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Guest Editorial: Kudos deserved for new debt collection law

Imagine you wrote a dozen or so checks, one for your $850 mortgage and the rest for smaller bills and purchases.

Imagine a payroll check that was supposed to be deposited electronically didn’t show up on time. Oops – you’re looking at a $35 bounced check fee.

But your bank made the problem much worse through its policy of processing the largest check first. So instead of one bounced check you have a dozen bounced checks on your hands, with a $35 fee for each one.

Viola! You owe the bank $400.

Imagine the bank refuses to budge, and in disgust you walk away from the bank and your defaulted checking account.

A few years later, the ghost of that unhappy incident arises when your bad “debt,” along with that of other former customers, is purchased by Bradstreet and Associates, LLC, a Minnesota debt buyer.

Bradstreet purchased old overdrawn demand deposit account debt from another debt buyer, which purchased the debt from Wells Fargo and US Bank.

All well and good. Buying old debt is what Bradstreet does.

But the firm didn’t stop there, according to Minnesota Attorney General Lori Swanson, who has filed a lawsuit alleging that Bradstreet and Associates illegally charged people up to 21.75 percent annual interest on that old bank account debt.

In some cases, Swanson said, Bradstreet got Minnesota courts to enter default judgments against unrepresented people for the unlawfully high interest after it represented to the courts that the interest was owed.

Interest of 21.75 percent is more than three times the 6 percent statutory rate of interest allowed by Minnesota law.

In some cases, the unlawful interest increased a consumer’s debt by thousands of dollars. One woman owed the bank about $1,886, but after Bradstreet charged 21.75 percent interest for nearly five years, her alleged debt increased to over $4,000.

A new state law requires debt buyers to prove that they are suing the right person for the right amount when they go to court seeking a default judgment.

Swanson and the Legislature deserve kudos for that new law, and for acting to protect consumers in a world filled with corporate sharks.

Both Wells Fargo and US Bank charged their customers fees, but not interest, on overdrawn checking accounts, and their contracts with their customers did not allow interest to be charged on overdrawn funds or the associated fees. Bradstreet nevertheless charged consumers interest of up to 21.75 percent from the date the accounts were charged off by the banks, with no contractual right to do so. Unless the contract authorizes a higher rate, Minnesota law caps the allowable interest rate at six percent. A significant portion of the debt sold by the banks constituted bank fees.

Since 2009, Bradstreet and its predecessor (Bridgestone and Associates, LLC) purchased at least $18 million of demand deposit account overdraft debt that originated with Wells Fargo and US Bank.

As noted above, in some cases, Bradstreet got courts to enter judgments against unrepresented people at the full 21.75 percent rate of interest, even though the underlying bank contracts did not allow it.

In 2013, the Minnesota Legislature – at the urging of the Attorney General – enacted a law to require debt buyers seeking default judgments in court to substantiate through admissible evidence that they are suing the right person for the right amount. 

The law became effective on Sept. 1, 2013. 

Attorney General Swanson said: “We will watch to see if the new law deters debt buyers from asking courts to award default judgments against unrepresented people with scant, incorrect, or manufactured evidence.”

The state’s lawsuit was filed in Hennepin County District Court and seeks injunctive relief and restitution for consumers.

A new study from the Consumer Financial Protection Bureau confirms what many banking customers have already experienced: banks reorder debit card transactions in various ways that can lead to costly overdraft fees.

That’s because it’s not clear when or in which order the bank will post transactions. While some banks simply commingle all debit transactions others categorize debits by different transaction types and process them in a sequence of sub-batches, according to the CFPB.

Banks’ policies vary widely “regarding what types of debits are grouped into sub-batches and the sequence of the sub-batches. The order in which sub-batches are processed can affect which items – and how many – incur overdraft or non-sufficient fund fees when an account with a positive balance does not have sufficient funds to pay all of the debits in all of the batches,” the  report notes.

This editorial originally appeared in the Detroit Lakes Tribune, a Forum Communications Company publication.

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