Why Charge Offs Shouldn't Be Paid

Many times when I review clients' credit reports I see paid charge offs.  My stomach gets a sick feeling every time. Paying off a charge off might help the score a bit because it changes the balance to zero, improves the debt ratio, and potential creditors like seeing that the alleged debt was paid, but it's still a derogatory account and will always be a derogatory account.

The truth is, that creditor has already been paid for that charge off, even before it was charged off, but they never told you.  These creditors always fail to fully disclose every important aspect of credit accounts. That voids the contract. It voids the account. The account and contract were never valid because of fraud and lack of disclosure by the creditor.

One thing these creditors fail to disclose is that the account is insured to protect them from loss of asset due to default or other credit loss.  Did you know that? Did they disclose that to you?  They're supposed to. In over 30 years of doing credit repair, I have only seen the disclosure 1 time.  ONE TIME, and that was years ago.  Haven't seen any disclosures in probably over 15 years or so.

I'll explain the insurance in a bit but here are some other things they don't disclose.  They don't disclose that they are prohibited from lending you money from their assets or their depositors' assets.  They are prohibited from lending you their credit. They are lending you your own money that you first lent them, which means that you funded the account that you are using to shop or spend. They are converting paper (your application, service agreement, loan papers) into negotiable instruments and depositing them into the newly created account to fund the account and essentially lend them money.

The National Bank Act of 1864 and National Banking Act of 1933 are where you can find the regulation that states these financial institutions cannot lend money from their assets or their depositors' assets.  Supreme court case law repeatedly has ruled that these financial institutions cannot lend their credit.  Here are a few cases but there are many, many cases that uphold this. 

"A national bank has no power to lend its credit to any person or corporation…" Bowen v. Needles Nat. Bank, 94 F 925 36 CCA 553, certiorari denied in 20 S.Ct 1024, 176 US 682, 44 LED 637.

First National Bank v. National Exchange Bank 29 U.S. 122, 128

California Bank v. Kennedy 167 U.S. 362, 367

Concord Bank v. Hawkins 174 U.S. 364

You will find the requirements related to the insurance banks have for each account in 15 USC Section 1605.  Let's talk about this insurance and how it supports my opinion that charge off's should not be paid after the fact by the consumer.

FDIC rules require creditors to charge off written contracts at 120 days of default and revolving credit accounts at 180 days of default.  However, creditors can file a claim against the insurance for a credit account at 90 days of default.  That's 30 to 90 days prior to when that creditor is allowed to charge off the account.

Once the insurance claim is launched the creditor shortly thereafter receives the money to pay off the balance of the account which they claimed is a loss of asset.  Please tell me, whose loss of asset was really affected?  Not the creditor because they didn't have any skin in the game.  How can I say that?

Remember I stated that these financial institutions are converting paper (agreements, applications, etc.) into negotiable instruments.  Well, they don't own these negotiable instruments.  They belong to the consumer whose name is signed on the bottom. Under Title 12, negotiable instruments are to be treated as CASH!  Whose cash?  The consumer's cash.  That is what is deposited into the newly created account. That is what funds the account.  The CONSUMER funds the account, not the creditor, so the consumer should be the recipient of the insurance payment, not the creditor who has not lost a dime!

But let's go over the insurance and charge off actions. Since they get a payoff for the insurance claim they place for the "default" , the balance is paid off.  Why then do they charge off the account 90 days later, when the default timeline hits 180 days (or 120 for written contracts)? The balance was paid off by the insurance so there is no amount left to charge off.  Did you ever think about that if you knew about the insurance?  

Since the consumer funded the account and continued to deposit more money in the form of "payments" and the creditor never lent any money or credit since that's forbidden by law, and then the creditor swipes the insurance payment by fraudulently claiming they are experiencing asset loss, why do they need to charge the account off?  The insurance paid it off. In reality, the account was paid as agreed from the get go by the consumer and credit reports should reflect that.

