I'm going to warn you right from the start that this is going to be a fairly long post. But I believe it will be an easy read and you will learn some very important information. Some of it may seem unbelievable but I assure you that it is true. Look, I've been doing this for over 31 years now. I can prove what I'm saying and I have proven it in court for quite a few of my lawsuit clients. So grab your munchies and something to drink and let's start class!
It amazes me that people pay collection companies when they really don't owe the debt. Maybe they feel they have a moral obligation or they are stressed out and think paying them is the only way to make them go away. Maybe they've been convinced that they owe it and no one has taught them the truth about collections. Maybe it's a combination of the above, or all of the above, or some other reason that makes sense to them. Almost no reason makes sense to me.
Talking about collections with me makes me just go off, spewing out one fact after another and sometimes I get so riled up I get potty mouth. Yep, I do blow it occasionally when it comes to collections. Their fraudulent behavior and bullying, harassment, lies and stubbornness sometimes sets me off. I'm going to teach you about collections today and I promise I will try my hardest to keep my words clean so as to not offend anyone or put bad language in front of youngsters that may read this.
Let's start from the beginning and we'll assume the original account is a credit card account, (but this scenario applies to most types of collection accounts including medical, utilities, insurance, cable/telecommunication accounts as well).
When you are approved for a credit card account, you are given plastic and a credit limit. When you spend using that card, the bank/card issuer convinces you that they lent you money/credit limit for you to spend. But that's not the truth. Banks are not allowed to lend money from their assets nor their depositors' assets. It's also completely illegal to lend credit. So now that you know that banks can't lend money or credit, what are they lending you? The answer is NOTHING!
What actually happens is that credit card agreement with your signature becomes a negotiable instrument. Your signature gives it energy and value. Title 12 instructs banks to treat negotiable instruments as cash. In accounting, a bank treats it as "cash equivalent" and that means that YOU FUNDED THE ACCOUNT! The instrument has your signature on it. You own it. But they NEVER disclose that to you. You are actually making a loan to the bank but they trick you and convince you that they lent you something, totally ignoring that you were the one lending something.
Let's skip over to contract law for a moment. In order for a contract to be valid, there are 4 main elements, in addition to being bilateral - meaning 2 signatures, 1 from each party. The 4 essential elements are Offer, Acceptance (you have these two in your contracts), FULL DISCLOSURE, and EQUAL RISK. Your credit card account contract is missing the last 2 essential elements for a valid contract.
To have full disclosure, they would need to inform and advise and disclose to you that YOU are the one who is funding the account. They would have to disclose to you that the account is going to be insured in case of asset loss for the bank's favor and that you will be paying the insurance premium for that asset loss insurance (known as "credit default swap"), and get your written consent to the amount of the premium. They would need to disclose that they will most likely only service the account and transfer "ownership" to a special purpose vehicle such as an asset backed trust. They would need to disclose that this is securitization and that by separating the payment stream from the note, the contract is void.
To have equal risk, both parties must have something to lose. What do the banks have to lose? They don't lend anything. They are insured against loss, they sell it and transfer it, they get tax credits. WHAT DO THEY HAVE TO LOSE? The only thing I can think of is insane amounts of illegal profits that they really aren't entitled to. But really that doesn't fit either because they insure everything! They can't lose! Anyhow, I hope I've explained why the banks don't really have a valid contract.
Now, moving on to the creation of collection accounts and the fraudulent nature of them.
You have your credit card account and you're using it and paying it regularly and consistently and then something happens that causes you to be late. You get hit with fees. You catch it up and use and pay and use and pay but you get to a point where you just can't keep up with the payments and you default on your agreement. The account gets further and further behind. So you try to work something out with them but still you can't keep up.
Let's say you asked me to try to talk to them about the account. So I call them up and say that I want to discuss account number 1234XXXX, and see what can be done to save the account and get back on track. They ask me if I am Mary Doe and I tell them, no, I'm Shannon, Mary's friend, or sister, or whatever. They will then tell me that they cannot discuss the account with me or anyone except Mary unless she has given specific authorization or a Power of Attorney to speak with them on her behalf. This is important to understand. They CANNOT share any information about Mary's account with me or ANY PERSON (corporations are also defined as a "person") without a request, agreement, authorization, or Power of Attorney specifically naming that person as authorized to communicate and receive her account information. THIS IS IMPORTANT!
Well Mary can't catch up the account and at 180 days, the bank needs to remove it from their books and they charge it off. But wait! Remember that they insured that account in case of loss due to default or other credit/asset loss? They never tell you this but at approximately 90 days, they are allowed to file an insurance claim for that asset loss. The insurance company then issues a check for the amount of loss they claim they will or have incurred. The account is now PAID OFF IN FULL. Remember who paid the insurance premium? That's right, it was you - whether you knew it or not you were charged the premium and you paid it. Or maybe I should say your negotiable instrument paid it.
