I’d LIKE to pay you, but I don’t know who you are (attack of the Debt-buyers)

The Center for Responsible Lending (CRL) is a fantastic resource for Consumers.  If you have ANY questions about Consumer borrowing or how the lending industry works, go to their website and troll around.   Their series of reports on the different types of lending (The State of Lending) is unspeakably helpful to attorney-types and folks who are not used to dealing with Consumer laws.  The latest update is a chapter on the Debt-Buying industry caught our attention.    

What’s a ‘Charge-off’ and how does it create debt-buying?  

When banks and credit card companies have accounts on their books where the consumers who owe them the money have stopped paying, it looks bad.  In order to make them seem healthier to the government regulators that come by every once in a while, the lender is able to ‘reclassify’ the accounts by making them a ‘charge-off’.   Accounting rules require that whoever owns the debt must take it off of their books, if they have gone 6 months or so, without receiving a payment.  So, they do this neat little trick called a ‘charge-off.’  When an account is charged-off, the lender pretends like the account no longer exists.  This is the point when they stop chasing you.  The past-due balances just sit…….and wait.  Unfortunately, for the borrower a charge-off doesn’t mean it’s over.  You still owe the money; the ‘past-due account’ language stays on your credit report and the balance due is still hanging out there. 

Enter the ‘Debt-buyers.’ 

The lender can sell the account to anybody they want.  The new company gets to ask for the entire balance due (plus interest) as if they were the ones that lent you the money in the first place.   Typically, debt-buyers pay a teeny fraction of the total amount due. (somewhere between 3 and 8 cents for every dollar that is owed)  The bank closes its books and the debt-buyer gets a bunch of past-due accounts with the largest profit-margin known to man.  

Here’s where it gets nasty 

There are very few ways to get money out of Consumers who don’t want to pay, and none of them are pleasant.  They start with letters and phone calls and they end with lawsuits, wage garnishments and bank attachments. As if that weren’t bad enough, when collectors are trained, they are told to keep these ideas in mind:

    1. The people you’re calling have the money.  They’ll SAY that they don’t.  But, your job is to get them to think that YOU will make their life miserable….;
    2. ‘You catch more bees with honey….’  But, you’re not catching bees, you’re collecting money.  Don’t use honey, use vinegar and whatever else stings;
    3. These people are not grandmas, sisters, mothers, brothers or friends….they are deadbeats;
    4. Your bonus check depends on the money you get these people to pay.  If nobody pays, you don’t get a bonus;
    5. Don’t cuss at, threaten, use abusive language or lie. (But, if you do, do NOT put it into the notes) That way, we won’t be able to deny it;
    6. Wear nice clothes to work (we’re not animals, you know);

Debt-buyers are in the business to make money.  If they call you, it’s because your name is on a list.  They don’t care if that list is accurate or not. They only care if they can get you to pay. 

What kind of information about you did their 8 cents get them?

According to the CRL (on page 8 of their report) “When debt-buyers purchase debt portfolios, they receive an electronic database or spreadsheet (or access to such a database) summarizing the debts included in the portfolio….These files often include only a name, last known address….the amount allegedly owed, the charge-off date, and the date and amount of the last payment. …very few portfolios include documentation for the debts being sold.”  

In 2009, the FTC studied 3.9 Million accounts that had been purchased by six of the largest debt buyers.   Of those accounts, only 6 % (!) were sold with ANY documents.  In other words, 19 out of every 20 past-due accounts that are sold to a debt-buyer come with NO documents at all – NO contract; NO monthly statements; NO invoices.  And, NOTHING that has the borrower’s signature.  

So what’s the big deal? Pay your bills!

Yes, pay your bills.  But, if the name of the company that calls you is different from the one you are used to dealing with; if it has been years since you’ve talked to them; and if they aren’t able to send you anything about the account – how do you know that bill is actually yours?  The data they have could be perfectly accurate; it could be completely made up or somewhere in-between.  The problem is: you have no way to prove what’s what.

