Capital One Comes Calling.
Well, I knew it was bound to happen eventually: a few years back I closed my Capital One account, because in the wake of the Bankruptcy Reform Bill of 2005, they decided it was reasonable to charge me 20% interest and hit me with as many fees as possible, and now Capital One has sent a collection agency after me to recoup their money. As the New York Times reported a few weeks ago:
[B]behind the big increase in consumer debt is a major shift in the way lenders approach their business. In earlier years, actually being repaid by borrowers was crucial to lenders. Now, because so much consumer debt is packaged into securities and sold to investors, repayment of the loans takes on less importance to those lenders than the fees and charges generated when loans are made.
Lenders have found new ways to squeeze more profit from borrowers. Though prevailing interest rates have fallen to the low single digits in recent years, for example, the rates that credit card issuers routinely charge even borrowers with good credit records have risen, to 19.1 percent last year from 17.7 percent in 2005 — a difference that adds billions of dollars in interest charges annually to credit card bills.
Average late fees rose to $35 in 2007 from less than $13 in 1994, and fees charged when customers exceed their credit limits more than doubled to $26 a month from $11, according to CardWeb, an online publisher of information on payment and credit cards.
[snip]
“Today the focus for lenders is not so much on consumer loans being repaid, but on the loan as a perpetual earning asset,” said Julie L. Williams, chief counsel of the Comptroller of the Currency, in a March 2005 speech that received little notice at the time.
[snip]
And recent changes in the bankruptcy laws, supported by financial services firms, make it all the harder for consumers, especially those with modest incomes, to get out from under their debt by filing for bankruptcy.
[snip]
Not surprisingly, such practices generated dazzling profits for the nation’s financial companies. And since 2005, when the bankruptcy law was changed, the credit card industry has increased its earnings 25 percent, according to a new study by Michael Simkovic, a former James M. Olin fellow in Law and Economics at Harvard Law School.The “2005 bankruptcy reform benefited credit card companies and hurt their customers,” Mr. Simkovic concluded in his study. He said that even though sponsors of the bankruptcy bill promised that consumers would benefit from lower borrowing costs as delinquent borrowers were held more accountable, the cost of borrowing from credit card companies has actually increased anywhere from 5 percent to 17 percent.
And has been noted before, that’s ruined the entire economy by forcing people who would ordinarily declare bankruptcy on a credit card debt now walk away from their homes, which are usually worth hundreds of times more than the credit card.
So when the nice Mrs. Gray from the collection agency told me I have to pay up or face legal action, it was hard not to laugh at her.
“I understand the position your agency is in Mrs. Gray,” I began, “but Capital One has no one to blame but itself. No one forced them to change the bankruptcy laws to squeeze more from customers. They did that to themselves, and it is not my fault that they made it impossible to pay their credit card.”
“Mr. Skwire, the debt has to be paid…”
“..And I am glad to help pay that debt, Mrs. Gray. However, our options are limited. Right now, I am two months away from paying off a different credit card: I have an automatic $100 debit every month, and that’s paid in September. So after that two months, I can pay you.”
“Mr. Skwire, I’m afraid we can’t wait that long.”
“Why not? That debt’s been sitting for three years and no one’s called about it. I think you can wait another two months, and then I’ll set up a payment plan with you.”
“Mr. Skwire, that won’t do. This is going to hurt your credit!”
“Oh don’t I know it,” I said. “Don’t I know it! My credit’s been in the toilet for months, just like everyone else’s. I just got rejected, twice, for a home equity loan I was going to use in part to pay off my debts, so I’m basically kind of screwed. My credit’s already bad, a little worse doesn’t really mean anything to me. I’m telling you, if you can wait for 2 more months…”
“Mr. Skwire…”
“Look, Mrs. Gray, you’re not going to get blood from a stone.” It’s amazing how nonchalant you can be when you have nothing, because at no time did I lose my cool or my smile. “Just like everyone else, I am having trouble paying my bills too. In fact, I’m happy to go over my obligations to you. Which do you think should I default on instead? Would you like me to default on my mortgage? I really don’t want to face foreclosure. Or should I stop paying my child support? Should I take food out of my child’s mouth because Capital One decided they’d squeeze customers for all they have? Or maybe I should default on other credit cards which have treated me well, and for which I make timely payments, to make a payment on a closed account, from a credit card company that treated me poorly? Or perhaps I should stiff my student loans instead, and have seven years of bad credit?
