The Warybuyer Speaks! Thoughts on Credit Card Defense, Debt Collection, Credit Reporting and Auto Fraud

Excuse me while I vent a little. I’ve just spent a fair amount of time on the phone with folks who were mistreated in some way by a creditor or landlord type. Unfortunately, none of them had an actual claim that a court could help them with. They didn’t have claims primarily because they didn’t have any money damages or because the damages they did have were caused by conduct that was annoying or mean but not illegal.

Now, I don’t expect Joe or Jane Consumer who calls me on the phone to know whether they have a claim that is appropriate for a lawsuit. It’s my job to evaluate their claim for them. If I can do that over the phone in a few minutes, I do it for free. If it requires an office visit, I charge $200. That’s just a part of my job.

I’m venting because the folks who called me were referred by other lawyers. Even if those lawyers aren’t experts in the details of landlord-tenant or debt collection law, they should know that regardless of the nature of the claim, if there are no damages, there is no case. I suppose it was easier for them just to shuffle these folks off to me rather than give them the bad news. That bugs me. I’m not a trash can for other lawyers’ difficult phone calls.

I love being a consumer lawyer. I love helping people. I just wish that I didn’t have to spend so much time dispensing bad news for other lawyers who lack the spine to do it themselves.

While I’m venting, let me add another tip for folks who may want to hire me as a lawyer: As angry as you may be at what happened to you, remember that I’m on your side. Try to keep the conversation professional. Don’t let your anger take over. You may not realize it, but while we’re talking, I’m thinking about what kind of person you are and what kind of impression you will make in front of a jury. I’ve learned the hard way that juries do not like angry people. If you can’t have a civil conversation with me about your case, I’m not likely to take you on as a client.

I’ve had an iPod for a couple of years now and if she were just a little taller, I’d consider marriage. Short of that, I’ve tried numerous methods for coupling her to my car stereo system.

First I tried the iTrip FM transmitter, but here in Dallas there aren’t many open frequencies, and it occassionally glitches. On top of that, the sound quality was pretty poor. Then I got a cassette adapter. It sounded better and didn’t depend upon how far away I was from the North Dallas church that broadcasts an information loop on 87.9 FM to work, but after a few days, it decided that it would only output sound to the left channel. I used a cup-holder mount to hold the iPod in place and a cigarette lighter power adapter to keep it charged. Unfortunately, the cigarette lighter on my car interfered with one of the two front cupholders which meant that I had no cupholders and crummy sound. But hey, at least I had 3800 songs at my fingertips!

Today arrived via UPS two little gems. The first, an iPod2Car, is a little box with cables that plug into the CD port on the back of my car stereo and the iPod’s bottom port. It carries audio to the car stereo system, charges the iPod, and allows me to switch tracks using the car stereo controls. It also doesn’t deactivate the iPod’s controls, so I can still use the iPod as I normally would. I ran home for lunch to install it. It went in like a breeze and worked like a charm.

The second, an iStickyPad is way cool, but the jury is still out on whether I’ll keep it. It is a sticky (polymer? amputated gecko toes?) pad that adheres to the dashboard and the iPod without adhesive. It seems to hold them in place pretty well. I worry that in a crash it may turn my iPod into a dangerous projectile (though it seems to hold it pretty tight during normal driving). It also puts the iPod into direct sunlight, which is probably not a good thing. It’s nice looking, I amuse myself by wondering how it works, and it frees up another cupholder, but it may have to go.

All in all, I’m a happy boy. It’s nice to be easily pleased.

Sean has been playing guitar for about almost 3 years now and he’s gotten pretty good. He and his guitar camp band really rocked to close out the end of camp show. The behind the head guitar solo got a big response, and it sounded pretty good too!

As an extra added bonus, here’s a little camera phone tip: clean the lens before taking a picture. I was amazed at how much clearer the shots from my little camera phone were when there wasn’t a mass of pocket lint stuffed into the little dimple where the lens sits.

I may be one of the last people on the planet to see this, but even so, I thought it was hilarious.

