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No Credit Card Forgiveness From the Government On The Horizon…And What You Can Do About It.

By Robert F. Brennan, Esq - Email Editor

Date : December 11, 2008

Dear Valued Reader,

Amidst all of the cheerful and glowing economic news we’ve had in the last several weeks, last month the Office of the Comptroller of the Currency (“OCC”) rejected a plan to permit banks to write down, or forgive, large amounts of consumer credit card debt. Add to this the Dept. of the Treasury’s decision to invest in bank equity (stocks) rather than purchasing distressed debt, we have an emerging picture showing a couple of things:

1. The people in charge of the $700B bailout now believe, at least to themselves, that $700B is not enough bailout money to truly get our economy back on track; and,

2. The decision has been made to use the $700B very selectively, and sparingly, and beyond that, consumers and financial institutions alike will have to figure out their own way out of this mess.

So, if you happen to be a close friend of Dick Cheney, you should stop reading now and call him for advice, because it will likely be more lucrative than anything I will ever be able to provide to my readers. However, don’t be upset or dismayed if, one day in the not-so-distant future, someone from the Justice Department serves you with a subpoena, or more.

So, given that our government has essentially told us that it’s time to swim, what can we do about it? The answer is, a lot.

There’s an old saying, “If you owe the bank a million dollars, the bank owns you, but if you owe the bank $10 million dollars, you own the bank.” There’s wisdom in this saying, because banks will work with distressed creditors to permit them to stay afloat and continue making payments. If one very large creditor goes down, an entire bank can fail.

In our current times of distress, the combined accumulation of distressed consumer debt has made individual consumers very, very powerful in negotiating down their debt. Some large banks have even begun re-writing first mortgages, something unheard-of until recently. The biggest bank thus far to begin re-writing its mortgages is Citibank, one of the four remaining mega-banks in this country. Even Bank of America and Wells Fargo, both of which are less troubled by bad mortgages than Citi, have begun the process of negotiating directly with consumers to re-write mortgage terms rather than have foreclosure proceedings. It is established truth in the banking world that foreclosures can only make a bank money in a very strong real estate market; otherwise, foreclosures are a fiscal disaster within banks and something they try to avoid. Currently, with property values falling off a cliff, it’s a good time to contact your bank and re-negotiate your mortgage, because your bank is probably worried about too many foreclosures winding up on its books.

The same holds true with credit card debt and car loans. NOW IS THE TIME TO RENEGOTIATE! This does not mean, “Now is the time to default,” because that’s only adding to the problem. Hey, you used your credit card/drove your car/lived in your house, and you owe something for it. Unless you are a friend of Dick Cheney, or have blackmail on him, it was not a gift.

I do have a few tips for renegotiating. I would not recommend just diving into it and hoping for the best. Lenders make money from consumers making their payments, and there will still be resistance to your requests to alter or modify your obligations no matter how distressed the lender is. And, let’s be clear, even a distressed lender has more resources and more options than you have, so the lender does have the ability to “wait you out” if it decides not to negotiate with you. With all that said, here are a few successful ideas and tips I’ve observed in my own practice and among some other lawyers in my geographical area (Los Angeles County):

1. Get all of your loan paperwork and consult an attorney familiar with the “Truth in Lending” Act (“TILA”). If there is a TILA substantial violation in any of your paperwork (usually a misstatement of the total cost of the loan), the lender faces substantial reduction in debt principle, or a cancellation, and this would definitely put you in the driver’s seat in any future negotiations. If you have any trouble finding an attorney familiar with TILA, go to www.naca.net, the web site for the National Association of Consumer Advocates, which can provide you with a referral in your state.

2. Find someone at the bank who has actual authority to modify your loan. If you are talking to a customer service representative, you are talking to someone who has very limited authority to do anything whatsoever. Better to go to a branch office of your bank and ask to speak to the branch manager, and if the branch manager cannot directly assist you (even branch managers often have limited authority to modify loans), have the branch manager put you directly in touch with someone who has the authority.

3. Once you find someone with authority to modify the loan, be prepared to provide them with requested financial advice, like W-2’s, 1099’s or tax returns for the last couple of years. You want to be able to prove financial hardship, not just state it. Of course make sure the bank takes reasonable precautions to protect your confidential information.

4. I advise all of my clients to keep their negotiations in writing. I would not handle these negotiations over the phone, beyond making basic arrangements, and if you reach any agreements over the phone, promptly confirm them in a writing to the person you’ve been dealing with. The turnover at these financial institutions is staggering even in good times, and you have no guarantee that the person you reached a deal with on Tuesday will be there to confirm it on Thursday. Always confirm everything in writing.

5. In general, banks and lenders like cash flow, so an offer to make at least some minimum payments will appeal to them. If you are truly tight, you can enter into a forbearance agreement, but my clients have found it easier to negotiate for reduced, but regular payments.

6. Whatever deal you cut, make sure that the lender will not be reporting negatively on the account on the basis of the deal. The specifics of how the account will be reported must be a part of the negotiations.

7. You’ve got the internet, right? If some bank or some lender is really abusing you, set up your own mini-class action by setting up a website for people with loans like yours, and band together and demand modification of loans as a group. You’re giving yourself more bargaining power in the process and scaring the bank into dealing with you to avoid a class action lawsuit.

I hope these tips prove useful to you and thank you for reading.

Robert F. Brennan, Esq

Copyright © 2008 by Robert F. Brennan. All rights reserved.

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