That insurance payoff happened at approximately 90 days of default. Remember I told you that the banks charge off the account at 180 days? That charged off amount is the balance they report to the credit bureaus, or an amount near the amount of the charged off amount. IT'S A HUGE LIE! The account was paid off by insurance that YOU paid for. The balance is $0! They charged off NOTHING! Scam! Fraud! Lies! Schemers! Your credit reports should ALWAYS show the charged off account has a $0 balance. Oh heck no! It shouldn't even be a charge off. You paid off that account in full at approximately 90 days of default. And that's not even taking into consideration that you funded the stinking account in the first place so you never really were in default and didn't even need insurance to pay it off. I swear! Now you know why I get so worked up. But oh, it doesn't end there.
When they do their charge off of the account, next they recoup some more money by filing a Profit and Loss on their taxes. This allows them to take a deduction or receive a credit for that asset loss. Funny how they conveniently forget that they never lent a dime, never lost a dime, actually made money (from your payments and insurance payouts), and still benefit from the P&L. You'll see that P&L on your credit reports quite often under "Account Status."
Now that they've squeezed out as much money for that account as possible for the time being, they use the credit reports to try to extort that fake balance out of you. Some people fall for it and you will see a Paid Charge Off on the credit reports. Many times people pay them because of the threat of being sued. Oh the greed of the banks!
Banks don't always hold onto charged off accounts. Sometimes they crunch the numbers and figure that it's more beneficial to sell off the charged off accounts. This is where the 3rd party collection company enters the picture. They usually bundle up a lot of charged off accounts and sell them as debt portfolios. Then "debt buyers" purchase them. I really hate the title of "Debt Buyers." They don't buy debt, they buy YOUR INFORMATION.
Now please recall the little scenario of me trying to talk to the bank on Mary's behalf. Do you remember why they wouldn't talk to me or anyone else about her account? They, by law, cannot share any information with any person without Mary's consent. They can't share info or communicate or negotiate without her authorization or a Power of Attorney, or an agreement such as a company stepping in and paying off the account for which she would have contracted to now pay them. An example of this would be similar or the same as a refinance.
When banks sell off their portfolios of charged off accounts to a 3rd party collection company or misnamed "debt buyer," they are selling the account information only, because remember, the account has not only been paid off by insurance, but also charged off and received tax credits. But, they NEVER contact the account holders and get their consent to share that information with any other party. They do it behind your back! They do it without your consent and without your knowledge.
I declare that this is collusion between banks and collection companies to perpetrate identity theft on account holders. Collection companies get these accounts, create new accounts that you know nothing about then send you a bill claiming you owe them. Wait! Where's the contract? Contract law requires a valid bilateral agreement between you and another party. It requires offer and acceptance. When dealing with a collection company, there is No upfront offer and acceptance. There is no full disclosure - they ALL know that the true account balance is $0 and I've confirmed that with a broker for debt portfolios. They KNOW! Lastly, it's obvious that there is NO EQUAL RISK! It is impossible to have a valid contract with these debt collectors. It is also highly likely that collection accounts are insured as well. I'd guess that I'm about 95% sure of it.
WHAT A HUGE SCAM ON CONSUMERS! GRRRR! I know some of you are feeling what I feel when discussing this huge fraud on consumers. It's an outrage! It's intentional and willful and corrupt.
I'm not advocating not paying your bills because it all starts off with a failure to disclose, no real lending, no truly valid contract, etc. I believe that in this society, you have to play the credit game in order to achieve the American dream of home ownership and purchasing cars, or personal loans, renting a place to live or renting a car, turning on utilities, getting insurance, getting a cell phone, or whatever. You need good credit to obtain additional credit or financing for major purchases. I'm just wanting you to be aware and awake. I just want you to understand about collections and learn to fight back. I don't ever advise anyone to pay a collection account though. It's all a sham.
Demand validation of these collectors. Demand they produce a valid contract. Demand they produce a signed authorization. They shouldn't be on your credit report for any reason but since they are, they certainly should not be there without an authorization to collect information and make communications about you and an alleged account. They can NEVER truly validate. There is no valid contract and there is no POA or signed authorization. They've never lent anything to you. They are not named on original contracts with original creditors so they don't even qualify to subrogate/substitute themselves on to a contract. They have no interest to protect. They haven't been aggrieved and are not entitled to seek redress.
I hope you've learned a lot from this post. I hope it gets you fired up to fight back. I hope the information helps you to see success against these 3rd party collectors to get them off your credit reports and out of your lives!
If you have collection accounts that you need off your credit reports and you don't want to take on the fight alone, contact me because I love my work. I love fighting to get these thugs off your reports and out of your lives.