Here’s a list of the questions (some of which we have discussed before) that Consumer Courage thinks you should ask to anybody who calls you (or sends you a letter) for payment on a bill that is due: 

    • “Can you tell me the last time I used the Credit Card?” or
    • “Can you tell me the last time I made a payment on this account?”
    • “Everything is on computers these days.  How’s about if you send me a printout of an itemized bill, or a payment history for this account?”
    • “Just to verify, can you tell  a few of the places where I used this card?” or
    • “I am not sure this is me, can you send me the application for this card (or loan), so I can see if it’s my signature and not some Identity Thief who only pretended to be me?” or
    • “Can you send me information that proves that YOU have the right to collect this money from me? (like an ‘assignment’ from the original creditor)”
    • If the balance is from a loan “Can you please send me the original loan agreement, the application or anything with my signature?”

Courts are overwhelmed

The CRL points out that because tons of the accounts that are sold to debt-buyers wind up in Court, the courts are struggling to keep up with the caseloads.  As a result, the Courts are used to letting them slide, because it’s too much work to focus on the details of every collections case that is filed.   The debt-buying industry has taken to certain ‘short-cuts’ when they file lawsuits.  Such as: Showing up without the proper records; submitting sworn statements without having their employees look at the file or the computer to verify anything that the statement says; suing people when the debts are so old that a lawsuit is not allowed and lying to the Court about whether they actually sent you a copy of the lawsuit. 

These problems are magnified by the fact that most of these cases end in default judgment. (which is when the Consumers do not show up to defend themselves)  Do Consumers not show up because they know that they owe the money, or because they look at the complaint and say “I have NO idea who these people are,” or because they never get a copy of the complaint in the first place?  If the first time you hear that you’ve been sued is when they take 25% of your take-home pay in a wage-garnishment, you’re in a heap of trouble. 

Editor’s Note of Hypocrisy: It’s possible that we should lay off of the debt-buying industry.  After all, they are ‘job creators…….’ 

What CAN you do? 

    • First things first: NEVER ignore papers that come to your house from the Court.  If you are being sued (or getting mail from a lawsuit) the best thing you can do is show up and straighten it out.  If you have to get a judgment overturned and all you can say is “Oh yeah. I did get a copy of that years ago. But, I ignored it,” things will not end well; 
    • Remember to ask anyone who calls you for money how long it’s been since you (supposedly) paid them last.  There are time-limits on how long the lender has to sue you on a past-due bill.  But, that time-limit is not absolute.  If the window has closed and you make a payment, afterwards (even if you just send them pennies) you re-open the window and they can sue you. So, tread very carefully if you’re strategy is just to pay them something to keep them off your back;
    • If it gets to Court, show up and go to every hearing.  Even if the Court is drowning in cases, they are much more likely to sympathize with somebody who cares enough to show up.  Before you go, memorize this speech:
      • “Your honor, without proof from this account, I can’t tell you if I’m the person they’re looking for or not.  And without an original contract (or some signature of mine) they can’t prove who they’re chasing.  Everyone has computers judge, make them bring a payment history for this account and/or an itemized invoice.”

Posted by: Mark Wiseman (who regrets that what he knows about debt-buyers came from working along side them and has stayed with him despite years of intensive therapy) 

We’ve never met, can I have your money? (Should you pay a bill that you DON’T owe?)

Earlier this week the FTC issued a press release about an injunction they obtained in Atlanta against 14 parties (9 companies and 5 people) to get them to stop violating Federal Law.  What did the bad guys do?  In the FTC’s words, they: “used deceptive and threatening tactics to collect phantom payday loan “debts” that consumers either did not owe, or did not owe to the defendants.”

The word ‘debts’ is in quotes, because the money that they were collecting was not actually ‘owed’ in the traditional sense.  Meaning to say: they put together a list of people who fit the profile of somebody who might use a PayDay lender and called them.   The game was to get the Consumer to admit that they had gotten PayDay loan in the past, then pretend to be calling about THAT loan.  If the bad guys were really good at their jobs, they could scare, threaten and belittle the Consumers into believing that they actually owed money. 

How did it go?

