Bankruptcy Article of the Week
The Spider and the Fly: A Kinder, More Caring Collection Industry?
Time for a complete change of approach. No more worries: it turns out the debt collectors are your clients' friends.
The New York Times reported last week that debt collectors across the country are going for a kinder, gentler face. There are many possible reasons for the change in approach; times are tough, and that means that while there are more debts to collect, the prospect of collecting them decreases. Some governmental agencies are stepping up their interest in consumer protection in the credit and debt collection arenas. In 2007, multiple debt collection companies paid hundreds of thousands of dollars each and agreed to changes in their procedures in order to settle Federal Trade Commission (FTC) actions against them and the agency sent out a consumer alert about the collection of time-barred debts. All around, it makes sense that debt collectors and debt purchasers would want to try something new.
A really new approach would benefit our clients and all consumers as well. After all, the FTC annually receives nearly 70,000 consumer complaints about third party collectors. Some of the most common complaints include making dire and inaccurate threats, attempting to collect a larger payment than is allowed by law, continuing contact after being asked to cease, harassing communications and obscene language. And we know all too well that only a fraction of those with valid complaints ever report their problems. So, indeed, a change would be welcome.
But will this new approach to collections benefit our clientele, or will the kinder, gentler approach be like the one insurance companies use when they're building a defense against an injury victim? Will the change mean more realistic payment plans and less stressful encounters for people in debt, or will it mean a collector "just trying to help you out" by selling you on a $10 "good faith" payment that starts the statute of limitations running all over again? We all know the answer to that question, but unfortunately we also know that average Americans in tough circumstances are easy prey.
ACA International is the primary industry trade group for collectors, and a single statement by the chairman of that organization's foundation lays to rest any lingering optimism we might have had. William E. Wilcox told the New York Times, "You attract more flies with honey than with vinegar." True, so true. But does Wilcox think we've forgotten what happens to the flies once they've been lured in?
As the collection and debt purchasing industries arm themselves with public relations professionals and lobbyists, financial management tips, positive advertising and a friendly voice on the telephone might help to build up the new image the industries hope to cultivate, but the process is chillingly similar to the ten-year campaign by the consumer credit industry that gave us BAPCPA.
Did You Know.
that American homeowners own less of their houses than the banks do?
For the first time since the Federal Reserve began tracking these figures in 1945, American home equity has slipped below 50%, according to 2007's fourth quarter Flow of Funds report released on March 6.
Currently, equity stands at 47.9%. The fourth quarter of 2007 was the third consecutive quarter during which equity remained below half.
Further, estimates from Moody's predict that, by month's end, 10.3% of Americans will have no equity or negative equity in their homes, and that 15.9% of homes will be "upside down" (owners owe more than house is currently worth) if prices continue to fall at their current rate.
The Numbers Game on the Foreclosure Crisis
The foreclosure situation continues to look bleak across the United States. Overall, foreclosures were up 60% in February from a year ago, with Nevada, California and Florida seeing the highest foreclosure rates nationwide, according to data from RealtyTrac, Inc.
Reports from msnbc.com detail that, in February:
- 223,651 homes nationwide received one or more foreclosure-related notices, a 59.8% increase from last year's total of 139,922;
- One in every 165 houses in Nevada received foreclosure notices, giving it the highest foreclosure rate nationwide;
- One out of every 557 U.S. homes saw foreclosure action; and
- Countrywide's overall foreclosure rate was 1.64%, an increase from .8% one year ago.
The report also indicates that February 2008 marked the 26th consecutive month in which foreclosure actions increased in a year-over-year analysis.
Foreclosure Legislation Roundup
While President Bush has seemingly been opposed to doing whatever it takes to help homeowners avoid foreclosure—despite the fact that more homeowners are tapping into their 401(k)s and sacrificing their future to save their homes in the here and now—that hasn't stopped others from addressing the issue:
On March 13, House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd announced plans to increase government assistance in helping homeowners avoid foreclosure.
According to a Bloomberg.com story, Frank's plan would involve the Federal Housing Administration (FHA) providing as much as $300 billion in guarantees to help borrowers at risk of foreclosure refinance their loans.
As for Dodd's plan, a FHA program would be created to refinance troubled mortgages with government insurance. According to a summary of the bill as released by Dodd's office and described in the Bloomberg story, this legislation would result in significant losses for investors and lenders.
On local levels, here are some other pieces of foreclosure legislation that you may find interesting:
And Then There's the Economy
Bear Stearns executives accepted a proposal this week of purchase by JP Morgan Chase & Co. with help from the Federal Reserve Bank of New York for $236 million, or about two dollars per share.
Once one of the world's largest global investment banks and securities trading and brokerage firms, Bear Stearns had been pushed to the brink of collapse by the mortgage crisis and saw its value drop significantly after getting this emergency financing, according to a Wall Street Journal story.
Despite reassurances last week from Bear Stearns' CEO Alan Schwartz and Executive Committee Chairman Ace Greenberg, clients apparently panicked and withdrew their money from the bank on a large scale, in what Slate.com is calling a "textbook run on the bank" inspired by investor liquidity concerns.
According to a story in The New York Times, President Bush praised the Federal Reserve's immediate intervention with the nation's financial markets and applauded Treasury Secretary Henry M. Paulson Jr. "for working over the weekend" to help address the Bear Stearns' situation.
Bush, who has continually downplayed the glum condition of the American economy, was criticized by U.S. Senator Henry Reid (D-Nevada), who said that he hopes the President will now drop his opposition to help homeowners stop foreclosure after showing "his willingness to bail out Wall Street at taxpayer expense."
One would only hope but not expect so.