Tom Mighell, writing on a NY Times story about computer users who buy new computers rather than deal with spyware issues, gets a little crazy about users who don’t take responsibility for properly configuring their security software. Here’s the story of someone who wished he had just bought a new computer:

In April my secretary’s 4 year old computer, a Dell Celeron 700 running Windows 2000, notified us that the virus protection software subscription needed to be renewed. I ran the update function, but instead of taking my money and allowing us to continue updating our virus protection, it posted an error dialog and dumped me into the Norton homepage. After some clicking, I found what I thought was the appropriate subscription renewal form, filled it out and got a renewal code. Unfortunately, I got the wrong product version, so the code didn’t work. I sent an email to Norton asking for a refund and help getting the right code. I haven’t heard anything back from them.

A couple of days later, I got an email from SW Bell, my DSL provider, offering me a free virus protection program. Yippee! I downloaded it, installed it, restarted my secretary’s machine, and bingo! The machine was completely locked up. Nothing I knew how to do (I’m a Mac guy, not a PC guy, and this story is just one of many that explains why) would fix the problem, so I called in a tech from a service that we use. He showed up the next day, diagnosed the problem, fixed it, installed new virus and spyware protection software, and billed me just over $400.

In light of the $400+ the tech guy billed me, the loss of the better part of 1 day of my secretary’s time, the loss of 3-4 hours of my time, and the fact that for $700 I could get a bigger, faster, better new CPU from the Dell website, shouldn’t I have just bought a new computer?

In the alternative, couldn’t the vendors of 2 different virus protection software products that failed at basic tasks have done a better job and saved me from this situation?

This winter a local car dealership, Ferguson Isuzu, went out of business. I represent a client who purchased a car from Ferguson just before they closed their doors. Ferguson never signed over the title to her or her new finance company. Moreover, the check Ferguson wrote to pay off her trade-in bounced, leaving her with 2 car payments due and no car in her name.

We had a title hearing at the Dallas County Tax Assessor-Collector’s office this morning. The hearing officer reviewed my client’s paperwork and approved an application for title transferring the new car to my client with her finance company as lienholder. The hearing officer told me that there at least 100 similar cases involving Ferguson Isuzu.

The title hearing solved one problem. My client now has title to the car. It didn’t solve her other problem, the fact that she has two car payments to make each month. I’m working with her to get that solved.

I don’t normally make posts about individual clients, and of course, I’m not naming my client or disclosing any confidential information, but given the large number of people who are apparently in a similar situation, I thought it might be helpful if I published some general information about what can be done in this situation.

My client’s problems are typical and have fairly ready soluctions. These solutions will apply to most people, who like my client, allowed Ferguson to arrange financing for their car.

Problem 1: No Title to New Car

This is the easiest problem to solve. In Texas, the county tax assessor-collector has an administrative procedure for issuing title in these situations. Call your local office and ask for a title hearing. They will tell you what papers to bring, typically your sales contract showing that you purchased the car and paid the sales tax, an odometer disclosure if one was given separate from the title itself, and proof of insurance. Assuming you have the documents necessary to document the transaction, they should issue a title in your name. In some circumstances, they may issue a bonded title, in which case you may have to post a bond that is conditioned on no one making a claim to the title. There is an alternative title clearing procedure under the Texas Business and Commerce Code that is superior to a bonded title, but it is rarely used and you will need an attorney to guide you through the process.

Problem 2: No Payoff of Trade-in

If the dealer arranged financing for the new car, you may be able to force the new finance company to pay off the trade-in. Check your finance contract for the following language:

Any holder of this consumer credit contract is subject to all claims and defenses which the debtor could assert against the seller of goods or services obtained pursuant hereto or with the proceeds hereof. Recovery hereunder by the debtor shall not exceed amounts paid by the debtor hereunder.

This language, which is required under federal law for all consumer credit transactions in which the seller arranges financing, allows you to sue the finance company for any claims you might have against the seller. This includes your claim against the seller for breaching its promise to pay off your trade-in.

