It’s do or die time.

That’s what it looks like at the SC General Assembly this week, as the payday industry gears up for a Thursday hearing before a House subcommittee on a Senate bill that would come very close to putting a stop to the payday industry’s free ride thus far.

The bill (which, in my opinion, fails only in the fact that it stopped short of banning this industry) would limit the number of loans a South Carolinian could have outstanding at one time, put the onus on the lender to enforce that rule, and requires a seven-day “cooling off” period between loans.

As my law school buddy and co-teaching assistant (Professor Haggard’s ‘95-’96 Legal Writing class shout-out!) Senator Vincent Sheheen (D-Kershaw) recognized last year when he and Senator John Hawkins filed a class action suit against Advance America, these lenders know full well that their products are insidiously addictive. That’s why they aim those loans at low-income and minority citizens. They set up shop, not in the tony shopping centers that cater to nearby gated communities, but in the traditionally low-income portions of our nation’s cities and towns.

They wormed their way into utility offices, offering easy money to those who were desperate to keep the power on in their homes, and next to cable companies and grocery stores for similar reasons: everyone uses them, and usually it’s the low-income, lower middle class neighbors who struggle with these basic bills (a fact which may, interestingly, be changing rapidly in this day and age of $3.99 gas and rice rationing at the local Sam’s club).

When customers predictably can’t keep up with the crushing avalanche of bank drafts, they let loose collection tactics that include threats of imminent arrest and criminal prosecution, disclosure of the customer’s “status” as a “deadbeat” to his or her employers, family, and friends, and other clearly unlawful activity.

Side note: In South Carolina, such tactics are and remain unlawful thanks to a provision in the state’s Consumer Protection Code which extends similar protections to those offered in the federal FDCPA legislation, which only applies to third party collectors, to original creditors as well. But many states don’t have that kind of protection. And even though we do have the benefit of that rule, it doesn’t stop the overreaching and the harassment — it just gives citizens a means of recourse. However, most citizens who are impacted by this kind of behavior will never seek redress.

So what’s the solution? Senator Sheheen and his colleagues in the Senate have proffered a decent first step. The industry must not be allowed to intimidate the House committee members now with accusations of “conflict of interest.” There is no conflict of interest; the allegations are misleading and play to the public’s general misunderstanding of the role of a lawyer in a legal action — the lawyer is NOT a party to the suit he brings, though some would like to blame the legal profession for the fact that cases get brought. It’s a little like blaming the doctor who treats the patient for the fact of the car accident that brought the patient to the ER in the first place.

Contact your House representatives to express your support for this bill, which you can read in full here.

To get more information on how to contact your reps (and to find out who they are), visit this page from the General Assembly’s website.

Believe it or not, the IRS loses $37 million each year on private debt collectors paid to dun citizens for tax debt.

Appallingly, these aren’t even the very wealthy tax scofflaws being hunted by the expensive collection agencies:

After years of lobbying by the private collection industry, the Republican-controlled Congress created the program in 2004. The goal was to use collection agencies to close the relatively easy cases the IRS said it did not have the staff to handle: instances in which the taxpayer is not disputing the debt and in which the amount owed is relatively modest.

The article goes on to state the program’s supporters expect it to break even by 2010.

How nice for them.

I don’t know about you, but when I read something like this, the irony is too thick to permit genuine laughter.

The following email press release just came across my desk. I’m printing it in its entirety because I think it’s important everyone hears about this, without delay or commentary from me:

p>Washington, DC - More than 15 national organizations (listed below) issued the following joint statement in response to the Foreclosure Prevention Act and its failure to include bankruptcy measures:

“The Senate Housing package misses the single most significant step needed to help the 20,000 American families with subprime loans that are losing their homes each week through foreclosure: the bankruptcy amendment.

We are left with a bill loaded with special considerations for mortgage companies and builders that does very little for homeowners who were sold predatory loans by mortgage lenders.

Any final bill hammered out between the U.S. House and Senate that is a serious effort to stem the foreclosure crisis must include meaningful relief to families to modify their mortgage in bankruptcy. Bankruptcy relief will stabilize communities, keep more than half a million families in their homes and provide lenders at least as much income as they would receive through foreclosure.

As the Senate bill stands, we will continue to see foreclosures tear down communities and wipe out the most important source of financial security that most Americans have.

We are encouraged that there is recognition that the bill under consideration by the U.S. Senate today is only part of the solution. Without bankruptcy relief, Congress will be condemning hundreds of thousands of American families this year to losing their homes.

