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Members of the Strike Debt assembly / 
Occupy Wall Street / 
Common Notions / 
Antumbra Design / 


This operations manual — written by an anonymous collec- 
tive of resistors, defaulters and allies from Strike Debt and 
Occupy Wall Street — is for all those being crushed under 
the weight of debt. It aims to provide specific tactics for 
understanding and fighting against the debt system so that 
we can all reclaim our lives and our communities. It con- 
tains practical information, resources and insider tips for 
individuals dealing with the dilemma of indebtedness in 
the United States today and also introduces ideas for those 
who have made the decision to take collective action. 

The system of mafia capitalism has made it difficult, 
if not impossible, for us to meet our basic needs, whether 
we have debt or not, whether we pay it back or not. We 
recognize that it is not easy to fight this system, that it is 
not easy to withdraw consent from a financial world gone 
mad. Make no mistake: the odds are stacked against us. 
Laws surrounding debt lending, collection and buying are 
notably complex, designed to keep debtors confused and 
afraid. This manual is not designed to provide legal coun- 
sel; it is a political act of mutual aid. We are not lawyers; 
you may want to consult one before doing anything that 
you think might be illegal. Look seriously into any of the 
options we present before taking action. Be smart. 

As with any operations manual, this is a living doc- 
ument. We don't claim to have all or even most of the 
answers regarding debt. To produce this manual, we have 
reached out to our networks to the best of our ability. 
Some sections barely scratch the surface and in fact de- 
serve their own book-length treatment. Researching debt 
has uncovered many connections we didn't expect, and we 
know there are types of debt we haven't addressed. It is 
our hope that readers will have their own strategies to con- 
tribute to future versions of this manual. The contributors 
envision this first edition not simply as a document that we 

have made iotjou, but rather as the beginning of a project that we will all 
build together — a collectively written manual for collective action. An online 
version will be updated frequendy and available at Any ideas, 
plans, tips, corrections, resources, schemes — legal or otherwise — should be 
sent to; anonymity is the norm by which we operate. 

Because there is so much shame, frustration and fear surrounding our 
debt, we seldom talk about it openly with others. An initial step in building a 
debt resistance movement involves sharing the myriad ways debt affects us, 
both directly and indirectly. You are encouraged to share your experience at 
Debt Stories, Remember, you are not a loan! 























Everyone is affected by debt, from recent graduates pay- 
ing hundreds of dollars in interest on their students loans 
every month, to working families bankrupted by medical 
bills, to elders living in "underwater" homes, to those tak- 
ing out payday loans at 400% interest to cover basic living 
costs, to the teachers and firefighters forced to take pay 
cuts because their cities are broke, to countries pushed into 
austerity and poverty by structural adjustment programs. 

Everyone seems to owe something, and most of us 
(including our cities) are in so deep it'll be years before we 
have any chance of getting out — if we have any chance at 
all. At least one in seven of us is already being pursued by 
debt collectors. We are told all of this is our own fault, that 
we got ourselves into this and that we should feel guilty or 
ashamed. But think about the numbers: 76% of Americans 
are debtors. How is it possible that three-quarters of us 
could all have just somehow failed to figure out how to 
properly manage our money, all at the same time? And why 
is it no one is asking, "Who do we all owe this money to, 
anyway?" and "Where did they get the money they lent?" 

At the same time, we keep hearing about financial 
capitalism: the fact that most of the profits on Wall Street 
no longer have much to do with producing or even selling 
anything, but are simply the fruits of speculation. This is 
supposed to be very complicated — "Somehow they have 
just figured out a way to make money out of thin air; no, 
don't even try to understand how they do it" — and very 
distant from our everyday concerns. 

In fact, bankers are allowed to make money out of 
thin air — but only if they lend it to someone. That's the 
real reason everyone is in debt: it's a shakedown system. 
The financial establishment colludes with the government 
to create rules designed to put everyone in debt; then the 
system extracts it from you. Overseas it operates through 

financial scams that keep cheap goods flowing into the United States in a 
way that would never be possible if not for the threat of U.S. military power. 

Here at home it means endlessly making up new rules designed to put us 
all in debt, with the entire apparatus of government, police and prisons pro- 
viding enforcement and surveillance. Instead of taxing the rich to generate 
money to build and maintain things like schools and roads, our government 
actually borrows money from the banks and the public pays the interest on 
these loans. As we've learned through scandal after scandal, this process is 
riddled with fraud, rigged from the start to steal money that should be going 
to social necessities. Financial capitalism is mafia capitalism. 

We gave the banks the power to create money because they promised to 
use it to help us live healthier and more prosperous lives — not to turn us into 
frightened peons. They broke that promise. We are under no moral obliga- 
tion to keep our promises to liars and thieves. In fact, we are morally obligat- 
ed to find a way to stop this system rather than continuing to perpetuate it. 

This collective act of resistance may be the only way of salvaging democ- 
racy because the campaign to plunge the world into debt is a calculated attack 
on the very possibility of democracy. It is an assault on our homes, our fam- 
ilies, our communities and on the planet's fragile ecosystems — all of which 
are being destroyed by endless production to pay back creditors who have 
done nothing to earn the wealth they demand we make for them. 

To the financial establishment of the world, we have only one thing to 
say: We owe you nothing. To our friends, our families, our communities, to 
humanity and to the natural world that makes our lives possible, we owe you 
everything. Every dollar we take from a fraudulent subprime mortgage specu- 
lator, every dollar we withhold from the collection agency is a tiny piece of our 
own lives and freedom that we can give back to our communities, to those we 
love and we respect. These are acts of debt resistance, which come in many 
other forms as well: fighting for free education and healthcare, defending a 
foreclosed home, demanding higher wages and providing mutual aid. 

The fact is, most debtors dare not reveal their names nor show their 
faces. Those who struggle to stay afloat or who have fallen into default are 
told that they are failures, inadequate and abject, and so they do not speak 
out. There are literally millions of people who cannot pay the enormous 
sums that the financial elites claim they owe. They are the Invisible Army of 
Defaulters. Instead of a personal failure, refusing to pay under our current 
system is an act of profound moral courage. We see our situation as connect- 
ed, and we can look for ways to step out of the shadows together. The Debt 
Resistors' Operations Manual is an attempt to assist this invisible army and all 
other debt resistors in this struggle. 




Having a credit score is like having a tattoo of a barcode on 
your forehead, and the tattoo artist is like a consumer re- 
porting agency (CRA). It's actually perverse — we all agree 
to be watched, located, defined, classified and evaluated. 
And if we don't? Financial banishment — we're thrown to 
the credit wolves and loan sharks. 

This arrangement creates a caste system fueled by 
fear and exclusion. Financial surveillance is a corrupt and 
impersonal machine, not a system that genuinely deter- 
mines people's trustworthiness. Can't make a credit card 
payment because of health costs this month? It's record- 
ed. Got laid off and couldn't pay tuition? It's recorded. 
Tried to pay a mortgage fee with an already-low checking 
account? It's recorded. 

And who records all of this? The agencies, bureaus and 
companies that are watching over us: Equifax, TransUnion 
and Experian; ChexSystems and TeleCheck (to name only 
the biggest). This chapter is about how these agencies con- 
trol us — their methods, their mistakes, their profits — and 
how we can maintain dignity despite their power. 


There are three major national credit reporting 
agencies — Equifax, Experian and TransUnion — as well 
as many smaller ones. In 2009, the big three CRAs had 
combined revenues of more than $6.7 billion dollars. 1 
These agencies collect your information from creditors, 
store it and send it out to those who request it in the 
form of a "credit report." They also compile it into a 

"credit score" or "credit rating," a much simpler number that allows for 
the ranking of people. 

These agencies started in the 1950s as regionally based companies that 
would track the personal details of your life — when you got married, if you 
got a ticket, or if you committed a crime. Before technology allowed for the 
tracking of massive amounts of data, these companies could only compile in- 
formation about a particular type of credit — like your regional banking history 
or your mortgage — so data was not shared across industries. 

Over the last forty-five years, however, CRAs have come to play a crucial 
role in our ability to get access to even the basic requirements of life in our 
society. If you need anything more than just a small purchase — heating, gas, 
a phone line, medical care, education, personal transportation, insurance — 
someone has to scan your "tattoo." A number comes up on a screen. This 
person can see the screen and you can't. If they say your number is good, 
then you can go ahead and buy what you need. If they say the number is bad, 
things will become a lot more difficult for you. 

And the reach of CRAs is expanding: recently, a new phenomenon has 
emerged that has been described as "mission creep." Many landlords require 
a credit score, which means that credit agencies have a power over your abil- 
ity to find housing. Insurance rates are starting to factor in credit scores too. 
Hospitals have begun to charge patients and determine access to health care 
according to their credit scores. And finally, employers have begun demand- 
ing that job applicants provide credit reports. 

A tremendous amount of power over the daily lives of people is given to 
organizations that operate almost entirely outside of public oversight, with 
next to no democratic accountability. 

•In recent studies, more than 20 million people found 
material errors in their credit score calculations. 2 

• The government currently regulates very little 
of this entire process, including who can send 
information to the people who compile your 
score and who can access the information once its 

• Those in communities with higher concentrations 
of people of color are twice as likely to have low 
credit scores as those in other areas. Higher fees 
and interest rates are imposed on those with low 
credit scores, ensuring that class divisions along 
racial lines remain unchallenged. 3 

• It can seem difficult and futile to investigate or 
repair your credit score, but it isn't. There are ways. 
Keep reading to find out how. 


A System Riddled With Mistakes 

As for how the system works, there are problems on every level. On the 
ideological level, credit scores are crucial in creating and maintaining a cul- 
ture of debt. How does this work? In order to qualify for most housing, for 
example, you need to have a good credit score. And in order to have a good 
credit score, you need to have, guess what? Debt. You might think that being 
free of debt would qualify you for a good credit score, but that is not the case. 
You will only have a credit history if you have existing debt. In yet another 
way, the system forces you to enter into debt just to be able to provide for 
your basic needs. 

In addition, many credit reports are just plain wrong. A 2004 Public In- 
terest Research Group (PIRG) study revealed that 79% of credit reports con- 
tained errors; 25% of these mistakes were serious enough to result in a credit 
denial. More than half of all credit reports contained outdated information 
or information belonging to someone else. 4 With this number of mistakes, 
you have to wonder what this system is really about. 

You might think that because the rich actually use credit so much more, 
they would be the ones mainly affected by these errors — not so. In fact, the 
poorer you are, the more likely your credit agency is to make a mistake that 
influences your rating. 

Understanding Your Credit Score 

The scoring models are endlessly complicated, and different agencies use 
different ones, so it's never entirely clear what you can do to improve your 
score. With that said, the most commonly used model is "FICO" (Fair Isaac 
Corporation), and we do know that that score is comprised of the following: 

35% payment history 

30% amounts owed 

15% length of credit history 

10% new credit 

10% types of credit used 

Although we don't know exactly how these areas are evaluated, making 
regular payments, not having too many credit cards or other lines of credit, 
and keeping the ones you do have well below their limits will always help. 5 

Some Things We Can Do 

1. Demand accountability. The Consumer Financial Protection Bureau is 
now an operating governmental body. We should ask if it's doing its 
job when it comes to credit scoring. If it isn't, why not? If it is, can 
it do more? 


2. Demand regulation. Seven EU countries and seventeen Latin American 
countries have public credit scoring agencies. Why don't we? 

3. Demand transparency. Although they're hugely important to us, we have 
little say in how or why our credit scores are calculated. Can there be a 
democratization of credit scoring? 

4. Checkyour numbers. We can change this system, but we have to know it 
first. This is how to do it: 

Go to: 

Call 877-322-8228 or 

Complete the Annual Credit Report Request Form and mail it to: 

Annual Credit Report Service 

P.O. Box 105281 

Atlanta, GA 30348-5281 

In order to receive your free report, you'll need to provide your 
name, address, Social Security number and date of birth. You may 
need to give your previous address if you've moved in the past two 
years. For security reasons, you may also have to give additional infor- 
mation like an account or a monthly payment you make. 

Beware of scams: those charging to get your score or signing you 
up for "free" services in order to access your score. And beware of 
those offering to help your score; there is nothing they can do that you 
can't do more effectively and free of charge. 

5. Demand accuracy. There are laws that protect debtors from unfair and 
inaccurate credit score practices: the Truth in Lending Act, Fair Credit 
Reporting Act, Fair Credit Billing Act and Equal Credit Opportunity 
Act. All guarantee protection and the possibility for citizen-directed 
credit scoring and reporting. 

6. Reject the system. It is possible to live without a good credit score. If you 
can muster the time and energy to make some life changes, you can 
go totally off-grid. Below are some recommendations on how to live 
without the benefits of a good credit score: 

• Prepaid cell phones are always an option. 

• For housing utilities, if you have a roommate, you can ask them 

to put the accounts in their name. If you live alone, ask a rel- 
ative or friend. 

• Opt for services that don't require credit checks. If a com- 

pany requires a check, try to talk them out of it. Build up 
an old-fashioned trusting relationship by spending time 


talking with the person. They may choose to bypass the 
credit check. 

• Create your own credit report: put together a portfolio 

showing you are a trustworthy person (reference letters, 
job history, life narrative). 

• Check listings for housing, cars and other necessities that are in- 

formal and don't go through brokers or other formal agencies. 

• Offer to put down larger deposits in lieu of a credit check. 

• Build networks of mutual support in your community so you 

rely less on outside services. 

DIY credit repair 

It is best to repair your bad credit score yourself. This helps you avoid 
scams and fly under the radar of the CRAs who are looking to block credit 
repair companies from gaming their system. There is a host of books, web- 
sites, articles and other resources dealing with this issue. Below are the steps 
we recommend taking: 

1. Get a copy of all three of your credit reports. 

2. Review your credit reports and note every single error. Note incorrect 
spellings of your name, inaccurate data and any "derogatory" information. 

3. Write letters disputing negative information and errors to the corre- 
sponding agencies. 

4. Describe in your letter how you found out your credit was bad and 
how shocked you were at all of the errors the agencies have been re- 
porting. Then ask them "per the Fair Credit Reporting Act (FCRA) 
enacted by Congress in 1970," to either provide physical proof of 
their claims or delete the mistakes immediately. 

Include your name, current address and Social Security number on 
your letter. You should not include any additional information. 

Simply list the entry that you are challenging and briefly explain 
why you are challenging it. You only need to write a couple of words to 
do this — less is more. Say things like "this is not mine," or "this record 
is inaccurate." Be sure to make the letter sound unique to you. If you 
do not, you may find that the CRA responds by saying that your claim 
is "frivolous." This is the way they get rid of credit repair companies, 
and why you should not use one of them. There are competing theo- 
ries on whether or not you should challenge everything on your report 
all at once. You are legally entitled to have each item you challenge 
verified at any point in time. 


When sending your letter, request a "return receipt" or "delivery 
confirmation." The CRA has 30 days to respond to your dispute. If 
they do not respond within that time frame, you will have evidence 
that they are in violation of the Fair Credit Reporting Act. 

5. Don't give up after the first round. Within a month, you will receive 
a response from the CRAs. Typically, they will only state whether or 
not they were able to verify an item. For any items they claim to have 
verified, you should contact the creditor directly and demand that they 
provide proof that the debt is yours. You can also continue to chal- 
lenge the entry with the CRA. (See Appendix A for sample letters?) 

If you play this game, you really can win (eventually). Keep pressing on 
and hammering them with letters demanding they correct their mistakes and 
they will eventually get sick of your letters and start deleting negative trade 
lines from your report just to shut you up. Assume that you will be writing 
letters for six months to a year, but you should see a substantial improvement 
to your credit report and score within three months. As usual, the person 
who yells the loudest for the longest wins. And don't forget, repairing your 
credit score is not necessarily about regaining validity in the eyes of the sys- 
tem: it is about challenging an exclusionary and unjust surveillance machine. 


The credit score is an essential piece of economic surveillance, but it's 
not the only one. There are other ways of watching us and keeping us in 
check. Everyone has a credit score; many people also have a checking ac- 
count. Just as a series of private corporations monitors your borrowing activ- 
ity in the economy, a different group of private corporations monitors your 
checking account. And just as the credit score companies make a profit from 
calculating your score, consumer reporting agencies monitoring checking ac- 
counts make a killing when you overdraft or miss a payment. 

ChexSystems and TeleCheck are two examples. Financial institutions re- 
port instances of "account mishandling" to them. TeleCheck primarily deals 
with bad check writing while ChexSystems, used by over 80% of banks in the 
United States, deals with that and more: non-sufficient funds (NSF), over- 
drafts, fraud, suspected fraud and account abuse. Retailers can report bad 
checks to Shared Check Authorization Networks (SCAN), which can in turn 
report to ChexSystems. When someone tries to open an account elsewhere, 
the agency notifies the institution about that applicant's history. 

Unlike the seven-to-ten— years timeframe observed by credit reporting 
agencies, checking information remains in the system for five years, unless 
ChexSystems or TeleCheck is forced to remove it earlier. Another difference 
is that ChexSystems, unlike credit bureaus, only provides negative information 


in their reports. Therefore, a single banking error can result in losing an ac- 
count and cause immense difficulty trying to open one up elsewhere. Some- 
thing as inconsequential as failing to rectify a deliberately confusing overdraft 
fee is enough to negate decades worth of "responsible" banking. 

Avoiding ChexSystems/TeleCheck 

There are some steps that can be taken to avoid triggering a ChexSys- 
tems or TeleCheck report in the first place. Of course, there's no guarantee 
because you're not exactly dealing with trustworthy institutions. But it cer- 
tainly doesn't hurt to know your balance before writing checks to make sure 
they won't bounce. And if your checkbook ever gets stolen, report it to your 
bank or credit union immediately. When you are closing an account, be sure 
to discontinue all automatic payments, wait until you're certain that all checks 
you've written have cleared and formally close the account instead of simply 
taking all of your money out. 6 

Fighting ChexSystems/TeleCheck 

Suppose that, in spite of your best efforts, you still end up with a re- 
port from one of these consumer reporting agencies. There are a number 
of possible approaches, with varying degrees of desirability. The first is to 
try to live without an account. As Chapters VII and VIII will illustrate, this 
can be difficult, but many people have no option but to survive "unbanked." 
Another approach would be opening an account at a financial institution that 
does not use ChexSystems or TeleCheck. A state-by-state directory is avail- 
able at This approach, however, is not available for those 
who do not live near any of these banks or credit unions. In some states, you 
can take a six-hour "Get Checking" course, upon completion of which you 
can open an account at a participating financial institution. But there is a $50 
course fee, and guess who sponsors the program? A parent corporation of 
ChexSystems by the name of eFunds. 7 

It would seem that simply paying the bank for the debt you ostensibly 
owe might alleviate the situation. In actuality, you may be worsening your 
situation. This is because the bank can report activity to the agencies five 
years from the date you last paid. If you have a debt from 2010, it would be 
removed from your report in 2015 if you ignored it. This would present its 
fair share of problems, but if instead you paid the debt four years down the 
line, then it might haunt you until 2019. That's four more years of struggling 
to open a checking account than if had you done nothing. 8 In other words, 
the older the debt, the less worthwhile it is to pay back. 

A final option for consideration here is to actively fight the reporting 
agency as well as the bank that reported you. The first step is obtaining a 
copy of your report. 


Getting a report 

Regardless of your account history, you are entitled to a free copy every 
twelve months. If you are denied an account because of your report, you are 
entitled to a free copy within sixty days from the consumer reporting agency 
that is responsible. To request a copy of your report, go to consumerdebit. 
com for ChexSystems or for TeleCheck. 

When making a request, only provide information that is necessary, such 
as your name, Social Security number, address and possibly a previous ad- 
dress. They may ask for a work address or phone number, or your current 
checking account number, but you do not need to provide them with this 
information. You can simply say that you're currently unemployed and/or 
don't have a current checking account. 9 

If the agency refuses to provide you with a copy of your report or you 
fail to receive it within sixty days of being denied an account, you can submit a 
complaint to the Federal Trade Commission (FTC) at 
Then send a letter via certified mail to ChexSystems or TeleCheck notifying them 
that they are in violation of the Fair Credit Reporting Act and that they have fif- 
teen days to send you a copy of your report. Let them know that you are willing 
to pursue legal action and that you have already contacted the FTC. 

Writing angry letters 

If it turns out that a debt on your report is from more than five years 
ago, do not file a dispute. Instead, send a letter requesting the debt be re- 
moved on the grounds that it is over five years old. In other instances, you 
should write a letter disputing negative information contained in the report. 

First, send some angry letters to the reporting agency: 

1. Send an initial dispute letter to ChexSystems or TeleCheck (see Ap- 
pendix B, sample letter #/). Send it via certified mail with return receipt 
requested. Make copies of the letter and send it to your lawyer if you 
have one. 

If your dispute is based on an annual report, then the agency must 
reply within forty-five days of receiving your letter. If your dispute is 
based on a report that resulted in you being denied an account, then 
the agency must reply within thirty days of receiving your letter. 

If they respond, they must state in their response whether they 
were able to contact someone to verify the information contested in 
the report. If you do not contact them during the thirty/ forty-five 
days after your first letter, they are less likely to respond, which in turn 
means it is more likely that they will be forced to remove the disputed 
information on your report. 


• If they were able to verify, then it stays in the report. 