The finance company’s liability is limited to the amount you have paid under the contract, typically your down payment, the value of any rebates or other similar sales incentives where others pay money to the dealer on your behalf, and the value of your trade-in. As long as the pay-off on your trade-in was less than the total of these amounts, you should be able to force the finance company to pay-off your trade-in. You may have to hire a lawyer to file suit in order to get that done, but if you are successful, the finance company will usually have to pay your attorney’s fees even if they exceed the liability cap under federal law. [Note: the law is fairly clear that the finance company must pay attorney's fees here in Texas, where such fees are typically payable in an action based upon a contract, See Tex. Civ. Prac. & Rem. Code Ch. 38. This may not be the case in other states.]

One of my hats is computer guy for the Advisory Council of the Consumer Law Section of the Texas State Bar. One of our projects for this year was to start an email discussion group for our members. About the time we started talking about this, Google started Google Groups. I experimented with it a little, using it for a small group and it seemed to work fine. It was easy for people to use and easy for me to administer, so I recommended it to the Council. They agreed and off I went. I set up an invitation only list for our members. Everything went fine and about 100 members opted into the group to participate in the discussion. So far, so good.

The Council president wanted to send an announcement to all of our members regarding our upcoming meeting in June. Google offers announcement groups as an option, so I set up a second group as an announcement only group for all of our members. Rather than setting up the group by invitation, I set it up so that members would be automatically added to the group without the need to respond. I can imagine the potential for abuse that such a tool creates, so I wasn’t concerned when during the setup process Google notified me that they were going to review the list before setting it up.

The next day I got the following email from Google via their “noreply@googlegroups.com” address:

Hello craig…@gmail.com,

We’re writing to let you know that we received your request to add 1169 new
members to the State Bar of Texas Consumer Law Section Announcements group.
We’ve changed the subscriptions to “invites,” which means the users in this
list will receive an email asking them if they want to join your group, and
won’t begin receiving messages from this group until they’ve joined.

If you have questions about this or any other group, please visit the Google
Groups Help Center at http://groups-beta.google.com/support.

Thanks, and we hope you’ll continue to enjoy Google Groups.

The Google Groups Team

Ouch! Why didn’t they just reject the request if they didn’t like the way I set it up? Why didn’t they ask me before changing the group from an opt-out announcement only group to an opt-in discussion group? Why did they choose to communicate with me via a no-reply email address? I certainly understand what beta means. It means that the software may not be entirely reliable, that features may change, or that the software may not work the way it is advertised. I don’t understand it to mean that human beings at Google are going to make arbitrary decisions about what functionality is going to be offered without any notice on the site or legal support from the terms of service.

Now I have almost 1169 section members who believe they are going to receive announcements from the section, but who aren’t, and no way to communicate with them because Google won’t let me. I’ve searched the Google Groups site for a way to contact them about this, but there doesn’t appear to be anything other than a general feedback form. I’ve sent it in, but have not received a response and don’t expect to. If someone who reads this has a contact at Google who might be able to help get this situation resolved, please drop me a line. For everyone else, take this as a half-rant, half-cautionary tale about Google Groups and the shaving off of another sliver of my own naivete.

Dave Winer is working on another outliner. Yea! I wasn’t a big fan of More or Thinktank (sorry Dave) not because there was anything wrong with them, but because there was a simpler, more intuitive alternative on the Mac at the time: Acta. I’ve used the outline Dave built into Frontier/Radio and it’s as close to Acta as I’ve found. I use OmniOutliner now. It’s not as sweet as Acta, but it’s pretty good. By now you’ve guessed that I have an Acta fetish. It’s true. Guilty as charged. I loved the Aunt-Sister-Daughter convention, even if it meant I couldn’t use Cmd-s to save documents any more.

Of course, I’m not suggesting that someone needs to go out and re-invent a 15-20 year old outliner. Acta was great for its time, but we live in a new time now.

I use outlines to organize my ideas, and but for some minor interface quirks, they’re all pretty good at that. I think the next step for outliners is to help me integrate other people’s ideas with mine. I’d like to see an outline combined with search. This is different from the outline linking that was possible with Frontier/Radio, kind of the world wide outline, which required mutual participation. I’d like to be able to grab other people’s ideas for my outline wherever a search engine can find them.

