Oregon Allows Debt Collectors to Push Working Families into Poverty

A new report by the National Consumer Law Center gives Oregon a D

Portland, OR - The decision of what bills to pay and what bills to put off is a game of financial roulette tens of thousands of Oregonians are forced to play every month as they struggle to recover from the economic downturn. The priorities are obvious - keep your family housed and fed and pay for transportation plus other items necessary for work - other creditors get what's left.

A new report from the National Consumer Law Center exposes how state exemption laws take these difficult decisions out of workers hands by giving debt collectors the ability to seize a substantial portion of a person's wages and the tools essential for their work. The report, No Fresh Start: How States Let Debt Collectors Push Families into Poverty, finds that Oregon law fails to meet basic standards that would allow debtors to continue to work productively to support themselves and their families.

Exemption laws are designed to protect debtors and their families from poverty, and preserve their ability to be productive members of society. Oregon gets an F when it comes to protecting wages. Current wage garnishment law allows debt collectors to push a family below the poverty level. A minimum wage earner working full time can have their weekly pay reduced to $268.50, less than the federal poverty level for a two-person family. If they work less than full time their wages may be reduced to $217.50, less than half of the federal poverty level for a family of four. Oregon's overall grade is a D. A copy of the NCLC report can be found here.

Oregon's archaic exemption laws fuel the lucrative and fast-growing debt buyer industry. "When a worker's wages are slashed below the poverty level to pay off old credit card debt that was bought for pennies on the dollar by an out-of-state debt buyer everyone loses. The debtor can't pay the landlord or the childcare worker and the family is forced to rely on government services to make ends meet," said Angela Martin, Executive Director of Economic Fairness Oregon, an advocacy group fighting for reform of Oregon's debt collection laws.

"In 2012, the FTC received more than 125,000 consumer complaints about debt collection, representing almost 25% of all consumer complaints it received. Debt collection lawsuits are clogging up civil courts across the nation," said Robert Hobbs, National Consumer Law Center's Deputy Director and author of Fair Debt Collection. "This report serves as a wake-up call for states to update their exempt property laws and stop putting millions of families at risk. Doing so will allow local courts to redirect their focus from the insatiable appetite of a debt machine that churns out millions of undocumented debt collection lawsuits each year."

The NCLC report includes several recommends for reforming state exemption laws, those include:

Preserve the debtor's ability to work, by protecting a working car, work tools and equipment.
Protect the family's housing, necessary household goods, and means of transportation.
Protect a living wage for working debtors that will meet basic needs.
Protect retirees from destitution by restricting creditors' ability to seize retirement funds.
Be automatically updated for inflation.
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Angela Martin
Executive Director
Economic Fairness Oregon
www.economicfairnessoregon.org

angela@economicfairness.org
(w) 503-236-6088
(c)  503-810-9770

Letter: Cellphones don't always signal prosperity

So commentary columnist Elizabeth Hovde thinks that we should stop giving food stamps to the not so needy, whom we can all recognize because they have both cellphones and SNAP cards ("Stop feeding the not so needy," Sept. 8)? Whenever the well-off write about how the not-really-needy folks are sponging off public benefits for their lavish cellphone-using lifestyle, I know that these writers have never been in the death grip of a boa constrictor service contract.

Boa constrictor contracts work like this: The company advertises a great monthly rate that you can easily afford when things are going OK for you financially. That's the rate that is splashed all over the flyers and posters and TV and radio ads. That rate is just sucker bait.

Then something happens: You're laid off, your hours cut or your partner's are, you come down with a bad case of the doctor copays or car repairs, your bus system quits running on weekends. It doesn't matter why you can no longer afford the service that you could once handle. Because no matter why, you are going to be told that you can only cancel or switch to a cheaper plan by paying several hundred dollars first. And if you just cancel the traditional way, by not paying, you are going to find yourself hounded by collection agencies for the monthly charges, plus the penalties, and then sued for them, plus court costs and attorney fees, and you'll have your wages garnished and your credit ruined. All because you couldn't afford to pay a penalty to stop a service contract you could no longer handle.

We need to do two things: Force companies to fully disclose how much their service contracts really cost, and let struggling folks cancel without getting hammered with penalties.

On the first, our motto should be "Service Contracts Oughta Reveal Everything," which spells SCORE.

SCORE would mean that anything that comes with an early-cancel penalty -- cellphone, Internet, satellite TV, gym membership, alarm system -- the company would have to tell you, in big bold type, at signup time, the true total of all the payments you must make to get past any penalties. That's first.

Second, we should require that contracts with early-cancel penalties must have waivers so that any customer on public benefits (such as SNAP, Medicaid, public housing) can cancel a contracted service without penalty.

Until we do a much better job of making sure that everyone knows what they're getting into with service contracts (with SCORE disclosures) and until we prevent early-cancel penalties from putting the squeeze on the poor, I suggest that Hovde just be thankful for the privilege that allows her to casually equate having a cellphone with being "not so needy." I see plenty of consumers who are being squeezed to death by contracts that they would love to escape, if it didn't cost more to cancel the contracts than to keep paying.

JOHN GEAR  

Gear is a Salem attorney.

Another Oregon attorney writes:

Nice letter.

