Return of the Debtor's Prison

Discussion in 'Business & Economics' started by Brutus1964, Mar 16, 2008.

  1. Brutus1964 We are not alone! Registered Senior Member

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    Back in the middle ages if a man owed money and couldn't pay, he would either become an indentured servant, which was a nice name for a white slave, or cast into debtors prison.


    As time went on, banks and lenders realized this was bad for business because it created a disincentive to borrow money since one's freedom was at stake. Debtors prisons were abolished and bankruptcy laws were passed to protect borrowers from imprisonment and harassment by creditors. these laws were designed to create a check and balance on lenders and borrowers to make each side responsible. When creditors risk losing their investment through bankruptcy, it encourages them to make wiser decisions on whom they trust their money. On the flip side bankruptcy made borrowers less responsible by creating a seemingly easy way to escape debt. Credit bureaus were established to keep a record of borrowers payment history to help creditors make sound decisions and instill responsibility on borrowers.

    Through the years the balancing mechanism which had existed between creditors and debtors have been lost because creditors devised schemes to take advantage of low credit scores. It became profitable to loan money to risky borrowers because they would still be ahead even if a certain percentage of borrowers defaulted on their loans because they could charge higher interest rates and late penalties. This easy credit seemed to be a boon to consumers, and those who previously did not qualify for loans could now buy a car or a home. In reality however, it reintroduced irresponsibility on both sides, and as a result the number bankruptcy filings skyrocketed.

    In an attempt to stem the tide Congress passed the Bankruptcy Reform Act in 2005. It was designed to put responsibility back into the equation by making it more difficult for debtors to absolve debt. It was meant to give debtors some protection from abusive lenders, but it did not go far enough and it swung the balance squarely on the side of credit card companies and lenders, but like many things it too followed the law of unintended consequences. In a sense it gave lenders a license to be irresponsible and created an incentive for creditors to engage in risky behavior. It also has made credit card companies and fly by night lenders much more aggressive in there tactics to get people into debt and keep them as long as possible. On the surface it seems like a bonanza for them but instead it has created a disaster that has left many lending institutions in ruins and actually increased the number of personal bankruptcies and foreclosures.

    Credit bureaus were meant to help creditors and debtors be responsible, but they have evolved into two headed hydras that now rival even the IRS in their ability to destroy lives. The public is remarkably complacent about credit reporting agencies because they think it does not effect them as long as they pay their bills on time. However, a person can pay their bills religiously and still have a low score because payment history is only one of the many metrics employed to determine a credit score. Some of the things that contribute to lower scores are a high debt to income ratio, too many credit inquiries by loaning institutions, and not having enough debt all can negatively effect your credit. There are life events that can effect your score such as a loss of a job, pay cuts, unexpected medical expenses, and since the score is no longer used solely for borrowing and lending money it has far reaching consequences that can effect your employability and your life. It has now become a de facto debtors prison that can keep a person from obtaining housing, getting a job, raises , and promotions. It has created a catch 22 where people can never pay off their debts because they can't get a good paying job in order pay then down. Since many poor people also have low credit scores it makes it increasingly difficult to get out of poverty, keeping them perpetually poor.

    Since credit reporting agencies have such an awesome impact on people's lives it should be expected that they keep accurate and up to date information, but they do not. The burden of keeping their records accurate falls squarely on the consumer who, in the most part, have very little knowledge of how credit agencies work. When credit bureaus make mistakes it is you who are responsible, not them. They also make it very difficult for the average person to obtain, understand, and fix the problems they create. One reason errors occur is because they rely mostly on creditors to report negative and positive data in a timely manner. Many creditors simply do not report accurate information, and are more likely to report negative information than positive. Creditors and credit reporting agencies are not held responsible for the errors they make, so there no real incentive for them to spend time and money insuring accuracy. They are free to report erroneous, inflammatory, and libelous information to your employers, landlords, government agencies, and lenders without any risk to themselves. Any other entity that worked this way would be open to lawsuits and public outrage. It is time for people to wake up and demand real reform to our credit reporting system. We must demand and require creditors and reporting agencies to keep accurate, real time information and hold them responsible for errors through the payment damages and penalties to those who are victimized. The burden of proof should be on the institutions. It should be modeled after our court system, which is an assumption of innocence until proven guilty. If they cannot prove an item on a report is accurate then it is incumbent on them to strike it from the record or at least flag it for further investigation.

    It is time to put responsibility back in our banking and credit system. Peoples lives are being destroyed without any accountability from creditors, reporting agencies, or government. I am certainly not calling for big government regulations, but to simply restore the balance that benefits everyone involved. Otherwise we are headed for a disaster where once again creditors hold all the power and consumers are held in bondage.
     
    Last edited: Mar 17, 2008
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  3. spidergoat Liddle' Dick Tater Valued Senior Member

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    Ken! Long time no see brotha. Finally updated your blog?
     
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  5. Syzygys As a mother, I am telling you Valued Senior Member

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    How about starting with the govermint???
     
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  7. Brutus1964 We are not alone! Registered Senior Member

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    Hey Spidergoat nice talking to you again. I edited my original post because I wrote it about four in the morning and was dead tired, it was chock full of grammatical errors so I fixed it. Hopefully it reads better now.
     
  8. lucifers angel same shit, differant day!! Registered Senior Member

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    where as i do agree to a point, but shouldn't the people who get these loans and credit from agencies be held responsible? i mean i would never ever go over the amount i am allowed to lend! and if you do, you are told that you will have to pay it back ad some more.

    what i dont like is, these loan agencies who specialise in giving loans ad credit to people who are on benefits or low income, and you have to pay a higher rate because your such a liability! Then perhaps people shouldnt get that new shiny car!

    if i want somthing instead of getting into debt for it, i will save and when i have the money i will go and get it! and not before!
     
  9. kmguru Staff Member

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    I think...the whole American economy is based on credit. That is why we have a 13 trillion dollar economy. Take away that you will have a 3 trillion dollar economy.....
     
  10. joepistole Deacon Blues Valued Senior Member

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    Very well said Brutus64.

    http://www.dailykos.com/story/2005/3/6/63144/06015

    We are now reaping the fruits of the Bush and Republican administrations...major financial insitutions going bankrupt due to fiscal mismanagemment. The Federal Government is going bankrupt due to fiscal mismanagement. My biggest beef with these last eight years, is that the supposedly fiscally responsible Republicans have been as fiscally responsible as a drunk sailor...rewarding all of their financial backers with legistative privaleges. Now not only are our major financial insitutions are in trouble, so is the government. The dollar is getting cheaper by the minute...kind of reminds me of the WWI German Mark. I dare say we are in a death spiral. We need more money to keep financial institutions alive so we print more money. We print more money, the dollar becomes cheaper, things become more expensive as we import almost everything...free trade don't you know.
    The new administration needs to go about quickly reversing the irresponsible special interest laws passed by the Republicans...starting with the Bankruptcy Reform and Consumer Protection Act of 2005 and the Medicare Reform and Prescription Drugs Act.
    It is well beyond time for some leadership in Washingtion and an end to legislation to the highest bidder. Our leaders need to start leading the country, and stop collecting cash.
     
    Last edited: Mar 17, 2008

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