In startling news, a bank is set to go to honest-to-goodness trial to answer for its malfeasance leading up to the financial crisis. Much to the probable elation of Sen. Elizabeth Warren, the Federal District of New York denied Bank of America's Motion for Summary Judgment (not their Motion to Dismiss, as has been inaccurately reported elsewhere) and has set the tentative trial date for September 23.
The issue at bar is this:
Countrywide Financial Corporation sold a huge number of bad loans to Fannie Mae and Freddie Mac, secondary mortgage buyers/sellers which were taken over by the government in 2008. This bad sale cost the taxpayers more than $1,000,000,000 in losses-- a small amount by financial crisis standards. Countrywide in turn was bought by Bank of America Corporation in 2008 as part of the merger-and-acquisition frenzy that followed the meltdown. This purchase transferred to Bank of America all of Countrywide's assets and liabilities-- including its legal liability in a lawsuit for illegal actions in the past. In other words, when Bank of America bought Countrywide it also bought the potential that it could get sued for anything Countrywide could have been sued for up to that date.
So to recap: the federal government is suing a corporation for wrongdoings it bought the right to from another corporation on behalf of a pair of federally-created corporations which the government itself acquired the right to sue from. Bank of America has $2,200,000,000,000 in assets and received $20,000,000,000 in federal bailout money in 2008. This lawsuit is for 5% of the latter and one-twentieth of one percent of the former. The defendants have 34 attorneys on the case; the federal government has 8. And remember, it is considered a victory that this is going to trial at all. This is what democracy looks like now.
General consensus is that the last lingering effects of the Great Recession are finally sputtering out. Let's check in with the various well-defined and immutable strata of society to see how each has fared since the investment banking sector intentionally crashed the secondary mortgage market in 2008.
How stands the flagging middle class, the ostensible backbone of the American economy? Since 2008 they have spent considerable time de-leveraging hundreds of billions in credit card debt and investing more than a trillion in their education. The middle class, or what's left of it, seems to be preparing diligently for the future.
Meanwhile, the 400 wealthiest Americans in the country are now worth more than $1,700,000,000,000, up more than $200,000,000,000 from a year ago. For reference, in 1982 when Forbes began counting, the threshold for being in the top 400 richest Americans was about $75,000,000, approximately one sixth of the threshold now ($1,100,000,000) after adjusting for inflation.
As for the bottom half of the country, the major national chains like Wal-Mart and Kohl's which cater to the lower classes have seen their profits fall considerably as the poorest Americans barely have enough money to buy food and clothing from the large multi-billion dollar retailers lately. As it stands, the assets of the bottom 50 million American households are less than the worth of the 400 richest Americans.
To recap: the poorest half of the country is barely surviving, the middle class is treading water, and the richest have seen their wealth increase by a proportion so obscene that the human brain is unable adequately comprehend it. Can't go wrong with that equation, let the good times roar!
Dmitry Argarkov is an average Russian consumer, who, like his American counterparts, found his mailbox bombarded with unsolicited credit card offers. So in 2008 he accepted a credit card offer from Tinkoff Credit Systems-- after writing his own terms into the margins of the boilerplate contract he received. Argarkov sent the modified contract back and Tinkoff's rep blindly signed it.
Argarkov's changes included:
- No credit limit
Argarkov also crossed out the provided URL, which led to an online copy of the contract, and replaced it with his own, which led to an online copy of his amended contract.
After Tinkoff charged Argarkov with an overage fee in clear violation of their contract, Argarkov sued. According to his lawyer Dmitry Mikhalevich, "[Tinkoff] signed the documents without looking . . . they said what usually their borrowers say in court: 'We have not read it.'"
The court held Tinkoff to the terms. Argarkov is now suing for $727,000 for breach of contract. There is hope for us yet.
If the National Association of Retail Collection Attorneys (NARCA) gets its way, Congress will soon amend the Fair Debt Collection Practices Act (FDCPA) to exempt debt collection attorneys from having to obey the law during litigation.
The bill, titled "To amend the Fair Debt Collection Practices Act to preclude law firms and licensed attorneys from the definition of a debt collector when taking certain actions," is awaiting hearing by the House Financial Services Committee. The actual text of the bill is not yet public, but if the bill proposed by NARCA last year is any indication, it will read:
…The term (debt collector) does not include –
According to Lou Freedman, president of NARCA, this language is merely a "technical amendment to the law."
No it is not.
Because the FDCPA only applies to "debt collectors," amending the FDCPA to exempt collection attorneys from being "debt collectors" during lawsuits creates essentially floor-to-ceiling liability protection for collection firms when performing their most powerful and consequential function. Large firms like Messerli & Kramer, Wilford Geske & Cook, Gurstel Chargo, and Winthrop & Weinstine, all of which devote significant resources to debt collection lawsuits, would be placed outside the purview of federal law for the focal portion of their collection activities. Consumer recourse for the myriad of FDCPA violations collection firms can commit during a lawsuit would be limited to ethics board claims and whatever standing they can scrape together on which to sue under the patchwork of state collection laws. Any reservations a firm may have about, say, alleging an incorrect dollar amount, would be tempered by the fact that there would be no federal case against them for misrepresenting the amount of the debt. As a result, collection firms would spend less time ensuring the accuracy of their information and claims.
If the amendment passes, these lawsuits will be bolder and more numerous. Suing out rather than settling will be collection firms' safest option. As the already-overburdened court system absorbs the influx of new cases, the cost of the debt collection industry to consumer and taxpayer alike will go up (filing and answering a lawsuit in Hennepin County District Court, for example, each cost $322; litigating a case will involve motion fees and jury fees; each of these transaction fees adds friction to the process and increases the cost of debt to consumers). The number of uncontested default judgments, which are common results of collection suits, would rise by sheer inertia with the increase in suits. This would be the case across the country.
Let's be absolutely clear: this is not a routine, house-keeping update to the law: this amendment if passed would drastically change the coverage of the FDCPA, would increase the cost of debt to consumers, and would provide safe harbor and windfall for debt collection law firms, which are already in a tremendous position of power over the debtors they live on.
Unfortunately for NARCA, passing the amendment requires the cooperation of Congress. Best of luck there.
The attorneys of Drewes Law have access to post and edit the blogs. Attorney Bios.