The Leeches of the Credit Card Industry

    Back in October, the media was awash in reports, expressed in stunned amazement, that huge throngs of working Americans were rushing to the courthouse to file for bankrupcty to escape the new rules that would take effect on October 17th. It shouldn't have been surprising--people are spending 1.22 for every dollar they earn and their personal debt is twice what it was just ten years ago. In fact, this year, 2,010,567 people have filed for bankruptcy, which The New York Times reports, is a modern record--600,000 did so just in the two-week period leading up to October 17th.

    Which bring me to the leeches of the credit card industry. The New York Times carries a front-page story today entitled "Newly Bankrupt Raking In Piles of Credit Offers." (registration required).  Turns out that the industry, now armed with a law that makes it harder for consumers to escape debt, is trying to hook people on even more credit cards, sending out solicitations to people who have just filed for bankruptcy.

    So, we are clear: people don't get into debt because they are buying luxury items. As Demos, a think-tank run by my friend Miles Rappaport, found in a study on debt:

• Seven out of 10 low- and middle-income households reported using their credit cardsas a safety net--relying on credit to pay for car repairs, basic living expenses, medical expenses or house repairs.
• One out of three households reported using credit cards to cover basic living expenses on average four out of the last 12 months; households that reported a recent job loss or unemployment, andthose without health insurance in the last three years, were almost twice as likely to use credit cards for basic living expenses.
• 20 percent of survey homeowners had paid off some credit card debt with a mortgage refinance in the last three years, reducing their home equity $12,000 on average. Further, these households still had average credit card debt over $14,000. As a result, they were carrying 18% more debt than homeowners who had refinanced a mortgage but not paid down credit card debt--even though their incomes were almost identical. In other words, they were trading unsecured credit card debt for higher mortgage debt secured by their home.

    Here are the two points to remember. First, the pro- credit card industry bill passed with support from Democratic party representatives--so it's no wonder that average Americans don't hold the Democratic Party in much higher regard than the Republicans. Second, the crushing debt middle-class people are carrying is one reason I believe the economy is quite shaky. Government statistics that show economic "activity" do not reveal how difficult it is for most Americans, who aren't seeing bigger paychecks, to pay the bills, without sinking into deeper debt.

    At some point, this house of cards may crumble in a loud crash that will leave a lot of people hurting.

Comments

[Jason Gooljar]

Crumble it will. Eventually I think things will have to get worse before it gets better.

[Jae Burnham]

Thinking of Settling with the Creditor? Read This….

IF you offer to settle a debt with a creditor or Collection Agency, the terms will be "Payment for deletion of trade line. No agreement to that, no agreement at all." With that in mind, there are lots of things you should look into before you offer to settle. These are:

1. Is the debt outside the Statute of Limitations for Collection in your state?
2. How close to the 7 year FCRA Statute of Limitations is it?
3. Are you Judgement Proof?
4. What does the creditor know about your place of employment?
5. Do you presently have garnishments on your paycheck?
6. What is your total financial picture? Are you just postponing an inevitable bankruptcy and throwing good money after bad?
7. Are there any FCRA, FDCPA or FCBA violations committed by the Creditor or its Collection Agency?

Let's discuss each of these, one at a time.

1. Statute of Limitations on Collections: This is a no-brainer. The Statute of Limitations on Collections (SOLC) starts with each payment you make, and ends after a set period of time where no payment is made. If you don't make a payment in a certain time, and the creditor has not started a lawsuit, the law states that the SOLC is an "affirmative defense" to any lawsuit that may be started after the SOLC expires. Why? The US Constitution guarantees a speedy trial. Over time, records get lost, witnesses die, move away or forget. The SOLC basically says to a creditor "Sue while the records are available, otherwise forget it". An Affirmative Defense doesn't mean you can't get sued, but it provides a good reason for the Court to refuse to give the creditor a Judgement. If the debt is outside SOLC, then the creditor cannot get a judgement, and you can stand firm in your offer of "no deletion, no money". NEVER try to negotiate a settlement if SOLC has not expired, ESPECIALLY if the creditor is not actively dunning you. Let the sleeping dog lie until it has no teeth left to bite you with. EXCEPTION - see #3 and #7 below.

2. The Fair Credit Reporting Act places a limitation on the time that derogatory information can be reported. I will call that the SOLR - Statute of Limitations on Reporting. This limit is generally 7 years. There are some exceptions (Chapter 7 Bankruptcy is 10 years and certain other types of situations have no SOLR). If the debt is near SOLR and SOLC has expired, there is very little the creditor can give you in return for payment, since you cannot be successfully sued and the law will remove the line from your credit file shortly. If you have a couple of years on SOLR and SOLC has expired, then you may want to see what you can negotiate. My rule of thumb is this - the debt is worth about 10% of its face amount for each year left on SOLR.