One of the nice features of the Frontier/Radio database was the ability cmd-click on a table name and create a new window for that table. What if I could cmd-click on an outline topic and create a search window for that topic? The text of the topic would be the initial query, although I could edit it if desired. The search window would give me a choice of search engines or databases that I could use via a plug-in architecture. The search results would be displayed in this window. I could select text from a search result and drag it into my outline as new topic, where I could annotate and edit it. The new topic would remember its source url so I could always go back to it. The search would persist. It would remember which topics I dragged to the outline and always display those as long as the sources remained available. It would also allow me to delete search results that aren’t relevant and supress them from future updates of the search.

By itself, this would be a pretty cool advance.

Cooler still would be if the search window were a little smarter. What if the search window supplemented the relevance ranking supplied by the search engine, which is generic and is calculated without information about the context? I’d like to see the search window use the text of the topic from which it was created, the text of its subtopics, the text of any search results that were dragged into the outline, and the text of any deleted search results as context information for calculating relevance. Comparing search results to the outline context from which they were sought and weighting the search engine’s relevance ranking by similarity to the outline context from which the search was launched strikes me as a very useful thing. For this to work, the search window would have to actually fetch search results in order to do the relevance calculation or the search engine would have to provide an API for doing this calculation.

Would I be greedy if I mentioned that an RSS feed of new search results from an outline would be nice too?

The unfortunate truth about our justice system is that it is expensive to vindicate your rights. I got an inquiry today from a consumer who ordered a $5,000 piece of merchandise by mail, then cancelled the order when the seller couldn’t deliver it by the agreed upon date. According to this person, the sales person that he dealt with placed a new order for the item without his permission. When the merchandise arrived, the consumer made several attempts to discuss the matter with the company, was not successful, and decided to keep the merchandise as a unsolicited gift.

Apparently he was aware of statutes in many states which provide that there is no obligation to pay for unsolicited merchandise when it is shipped to you. Unfortunately the company involved did not consider the merchandise unsolicited and has turned him over to a collection agency. Now his credit has taken a big hit and he’s having to deal with debt collectors. It would probably have been more reasonable of him to simply return the merchandise when it was shipped to him. By asserting his rights under his state’s unsolicited merchandise statute, he took a hyper-aggressive stance.

Legally, he may be right, but there is very little case law construing the unsolicited merchandise statutes. I can pretty easily make arguments on both sides of the issue. In order to clear his credit, he’s going to either have to make a deal with this collection agency or the seller, or he’s going to have to spend $10,000-$15,000 on attorney’s fees to get a judge to rule that the merchandise was his to keep. Even if he goes the judicial route, there’s no guarantee that he is going to win.

Around here we have a saying: “Pigs get fat, hogs get slaughtered.”

Judge Posner has commented on the bankruptcy bill and suggested that it will result in a reduction of interest rates and a transfer of wealth from imprudent borrowers to prudent borrowers, which if true would arguably be a good thing. However, I don’t think that will be the case.

Most credit card issuers use risk-based pricing, so rates for prudent borrowers presumably will not be changed in response to the bill, as those rates don’t presently contain any significant bankruptcy premium.

Unfortunately for high-risk, high-rate borrowers, the market mechanisms that would drive rates down in response to the reduction in bankruptcy risk rarely apply. For the most part, these borrowers were originally extended credit at favorable rates, but because they were late in making payments (2 late payments in 6 months is a common standard) or because their credit score has dropped they get hit with penalty rates of 24% or more. These rates are imposed retroactively to their existing balances, not just to new transactions, so these borrowers’ ability to reduce the impact of the penalty rate by simply switching to another credit card provider for new charges is substantially reduced. Moreover, these borrowers’ capacity to transfer balances to competing cards is often limited compared to that of low-risk borrowers. As a result, the credit card companies that impose these rates may do so with only limited risk of losing revenue to competitors, and therefore have limited incentive to pass their reduced bankruptcy costs to these borrowers.

Is there a sweet spot in the risk curve where the bankruptcy premium in current rates is significant and where competition will require a reduction of the premium? I doubt it. Even if such a sweet spot does exist, I doubt it poses much of a threat to credit card company profits.

