Credit/Debt Recovery

Interesting Stories...

...that you might have to visit bugmenot.com to get to.

Both are from the Washington Post, a paper which seems determined to keep me from actually getting to any of their content without first telling them my shoe size.

The first story, As Collectors Multiply, So Do Consumer Complaints, exposes a host of abusive practices by "a new breed of debt collectors."

They're talking about junk debt buyers (JDBs), a class of bottom-feeders who buy uncollectable debts for a fraction of their worth and harrass debtors into paying.

The worst of these was CAMCO, a now shut-down debt collection firm who broke as many laws as they could in the process of collecting debts, sometimes from people who never owed the money in the first place.

This is actually old news in the industry; we've been on to JDBs for a while now, and we've blogged about them a few times before. But everyone needs to be aware of their rights when it comes to dealing with third-party debt collectors. (More on this from the Post.)

And as a matter of debt recovery, if you're contacted by a collector about a debt that you actually wish to repay, consider seeking a debt settlement. If it's gone to collections, the damage will already have been done to your credit report, and since collectors only pay pennies on the dollar for debts, they should be receptive to the idea of a settlement.

And in related news, the FTC has won a 10 million dollar judgement against debt collector National Check Control(NCC). It's a huge shot across the bow of the collections industry, particularly the new breed of debt buyers.

Add this to the ever-increasing list of reasons to not get into debt in the first place; someday, you may have to deal with firms like NCC.

Report on Alternative Credit Scores from the Information Policy Institute

Information Policy Institute has released a study entitled "Giving Underserved Consumers Better Access to the Credit System."

I talked some time ago about the need for alternate credit scores; fellow blogger Scott Brown disagreed with me, saying that because there are very few people who are not in debt, there will not be large demand for alternative credit scores.

I still maintain we need an alternate system to establish credit for entry-level consumers and other who are outside the existing system. The Information Policy Institute's study backs me up. Except, they don't propose "aternative" credit scores, they seem to be calling for regular credit reports to carry information about utility and telecom bill payments as well as payday lending information.

That's where we run into a problem. Given the ridiculous APRs on payday loans (as I've blogged here, they can get as high as 750%), I think including payday lending info on a credit report would wreak havoc on one's score. Fair, Isaac was working on an alternate credit scoring system last year, but I haven't heard anything about it lately. I'm sure their solution would be able to take all the pertinent data into account and still generate a useful predictive score.

Perhaps with some modifications, the IPI's plan could work to help consumers who lack traditional credit data. And certainly an alternate score system would do the trick, too. My prediction is that something will happen on this soon. Alternative credit is the next big thing in credit scoring.

Ethics in Blogging Survey

I participated in a survey of over 1,000 bloggers, the results of which have been posted on a blogspot blog.

The survey was about a code of ethics for bloggers. The study found that while personal bloggers and non-personal bloggers "adhere to ethical principles differently," bloggers in general don't feel there's a need for a blogging code of ethics.

There's some interesting statistics there that help me get a perspective on this blog's place in the universe. Perhaps not so interesting to non-bloggers, but these days, doesn't everyone have a blog?

Obsessive Consumption

I attended the College of the Ozarks in the early 90's. Last week I met Kate Bingaman, a fellow CofO graduate who attended just after I did in the late 90's. (We didn't meet in person, she found my listing on MySpace and introduced herself to me.)

But our undergraduate alma mater isn't all we have in common. She's now an artist and Assistant Professor of Graphic Design at Mississippi State University, and her major art project involves her credit card statements. She saw that I'd written a credit/debt book and thought I might be interested in her art; she was absolutely correct. I'm fascinated by her credit card project in particular because she's completely hand-drawing each of her credit card statements each month until they are all paid off. Talk about an incentive to paying down your debt!

As a writer, it reminds me of some advice the great Jack Bickham gave; on any day a writer doesn't actually sit down at the keyboard and write, s/he must type a full page of excuses for not doing so. Do that faithfully, and eventually you'll get better about writing diligently just to avoid having to come up with more excuses.