3. If you are Judgement proof (doesn't mean you can't get sued, means there is no way of collecting on the suit) you should explore how likely you are to become "not Judgement proof" before the SOLC expires. If you are not likely to become Not Judgement proof before SOLC expires (say you are a Stay at Home Mom for the next 15 years) then settlement is a possibility, whether the SOLC has expired or not. THIS SHOULD BE APPROACHED VERY CAREFULLY IN COMMUNITY PROPERTY STATES. Only treat non-community debt as outside SOLC. Community debt should still be treated as within SOLC. See my post "Making Yourself Judgement Proof"

4. It is very hard to garnish a paycheck you can't find. Contrary to popular belief, non-government creditors do NOT have access to Social Security files. Treat Child Support as a Government Creditor because of New Hire reporting requirements. So, if you recently changed jobs (and even better, residences also) then you are in a stronger position to negotiate a settlement. Obviously, do not disclose your new employer. It might be wise to let the debts lie for a year or so (and don't apply for any new credit - when you open a bank account, DO NOT GIVE THAT BANK YOUR NEW EMPLOYER - it will go STRAIGHT to the Credit Bureaus since most banks run credit checks on new depositors). A debt, like fine wine, gets easier to settle the older it gets.

5. A garnishment on your paycheck, as unpleasant as it may seem, can sometimes be a blessing in disguise. That's because for OTHER creditors to collect through Garnishment, they have to wait in line until all prior garnishments (in order received by your employer) are paid in full.

Here's a true story. When I was a Credit Counselor for CCCS, I had a particularly intransigent creditor to deal with. The debtor, however, had enough garnishments on his paycheck to amount to about 15 years wait. I merely informed the creditor of this and said "I will pay those creditors who will accept the program and not sue. You have a choice - get paid now or sue and wait 15 years to get paid." You can adopt this strategy also. So, if you have, or will have, a large balance garnishment on your paycheck, and you can live with that garnishment, you have some powerful leverage with all the other creditors you may have. Take this now and be happy with it or wait a couple of years......

6. Will this settlement make you able to pay all the rest of your bills or is it just to "grease the squeaky wheel"? If it's grease, then consider a Bankruptcy - it may be inevitable, and paying this creditor may be at best a preferential payment the creditor will have to share with the other creditors in a Bankruptcy, or at worst just throwing away good money that you can use to retain a good bankruptcy attorney.

7. One of the best ways I have found to arrange a settlement with an intransigent creditor where the debt is not outside SOLC is to COUNTERSUE when they sue. If the creditor (or CA) has committed any violations under Federal Fair Credit Billing Act, Fair Credit Reporting Act or Fair Debt Collection Practices Act, a countersuit for those violations changes the whole nature of the suit.

If you don't have any of those violations, read the article "Turning Your Creditor's Law Suit into Cash for You". The goal would be to drive your creditor's costs of litigation so high they will pay their lawyer more than the lawyer will ever collect from you. SOMEONE, SOMEWHERE in the creditor organization will eventually figure that out and agree to a settlement.

Settlements have their place in credit repair, but should only be negotiated when you are in a position of strength, not weakness. That is the way to obtain the most favorable results possible, or at least not to LOSE anything if a settlement cannot be reached.

A TAX TIP ON SETTLING DEBTS:

** Be sure you consult your accountant before using these tips *** (legal garbage I have to say)

Tax Code says that cancelled debt is income taxable to the debtor, EXCEPT in certain circumstances.

One of those circumstances is Disputed Debt. Make sure in the settlement contract that you insert a paragraph something like this: "Debtor disputes, and creditor acknowledges as disputed, the unpaid and cancelled portion of the debt claimed. Debtor is only paying the undisputed portion of the debt claimed."

If you recieve Form 1099C Cancellation of Debt, here's how to handle it(from an Enrolled Agent):

1. IF the 1099C was as a result of the debt being cancelled in Bankruptcy, attach Page 1 of your petition to your tax return with a note that the cancelled debt income is excludable from income under IRC 108(a).

2. IF, after the discharge of indebtedness, you are still insolvent (liabilities exceed assets) then attach a simple balance sheet to your tax return and claim the cancelled debt excludable from income under IRC 108(a)(1)(B).