We imagine that the conversation went something like this:

Caller: Hello, Mrs. Gullible, we’re calling about the loan that you are behind on.
Mrs. G: I don’t understand, my bills are paid up.
Caller: Sure, maybe NOW.  But, you owe WFU finance on the loan that you USED to have.
Mrs. G: Who?
Caller: That’s right. The balance is $582.16 and we’re giving you one last chance to pay, before we garnish your Social Security check!
Mrs. G: Well, I did have a loan with a PayDay lender years ago, before I moved.
Caller: So now you remember? Yes, and we found you!  Usually we’re aggressive (you know bringing the Sheriff in to help, calling your employer and having you put on double-secret probation at work, that sort of thing) But, you sound reasonable, I’m sure that you want to take care of this now.  Of course you understand, I’m not saying you’re GOING to be arrested.  We just want to take care of this as soon as possible
Mrs. G: O……K…..I don’t want trouble.  Let me get my checkbook

Do people actually fall for this?

You’d better believe it.  Combine the deep-rooted desire that most people have to want to pay their bills, the angst that is created when someone hints that you might be arrested and the gullibility that makes some folks actually return the Publisher’s Clearinghouse paperwork  (no matter how long it takes) and you have the perfect recipe. (remember, scam artists who spend their time on the phone trying to trick people don’t need EVERYONE to fall for it – they just need one)

After all, the FTC press release points out that this is the fifth case they have brought to stop people from collecting on so-called ‘bogus’ debts.  [we don’t know what’s scarier about this little tidbit of info – the fact that the Federal Government had to seek a Court order to stop this, or the fact that this is the FIFTH time they had to do so!]

There outta be a law……….

In fact there is. (sortof)  The Fair Debt Collection Practices Act (FDCPA) protects Consumers from debt-collectors from using abusive or deceptive tactics (among other things) when trying to collect money that you actually owe.  And the FTC Act (also part of this case) prohibits “unfair or deceptive acts or practices in or affecting commerce.” 

Leagle-beagle-mumbo-jumbo note: The FTC sued under BOTH of these laws – in somewhat of a hedging of bets.  While FDCPA covers debt-collection, it makes no mention of collecting on a debt that doesn’t exist.  The argument that ‘you see your honor, Fair Debt doesn’t apply to my client.  He may be a scumbag. But, he’s no debt-collector!’ wouldn’t make your Mother proud.  But, it would probably win the case that alleges that you violated FDCPA (without mentioning any other law)

But, just knowing which laws protect you (and how) doesn’t do much good, if you aren’t strong enough to say NO to the next scam artist who calls you at home. 

It’s like the scene in the first Indiana Jones movie.  Harrison Ford runs into an Arabian Knight who starts waving a cutlass around, like he’s going to carve him up.  Just when you start to think that the whip that Indy carries around isn’t going to save him, he grabs his gun and cuts the bad guy down.  In our case, you’re the Arabian knight and the fancy giant sword is the FDCPA and your consumer rights.  You can waive it in everybody’s face (and tell them about your consumer rights) all you want.  But, their ability to trick you into paying them acts just like the gun in the Indiana Jones clip.  You have all of your rights………. and they have your money.

So what can you do?

Be careful!  And take a few simple steps to make sure that you don’t fall for the ole ‘let’s pretend that you owe us money’ scam.

OWE ME THE MONEY! – (or something like that) if anybody ever asks you to pay on a bill, make them prove (in writing) that you actually owe them money.  The first words out of your mouth should be “send me proof that I owe you money.”  If they say anything other than, “OK, I’ll send it tomorrow,” something’s wrong. The law says that they have to send you proof of the debt and how much it is.  You should not be paying a dime to anyone, before you see:

    • A bill (not a statement that just has a balance due) Something with proof of actual charges that you made;
    • Written proof that whoever is calling you has some legal connection to the company they say you owe money to; 
    • Some information that shows that this is really YOUR account (date it was opened, charges made, proof that THEY are chasing the right person, your date of birth…)

WHAT DO I NEED TO SEE? – For starters, here is a list of demands. (If the word Demand seems a little harsh, remember: someone else wants your money, it’s OK to be HARSH!)