If hand-drawing every credit card statement one receives sounds obsessive to you, then you'll find Kate's web site URL appropriate: obsessiveconsumption.com.

It's great stuff. I think the more time you spend visiting her site, the more you'll think about the next purchase you make at a major retailer. If you can't relate to Kate's art, you don't live in this country.

In fact, the more time I spend at Obsessive Consumption, the more I like it. She has a great survey going where contributors email Kate to answer the question "Who do you owe?" I'm going to permanently link to her site from this blog, and I wish her all the success in the world with her work.

(I'm also going to pre-order one of her t-shirts for my wife; I hope you'll check out the store on her site and buy something: she promises they will make you "feel (cute, intelligent, sexy, strong) if purchased.")

Kansas Credit Counseling Law

Last year the State of Kansas passed new provisions governing credit counseling (SB 509) that severely limit consumer choices for Kansas residents seeking debt relief.

The bill

will give the OSBC authority to regulate credit service organizations offering debt management programs to consumers. These types of entities solicit consumers who are in financial difficulty, and offer to negotiate with a consumer's creditors to reduce monthly payments. Some companies make "debt elimination" claims that cannot be backed up, and others charge significant up-front fees without doing an appropriate analysis of whether or not a consumer will be successful in completing the debt management plan. Among other things, this new law will require these companies to register with the OSBC, to obtain a surety bond, and to follow the fee structure set out in the statute. The bill also gives the Commissioner significant authority to bring administrative actions against companies, to assess fines, and to require that companies take steps to remedy violations of the law. This bill was supported by the non-profit consumer credit counseling groups in the state, which, under the new law, will have to comply with the licensing requirements as well.

What they are really doing is enacting rigid protectionist restriction on credit counseling in Kansas, so of course the non-profits in the state support the law. They are the only ones who benefit from it.

And attorneys, who are exempt from the law, since they own half the politicians in the country. This allows debt settlement operators to work in the state, provided they have an attorney on staff. NOT TRUE, IT SEEMS. SEE COMMENTS FOR CORRECTION.

The full text of the bill is available here. (Enter 2004 as the year and search for bill 509.)

More on Credit Freezes from Bizzyblog

Tom Blumer left a comment in response to yesterday's post that I felt was significant enough to put up here on the main page.

He cites an eWeek article on his blog that discusses a pending Identity Theft Legislation that currently calls for a consumer's right to freeze their credit report.

But lawmakers are expected to remove the credit freeze provisions in order to please the credit industry. Tom's conclusion is "The credit freeze option needs to be in the final legislation when passed, or it won’t be worth the paper it’s printed on, or for that matter the hard drive space it takes up."

I'm inclined to agree. I did a radio interview with Chuck Jaffe a couple of years ago, and I discussed how the creditors had come to a place where they made a clear decision: either suffer more identity theft on the one side, or restrict easy access to instant credit on the other. They chose the former, knowing of course that they'd just pass the costs of identity theft on to the rest of us with higher rates and fees.

I don't think that was their choice to make, and I think that's what Tom is essentially saying here. A credit freeze should be the default position, because it should be up to us to decide whether we want to risk Identity Theft in return for access to instant credit.

The credit industry says that only 4,000 people have used the credit freeze in California, so therefore people must not want it. Nonsense. As Tom points out, it currently costs $10 to freeze and another $10 to unfreeze the credit report, and no one knows about the availability of the service. Not enough people know how to opt out of pre-screened credit offers either, but that doesn't mean they like getting them.

Bankruptcy fight soldiers on

Elizabeth Warren, Harvard Law School professor and author of the (in my estimation) discredited study that showed half of all bankruptcies are the result of medical debts, is still at it.

This Slate column by Daniel Gross describes Warren's latest study, conducted with Robert Lawless of UNLV, that states that more bankruptcies are the result of small business failures than have been reported.