Bankruptcy Filings Roundup
Totaling 76,120 in February, bankruptcy filings are at their highest level since 2005, according to California-based Mercurynews.com.
And many experts, including Samuel Gerdano, executive director of the American bankruptcy Institute, are reportedly predicting that filings will reach – and possibly exceed – one million in 2008.
Last year, personal bankruptcies reached 800,000, which was a 40% increase from 2006. A perusal of headlines from around the country highlights regional bankruptcy increases:
- EastValleyTribune.com reports that Arizona bankruptcy filings have increased 60% since last year.
- According to ElPasoTimes.com, bankruptcy filings for January and February in El Paso have increased more than 40% from 2007.
- Arkansas bankruptcies have increased 13% from last month and 35% from this month last year, reports Ledger.com.
- The Miami Herald notes that many bankruptcy lawyers expect personal filings to return to pre-BAPCPA levels this year.
Sources credit increased credit card debt and rising foreclosure rates with fueling the bankruptcy filing surge, and have indicated that many bankruptcy attorneys are finding themselves with more business than they can handle.
Register for "A Debtor World"
If you haven't already done so, remember to register for "A Debtor World: Interdisciplinary Academic Symposium on Debt
from the University of Illinois and the American Bankruptcy Institute."
Taking place on May 2-3 at the University of Illinois in Champaign, IL, this conference will explore the phenomenon of debt through the thoughts and opinions of various leading U.S. and international scholars on the issue.
James Scurlock, producer of the critically acclaimed 2006 documentary "Maxed Out," will be the conference's keynote speaker. Click here to learn more about the speakers who are scheduled to appear at the conference.
To learn more about rates and how to register for this amazing conference, visit the American Bankruptcy Institute (ABI) page on the 2008 Debt Symposium.
Register today as you don't want to miss out on what figures to be an amazing conference.
Kevin's Corner
Practice Management Tip:
Promoting Yourself in the Press
"News reports are full of stories about bankruptcy, foreclosure, credit card debt and other financial problems. Those sad stories aren't new to any of us, and those problems mean a need for our services. But they also mean an opportunity for marketing that many attorneys overlook.
"News stories about bankruptcy, personal financial issues, credit counseling, foreclosure, collection agencies, credit card debt and other related issues create a need for expertise on those issues and quotes from people in the field. Newspaper and magazine coverage of these issues invites informed letters to the editor.
"Too often, attorneys overlook the marketing value of taking just a few minutes out to explain a concept to a reporter or provide a quotable comment. As attorneys, of course, we're cautious. We're also busy. But the potential value of being 'the expert' in that situation is significant.
"First, prospective clients will read the article. People gravitate toward stories that tell them they're not alone, that other people are going through the same thing. If those readers don't already know your name, you've accomplished something immediately: you've let them know you're available.
"You've also, if you've chosen your words wisely, demonstrated that you're on their side. And finally, the publication has done you an unwitting favor by holding you out as an expert; you've not only made potential clients aware of your practice and let them know you're on the same team, but you've been presented by a third party as an expert in your field!
"To the consumer overwhelmed by financial problems and unsure where to turn, that can look like a lifeline.
"Frequently, when reporters start making those last minute phone calls looking for a quick quote on a particular issue, we don't take their calls (or don't return them promptly). It might be reluctance, it might simply be that it's not a high priority; it should be. Five minutes on the phone could do more for you than a lot of the advertising you pay for.
"And you don't have to wait for those opportunities to come your way. Respond with letters to the editor when you see relevant stories, especially if they're off track. Cultivate relationships that will encourage local writers to contact you when they have questions or need quotes—being held out to your prospective clients as a knowledgeable and concerned local attorney that the media look to for information can be more powerful than any paid ad."
- Kevin Chern
President, Start Fresh Today
Credit Card Companies Defend Actions in Front of Congress
On March 13, the House Financial Services subcommittee heard testimony from major credit card issuers Bank of America Corp., JP Morgan Chase & Co. and Capital One Financial Corp. about the effects of proposed credit card regulation legislation on their ability to serve customers.
Unsurprisingly, representatives from all three corporations expressed the opinion that legislative restriction is unnecessary in the credit card market, and that such legislation would likely serve to "hinder" their ability to offer credit to consumers.
A Bank of America representative went so far as to remind the Representatives that the credit card industry is "highly competitive," and as such provides enough protection to consumers (please hold your laughs), according to a report on CNNMoney.com.
Subcommittee Chairperson and bill sponsor Carolyn Maloney (D-NY) reportedly attacked the credit card industry for levying excessive fees, practicing universal default and lacking oversight, noting that credit card agreements should reflect the interests of both the issuer and the user. Her bill would mandate, besides elimination of the aforementioned practices, giving users greater notice before payments are due.
In response, a representative from JP Morgan Chase & Co. allegedly indicated that the measures proposed by the bill would be expensive to put into place, and that card issuers would ultimately pass these costs on to customers (imagine that—credit card companies passing on costs to the consumer).
Several Republican Representatives reportedly suggested that the Subcommittee wait until the Fed finishes its ongoing review of credit card industry regulation before passing any new legislation, according to the article.
Speaking of Credit Cards
Did you know that a link has been found between credit card insignia and card users' likelihood to spend? In a recently-released study, Angela K. Littwan of Harvard Law explores the effects of various sources of credit on low-income women.
The study was originally designed to test whether the substitution principle of credit often cited as an argument against credit card regulation (limiting credit card availability to low-income borrowers would have an adverse effect by forcing them to borrow from less favorable sources of credit) actually occurs in the real world.
Her findings show that the relationship is limited at best, and – perhaps more interestingly – that credit cards often act as a spending trigger for cardholders.
Read more about the study in the following article:
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