    • Demand that the person calling you (or sending you a letter) identify themselves AND the original creditor;
    • Demand that they send you a copy of the original contract;
    • Demand that they tell you three things about the debt:
      • How much is the principal;
      • How much is the interest; and
      • What is the interest rate that they are charging 
    • Don’t give any information over the phone, before you see a letter verifying that the collector is legit.

AND, WHO ARE YOU AGAIN? – Scam artists tend to talk fast and use confusion to get you to submit.  They want to keep the focus on you (and on whatever lie they told to try to scare you).  They also get really squirrely when people ask details about THEM.  So, switch the tables and tell them that you want to know their: full name, company name, street address and phone number.  Then, politely say “Thanks, now I have to look you up on Google.”  (Try Googleing the company name and ‘Ripoff’ or ‘Scam’)

CLICK……OOOOOOOOO – that’s what a hang-up sounds like (or, that’s what it sounded like when I was a kid, anyway) This is your best weapon against a scam artist on the phone.  They can’t take your money, if you are not on the line.  If you even think that the person on the other end of the line is up to no good, utter those three words that they are powerless against “Thank you……Goodbye.” 
There’s no law against hanging up on somebody you think is trying to pull a scam. Don’t be shy.

Posted by: Mark Wiseman (who had a friend tell him “if you ever hang up on somebody, do it while YOU are talking. That way, they’ll think you just go disconnected.  After all, who hangs up on themselves?”)

“I understand that you’ll threaten my in-laws and try to kick my door in…But, I need tires” Why you should NOT Rent-to-Own ANYTHING

Last week, NPR ran a report on how more and more people are using Rent-to-Own (RTO) stores to get new tires.  The parting quote was a consumer saying “I understand that I’ll probably end up paying a lot.  But right now, I need the tires.”  This might not be the worst idea anybody has ever had.  But, it’s within earshot of the worst idea, I can tell you that.  

There’s a great scene at the beginning of the movie ‘Ghostbusters’ where Bill Murray’s character is conducting an experiment on college students, where he is “testing the effects of negative reinforcement on ESP”.  When one of the students is finally fed up and threatens to quit, he barks “You volunteered for this.” The student responds “Yeah, but I didn’t know you were going to be giving me electric shocks!”  That’s what this reminds me of.  I don’t think that people who do business with a Rent-to-Own place have any earthly idea what they’re in store for.

A little Background

The Rent-to-Own industry rents household items (TVs, appliances, etc.) to consumers.  The customers believe that they will eventually own some new household item, even if they are paying ‘a little more.’ Unfortunately, you end up paying 5 times the retail price for something that might be used.   If you can’t make all of the payments…..I don’t want to ruin the suspense.  But, let’s just say it doesn’t end well.  In 2009, the RTO industry (also called the ‘Lease-Purchase’ industry) generated $7 Billion in revenues.     The typical customer for a RTO transaction is in a minority group, uneducated and poor.  And, just like the PayDay industry, these companies put their storefronts up around military bases to take advantage of those folks too.   

What can the person who uses a Rent-to-Own store look forward to?

Since the statutes that govern the RTO industry have only minimal Consumer Protections (if any) RTO customers are at the mercy of the stores.  As we will see, if you are lookin’ for mercy from the RTO staff, you’ve come to the wrong place: 

    • No limits on prices – Most state statutes (including Ohio’s) have no limits on the amount of the rental charges; very few restrictions on the amount of fees they can add; and NO protections that limit the amount of abuse they can heap on you, if you stop making the payments; 
    • Bogus Fees – in Ohio they can charge any late fee they want; a fee if they have to repossess; and a ‘delivery charge’ (if you reinstate your contract after the item was repossessed);
    • Abusive Collection tactics – RTO stores are not covered by the Fair Debt Collection Practices Act (FDCPA).  Stories about how despicable RTO collectors can get are the stuff of legend.  Want some proof?  Check out the section on Collection tactics below; 
    • What do you mean you brought me a USED couch? – You are just as likely to get something that has been rented and repossessed at least once.  If it’s a couch, be careful where you sit!; 
    • Repossession – This is by-far the biggest problem with RTOs.  If you don’t pay your credit card bill, they’ll only sue you.  If you don’t pay the RTO bill, they will come to your house and yank that fancy Flat-screen out of the wall  (“They come to your house?”)

