shows this clearly.7 What about my credit (and other cautions)? The consensus in the credit counseling industry seems to be that for most people, bankruptcy is actually, in the long run, good for your credit score. If you’re considering bankruptcy, you’ve probably missed a few payments and are dealing with delinquency and default—which will wreck most people’s scores.
Counterintuitively, debt management programs or similar plans don’t seem to do much for your credit. At that point, you need to make a decision about bankruptcy. While the jury is not fully out, it seems that filing for either Chapter 7 or Chapter 13 has an equivalent impact on your credit score. Either way, your score will take a nosedive and you won’t have access to cheap or fair credit for a while. But there is a difference: most lenders seem to be willing to lend if you file Chapter 7, as you are then clear of past debts and have disposable income. With Chapter 13, on the other hand, few lenders will do any lending during the payback period, which means it will take an extra three to five years to rebuild your credit. And remember, bankruptcy can stay on your credit score for seven to ten years.
After bankruptcy, you will be an ideal target for the predatory loan sharks in the industry; they love people who are struggling. They will tempt you with low interest rates to start with, but then jack up rates and fees the minute that balances rise and payments fall behind. Be careful. The best strategy after bankruptcy is to accept a couple of cards. Study their terms and conditions and use them very carefully. Read up about how to build your credit (carrying a small balance, making regular payments, etc). Although a bankruptcy filing can stay on your credit report for a decade, within a couple of years after a filing, it’s possible to get a respectable credit score—and with no late payments and a steady job history, a mortgage could follow a couple of years later. Still, it might be wise to wait longer; remember, you are especially vulnerable to predatory lending at that point. All that being said, it can be disastrous to declare bankruptcy a second time. Few credit scores can recover from that (except patiently waiting seven to ten years). Lastly, the biggest risk in filing for bankruptcy is that your case will be dismissed, in which case you’ve wasted time and money, accrued more debt (the interest accrues retroactively to the time of filing) and gained nothing. And, your bankruptcy would still be on your credit report. This is obviously the worst-case scenario. Remember, this happens for nearly 50% of those filing for Chapter 13. Is it a scam? We’ll let you decide. We think the whole system is a scam.8
Unfortunately, for the most part bankruptcy offers only individual means of fighting the creditors. It is hard to imagine how to use the bankruptcy laws in order to organize mass direct action that would cause serious change in our debt society. In terms of the racist nature of the existing bankruptcy mechanisms, the most likely solutions to these problems would be continuing to fight structural and institutional racism in all its forms. This could of course be combined with launching a massive informational campaign in communities of color to clear up the myths and disinformation surrounding bankruptcy. And, although not ideal for many, there are other options for debtors: debt negotiation or settlement, refusal, living off the grid, leaving the country, etc. One form of collective action is to help each other and build networks of mutual support for those struggling with debt. With every bankruptcy, a bank or lender loses a certain amount of money—they have rigged the game, so they are probably recovering it in other places. Nonetheless, with every bankruptcy, their books are slightly shaken. One possible action would be a simultaneous mass bankruptcy of those eligible for Chapter 7. This could be organized so that a mass of debtors with debt towards a certain bank declares bankruptcy all at once. We don’t know enough about the industry to know what effects this could have. The organizers would need serious legal counseling: bankruptcy laws are laden with fraud protections, which would have to be carefully combed through before taking action. Another possibility would be to organize a critical mass to declare bankruptcy on student loans all at once—knowing they will be dismissed, but defiantly insisting in court that the debts are illegitimate and unpayable. These actions would need years of planning, preparation and organization. In reviewing the history of bankruptcy and how it has been used in the United States, the conclusion we have come to is that the best way to fight for debt forgiveness, cancellation and a society of fair and equitable credit is to build a debt resistance movement to challenge the most fundamental structures of this unjust economy—all while trying to help each other.
Bankruptcy Data (bankruptcydata.com)
David Cay Johnston, “Five Questions for Elizabeth Warren; Bankruptcy Borne of Misfortune, Not Excess,” New York Times, September 3, 2000 (tinyurl.com/ DROMJohnston). Aparna Mathur, Medical Debts and Bankruptcy Filings, American Enterprise Institute for Public Policy Research, July 28, 2009 (tinyurl.com/DROMMathur). Elizabeth Warren, “Feminomics: Women and Bankruptcy,” Huffington Post, December 17, 2009 (tinyurl.com/DROMWarren).