• If they were unable to verify, then the information must be 


2. Send a "demand for removal" letter (see, Appendix B, sample letter #2). 

Within fifteen days, they must provide you with the address and 
phone number of the financial institution that they contacted. 

If they do not respond to your "demand for removal" letter within 
fifteen days, send a procedural request letter (see Appendix B, sample letter #3). 

• If they do not respond to your initial dispute within thirty/ 

forty-five days, then send a "procedural request" letter (see Ap- 
pendix B, sample letter #3). 

• If you can prove that there was an error and prove that their 

failure to remove the disputed information has caused you fi- 
nancial harm (i.e., you cannot open a checking account), then 
you can pursue legal action. 

• You can also present your side of the story in one hundred 

words or less, which will be attached to your report. When 
banks are making a decision about letting you open an ac- 
count, they will at least get to see your statement too. 

Then, send some more angry letters to the financial institution: 

3. Banks are legally required to be 100% accurate in their reporting. Look 
for any type of error: incorrect name, Social Security number, address, 
dollar amounts, date of last activity, date account first became nega- 
tive. If a mistake is found, send a "demand for removal" letter to the 
reporting institution's manager or executive. 

• If the bank or credit union has reported account abuse, sus- 

pected fraud or fraud to ChexSystems or TeleCheck, see Ap- 
pendix B, sample letter #4. 

• If the bank or credit union has reported NSF to ChexSystems 

or TeleCheck, see Appendix B, sample letter #5. 



Carreon and Associates ( 
ChexSystems Victims ( 

National Consumer Law Center: Credit Reports ( 

Shawn Fremstad and Amy Traub, "Discrediting America: The Urgent Need to 

Reform the Nation's Credit Reporting Industry," Demos, 2011 ( 

"Information on Free Credit Reports," NEDAP ( 

Mark Kantrowitz, "Credit Scores," FinAid!, 2012 ( 


1. Gale Group, "Credit Reporting Services Market Report," Highbeam Business, 2012 

2. Shawn Fremstad and Amy Traub, Discrediting America: The Urgent Need to Reform the 
Nation's Credit Reporting Industry, (New York: Demos, 2011) ( 

3. Board of Governors of the Federal Reserve System, Report to Congress on Credit 
Scoring and Its Effect on the Availability and Affordability of Credit, (Washington, D.C: 
GPO, 2007) ( 

4. Malgorzata Wozniacka and Snigdha Sen, "Credit Scores: What You Should Know 
About Your Own," PBS Frontline, November 23, 2004 ( 

5. myFICO, 2012. "What's in my FICO Score." ( 

6. Rob Berger, "ChexSystems: The Banks' Secret WatchDog is Watching You," Dough 
Roller, June 18, 2011 ( 

7. Don Taylor, "Negative ChexSystems Report Nixes Account," Bankrate, March 8, 
2006 ( 

8. Mary, "ChexSystems Help?," ChexSystems Victims, 2011 ( 

9. Mary, "Free ChexSystems Report," ChexSystems Victims, 2011 ( 




Although American workers continue to lead the world in 
productivity, we haven't had a raise since the early 1970s. 
Over the last four decades, we've been working longer and 
longer, trying to keep up with the rising costs of living — 
housing, healthcare, education. Yet we haven't actually 
managed to keep up without plastic. In the early 1980s, 
U.S. household debt as a share of income was 60%. By 
the time of the 2008 financial crisis, that share had grown 
to exceed 100%. So, despite all our exertions over the last 
four decades, the 99% have only gone deeper into the red, 
in debt to the 1%. The reason is clear: we're in debt be- 
cause we're not paid enough in the first place and there's 
barely any "welfare state" left to pick up the slack. This 
setup is called financiali^ation. 

Credit cardholders are one of the many categories 
of debtors being asked to pay for Wall Street's disaster. 
Although fewer Americans continue to hold credit cards 
than before the crisis, most still do — and some hold lots of 
them. One in seven Americans had ten or more, according 
to one recent survey. With nearly 700 million credit cards 
in circulation, it's fair to say that having a wallet full of plas- 
tic has now become one of the defining features of Amer- 
ican life — our plastic safety net. Another defining feature 
is debt, almost $1 trillion of it being credit card debt. The 
average American household with at least one credit card 
owes nearly $16,000 in credit card debt. 

This doesn't mean we should be grateful to the credit 
card industry for throwing us "lifelines." These lines of 
credit aren't designed to save us, but to reel us in. The stan- 
dard practices of today's credit card industry come closer 
to pimping or drug dealing than old-fashioned prudential 
lending. Credit card companies make most of their money 
from people who are "disconnected" — socially, emotional- 
ly, residentially, etc. — and lack social support. In a financial 

system characterized by lack of transparency, credit cards are the most com- 
plicated and perhaps the most hazardous product of all. Whereas auto loans, 
student loans, closed-end bank loans and most mortgages have one or two 
price terms (fixed or tied to an index), credit cards feature a multiplicity of 
complicated fees. Adam Levitin, a legal scholar and leading expert on bank- 
ruptcy, warns that in addition to these explicit price points there are many 
hidden fees in the form of credit card billings. Added up, these "gotcha" fees 
cost American families over $12 billion a year. 1 

Think about it. That's $12 billion stolen from struggling American fam- 
ilies through trickery. And where does that money go? To banks, to the 
financial sector. Money that could have been used to improve the qual- 
ity of people's lives, to purchase goods and services in local, real econo- 
mies is going instead to service debt, which means it's going to Wall Street, 
to the 1%. 

Although total national credit card debt is small in comparison with mort- 
gage debt, effective APRs (annual percentage rates) are at least five times as 
high. The moment consumers get into trouble, the card companies pounce, 
imposing penalties, even retroactively. These practices are clearly unfair and 
abusive. And there's considerable doubt that the regulations specified in the 
Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 
2009 will be able to stop them. 


The credit card industry used to make its money on interest rates, but 
that never amounted to much. When they were first introduced in the 1960s, 
universal credit cards such as Visa and MasterCard were offered as loyalty 
rewards only to banks' best customers. This group was limited to upper-mid- 
dle-class and upper-class white men, who typically paid off their monthly 
balances. The appeal of the cards was convenience and prestige, not a need 
for credit. Banks lost money on the product, but the idea was to build loyalty 
in order to do even bigger business down the road. The banks got something 
in return as well: the wealthiest, most powerful men served as walking adver- 
tisements for the cards every time they used one. 

A series of legal changes (effectively eliminating usury laws by allowing 
all lenders to register in South Dakota, where no such laws existed) and the 
growth of computer networks that could trace credit ratings led to an explo- 
sion of credit card use in the 1980s. Interest-rate deregulation helped trans- 
form credit cards from banks' loss leaders into profit engines. New programs 
made it possible to unearth the most lucrative "revolvers," those who often 
carry high balances but are unlikely to default. Card companies figured out 
how to use so-called "risk-based pricing" to charge women and people of 
color more to use their cards. 


In the 1970s, it was difficult for a woman to get a credit card without her 
husband's signature — even harder if she were single or divorced. 2 According 
to the National Council of La Raza, Latino /as are more likely to have high- 
er interest credit cards.' Card companies claim that interest rate charges are 
based on "risk." But there is an abundance of evidence that risk ratings are 
largely determined by where you live. This is just a continuation of "redlin- 
ing" (assigning risk on the basis of location). In the past, redlining was used 
to deny residents and businesses in predominantly Black neighborhoods ac- 
cess to credit, without using explicitly racial/ethnic criteria. Today, high risk 
ratings are no longer used to deny credit but to charge more for it, which 
sets up a self-fulfilling prophecy: being designated financially "risky" actually 
further exposes one to unfair and abusive financial practices. 

As more people acquired credit cards throughout the 1980s and '90s, 
the "free" credit used by the wealthiest households was subsidized by the 
high rates and fees paid by the most financially distressed households. This 
is sometimes called "risk pooling," although typically pooling involves those 
with more subsidizing those with less; here, it's exactly the reverse. According 
to Robert D. Manning, founder of the Responsible Debt Relief Institute and 
author of Credit Card Nation, "A carefully guarded secret of the industry is 
that about a quarter of cardholders have accounted for almost two-thirds of 
interest and penalty-fee revenues. Nearly half of all credit card accounts do 
not generate finance and fee revenues." 4 

Today there are more than five thousand credit card issuers, but a majority 
of these (and the debt they manage) are owned by — you guessed it — the big 
banks. The top three — Citigroup, Bank of America and JPMorgan Chase — 
control more than 60% of outstanding credit card debt. 5 We're talking about 
the same giant "too-big-to-fail" institutions that ruined the economy through 
their own irresponsible financial machinations. In the years before the financial 
crash, the industry grew exponentially, starting in the '90s when credit card 
companies first figured out that they made more money lending to people who 
carried monthly balances on their cards than to customers who promptly paid 
them off. From 1993 to 2007, the amount charged to U.S. credit cards went 
from $475 billion to more than $1.9 trillion. Late fees have risen an average of 
160%, and over-limit fees have risen an average of 115% over a similar period 
(1990— 2005). 6 American households have been swimming in debt and losing 
a significant portion of their total income to penalties and fees. Adam Levitin 
calculates that a single repricing due to a billing trick can cost a family between 
an eighth and a quarter of its discretionary income. 

After the crash, families scrambled to get out of debt. Some were helped 
by the useful, if limited, regulatory reforms prescribed by the CARD Act of 
2009. Credit card debt is down by perhaps 15% overall and cardholders are 
on to the industry's old tricks. The problem is, card companies are busy de- 
vising new tricks. The total amount of credit card debt remains staggeringly 


high, and card issuers are still free to charge whatever rates of interest they 
like (only nonprofit credit unions are required by Congress to abide by an 
interest rate ceiling of 15%). In the nine months between the passage and 
implementation of the CARD Act, credit card issuers did their best to jack 
up interest rates, reduce lines of credit, increase fees and water down re- 
wards programs. For millions of unemployed and underemployed Americans 
it may be too late. Their credit scores are already shot and their borrowing 
costs are through the roof. And now that credit scores are widely used as a 
screening tool for job applicants, these workers face even greater challenges 
in finding employment. 

The Tricks of the Trade 

From risk rating to pricing to credit limit determination, industry policies 
are extremely opaque and seem designed to keep cardholders in the dark. 
Analysts at the website Credit Karma, however, were able to analyze a sample 
of over 200,000 credit cards. An examination of the relationship between 
credit scores, income and credit limits indicated that higher credit scores get 
you higher credit limits, regardless of income. Low credit scores, no matter 
your income, keep credit limits low. 7 A history of compliance with minimum 
payments is more important to issuers than current ability to repay. 

Credit card companies don't mind if you're late paying your bill or if 
you maintain a balance, as long as you go on paying your monthly minimum. 
Cardholders who never carry balances on their cards have long been known 
inside the industry as "deadbeats," money-losers. Since almost all of the in- 
dustry's profits come from late fees and interest rate penalties, it depends on 
your slipping up. This is why monthly statements are intentionally designed 
to be confusing. If they change the design of your statement — say, by mov- 
ing a box to the left, or making the print a litde smaller — in such a way as to 
cause even one cardholder out of a thousand to misunderstand and miss a 
payment, that's millions of dollars in additional profit for them. In the past 
they would trip up consumers by intentionally making the due date fall on a 
Sunday or a holiday. This enabled them to extract even more from late fees, 
the whole time insisting it was all your fault. 

The CARD Act outlawed several predatory practices that companies 
used to trick you into paying more. For instance, in the past, companies need- 
ed to give you only fifteen days notice before upping rates or making other 
changes to your contract, leaving little time to negotiate. Now companies are 
required to notify you forty-five days in advance. 8 However, this notification 
will most likely be mailed to you, so make sure you read everything your cred- 
it card company sends you. 

Since the 1990s, credit card pricing has been a "game of three-card mon- 
te," according to Adam Levitin. "Pricing has been shifted away from the 
upfront, attention grabbing price points, like annual fees and base interest 


rates, and shifted to back-end fees that consumers are likely to ignore or un- 
derestimate." 9 If consumers are unable to gauge the true price of products, 
how can we be expected to use them efficiently and responsibly? 

For a credit card company, the perfect customer is one who charges up 
a very large amount of debt impulsively, sits on it for a year or two so as to 
build up maximum high-rate interest charges, finally feels guilty and pays it 
all back without asking any questions. That's why they used to besiege high 
school and college students with free card offers: credit card companies cal- 
culated that students were likely to spend impulsively, attempt to avoid the 
problem and eventually call their parents to foot the bill. The CARD Act 
restricts extensions of credit to those under twenty-one unless they have a 
cosigner or a proven means of income. Credit card companies are no lon- 
ger allowed to hand out free gifts at or near colleges or college-sponsored 
events. 1 " Since credit card companies make so much of their profits from 
binge behavior, for them to lecture consumers on the moral duty to repay is a 
bit like drug dealers chiding their customers for becoming addicted to heroin. 
Goading you to sin while trying to make you feel guilty for giving in is the 
industry's modus operandi. 

Of course, the overwhelming bulk of credit card debt isn't driven by im- 
pulse spending at all, but by the predicaments of people trying to make ends 
meet. That's why the average carded household owes nearly $16,000 on their 
card(s). For example, one survey found that 86% of people who lose their 
jobs report having to live, to at least some degree, off of their credit cards 
until they find new jobs. Similarly, nearly half of American households owed 
money on out-of-pocket medical expenses on their credit cards. According to 
a recent survey, medical bills are a leading contributor to credit card debt, af- 
fecting nearly half of low- to middle-income households; the average amount 
of medical debt on credit cards is $1,678 per household. 20 The examples are 
endless, and they reveal textbook predatory behavior. Banks, card issuers and 
collectors exploit our precarity. They take our money any way they can, often 
using unethical, illegal and extra-legal means — mafia-style. 


Obviously, no one wants to sit on a huge pile of "revolving" credit card 
debt accruing interest at usurious rates every month. Unfortunately credit 
cards are the double-edged sword of the credit score world. If you have 
cards with high balances, your score goes down. If you have no credit card, 
your score goes down. Having a low credit score can keep you from receiving 
things like a mortgage loan. Do you see the Catch-22? If you don't buy on 
credit, then banks will see you as "risky," and will not loan to you. On the 
other hand, if you have a credit card but you spend too much, then you will 
be denied a loan. If you can't avoid having the cards, you can sidestep the 
traps they set for you by actually reading the fine print. 





U.S. Households: Debt Vs. Income 

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2009 

Websites such as Card Hub ( and Credit Karma (creditkar- offer free tools to help you understand and navigate credit reports 
and credit scores, and to compare credit cards; Card Hub even provides cus- 
tomized disclosures for different cards. 

Think about how important your credit score is to you, and how strongly 
you are committed to preserving it. Consider the risks. This involves looking 
into the future, which always makes things more complicated and multiplies 
the "unknowns." Start by finding out where you currendy stand. Get your 
free credit report (see Chapter T) and make sure it's accurate. 

So what can you do? There are a number of options, ranging from legal 
action to bankruptcy to simply refusing to pay. 

Going to Court 

You may have seen those lawyers who appear on late night TV promising 
they can get you out of debt. Surprisingly — since the world is full of scam art- 
ists — some of them actually can. This is how the honest ones do it: 

What most people don't realize is that legally, there's nothing special about 
owing money. A debt is just a promise and, contractually, no promise is more 
or less sacrosanct than any other. If you sign with a credit card company, both 
you and the company are agreeing to abide by a contract that is equally binding 
on both of you. The small print applies to both sides, so if American Express 
has failed to fulfill any of its contractual obligations, for instance its obligation 
to alert you prompdy of a change of policy, that's just as much a violation of 
contract as your failure to pay the agreed-on sum. Knowing how this industry 
works, any skilled lawyer with a copy of the contract and access to all relevant cor- 
respondence is likely to discover half a dozen ways the company has violated its 


contractual obligations to you. In the eyes of the law, both parties are guilty; there- 
fore, you need to renegotiate the terms of the relationship. This usually means the 
judge will knock off half or even three-quarters of the total sum owed. 

The fact is, this process is riddled with fraud on a scale that is only now 
beginning to be revealed. "The same problems that plagued the foreclosure pro- 
cess — and prompted a multibillion-dollar settlement with big banks — are now 
emerging in the debt collection practices of credit card companies," the New York 
Times recendy reported. "As they work through a glut of bad loans, companies 
like American Express, Citigroup and Discover Financial are going to court to 
recoup their money. But many of the lawsuits rely on erroneous robo- signed 
documents, incomplete records and generic testimony from witnesses, according 
to judges who oversee the cases." Lenders are "churning out lawsuits without re- 
gard for accuracy, and improperly collecting debts from consumers." One judge 
told the paper that he suspected a full 90% of lawsuits brought by credit card 
companies were "flawed and can't prove the person owes the debt." 11 

In some cases banks have sold credit card receivables known to be in- 
accurate or already paid. In a series of 2009 and 2010 transactions, Bank of 
America sold credit card receivables to an outfit called CACH, LLC, based 
in Denver, Colorado. Each month CACH bought debts with a face value 
of as much as $65 million for 1.8 cents on the dollar. 12 The cut-rate pricing 
suggests the accounts' questionable quality, but what is remarkable is that 
the bank would even try to sell them and that it could make money from 
them. Over the last two years, Bank of America has charged off $20 billion 
in delinquent card debt. An undisclosed portion of the delinquent debt gets 
passed along to collectors. Once sold, rights to such accounts are often resold 
within the industry multiple times over several years. Other banks have also 
admitted that their debt sale contracts may be riddled with inaccuracies. 

The lesson is, always keep copies of everything. Always keep the option 
of legal action open and make sure the credit card companies know that 
you're doing so. 

What Happens if You Just Don't Pay? 

After ninety days, your account goes into default and the credit card 
company has the option of sending it off to a debt collection agency. They 
don't really like this option, because they will be taking a huge loss. That's 
how debt collection agencies make their money. They buy up the debt at pen- 
nies on the dollar, often through brokers, and then try to collect the whole 
thing, plus fees for the cost of collection. The original lender takes a loss. 
No doubt they can get some of it back through tax accounting and no doubt 
they figure a certain percentage of that loss into their business model, but 
ultimately, they would rather this didn't happen. 

Obviously this is a bad thing for you as well: it means you will be hound- 
ed by a collection agency and your credit score will take a major hit. If you 


want to borrow in the future, it might not be possible. If you are able to bor- 
row, you will be charged much higher interest rates. If that isn't a concern, 
then go ahead, default: it's free money! But for most of us, it is a problem, so 
we must turn to other expedients. 

Negotiating With Your Credit Card Company 

Since credit card companies don't want you to default, you can usually 
negotiate. They will often offer a substantial reduction on what you owe 
them if they think your defaulting is the only other option. Remember: even 
if you offer them ten cents on the dollar, that's more than they would be get- 
ting if they sold it to a collection agency. On the other hand, they don't want 
to set a precedent — they know that if everyone just held out and negotiated 
a 90% reduction their business would be ruined. So they are being pulled in 
two different directions. This is important to bear in mind when you negoti- 
ate. If you're seriously thinking about negotiating, see carreonandassociates. 
com for the exact sequence of procedures for how to do it. 

Default Versus Bankruptcy 

If you declare bankruptcy, your credit card debts may be wiped out or 
lessened; however, it is a complex process which can very well backfire. If you 
are thinking of declaring bankruptcy, please refer to Chapter X of this manual. 
In addition, bankruptcy will affect your credit rating for the next seven to ten 
years. The statute of limitations on defaults — the amount of time creditors or 
collectors have after you default to try to get it back legally — differs from state 
to state, from as little as three years to as many as ten. But after it's over, you're 
entirely off the hook and it's easy to wipe the default off your record. Which 
option to choose will vary with circumstances. Try to get all information about 
the different possibilities in your state of residence before you decide. 

What About Those People Who Use One 
Credit Card to Pay Interest on Another? 

There definitely are people who have figured out the ropes — the way that 
your credit score interacts with multiple credit card accounts, and so forth — 
so well that they can live off their credit cards for years before defaulting. It 
can be done. The major proviso we would offer is: this is basically a scam, 
and scams like this tend to be extremely time-consuming Making your living 
this way is not all that much easier than making a living in a more conven- 
tional way and it has the disadvantage of ensuring you have to think about 
credit cards all the time. If you don't mind that, and have figured out all the 
possible legal ramifications and accept them, then go ahead. But going "off 
the financial grid" is probably easier. 