The signatories to the above press release were identified as:

• Center for Responsible Lending
• Leadership Conference on Civil Rights
• ACORN
• American Federation of Labor and Congress of Industrial Organizations
• Consumer Action
• Consumer Federation of America
• Consumers Union
• Lawyers’ Committee for Civil Rights Under Law
• NAACP Legal Defense & Educational Fund, Inc.
• National Association of Consumer Advocates (NACA)
• National Association of Consumer Bankruptcy Attorneys
• National Consumer Law Center
• National Association of Neighborhoods
• National Community Reinvestment Coalition
• National Council of La Raza
• National Fair Housing Alliance
• Opportunity Finance Network
• Service Employees International Union (SEIU)

This post at Bankruptcy Law Network by Kent Anderson, Oregon bankruptcy attorney, is of special import today. Briefly:

April 1, 2008, is the last day for citizen comment on an important regulation! The date may be full of irony but this deadline is no joke. The US Trustee has submitted a proposed rule that includes specific requirements for the credit counseling “briefing” required of all individual debtors by 11 USC §109(h)(1). … The public comment period ends April 1, 2008. The proposed regulation created by the US Trustee can be found in a PDF on their web site. The US Trustee description of the briefing required by Congress is set forth in the definition in §58.12(a)(12).

Among other “liberties” taken by the US Trustee in drafting this regulation is the time period required for the credit counseling briefing. By UST definition, the briefing on average is to take “at least 60 minutes”. Where is that requirement found in the statute?

To comment, just visit the website set up for receipt of comments on proposed regulations. Reference “Docket No. EOUST 102″ when you submit your comment.

Commenting on regulations, like jury service, is your civic duty as well as a right!

From Fortune comes this short but fascinating video, featuring a former Ameriquest worker talking about just how his coworkers and he were instructed to talk borrowers into loans they couldn’t afford.

Every time I hear someone blame the borrowers in this subprime scandal, I have to chuckle a little. I have no doubt that some borrowers were, in fact, less than diligent in their “due diligence” — some, no doubt, even went so far as to become bad actors themselves.

But I do remain convinced that’s not the main story to tell in this mess. Case in point: this article from CNNMoney that asserts “More troubled borrowers getting left behind.” These borrowers were misled by brokers and other players, and when they try to renegotiate now, they’re facing failure in large numbers.

Where’s the help for these borrowers? Most can only save their homes through filing bankruptcy. Appropriate legislation is now more important than ever.

This is another post in our ongoing series “Back to Basics: Bankruptcy.” This post examines credit issues in the context of bankruptcy.

I hear many objections to bankruptcy from people who really ought to be considering it as an option, but by far one of the most frequently cited objections is this: “I don’t want my credit to be ruined.”

Let’s look at the facts, and try to separate them from the myths:

• Myth: Filing bankruptcy means I’ll never get credit again.

Fact: An entire subspecialty of the credit industry exists solely to extend credit to bankruptcy debtors. In fact, even for non-subprime lenders you may be a more attractive credit risk after filing bankruptcy (especially Chapter 7, which is a quicker process than Chapter 13 plans)

• Myth: My credit will take a huge hit if I file.

Fact: Credit scores do generally take an initial hit upon filing. However, an interesting thing then happens: typically, within a year, filers find that their credit scores have actually risen. (See this report from SmartMoney, “Declaring Bankruptcy Can Improve Your Credit Score.”)

• Myth: Negotiating with my creditors will be better for my credit than filing bankruptcy.

Fact: This one’s a bit more complex to address. Generally speaking, folks who should be considering filing for bankruptcy have a skewed sense of the real state of their credit — typically overstating their credit score as much as 100 points. (Obviously, this is only true for folks who haven’t checked their actual scores — and those in distress who have checked their scores are generally very surprised.) The real hit to credit, then, could well be “continuing to do what hasn’t been working” — i.e., delaying the inevitable.

Bottom line: By all means negotiate with your creditors if you haven’t already, and if you have sufficient income to sustain some sort of payment plan. Then, if it doesn’t work, don’t hesitate to take the next step.

Someone identified only as “PaulMac” wrote here on this blog, in response to my post about Richard Bitner, the subprime insider who wrote about his experiences in the subprime industry, the following:

I would add another group of people who are profiting greatly from the subprime problems (and economy in general), and will continue to profit for some time - bankruptcy lawyers. Including the ones who write about the subject for the purpose of marketing and getting clients. Books and Blogs; Pot and Kettle.

Fair enough. But since it’s my blog, I get to respond. In full.

Of course, this blog has a place in my marketing efforts. I’m a solo practitioner. I believe very strongly in the power of blogs to do two very important things: (1) reach people and (2) reach people. People as potential clients and people as consumers. Both need the information I provide here as a matter of public education.

And, yes, I need it as a means to reach more folks than I otherwise would be able to do through “traditional” marketing means (which I eschew in full — I do no advertising, and I don’t even have a Yellow Pages ad — or listing). I can certainly understand being skeptical of any blog that smacks of “advertising.” But that’s not the primary purpose of this blog, which is to educate and empower.

However, to understand fully why I do what I do, you have to know a little bit more about me.

