DEBT BUYERS, PART II: USURY

Elsewhere, under “Debt Buyers and Robo-signers: Part I,” there is a discussion about the rise of debt buyers in this country. In short, prior to the creation of the Resolution Trust Corporation in the late 1980s, consumer debt was generally held by the creditor that issued the credit, whether it be a bank, a department store, a credit card company, or a telecommunications company. The company issued the credit to the purchaser and, if the purchaser defaulted, the company would do its best to collect on the debt but, if unsuccessful, after a period of time, the creditor would write off the loan.

Since the early 1990s, companies found that they could sell stale debt to third parties for pennies on the dollar and be rid of the debt. The debt buyers were, and still are, an unregulated industry of companies that bought old debt and then, generally resorting to serial lawsuits, try and collect the debt.

The Great Recession of 2008 resulted in mountains of debt being bought and sold in the market with all sorts of disastrous consequences. In Swanson v. Midland, Swanson went after a company that had employees sign up to 400 court documents per day as robo-signers, making no effort to verify the contents of the court documents.

The following case is about a novice who purchased a portfolio of debt from a broker. The novice was in the business of selling hot tubs. He heard from a friend about easy money being made by purchasing old debt and then collecting on it. He contacted a broker in Florida, UCR, who sold a corporation owned by him, a portfolio of “demand deposit account overdraft debt.” (hereinafter “DDA debt”). In the end, Bradstreet & Associates, LLC (“Bradstreet’) paid $646,000 for approximately $9,000,000 of DDA Debt sold by U.S. Bank. It also paid $390,000 for approximately $8,000,000 of DDA debt sold by Wells Fargo. UCR, the Florida company that bought the debt from U.S. Bank and Wells Fargo, in turn sold the DDA debt of US Bank to Bradstreet in a series of portfolio transfers from September 2009 through April, 2012. Similarly, UCR also bought, and later sold, the debt from Wells Fargo in a series of transactions from August of 2011 through April, 2012.

DDA debt is not a loan. It is the fee charged by the bank when a depositor has an overdraft on her or his account. Because the contract between bank and the customer is not a loan, there is no interest charged on the fee. The DDA debt is simply the fee charged by the bank for using the overdraft protection provided by the bank when a check is overdrawn.

Bradstreet had its collectors and lawyers go out to collect on the DDA debt. Bradstreet also charged interest at 21 ¾%, the result of which the original “debt” ballooned in size.

In 2013, Swanson became aware of complaints by debtors concerning the judgments being entered against them. Swanson’s office asked Bradstreet for copies of the agreements between the two banks and the consumers. The agreements made no reference to interest being charged. A complaint was then filed against Bradstreet in January of 2014 alleging that Bradstreet violated the state usury laws by charging and collecting interest that was not actually owed.

The matter was eventually settled with the court entering an order to vacate the thousands of judgments obtained by Bradstreet. The court order also required Bradstreet to disgorge the revenue it received, to pay a civil penalty, and to refrain from such business in the future.

The individual who owned Bradstreet presumably went back to selling hot tubs. The reason this is mentioned is to underscore how wild and undisciplined is the debt buying business.

The consent order in this case is quite detailed. It is the only case on record where thousands of cases situated in counties throughout the state were vacated by one judge. The Justice of the Supreme Court played an integral role in setting the logistics of the settlement.

References:

Swanson v. Bradstreet

Complaint: Download below.

Court Order: Download below.

DOWNLOADS:

A. Complaint (pdf)
B. Order (pdf)