Card Hub ( 

Carreon and Associates ( 
Credit Karma ( 
Credit Slips ( 


Kimberly Amadeo, "Consumer Debt Statistics: Consumer Debt's Role in the U.S. 
Economy," A bout, com, July 19, 2012 ( 

"Landmines in the Credit Card Landscape: Hazards for Latino Families," National 
Council of La Ra Z a, February 20, 2009 ( 

Leslie McFadden, "8 Major Benefits of New Credit Card Law," Bankrate, August 20, 
2009 ( 

Jessica Silver-Greenberg, "Problems Riddle Moves to Collect Credit Card Debt," 
New York Times, August 12, 2012 ( 

Amy Traub and Catherine Ruetschlin, "The Plastic Safety Net: Findings from the 
2012 National Survey on Credit Card Debt of Low- and Middle-Income House- 
holds," Demos, 2012 ( 


1. Senate Committee on Banking, Housing and Urban Affairs, Enhanced Consumer 
Financial Protection After the Financial Crisis, testimony of Adam J. Levitin before the 
Committee on Banking, Housing and Urban Affairs, July 19, 2011 ( 

2. Bryce Covert, "The Double-Edged Sword of Credit Cards for Women and Mi- 
norities," Huffington Post, March 16, 2011 ( 

3. Landmines in the Credit Card Landscape: Hazards for Latino Families (Washington, DC: 
National Council of La Raza, 2009) ( 

4. Robert D Manning, "Five Myths About America's Credit Card Debt," Washington 
Post, January 31, 2010 ( 

5. Manning, "Five Myths." 

6. U.S. Government Accountability Office, Credit Cards: Increased Complexity in Kates 
and Fees Heightens Need for More Effective Disclosures to Consumers, (Washington, DC: 
GPO, 2006) ( 

7. "How a Credit Card Limit is Determined," Credit Karma, September 23, 2008 (ti- 

8. Leslie McFadden, "8 Major Benefits of New Credit Card Law," Bankrate, August 
20, 2009 ( 

9. Senate Committee on Banking, Housing, and Urban Affairs, Modernising Consumer 
Protection in the Financial Regulatory System: Strengthening Credit Card Protections, testi- 
mony of Adam J. Levitin before the Committee on Banking, Housing and Urban 
Affairs, February 12, 2009 (, 11. 


10. Connie Prater, "What the Credit Card Reform Law Means to You," Creditcards. 
«ww, June 13, 2012 ( 

11. Ann Carrns, "Medical Costs Contribute to Credit Card Debt," New York Times, 
May 22, 2012 ( 

12. Jessica Silver-Greenberg, "Problems Riddle Moves to Collect Credit Card Debt," 
New York Times, August 12, 2012 ( 





If you're having trouble paying medical bills, you are 
certainly not alone. About 62% of all personal bankrupt- 
cies in the United States are linked to medical bills or ill- 
ness, and three-quarters of those bankrupted had health 
insurance when they got sick. 1 That's about one medical 
bankruptcy every ninety seconds. 

Medical debt is debt that individuals accrue when they 
are charged, but don't or can't yet pay for, out-of-pocket 
health-care-related expenses charged by the hospital, clinic 
or doctor (provider). As soon as you pull out the plastic 
and put it on your credit card — something strongly advised 
against when trying to manage medical bills — it becomes 
personal or consumer debt. 

There are many ways you can incur medical debt. Ac- 
cording to the American Journal of Medicine, "Among medi- 
cal debtors, hospital bills were the largest medical expense 
for 48%, drug costs for 19%, doctors' bills for 15%, and 
insurance premiums for 4%." 2 

Dr. David Himmelstein, M.D., founder of Physicians 
for a National Health Program, states "private 
health insurance is akin to an umbrella that melts 
in the rain. It simply isn't there for you when you 
most need it." 3 

U.S. Pays More for Health Care, but Gets Less 

People in other industrialized countries have no con- 
cept of medical debt. That's because they have a system 
of universal healthcare that spreads risk across the popula- 
tion. U.S. health care does exacdy the opposite; the financial 
burden is placed on the most vulnerable individuals, while 
the cost of care increases and coverage becomes skimpier. 

Health insurance is supposed to guarantee that you get the care you need with- 
out going bankrupt, but in the U.S. health system, it may very well do neither. 
The World Health Organization places the United States health care sys- 
tem first in spending (per capita) and 37th in quality of care. 4 Spending was 
estimated at over $8,500 per person (or 17.9% of the GDP) last year. 5 At 
the same time, the United States ranked last among "high-income" countries 
on amenable mortality — that is, deaths that could have been prevented with 
access to effective health care. 6 

Dciltir refers reflect all public 
and flrifate striding on ta fe, 
from doctor viaats to hospital 
infrastructure Deln ere Irom 5007 
or the most recent year jiv&lsorre. 

...,-, MKike 823 


Why does health care cost so much? 

One of the largest driving forces of health care cost lies with the high 
overhead expenses of health insurance companies, such as advertising, underwrit- 
ing costs and lavish payouts to executives and shareholders. These expenses absorb 
at least 12% of premiums — amounting to billions of dollars a year that could oth- 
erwise be spent on health care. Medicare's overhead, meanwhile, is at 1.42%. 7 

Even with the passage of the new health reform law, the Affordable Care Act, 
there will be an expansion in the role of private health insurance and for-profit care 
with an increasingly rapid transfer of public money to private hands leaving patients 
in the dust. 

Hospital Bills 

When you receive a medical bill: 

• Keep every bill. 

• Separate doctors' bills from the hospital's bills. Not every service pro- 
vided during your hospital stay will be included in the hospital's bill. 

• The origin of the bill is a significant factor in determining whether 
you're entided to a discount. 

• Different account numbers on the bills may help indicate the different 


• Ask the hospital's billing office for an itemized bill. This bill will sep- 

arately list all hospital charges. You have a right to know what you're 
being charged for. 

• If you have trouble understanding which services you're being charged 

for and by whom, call the telephone number listed on the bill to help 

• If you're insured, review your insurance policy to better understand 
the expenses for which you are responsible versus those covered by 
the plan. 

• In addition to making sure you receive coverage that you're eligible for, 

avoid putting medical bills on your credit card. 9 Doing so converts 
your medical expenses to consumer debt, which puts you in an even 


worse place. Having credit card debt instead of medical debt likely 
means greater fees and penalties, and greater difficulty securing a job 
or mortgage. 

You can challenge your hospital bills for many reasons: 

• If you believe the bill was not calculated correctly. 

• If you believe you're being charged twice for a single service. 

• If you believe your insurance — either public or private — should have 
covered some or all of the charges for which you are being billed. 

Private Insurance Bills 

Be careful about referrals! Sometimes patients admitted to an in-network 
hospital by their in-network provider incur huge bills as a result of out-of- 
network referrals during their hospital stay. This is because commercial insur- 
ance plans do not require their in-network doctors to refer patients to other 
in-network doctors. 

If you have a plan with limited out-of-network coverage, or with 
none at all, tell your doctor not to refer you to out-of-network doctors. 
Ask each specialist who treats you in the hospital whether they accept 
your health plan. Anesthesia bills can be very costly; request an in-net- 
work anesthesiologist who accepts your plan and ask to have this request 
written in your chart. 

Doctors' Bills 

Call your doctor right away if you think your bill is wrong. 

• Find out what the bill is for. You may be responsible for co-pays or 
deductibles, depending on your plan. 

• Make sure that the doctor has alloi your insurance information. If you 

have coverage from multiple sources — private insurance, Medicare 
and/or Medicaid — make sure that the doctor knows about all insur- 
ance plans and has sent claims to all. Some insurance sources require 
payment to be made in a certain order, so if the doctor fails to submit a 
claim to all sources, your claim may be denied. For example, Medicaid 
pays last; as a result, Medicaid will deny payment if the claim was not 
first submitted to your other insurers such as Medicare or commercial 
plans for payment. 

• If you receive care from an out-of-network doctor, you may have to pay 

up front and submit the claim yourself. Clarify this with your doctor. 
For help submitting a claim, call the unsurer. 

• Most insurance plans have time limits for submitting claims. Make sure 

not to miss these deadlines. 


Persuading doctors to reduce their bills 

• Tell your doctors if you're having a hard time paying a bill. You can 

ask for a discount and offer to send recent financial information 
such as proof of income, recent bank statements and proof of ma- 
jor expenses. 

• If you received financial aid for your hospital bill, ask the private doctor 

if they would be willing to reduce the bill on that basis. 

• Ask your doctor for an installment plan instead of sending the bill to a 

collection agency. If the doctor agrees to an installment plan, ask for it 
in writing. However, if you can no longer afford the payment plan the 

account may be sent to a collection agency. 

Challenging Medical Bills in Collections 

The best way to challenge a medical bill in collections is to simultaneous- 
ly ensure that your privacy rights under HIPAA (Health Insurance Portability 
and Accountability Act of 1996) have not been violated. You can ask for 
the debt to be validated with a fee breakdown. This is almost impossible to 
provide without a violation to your rights under HIPAA. See Appendix Cfor a 
sample letter for this purpose. 


Going to the Emergency Room 

If you have to go to the hospital, you cannot be turned away from 
the emergency room. All you can do is get the care you need and figure 
out how to pay for it later. If you receive a bill that you cannot afford, 
go as soon as you can to the hospital's financial aid or billing center. 
Some hospitals can lower your payments based on your level of income. 
Be persistent. 

Stories of lying about identity to avoid emergency room bills have been 
reported to us confidentially. You could consider changing your identifying 
information so they cannot track you down to bill you, but use extreme cau- 
tion to avoid getting caught. 

Free Care 

In the New York City area, the Coalition of Concerned Medical Pro- 
fessionals works to connect people who have been denied care with medical 
professionals who will donate their services. They can be reached only by 
phone at (718) 469-5817. 

In a future version of this manual, we intend to devote considerable space to discuss 
meeting basic needs at little to no cost, including but not limited to health care. 


How to Choose A Hospital 

There are different types of hospitals with different types of programs 
in all fifty states. Many states offer "urgent care" or "free clinics," which pro- 
vide very basic services, but you may still need insurance to access even these 
services. Private and public hospitals also have different programs. Public 
hospitals receive more state and federal funding and should be able to help 
you find ways to lower your medical bills. If you know this information in 
advance, you can request which hospital to be taken to if you end up in an 
ambulance. The National Association of Free and Charitable Clinics (nafc- allows you to find free clinics near you. 

Denied Treatment? 

Protest to get the care you need. Corporations want to avoid bad press. 
If you are denied health care, you can organize public demonstrations to de- 
mand that you're given the care you need. Once public controversy is created, 
corporations may reverse their decision to withhold care. 


The only real solution is to change the system from its current for-profit 
model to a nonprofit model, which has proved sustainable elsewhere in the 
world. Of the thirty-three countries with a UN Human Development Index 
of 0.9 or higher, the United States is the only one without universal health- 
care. Half of the remaining thirty-two nations have single-payer healthcare — 
that is, the state provides insurance and pays for all expenses except co-pays 
and coinsurance. 1 " This could happen in the United States by lowering the 
age of eligibility for Medicare from sixty-five to fifty-five and up, then to 
forty-five and up and so on, lowering the age every couple of years until 
everyone has access to comprehensive coverage. 

Some states are experimenting with moving to single-payer systems. Ver- 
mont is working on implementing a publicly funded universal health care 
system. This could prove to be a model for the nation in reversing the trend 
towards greed and profit that dominates our health care. 

Join the fight for single-payer universal health care and help build the 
movement to end medical debt! 

• Activists and advocates can contact Healthcare-NOW! at health- 
care-now. org. 

• Health professionals can contact Physicians for a National Health Pro- 
gram at 

• If you're in a union, contact National Nurses United at nationalnurse- 

• Organize with Occupy Wall Street. Contact Healthcare for the 99% or 
Doctors for the 99% at 



Healthcare-NOW! ( 
National Nurses United ( 
Healthcare for the 99% ( 
National Association of Free and Charitable Clinics ( 
Physicians for a National Health Program ( 

Stephanie Barton, "How to Avoid Medical Debt," Investopedia, May 4, 2011 (tinyurl. 

Brian Grow and Robert Berner with Jessica Silver-Greenberg, "Fresh Pain 

for the Uninsured," Bloomberg Businessweek, December 2, 2007 ( 

"How to Prevent and Fix Medical Debt: A Handbook for Community Advocates 

Assisting New Yorkers with Medical Debt," Legal Aid Society, February 5, 2010 

Galen Moore, "Mixed Response for Companies that Buy Hospital Debt," Boston 

Business Journal, November 30, 2009 ( 
Jessica Silver-Greenberg, "Medical Debt Collector to Settle Suit for $2.5 Million," 

New York Times, July 30, 2012 ( 


1. David U. Himmelstein, et al., "Medical Bankruptcy in the United States, 2007: 
Results of a National Study," American Journal of Medicine 20, no.10 (2009) (tinyurl. 
com/DROMHimmelstein): 3. 

2. Himmelstein, "Medical Bankruptcy," 4. 

3. Mark Almberg, "Illness, Medical Bills Linked to Nearly Two-Thirds of Bankrupt- 
cies," EurekAlert!, ]une 4, 2009 ( 

4. The World Health Report 2000: Health Systems: Improving Performance (Geneva: World 
Health Organization, 2000) (, 155. 

5. National Health Expenditure Accounts: Methodology Paper, 2010: Definitions, Sources, and 
Methods (Baltimore: Centers for Medicare and Medicaid Services, 2010) (tinyurl. 
com/DROMCMS), 5. 

6. Ellen Nolte and Martin McKee, "Variations in Amenable Mortality: Trends in 1 6 
High-Income Nations," Health Policy 103, no. 1 (2011) (, 

7. Medicare Trustees, The 2012 Annual Report of the Boards of Trustees of the Federal 
Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (Washington 
DC: Department of the Treasury, 2012) (, 10. 

8. The content in this section is primarily modified from: How to Prevent and Fix Med- 
ical Debt: A Handbook for Community Advocates Assisting New Yorkers with Medical Debt 
(New York: Legal Aid Society, 2010) ( 

9. Stephanie Barton, "How to Avoid Medical Debt," Investopedia, May 4, 2011 (tinyurl. 

10. Praveen Ghanta, "List of Countries with Universal Healthcare," True Cost, Au- 
gust 9, 2009 ( 




These days, everyone is telling you that a college degree 
is the only way to get a decent job. Fear of an uncertain 
financial future drives many of us toward higher education, 
especially into exploitative for-profit colleges. Lenders are 
making profits off of that fear, and so education has be- 
come one of the biggest debt traps in our society. Not only 
have college costs continued to skyrocket, but increasing- 
ly you are told that a bachelor's degree is just not good 
enough; now you need a master's degree too, and these are 
often the most expensive of all with few grants available to 
those who are scrambling to enroll. 

Two-thirds of students leave college with an average 
of $27,000 in debt. With too few jobs on the horizon, it's 
no surprise that default levels are rising like floodwaters; 
41% of the class of 2008 is already delinquent or in de- 
fault. 1 This gives rise to a different kind of fear — that our 
futures have been foreclosed — leading many into depres- 
sion and even suicide. 

In 2012, total student debt in the United States sur- 
passed the $1 trillion mark. This is higher than credit 
card debt or any other kind of consumer debt with the 
exception of mortgage debt. Some analysts think there is 
a student debt bubble about to burst. This might not be a 
bad thing for debtors. After all, they can't repossess your 
degree or your brain. Or at least not yet. But while hedge 
funds might bet on the outcome, you probably shouldn't. 

This section explains how student debt was created, 
who profits from it and how you can survive as a debtor. 
Above all, you should know that you are not alone if you 
are facing default. There are ways of resisting, especially by 
acting together. In the long term, we need to put the United 
States back on the sizable list of countries (many of them 
less affluent) that manage to fund free higher education. 


Going to public college used to be pretty affordable, especially for those 
on the GI Bill, or those who went to public colleges like CUNY or the Univer- 
sity of California. Starting in the early 1980s, state funding began to erode — 
public college costs have risen by 500% since 1985. 2 Neoliberal policy-making 
has transferred the financial burden onto individual students. This means your 
future salary will be used to pay back the debts you got stuck with to prepare 
yourself for employability in the first place. Having to pay for education through 
debt is a form of indenture. And unlike traditional forms of indenture, it can 
take a lifetime to regain your freedom. 

Wall Street has made a killing on this system, especially the queen of student 
lending, Sallie Mae. How did this happen? Bear with us — it gets complicated. 
Created in 1972 as a government agency, Sallie Mae has since been fully privat- 
ized. Sallie Mae has a hand in both types of student loans: federal and private. 
They also profit by originating, servicing and collecting student loans. 3 

Between 1972 and 2010, loans were considered federal when originated by 
financial institutions (including Wall Street banks), but guaranteed and subsidized 
by the government. In 2010, the Obama administration cut out the middlemen so 
that any federal loan taken out is now originated directly by the federal government. 

But don't be fooled, these "federal" loans are still serviced by a group of 
select private institutions, including Sallie Mae. In addition, federal loans have 
unjustifiably high rates of interest (6.8%). Is the government profiting? Yes, and 
the proceeds are used to pay the bill for wars and Wall Street bailouts. 

Furthermore, federal loans rarely meet the full cost of education, leaving 
most students with no choice but to take out private loans to make up the dif- 
ference. Even though only 20% of all current student loans are private, in ten to 
fifteen years they will have surpassed federal loans. These private student loans 
are subject to different terms and have much higher interest rates. 

Chances are your university financial aid officials are in cahoots with private 
lenders. A 2006 investigation by the New York State Attorney General's Office 
concluded that the business relationship between lenders and university officials 
amounted to an "unholy alliance." Tenders paid kickbacks to universities based 
on the loan volume that financial aid offices steered their way; lenders also gave 
all-expenses-paid Caribbean vacations to financial aid administrators, and even 
put them on their payroll. In addition, lenders set up funds and credit lines for 
schools in exchange for being placed on preferred-lender lists. 4 

In spite of these scandals, and despite the NYS Attorney General's rec- 
ommendation that bankruptcy protections be restored to student lenders, 
nothing happened. The student loan racket was just too profitable to be 
reined in by a few regulators. In 1998, federally-backed loans were declared 
ineligible for bankruptcy, and after prolonged pressure from Wall Street, pri- 
vate loans became ineligible in 2005. As if that's not enough, the government 
also granted enormous collection powers to lenders. They can garnish your 


wages and seize tax returns without even requesting a legal hearing first. Even 
Social Security and disability wages are subject to garnishment. 

This lack of protection has made default wildly profitable for lenders. 
On average, 120% of a defaulted loan is ultimately collected. In fact, in 2003 
Sallie Mae disclosed that its record-breaking profits were due in significant 
part to collections on defaulted loans. In 2001, Sallie Mae was caught default- 
ing loans without even trying to collect the debt. This rapacious conduct is 
the norm in some corners of the industry. 6 

As in the subprime mortgage market, many private loans are securi- 
tized — packaged and sold to the highest bidder as Student Loan Asset-Backed 
Securities (SLABS). These SLABS account for almost a quarter — $234.2 bil- 
lion — of the aggregate $1 trillion debt. Since SLABS are often bundled with 
other kinds of loans and traded on secondary debt markets, investors are not 
only speculating on the risk status of student loans, but also profiting from 
resale of the loans though collateralized derivatives.' 

The Social Impact 

The human toll of all this is becoming increasingly visible. For a host of 
disturbing accounts of student debt, it's well worth reading Alan Collinge's 
book Student Loan Scam: The Most Oppressive Debt in U.S. History — and How We 
Can Fight Hack. And it's certainly not hard to find student debt horror stories 
on the internet. 

A military veteran reports that he has paid $18,000 on a $2,500 loan and 
Sallie Mae claims the man still owes $5,000. The bankrupt husband of a so- 
cial worker, bedridden after a botched surgery, tells of a $13,000 college loan 
balance from the 1980s that ballooned to $70,000. A grandmother subsisting 
on Social Security has had her payments garnished to pay off a $20,000 loan 
balance resulting from a $3,500 loan she took out ten years ago, before she 
underwent brain surgery. These loans increase so rapidly due to compound- 
ing interest in combination with deferment and forbearance programs. In 
fact, only 37% of student loans are in repayment at any given time. The other 
63% are accruing interest, adding fees and becoming more and more likely to 
add to the 5 million student loans already in default. 8 

During the Great Recession, African Americans lost almost all of the 
economic gains they made after the civil rights movement. As a result, Afri- 
can American students have borrowed more for education than whites, and 
they are twice as likely to be unemployed on graduation. Worse still, students 
of color are much more likely to enroll in for-profit schools, which have high 
non-completion rates and account for nearly half of student loan defaults. 
It's no surprise that the default rate for African Americans is four times that 
of whites. 9 



Your loan becomes delinquent the. first day after you miss a payment. The 
delinquency will continue until all back payments are made. Loan servicers 
report all delinquencies of at least ninety days to the three major credit bu- 
reaus. As we've seen in Chapter I, a negative credit rating may make it diffi- 
cult for you to meet your basic necessities. 

Student loans are generally considered in default when you fail to make a 
payment for 270 days for a federal loan or 120 days for a private loan. If you 
want to avoid default, try to make at least one payment every 120 or 270 days. 

If you haven't defaulted but are alarmed about not being able to pay your 
student loans, do not panic. If you just graduated, many loans provide an au- 
tomatic six-month deferment period. And if you have federal loans, you can 
extend this period on an annual basis either through deferment or forbear- 
ance programs. Deferment on certain loans halts interest during periods of 
unemployment, economic hardship, temporary disability and while the debt- 
or is in school. Although forbearance does not stop interest from accruing, 
it does allow for some breathing room. But keep in mind that this will cause 
your loan amount to increase. Typically, the interest is compounding annually, 
which means that at the end of a year, it will be added to the principal and 
you will have to pay interest on that too. This can cause loans to mushroom, 
so check to see if you qualify for deferment before entering into forbearance. 

It may also be helpful to consolidate all of your loans into one. You 
can only consolidate federal loans with other federal loans and private loans 
with other private loans. Often there are incentives for consolidation, such 
as interest rate reductions for on-time payment or direct debit. It is some- 
times possible to ask the originator of the loan to recall it, taking it out 
of the hands of a guarantee agency and then make arrangements with the 
original lender. 

