The American way of debt: Turning a profit by preying on the poor

This is an interesting article and worthy of discussion regarding the treatment of consumers by collection agents. I'm sure there will be tons of differing opinions but definitly interesting as it opens up a discussion for a new way of doing things. Not to mention movement towards a more just society.

The American way of debt: Turning a profit by preying on the poor
By Nancy Hanover
14 October 2009
The increasingly desperate financial crisis facing large sections of the American working class has been writ large in statistics. In September, 15.1 million people were unemployed, with over 5.4 million out of work for six months or more. Counting discouraged and involuntary part-time workers, the unemployment figure in America is now 17 percent, while those still holding a job are down to an average of 33 hours a week, a record low.

Millions in the US are facing impossible levels of personal debt, rising credit card delinquencies, utility shutoffs, foreclosures and homelessness.

But a section of business has turned the growth of poverty into a gold mine. Standing behind the big banks are several layers of an increasingly complex and parasitic finance industry. In the middle of this food chain are the professional debt buyers and securitized investors. At the bottom are the collection agencies, the scavengers who relentlessly pursue individual workers.

Revolving household debt has soared since 2006. Once those falling behind the cost of living could no longer tap into home equity, they turned to credit cards, a much more expensive form of credit. Revolving debt is now estimated to be over $970 billion, with average credit card indebtedness per household now $10,678, up 30 percent from 2000, according to CardWeb.com, a research firm.
http://www.wsws.org/articles/2009/oct2009/debt-o14.shtml

That I never knew before. Sounds a lot like the way annuities work where they win off the idea that bad things won't happen to you.

The fraud of debt settlement
Another relatively new player in the collection field is the “debt settlement” specialist. This scam is, if possible, even more parasitic and vicious. The service is widely sold to the most desperate individuals. Marketing themselves as customer advocates who will sympathetically assist the debtor and negotiate his liabilities down, these firms are profit-making entities that take charge of a family’s entire finances.

With “debt settlement,” the payments go to the settlement firm, not to the client’s debt—a point often not mentioned to clients. Usually there is an up-front premium.

Monthly payments are sent to the firm to be aggregated until a sufficient amount can be used to negotiate a payoff. Meanwhile, a worker’s credit score will continue to deteriorate. The firms count on the fact that most people drop out before the payoff. Even should he successfully complete the program, the individual is liable for taxes on the reduction! Victims of these schemes have few ways to retrieve their money.

In many states, once a creditor obtains a judgment, it can immediately restrain a bank account. As a result, workers are unable to pay rent, utilities or other expenses. Such policies are deliberately used to bully people into turning over large sums of money. A common complaint of consumers is that, having authorized a debt collector to make a single, specific withdrawal from their bank account, they find that all the funds are withdrawn or multiple withdrawals are made.

Accounts Receivable Management is an industry that was reinvented and became a major economic player as the American working class sank under a growing burden of debt in recent decades. It was established under the protection of the Supreme Court and shielded by links with government officials. Today, despite the systematic and well known nature of abuse, it remains well protected politically and highly profitable, poised to take full advantage of the growing misery of millions of Americans.

Saw a news story about a black church... They pick a few families periodically and pay off all the families debt! The family has to agree to take financial classes. Great idea..pooling funds to get poor folks off the roller coaster of debt.

If all this debt is being traded at 3 to 16 cents on the dollar, the solution for the harassed debtor is to buy his OWN debt back. Now there's an idea. If ACORN really wants to help low-income people, they should start buying up this debt and sell it back to the poor at cost.
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Somehow though, I think that the set of debt buyers and the set of people wanting to help the poor are disjoint.