“You see what I mean? I’m afraid you’ll simply have to wait your turn in line. Or maybe you could call the government for a bailout? I hear that works really well for corporations like yours.” I felt bad for her. She was actually a very pleasant woman, and clearly her job has gotten more difficult now that everyone’s broke, our houses have no equity, and the economy just shed another 51,000 jobs. No one can pay.
“Sir…”
“I’m really sympathetic to you, Mrs. Gray. Really, I am. It’s not your agency’s fault that Capital One decided to hit their customers with interest payments and fees no one can afford. And it’s not your agency’s fault that Capital One decided they needed that Bankruptcy Bill, which is a classic case of ‘be careful what you wish for’. But I’m in good standing with my other debts and can’t sacrifice what good accounts I have to settle up your old debt. I’m not robbing Peter to pay Paul.”
Finally exasperated by my cheerful responses (and I made a point of being a ray of sunshine), Mrs. Gray said “Mr. Skwire, I’ve been doing collections work for years. Let’s discuss your options.”
“You’ll have to call me back tomorrow then,” I said. “I’m on my bicycle in Center City Philadelphia commuting home because gasoline is so expensive now, and if I get hit by a car I’ll be dead and then NO ONE gets paid. Call me tomorrow at 1:00 or so.”
And so I’ll be talking to Mrs. Gray again today. I suspect that it’s a private agency which bought the debt, so I’m going to try to negotiate them down, or at the very least come up with some sort of deferred payment plan.
One thing’s for sure: I don’t have $2000 to give them, and I can’t handle more pressure on my budget. I am just keeping my head above water (in no small part due to Capital One’s Bankruptcy Bill), and until I have a better salary, the suits at Capital One (who lost at least $6 billion this year SO FAR) will have to eat that $2000.00.
This morning, I related my story to Representative Schwartz who helped pass this bill, and asked whether Ms. Schwartz will be fixing what she helped break 3 years ago. I couldn’t get a straight answer.
As for Mrs. Gray, I’ll be reading her today’s editorial from the New York Times: Listen to the 56,000.
When the Federal Reserve asked for comments on its proposed rules on abusive credit card practices, an astonishing 56,000 poured in. Most were from outraged consumers. They told of interest rates skyrocketing when they paid an unrelated bill late. They complained of unwarranted late fees and pushed-up due dates. One Pennsylvania customer fumed: “I’m fed up with credit card company tricks that drive us deeper in debt.”
[snip]
For too long, members of Congress have shirked the responsibility to ensure fair lending to credit card customers and have listened more intently to the banking lobbyists. A low point came in 2005, when Congress passed a bankruptcy law that was badly tilted against borrowers. It gave extra protections to lenders against unscrupulous debtors. But it also made it much harder for people to declare bankruptcy, even when the economic crisis was caused by sickness or family tragedy.Ronald Mann, a Columbia Law School professor, has argued that the law creates a “sweat box of credit card debt.” As borrowers become “distressed,” the credit card issuer has more time to pile on interest charges and fees until the client actually goes bankrupt. As heartless as that bankruptcy law has been for beleaguered consumers, the Democrats, who have controlled Congress since 2006, have not fixed it.
The government bailed out Bear Stearns with $29 billion or so of taxpayer dollars. A few weeks later, they bailed out Freddie Mac and Fannie Mae: that could cost more than $25 billion, probably more. And truth be told, the government put American consumers like me in a hole to begin with by passing the Bankruptcy Bill to begin with. The way I see it, Capital One should go ask them for the money. I was against the whole scam from day one, and if Capital One made a bad bet that “the focus for lenders is not so much on consumer loans being repaid, but on the loan as a perpetual earning asset”, they have no one but themselves to blame for their current financial discomfort.
Hey Cap One: go ask your pals in the House and Senate that passed your pet legislation to cut you a check. Cus like Flava Flav once said, “I can’t do nuttin’ for ya man…”
Flava Flav got problems of his own, and so does Brendan Skwire.
2 Responses to “Capital One Comes Calling.”
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August 6th, 2008 at 6:01 pm
Boy, don’t you know, they HATE informed consumers.
August 6th, 2008 at 11:00 pm
The more informed the consumer, the less money they make.