There are a couple of newer programs that may also be helpful: the 
Income-Based Repayment Plan (IBR) and Public Service Loan Forgiveness 
(PSLF). Income-based repayment allows you to adjust payment to meet your 
income by capping payment at 15% of income based on family size. A single 
individual with no children making under $20,000 would pay 2.4% of income 
toward student debt whereas a family of four making under $100,000 would 
pay 9.9% of their income toward student debt. After twenty-five years, any 
remaining student loan debt would be forgiven. Public Service Loan Forgive- 
ness provides forgiveness of federal student loan debt after ten years of con- 
tinuous employment by any nonprofit, tax-exempt 501(c)(3) organization, a 
federal, state, local or tribal government agency including the military, public 
schools and colleges or while serving in AmeriCorps or the Peace Corps. 
You may also be eligible if your employer is not a religious, union or partisan 
political organization and provides public services. 10 


Being in Default 

If you are about to default on a student loan, remember that you are 
not alone. There are approximately 4 to 5 million other Americans that have 
already done so. While default can be a political act (especially when done en 
masse), these are the consequences you may be subject to: 

• Your loans may be turned over to a collection agency. 

• You will be liable for the costs associated with collecting your loan, 
including court costs and attorney fees. 

• You can be sued for the entire amount of your loan. 

• Your wages may be garnished. (Federal law limits the amount that may 

be garnished to 15% of the borrower's take-home or "disposable" 
pay. This is the amount of income left after deducting any amounts 
required by law to be deducted. The wage garnishment amount is also 
subject to a ceiling that requires the borrower to be left with weekly 
earnings after the garnishment of at least thirty times the Federal min- 
imum wage, per 34 CFR 682.410(b)(9), 34 CFR 34.19(b) and 15 USC 

• Your federal and state income tax refunds may be intercepted. 

• The federal government may withhold part of your Social Security 
benefit payments. The U.S. Supreme Court upheld the government's 
ability to collect defaulted student loans in this manner without a stat- 
ute of limitations in Lockhart v US (04-881, December 2005). 

• Your defaulted loans will appear on your credit history for up to seven 

years after the default claim is paid, making it difficult for you to obtain 
an auto loan, mortgage or even credit cards. A bad credit record can 
also harm your ability to find a job. The U.S. Department of Educa- 
tion reports defaulted loans to TransUnion, Equifax and Experian (see 
Chapter I). 

• You won't receive any more federal financial aid until you repay the loan 

in full or make arrangements to repay what you already owe and make 
at least six consecutive, on-time monthly payments. You will also be 
ineligible for assistance under most federal benefit programs. 

• You will be ineligible for deferments. 

• Subsidized interest benefits will be denied. 

• You may not be able to renew a professional license you hold. 11 

These measures are harsh, but you can continue to fight as an individ- 
ual. Unfortunately, bankruptcy is not an option for student debtors, except 
occasionally in cases of permanent disability or "undue hardship." Although 
it is difficult to get credit reporting agencies (CRA) to remove defaulted stu- 


dent debt from reports, it is not impossible. You can use the strategies and 
resources oudined in Chapter IX to demand that CRAs and debt collectors 
prove that the amount of your debt is fully verifiable. This will require a 
concerted letter-writing campaign, but you may be pleasantly surprised by 
the results. Often, record keeping is poor and there are no accessible records 
tying you to a debt. Although a court judgment is not required before your 
paycheck, bank account or tax return is garnished, you are entided to an ad- 
ministrative hearing if you request one. 

If you want to get out of default, you can often rehabilitate your loan by 
entering into an agreement to make twelve consecutive on-time payments to 
the original lender or guarantee agency in exchange for the removal of the prior 
delinquency history from your credit report. Be sure to get this agreement in 
writing and to be clear about how this will be entered on your credit report. 

Know Your Loans 

As the amount of middlemen standing between you and your loan con- 
tinues to increase, it can be hard to know who guarantees, originates, ser- 
vices and collects your loans. To find this information about your federal 
loans, visit the national student loan database at It's 
a little more complicated when dealing with private loans. FinAid is a great 
first resource for understanding the different institutions involved: finaid. 
org/loans/studentloans.phtml. It's important to fully understand your own 
situation, since the laws can differ. For example, state guarantee agencies 
are exempt from the Fair Debt Collections Practices Act, but any private 
collection agency hunting you down must comply with this law. So be aware 
of their illegal practices and know your rights. This FinAid page about de- 
faulting on student loans is a good place to start: 
phtml. Abusive debt collection behavior is also highlighted in Chapter IX. 
We recommend you read it carefully. 


If we fight this system alone, the best we can hope for is to keep our 
heads above water. The good news is that those suffering with student debt 
have begun to organize. Collective action is the only true solution. At this 
point, there are several campaigns under way. 

Student Loan Justice (founded in 2005) and Forgive Student Debt to 
Stimulate the Economy (founded in 2009) aim at persuading lawmakers to 
reform the system. Both organizations have pushed for policies restoring 
bankruptcy protection and partial debt forgiveness. Unfortunately, these rea- 
sonable proposals have produced little in the way of legislative change. Four 
attempts at restoring bankruptcy protection have ultimately failed. And in 
spite of over one million names on a petition urging Congress to pass a ten- 


year partial forgiveness program, lawmakers, heavily beholden to the finance 
industry, have not budged. Unfortunately, these measures will not de-com- 
modify education nor claim it as a public good. 

The Occupy Student Debt Campaign (OSDC) emerged in 2011 in tan- 
dem with Occupy Wall Street as part of a global uprising against neolib- 
eralism. To fight the debt-financing of education, OSDC proposes diverse 
collective strategies of direct action, including a campaign of collective debt 
refusal. For more details, refer to the OSDC website (below). 

OSDC believes that our public education system must be free, that any 
future student loans must be offered at zero interest, that all university in- 
stitutions must be transparent and accountable, and that all current student 
debt must be cancelled. These principles, or principles like them, should be 
the foundation of any student debt movement. 

All of these movements can be found online if you want to find out how 
to join a larger collective to help effect change. 


FinAid ( 

Forgive Student Loan Debt to Stimulate the Economy ( 
Income-Based Repayment Info ( 

Occupy Student Debt Campaign ( 
Student Loan Justice ( 

Articles and Books 
Jerry Ashton, "America's Financial Institutions and Student Lenders — Attention: 

OWS 'Occupy Student Debt' Committee Has Something to Say," Huffington Post, 

November 21, 2011 ( 
Pamela Brown, "Education Debt in the Ownership Society," AlterNet, June 27, 2012 

( . 
George Caffentzis, "Plato's Republic and Student Loan Debt Refusal," Interactivist, De- 
cember 31, 2011 ( 
Alan Collinge, The Student Loan Scam: The Most Oppressive Debt in U.S. History — and 

How We Can Fight Back, (Boston, MA: Beacon, 2009). 
Malcolm Harris, "Bad Education," n + /, April 25, 2011 ( 
Brian Holmes, "Silence=Debt," Occupy Student Debt Campaign, 2012 ( 

Sarah Jaffe, "Meet 5 Big Lenders Profiting from the $1 Trillion Student Debt Bubble," 

AlterNet, November 28, 2011 ( 
Anya Kamenetz, Generation Debt, (New York, NY: Riverhead Books, 2006). 
"Private [Student] Loans: Facts and Trends," The Project on Student Debt, July 2011 (ti- 
"Some Options," EDU Debtors Union, 2011 ( 
Jeffrey Williams, "Student Debt and the Spirit of Indenture," Dissent, Fall 2008 (ti- 



1. Mark Kantrowitz, "Student Loans," FinAid, 2012 ( 

2. Steve Odland, "College Costs Out of Control," Forbes, March 24, 2012 ( 

3. U.S. Department of the Treasury, Lessons Learned from the Privatisation of Sallie Mae, 
(Washington DC.,: GPO 2006) ( 

4. Doug Lederman, '"Deceptive Practices' in Loan Industry," Inside Higher Ed, March 
16, 2007 ( 

5. Tyler Kingkade, "Private Student Loan Bankruptcy Rule Traps Graduates with Debt 
Amid Calls for Reform," Huffington Post, August 16, 2012 ( 

6. Alan Collinge, Student Loan Scam: The Most Oppressive Debt in U.S. History — and How 
We Can Fight Back, (Boston, MA: Beachon Press, 2009). 

7. Malcolm Harris, "Bad Education," n+ 1, April 25, 201 1 ( 

8. Collinge, Scam. 

9. Julianne Hing, "Study: Only 37 Percent of Students Can Repay Loans on Time," 
Colorlines, March 17, 2011 ( 

10. "What are these Programs? IBR and PSLF," IBRInfo ( 

11. Mark Kantrowitz, "Defaulting on Student Loans," FinAid, 2012 ( 




If you're living in an "underwater" home (the value of your 
home is lower than your mortgage), you're probably think- 
ing, "how did I get myself into this mess?" You're probably 
feeling like there was something you could have or should 
have known. But what we were told about the security of 
real estate was in fact never true. In reality, the rapid growth 
of the housing market was an artificial creation based on a 
secretive relationship between banks and the government. 

This chapter will explain the long history that pro- 
duced what we refer to as the "subprime bubble," and 
how the system actually operates. When the first wave of 
the financial crisis hit in 2006, there was no way any of 
us could have imagined how bad things would really get. 
But the crisis has exposed the dynamics of the system and 
produced a potential political force 40 million strong with 
nothing more to lose. 


You can't escape the need for shelter. But in America, this 
basic need is entangled with our fervent belief in the Ameri- 
can Dream. When you hear the story, it sounds like the Amer- 
ican Dream existed from the beginning of time, but it was re- 
ally created in 1934 when the government decided to partner 
with the banks to create a housing market. Since then, we've 
been believers in a fantasy that has driven the 99% to take on 
more and more debt just to have a home to live in. 

Before the 1930s, the vast majority of Americans did 
not own their homes nor have any hope of doing so. If 
you wanted to join the 40% of Americans who owned 
their homes, you would either have had to pay cash, or to 
have known someone who would lend you the money. The 
lender could be a bank, but only if you had a good rela- 
tionship with your local banker. And even then, they would 

only allow you to borrow 50% of the property value — and you had to pay it 
off in three to five years. 

By 1934, with household income on the rise, the need for public housing 
allegedly decreased. The federal government came to believe that increased 
homeownership was the key to unlocking credit and creating new jobs. The 
Housing Act of 1934 established the Federal Housing Administration (FHA) 
for the purpose of providing mortgage insurance for residential properties. 
The FHA also created the Federal National Mortgage Association (a.k.a. Fan- 
nie Mae) to provide a secondary market where banks could sell mortgages. 
In other words, the banks partnered with the government so that they could 
profit immediately rather than waiting for the mortgage to be paid in full. 

This combination of insuring and buying mortgages quickly led to mort- 
gages being offered for up to 90% of home value. Payment terms were ex- 
tended to fifteen years at first, then to thirty. Of course, the creation of the 
modern mortgage expanded the market enormously — by the 1970s, home- 
ownership had grown to 65%. 

This partnership between the banks and government agencies continues 
today with the vast majority of mortgages on the books of FHA, Fannie 
Mae, and Freddie Mac — in other words on the backs of the taxpayers. In 
2011, the federal government guaranteed more than 95% of mortgages. 1 


Fannie Mae and Freddie Mac back more 
than half the mortgage market today 

Total mortgage loans outstanding by source of 
ereditdn million?, as of May 2012) 

16.9 million 

Private banks 


9.1 million 

and other 

Source: Fa nnie K'a? 

17.7 million 

Fannie Mae 


The Ownership Society 

The reality of growing ownership was a shifting burden of risk from 
business and publicly subsidized housing to you, the individual "owner." In 
addition to creating a "society of homeowners," the expanding mortgage 
market created a society of debtors. Instead of building affordable housing, 
checked by the ability to pay for a home in a relatively short period of time, 
prices grew to accommodate the longer payment terms. 

Although you probably associate the "Ownership Society" with 
George W. Bush, the concept actually came out of Clinton-era policy. 
The stated goal of Clinton's "National Homeownership Strategy: Part- 
ners in the American Dream" program was to extend homeownership to 
8 million low-income buyers. This policy opened the door for the sub- 
prime lending industry to develop new products, specifically targeted at 
low-income people of color. While the burden of public housing was lift- 
ed off of the government's shoulders, mortgage debt was coming down 
like a ton of bricks on unsuspecting families of color. A steady increase in 
foreclosures followed. 

Although the FHA will allow you to put down only 3.5% of home value, 
they'll charge you higher interest rates and require the purchase of addition- 
al mortgage insurance. The banks designed complicated products including 
adjustable rate mortgages, interest-only payments, negative amortization and 
hybrids of all three. And the government never told you that if its agencies 
weren't operating as a secondary mortgage market (allowing banks to sell 
their risk immediately) this would never have been possible. They left you 
with all the risks and banks with all the gain. 

Oddly enough, actual levels of ownership only expanded by a couple of 
percentage points. Although wages have stagnated or declined, and the per- 
centage of full-time workers has decreased, more and more of us have been 
getting mortgages. In some states, 65% of mortgages were originated after 
2000. However, the vast majority of mortgages went to those refinancing or 
trading up. Very few new homeowners were actually created. 

If you were under the impression that the housing market could grow 
perpetually, you were not alone. We were told time and time again that, in 
the housing market, what went up would never come down. Too bad they 
forgot to mention that the banks wouldn't lose if you couldn't pay. And, 
oops, they also forgot to mention that you would be paying as a taxpayer, 
even though you also lost everything as a homeowner, since the vast ma- 
jority of mortgages are insured by government agencies. It's hard to be- 
lieve that either the bankers or the government officials believed the mar- 
ket could grow forever. To the contrary, the reason they developed the laws 
and financial schemes they did is because they knew it could not continue 
to grow forever. 



As mortgage lending declined since the crisis began, 
so too did homeownership 

Total home purchase loan originations and U.S. homeownership rates, 
by quarter since 2006 

Home pu rthase loa n origl nations (J billions) Homeownership rate 

$500 80% 

$400 /v — Home purchase loan originations 76% 

$300 ' \ / \ 72% 

$200 ^ ^A^-— -^^\ fS\ 68% 

$100 V ^ ■ V 64% 


2006 2D07 200S 2009 2010 2011 2012 

Sources: N'EJA Quarterly Originaften Estimates US Census Bureau 

The Current Nightmare 

The realization that "ownership" does not instantly occur when you ac- 
quire a mortgage has been exposed by the foreclosure epidemic. The reality 
is that the bank owns the property and you're really only purchasing an op- 
portunity to become an owner, if all goes well for thirty years. How bad is it? 

• Approximately 1 1 % of all homes in the United States are empty. 

• The rate of homeownership in the United States has dropped to 1998 

• Between January 2007 and August 2010, mortgage lenders repossessed 

a total of 3 million homes. 

• Eight million Americans are at least one month behind on their mort- 
gage payments, and 5 million homeowners in the United States are at 
least two months behind. 

• So far 5 million homes have been foreclosed. Last year in California, 
1.2 million were foreclosed, and another million are expected to be 
foreclosed in California in 2012. 


Wall Street analysts predict as many as 7.4 to 9.3 million borrowers will 
face foreclosure. 

A quarter of African American and Latino/a borrowers have lost their 
homes or are currently at risk of foreclosure, compared to 12% of 

Over 30% of all U.S. mortgages have negative equity. 

Between 2005 and 2009, the typical Latino/a borrower saw their home 
equity decline by 51%. 

Industrial cities are turning into ghost towns. For example, in Day- 
ton, Ohio, 18.9% of all houses are now standing empty, and 21.5% of 
houses in New Orleans are vacant. 

U.S. home prices have already fallen further during this economic 
downturn (26%) than they did during the Great Depression (25. 9%). 2 


We may only be halfway through the foreclosure crisis 

Total number of foreclosures vs. loans at serious risk [in millions), 
as of March 2011 

Millions of mortgages 


Steadily current 

but underwater 

24 million 






Mortgages in 
foreclosure pro ces 5 

1.4 million 

Completed foreclosures 
since Sept, 200S 

3.5 million 

Current but com p rom i s e d 
payment history 

60+ days delinquent 
3.5 million 

Fo reel q s u res co m p leted Mortg a ges at risk of 
or in process fo reel osu re/l i q u i d ati on 

Sources: CoreLog ic a nd Amherst Securities 


What Caused the Meltdown? 

The common "blame the victim" account of the subprime mortgage 
crisis ignores the fact that the mortgage industry developed complex fi- 
nancial instruments designed to tempt and confuse borrowers. The most 
infamous of these loans were adjustable rate mortgages (ARM) and stated 
income products. 

ARMs are exacdy what they sound like — you receive an initial inter- 
est rate that adjusts after several years. These loans frequently allow you to 
choose whether to pay the full monthly payment or just the interest. They are 
often combined with home equity lines of credit. These loans can cause the 
principal to increase if you make reduced payments. Even after the collapse, 
the predatory nature of the ARM is still being revealed — these rates are set 
against the LIBOR index, which we now know to have been manipulated by 
the major banks in a scam to line the pockets of the 1%. 

Stated income loans (a.k.a. "liar" loans) allow you to simply state your 
income with no verification. These loans were most often used by growing 
masses of freelance and precarious workers, many of whom did not qualify 
for a traditional mortgage. 

Certainly, ARMs and stated income loans have high rates of failure, but 
the causes for the financial collapse are much more complex and cannot be 
blamed on the purchasers of these complicated loans. 

According to the Federal Reserve Bank of Cleveland, there are ten myths 
about the subprime market: 

1. Subprime mortgages only went to borrowers with impaired credit. 

2. Subprime mortgages promoted homeownership. 

3. Declines in home values caused the crisis. 

4. Declines in mortgage underwriting standards triggered the crisis. 

5. Subprime mortgages failed because people used their homes as ATMs. 

6. Subprime mortgages failed because of mortgage rate resets. 

7. Subprime borrowers with hybrid mortgages were offered low teaser 

8. The subprime crisis was totally unexpected. 

9. The subprime mortgage crisis was unique in its origins. 

10. The subprime market was too small to cause big problems. 3 

In reality the crisis was caused by a combination of factors that were 
foreseeable from the early 2000s. Predatory financial products were sold to 
buyers, who believed that they were entering into long-term relationships 
with banks. But the banks were securitizing these mortgages, most often by 
selling them on the secondary market created by Fannie Mae and Freddie 


Mac, cashing out and shifting the risk to the buyer as the taxpayer. Not sur- 
prisingly, the major banks have made enormous profits since the meltdown. 

Economic hate crimes 

The patterns of predatory mortgage lending grew out of America's long 
history of committing and facilitating economic hate crimes. Starting with 
the retracted promise of "forty acres and a mule," African Americans have 
been unable to break into the white housing market. From steering to redlin- 
ing to reverse redlining, the African American perception that homeowner- 
ship benefits whites more than blacks reveals its truth in the actual data. 


Racial and ethnic disparities persist in the mortgage market 

People of color are less likely to be homeonwers, were more likely to receive riskysubprime loan? during 
the bubble, and are less likely to receive a loan at all today, compared to their white counterparts 

Horneownership Percentof Percentof Percentof Percent of mortgage 

rate in 201 1 borrowersin borrowerswho borrowerswho applicantswho 

foreclosure or at received high-interest received high-risk were denied 

serious risk today loans despite good loans despite good 

credit (FICO >660) credit (FICO > 660) 

Souroes: The Center for Aeapons bte Lending a nd The rederal Reserve 

• Whereas less than 12% of white homeowners are at risk of foreclosure 

today, 25% of African Americans are still at risk. 

• So far, 25% of African American homes have been foreclosed during the crisis. 

• Whereas just over 5% of white borrowers received high interest loans despite 

good credit, over 20% of black borrowers and just under 20% of Hispanic 
borrowers received bad loans when much better options where available. 

• Over 40% of African American borrowers received high-risk loans in spite of 

good credit. 


According to the Economic Policy Institute, as 
of December 2009, median wealth of white 
households dipped 34%, to $94,600; median 
African American household wealth dropped 77%, 
to $2,100. 4 

The median household net worth was nineteen times greater for whites 
than Blacks in 2009. Wealth disparity is far greater now than it was in 1995, 
when the wealth differed by a factor of seven. 5 In 2009 dollars, the median 
household net worth for Blacks decreased from $9,885 in 1995 to $4,900 in 
2009, while it increased for whites from $68,520 to $92,000 during the same 
timespan. This shocking statistic is in part due to long-term housing disparity. 
As of 2011, nearly 75% of white Americans were homeowners, compared 
with only about 45% of African Americans. About 90% of the subprime 
mortgages taken out from 1998 to 2006 were for homeowners refinancing 6 
The vast majority of these mortgages were issued in lower-income commu- 
nities of color, perpetuating a clear cycle of predatory debt. 

From the Housing Act of 1934 onward, housing discrimination by banks 
was conducted through the practice of redlining. Home Owners' Loan Cor- 
poration (HOLC), a federal agency set up in 1933 by Roosevelt for the pur- 
pose of preventing foreclosures, initiated this practice of redlining when its 
agents were asked by the Federal Home Loan Bank Board to create maps 
indicating the security of real estate investment. 

The maps were not based on assessment of the economics of individuals 
in a community, but rather based on assumptions about its racial composition 
and consequendy defined communities of color as unworthy of mortgages. 