NO TES 1. Thomas A. Garrett, “The Rise in Personal Bankruptcies: The Eighth Federal Reserve District and Beyond,” Federal Reserve Bank of St. Louis Review, February 2007 (tinyurl.com/DROMGarrett), 15. 2. Donald P. Morgan, Benjamin Iverson, and Matthew Botsch, “Subprime Foreclosures and the 2005 Bankruptcy Reform,” Federal Reserve Bank of New York Economic Policy Review, 2011 (tinyurl.com/DROMMorgan). 3. Wenli Li, “What Do We Know About Chapter 13 Personal Bankruptcy Filings?” Federal Reserve Bank of Philadelphia Business Review, 2007 (tinyurl.com/DROMLi). 4. A. Mechele Dickerson, “Race Matters in Bankruptcy,” Washington and Lee Law Review, 61, no. 4 (2004) (tinyurl.com/DROMDickerson), 1725. 5. Tara Siegel Bernard, “Blacks Face Bias in Bankruptcy, Study Suggests,” New York Times, January 20, 2012 (tinyurl.com/DROMBernard). 6. Geoff Smith and Sarah Duda, Bridging the Gap II: Examining Trends and Patterns of Personal Bankruptcy in Cook County’s Communities of Color (Chicago: Woodstock Institute, 2011) (tinyurl.com/DROMSmith2). 7. Li. 8. “12 Myths About Bankruptcy,” Bankrate.com, November 4, 2011 (tinyurl.com/ DROMBR).
XI. PROSPECTS FOR CHANGE:
JOIN THE RESISTANCE!
The chapters of this manual highlight various forms of debt injustice. Hopefully reading them has made you angry. Debt can be isolating and demoralizing. The most common emotion associated with debt is shame. We hope to transform that shame into outrage—and that outrage into action. In writing this manual we’ve struggled to balance advice that you, the reader, can use to survive under this debt regime with a structural analysis of the system that put you in debt. The reason you have tens of thousands of dollars of student loan debt or medical bills that you cannot pay is because we live in a society that refuses to make education and health care accessible and free to all. You didn’t make some horrible mistake to get into the situation you are in. You are not a failure, and millions of people are in similarly dire straits. To again quote one of Strike Debt’s early slogans: You are not alone/You are not a loan. There is strength in numbers. Individually our debts overwhelm us; collectively our debts can overwhelm the system. There are ways of fighting back and reclaiming our lives and our communities from the current state of affairs. We are not looking for debt “forgiveness”; what we seek is the abolition of debt profiteering and its replacement by a society that nurtures the common good. We should be clear: we are not against all debt nor are we against credit. Rather, we call for new, fair arrangements that help us exceed the boundaries of the present (as credit does) without burdening the future in chains of compound interest.
THE RESISTANCE IS GROWING
All around the world, debtors are rattling the chains of debt. We are seeing debt for what it is—a form of domination and exploitation—and we are collectively rising up against it. From Chile to Québec, students have combined massive waves of protests with organizational initiatives to challenge the debt bondage that results from corporatized education. Countries like Spain and Greece are experiencing massive popular uprisings against austerity. Their governments have prioritized paying back foreign bondholders over providing for the people, and the people have had enough. Students in Québec have popularized the symbol of the red square to signify being financially “squarely in the red” amid tuition hikes, cuts in social entitlements and the specter of spiraling student and consumer debt. In Europe, where elites tried to pass on the costs of their sovereign debt crises to the most vulnerable populations—the young and the poor—protesters have shouted, “We won’t pay for your crisis!” Occupy Wall Street is another incarnation of this global uprising.
Since the fall of 2011, it has helped expose the double standards that have allowed the oligarchs to maintain their rule even as they ravage the economy. Nowhere are these double standards more apparent than in Wall Street’s relationship with debt. Every month, the 99% dutifully make debt payments under conditions set by the 1%. Like an ancient tribute payment to the empire, we pay our mortgages, student loans, credit card, car and medical debts, and Wall Street gobbles up the profit. If an individual refuses to make these payments, the banks and the government have the means to ruin their life. In the years since the financial crash, the disparity between the generosity shown to Wall Street (more than three trillion dollars of public money spent already, with an additional 12.2 trillion committed by the U.S. government) and the blatant lack of relief for household debtors and bankrupted municipalities has made it quite clear whose debts are expected to be honored and whose will be written off. One person’s debt is another’s profit. While Occupy Wall Street has been an encouraging sign that outrage around these issues is mounting, somehow the conversation about debt in the United States is still dominated by rightwing pundits.