Rather than precipitating a transfer to the prudent from the imprudent, the bankruptcy bill will result in a transfer to the politically connected from the politically unconnected.

Craig Williams applauds JAMS decision to resume enforcing arbitration clauses as a return to neutrality. I think it’s the opposite. One of the inherent problems with arbitration is the competition between arbitration fora for business from the people who write arbitration clauses. Shortly after JAMS announced its initial decision on class action bans, it was reported that Citibank and Chase dropped JAMS from their arbitration agreements. Rather than a return to neutrality that should be applauded, the JAMS flip-flop offers yet another example of the inherent bias of arbitration providers in favor of the banks and others who hire them.

All the ruckus about the latest version of the big bad bankruptcy bill has once again brought into focus the abusive practices of credit card companies. The idea that better disclosure will cure this problem is a pipedream. The real issue is the credit card companies’ ability to change the terms of their contracts with their customers at will, for any reason at all, and to apply those new terms retroactively to existing transactions. There is no reason that a credit card company shouldn’t be able to change its contract with a customer, but it should only be able to do so for transactions going forward. That’s the only way that card holders can make rational decisions about whether to incur debt. How can I decide whether it’s a good idea to buy something on credit if I don’t know whether the interest rate is going to be 6.9% or 28.9%?

More importantly, allowing credit card companies to retroactively rewrite their contracts enables them to be predators. They don’t have to carefully consider anyone’s credit worthiness-they just have to sign them up. If they sign up someone who isn’t a good risk, they just compensate by raising that person’s rate. That’s why they can flood college freshmen with credit card offers. They are able to avoid the consequences of bad credit decisions by re-rating their loans after the fact.

All of the credit card host states, South Dakota, Delaware, Nevada, and others, have special provisions in their state law that allow this kind of contract modification. Do you know why they do? Because it is contrary to a basic principle of contract law. Under the common law and the Uniform Commercial Code that govern most contracts in this country, a contract is only binding if both parties agree to it. If a party wishes to modify a contract, it must obtain the other party’s agreement. The retroactive credit card agreements don’t pass muster under this standard. The credit card companies’ amendments are effective upon mere notice to the card holder; actual agreement is not obtained because they get special permission from their host states to amend their contracts this way.

As a result, laws which were intended to force peoople to live up to their consensual agreements, such as the bankruptcy laws, are now being used to force people to live under the terms of unilateral commands. Doesn’t that sound like the difference between commerce and slavery to you?

I had a conversation today with someone who read my earlier post on law schools. She pointed out that by the time someone is in law school, they should have already been taught about values. She’s right of course. It’s not the province of the law schools to teach values themselves and that’s not my complaint. The missing element in legal education is teaching law students to evaluate the legal principles they are learning and to understand what the impact of the law is on their underlying system of values. For example, is tort reform about making the legal system more just or is it just about transferring wealth from plaintiffs to defendants? Is there a difference between those two things? Shoudn’t it be the responsibility of lawyers to seek answers to those questions, rather than have the defense bar champion every change in the law that might favor their clients and the plaintiff’s bar doing the same thing?

Someone asked me about my law school experience today. As always happens when that subject comes up, all sorts of negative feelings started percolating. Despite the fact that I attended a well-respected school (the University of Texas) I found law school to be the most intellectually stagnant, stultifying experience of my life. At the core of the uselessness of my law school experience was the constant disregard for value. By that I mean law students are not (and this has been the case since before the turn of the last century) taught how to identify the values that underly the legal arguments they make or how to evaluate the impact of a particular legal argument on a client, the legal system, or society as a whole. Instead of seeking truth, law students are taught to seek victory. Socrates would chug the hemlock if he saw what American law schools have done to his method.

Our law schools turn out capable, polished, sophisticated advocates who lack any internal compass. Of course, if one sees lawyers as merely hired guns, an internal compass is not necessarily a desirable thing. But look what happens to lawyers over the course of their careers. While they may start out as hired guns, toiling in the bowels of some giant downtown law factory or scrambling for scraps on the courthouse steps, they become the leaders of our society. Setting aside the judiciary, how many legislators and executive office holders are lawyers? Don’t we want those people to have the skills to decide what has value and what does not?

