A few years ago, I was asked to negotiate lower credit card interest rates for someone who had a run of bad luck. I’m not an attorney, and I’d never done anything like that. I was immediately surprised: it seemed the biggest credit card issuers were doing some colossally ignorant things and I wanted to find out why.
In a few cases, we were successful in getting lower interest rates and paying off the balances. But in most cases, the banks preferred writing off the balances in a way that made it nearly impossible for the unsecured loans to ever be collected. In credit card finance, just as we’re learning happened with mortgage finance, the real nature of the debt mattered little, as long as it looked good superficially.
McClatchy is doing a lot of good work on how the financial sector manipulated mortgages. Check out the interview with the risk analysts in the video piece at the top of this text story who complained to their superiors about risky loans only to be overridden and the loans granted.
I started writing to the credit card companies, making a direct case for why we’d all be better off with reasonable interest rates and productive accounts. The mail was often directed by the banks to departments I later learned lacked the ability to even respond. Often it was scanned but no one ever read it.
When I did get a response, it was a letter directing me to call, because the issue was “too complicated” to handle in writing. When I called, customer service reps had no access to the correspondence, so I read it to them as the start of the conversation. I quickly learned to call back the next day and ask a different rep to read the record of the previous day’s conversation.
What I discovered is that customer service reps made record entries that reflected the way their employer wished the calls had proceeded, not what was actually said. Sometimes, entries were total fabrications; entries for dates and times that no phone conversations even occurred. Other times, important points from real calls were totally omitted.
A pattern emerged. If the bank couldn’t threaten, plead or cajole the cardholder into paying the exorbitant interest rates, plan B was to charge the account off as quickly as possible to sell it for a percentage to junk debt buyers who would pay immediately. It didn’t help the bottom line, but it sure helped cash-flow.
These junk debt buyers financed their purchases by creating CDOs (collateralized debt obligations) and derivatives much like the mortgage brokers were doing: sales made with little or no supporting documentation as a condition of the sale, so the buyers never knew the actual history of the account until actual collection attempts began.
The mortgage derivatives fiasco is just the tip of the iceberg. Many of the big credit card issuers (MBNA, Providian, etc) are gone, swallowed up by the new mega-banks too big to fail or jail. But their legacy lives on in law offices and junk debt consortiums everywhere, just waiting for the right investigator to turn over the right rock.