The practice of redlining shifted as the laws around housing discrimina- 
tion were strengthened. Clinton's push to expand homeownership to low-in- 
come borrowers led to the current subprime market dynamics, which are based 
on a predatory strategy of reverse redlining Reverse redlining occurs when a 
community is targeted to be marketed high interest or high-risk loans. We now 
know that this was a common practice across the mortgage lending industry. 

Most recendy Wells Fargo, the largest mortgage lender in the country, 
setded a reverse redlining case with the Justice Department. The bank only 
agreed to compensate individual borrowers for $125 million dollars worth of 
losses. This is a far cry from the true cost of this predatory lending and will 
not put the victims of this hate crime back in their homes. SunTrust Mort- 
gage settled a similar case and Bank of America also settled a similar suit over 
its Countrywide Financial unit. 

The result of the long history of housing discrimination is still apparent 
today with increasingly racially segregated communities. 



Let's say you're having trouble making your mortgage payments, maybe 
you've gone into foreclosure, and want to stay in the home. What can you do? 

It is difficult to generalize since rules concerning mortgages, foreclosures 
and eviction differ by state. Still, some things do apply to all states. 

There are many things that you can do to resist foreclosure and try to 
work out a better deal if you stay in the home. Banks can only remove peo- 
ple after a foreclosure notice has been given in an act of eviction, and this 
is difficult for them from a legal and physical perspective. Banks can and do 
reconsider mortgages that are at the eviction point, finding deals that work 
better for all parties. This only happens when the owner is in the home. 

At this point in dealing with your mortgage, you will likely be exhausted 
and want to give up. That exhaustion is one of the banks' strongest weapons 
in taking your home, so stand strong. 

If you are in trouble with a mortgage, there are three major ways of try- 
ing to deal with the situation: 

1. Hire a lawyer if you can afford one. Legal aid, a bar association or 
any law practice might have special options if you don't have the 
necessary resources. 

In general, watch for fraud and people looking to scam you and 
steal your money, while promising to help you with your home. People 
who want a lump-sum fee upfront are the most notorious. Anyone 
looking to take your mortgage payment and give it to the bank is un- 
trustworthy; you'll want to pay the bank directly. 

In general, anyone who promises you a silver bullet is almost cer- 
tainly lying Even the best lawyers know, and should tell you, that this 
is a difficult situation with no easy answer. 

2. A second group is housing counselors like the Neighborhood Associ- 
ation Corporation of America (NACA). The advantage of contacting 
them is that they have accredited housing counselors experienced ne- 
gotiating with banks. 

Sometimes housing counselors have a vested interest in building up 
their businesses and may be funded by banks; some are straight-up frauds. 

3. A third option is getting involved with community-based organiza- 
tions and Occupy Homes organizations. Occupying is a way of resist- 
ing the power of the banks, and saying you won't leave until a deal has 
been made. 

Banks hate public pressure, especially around specific homeown- 
ers. As a result, when homes are occupied, there is more leverage. This 
can amplify some of your other legal options, like home counselors or 
a personal lawyer. If, at a time of eviction, fifty people are there who 
won't leave, the eviction people will usually walk away. Sometimes they 


will come back in a few hours, but often they wait another month while 
negotiations continue. In general, banks hate the publicity. 

The fact is, banks are softer targets than you might expect because 
so many cases are rife with legal irregularities and outright fraud; it's not 
uncommon for customers to be mislead, crucial paperwork lost and docu- 
ments robo-signed. While banks often refuse to negotiate with individuals, 
taking advantage of those who are intimidated or can't afford legal coun- 
sel, they often change their tune when threatened with serious scrutiny. 

Most major metropolitan areas have hosts of community-based or- 
ganizations that specialize in housing. Unions sometimes do work as well 
in this area. Occupy groups can also put you in touch with groups doing 
anti-foreclosure work. Go to for help. 


Mortgage Electronic Registration Systems (MERS) is a national electron- 
ic registration and tracking system that tracks mortgage loans. MERS was 
conceived in the early 1990s by numerous lenders and other entities includ- 
ing Bank of America, Countrywide, Fannie Mae and Freddie Mac. Its stated 
purpose was to save mortgage purchasers money. 

In the past, it was your lender that was on the deed as the beneficiary 
until you paid the loan in full. Your deed and loan note were recorded with 
the local County Recorder's office. The recording of the deed and the note 
created a public record for the transaction. Any ownership change had to be 
recorded to create a clear "chain of title," which is like a record of ownership 
that protects the owner from false claims to ownership. 

When the banks decided they could make money by securitizing loans 
privately, they needed a way to manage the paperwork which involved selling 
of notes and deeds repeatedly. If they actually filed with the County Record- 
er each time, it would cost them time and money. So they figured out a way 
around it by cutting corners. Instead of your lender's name on the deed, you'll 
find MERS named instead. The problem with this is that MERS is really not 
the owner of your loan. How can MERS claim titles to loans they merely track, 
but do not own? If you find yourself in a situation where your foreclosure has 
been "robo-signed" by MERS, you may be able to fight back on this basis. 

Walking Away 

Of course, you can also consider walking away. The personal finance world 
went ballistic when Suze Orman advised homeowners who are more than 20% 
underwater to walk away. But if you're that far in the hole, cutting your losses 
may be your best option. Whole communities are finding themselves in a vi- 
cious cycle of foreclosures driving down values and reducing property taxes. 
This increases municipal indebtedness, decreases public services and further 
drives down property values. This death spiral is often impossible to escape. 



Foreclosures have massive spillover costs to the local community 

Estimated cost of each foreclosure to key stakeholders 

Lower homevalues 

for roughly 30 

neighboring families 

Losses and associated 
expensive to the 
lender orinvestor 


Associated expenses 

and revenue shortfalls 

for local government 

costs to the 










Sources: Center tor Responsible Lending, NeighbaiWarks, and The Urban Institute 

Unfortunately, the government has not taken strong action to force 
banks to restructure mortgages. Banks make their money not on the interest 
over the course of the loan but on the sale of the asset-backed security. Con- 
sequently, they are incentivized to allow a foreclosure and a new mortgage in- 
stead of reduced payments. Since the government's entire housing program 
has been based on shifting the burden away from banks, why should banks 
negotiate a mortgage that cannot create a new security? 

If you are considering the option of walking away, with this knowledge 
you can do so guilt-free. Or you can follow these steps: 

1. Ask your lender to modify the loan by reducing the principal to the 
actual current value of the property. 

2. If they say no — which is likely — then ask for a short sale. A short sale 
is a sale for less than the amount owed for a property, and the bank 
takes the loss. Most often banks will say no to this too. 

3. The next step is to ask for a deed-in-lieu of foreclosure. This will allow 
you to transfer the property deed to the bank without going through 
formal foreclosure proceedings. The advantage for you is that it allows 
you to walk away immediately and with no attachment to the property. 
The advantage to the bank is that they may save money and lower the 
risk of borrower vandalism of the property. 

4. Assuming that the bank still says no, you can now walk away with a 
completely clean conscience. 


But the most important thing to keep in mind is that walking away only 
works if you are in a state where the law prevents the bank from suing for 
other assets. Many states prevent buyers from strategically defaulting with 
laws that entitle the bank to sue you for your other assets including money in 
your bank account, stocks and savings of any form. It is imperative that you 
consult an attorney in your area to make sure that the bank cannot sue you 
and place a lien on your other assets. 

Aside from the loss of your home, the main consequence of foreclosure 
is the destruction of your credit report and credit score. You can expect your 
score to drop by 85 to 160 points. The foreclosure stays on your report for 
seven years and will impact your credit for that period, although it is im- 
possible to know how much the impact will dissipate over time since credit 
reporting agencies do not disclose their algorithms. Without a doubt though, 
it will be difficult to get another loan for quite some time. 

You should certainly dispute the foreclosure with the CRA and make 
them validate your report. Record keeping is so poor that you should expect 
that they do not have accurate records — so fight, and don't give up until they 
show you your signature on the contract. 

What About Renting? 

Although rent is not considered consumer debt, owing rent is certainly a form 
of indebtedness. This becomes obvious if you do not pay your rent. Your land- 
lord will eventually evict you and you will owe "back rent." The lack of distinction 
between owing a bank money for shelter and owing a landlord money for shelter 
only becomes clear when the bank threatens to take away your home. While renting 
requires that the tenant typically place a security deposit in interest bearing escrow 
to guarantee the rent, the bank keeps a down payment in the case of default. 

A recent Pew study showed that young Americans have soured on buy- 
ing, and are less attached to the "dream" of homeownership. The next gener- 
ation of buyers has seen their families suffer with underwater properties and 
fear the downside of ownership more than they desire the upside. 

But, if you think that renting will save you from the effects of housing 
debt, think again. Since the foreclosure crisis, rents have increased. In 2011, 
rental vacancies hit a ten-year low. Millions of foreclosed families have no 
choice but to rent, and since it takes seven years for a foreclosure to disappear 
from your credit report, many families are in it for the long haul. Of course, 
wages have not kept pace with rent increases. Over 25% of African Amer- 
ican and Latino/a families spend more than half their income on housing, 
compared to 15% of white families. 

Unfortunately, no one has been immune to the fraudulent practices that 
led to this mess. Unsustainable housing debt impacts us all. 



What does all this add up to? American homeowners have been victims 
of a bank scheme to profit by creating a bubble that could only blow up in 
individual homeowners' faces. Since we are all affected by the housing crisis, 
the potential for collective action is enormous. 


Nearly one in four homeowners in the United 
States owes more on their mortgage than their 
home is worth 

Total number of mortgages by equity level, Q1 2012 

Severely underwater 
(by 25 percent or more) 
5.1 million 

More than 

5 percent equity 

34.4 million 

underwater (by 
percentto25 percent) 
6.3 million 

Nearly underwater 
(less than 5 percent 
2.3 million 

Source: CoreLogic 

There are an estimated 40 million residents of underwater homes today, 
greater than the entire population of California. In fact, according to the 
real estate website Zillow, there's 1.15 trillion dollars in just the underwa- 
ter portion of mortgages, and 4.8 trillion in total estimated property value 
of underwater homes. 7 Given these numbers, it's easy to see the potential 
for homeowners to unite under the threat of strategic default. However, al- 
though there is a lengthy history of "rent strikes" to gain repairs and other 
concessions from landlords, there is little history of mortgage refusal. There 
are many reasons property owners might be unwilling to strike — from the 
glorified perception of ownership to the taboo against failing to pay debts, 
to the fear of bad credit, to the belief that the market will improve. Yet as 
more and more victims of the housing market understand the complicated 
details of the game our government played with the banks at our expense, 
the potential for collective action grows. 



Housing is a Human Right ( 
Occupy Our Homes ( 
Take Back the Land ( 
Chicago Anti-Eviction Campaign ( 


John Atlas, "The Conservative Origins of the Sub-Prime Mortgage Crisis," Ameri- 
can Prospect, December 17, 2007 ( 

Barbara Ehrenreich and Dedrick Muhammad, "The Recession's Racial Divide," 
New York Times, September 12, 2009 ( 

Ylan Q. Mui, "For Black Americans, Financial Damage from Subprime Implosion is 
Likely to Last," Washington Post, July 8, 2012 ( 

Michael Powell and Gretchen Morgenson, "MERS? It May Have Swallowed Your 
Loan," New York Times, March 5, 2011 ( 

Maura Reynolds, "Refinancing Spurred Sub-Prime Crisis," To s Angeles Times, July 5, 
2008 ( 

"The Rotten Heart of Finance," The Economist, July 7, 2012 ( 


1. Josh Griffith, "The $5 Trillion Question: What Should We Do With Fannie Mae 
and Freddie Mac?" Center for American Progress, August 2, 2012 ( 

2. Katie Curnutte, "Home Value Declines Surpass Those of Great Depression," 
Zillow, January 11, 2011 ( 

3. Yuliya Demyanyk, "Ten Myths about Subprime Mortgages," Federal Reserve Bank of 
Cleveland, July 23, 2009 ( 

4. Michael Powell, "Blacks in Memphis Lose Decades of Economic Gains," New 
York Times, May 30, 2010 ( 

5. Jeanette Wicks-Lim, "The Great Recession in Black Wealth," Dollars and Sense, 
February 2012 ( 

6. Maura Reynolds, "Refinancing Spurred Sub-Prime Crisis," Los Angeles Times, July 5, 
2008 ( 

7. Stan Humphries and Svenja Gudell, "Zillow Negative Equity Report (Q2)," Zillow, 
June 2012 ( 




The chapters on credit card, medical, student and housing debt show 
us the ways in which we are all made to pay for basic social survival — 
for the rest of our lives. This is the traditional idea of a "debtor" — a 
person who borrowed money and owes a sum of money to a bank 
or government agency. But mafia capitalism means that governments 
make cuts and the people have to go into debt to survive. The burden 
of sustaining "life" gets shifted from the state to the individual and 
household. Most households are drowning in all four of the types of 
debt discussed so far in the manual. Debt is a way of controlling us — 
making us weak, afraid and financially unstable. 

But the rabbit hole goes much deeper. What about those who 
don't have debt in the traditional sense? Are they debtors too? Our 
answer is clear: Yes. We are all debtors, whether we have debt or not. 
Debt affects us all. But how? 

The next series of chapters about broader notions of debt, from 
municipal debt to alternative financial services, only begin to make 
these connections. Our whole system runs on debt and credit — our 
households, our cities, our countries and all those who slip between 
the cracks. From municipal bonds that we never agreed to, to the 
low-income or unemployed worker forced to take payday loans after 
being excluded from "mainstream" credit, the whole world has be- 
come indebted. This is how the 1% maintains their wealth and power. 

Anyone fighting the 1% is a debt resistor. 



Is your city experiencing a budget crisis? Is your town 
laying off workers and cutting services? Are local hospi- 
tals understaffed and underfunded? Do you worry about 
whether your child's school will have enough money to 
provide students with a quality education? If this is hap- 
pening in your community, you are a debtor. 

Over the last forty years, our common goods and re- 
sources have been privatized to profit the 1%. In the wake 
of reduced public funding, cities and towns have taken out 
more and more private loans to pay for everything from 
basic operations, like sewers, to large developments, such 
as sports arenas. Municipalities are forced to partner with 
Wall Street to tap revenue streams because Wall Street 
controls access to credit markets. The only way cities and 
towns can win access to those markets is by issuing tax-ex- 
empt municipal bonds. But that means Wall Street profits 
from those bonds through interest payments and through 
securitization, as traders repackage bonds into debt bun- 
dles which are sold and resold on the global market. 

Municipalities issue the bonds and guarantee loans 
by promising that investors will be repaid with tax dollars 
or with revenue generated by the debt- funded project. In 
addition, since the New York City fiscal crisis more than 
forty years ago, federal bankruptcy code has been revised 
to ensure that many municipal bonds would keep paying 
investors no matter the costs to communities. Bonds are 
supposed to be bets on the future. In most cases, howev- 
er, there is no way the lender can lose the bet, and cities 
can lose a great deal. After Wall Street's mortgage-lending 
practices crashed the economy in 2008, many municipali- 
ties were unable to pay their debts. 

Bond financing is a weapon of the 1% and mafia capi- 
talism. When Scranton, Pennsylvania threatened to default 
on a debt payment in 2012, Wall Street came down with an 

iron fist. It cut off the city's access to money, and Scranton's mayor respond- 
ed by slashing wages for city workers down to minimum wage. Scranton 
dared to challenge Wall Street, and a debt crisis ensued. 1 News accounts re- 
ported that public employees such as teachers and pensioners were to blame, 
but this is false — Scranton's brand of American austerity was a direct result 
of Wall Street greed. 

From coast to coast, cities have become completely beholden to big 
banks. The result is shuttered schools, smaller fire departments and block 
upon block of abandoned homes in foreclosure. Public transportation sys- 
tems are also cash cows for Wall Street. In NYC, the Metropolitan Trans- 
portation Authority loses $114 million per year as a result of a poisonous 
interest-rate swap with JPMorgan Chase and other big banks. Rather than 
refuse this debt, the MTA has cut service and laid off workers. Most people 
who rely on the subway are working-class New Yorkers, including many peo- 
ple of color and immigrants. The 99% is required to fund the lavish lifestyles 
of the 1%. 

Like Scranton, Stockton, California went broke after the housing market 
went bust in 2008. The result has been a higher crime rate, including murders, 
robberies and home invasions. When residents call the police, they are never 
sure if help will come because the police department is stretched to the break- 
ing point. Even CalPERS, the retirement system for California public workers, 
may not be safe from bondholders demanding payment on defaulted debts. 
Municipal indebtedness is a tool by which Wall Street demands deep cuts in 
public spending to enrich investors no matter the cost to communities. Mafia 
hitmen warn debtors by going around town and breaking a few legs. Wall Street 
sends the same message: pay your debts, or see what happens. 


Bonds for public works are supposed to be approved by voter refer- 
endum, yet city officials often broker deals with private partners through 
backdoor channels to circumvent the democratic process. Officials use 
political power to zone off "development districts" or declare a parcel of 
land "blighted" which allows it to be seized under eminent domain and sold 
off. This means that taxpayers often find themselves stuck with the tab for 
debt-funded projects guaranteed by city agencies that have no accountability 
to voters. As one scholar noted, public officials and their Wall Street partners 
often act as de facto governing bodies "empowered to issue long-term debt 
without the formal oversight of elected decision makers." 

Perhaps the most glaring example of such corruption and graft is in 
Jefferson County, Alabama. 2 In 2011, the municipality filed the largest bank- 
ruptcy in U.S. history to contest a $4 billion debt in the aftermath of a sewer 
project gone disastrously wrong. The story is a familiar one: local officials 


borrowed vast sums from Wall Street to pay for a treatment plant, which the 
EPA said was needed to stop sewage from flowing into the Cahaba River in 
a predominantly African American community. But the project was never 
completed because corrupt officials mishandled the funds (seventeen have 
been jailed since the scandal broke). Lenders demanded repayment anyway, 
doubling each household's sewer bill in a neighborhood already reeling from 
poverty, high unemployment and a sewer that still did not work properly. The 
county's financial trauma has resulted in public service cuts, mass layoffs and 
overcrowded prisons. Even a federal judge has stated that Jefferson County's 
debts cannot be repaid. 

How are Interest Rates for Municipal Bonds Determined? 

Wall Street's criminality reveals that there is no such thing as a free mar- 
ket and never was. We recendy learned that interest rates around the world 
have been rigged for years for the benefit of a few large financial firms. Yet 
the recent LIBOR scandal is not surprising when one considers that munici- 
pal bond-rigging has been going on for decades with no public outcry. ' 

"In May 2011," reads a report from the International Herald Tribune, "UBS 
[bank] admitted that its employees had repeatedly conspired to rig bids in the 
municipal bond derivatives market over a five-year period, defrauding more 
than 100 municipalities and nonprofit organizations, and agreed to pay $160 
million in fines and restitution." 4 In 2012, Bloomberg News reported that "[s]o 
far, 1 3 individuals from banks including Bank of America, JPMorgan Chase 
and UBS have pleaded guilty in the Justice Department's investigation." 5 

In 2011, GE Capital was caught rigging municipal bonds and overcharg- 
ing cities and towns across the United States. Their punishment? A $70 mil- 
lion fine, laughably low considering the profits involved. 

In his expose of municipal bond rigging (which he calls "the scam 
Wall Street learned from the mafia"), Matt Taibbi explained that Wall Street 
"skimmed untold billions in the bid-rigging scam" from hundreds of mu- 
nicipalities. After they were caught, banks continued investing in city bonds. 
"Get busted for welfare fraud even once in America, and good luck getting 
so much as a food stamp ever again," Taibbi wrote. "Get caught rigging inter- 
est rates in 50 states, and the government goes right on handing you billions 
of dollars in public contracts." 6 


Occupy Wall Street makes it possible to imagine that some debts must not 
be repaid. In Jefferson County, for example, some citizens do not want to rene- 
gotiate; they reject such debt outright. As one activist in Birmingham noted, "[the 
debt] shouldn't ever have been issued, and therefore it shouldn't exist. It shouldn't 
have been spent. Since it shouldn't have existed, we're not going to pay it." 7 


Some municipalities are fighting back against the big banks. After their 
pay was cut to minimum wage, Scranton's municipal unions sued the city, and 
their wages were restored. Years of community resistance delayed the con- 
struction of Barclays arena in Brooklyn because the stadium was financed 
with tax-exempt bonds and built on land seized by eminent domain. Bal- 
timore is suing more than a dozen big banks for manipulating LIBOR, the 
benchmark for interest rates on many financial products. In July 2012, Bos- 
ton activists held subway turnstiles open to protest Wall Street's vise grip on 
their city's transportation budget. After a toxic interest-rate swap deal sent 
it off a fiscal cliff, Oakland, California is trying to take the dramatic step of 
severing its relationship with Goldman Sachs for good. 8 These efforts will 
continue and escalate in the months and years to come. 

The idea that some debts can and should be refused is a sentiment that is 
spreading. In Europe, the rallying cry of the 99% is, "we won't pay for your 
crisis!" In the United States, we can start a municipal debt resistance move- 
ment by asking critical questions and demanding answers. Have you ever 
looked at your town budget? Do you know how your elected and non-elected 
officials fund public works? Who benefits? Who really ends up paying for 
what? Simply posing these questions in your community is a way to strike 
debt. We must also insist that the 1% is no longer allowed to write the laws 
dictating how our communities will be financed. We must insist on an end 
to the debt-financing of U.S. cities. This case for ending Wall Street's control 
over our lives should also be made through direct action. We can target the 
banks profiting from the corrupt bond market with actions such as sit-ins 
and marches. The most important thing we can do as occupiers is refute the 
myth that the 99% are to blame for the fiscal emergencies that are declared 
when the bond vigilantes come knocking. 




