“Debtors Prison” Bill in Senate Committee Hearing Next Week

An Illinois state bill that would directly address the practice of “body attachment” for debt-related judgments will be the focus of an Illinois Senate committee hearing next week having already unanimously passed that state’s House of Representatives.

The bill, HB 5434, would require subpoenas to appear to be served directly to a debtor’s person or home, rather than being mailed. It would also require that any arrest warrants issued for failing to appear to expire after a year, and it would return most bond money to the debtor, rather than allow it to be used to pay off the debt. Bonds would also be restricted to no more than $1,000.

Most jurisdictions allow law enforcement officials to take into custody defendants in lawsuits should they fail to appear in court after directly being ordered to do so. Many consumer advocates argue that debt collection law practices do not go far enough in serving notice to debtor defendants, leading to default judgments and body attachment orders to bring in the defendants.

Heavily promoted by Illinois Attorney General Lisa Madigan, the bill passed the House of Representatives on a 107-0 vote in late March. The bill has been referred to the Senate’s Judiciary Committee for consideration. A hearing scheduled for Wednesday was cancelled and rescheduled for Tuesday, April 24.

Madigan’s very public airing of the “debtors prison” issue caused quite a stir in the ARM industry. Many in the practice of debt collection law noted that they were following civil procedures for courts in the state. The bill would specifically amend the Code for Civil Procedure.

Since introduction of the bill and its subsequent easy passage in the House, the proposal has picked up at least a dozen co-sponsors.

Wells Fargo ends free checking

Wells Fargo & Co. customers in the Carolinas will soon see the end of free checking accounts, with the bank charging customers a $7 monthly fee. 

The bank hasn’t offered a free checking account to new customers in the Carolinas since October. Only former Wachovia customers who had free checking accounts will see a change — Wells Fargo honored those free-checking agreements when their accounts were converted to the Wells brand last fall. Wells Fargo bought Wachovia in late 2008.

Now the San Francisco-based bank has started notifying those legacy Wachovia customers about the coming fees.

“We’re encouraging them to consider the options available to them to lower or eliminate the fees,” says Josh Dunn, spokesman.

Those options include receiving online statements rather than paper ones, which will cut the monthly fee to $5. Customers who maintain a minimum balance of $1,500 or who have at least $500 direct-deposited into their accounts each month will avoid the fee altogether.

Customers who don’t take advantage of those options will see the fee added to their September statements.

Wells Fargo (NYSE:WFC) has been gradually rolling out the fees since July 2010.

North Carolina and South Carolina — along with Maryland, Virginia, Florida and Washington, D.C. — are the last markets to see the change.

Wells Fargo’s East Coast operations are based in Charlotte.

 Jen Wilson, Associate Editor

Wells Fargo faces new fines for mortgage ripoffs

Wells Fargo isn’t done paying for the mess it made in the mortgage market.

The Department of Justice appears to be close to bringing charges against Wells Fargo for violations of fair lending laws by its mortgage division in the run up to the housing bust. On Tuesday, Wells in a financial filing said the DOJ has told the bank that it has enough evidence to impose fines and bring civil charges. Once again, though, it appears no one will be headed to jail.

It’s not clear what exact practice the DOJ is focusing in on. But in July, Wells Fargo paid $85 million to the Federal Reserve, the largest ever consumer protection fine in the central bank’s history, to settle charges that it routinely put people in subprime loans that they either couldn’t afford or didn’t qualify for. The Fed said that the bank regularly pushed borrowers into high-cost subprime loans even when many of those customers would have qualified for traditional lower cost loans. The Fed also said that loan officers at Wells Fargo Financial, a subprime lending division of the bank that has since been shut down, would often falsify loan documents by inflating the incomes of borrowers to make it appear that the person would be able to afford a loan that they normally would not be able to qualify for. As is normally the practice, Wells settled the Fed’s charges without admitting or denying it broke the law.