I left a job that paid me about $70,000 a year to launch this solo practice. The timing of that launch was dictated in part by my mother’s final illness — I needed to stay home and take care of her, and I needed to have a way to make money that allowed me to work from home. But that doesn’t explain why I chose consumer bankruptcy as my primary practice area.

In point of fact, that choice doesn’t make a lot of sense, in the context of my legal experience up until the point of my solo practice’s launch. I’d spent my legal career up until that point practicing a very different kind of law: municipal and then more specifically airport law. I had bankruptcy experience in terms of monitoring the airport’s claims against bankrupt airlines but no experience representing debtors.

Why did I choose that practice area, then, when it was brand new? I certainly would have had an easier time focusing solely on employment law (another practice area that I did choose and work in initially, in order to help broaden my prospects), in which I did have direct experience.

The answer is simple: I chose bankruptcy — specifically consumer bankruptcy — because once upon a time, I’d been harassed by creditors and burdened by debt myself. I didn’t file bankruptcy (although in retrospect I think I should have), but I did know first hand what it was like to be buried by medical bills and have precious little income, to be torn and anguished, and to be harassed at all hours by ugly, intimidating, insulting collectors who flaunted their violations of federal law with impunity.

So I educated myself — I spent countless hours poring over every book I could find, reading cases, talking with other bankruptcy lawyers, preparing their petitions as “on the job” training, being mentored by them. And when I was ready, I began accepting my own clients.
As far as the “profiting” comment — well, yes, I turn a profit in the sense that I make more than expenses demand, but not by much. My fees are publicly stated on my website: I make $1200 per Chapter 7 bankruptcy case, and I take no more than 4 cases a month, in order to handle the cases personally. I have no interest in creating a volume practice — in some months, the number is 0. I make nothing like Mr. Bitner’s publicized salary, and never will — at least not from this work. High six figures? More like low five figures — sometimes VERY low!

So as for why I do what I do: I do it, not to get rich, but because I believe in it. Because I believe it’s important work, and I’m uniquely situated to do it. If my daughter and I have to eat hot dogs and mac and cheese a few times a month, and forgo a vacation to — well, anywhere — it’s worth it. I will never get rich off of it, and I don’t want to. I get paid in far more profound ways.

Richard Bitner has written a book about his experiences as a subprime lender, and he’s making the rounds now talking about that book, and those experiences, as evidenced by a Newsweek article (”Confessions of a Subprime Broker“). Bitner’s portrayed as a do-gooder, who wanted to help the less fortunate achieve the dream of homeownership but rapidly became disillusioned by the conduct of sleazy, greedy brokers:

His biggest criticisms, though, are reserved for mortgage brokers and appraisers. As Bitner describes it, lenders like his company, which underwrote loans offered up by brokers and resold them to giants like Countrywide, spent much of their workdays trying to spot the stupid tricks brokers routinely used to get unqualified borrowers approved for loans. They’d say a buyer intended to live in a house when it was really an investment property. They’d falsify the buyer’s income by having a relative pose as his employer, or use scanners and software to forge W-2 forms. They’d find ways to hide debts (like a car payment) by looking for a credit report that omitted key data. They also routinely gamed the appraisal system, encouraging appraisers to look for “comparables” that were far nicer homes in better neighborhoods—all in an effort to drive up the appraised value of the home they were mortgaging.

OK — fair enough. The broker conduct described above is by any measure pretty sleazy and warrants censure.

But then I read this:

Disillusioned and realizing the subprime business was becoming less and less profitable, Bitner cashed out of the industry in 2005. And when the subprime market collapsed last year, he decided to tell his story in a new self-published book, “Greed, Fraud & Ignorance: A Subprime Lender’s Look at the Mortgage Collapse,” which is for sale on his Web site and at Amazon. Today he’s promoting the book full-time. “I could afford to take a year off and do this,” he says in an interview. “I want some positive change to come from this.”

Emphasis mine.

Yes, Bitner can afford to take a year off — because he brought in, routinely, an annual income in the “high six figures” (disclosed in the article). I’m not sure how I feel about someone who participated in the subprime industry meltdown now profiting off of it yet again.

It isn’t suggested that Bitner himself engaged in any wrongdoing, and I’m certainly not making that allegation here. In fact, it’s Also, I suppose, it’s better to have this information than to not have it, and who better to report it than an insider, as Newsweek suggests?

On the other hand, there’s this quote:

Bitner says his company did its best to figure out whether borrowers really would be able to repay their loans. But mostly it deferred to the standards set by industry behemoths to whom it resold mortgages.

Again, emphasis mine.

So, yes. It sort puts me off a bit to hear that a player in the get-rich-off-the-backs-of-subprime-borrowers game is getting even richer now by writing about it, even though he apparently has the best intentions now. Yet another sad result from this whole mess.