They place all the blame for our nation’s mounting indebtedness on irresponsible individuals. Businessmen-turned-politicians tell us over and over again that we must slash social spending and entitlement programs because of this deficit. It is time to set the record straight. As we have shown in this manual, millions of us are the victims of predatory lending. And we understand that government debt is nothing like personal debt. Around the world, debt is used to justify the cutting of basic services. The problem is not that we are broke but that our public wealth is being hoarded. We need a new social contract that puts public wealth to equitable use and enshrines the right to live without the requirement of lifelong debt servitude. This is the beginning of a radical debt resistance movement, and we need you to be a part of it. There is a long and important history of debt resistance—a history that is as old as it is revolutionary—for us to learn from looking bACkWARd From ancient times to the present, there have been powerful debt resistance movements that have challenged the harsh penalties associated with debt default, including debt enslavement and debt incarceration. In ancient Athens there was a practice of enslaving either the debtor or one of their family members if their debt was unpaid. This practice expanded to the point that civil wars broke out between debtors and creditors so often that the very survival of the city-state of Athens was in question. This crisis stimulated a major change in the Athenian legal system that outlawed the debt enslavement of fellow citizens and became a model for many societies down to the formation of the American republic. There was still widespread debt incarceration in the United States after the “American Revolution.” (Even two signers of the Declaration of Independence were later imprisoned!)
The first major rebellion in U.S. history after independence, Shay’s Rebellion in 1786, was against foreclosures and debt imprisonment. It took many struggles throughout the first half of the nineteenth century to end the practice of debt imprisonment. The great post-Civil War struggles against foreclosures on small farmers in the Midwest and South were moments of insurrection against the rule of the creditors’ logic. During the Great Depression, urban workers and rural farmers banded together to block home evictions and farm foreclosures. Workers also organized their own credit and mutual aid associations to create alternative ways to borrow and lend without the threat of slavery and torture. Finally these insurrections forced the federal government into passing “personal bankruptcy” laws that limited the “pound of flesh” some capitalist creditors were demanding from workers who defaulted. Debt resistance movements have been the driving force behind many of the most important struggles in the last twenty years. For example, the alter-globalization movement of the late 1990s and early 2000s was a broad constellation of social struggles against paying “odious” national debts to international banks.
The global justice movement that emerged in much of the global south forced many banks (both private and international, like the World Bank and International Monetary Fund) to renegotiate the loans by cutting their interest rates, reducing the principal, and in some cases simply “forgiving” the loan. Along with these struggles against “national” debts there have been remarkable recent struggles against personal debt like the movement of El Barzón in Mexico. In 1994, the Mexican peso dramatically lost value compared to the dollar, which set off a steep inflation that increased the interest on variable-rate loans and often made loans, including mortgages, that were denominated in U.S. dollars (as many were) ten times larger. This brought nearly 30% of the people indebted to banks into default. The El Barzón movement began by claiming that the loan repayment conditions after the collapse of the peso were the fault the government and the banks, and that it would be unfair to hold the debtor responsible. Their slogan was, “Debo, no niego, pago lo justo” (“I owe, I don’t deny it, I’ll pay what is fair”). The movement grew rapidly across the country and was known both for its practical approach (by setting up legal consultation services for debtors) and its riveting tactics. It forced the government to come to the aid of the embattled debtors and had a definitive positive impact on their situation. looking FoRWARd Almost two decades later, Strike Debt, an offshoot of Occupy Wall Street, emerged out of a series of open assemblies. It continues to spark conversations about debt as a global system of domination and exploitation. Debt binds the 99%—although as we’ve seen in this manual it binds some people (women, people of color, and the poor) more tightly than others. Debt resistance can take many forms and Strike Debt is developing tactics, resources and frameworks for generalizing the fight against the debt system.