Wells Fargo didn’t disclose how much it could be forced to pay the DOJ. But it did say that as of the end of the first quarter, the bank’s potential legal future liability from unusual events was $1 billion. But that amount could cover a number of legal actions against the bank, not just the DOJ potential case. The Securities and Exchange Commission also appears to be close to charging the bank with violating securities law for hiding from investors that it knew the loans in the mortgage bonds it packaged and sold off to investors were riskier than the bank let on.

Wells says it plans to fight the potential DOJ charges. “We believe such claims should not be brought and continue seeking to demonstrate to the Department of Justice our compliance with fair lending laws,” the bank wrote in its financial filing.

By Stephen Gandel

Why Is This Decade-Old Debt Still Hurting My Credit?

Most negative information can stay on your credit reports for no more than seven years, or ten years in the case of certain types of bankruptcy. Then why is an old collection account still appearing on a reader’s credit reports more than a decade after he stopped paying? Truth is, some debts can haunt you for years to come:

I stopped paying a credit card debt in the middle or end of 2000. In the fall of 2006 a collection agency bought the debt. I was living in another state and did not realize that a judgment was passed until a year or so later. It is now May 2012, and this is still on my credit report, more than 11 years later. What about the seven years from the date that payment stopped?

This reader is correct in his basic understanding of how long collection accounts can be reported. Specifically, under the Fair Credit Reporting Act, collection accounts must be removed from credit reports seven years and 180 days after the consumer fell behind on payments on the original account that was later turned over to collections. That’s true whether the debt has been paid or not.

But in this case, it sounds like our reader is not talking about a collection account that’s on his credit report. He’s talking about a judgment, which is a different animal with its own reporting period. The collection agency took him to court, and since he didn’t respond, obtained a deficiency judgment against him. Here is what the Fair Credit Reporting Act says about how when judgments must be removed from credit reports:

Civil suits, civil judgments, and records of arrest that from date of entry, antedate the report by more than seven years or until the governing statute of limitations has expired, whichever is the longer period.

In plain English that means that a judgment can be reported for up to seven years from the date the judgment was entered by the court. But here is the kicker: if you don’t pay it off or settle it, it may be reported until the statute of limitations has expired. In most states, that’s ten to twenty years! And since unpaid judgments can often be renewed, theoretically at least, an unpaid judgment can remain on your credit reports indefinitely.

This very long reporting period is one good reason to settle up on a judgment. But there’s another good reason to pay it off. In most states, judgment creditors have collection powers than creditors without judgments don’t have. That may include the ability to garnish wages or seize property, such as bank accounts.

Like most debts, judgments can often be settled for less than the full balance. Our reader shouldn’t hesitate to negotiate if he can’t pay the full balance. Of course, if he does strike a deal, he should get it in writing before he pays.

by Gerri Detweiler

Georgia ranks number 3 among states with most bankruptcies per capita

Georgia Bankruptcy Per Capita

The state-by-state data reflects the national trend toward fewer bankruptcy filings. Only four of the 50 states showed increases in per capita bankruptcies: Delaware, Illinois, Kentucky and Michigan.  Delaware’s increase was the only substantial one, and it was enough to jump the state from No. 19 on the list to No. 10.

At the other end of the scale, Arizona and Idaho were just behind Nevada in how much their bankruptcy rates fell.

In terms of the actual volume of bankruptcies, California leads the pack with a total of 50,726 filings in the first quarter of 2012. Alaska had both the lowest number of filings — 222 — and the lowest per capita rating.

How did your state rank in likelihood to file for bankruptcy? This table shows the ranks of all 50 states and Washington, D.C., with most likely to file at the top. 