Apparently, Ms. Hovde must not realize that the people who qualify for food assistance generally have the least expensive and crappiest version of everything that she and her family rely on for their daily life, like:

* generic unhealthy processed food;
* clothing from thrift stores or Wal-Mart;
* cars with duct tape—if at all;
* unattractive and often unsafe housing;
* cheap and sometimes dangerous toys with little educational value for their children;
* less responsive medical care;
* less responsive public safety providers;
* crappier schools;
* crappier neighborhood infrastructure;
* three-year-old game systems because it’s cheaper to entertain three kids with a game system then taking them to the moves once a month; etc.
 
She also apparently doesn’t understand life changes.  I often see my clients qualifying for food assistance post-divorce when they already have nice cars (with zero value), good clothes (that won’t be replaced), smart phones on a family plan (that now isn’t being paid by the ex), three children and a spouse who is reluctant to provide adequate support.

I also bet Ms. Hovde has never seen the 10 page application for state assistance asking for the income information for everyone in the applicant’s household, and asking for the value of the persons vehicle, and other worldly possessions….

I’ve seen some real cases of benefits fraud in my work—eg. a trust-funder collecting TANF, OHP, SNAP who then faked earning $15K per year to claim an Earned Income Credit on his federal returns— so I know they exist, but anything that makes it harder for poor people to get help is a really bad idea.

• Today’s Arbitration Outrage: Second Circuit Says Destitute New York Resident Consumer Must Arbitrate Case in Arizona Leave a comment By Paul Bland, Senior Attorney @PblandBland
• Periodically, people ask me rhetorical questions like, "How much worse can the law of arbitration get? I mean, it's so incredibly bad that it has to have bottomed out, right?"
• As Jane Wagner famously wrote [for Lily Tomlin], no matter how cynical you become, it's never enough to keep up.
• The Second Circuit has just issued an opinion that reminds us that it is still possible for the law of arbitration to become even more terrible for consumers. In Duran v. The J. Hass Group, a woman who is essentially on the edge of being destitute alleges (very credibly) that she was the victim of a last-dollar scam, promised services that she didn't receive.
• The defendants allegedly operated a credit repair scheme, under which they took a fee of almost $4,000 from the consumer to settle all of her credit card debt, and then did nothing for her. So her credit card companies were suing her, she owed all the money that she’d owed when she first interacted with the defendants, and she was now completely broke. These allegations make an extremely strong claim under the Credit Reporting Act. The allegations and facts are discussed in greater detail in the district court’s opinion, available at 2012 WL 3233818 (E.D.N.Y. June 8, 2012).
• It probably will not surprise anyone who follows consumer law (although it would come as a surprise to nearly any actual consumer) that the defendant had an arbitration clause. What's striking is that the clause requires consumers (including the New York resident Ms. Duran) to arbitrate their claims across the country IN ARIZONA.  Now, courts have been striking down these kinds of distant forum provisions in decisions going back 20 years.  E.g., Patterson v. ITT Consumer Fin. Corp., 18 Cal. Rptr. 2d 563 (1993). But in the wake of more recent U.S. Supreme Court decisions, particularly the catastrophic Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772 (2010), a lot of bad actors out there have been experimenting with how unfair they can make their arbitration clauses and get away with it.
• This strategy worked pretty well for the defendants in this case. The Second Circuit required Ms. Duran to arbitrate her claim, and enforced the provision requiring it to take place in Arizona. They noted that there is a "logical flaw" and an "unusual" quality to the result, because if Ms. Duran's only remedy is to argue to the arbitrator that it's unfair and unconscionable to require her to arbitrate in Arizona, she first has to GO to Arizona to do it. Oh well, the Court explains, this is what the Supreme Court would have wanted.
• I think the decision is wrong, and that the better arguments are with the plaintiffs, and I'm very hopeful that a lot of other courts wouldn't go with this conclusion. 
• But the case does show how the U.S. Supreme Court's ongoing adventures in re-writing and expanding the Federal Arbitration Act have a cost. What will the next scam artist put in their arbitration clause? Is there any reason that the Second Circuit would not have enforced a clause requiring the arbitration to take place in New Zealand on Leap Day? After all, why couldn't the New Zealand arbitrator figure out if that's fair?  What if the arbitration clause required that the arbitration take place on the newly non-planet Pluto?
• If bad actors can get away with making arbitration clauses increasingly grossly unfair, and all the courts just wash their hands, do a Pontius Pilate, and say “well, this may SEEM really unfair, but oh well, it’s what the Supreme Court would have wanted,” mandatory arbitration will have no conceivable claim to any sort of legitimacy. It will become a complete joke, an openly rigged deal. 
  
• Because saying that a poor person in New York can only get a refund of money stolen from her if she travels across the United States to begin the process of trying to get it back IS a joke, and it IS a rigged deal.

A student loan expert writes:

The Dept. of Ed has released a new form for borrowers who wish to select Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), or the new Pay-As-You-Earn plan (available starting tomorrow).  This form replaces the repayment section form AND the alternative documentation of income form (ADOI). 

Borrowers should use this form; however, the Department of Education will continue to accept the old forms until April 2013.
 
Here is the Department’s announcement: http://www.ifap.ed.gov/dpcletters/GEN1222.html.
 
With luck, having only one form to complete will be easier for borrowers.