These initiatives include publishing this manual and hosting debtors’ assemblies; supporting the work of the Occupy Student Debt Campaign and their Pledge of Refusal; launching the “Rolling Jubilee,” a mutual-aid project that buys debt at steeply discounted prices and then abolishes it (to learn more, email [email protected]); and planning direct actions across the country, ranging from debt burnings to targeted shutdowns of predatory lenders of all kinds. Planning for the slightly longer term, Strike Debt is focused on bringing debt resistors together with the aim of growing the struggle against debt into a force to be reckoned with. Imagine, if you will, a global Debtors’ Union made up of a network of lender-specific sub-unions. For example, if someone had a mortgage with Bank of America, tuition debt from Sallie Mae and Citibank, and credit card debts with Wells Fargo and Chase, when this person joins the union they automatically join the sub-unions for Bank of America, Sallie Mae, Citibank, Wells Fargo and Chase. These unions could, eventually, be platforms for sustained agitation, providing support for strategic actions, including debt strikes, akin to the labor battles of earlier eras. Underlying all these projects is Strike Debt’s support for a Jubilee—a full cancellation of all debts. Civilization after civilization has recognized that when debt gets unmanageable, it must be cancelled. This has happened many times throughout history. We should remember that there are conservative as well as revolutionary jubilees; debt cuts can save the system if what follows is business as usual. A Debt Jubilee needs to be accompanied by a program of social transformation. Consider this call for a global jubilee from David Graeber’s Debt: The First 5,000 Years:
We are long overdue for some kind of Biblical-style Jubilee: one that would affect both international debt and consumer debt. It would be salutary not just because it would relieve so much genuine human suffering, but also because it would be our way of reminding ourselves that money is not ineffable, that paying one’s debts is not the essence of morality, that all these things are human arrangements and that if democracy is to mean anything, it is the ability to all agree to arrange things in a different way. It is significant, I think, that since Hammurabi, great imperial states have invariably resisted this kind of politics. Athens and Rome established the paradigm: even when confronted with continual debt crises, they insisted on legislating around the edges, softening the impact, eliminating obvious abuses like debt slavery, using the spoils of empire to throw all sorts of extra benefits at their poorer citizens (who, after all, provided the rank and file of their armies), so as to keep them more or less afloat—but all in such a way as never to allow a challenge to the principle of debt itself.
The governing class of the United States seems to have taken a remarkably similar approach: eliminating the worst abuses (e.g., debtors’ prisons)*, using the fruits of empire to provide subsidies, visible and otherwise, to the bulk of the population; in more recent years, manipulating currency rates to flood the country with cheap goods from China, but never allowing anyone to question the sacred principle that we must all pay our debts. At this point, however, the principle has been exposed as a flagrant lie. As it turns out, we don’t ‘all’ have to pay our debts. Only some of us do. Nothing would be more important than to wipe the slate clean for everyone, mark a break with our accustomed morality, and start again. What is a debt, anyway? A debt is just the perversion of a promise. It is a promise corrupted by both math and violence. If freedom (real freedom) is the ability to make friends, then it is also, necessarily, the ability to make real promises. What sorts of promises might genuinely free men and women make to one another? At this point we can’t even say. It’s more a question of how we can get to a place that will allow us to find out. And the first step in that journey, in turn, is to accept that in the largest scheme of things, just as no one has the right to tell us our true value, no one has the right to tell us what we truly owe.
We all know that promises have been broken. The 1% have gambled with our livelihoods. In contrast to their recklessness, those of us who advocate debt refusal take our collective responsibility very seriously. By dissolving the bonds which bind us to the 1%, we seek to forge new and equitable bonds with one another. We recognize that everyone deserves adequate housing, meaningful work, short hours, fair wages, access to health care and a truly liberating education. We cannot fulfill these obligations if we continue to cooperate with the system as it currently exists. Why keep paying our money to the Wall Street mob? We know our resources could be better spent. Remember: we don’t owe Wall Street anything, we owe each other everything. The possibilities of organizing around debt resistance are only beginning to be realized. Strike Debt, like Occupy Wall Street, hopes to inspire autonomous action. It encourages all to resist. To contact Strike Debt, please email [email protected] or visit strikedebt.org.
ARtiCleS And bookS
George Caffentzis, “University Struggles at the End of the Edu-Deal,” Mute Magazine, April 15, 2010 (tinyurl.com/DROMCaffentzis1). George Caffentzis, “Workers Against Debt Slavery and Torture: An Ancient Tale with a Modern Moral,” Edu-Factory, July 2007 (tinyurl.com/DROMCaffentzis2). Harry Cleaver, Jr., “Notes on the Origin of the Debt Crisis,” Midnight Notes, 1990 (tinyurl.com/DROMCleaver). Silvia Federici, “African Roots of US University Struggles: From the Occupy Movement to the Anti-Student-Debt Campaign,” unsettling knowledges, January 2012 (tinyurl.com/DROMFederici1). Silvia Federici, “The Debt Crisis, Africa and the New Enclosures,” Midnight Notes, 1990 (tinyurl.com/DROMFederici2). Silvia Federici, George Caffentzis, and Ousseina Alidou (Eds.), A Thousand Flowers: Social Struggles Against Structural Adjustment in African Universities, (Trenton, NJ: Africa World Press, 2000). David Graeber, Debt: The First 5,000 Years, (New York, NY: Melville, 2011) (tinyurl. com/DROMGraeber). Midnight Notes Collective and Friends, Promissory Notes: From Crisis to Commons, 2009 (tinyurl.com/DROMMidnight).