State	2012 rank (through Mar. 30)	Filings per 1,000 residents	2011 end-of-year rank
Tennessee	1	7.19	3
Nevada	2	7.00	1
Georgia	3	6.65	2
Utah	4	5.87	4
Alabama	5	5.87	5
Michigan	6	5.72	9
Illinois	7	5.58	10
California	8	5.49	6
Indiana	9	5.47	8
Delaware	10	5.09	19
Colorado	11	5.08	7
Kentucky	12	5.03	14
Arkansas	13	4.54	16
Ohio	14	4.47	13
Florida	15	4.43	12
Mississippi	16	4.36	22
Maryland	17	4.34	24
Rhode Island	18	4.32	21
Washington	19	4.30	20
Wisconsin	20	4.24	17
Missouri	21	4.22	18
Arizona	22	4.08	11
Virginia	23	4.07	26
New Jersey	24	3.97	25
Oregon	25	3.93	23
Idaho	26	3.83	15
Louisiana	27	3.46	27
Minnesota	28	3.39	28
New Hampshire	29	3.27	30
Oklahoma	30	3.23	32
Nebraska	31	3.15	29
Kansas	32	2.96	31
Massachusetts	33	2.73	33
New Mexico	34	2.54	34
Connecticut	35	2.48	35
Pennsylvania	36	2.44	37
North Carolina	37	2.42	43
West Virginia	38	2.37	40
New York	39	2.22	42
Maine	40	2.19	36
Iowa	41	2.19	38
Hawaii	42	2.17	39
Wyoming	43	2.10	41
Montana	44	2.06	44
Texas	45	1.94	46
South Dakota	46	1.94	45
South Carolina	47	1.87	49
Vermont	48	1.72	48
District of Columbia	49	1.61	50
North Dakota	50	1.57	47
Alaska	51	1.27	51
Source: Epiq Systems Inc. via creditcards.com

Massachusetts First State to Require Creditors to Validate Consumer Debts

On March 2, 2012, the Massachusetts Attorney General published onerous new consumer debt collection practice regulations, deeming their violation to be an unfair trade practice. These regulations purport to govern every business and person nationwide who engages in collecting a consumer debt (defined as any debt resulting from a purchase, lease or loan of goods, services or real or personal property or for a loan of money obtained for personal, family or household purposes, whether or not reduced to a judgment) from a person located within Massachusetts.

The rules are extraordinary in that, among other things, they impose validation and verification requirements on creditors collecting their own debts, rather than just on third party debt collectors or purchasers of defaulted debt as under the federal Fair Debt Collection Practices Act (FDCPA).

Specifically, 940 CMR 7.08 requires that during or within 5 days of its initial communication with a Massachusetts debtor in connection with the collection of a consumer debt that has become more than 30 days past due (unless a different period is agreed to by the debtor), the creditor (defined to mean any person or entity and their agents, servants, employees or attorneys, or a buyer of a delinquent debt who hires a third party or an attorney to collect it) must provide the debtor with (a) the amount of the debt; (b) the name of the creditor to whom the debt is owed; (c) a statement that unless the debtor, within 30 days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the creditor; and (d) a statement that if the debtor notifies the creditor in writing within 30 days after receipt of this notice that the debt, or any portion thereof is disputed, the creditor will obtain verification of the debt and provide the debtor, or an attorney for the debtor, additional materials.

If the debtor or the debtor’s attorney notifies the creditor in writing within the 30-day period that the debt is disputed, the creditor must cease collection of the debt until the creditor verifies the debt and provides the debtor or any attorney for the debtor with copies of: (a) all documents, including electronic records or images, which bear the signature of the debtor and which concern the debt being collected; (b) a ledger, account card, account statement copy, or similar record, whether paper or electronic, which reflects the date and amount of payments, credits, balances, and charges concerning the debt, including but not limited to interest, fees, charges or expenses incidental to the principal obligation which the creditor is expressly authorized to collect by the agreement creating the debt or permitted to collect by law; (c) the name and address of the original creditor, if different from the collecting creditor; and (d) a copy of any judgment against the debtor. If the creditor does not possess, have custody of, or control these materials, the creditor must cease collection of the debt until the creditor has made reasonable efforts to obtain them and provide them to the debtor.