Jason Hackworth, "Local Autonomy, Bond-Rating Agencies and Neoliberal Urban- 
ism in the United States," International Journal of Urban and Regional Research, 26, no. 
4, 2002 (, 707-725. 

L. Owen Kirkpatrick and Michael Peter Smith, "The Infrastructural Limits to 
Growth: Rethinking the Urban Growth Machine in Times of Fiscal Crisis," 
International Journal of Urban and Regional Research, 35, no. 3, 2011 ( 
DROMKirkpatrick), 477-503. 

Gretchen Morgenson, "Police Protection, Please, for Municipal Bonds," New York 
Times, August 4, 2012 ( 

Halah Touryalai, "City of Oakland Taps Occupy Wall Street to Take On Goldman 
Sachs," Forbes, July 11, 2012 ( 

"UBS: Expert in Escaping Prosecution," International Herald Tribune, July 20, 2012 
(, 8. 

Travis Waldron, "How the House GOP Budget Would Decimate American Cities 
and States," Think Progress, August 9, 2012 ( 

Rachel Weber, "Selling City Futures: The Financialization of Urban Redevelopment 

Policy," Economic Geography, 86 no. 3, 2010 (, 251-274. 


1. Mary Williams Walsh, "With No Vote, Taxpayers Stuck With Tab on Bonds," New 
York Times, June 25, 2012 ( 

2. Steven Church, William Selway, and Dawn McCarty, "Jefferson County Alabama 
Files Biggest Municipal Bankruptcy," Bloomberg News, November 9, 2011 (tinyurl. 

3. Steve Weissman, "A Crisis Worse Than 2008?" Salon, July 25, 2012 ( 

4. "UBS: Expert in Escaping Prosecution," International Herald Tribune, July 20, 2012 
(, 8. 

5. Ellen Rosen, "Municipal Bonds, UPS, JPMorgan, Student Loans: Compliance," 
Bloomberg News, July 23, 2012 ( 

6. Matt Taibbi, "The Scam Wall Street Learned From the Mafia," Rolling Stone, June 
21, 2012 ( 

7. Mary Williams Walsh, "In Alabama, A County That Fell Off the Financial Cliff," 
New York Times, February 18, 2012 ( 

8. Halah Touryalai, "City of Oakland Taps Occupy Wall Street To Take On Goldman 
Sachs," Forbes, July 11, 2012 ( 




As James Baldwin once said, "Anyone who has ever strug- 
gled with poverty knows how extremely expensive it is to 
be poor." This is true now more than ever. 

It's called the "poverty tax" — the surcharge people pay 
for not having savings or access to "prime" credit and being 
consigned to "fringe finance." Fringe finance refers to the 
array of "alternative" financial services (AFS) offered by 
providers that operate outside of federally insured banks. 
Gary Rivlin, author of Broke USA: From Pawnshops to Poverty, 
Inc., How the Working Poor Became Big Business, does the math; 
adding up the profits from the AFS sector and dividing by 
the 40 million households that survive on $30,000 a year 
or less, the industry receives an average of $2,500 from ev- 
ery low-income household. That's a poverty tax of around 
10%. If current trends continue, it will only rise — unless 
we reject these predatory financial products and services. 

The next two chapters break down the major perils 
of fringe finance into those related to transactions and 
those related to credit. This chapter deals with transaction 
products and services: check cashing and prepaid cards. 
Chapter VIII covers credit products and services: payday 
loans, auto-tide and pawn loans, rent-to-own financing 
and refund anticipation loans (RALs). Among households 
without access to a bank account, 62% have used an AFS 
transaction product or service and 27% have used an AFS 
credit product or service. About 23% have used both. 1 

Both chapters offer analysis and information to help 
you identify the common tricks and traps of fringe finance 
so that you can avoid them. We consider alternatives to the 
most expensive products and services, as well as how to 
save money if you're "locked in" or have no other options. 
There is no one-size-fits-all strategy for personal finance. 

We conclude Chapter VIII by outlining some general survival strategies aimed 
to minimize or eliminate our dependence on the current debt-finance system. 
Venture capital, however, expects the stunning rates of financial ex- 
traction in the poverty industry to rise, and it has created funds to invest in 
start-ups and small firms with big growth potential in the fringe finance sec- 
tor. The "market" that investors want to tap is the unbanked (people without 
checking or savings accounts) and the underbanked (people who rely on both 
"traditional" and "alternative" financial products). Why are venture capital- 
ists so interested in this market? In a blog post titled "Not Unbanked: Un- 
tapped," a venture fund manager explains, "It is fair to say that most of these 
products are generally more expensive than what most of 'us' pay. APRs 
[annual percentage rates of interest] higher than 30% (if not 300%); transac- 
tion costs of $2+; money-transfer costs of $10+; access to payroll check for 
2— 4%." 2 The payment services segment of AFS has seen some of the most 
spectacular growth in recent years, where prepaid cards are making inroads 
and recording profits that rival the always-profitable check cashing outlets. 

This is the predicament of the poor in our debt-finance system: it costs 
poor people significantly more to use money — to spend it, to save it, to invest 
it, to borrow it, to send it "back home" — and you have less money to begin 
with. If you're poor, the more you engage with the debt-finance system, 
the more wealth you lose and the more indebted you become. Meanwhile, 
AFS owners and investors, who enjoy lower financing costs and have more 
money to begin with, profit from your loss and acquire pieces of your debt; 
Wall Street comes to own pieces of your future. These are the workings of 
a two-tiered financial system: on the bottom are relatively high-cost ser- 
vices marketed to the growing and changing ranks of the unbanked and 
the underbanked. 

The unbanked includes the working poor, the unemployed, the home- 
less, the undocumented, those who do not speak English fluently, those who 
are or have been incarcerated, those with mental or physical health issues, 
older people, those working off the books, those hiding from creditors or the 
"authorities," those whose homes were stolen by Wall Street, and anyone else 
to whom "traditional" financial institutions won't lend. 

Demographically speaking, the unbanked population is very broad and 
very diverse, but it is disproportionately comprised of low-income house- 
holds (71% of unbanked households earn below $30,000 a year), house- 
holds of color, immigrant households and individuals with negative banking 
histories. 3 (Of course, these categories aren't mutually exclusive.) People of 
color are more likely to be unbanked. In general, Latino/a and Black peo- 
ple are respectively six and seven times more likely to be unbanked than 
whites. Households with an annual income under $30,000 are thirteen times 
more likely to be unbanked than those with an income between $50,000 and 
$75,000. 4 People of color are more likely to have low and/or unreliable in- 


come, making it more difficult to save enough money to meet minimum 
opening-balance requirements at banks. There's another significant com- 
monality: people of color, low-income individuals and immigrants tend to 
distrust banks. For some households, this mistrust goes back generations. 
Losing one's home or hard-earned property — especially in a society focused 
on wealth accumulation — is traumatic. The effects can ripple over gener- 
ations of a family, shaping how future generations interact with financial 
institutions. Poor people, immigrants and people of color also tend to believe 
that traditional financial institutions aren't for them; they believe that they 
don't meet the requirements or that banks don't fill their needs. Inconvenient 
locations and hours of operation often present further barriers for low-in- 
come households. 5 These barriers tend to reinforce each other and result in 
alienation from the mainstream financial system. 


Number of Bank Branches 

per 10,000 Residents - by Zip Code 

~^\ < 1 

B 3 or more 
/ / / Population > 50% Black or Hispanic 

Sources: T.S. Census (2000); FDIC Summary 
of Deposits June 2004, 


Prepared by the Neighborhood Economic 
Development Advocacy Project (NEDAP) 
(212} u'80-5100 / 


For many of the unbanked, the experience of second-tier status in the 
financial system mirrors their experience with the two-tiered justice system. 
Those who are socially marginalized in one way or another are more likely to 
occupy the bottom tier of the financial system, which makes it more likely 
they'll get caught up in the criminal justice system. 

The criminalization of poverty, the criminalization of immigration, as 
well as racial and ethnic profiling, are well-documented trends that push peo- 
ple to the fringes of finance. In at least a third of U.S. states, being in debt can 
now land you in jail. 6 In Washington State, for example, an African American 
man with mental health issues was incarcerated for two weeks for failing to 
pay $60 worth of "legal financial obligations" (LFOs). His jail stay, mean- 
while, cost Spokane County over $1,500. 7 

And let's not forget: the deregulation that led to the emergence of a 
two-tiered financial system and that enables the 1% to go on looting and in- 
debting the poor was orchestrated by our so-called "elected" representatives. 


For nine million households in the United States, cashing paychecks at 
a bank or credit union is not an option. 8 The unbanked do not have bank 
accounts for any number of the reasons discussed earlier. For many people, a 
check cashing oudet (CCO) appears to be the only option to transform their 
paycheck into cash. 

According to the Federal Reserve, CCOs generally charge between 1.5% 
and 3.5% to cash a check, 9 so for a $500 check, that's somewhere between 
$7.50 and $17.50 taken away from you. This is actually a conservative esti- 
mate; the Consumer Federation pegs average fees at 4.1 1%, 10 so it might end 
up being a cut of $20.55. With a checking account, by contrast, this service 
would be free. If you're unbanked and you make $500 every week, in one year 
you might spend $400 if you're relatively lucky, but possibly over $1,000, just 
so you can spend your own money. The average unbanked person with a full- 
time job can expect to spend more than $40,000 on such fees in their lifetime. 
That is, throughout the course of one's life, more than an entire year's worth 
of work goes exclusively towards turning one's salary into cash. 11 

Between 2000 and 2005, the number of CCOs in the country has dou- 
bled, but fees haven't gone down. In fact, the price has gone up; they grew 
75.6% on average between 1997 and 2006. 12 Companies like Wal-Mart, Kmart 
and Best Buy have also tapped into this market by offering check cashing at 
their stores. Although they charge less to cash a check than the regular out- 
lets, we should harbor no illusions about their motivation; the hope is that 
people suddenly equipped with cash will spend it right where they are. 13 


Check Cashing Locations 

New York City 

1 Dot - 1 Check Cashing Location 
- Population > 50% Black or Hispanic 

Tlicre are 556 check cashing outlet* 
in total (as of February, 2005} 


Frcparcd by the Neighboring/ 1 L\;oiioi[ii(_ 
Developrnt'nl Advnc.'icy PiqcrT (NEDAP) 
(212) 680-5100 / 

Sources: NYS BttnkJng Deportment; 

j is Census smo 

In addition to exorbitant check cashing fees, there are fees for money 
transfers. Immigrants hoping to send money outside of the United States 
may lose as much as 20% of the amount in the process. 14 While the Con- 
sumer Financial Protection Bureau recently introduced new disclosure rules 
aimed at stopping sudden and unexpected penalties, there's really nothing 
that limits the overall fee. 15 By contrast, banks and credit unions charge 
substantially less for this and other services. Services that could cost up to 
$500 annually at a CCO could cost between $30 and $60 at a traditional 
financial institution. 16 

As expensive as CCOs may be, and as much as they target people with 
lower incomes, if they all pulled up stakes and left, what would happen? 


Several alternatives may be available. You could make an arrangement with a 
friend, family member, or even your employer — that is, someone with access 
to a checking account — in which you would write your check over to them 
and they would give you the full amount in cash. 

If you have exhausted other options and must resort to a CCO, it is im- 
portant to know how to use it in a way that minimizes harm. For example, ask 
ahead of time for the fee in dollar amounts as opposed to the percentage. And 
be sure afterwards to obtain and save an itemized receipt. Costs may vary not 
just from one CCO to the next, but by the time of day and other factors. 17 
You can compare receipts to determine the optimal approach. 

In an essay on the poverty tax, Gary Rivlin recalls, 

"A few years back, I attended the annual Check 
Cashers Convention, where I sat in on a 90-minute 
presentation dubbed, 'Effective Marketing Strategies 
to Dominate Your Market.' Speaking to a standing- 
room only crowd, a consultant named Jim Higgins 
shared his tips for turning the $1,000-a-year check 
cashing or payday customer into one worth '$2,000 
to $4,000 a year.' Pens scribbled furiously as he 
tossed out ideas. Raffle off an iPod. Consider 
Scratch 'n Win contests. Institute the kind of customer 
reward programs that has worked so well for the 
airlines. And for those who are only semi-regulars 
offer a 'cash 3, get 1 free' deal. After all, Higgins told 
the crowd, 'These are people not used to getting 
anything free. These are people not used to getting 
anything, really.' 18 


First there were credit cards. Then came debit cards. Now there are pre- 
paid cards — and they're suddenly everywhere. Think about it this way: with 
credit cards you pay later, with debit cards you pay now, and with prepaid 
cards you pay early. Credit cards extend credit to consumers for free (with a 
grace period). Debit cards give consumers free access to funds in their bank 
accounts. Prepaid cards charge consumers to access their own funds. So when 
you use a prepaid card you are essentially paying money to make an inter- 
est-free loan to the issuer, who then lends your money to other customers. 

Charging us for the use of our own money is what banks do. They also 
provide useful services: the ability to store our money, to access cash, to pay 
for things without cash and to turn checks into cash. Prepaid cards — now 
used by 13% of Americans 19 — do the same, although they're not attached 


to bank accounts. Branded with the logos of American Express, Discover, 
MasterCard or Visa, they look like other plastic payment cards and provide 
ATM access and the ability to make purchases. "General purpose reloadable" 
(GPR) cards let you add funds. However, prepaid cards are usually more 
costly, less convenient and less secure than comparable services from banks 
and they tend to have poor disclosure policies and "gotcha" fees, replicating 
some of the most aggravating bank practices. Nonetheless, compared with 
a check cashing outlet, getting cash from a prepaid card is usually cheaper. 
When it comes to making payments, prepaid cards are typically more ex- 
pensive than credit or debit cards, but not necessarily. Factor in overdraft 
charges, and debit cards cost more. Factor in high ongoing balances, high in- 
terest rates and late payment penalties, and credit cards may cost considerably 
more than prepaid cards. 

There is no one-size-fits-all strategy for personal financial transactions. 
What's more, the rules governing the prepaid card industry are still in flux. 
In 2010 the Credit Card Accountability, Responsibility, and Disclosure Act 
of 2009 (CARD Act) took effect, tightening regulations for credit cards and 
traditional debit cards. 20 The new Consumer Financial Protection Bureau 
(CFPB) is presendy considering how to bring the prepaid card market into 
the federal regulatory framework. In the meantime, barriers to cash continue 
to grow; transactions for an increasing range of basic services are impossible 
without plastic. Soon many of us will have no choice but to use these cards 
when employers, government benefits administrators and even colleges and 
universities begin to adopt them. 

There are a variety of prepaid cards, including gift cards, payroll cards, 
government benefits cards and general purpose reloadable (GPR) cards. 
Purchasable, usable and sometimes reloadable without identity verification, 
many prepaid cards offer the advantage of anonymity, which is why they've 
become the preferred means of laundering money and the de facto cur- 
rency of the prison system. 21 For users interested in symbolically projecting 
their status, branded cards serve as a means of self-expression. The cards are 
linked to celebrities, heroes and social causes, and tend to be the most pred- 
atory corner of the market. 

Consumer advocates consider prepaid cards just the latest addition to 
the array of high-cost and inferior financial products for which the poor 
pay more. Rather than help marginalized groups enter the financial main- 
stream, prepaid cards highlight and intensify financial segregation. The 
predicament of Millennials, who appear to be the industry's latest target, 
is especially alarming. Not long after the CARD Act restricted credit card 
companies' access to college campuses and to customers under twenty-one, 
prepaid cards began moving in, looking to establish "partnerships." Now 
with prepaid cards serving as student IDs, enrolling in college also means 
enrolling in a bank. 


General Purpose Reloadable (GPR) Cards 

GPR cards are the kind that you buy and set up yourself, like a gift card with 
fees. They range from competitively priced, no-frills cards to premium-priced 
celebrity cards, which are sold as symbols of achievement or aspiration as much 
as financial tools. Beyond utility, the latter promise respect, empowerment and 
freedom. Of course, prepaid cards are not unique in this sense: everything we 
consume says something about who we are and what we believe. The problem 
with most celebrity cards is not simply that they don't deliver what's promised, 
but that they're designed to deliver exactly the opposite of what's promised: fi- 
nancial margmali^ation. 

Consumers Union found many different types of fees for a range of prepaid 
cards. In addition to monthly fees, they found fees for activation, point-of-sale 
transaction, cash withdrawal, balance inquiry, transaction statements, customer 
service, bill payment, adding funds, dormancy, account closure and overdraft. 22 
Making matters worse, only a few of the fees charged by card issuers are disclosed 
prior to signing up for the card. Retail displays often contain only purchase prices 
and initial load amounts, and card company websites frequently require users to 
click on sign-up pages or registration forms in order to obtain fee information. 

Consumer Action, which surveyed twenty-eight different prepaid cards, 
found that twenty of them carry a monthly maintenance fee, the highest being 
$14.95. Fees for out-of-network ATM withdrawals range from $1 .95 to $3. A few 
cards charge users to reload money. Ten of the cards surveyed charge 50 cents 
to $2 to talk to a customer service agent and two of them charge 50 cents for 
automated help. 

Like the worst practices in subprime mortgage lending, private student loans 
and payday lending, the marketing and sales strategies of the celebrity prepaid 
card business are predatory, the best predators have a deep appreciation for the 
needs of their prey. "Well-banked" celebrities like Russell Simmons and Suze 
Orman are marketers of prepaid cards that target financially marginalized people. 
While their marketing suggests they are running charities, Simmons and Orman 
are managing private companies whose unequivocal objective is to profit from 
providing financial services to poor people. They deceptively present their enter- 
prises as altruistic projects striving for collective emancipation. Yes, this is how 
capitalism works. 

Electronic Benefit Transfer (EBT) Cards and Payroll Cards 

Over the past 15 years, the federal government and state governments 
have been gradually replacing paper benefits checks with Electronic Benefit 
Transfer (EBT) cards. For the unbanked, the shift to electronic payments 
means no check cashing fees, less need to carry cash, faster payments, the 
ability to make purchases or pay bills electronically and no ChexSystems 
screen. But overall, costs and benefits will vary depending on the fees and 
terms that apply to the particular prepaid card designated for your bene- 


fits program. These are administered by different federal and state govern- 
ment agencies, which contract with various prepaid card issuers. California 
and New Jersey are considered to have negotiated relatively good contracts 
for their unemployed workers (providing free and ample access to cash and 
transaction information with no penalty fees). 23 Tennessee workers, on the 
other hand, get slammed with the highest junk fees courtesy of JPMorgan 
Chase, the bank contracted to service that state's unemployment compensa- 
tion (UC) prepaid card program. 

For recipients of Social Security, Supplemental Security Income (SSI), 
or Veterans Affairs (VA) compensation, the Direct Express prepaid debit 
card has much lower fees than other prepaid cards and comes with strong 
consumer protections. Card accounts are insured by the Federal Deposit In- 
surance Company (FDIC) and are subject to federal consumer protection 
regulations (i.e., Regulation E). 24 

The prepaid card programs administered by the states to disburse UC, as 
well as Temporary Assistance to Needy Families (TANF) and food stamps 
(Supplemental Nutritional Assistance Program), are more problematic. 
They're generally less beneficial for recipients and more beneficial for banks 
and states. Forty states now use a prepaid card for paying some or all UC 
recipients. A survey by the National Consumer Law Center found signifi- 
cant shortcomings in fee structures, access to card information and payment 
options. Across the board, fees charged to benefit recipients are being used 
to cover the administrative costs of delivering UC benefits — in violation of 
federal law. Cards may charge ATM balance inquiry fees, denied transaction 
fees, $10 to $20 overdraft fees and inactivity fees. 25 On top of this, card issu- 
ers such as Bank of America, Citibank and JPMorgan Chase earn interchange 
fees as well as interest on the funds on deposit. Last year, card fees and ATM 
surcharges cost California welfare recipients over $17 million. 26 

The bottom line: for those who have a bank account, prepaid cards offer 
little, if any, advantage over direct deposit. Benefit recipients with checking 
accounts will save money and time with direct deposit. Those who do not have 
that option — who lack access to a bank account or who live in one of the six 
states that have eliminated the direct deposit option — will be forced into the 
prepaid payroll card program(s) contracted to disburse your particular bene- 
fits). Since you have no choice about which card to use, familiarize yourself 
with the terms and fees that apply to the card designated for your program. 
This information should arrive in paper form with your EBT card. You can 
also look up the details of the particular prepaid payroll program online. 



At a time when it's hard to use your own cash (if you're lucky enough 
to have any), prepaid cards can offer cash-like features such as anonymity, 
liquidity and mobility. They'll also save you money compared with high-cost 
check cashing. Prepaid cards have also been sold as a way to reduce our re- 
liance on the big banks. But Suze Orman probably came closer to the truth 
when she said her card is like having a bank in your pocket. Regardless of 
whose face is on the card, you can be sure Wall Street is getting its cut. 

