Monday, January 2, 2012

Zombie Debts

According to the Wall Street Journal, there is an increasing trend among collection agencies and U.S. banks, of pairing credit card offers with debt repayment agreements as a way of re-aging debts that have passed the statute of limitations. Some of these offers are becoming subject to legal scrutiny either because they do not make it clear that the subject of the offer is agreeing to enter a loan repayment program, or because they deceive the consumer into believing that the debt in question is still current.

Nevertheless, some subjects of these offers report being pleased at receiving them, and indicate that they would accept another of the same, because it provides them an opportunity to reestablish credit when most lenders would not deal with them. I’m not so sure that the warm embrace of these practices by certain consumers means that the trend is a good one. Quite the contrary, I think it says something terrible about the banks involved.

I’m not especially bothered by the allegedly deceptive practices. I know it’s a little unsympathetic of me, but I suppose that if a person is eager to sign up for a credit card in the shadow of persistent and disastrous financial difficulties, they damned well ought to be repaying defaulted loans no matter how they were finagled into the agreement. I can understand undertaking and gradually paying on debt, and I can understand letting it lapse and then living without it altogether, but failing to manage it and yet still accepting it as a part of your life just seems like harmfully inconsistent decision-making.

What bothers me about the practice, then, is something that the WSJ article points to, itself:

“[Some lenders] are leery about subprime borrowers. But the debt-driven credit cards show some banks tiptoeing back into subprime lending after suffering big losses during the financial crisis.”

I’m no economist, but trends like this make me almost convinced that financial bailouts and the like from Washington have served to avert disaster in the short term, but have actually made the underlying problems worse. Money lenders are evidently viewed as so fundamentally important to the structure of American prosperity that their failure is unconscionable, which means that from a slightly different perspective, their failure is simply impossible. The money will always be there in one form or another, so no matter how risky a lending practice is, the institution will be covered against catastrophic losses.

In this sort of situation, the only things an investment bank has to fear are public outcry and government scrutiny, not a failure of their own investments. If that’s the case, the rational thing to do is to maximize profits with little regard for long-term risk, and just be careful not to get caught. Banks can’t really be blamed for that attitude; their self-interest is best served by such practices, and it’s not their fault that there are no consequences to mitigate their desire to pursue them.

So it seems natural to me that lenders would “tiptoe back into subprime lending.” The short-term profits were so tremendous in the past and the long-term consequences so comparatively small. That is, long-term consequences were small for the lending institutions themselves, though not for the rest of the country. If those institutions continue to resurrect debts that have been shown to be worthless, as well as lending more money to the people who couldn’t support those debts, I can only assume that recent history will repeat itself with greater clarity, complete with marvelous benefits for a small minority and disastrous consequences for the rest.

Breaking points don’t come from those who reap the benefits of existing trends; they come from the people who stand to lose from the same. Political will can stop the rational reversion to perilous bookkeeping and lending practices by pushing for a situation in which both risk and reward are again shared by the same institutions. Alternatively, some of the lower class people who are the objects of subprime lending could interrupt these trends themselves by sloughing off the illusory promises of a lifestyle beyond their means, and learning to save instead of spending, and to live without anything they can’t buy in cash. For that change, I’m waiting for the breaking point whereby people start to realize that massive debt is existentially worse than subsistence.

The trouble with the former possibility is that I’m not sure that political institutions actually having any power over, or even independent of financial institutions anymore. The trouble with the latter is that the same rational imperatives of self-interest that lead banks towards subprime lending also lead individuals to accept the terms of any loan that they can ultimately survive.

1 comment:

RBDC said...

How to reverse boycott debt collectors.

When a debt collector/debt collection/debt buyer company can repeatedly call with the intent of getting money their customers can repeatedly answer or call back with the intent of not giving them any. They need people to pay with as little talk as possible. They don't want to talk with people who know they are never going to pay. Be all talk and no pay. Answer when convenient. Call back. Give no information. Verify nothing. Ask as many questions as you can. Answer none.

Don't ignore/block/report them. It doesn't work. These folks want you to ignore them for as long as you can stand to or until you give them something valuable like money or information. Ignoring them is being their good customer. Sending a cease and desist is giving information. It lets them know you are still alive and remain their good customer. Preparing to initiate unlikely individual legal battles is being their good customer.

Be their bad customer. Make them talk to you fruitlessly for as long as they can stand to or until they stop selecting you as their customer. These companies cannot spend seconds much less minutes on the phone with every person who will never send them a dime. But they don't know who that is. You do. That knowledge is power. Every second you can keep their staff on the phone will render their business less profitable giving them a reason to never call you again.

Calling will not reset your SOL. Making a partial payment will.

One person who does this likes to ask general questions they should but usually won't answer, "May I have the name and address of your agent for service of process?" Calmly and slowly ask them to spell every word in the address. Read it back for verification. Control the pace. If they are rushing then politely ask them to slowly repeat. "Are you a corporation and if so in which state are you incorporated?" Repeat your questions when you don't get direct answers. When they won't answer a question ask, "Would you like to comply with the business and professions codes of your state?" That is usually the point when they hang up on me but if they say they want to comply then begin your questions again.

Repeat while you have the spare time. These folks have many victims and few operators. If everyone calls back but pays nothing the mass auto-dialer business model becomes unprofitable. Don't aid and comfort the enemy by ignoring them. Call! Have a nice long slow friendly chat! Make them hang up first.

Press 2 for Spanish.

There are certainly enough victims to take down debt collectors so ignoring/blocking seems downright Orwellian. Really? We're just going to passively submit and go with a block list or however we manage ignoring an endless stream of unwanted phone calls day after day? No! Unite or remain conquered. Answer/return every call - become well practiced at keeping these folks on the phone - or count yourself not amongst the free.