The validation requirement poses substantial compliance challenges. Although “conduct which is not the collection of debts” is excluded from coverage (940 CMR 7.02), the regulations do not define what conduct constitutes or does not constitute the collection of debts. For example, is the validation requirement triggered when a creditor sends a monthly billing statement which requests payment to a Massachusetts debtor on a past due account? Does a creditor commit an unfair trade practice when it fails to provide a validation notice after a debtor’s initiation of the initial communication in connection with the collection of a past due debt with any one of the creditor’s employees, agents or attorneys?

Also, among other requirements and prohibitions, the regulations limit the number or telephone calls or text messages that a creditor may send to a Massachusetts consumer to two communications in each 7 day period for each debt, and to the hours of 8:00 a.m. and 9:00 p.m. Eastern. 940 CMR 7.04(f) & (g). They deem a creditor’s stating that it will take any action, including legal action, that it does not actually take or attempt to take to be an unfair trade practice, unless an additional payment or new agreement to pay has occurred within the stated time period. 940 CMR 7.04(m). They provide that it is an unfair trade practice to fail to disclose the telephone number and office hours of the creditor or his agents on all written communications with the debtor. 940 CMR 7.07(22). They impose a number of limitations regarding contact with other persons living in the debtor’s home and third parties. 940 CMR 7.05, 7.06. And they prohibit a creditor from collecting or attempting to collect from any person payment of a debt that the creditor knows or has reason to know is time-barred, or from seeking or obtaining from any person an admission, affirmation, acknowledgement of a new promise to pay, or any waiver of legal rights or defenses with respect to such a debt, unless the creditor discloses in a prescribed format that the debt may be unenforceable through a lawsuit because the time for filing suit may have expired, and that the debtor is not required by law to do what the creditor is requesting. 940 CMR 7.07(24).

 

Fulton County Begins Outsourcing Debt Collection to Private Firms

Fulton County, Ga. this month will begin outsourcing $7 million in old fine and fee debt to four private collection agencies that specialize in government debt collection.

The metro Atlanta county, Georgia’s largest with more than 1 million residents, has more than 43,000 outstanding traffic tickets dating back to 2000 and unpaid code enforcements from as far back as 2001.

The county has hired Chicago-based Harris & Harris, Texas-based Linebarger Goggan Blair & Sampson, Texas-based Municipal Services Bureau and Pennsylvania-based Penn Credit Corp. to chase after the debt.

Fulton County officials hope to bring in at least $2 million by using the firms under contract.

Supreme Court Sides with Issuers in Credit Card Arbitration Case

The U.S. Supreme Court ruled Tuesday that consumers that sign credit contracts with arbitration clauses cannot dispute charges and fees in court cases, despite a 1996 law that expressly allows consumers to file such actions.

 

The case, CompuCredit Corp and Synovus Bank v. Wanda Greenwood, arose when a consumer filed a suit against the credit card issuers that sought class action status. Greenwood objected to the fees CompuCredit charged on a low-balance subprime credit card.

But the credit agreement signed by Greenwood had a binding arbitration clause. The creditors attempted to invoke the clause, leading to the suit. Lower court rulings, including the penultimate appeals court case, favored Greenwood, citing the Credit Repair Organizations Act which specifically allows consumers to bring fee disputes to court.

The Supreme Court’s ruling argued that binding arbitration clauses in credit contracts trump the 1996 federal law. Referencing the law and the plaintiff’s argument that it was intended to prevent forced arbitration, Justice Scalia wrote for the majority, “Had Congress meant to prohibit these very common provisions, it would have done so in a manner much more direct.”

The Court voted 8-1 in favor of the defendants, with Justice Ginsburg dissenting. Justice Sotomayor wrote a separate, but concurring, opinion which was joined by Justice Kagan.

The Supreme Court heard oral arguments in the case in October.

Patrick Lunsford  / January 11, 2012

Possible data breach by Wells Fargo

Jan 4 (Reuters) – Connecticut’s attorney general is investigating a possible data breach in which Wells Fargo & Co may have disclosed customer Social Security numbers as part of a fraud investigation.