Has the fundamental emptiness of the standard law school curriculum laid the framework for our current political climate, in which spin counts for more than the truth, where posturing, demogaugery, and imagery are more important than great ideas?

In the lowdown, dirty trick department, Experian has inserted a Binding Mandatory Arbitration clause in the online agreement that you must accept if you want to buy a copy of your credit report online from experian.com. Here is the text of the clause:

You understand and agree that all claims, disputes or controversies between you and Consumerinfo, and its parents, subsidiaries or related companies, including but not limited to tort and contract claims, claims based upon any federal, state or local statute, law, order, ordinance or regulation, and the issue of arbitrability, shall be resolved by final and binding arbitration at a location determined by the arbitrator. Any controversy concerning whether a dispute is arbitrable shall be determined by the arbitrator and not by the court. Judgment upon any award rendered by the arbitrator may be entered by any state or federal court having jurisdiction thereof. This arbitration contract is made pursuant to a transaction in interstate commerce and its interpretation, application, enforcement and proceedings hereunder shall be governed by the federal arbitration act (“FAA”). Neither you nor we shall be entitled to join or consolidate claims in arbitration by or against other consumers or arbitrate any claim as a representative or member of a class or in a private attorney general capacity. The parties voluntarily and knowingly waive any right they have to a jury trial.

Note that I have converted the clause from all upper case because I want you to be able to read it. This is a very broad clause. Most importantly, it is not limited to disputes relating to your credit report purchase. It appears to apply to any dispute at any time with any entity related to Consumerinfo, apparently the Experian subsidiary that sells credit reports online. I assume that if I were driving past Experian’s facility up in Allen (20 miles north of my office) and was struck by an employee pulling out of their parking lot without looking, they’d argue my personal injury claim was subject to binding mandatory arbitration.

For now, it appears that Experian is the only member of the Big 3 doing this, although if may only be a matter of time before Equifax and Trans Union join in. You can avoid this problem by requesting your report by phone. It also may not be an issue if you request a free or reduced cost credit report available under various state and federal laws.

The irony of all of this is, many people who buy their credit reports online are doing so because they have some problem, which if unresolved by Experian’s dispute resolution procedures, may result in a lawsuit against Experian. How many of these people would imagine that their first step towards protecting themselves from identity theft or an erroneous report would also shut the courthouse door forever?

I wrote about this previously when I first heard that this might be happening, and explained some of the reasons why this is a very bad thing. You can find out about a campaign sponsored by a national coalition of consumer groups to create more awareness about Binding Mandatory Arbitration at givemebackmyrights.com

If you are visiting the blawg today, you’ll notice that it still looks like crap, despite my promise back in January that things would be cleaned up in a few days. I need to meld the CSS from my main site and the markup that WordPress uses when it generates this page. I’ve been letting that keep me from posting, but no more. I’m just going to post when I feel like it, markup be damned. Hopefully the embarassment of seeing increasing numbers of hits on this page will get me over the hump and back into CSS land.

I’m certainly just crawling over the edge of the blogging world, but a comment Dave Winer made today made me wonder about unintended consequences. I don’t disagree with Dave’s comment, but underlying the comment seemed to be a belief that increased scrutiny of non-alternative media outlets is always a good thing. I’m not so sure about that. Scrutiny is not always a good thing. Scrutiny increases accountability, but I worry that it decreases creativity and risk-taking. Sometimes new ideas require dark, damp places to germinate. Growth and innovation require a place where mistakes can be made, corrected and learned from. I’m afraid that unbridled scrutiny will dry up those dark, damp places and drive up the price of mistaking-making so much that mistakes become luxuries affordable only to those who truly don’t give a damn.

From what I’ve read about Mr. Eason, he has done some great things for the news business, and if the comments attributed to him are true, he either misspoke or has some unpopular ideas. How bad is either thing? If our scrutiny of mistakes and unpopular ideas makes them career-threatening how much farther have we traveled down the road to conformity and mediocrity?

Oops! You’ve looked behind the curtain!

This page is obviously a work in progress. Come back in a few days and hopefully I’ll have it up and running.

Thanks for visiting.

Craig