How do they collect/try to repossess?

A lawsuit the Washington State Attorney General brought against Rent-A-Center, is a good insight into what is in store for the customer who misses a payment.  The accounts of what goes on are simply chilling.  Here is just a sample of what you can expect to come to your front door, when you do business with a Rent-to-own place:

    • Repeated harassing calls to your work;
    • Calling the friends you listed as references on your application ’30 or 40 times’ (and their parents!) AFTER they are told to stop;
    • Threatening arrest;
    • Leaving profane messages;
    • Trying to kick your door in and having the manager say “That’s what you get for not paying”;
    • Harassing & scaring your baby-sitter;
    • Telling neighbors your private financial information; 
    • Showing up at your door at night with the police; 
    • Putting their foot in the door and preventing you from shutting them out of the house;
    • Threatening that the police will ‘take [your] children away’;

There was even a statement from a woman who (after she moved) had the new store manager show up at her door and say that ‘Because the payments on the old contract were too low, she needed to sign a new contract’ !  All of these examples were taken from sworn Consumer statements that were filed with the Court by the Washington State Attorney General.    Not only is this truly sickening, but it makes you wonder what happens to the thousands of people who have endured this abuse, but weren’t able to have the State Attorney General sue on their behalf.

IS RTO really that expensive?  

Wisconsin Public Interest Research Group released a study this year, where they compare the prices that RTO victims (er…..customers) wind up paying, if they pay long enough to ‘purchase’ the item.   The results are startling.   One of the tables in the report compares what the rental items cost somewhere else with the store’s own ‘Cash price’ (the ‘Cash Price’ at an RTO store is their own made-up ‘Buy-it-now’ price.  It serves as their basis for how much the weekly rental payments will be)   It is no surprise that the markups range from 146 % to nearly 300% . 

The second table is a little more helpful.  It shows how much you would save if you used a credit card with an 18% interest rate. (18% is close to the rate for most Department store credit cards.)  The typical savings is about a thousand dollars.  (A 21 Cubic foot refrigerator will cost about $1,800.00 more by using the RTO.  The Apple Macbook will cost you around $1,900.00 more) 

The second table is entitled – Table 2: Total RTO Cost vs. Purchasing Same Product with 18% APR Credit Card at Other Retailers. 

Author’s confession: I can’t put the actual tables into the article, because I can’t figure out how to do it without totally wrecking the format.  And, for some reason, Table 2 doesn’t even want to be hyperlinked.  And after all, this is called ‘Consumer Courage’ not ‘Website Courage’.  But, I digress………

Which leads us back to our NPR story about people using an RTO store to get their tires.  If you use an RTO store to get tires, the good news is that you will get tires.  The bad news?  You’ll be paying way too much (see above); you will be on the business end of some incredibly nasty and abusive efforts to get you to pay (also above) and if you can’t pay – when you wake up to go to work, those tires will look an awful lot like milk crates.  Do you really wanna do this?  

Perhaps they need a new marketing tool   

Knowing what we now know about the RTO industry, I think that the misunderstanding is in the name, itself.  If we give Rent-to-own (or Lease-purchase) a new name, maybe people will have a better understanding of what they are getting into.  Instead of RTO – let’s call it: The “PEMPUYPWMTIW (BBCIYSPTWCYWADASOOHTTGYTP)” industry.  What does that stand for?

The Pay Exorbitant Monthly Payments Until You Pay Way More Than It’s Worth (But Be Careful. If You Stop Paying, They Will Call Your Work And Do All Sorts Of Other Harassing Things To Get You To Pay) Industry

It’ll catch on, give it a while.  

Posted by Mark Wiseman (who still thinks “He….slimed…..me” is one of the all-time-great movie lines)