But since these liars will never report the truth and will not correct the record, the consumer needs to not give them more money by paying a charge off but instead, demand that they prove their claim. Demand that they prove they lent something, that there was equal risk and full disclosure, and a truly valid contract.  Since they cannot provide that, put the squeeze on them and remove that bad account from your credit, get them to close their file, and work on rebuilding your credit without paying that derogatory, false account that is void and was void from the origination of the account due to an invalid contract, fraudulently created by them, the fake creditor.

Hopefully this sinks in and you will stop and think about how they are trying to dupe you, before you pay off a charge off that you do not owe.  

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Raise It or You Waive It

Whether you are disputing information regarding a derogatory account from a creditor or an alleged account with a 3rd party collector, you need to be specific about what is wrong with how they are reporting that item on your credit report.  You need to raise the issues in your dispute letters and hold them accountable to prove it.

With an original creditor, you will most likely be disputing the amount of the balance they claim is owed after they charge it off.  Here are some thing you should be disputing:

• There is no balance because they claim to have charged off the account and it is a FACT that there is insurance on each account to protect the creditor  against asset loss.  Did they receive monies from an insurance claim that paid off the alleged account balance?
• Did they even fund the account or did you?  
• Did they take tax credits?
• Are they the creditor or really just the servicer?
• Did they disclose that they were charging you for the insurance premium to protect against asset loss?
• Did they get your approval in writing agreeing to the amount of the premium as require by law?
• Did they get the insurance payoff prior to charging off the account?
• Is the contract creating the account even valid since they lacked full disclosure and equal risk?
• Do they even have a certified copy of the original contract bearing both your signature and their authorized representative's signature?
• Can they provide a full accounting showing every charge, every payment, every fee, every interest charge, every credit -including the insurance claim monies received, and any other amount along with the date each event occurred? *This does not mean they get to send you monthly billing statements. They need a full history document).

All of these questions are threatening to an "original creditor" because if they are truthful, they will have to admit that the contract was not valid, they lent you nothing, you covered the premium for the insurance for their benefit, the insurance paid off the account prior to charging off the account, and YOU funded the account, not them.  They need to respond point by point on each issue raised and provide documentation for everything they claim. Plus, verification requires a sworn affidavit, so that's how you need to tell them to respond.

With a 3rd party collector you should be raising some of these issues if not all of them:

• Were you named on the original contract with the original creditor?
• If not, do you have a contract between your company and me, signed by both parties?
• If not, produce the document authorizing the release of my information from the original creditor to you (Power of Attorney), signed by me. It is against the law for a creditor to share your information to any party other than the account holder without their authorization. Giving your information to a 3rd party without your knowledge or consent is perpetrating identity theft,
• Do you have first hand knowledge about everything that has transpired with the alleged account, including when the account allegedly belonged to the original creditor and any other parties prior to your acquisition?
• Do you have written consent to collect information about me and to share information about me with the credit reporting agencies - in writing, signed by me? 

When you receive a response back and it doesn't respond to each issue raised and doesn't include certified documentation backing up each response, you must call them out on their failure to validate.  Again, verification is the sworn testimony so they also should be responding to you in that format. Validation is the documentation backing up their testimony. One without the other is hearsay and inadmissible.

You always need to respond to their response and raise the point that they did NOT provide the answers and documentation you requested. You need to raise the point that they did not respond with a sworn affidavit of verification. They failed to validate. They failed to prove their claim. They are in default in their response/lack of response to the dispute and issues raised.  If you do not respond and call them out, you waive your right to claim they did not prove you owe them or that there is a valid contract.

I ALWAYS include the Maxim of Law - Silence Equates to Acquiescence (Agreement) in each of my letters.  This tells them that if they don't address even one item as requested, they agree that your statement of fact is true.  It is part of your full disclosure to them that you require a response and lack of receiving what is requested or demanded from them proves you owe them nothing.

So raise your disputes. Don't remain silent. Always be the last to respond until they respond that they are removing the item from your credit report and closing the alleged account.

If you need assistance with credit repair and want an expert on your side, contact me for an audit of your reports and consultation to go over what needs to be done for your credit and pricing plans that can get you up and running quickly.  Just a reminder that Future Fico is a non-profit so your service costs are donations that are tax deductible for you!

Contact me today!