The possible breach is the latest wrinkle in a probe into whether state employees falsified financial information on applications submitted for food benefits issued in the aftermath of Hurricane Irene, which struck the U.S. East Coast last fall.

The state Department of Social Services had sent subpoenas to Wells Fargo seeking financial records as part of the investigation, according to a news release issued by Attorney General George Jepsen on Wednesday. The fourth-largest U.S. bank then may have provided customers copies of the subpoenas, which included Social Security numbers of multiple individuals, according to the statement.

Jepsen sent a letter to Wells Fargo asking for an explanation of why the bank may have disclosed the information. Under Connecticut law, individuals or entities entrusted with Social Security numbers can’t improperly disclose them.

Wells Fargo spokesman Kevin Friedlander said the bank’s focus is on its customers and other individuals who were affected. The bank will offer them the option of signing up for identity theft protection, he said.

Connecticut Governor Dannel Malloy last month announced an investigation into the benefits, which were made available to low-income Connecticut residents who incurred disaster-related expenses from Irene.

Attorney Rich Rochlin, who represents some of the state employees under investigation, raised questions about the subpoenas in a news conference on Tuesday. He said he knows of two customers who received subpoenas containing a total of 130 names and Social Security numbers.

(Reporting By Rick Rothacker)

Judgment Collection Roadblocks

Judgments are not guaranteed, they are only chances for getting some cash in the future. When the economy was great, a judgment was sometimes a way to get money. Now, they are just a chance of getting some money.

In an ideal situation, your debtor is rich and will repay a judgment after getting a simple reminder. That is not the way it goes 98% of the time. Most of the time, judgments are never enforced. If they get recovered, it is a slow process that often involves compromise, and partial recoveries more often than full recoveries.

Here are the top ten reasons many judgments are never recovered:

1. The judgment debtor can file for bankruptcy. Once a judgment debtor files for bankruptcy protection, all creditors must stop all collection activities, unless they later get written leave from the bankruptcy court. While there can be exceptions, most of the time, bankruptcy kills judgments.

2. The judgment debtor could die. While it is possible to show your judgment to the dead debtor’s estate, when there are no assets remaining, you will not be paid. Usually, one either gets nothing or have to settle for a portion of what is owed.

3. The judgment debtor can go underground, hide assets, or remain poor. When one sues a judgment debtor using a fake name, or when the judgment debtor is a professional fraud that keeps all their assets in names that can’t be traced to them, or is genuinely poor, most of the time, that means a judgment against them can’t be recovered.

4. The debtor could move. It is not easy or cheap to domesticate a judgment in a new state. Several states make it very hard for judgment owners, and one of the worst is Florida. Other states impair judgment enforcement with laws that mandate that small claim cases may not be assigned, or one must be a lawyer to enforce any judgment, even a $100 one.

5. The debtor could become sick or get hurt. Disability (and social security) income cannot be reached by creditors, and disabled debtors often stop earning attachable income.

6. The debtor can file a claim of extension. Each State has exemptions for a debtor’s personal property. If the debtor files an exemption claim, you need to appear at the hearing. If you do not show up, the debtor wins.

7. The judgment debtor could vacate the judgment. Especially with default judgments, requesting the court to vacate a judgment is easy and cheap. The judgment debtor might not prevail, however if you don’t show up, the judgment debtor wins.

8. The judgment debtor could claim “it’s not me”. Especially if the judgment debtor has a really common name, or grandpa, dad, and son, all have exactly the same name; it can be difficult to recover a judgment. It might take too much money and time to prove who is the actual debtor.

9. The debtor could hire an attorney. Some judgment debtors would rather spend $12,000 on lawyers, than pay $5,000 to satisfy the judgment against them.

10. The judgment debtor can have many previous judgments and liens. When a debtor has a string of judgments against them already, many judgment recovery specialists will not even try to enforce a judgment against the judgment debtor. This isn’t always fair,because the first one that recovers the judgment wins, even if there are 20 other unsatisfied judgments against the judgment debtor.

By: Mark Shapiro