NO TES 1. David Graeber, Debt: The First 5,000 Years, (New York, NY: Melville, 2011) (tinyurl.com/DROMGraeber), 390–391.
This information is slightly modified from Carreon and Associates (carreonandassociates.com). We know you’re probably broke, especially if you’re in debt, but of the resources we’ve found, this one is really worth the money if you can afford it ($29.95). 1. Request for investigation of credit report 2. Dispute letter to credit bureau 3. “Intent to sue” letter to credit bureau Reply to a CRA accusing you of credit repair Send your letters to the address of the appropriate agency: Experian P.O. Box 9556 Allen, TX 75013 Equifax P.O. Box 740241 Atlanta, GA 30374-0241 TransUnion Consumer Relations P.O. Box 2000 Chester, PA 19022-2000
REQUEST FOR INVESTIGATION OF CREDIT REPORT[Your Name] [Your Address] [Experian, Equifax or TransUnion address] [Date] Attn.: Consumer Relations Consumer Relations Dept.: I am requesting with this written notice that the following inaccurate items be removed from my credit report. The items are not correct and are causing me financial distress because of their derogatory information. The items are as follows: [Creditor] [Account number] [Rating (e.g., curr was 30, charge off, 90 days, etc.)] [Reason why it should be removed: i.e. not mine, never late, disputed before yet still remains, incorrect information like payment history, date opened or balance owed.] I understand you are required to notify me of your investigation results within 30 days. My contact information is as follows: [Your Name, not signed] DOB: [Date of birth] SSN: [Social Security number] [Address] Sincerely, [Your Name, signed]
DISPUTE LETTER TO CREDIT BUREAU
Provide any proof you have with this dispute. [Your Name] [Your Address] [Experian, Equifax or TransUnion address] [Date] To Whom It May Concern: In reviewing my credit report, I realized there are several inaccurate listings. These accounts are incorrect and several are outdated. The following accounts need to be investigated immediately to reflect my true credit history: Acct: [-xxxx-xxx:] This account is listed as being 60 days late. I have never been late on this account. Acct: [-xxxx-xxx:] This account is listed as being 30 days late. This account does not belong to me. Acct: [-xxxx-xxx:] This account is listed as being 60 days late. The creditor lost my check and agreed to correct the late notation. (Enclosed is a copy of their letter stating such). Additionally you are reporting several other accounts as delinquent that are past the seven-year reporting time as allowed under the Fair Credit Reporting Act. The following accounts should be deleted immediately: Acct: [-xxx:] over seven years old Acct: [-xxx:] over eight years old Acct: [-xxx:] over seven years and four months old Please forward an updated copy to me at your earliest convenience with the above noted corrections. My current address is listed above. Sincerely, [Your Signature] [Your Printed Name]
INTENT TO SUE’ LETTER TO CREDIT BUREAU
Send this letter to the CRA if you intend on suing them. You can sue them in your county for damages and subsequently send a copy of that to them, offering to settle or appear. If you sue them, be sure you have a case.[Experian, Equifax or TransUnion address] [Date] [Your Name] [Your Address]
To Whom It May Concern: REF: Intent to file suit: violation of the FCRA It is a crime to threaten suit with no intention of doing so, therefore you can take heed that I am very serious about filing suit against your company. I have sent [#] previous letters to you, all by certified mail (receipts enclosed) requesting that you remove inaccurate information from my file and you have failed to do so. Accordingly, I can show a judge that these accounts are inaccurate and that you violated the Fair Credit Reporting Act by ignoring my requests to investigate the items. My previous letters—all sent certified mail—stated my reasons for an investigation and these reasons were not frivolous in any way. If this final request does not prompt you to conduct a proper investigation of the accounts in question, and send proof to me of said investigation, I will file a civil suit in [name of your county, state] for damages. You can then travel to defend yourself. I take my credit very seriously and your lack of professionalism and assistance disgusts me. I am well aware of my rights under the FCRA and intend to pursue them to the maximum. I anticipate your response. Sincerely, [Your Signature] [Your Printed Name]
REPLY TO A CRA ACCUSING YOU OF CREDIT REPAIR
Use this letter to demand that a credit bureau continue to investigate items you have initiated a dispute on. Often a CRA will accuse you of using a credit repair company, which by the way is your right! Here is a letter to put them in their place and to avoid slowing your disputes.[Experian, Equifax or TransUnion address] [Date] [Your Name] [Your Address]