3. IF you followed the advice I posted on these boards many times and included in the settlement documents a statement that you are only paying the undisputed amount and the unpaid amount is disputed and the creditor acknowledges the dispute, then attach a copy of the Settlement agreement to your tax return and claim the cancelled debt as excludable from income under Zarin v Commissioner (916 F2d 110 - 3rd Cir, 1990).

4. IF the debt is a purchase money debt and you were able to negotiate with your creditor a statement that the portion paid represents an Adjustment of the Purchase price of the goods bought, then attach that statement to your return and exclude the cancelled debt income under IRC 108(e)(5).

5. IF the cancelled debt is a student loan forgiven or partially forgiven because you worked in certain professions under an acknowledged forgiveness program, attach a note saying this and exclude the debt forgiveness income under IRC 108(f).

6. If none of these applies, include the cancelled debt as OTHER INCOME (Form 1040 Line 21).

If you need or are looking for more information, then go to www.sponduliqs.blogspot.com or email me, Jae Burnham, at sponduliqs@yahoo.com.

[John A. Joslin]

There is an odd , bustling scene in downtown Detroit's miniscule financial district on any given Saturday morning these days. It is strange on the face of it for two reasons. For one thing , Detroit's "downtown " has been nearly deserted on Saturdays for as long as most people can remember. For another thing , most of the pedestrians darting through the revolving doors at 211 West Fort Street's Comerica Hdq. Bldg. are what are known around here colloquially as "white folks." What's going on ? Weekend bankruptcy hearings are a big daytime draw in the collapsing town by the river that used to be called the "Motor City ". The bitter cold wind whistling in from the Detroit River accompanies the financial mugging victims to the courtrooms where they will be processed as the criminals they aren't ; bunched papers clutched in hand as they are ushered to the elevator banks past the lobby where extra personnel are on hand to keep the line moving efficiently. Bankruptcy courts working the only overtime scheduled around here except for the SuperBowl preparations... A local IATSE ( stagehand's union ) hand spoke to me the other day about the 31-day "move-in" job he's heading up to set up & rig the 12- minute Rolling Stones halftime "show" set for Ford Field fifteen blocks down the empty avenue from the broke people's kangaroo courthouse....... a small indignity ,perhaps, but they're gonna afflict us w/ a couple of old chord bangers who've spent the better part of 40 years playing the same thing over & OVER and passing themselves off at the same time as musicians...arghhhh!! - ( I think I need a drink. )- J.J.

[Chris Gunnels]

Hi, i found this site to find a Instant Credit Card Approval, the right way. Chances are you've gotten your share of "pre-approved" credit card offers in the mail, some with low introductory rates and other perks. Many of these solicitations urge you to accept "before the offer expires." Before you accept, shop around to get the best deal. This site will help you get to credit freedom! Citibank Credit Card, Credit Card Application, Providian Credit Card, MBNA Credit Card

[charlie]

Credit card companies are scum. Their ability under law to raise your rate anytime they damn well feel like it have driven too many people into deep debt. To go from a 9.5% rate to over 30% even while their card was being paid on thime is crimminal. The interest rates and over the limit fees double the amount owed in no time and then they complain that people can not pay their bills! A simple $100 per month payment that was paying off some of the balance is now $300 per month just for the interest fees. Then they still charge over the limit fees. A $10,000 bill after the $300 is paid becomes $10,500 on the next bill. Where is the government to protect it's citizens against unfair charges. What if you bought a car $25,000 and the payments were $350.00 per month. After 6 months the bank said they were raising your car payment to $575.00 per month because they can. This is what credit card companies do. You buy something at 9.5%, your agreed upon interest rate, then they raise the rate on that purchase to 30%! to borrow money on the street for the rates credit card companies now charge used to be illegal. Credit card companies now make to mob look legit

[Abbey]

Dear Readers, Never buy an Abbey branded credit card or have any relationships with this bank called 'ABBEY'. They have possibly the worst customer support, the staff are rude, they don't know their jobs and are unprofessional in their approach.

[Andrew]

NEVER BANK WITH ABBEY NATONAL PLC

I completely agree with Mr. Abbey. This is a UK Bank, and best described as a 'Mickey Mouse Bank'. Santander have possibly made the worst decision with regards to the purchase of 'Abbey'. I acn verify that, the level and kind of customer support provided by this bank is appaling. First, you have to wait for a minimum of 15-20 mins for anybody to answer your calls, then they keep transferring you between departments until they find (they think they do) a department who can take care of your requirements, and then you are told to call back later (after about 30 mins).Second, I agree that the staff have inadequate training, and are not aware of their jobs. Finally, they are rude and unprofessional in their approach.

SANTANDER...get out while you still can. Leave this bank to suffer the consequences.