If you ultimately decide to get a prepaid card, you can visit NerdWallet. 
com to determine which is the least costly. Avoid cards with the most unnec- 
essary fees and be aware of which ones are associated with the card you end 
up choosing. Be on the lookout for reloading fees, balance inquiry fees and 
ATM cash withdrawal fees. When getting gas, pay the attendant inside before 
you pump, otherwise the station may put up to a $75 hold on your balance. 
It is also important to read the card's privacy policy to make sure they aren't 
selling your personal information. 27 

For information on organizations that can help, go to the end of Chapter VIII. 

Articles and Books 


The Brookings Institution, "The Higher Prices Facing Lower Income Customers," 
The Brookings Institution, August 18, 2006 ( 

Candice Choi, "Reporter Spends Month Living Without a Bank, Finds Sky-High 
Fees," Huffington Post, December 11, 2010 ( 

Sharon Hermanson and George Gaberlavage, The Alternative Financial Services In- 
dustry, AARP Public Policy Institute, August 2001 ( 

Dick Mendel, "Double Jeopardy: Why the Poor Pay More," National Federation of 
Community Development Credit Unions, February 2005 ( 

National Survey of Unbanked and Underbanked Households, Federal Deposit Insurance 
Corporation, December 2009 ( 

Gary Rvlin, Broke USA: From Pawnshops to Poverty, Inc., How the Working Poor Became 
Big Business, (New York, NY: HarperCollins, 2010). 

"The Truth About Immigrants' Banking Rghts," NEDAP ( 

John Ulzheimer, "Are Pawn Shops, Rent-to-Own and Other Loan Alternatives 
Worth It?" Mint Life, January 30, 2012 ( 

Check cashing outlets 
Jean Ann Fox and Patrick Woodall, "Cashed Out: Consumers Pay Steep Premium 


to 'Bank' at Check Cashing Outlets," Consumer Federation of America, November 
2006 ( 
National Association of the State Treasurers Foundation: Tomorrow's Money for 
Young Adults, "Check-Cashing Stores,", 2012 ( 

Prepaid cards 
"Electronic Benefits Transfer Frequendy Asked Questions," NEDAP, December 

2006 ( 
"Prepaid Cards: Loaded with Fees, Weak on Protections," Consumer Reports, March 

2012 ( 
Deyanira del Rio, "Perils of Prepaid Cards," NEDAP, December 22, 2010 (tinyurl. 



1 . Federal Deposit Insurance Corporation, National Survey of Unbanked and Under- 
banked Households (Washington, DC: GPO, 2009) (, 

2. Arjan Schutte, "Not Underbanked: Untapped. Underserved Spend |45B on Fi- 
nancial Services," Inside the Underbanked, November 2, 2011 ( 

3. National League of Cities Institute for Youth, Education and Families, Banking on 
Opportunity: A Scan of the Evolving Field of Bank on Initiatives, U.S. Department of 
the Treasury, (Washington, DC: GPO, 2011) (, 9-10. 

4. Preeti Vissa, "Debit Card Overdraft Fees: Reforms Welcomed but More are Nec- 
essary," The Greenlininglnstitute, April 2010 (, 3. 

5. National League of Cities Institute for Youth, Education and Families, 9. 

6. Jessica Silver-Greenberg, "Welcome to Debtors' Prison, 2011 Edition," Wall Street 
Journal, March 16, 2011 ( 

7. "In for a Penny: The Rise of America's New Debtors' Prisons," American Civil 
Liberties Union, October 2010 (, 73. 

8. Christine Haughney, "City's Poor Still Distrust Banks," New York Times, August 17, 
2009 ( 

9. Robin A. Prager, Federal Reserve Board, Determinants of the Locations of Payday 
Lenders, Pawnshops and Check-Cashing Outlets, (Washington, DC: GPO, June 2009) 
(, 6. 

10. Jean Ann Fox and Patrick Woodall, Cashed Out: Consumers Pay Steep Premium to 
'Bank' at Check Cashing Outlets, (Washington, DC: Consumer Federation of Amer- 
ica, 2006) (, 2. 

1 1 . William Clinton and Arnold Schwarzenegger, "Beyond Payday Loans," Wall Street 
Journal, January 24, 2008 ( 

12. Fox and Woodall, 2. 

13. Brad Tuttle, "Big-Box Banking: Why the Unbanked are Cashing Checks at 
Walmart," Time, February 1, 2011 ( 

14. "The Remittances Game of Chance: Playing with Loaded Dice?" Consumers Inter- 
national, January 2012 (, 4. 

15. Bureau of Consumer Financial Protection, Electronic Funds Transfer (Regulation 
Ej,(Washington, DC: GPO, 2012) ( 


16. Tomorrow's Money for Young Adults: National Association of the State Trea- 
surers Foundation, "Check-Cashing Stores,", 2012 ( 

17. Tomorrow's Money for Young Adults. 

18. Gary Rivlin, "America's Poverty Tax," Economic Hardship Reporting Project, May 16, 
2012 ( 

19. "New Fin Lit Survey: 56% of Adults Don't Budget," Credit Union National Associ- 
ation, April 4, 2012 ( 

20. "Fact Sheet: Reforms to Protect American Credit Card Holders," White House, 
May 22, 2009 ( 

21. Ben Popken, "Why Money Launderers Love Prepaid Debit Cards," The Consum- 
erist, May 25, 2011 ( 

22. Michael McCauley, "Consumers Union Report: Prepaid Cards Come With Long 
List of Fees and Weak Consumer Protections," Consumers Union, September 15, 
2010 ( 

23. Lauren K. Saunders and Jillian McLaughlin, Unemployment Compensation Prepaid 
Cards: States Can Deal Workers a Winning Hand by Discarding Junk Fees (Washington, 
DC: National Consumer Law Center, 2011) (, 19. 

24. Bureau of Consumer Financial Protection. 

25. Saunders and McLaughlin, 3. 

26. Steinisch. 

27. "Dos and Don'ts: Choosing and Using a Prepaid Card," Consumer Action News, 
Spring 2012, ( 




Wall Street bankers have always tried to distance them- 
selves from the taint of loan-sharking and other fringe fi- 
nancial services. For most, non-bank lending still conjures 
up images of dilapidated storefronts on the edge of town, 
surrounded by vice and petty criminality. But if you're one 
of the 12 million Americans who took out a payday loan 
in the past year, it's more likely that you did it in a subur- 
ban strip mall or cyberspace. It's even possible that you got 
it from a bank — five large banks, including Wells Fargo, 
have begun to offer payday loans. 1 Although they seem to 
be worlds apart, in reality these markets are interconnect- 
ed and overlapping; the biggest players in all segments of 
fringe finance are publicly traded, national corporations. 
Today, around 20% of all users of "alternative" financial 
services (AFS) also use traditional banks. Whether sourced 
in prime credit or subprime, student loans or pawn loans, 
the profits of our indebtedness flow to the 1%. 

But the 99% is waking up to the bait-and-switch. 

This chapter covers the debt traps encountered outside 
of the federally insured financial institutions: AFS credit 
products and services such as payday loans, pawn loans, 
auto-tide loans, "rent-to-own" agreements and refund 
anticipation loans (RATs). Tike traditional banks, these 
businesses provide ready access to cash and/or credit. 
However, their services are substantially more costly than 
those typically offered by major banks, and they frequently 
involve even more unfair, abusive and deceptive practices. 
Enabled by government at all levels, the poverty industry 
preys on the poor. For a long time the working poor have 
been its main target, but the Great Recession has supplied 
millions of new marks: people with busted credit, people 
who are desperate for cash and people who have fallen 

from the ranks of America's disappearing middle class. At a time of un- 
precedented inequality, poverty and precarity, unprincipled money lenders 
are poised to make a killing; stealing from people who have nothing means 
indebting them, possibly for life. 

During the 1990s, deregulation tore through every segment of the U.S. 
financial system. Lending standards were loosened, increasing the availabil- 
ity of credit on Main Street as well as Malcolm X Boulevard. The resulting 
proliferation of high-cost subprime loans was celebrated as the "democrati- 
zation of credit." 2 The rolling back of core financial consumer protections 
created an unprecedented opportunity for financial extraction — the prospect 
of making money off of people who have no money. On the fringes of fi- 
nance, money comes easy, but debts are built to last. 

Given the state of household finances, rising demand for "Quick Cash, Few 
Questions Asked!" should come as no surprise. Having maxed out their credit 
cards and bank credit lines, people increasingly rely on AFS providers. Most AFS 
borrowers are unbanked, which includes about 20% of African Americans and 
20% of Latino/as. But now 21 million borrowers are "underbanked," meaning 
they use AFS in combination with traditional banking services. 3 

About half of AFS users have incomes below the poverty line. This 
means that a large percentage of the customer base of the so-called "poverty 
industry" is «o/poor. In fact, it's quite possible that many of the underbanked 
not too long ago qualified for prime mortgages and boasted incomes consid- 
erably higher than the national median. These are sure signs of precarity: 
insecure and unpredictable living conditions, which harm material or psy- 
chological welfare. 

Compared to traditional bank loans, fringe lending has its own peculiar 
set of tricks and traps. But like any extension of credit, it involves a set of 
expectations about the future. When we sign on the dotted line, we're assum- 
ing that things will get better, that our financial situation will improve enough 
to make repayment possible. Lenders exploit borrowers' dreams. In fringe 
finance, the aspirations are simpler and more immediate, like having a way to 
get to work, buying groceries for your kids, bailing your cousin out of jail or 
treating your aging mother to lunch on her birthday. 


Nearly half of workers in the United States report living "pay- 
check-to-paycheck." 4 In other words, at least 60 million of us are one setback 
away from economic ruin. After years of insufficient income, we've drained 
our savings just to cover necessary expenses. Those of us who've never been 
able to accumulate savings already depend on short-term credit to get by. In 
other words, we've gone into debt in order to live. 








entire loan 

plus fees 

1 Receive 





Not enough money to pay bills or 
other obligations 

In the early 1990s, there were fewer than two hundred payday lending 
stores in America. Today there are 23,000 — more than McDonald's — making 
payday lending a $50 billion industry. The deregulation of interest rates at the 
end of the 1970s, which removed all caps and limits on interest, set the stage 
for the "rise of payday." Today, fifteen large corporations, which together op- 
erate roughly half of all loan stores, dominate the industry. Of these fifteen, 
six are publicly-traded companies: Advance America, Cash America, Dollar 
Financial, EZ Corp, First Cash Financial, and QC Holdings. 

Having witnessed the rapid and socially destructive effects of these 
loans, fifteen states have renewed consumer protections and rolled back au- 
thorizations of payday loans, eliminating payday loan storefronts. Another 
eight states have limited the number of high-cost loans or renewals that lend- 
ers may offer. The reforms' effectiveness, however, has been limited by the 
advent of unlicensed online payday lending, which now comprises 35% of 
the market and allows for even more egregious practices. 

The appeal of payday loans is the flip side of the barriers to traditional 
banking: convenience, ease of transaction and few questions asked. Payday 
loans are small-credit loans marketed as a quick and easy way to tide bor- 
rowers over until the next payday. However, the typical storefront payday 
loan leaves borrowers indebted for more than half of the year with an av- 
erage of nine payday loan transactions at annual interest rates over 400%. 
And if you think that's bad, try 800-1,000% APR in the case of online 
payday loans. 5 

Make no mistake: payday lending is legal loan- sharking. The aim is to 
prolong the duration of debt in order to extract as many fees as possible; this 
is known as "churning," and doing this every two weeks makes up 75% of all 
payday loan volume. Typically, payday loan debt lasts for 212 days. Repeated 
payday loans result in $3.5 billion in fees each year. 6 


Payday loans are carefully structured to bring about this result. The 
catch is the "balloon payment," a well-known predatory practice. When 
you take out a payday loan (normally $100 to $500), you put down collateral 
(e.g., a postdated check or electronic access to your bank account) equal 
to the loan amount plus a fee ($15 to $35 per $100 borrowed). At the end 
of the typical two-week loan period, you either repay the total owed or 
renew the loan for another two weeks. Few borrowers (only 2%) are able 
to make the balloon payment, so instead they pay only the fee and renew 
the loan, which grows in size due to compound interest. 7 With every re- 
newal, the "balloon" grows bigger, making repayment ever more difficult. 
In the meantime, the lender goes on extracting fees every two weeks, and 
pretty soon, you've repaid the amount of the original loan (the principal), 
yet you are forced to continually renew the loan until you can repay the 
hugely inflated balance in one lump sum. According to the Federal Trade 
Commission, a number of online lenders obtain borrowers' bank account 
information in order to deposit funds and later withdraw the repayment, 
with a supposed one-time fee. 8 In actuality, withdrawals occur on multiple 
occasions, with fees each time. The FTC cites a typical example where 
someone borrowed $300 and, after the lender withdrew many times, the 
borrower was ultimately expected to pay $975. As you can see, with payday 
loans, the term "debt trap" takes on a whole new meaning. 

The payday industry lobby group, which misleadingly calls itself the 
Community Financial Services Association (CFSA), tries to get some cover 
for its predatory behavior by warning, "Payday advances should be used for 
short-term financial needs only, not as a long-term financial solution." In 
actuality, the vast majority of borrowers (69%) use payday loans for everyday 
expenses, just to get by. A recent Pew survey shows that only 16% of bor- 
rowers actually used them in emergencies. 9 All of the evidence consistently 
shows that borrowers do not use this hazardous product as prescribed and 
thus endanger their financial lives. This amounts to financial malpractice. 

Still, 12 million Americans have used payday loans over the past 
year. And who can blame them? If you have lousy credit and need cash 
fast, a short-term, no-credit check loan seems like a lifeline, just like the ads 
promise. No doubt, the loans offer short-term relief, but in exchange for 
long-term financial harm. According to the CFSA, "payday advance custom- 
ers represent the heart of America's middle class." 10 This particular industry 
talking point has truth to it. The core market for payday loans are people with 
regular incomes and/or bank accounts who are expected to "secure" their 
loans with pay stubs, benefit stubs, or personal checks — that is, the growing 
class of the underbanked. 

A recent survey of payday loan users conducted by the Pew Center finds 
that most borrowers are white, female and from twenty-five to forty- four 
years old. However, certain groups disproportionately use payday loans: those 


without a four-year college degree, home renters, African Americans, those 
earning below $40,000 annually and those who are separated or divorced. 11 

People of color are targeted for exploitation by payday lenders and fringe 
finance more broadly. Like other forms of AFS, the immense expansion of 
payday lending has overwhelmingly taken place in communities of color. In 
California for example, Black people are more than twice as likely as whites 
to live within one mile of at least one payday lender. 12 The CFSA and leading 
payday lenders have for years cultivated relationships with Black leaders and 
organizations — lawmakers, celebrities, elders of the civil rights struggle — 
as part of their lobbying and marketing campaigns. 13 "Just like they target 
minority groups to sell their products, they target minority groups to make 
their products look legitimate," says critic Keith Corbett, executive vice presi- 
dent of the Center for Responsible Lending 14 Contrary to claims that payday 
lending represents the "democratization" of credit, the kind of credit payday 
lenders are selling leads only to cycles of ever-growing debt. 

Ways Out 

With payday lenders you are dealing with the worst of the worst. 
These are people who know they are charging rates of interest that ought 
to be illegal, that used to be illegal, that have always been illegal in just 
about every other country that has ever existed in the world. While it is 
best to avoid payday loan officers entirely, when dealing with one, it is 
important to remember: this person knows that what they are doing is 
wrong. If they have any human decency, they are secretly wracked with 
guilt; even if they don't, they are terrified that the world will figure out 
what they are really up to and recognize it as a criminal activity, since 
that's what it really ought to be. 

If you have outstanding debt with a payday lender, remember: 10 

• Payday loans are unsecured debt. This is any type of debt or general ob- 
ligation that isn't collateralized by a lien on specific assets, like a house 
or car. In the event of default, the lender has no legal claim on your 
assets, no matter what the debt collectors say. 

• Many people default, and expectations of that outcome are built into 
the business model. The typical "risk premium" (the cost increase re- 
quired to compensate for credit risk) is so high that even with 15—20% 
default rates, payday lenders are highly profitable. 

• In the event of default, lenders' only means of retaliation is to report 
the event to a credit agency. They commonly try to persuade borrowers 
that repayment of payday loans strengthens credit — the industry even 
funds research to peddle this myth — but it's not true. Reports of any 
transactions with payday lenders will harm your credit. And if you're 
taking out one of these loans, odds are your credit is already damaged. 


How to Default on a Payday Loan 

It should go without saying that executing the following plan is high risk. 
Think and act carefully! 

1 . Take out a loan with an online payday lender. Create a new email ad- 
dress and obtain a prepaid cell phone; use that information on the ap- 
plication. For extra protection, use a computer at the library. If there is 
a call center that wants to talk to you, get someone else to speak since 
they might record your voice. 

2. When you sign up for a payday loan, you enter into an agreement be- 
tween yourself and the provider that they have the right to take money 
from your bank account or charge your debit card automatically when 
your due date arrives. Only give them the right to one specific bank 
account or debit card. 

3. Wait until they decide to debit you. Then call them up, ask why you 
were charged and tell them that you never filled out this application for 
a loan. Granted, this argument is more difficult if you used a payday 
loan before; you want to make it seem as if your financial situation is 
good enough that you don't need one. 

4. If you keep fighting, they will refund you. Fraud happens all the time 
on the internet, so your claims are perfecdy plausible. If they per- 
sist, say that you're going to call the relevant regulatory agencies. Many 
times they will cave in because most online payday loan companies do 
not want to get the government involved. 

If this works, then you're in the clear! You get free money, your 
credit score is unharmed and debt collectors will not harass 
you. However, payday loan providers might not believe you 
and keep charging you the outrageous rates. 

To default: If you choose to pay via bank account transfers, then 
move all of your funds from that bank account to other ac- 
counts. If you choose to pay via debit card, then cancel the 
debit card. 

The most annoying thing is that you'll have to deal with debt col- 
lectors. This is why it is essential that you don't supply your actual phone 
number or email address; that way, they'll just send you direct mail, 
which you can always throw away. If they have your actual phone num- 
ber or email address, they will harass you to no end, in which case just 
keep ignoring them. They are trained liars. (For more advice on dealing with 
debt collectors, see Chapter IX.) 


The following information comes from an 
anonymous former payday loan employee 

How to Destroy the Payday Loan Industry 

Identify a group of people planning to move 
between any of the four countries: United States, 
Canada, England, and Australia. Have each 
person take out a number of payday loans. 

Once you get about $10,000 in loans, move 
the money to different bank accounts so the 
companies dont have access to it. 

When you move to another country, your credit 
score will be a blank slate and you 11 have free 
money to fight the system. 

With about a thousand people willing to travel 
between the four countries, you can take out a 
few major international pay loan providers, like 
Wonga and Enova Financial. 


Unlike payday loans, a pawnshop loan is when a borrower gives property 
to a pawnbroker to secure a small loan. The loan is generally for one-half 
of the item's value. If the borrower is able to repay the loan with interest by 
the due date — typically between one and three months — then the item can 
be retrieved. 16 The average pawnshop loan is for $70, and approximately one 
out of every five pawned items are not redeemed. 17 According to a survey by 
Think Finance, approximately one-quarter of eighteen- to thirty-four-year 
olds who are un- or underbanked use pawnshops. 18 Because U.S. citizenship 
and regular income are not required for pawn loans, they are particularly 
appealing to undocumented immigrants and others who might have diffi- 
culty obtaining loans through traditional financial services. Ten states do not 
require any cap on monthly interest rates and forty states do not require the 
return of pawned items. 19 

A car-tide loan is a similar product to a pawnshop loan, but even 
more egregious — so much so that it is prohibited in thirty-one states. 20 A 
borrower in this case exchanges the tide to their automobile for cash. The 
vehicle can still be driven, however. Typically the loan is for about one-quar- 
ter of the vehicle's value. If it is not repaid with interest within thirty days, 
the lender could repossess the car or extend the loan for thirty more days and 
add further interest. When annualized, the rate of interest for tide loans is in 


the triple digits, and often exceeds 900%. 21 LoanMax, an auto-tide lender for 
which Reverend Al Sharpton of all people did a television commercial, says 
its average loan is $400. 22 Suppose you take a $400 title loan from them. Thir- 
ty days pass and you can't pay the $520 you now owe. Instead of repossessing 
your car, the gracious lender decides to renew the loan. And then again. And 
again. Tide loans are renewed on average eight times per customer. 23 There- 
fore, within a typical timeframe, you may end up owing nearly three-and-a- 
half times what you originally borrowed! 

Having property repossessed and incurring further debt are the tragic 
yet predictable consequences of obtaining a loan through pawning. Payday 
loans and other examples laid out in this chapter are no better. The infor- 
mation provided above offers a glimpse of how these loans dig people into 
deeper desperation. Despite state regulations such as APR caps, these alter- 
native financial services are inherently predatory and cannot be modified to be 
substantially less harmful to borrowers. Pawnshop loans and car-title loans 
should be avoided at all costs. 

However, so long as viable alternatives remain inaccessible to those typ- 
ically targeted by such institutions — traditionally low-income communities 
of color, but increasingly Millennials of all backgrounds 24 — the problem will 
remain and intensify. At the conclusion of this chapter, we contemplate a 
handful of suggestions for obtaining cash without having to be on the receiv- 
ing end of predatory lending practices. 