To Whom It May Concern: RE: Credit Repair Accusation Please be advised that I have received your computer generated letter stating that you have ceased investigation of my credit reports because, in your opinion, you believe that I have used a third party credit repair agency. Not only do I believe this to be a stall tactic on your part to grant you an additional 30 days to comply with my original request, but I believe it to be a blatant violation of the FCRA. You were advised by me on [insert date] by certified mail (copy enclosed) that I questioned the accuracy of a few items on my credit reports. That request was written by me and mailed by me—not a third party agency. It appears obvious to me that you are abusing your power under the FCRA to escape a complete investigation. Additionally there is no law that states a consumer cannot use a third party, so using that as your excuse is a moot point. As a matter of fact, Congress has found the whole process so overwhelming that they afford consumers the right to use a third party on their behalf if the consumer so chooses. This is why your statement is so outrageous. I reserve the right to sue a credit bureau for violations of the FCRA and I believe I can prove that you did not use reasonable measures to insure the accuracy of my credit reports and now you are stalling the process further. I realize disputes may be expensive and therefore it is your job to stall them, but you do so at great risk. Please take notice that this letter dated [insert today’s date] is formal notice to you that I am requesting that you continue forward with my original investigation request and send the results to me within 15 days. I therefore legally and lawfully refuse your “form letter,” thus giving you only 15 days, not 30 more. I am outraged at your accusation and I have fully researched my rights in regards to my credit file. I look forward to your expediting my original request immediately. Sincerely, [Your Signature] [Your Printed Name]
All five sample letters have been modified from those made available on ChexSystems Victims (chexsystemsvictims.com). ChexSystems/TeleCheck Letters 1. Initial dispute 2. Demand for removal to reporting agency 3. Procedural request Financial Institution Letters 4. Demand for removal to financial institution (abuse/fraud) 5. Demand for removal to financial institution (non-sufficient funds) Send your letters to the address of the appropriate agency: TeleCheck Services, Inc. Attention: Consumer Resolutions-FA P.O. Box 4514 Houston, TX 77210 ChexSystems Consumer Relations 7805 Hudson Road Suite 100 Woodbury, MN 55125
INITIAL DISPUTE[ChexSystems or TeleCheck address] [Date] RE: Consumer ID # [Your Consumer ID #] [Your Name] [Your Address]
Consumer Relations Dept.: I have recently been informed that there is negative information reported by [Name of Bank] in the file [ChexSystems/TeleCheck] maintains under my Social Security number. Upon ordering a copy of the report, I see an entry from this bank listing a “[condition, e.g., NSF, overdraft, account abuse]” in [month] [year]. I am unaware of ever having a “[same condition]” from this bank. Please validate this information with [name of bank] and provide me with copies of any documentation associated with this “[same condition]” bearing my signature. In the absence of any such documentation, I ask that this information be immediately deleted from the file you maintain under my Social Security number. You have 30 days to verify this information and to provide me with a document bearing my original signature. If you cannot, I am demanding removal under the Fair Credit Reporting Act. This report is severely restricting my banking abilities. My contact information is as follows: [Your Name, not signed] [Social Security Number] [Address] Cc: [Lawyer’s name] Sincerely, [Your Name, signed]
DEMAND FOR REMOVAL TO REPORTING AGENCY[ChexSystems or TeleCheck address] [Date] RE: Consumer ID # [Your Consumer ID #] [Your Name] [Your Address]
Consumer Relations Dept.: This letter is in response to your recent claim that [Name of Bank] has verified this account to be mine. Yet again, you have failed to provide me with a copy of any viable evidence submitted by [Name of Bank]. Be advised that the description of the procedure used to determine the accuracy and completeness of the information is hereby requested, to be provided within fifteen (15) days of the completion of your reinvestigation. Additionally, please provide the name, address, and telephone number of each person contacted at [Name of Bank] regarding this alleged account. I am formally requesting a copy of any documents provided by [Name of Bank]. If [Name of Bank] does not validate the debt, it is a violation of the FCRA [611 [15 U.S.C. § 1681i] a 6 B iii:
“a notice that, if requested by the consumer, a description of the procedure used to determine the accuracy and completeness of the information shall be provided to the consumer by the agency, including the business name and address of any furnisher of information contacted in connection with such information and the telephone number of such furnisher, if reasonably available”