Lawless and Warren surveyed debtors from around the country through questionnaires and telephone interviews. They found that while only 0.5 percent of the debtors they interviewed "checked the box on the cover sheet to say they were business filers," a much, much larger number of them were "likely to describe themselves as currently or recently in business." Lawless and Warren concluded that between 13.5 percent and 17.4 percent of the people they interviewed were in fact self-employed and that a business failure was a main reason for their filing. Their conclusion: "Entrepreneurs are in bankruptcy court in substantial numbers, even though the current classification system conceals most of them."

So we don't really know how many entrepreneurs are in bankruptcy, because the "system conceals most of them". So the numbers Warren and Lawless are reporting are very well-educated guesses. Unfortunately, Warren is said to have a reputation for playing fast and loose with the numbers when they don't confirm her preconceptions. I've been told that even some Democratic politicians close to the issue don't rely on her numbers any more.

Which is sad, because maybe she's right about this. I was raised by small-business owners. Entreprenourship is something that should be protected and encouraged. But I'll need someone other than Dr. Warren to 'conclude' that the statistics should be changed by 15% based on phone interviews and conjecture.

Biometrics and Credit

I heard this story about Japanese scientists working to turn your fingernails into data storage. They started to do this with a mind to replacing credit cards. There's a more complete story at nature.com, but it might be a subscriber-only link.

Some people have reacted negatively to this, but I don't see the problem. I would be receptive to the idea of having a fingernail-credit card myself.

What I'm less comfortable with is what's increasingly happening here in the United States, namely the use of fingerprints for financial transactions. I think it's okay if other people want to do it, but I've always had this idea that once your fingerprints are in the system, your privacy is forever compromised. The fingernail thing is something I keep with me that doesn't leave me vulnerable the way my fingerprints do.

But I'm going to lose this one. Fingerprint scanning is being tested in lots of places, and because of the rise in identity theft, I think biometric verifications for financial transactions are an inevitability. I guess for me, that's just another reason to hate identity thieves. According to CNN's poll, 52% of respondents feel comfortable using a fingerprint to purchase an item, and 48% are with me. So this ought to shape up into an interesting debate.

Tom Blumer Gets It Right

I blogged about two weeks ago on the unbelievable claim from Equifax CEO Thomas Chapman that free credit reports are somehow "un-American".

Tom Blumer of BizzyBlog has done me one better. As he pointed out in the comments section here the other day, he's calling for nation-wide credit freeze legislation (like they have in California) in this excellent blog post.

Tom's as disgusted as I am at the notion that our data is Thomas Chapman's to sell back to us. Not only does Equifax think free credit reports are un-American, Chapman suggests that free credit reports don't protect consumers. My response is, who cares? Whether a free credit report helps me prevent identity theft (I'd argue it helps) or not, I'm entitled to the information, because it's mine.

Chapman thinks credit monitoring services are the solution to identity theft. Tom Blumer thinks a national credit freeze is needed. Of the two, Blumer is right. What BizzyBlog's calling for, though, is for the "freeze" status to be the default. I'm inclined to agree.

I haven't blogged about it a lot, but I was a victim of Identity Theft (I was even interviewed by Time Magazine about it), and it resulted from a phony landlord gaining access to my credit report. The credit freeze Tom Blumer is advocating would have protected me.

Bottom line is, Chapman seriously thinks that it should be our responsibility to police the data his company regularly fails to secure, and we should pay him to allow us to protect ourselves. I can't even get my head around that concept. I might have been sympathetic to the idea that consumers have a responsibility to monitor their own credit, but not if they are going to be charged for the tools to do it. And if I'm going to be responsible for protecting my own data, then I vote for Blumer's national credit freeze idea over subscription-based credit monitoring services.

(Off topic note: BizzyBlog is really smoking these days. Check it out. I try to avoid getting off of the credit topic here, and I generally avoid politics, but Tom's take on Nadagate and the New York Times is dead on the money.)

Identity Theft Out of Control?

By the looks of this story, it is.

Tom Blumer discussed the credit bureaus' roles in Identity Theft yesterday at Bizzyblog. I'll be posting more about that tomorrow.