[Brent Linebaugh]

There is actually a new company called FeeZappers who can remove interest charges and balance transfer fees for you.

And they help you with any other credit card fees as well.

[Anthony]

Make sure to take advantage of your free yearly credit report to keep up to date on any possible errors that might be on your report. To learn more Credit Card Application tips be sure to visit our site.

[Cara Fletcher]

I didn't kniow that credit cards could be such a problem.i have my own and I use it only for basic needs and nothing more.I hope I wouldn't have problems with it.

[Anthony]

I recently have a very bad experience with Chase/United credit card. Here is the whole story and I hope you learn my lesson and stay away from this credit card issuer. We were a very responsible credit card holders as we always pay our balance on time and in full for 2 years. For one month, we did not receive the statement and therefore did not pay for that month. We were charged with $ 39 late fee + $ 181 for finance charge (because they charged you for any accumulated balance after the balance was not paid.) I told them that we did not receive the statement and we told them about of payment history. However, they almost credit partial of the total charge, requiring us to pay $ 160 dollars of the finance charge. I had had in the past in similar situations with other credit card issuers (like American Express and Citibank. They were always understanding and credited all the late fee + finance charges. But not Chase/United, they were so greedy and did not care if we were such good customers (for two years, we charged almost $ 100,000) I asked them to lower the charge to $ 100 and I will keep the account open, but they would not. Chase is willing to take the $ 60 right now and let go the many hundreds if not thousands dollars had I remained their customers. Well, their loss and I do not care much as I have found other credit card with much better term (Capital with double mile for every dollar you spend, no limit on what airline, etc. and cheaper fee @ $39 / year.) But I hope to share you this story so that you know to avoid!

[Mayuresh]

Great idea for a blog. Keep it up!! :-)

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[Tim]

Getting out of the credit card debt is hard, I had to search around and apply with a number of different cards until I had one that offered a very low monthly interest rate for 12 months on balance transfers, so with that I was able to get most of it actually paid off in those 12 months. www.newcreditpro.info has some good reviews and info about a number of cards and was helpful in that regard... Cheers and good luck in your quest to eliminate the CC debts.

[jilly]

Discover has some cards with 0% intro apr and some reward programs like cash back 1-5% on certain purchase. Are these cards really good and improves your credit.Do AMEX also have cards like this.

[jilly]

Discover has some cards with 0% intro apr and some reward programs like cash back 1-5% on certain purchase. Are these cards really good and improves your credit.Do AMEX also have cards like this.
http://www.creditcardbiz.blogspot.com

[find credit cards]

outstanding blog on how to find credit cards the credit cards industry needs more spotlight like this

[B. Tones]

Great blog. Yes, many consumers completely underestimate the whole credit card agreement and then they wonder why they can't seem to pay it off or ever get out of debt. The only one reaching the American dream is the executives at the credit card companies.

Here's a great article on how the credit card industry is taking advantage of college students everywhere - this is a absolute must read for everyone:

Watch out for the credit card companies and how they take advantage of college freshmen and alumni. Another award winning report from Bestbraindrain.com

B. Tones

[credit cards]

You should really start watching your comments and removing the spam, I find your site has alot of spam comments. I would like to add your blog to my money blog but spam comments is a huge issue with my partner sites. credit card blogs and forums should not be a massive collection of spam!

[Easy To Get Credit Cards]

All important information take it to heart.

[Easy To Get Credit Cards]

All important information take it to heart.

[Adhoc Reporter]

I think you will find that they have changed the rules also to ensure that the credit card companies cannot offer too much credit and hense debt to students.
http://creditsnacks.com/

[MrsMcGoogan]

Hi As a Canadian its very hard to get a credit card from a US Company. We have our share of vultures in Canada also, however alot of onus has to go on the consumer. I mean its easy to borrow money from payday loan companies credit cards etc. I think if your determined to get into debt you will. On another topic if you are driving throughout BC this winter and you definately should plan a trip up here before 2010 for the Olympics I suggest you try for American Express AirMiles credit card Its accepted by BCHighways for the coquihalla tolls, BC Ferries and BC Hotels etc...

[toothpick_tp]

I think that nowadays credit card industry is one of the most prosperous. It happens because it's hard to get along without credit cards.

[Enjoying my business credit cards]

I discovered the business credit cards from ArticleMonarch.com really worked.

[s_jenkins]

This post is well-written and informative. I guess that one has to arm oneself with a lot of information before saying 'yes' to a credit card. For those still considering owning a credit card, check out http://www.financeglobe for detailed credit card reviews.