The listed item is entirely inaccurate and incomplete, and represents a very serious error in your reporting. Failure to comply with federal regulations by credit reporting agencies is investigated by the Federal Trade Commission (see 15 U.S.C. § 41). I am maintaining a careful record of my communications with you for the purpose of filing a complaint with the FTC and the State Attorney General’s office, should you continue in your noncompliance. My contact information is as follows: [Same as sample letter #1]
PROCEDURAL REQUEST[ChexSystems or TeleCheck address] [Date] RE: Consumer ID # [Your Consumer ID #] [Your Name] [Your Address]
Consumer Relations Dept.: As I have not heard back from you in over [15/30/45] days regarding my notice of dispute dated [date letter was sent], I must presume that no proof in fact exists. You are currently in violation of the Fair Credit Reporting Act. Your failure to respond, in writing, hand signed, and in a timely manner, will work as a waiver to any and all of your claims in this matter, and will entitle me to presume that you are reporting my name and Social Security number in error, and that this matter is permanently closed. Remove me from your records immediately. Failure to respond within 30 days of receipt of this certified letter will result in a small claims action against your company. I will be seeking $5,000 in damages for: Defamation Negligent enablement of identity fraud Violation of the Fair Credit Reporting Act For the purposes of 15 U.S.C. § 1692 et seq., this notice has the same effect as a dispute to the validity of the alleged debt and a dispute to the validity of your claims. This notice is an attempt to correct your records, and any information received from you will be collected as evidence should any further action be necessary. This is a request for information only, and is not a statement, election, or waiver of status. My contact information is as follows: [Same as sample letter #1]
DEMAND FOR REMOVAL TO FINANCIAL INSTITUTION (ABUSE/FRAUD)[Name and address of original bank] [Date] RE: Acct # [Your Account #] [Your Name] [Your Address]
To Whom It May Concern: This is a formal notice of dispute regarding information that [Name of Bank] sent to [ChexSystems/TeleCheck], a consumer reporting agency. The following false information was sent to [ChexSystems/TeleCheck]: [List the information the way it is shown in the report] This information was disputed with [ChexSystems/TeleCheck] on [date]; however, [Name of Bank] verified the information as accurate. This falsely reported information damages my financial reputation and should be removed immediately. [Name of bank] reported [account abuse/suspected fraud/fraud] when in fact, no [abuse/fraud] took place. There was no illegal activity on the account. [Only include these two sentences if no money is owed to the reporting bank]: [Name of Bank] did not experience any financial loss and no money is owed on this account. There was no violation of the account agreement that governed the account. Under my rights under the Fair and Accurate Credit Transactions Act, I am asking for an investigation of this reported information, and removal of the false information reported to [ChexSystems/TeleCheck]. Sincerely, [Your Name] cc: [Bank branch where account was opened]
DEMAND FOR REMOVAL TO FINANCIAL INSTITUTION (NON-SUFFICIENT FUNDS)[Name and address of original bank] [Date] RE: Acct # [Your Account #] [Your Name] [Your Address]
To Whom It May Concern: This letter is regarding account # [xxxx-xxx], which you claim [condition, e.g., “I owe $100.00]. This is a formal notice that your claim is disputed. I am requesting validation, made pursuant to the Fair Debt Collection Practices Act. Please note that I am requesting “validation”; that is, competent evidence bearing my signature, showing that I have, or ever had, some contractual obligation to pay you. Please also be aware that any negative mark found on my credit reports, including [ChexSystems/TeleCheck], from your company or any company that you represent for a debt that I do not owe is a violation of the Fair Credit Reporting Act. Therefore if you cannot validate the debt, you must request that all credit reporting agencies delete the entry. Pending the outcome of my investigation of any evidence that you submit, you are instructed to take no action that could be detrimental to any of my credit reports. Failure to respond within 30 days of receipt of this certified letter will result in legal action against your company. I will be seeking a minimum of $5,000 in damages for: 1. Defamation 2. Negligent enablement of identity fraud 3. Violation of the Fair Credit Reporting Act For the purposes of 15 U.S.C. § 1692 et seq., this notice has the same effect as a dispute to the validity of the alleged debt and a dispute to the validity of your claims. This notice is an attempt to correct your records, and any information received from you will be collected as evidence should any further action be necessary. This is a request for information only, and is not a statement, election, or waiver of status. My contact information is as follows: [Same as sample letter #1]
This information is slightly modified from Carreon and Associates (carreonandassociates.com).
REQUEST TO VALIDATE MEDICAL DEBT[Address of Collection Agency] [Date] Amount of debt: [ ] Date of Service: [ ] Provider of Service: [ ] [Your Name] [Your Address]
Dear Collection Agent, I received a bill from you on [date] and as allowed under the Fair Debt Collections Practices Act (FDCPA), I am requesting that you allow me to validate the alleged debt. I am aware that there is a debt from [name of hospital/ doctor], but I am unaware of the amount due and your bill does not include a breakdown of any fees. Additionally, I am allowed under the Health Insurance Portability and Accountability Act (HIPAA) to protect my privacy and medical records from third parties. I do not recall giving permission to [name of provider] for them to release my medical information to a third party. I am aware that the HIPAA does allow for limited information about me but anything more is to only be revealed with the patient’s authorization. Therefore my request is twofold—validation of debt and HIPAA authorization. Please provide breakdown of fees including any collection costs and medical charges. Provide a copy of my signature with the provider of service to release my medical information to you.
Cease any credit bureau reporting until the debt has been validated by me. Please send this information to my address listed above and accept this letter, sent certified mail, as my formal debt validation request, which I am allowed under the FDCPA. Please note that withholding the information you received from any medical provider in an attempt to be HIPAA compliant can be a violation of the FDCPA because you will be deceiving me after my written request. I request full documentation of what you received from the provider of service in connection with this alleged debt. Additionally, any reporting of this debt to the credit bureaus prior to allowing me to validate it may be a violation of the Fair Credit Reporting Act, which can allow me to seek damages from a collection agent. I will await your reply with above requested proof. Upon receiving it, I will correspond back by certified mail. Sincerely, [Your Signature] [Your Printed Name] Certified mail No: [ ]
Both sample letters have been modified from those made available on Debt Consolidation Care (debtconsolidationcare.com/letters). 1. Dispute letter 2. Cease and desist letter
DISPUTE LETTER[Collection Agency’s Address] [Date] [Your Name] [Your Address]
Dear [Insert Name of Collection Agency]: I am writing in response to your [letter or phone call] dated [insert date], (copy enclosed) because I am disputing the alleged debt. Before you contact me again, please provide me with the following documentation: proof that you own the debt and/or are authorized to collect on this debt on behalf of the current owner; proof that the debt was actually incurred by me with respect to the original creditor; a copy of any judgment (if applicable); proof that you are licensed to collect debts in [insert name of your state] Be advised that I have documented all correspondence with respect to this debt and will not hesitate to report any violations of the law to my State Attorney General, the Federal Trade Commission and the Better Business Bureau. Finally, if you are not authorized to collect this debt thereon, I demand that you immediately forward this dispute letter to the original creditor to inform them of my dispute. Sincerely, [Your Signature] [Your Printed Name]
CEASE AND DESIST LETTER[Collection Agency’s Address] [Date] [Your Name] [Your Address]
Dear [Insert Name of Collection Agency]: This letter comes in response to your repeated attempts to contact me regarding an alleged debt, which I am contesting. I demand that you cease and desist from any further attempt to contact me at work or by phone. Please be aware that I will continue to document all attempts to communicate with me with respect to the alleged debt, and that any further such attempts may constitute a violation of the Fair Debt Collection Practices Act (FDCPA). I will not hesitate to report violations of the law to my State Attorney General, the Federal Trade Commission and the national Better Business Bureau. Sincerely, [Your Signature] [Your Printed Name]
STRIKE DEBT EMERGED OUT OF A SERIES OF OPEN ASSEMBLIES IN NYC IN MA Y 2012. IT IS SPARKING CONVERSA TIONS ABOUT DEBT AS A GL OBAL SYSTEM OF DOMINA TION AND EXPL A OIT TION. STRIKE DEBT IS DEVEL OPING T ACTICS, RESOURCES AND FRAMEWORKS FOR LINKING DIVERSE INDIVIDUALS AND COMMUNITIES TO ACTIVEL RESIST THE DEBT Y SYSTEM. THESE INITIA TIVES INCL UDE PUBLISHING THIS MANUAL; HOSTING DEBT TEACH-INS AND DEBTORS’ ’ ASSEMBLIES; SUPPORTING THE WORK OF THE OCCUPY STUDENT DEBT CAMPAIGN INCL UDING THEIR PLEDGE OF REFUSAL; LAUNCHING THE ’ROLLING JUBILEE, ’ A MUTUAL AID PROJECT THA BUYS DEBT A T T STEEPL DISCOUNTED PRICES AND THEN Y ABOLISHES IT; AND PLANNING CREA TIVE DIRECT ACTIONS ACROSS THE COUNTRY, RANGING FROM DEBT BURNINGS TO T ARGETED SHUTDOWNS OF PREDA TORY LENDERS OF ALL KINDS. JOIN THE RESIST ANCE: STRIKEDEBT.ORG
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