Rent-to-own (RTO) lenders offer appliances, electronics and other items 
which, as the name suggests, people can eventually own. This is different 
from credit purchases where the customer immediately gains the title to the 
product. Aaron's and Rent-A-Center are two of the biggest such companies; 
their mascots are a self-proclaimed "lucky" dog and Hulk Hogan respectively. 
On both company websites, product prices are not listed; you must provide 
some personal information, such as the last four digits of your Social Security 
number, in order to even receive a quote. Aaron's explicitly states that their 
stores are "strategically located in established working class neighborhoods 
and communities," 25 which is a euphemism for exploiting poor people and people 
of color. This predation is also unabashedly reflected in RTO companies' own 
annual reports. Despite having fewer than half the number of customers 
as payday lenders, the RTO industry generates a similar revenue. 26 What ac- 
counts for high sales? 


Rent-A-Center Store Locations 

New York City 

• Rent-A-Center 
/// Population > 50% Black or Hispanic 



Prepared by the Neighborhood Economic Development Advocacy Project (NEDAP) 
73 Spring Street, Suite 506, New York, NY 10012 / 212-680-5 100/ 

Unsurprisingly, there's a whole host of fees when using RTOs. Charges 
often include "security deposits, administrative fees, delivery charges, 'pick- 
up payment' charges, late fees, insurance charges, and liability damage waiver 
fees." 27 These costs are generally not revealed to customers. Less than a third 
of U.S. states require disclosure of the total cost to own, and even then, many 
of these aforementioned charges are underestimated. With all of that on top 
of an average APR around 100%, consumers typically pay between two and 
five times more than if they had purchased the same item at a retail store. 
On average, RTO customers spend an extra $700 a year. 28 Failure to pay in 
full, or defaulting, results in the repossession of the product and loss of any 
money previously put toward the item. 29 Only eleven states require any cap 
whatsoever on the price of products or APR at RTO lenders. 

Items available at rent-to-own stores are readily available elsewhere, in 
some instances for one-fifth of the price; however, this may require saving up 


until one can afford the retail value rather than resorting to paid installments. 
If you need a computer, for example, consider borrowing one or using one 
at the library until you can pay for it at a not-so-predatory store. It also might 
mean being willing to relinquish a bit of luxury and buy items secondhand. 
Either way, it ultimately beats the pitfalls of RTO lenders. 

There are also many items that you can simply obtain for free, although 
it may require waiting for just the right moment and taking time to do some 
research. Websites like the Freecycle Network ( and the free 
section on Craigslist ( have made this process much more con- 
venient and accessible. 


Refund Anticipation Loans (RALs) are yet another type of loan to ex- 
ploit the unbanked and underbanked. For the lender, the profits are high 
and the risks are low. Many tax preparation companies offer this service. For 
those expecting much-needed cash from a tax refund but who cannot wait 
several weeks for it, an RAL is an appealing quick solution. A taxpayer can 
receive the full amount of their anticipated tax refund sometime between 
two minutes and two days. Like other fringe finance loans, RALs have a triple 
digit APR. 

Suppose you're expecting a tax refund that approximates the average in 
the United States in 2011, which was $2,193. 31 Rather than wait to receive 
the refund, you take out an RAL at a tax preparation company. In six weeks, 
you receive your refund and at this point, assuming the APR is "only" 200%, 
you'll need $728.25 in addition to your refund in order to pay back your loan. 

With a bank account, your tax refund could be deposited direcdy in less 
than two weeks, but of course that's not an option for the unbanked. Filing 
taxes online, if possible, expedites the receipt of one's refund. This approach 
may meet the needs of those requiring cash in the immediate present without 
having to lose so much money in the long run; however, receiving a refund 
check presents its own problems if you don't have a checking account (see the 
section on CCOs in Chapter VII) . 

Another approach is to attempt avoiding having a tax refund at all. Until 
you find institutions in your neighborhood lending money free of charge 
to you, why should you in essence lend to the IRS at 0% APR? Instead of 
getting a large sum once a year in the form of a tax refund, you can spread 
that amount out amongst your paychecks. This requires adjusting your with- 
holdings on your W-4. If you don't have investments or itemized deductions, 
it would be simple to calculate how many exemptions you should claim in 
order to avoid a tax refund without getting a liability. Regardless of how 
many dependents you have, you can still claim, for example, five dependents 
for planning purposes. (When filing taxes, you would legally need to write the 


actual number of dependents.) 32 Many websites, including the IRS website, 
feature a withholding calculator to help you make a more informed decision 
about this approach. 


Throughout the last two chapters, several strategies have been raised for 
avoiding or beating the various institutions that offer fringe finance. These 
chapters have been written with the understanding that viable alternatives 
are hard to come by in many areas. In the course of doing research, we 
have often found that the recommended alternative to one segment of the 
fringe finance industry is frequently another segment. For example, in warn- 
ing against the dangers of refund anticipation loans, the suggestion is often 
to instead obtain a prepaid debit card. 

We have to work together toward rendering all such institutions ob- 
solete, toward a situation where people can have basic needs met without 
immense sacrifice. Notably, at least one-quarter of unbanked households 
in the United States do not use any fringe finance products or services. 33 
That is, over two million households are getting by without a checking 
account, without subprime loans, without cashing checks at CCOs, and 
without pawning their items. These households in particular have experi- 
ences worth sharing and learning from. It is our desire that others reading 
this manual can provide their own strategies, which can be compiled and 
included in later editions. 

The unbanked and underbanked can in certain instances avoid subprime 
loans. This may mean asking to borrow from friends or family, seeking emer- 
gency community assistance, and, if an option, asking your employer for ad- 
vanced payment. Selling unwanted items on Craigslist or at thrift stores and 
consignment shops is a more reliable source of cash than pawning. More- 
over, it's important to consider what you need the money for in the first place. 
Is there an alternative at a cheaper price, or perhaps a free alternative even? 
Will buying something secondhand suffice? Is it worth obtaining something 
immediately if it means paying more? 

While these questions are important for individuals to contemplate in 
order to avoid or minimize the harm done by AFS providers, we must go 
deeper. The Debt Resistors' Operations Manual, after all, is about collective action 
and radical transformation. 

While they may be designated as "fringe," the payday loan companies, 
the rent-to-own stores, the pawnshops and the check cashing outlets are all 
central to the debt landscape we are describing in this manual. We must come 
together to work toward the eradication of these venal institutions while 
creating better ways of obtaining what we need. 



Vinancialjustice research and advocacy for low-income and underrepresented communities: 
Center for Responsible Lending ( 
Consumer Action ( 
The Consumerist ( 

Consumers Union — Defend Your Dollars ( 

National Consumer Law Center ( 
Neighborhood Economic Development Advocacy Project (NYC) ( 

For filing complaints and reading complaints of other consumers: 
Consumer Protection Financial Bureau ( 

Ripoff Report ( 
Articles and Books 


The Brookings Institution, The Higher Prices Facing Fower Income Customers, August 18, 
2006 ( 

Candice Choi, "Reporter Spends Month Living Without a Bank, Finds Sky-High 
Fees," Huffington Post, December 11, 2010 ( 

Sharon Hermanson and George Gaberlavage, The Alternative Financial Services Indus- 
try, AARP Public Policy Institute, August 2001 ( 

Dick Mendel, "Double Jeopardy: Why the Poor Pay More," National Federation of 
Community Development Credit Unions, February 2005 ( 

Federal Deposit Insurance Corporation, National Survey of Unbanked and Under- 
banked Households, December 2009 ( 

Gary Rivlin, Broke USA: From Pawnshops to Poverty, Inc., How the Working Poor Became 
Big Business, (New York, NY HarpersCollins, 2010). 

"The Truth About Immigrants' Banking Rights," NEDAP ( 

John Ulzheimer, "Are Pawn Shops, Rent-to-Own and Other Loan Alternatives 

Worth It?" Mint Fife, January 30, 2012 ( 

Payday loans 

Regina Austin, "Of Predatory Lending and the Democratization of Credit: Preserv- 
ing the Social Safety Net of Informality in Small-Loan Transactions," American 
University Haw Review, 53, no. 1217, (August 2004) ( 

Nick Bourke, Alex Horowitz, and Tara Roche, Payday Fending in America: Who Bor- 
rows, Where They Borrow, and Why, Pew Charitable Trusts, July 2012 ( 


Daniel Brook, "Usury Country: Welcome to the Birthplace of Payday Lending," 
Harper's, April 2009 ( 

"Give Me a Little Credit: Short-Term Alternatives to Payday Loans," Cash Net USA, 
March 2012 ( 

Stephanie Mencimer, "Civil Rights Groups Defending Predatory Lenders: Price- 
less," Mother Jones, August 1, 2008 ( 

Pawnshop and auto title loans 
Christopher Neiger, "Why Car Title Loans Are a Bad Idea," CNN, October 8, 2008 

"Title Loan: Don't Risk Losing Your Car," Center for Responsible Lending, 201 1 (ti- 
Valerie Williams, "Auto Title Loans: Are They the Best Alternative for Fast Cash?" 

Suite 101, September 2, 2010 ( 

to-own stores 
"Alternatives to Rent-to-Own Shopping," Consumer Reports, June 201 1 ( 


Refund anticipation loans (RALs) 
William Perez, "Adjusting Tax Withholding from Your Paycheck," (ti- 


1 . "Bank Payday Lending: Which Banks and Where?" Center for Responsible Lending, 
2011 ( They call them "direct deposit loans," but don't 
be fooled; they're just as bad. 

2. Regina Austin, "Of Predatory Lending and the Democratization of Credit: Pre- 
serving the Social Safety Net of Informality in Small-Loan Transactions," American 
University Law Review 53, no. 1217, August 2004 ( 

3. Federal Deposit Insurance Company, 10. 

4. Jacquelyn Smith, "New Survey Finds Fewer Workers Living Paycheck-To -Pay- 
check This Year," Forbes, August 15, 2012 ( 

5. Nathalie Martin, "Online Payday Lenders Seek More Respect and Less Oversight: 
Call Them What You Like, They are Still 1,000% Long-Term Loans," Credit Slips, 
July 26, 2012 ( 

6. "Fast Facts: Payday Loans," Center for Responsible Lending ( 

7. "Fast Facts: Payday Loans." 

8. "Fraudulent Online Payday Lenders: Tapping Your Bank Account Again and 
Again," Federal Trade Commission, April 2012 ( 

9. Bourke, Horowitz, and Rouche, 5. 

10. Daniel Brook, "Usury Country: Welcome to the Birthplace of Payday Lending," 
Harper's, April 2009 ( 

11. Bourke, Horowitz, and Rouche, 5. 


12. William C. Apgar, Jr. and Christopher E. Herbert, U.S. Department of Housing 
and Urban Development, Subprime Lending and Alternative Financial Service Providers: 
A Literature Review and 'Empirical Analysis (Washington, DC: GPO, 2006) (tinyurl. 
com/DROMApgar), 1-41. 

13. Stephanie Mencimer, "Civil Rights Groups Defending Predatory Lenders: Price- 
less," Mother Jones, August 1, 2008 ( 

14. Mencimer. 

15. The content in this section is modified from: Anonymous payday loan insider, 
e-mail to author, July 29, 2012. 

16. "Give Me a Little Credit: Short-Term Alternatives to Payday Loans," Cash Net 
USA, March 2012 (, 2. 

17. Sharon Hermanson and George Gaberlavage, The Alternative Financial Services 
Industry (Washington, DC: AARP Public Policy Institute, 2001) ( 
DROMHermanson), 2. 

18. "Millennials Use Alternative Financial Services Regardless of their Income Lev- 
el," Think Finance, May 17, 2012 ( 

19. Signe-Mary McKernan, Caroline Ratcliffe, and Daniel Kuehn, Prohibitions, Price 
Caps, and Disclosures: A Took at State Policies and Alternative Financial Product Use (Wash- 
ington, DC: The Urban Institute, 2010) (, 6. 

20. "Title Loan: Don't Risk Losing Your Car," Center for Responsible Fending, 2011 

21. Hermanson and Gaberlavage, 7. 

22. Howard Karger, "Swimming With the Sharks," AlterNet, January 10, 2006 (ti- 
nyurl. com/DROMKarger). 

23. "Title Loan: Don't Risk Losing Your Car." 

24. Think Finance. 

25. Jim Hawkins, "Renting the Good Life," William and Mary Fan* Review, 49, no. 6. 
2008 (, 2059. 

26. Rivlin. 

27. Hermanson and Gaberlavage, 2. 

28. Rivlin. 

29. John Ulzheimer, "Are Pawn Shops, Rent- to-Own and Other Loan Alternatives 
Worth It?" Mint Fife, January 30, 2012 ( 

30. McKernan, Ratcliffe, and Kuehn, 6. 

31. Christine Dugas, "Tax Refunds Being Used to Pay for Bankruptcy Filings," USA 
Today, April 13, 2012 ( 

32. Anonymous accounting insider, e-mail to author, August 20, 2012. 

33. Federal Deposit Insurance Company, 29. 




It goes without saying that none of us wants to hear 
from a debt collector. While once largely the province 
of organized crime, debt collection has attempted to go 
somewhat legit. This is not to say that today's collection 
agencies don't resort to strong-arm tactics, including 
harassing phone calls and threats that are often illegal. 
Given the complexity of debt collection laws and reg- 
ulations that vary state to state, there are hundreds of 
ways a debt collector can engage in illegal practices, in- 
cluding but certainly not limited to harassment. The key 
is to know your basic rights, and to record abusive and 
illegal practices. In many cases, your debt can be erased 
(due to collection agency misconduct) or reduced. 
In some cases, you might even have the right to sue 
for damages. 

Collection agencies are counting on you to not do 
your homework. They are counting on you to be an easy 
mark and to be overwhelmed by Kafkaesque bureaucracy, 
harassment and shame. Our current economic downturn 
only amplifies the problem. Everyone has less money 
and more debt. Debt collectors themselves are making 
less money and this is a recipe for more aggressive and 
increasingly illegal tactics. Even if the collection agency 
does not engage in activities and techniques that are tech- 
nically illegal, they are likely to use intentionally obfuscat- 
ing tactics. If this sounds like the kind of thing that we're 
all used to from credit card fine print and gym member- 
ship terms, that's because it is. 

While this chapter can't tell you everything you need 
to know to handle your specific situation, it can provide 
a basic outline and point you to resources that can help 
beat the system that wants you to fail. 


A collection agency often works on behalf of an original creditor (OC). 
An OC can be a department store, a credit card company or a rent-to-own 
furniture shop, just to name a few common examples — basically wherever you 
took out a credit card or loan. When bills go unpaid, the OC contracts with 
collection agencies or third-party debt collectors to collect the debt. In many 
cases the collection agency simply takes a commission of every debt it collects 
on behalf of the OC. Another likely scenario is that the collection agency has 
bought your debt outright from the original creditor, such as a credit card com- 
pany after a period of non-payment. Many banks are required by law to charge 
off unpaid debts after a designated period of delinquency. The original creditor 
may sell your debt to a collection agency, but the collection agency doesn't pay 
full price. In fact, it will almost certainly pay much less, usually 2%— 25% of the 
debt's face value. So if you owe $1,000, the collection agency might pay $150 
for the right to collect that $1,000 from you. The credit card company may also 
claim your debt and all the interest and fees you have accrued as a write-off in its 
financial filings. 

In short, the collection agency is essentially buying the right to take a 
gamble on your debt, debt that the OC may have already charged off. But 
they aren't just buying your debt. They are buying debts of hundreds, even 
thousands, of people like you. For their gamble to pay off, they only need to 
convince enough debtors — through legal means or otherwise — that we must 
pay them. The collection agency might also tack on additional late fees and 
interest all while harassing you by phone and by mail to collect. 

How a Collection Agency Thinks 

It is key to understand how collection agencies think if you want to know 
how to best engage with them. 1 First, it is usually poindess to go back and 
contact the original creditor. The original creditor almost certainly has an 
agreement with the collection agency that prevents them from negotiating 
directly with you. 

Collection agents often receive litde training beyond, "Here's your desk, 
your phone and computer — now go make some money." Many collection 
agency workers' pay is tied to a monthly quota of how many debts they can 
collect and it is common for collectors to employ more aggressive and illegal 
tactics toward the end of the month. Because they work on monthly com- 
mission, collection agency workers are also most likely to pursue the people 
with the largest debts and the people who seem most likely to pay. 

It is important to remember that you are the most important variable to a 
collection agent. To quote one message board familiar with their tactics, "It is 
your fears, your fantasies, your partial understanding of the truth that empow- 


ers the debt collector and each of these is a weapon to be used against you. 
By carefully stating half-truths and letting your imagination run away ..." 

It is also important to note that there are two common types of collec- 
tion agencies: letter writers and just plain "collection agencies." Letter writers 
basically just write letters directing you back to the original creditor to make 
your payment. Collection agencies require you to pay them directly, often so 
they can be assured they will get their commission from the OC. Either way, 
they must include a mini-Miranda in their letters or read it during their phone 
calls. If they do not, you may have grounds to sue. 

If your first contact with a collection agency is over the phone, the 
mini-Miranda warning should sound something like this: 

"Hello, I am [name of collector]. I am [or "this office is"] a debt collector 
representing [creditor]. Information obtained during the course of this 
call will be used for the purpose of collecting the debt." 

If your first contact with the collection agency is via mail, the mini-Mi- 
randa should look something like this: 

"This correspondence is an attempt to collect a debt. Any information 
obtained will be used for that purpose. Unless within 30 days of your 
receipt of this notice, you notify us that you dispute the validity of this 
debt, it will be assumed to be correct. If you notify this office within thirty 
days that you dispute the validity of the debt, we will obtain verification 
of the debt or a copy of the judgment. If you request it within 30 days, 
we will provide you with the name and address of the original creditor (if 
different from the current creditor)." 

Do not ignore the call or letter. The biggest mistake people make when they 
get a letter or call from a debt collection agency is to ignore them and hope 
they will go away. Because you have 30 days to contest the debt, you must act 
immediately. If you ignore the contact, you are by default agreeing that the 
debt is legitimate. 

Whether the debt is legitimate or not: 

• Write a letter to the office of the collection agency or attorney and state 

that you (a) dispute the bill; and that (b) you want a full accounting of 
the monies claimed to be owed. The Fair Debt Collections Practices 
Act of 1996 (FDCPA) requires they contact the original creditor to se- 
cure full account detail. Without a confirmed accounting of this debt, 
they cannot return to the collection process. 2 

• In responding to a call, advise the collector that you (a) are disputing 
the debt and that you are doing so in writing to his/her offices; and 
that (b) you do not want to receive a call from this agency at your 
place of work and that they can only contact at your home (or on your 


cell phone if you don't have a home telephone) between the hours 

There is a decent chance that you may not hear back. Remember, the 
collection agency is most likely to pursue the people they think are most likely 
to pay. You may have to continue to write to them, and even threaten to sue. 
(See Appendix D for sample letters^) 


Statute of Limitations on Debt 

In every state there is a statute of limitations (SOL) for outstanding 
debts — a limit on the number of years in which a creditor may attempt to 
pursue payment. Each state is different so you should check. 3 Some states, 
like Kentucky and Ohio, have extremely long periods (fifteen years for writ- 
ten debt agreements) while states like Mississippi and North Carolina have 
much shorter periods (three years for written debt agreements). If there is a 
dispute about which state's laws apply, you can be assured that the collection 
agency will argue for the state with the longer period. 

When does the SOL clock start? 

The SOL clock starts running on the date of the last activity of your ac- 
count. This is often the date of your last payment but — and this is key — it may 
also be the date when you entered into a payment agreement or simply ac- 
knowledged liability for the debt. This is why it is key to always contest liability. 

If your debt is beyond the SOL you can contest the debt on these 
grounds and, should you want to play offense, you can also attempt to set up 
the collection agency for a FDCPA violation and hit them with a suit. 

Know your FDCPA violations 

Even if your debt falls within the SOL, there is a good chance the debt 
collector will engage in abusive or deceptive practices that are illegal under the 
FDCPA, but it is up to you to know your rights, be vigilant and document any 
violations. Violations are grounds for dismissing debt and related lawsuits. 

Some common FDCPA violations 

There are countless ways to violate the FDCPA and the longer you en- 
gage with your debt collector or agency (while continuing to dispute the 
debt — this is very important), the greater the chance you will catch them in 
the act. Unfortunately (or fortunately if you are a debt collector) only a small 
fraction of violations go reported. You do not need a lawyer to contest debt 
obligations or report FDCPA violations; you can take action on your own 
and even win damages. 


Due to an absence of regulations and enforcement, debt collectors rou- 
tinely break the law, verbally abuse and threaten debtors. These practices are 
rampant in an industry that is run like the Wild West. Here are just some of 
the very dirty tricks that debt collectors use: 

Recendy debt collectors have "embedded" themselves in hospitals — like 
reporters in a war zone — coordinating with hospital staff to make bedside 
visits. While patients are often at their most vulnerable, sick or injured and 
naked except for a hospital gown, these debt collectors will attempt to shake 
them down for money. Jessica Silver-Greenberg writes, "To patients, the debt 
collectors may look indistinguishable from hospital employees, may demand 
they pay outstanding bills and may discourage them from seeking emergency 
care at all, even using scripts like those in collection boiler rooms." 4 

It is common for debt collectors to call pretending to be police offi- 
cers and claim that they have a warrant to arrest a debtor if they don't pay 
up. Debt collectors will often continually harass people for debts they don't 
owe or have already paid or for those that have already been dismissed in 
court. Collectors frequently target the wrong person, mistaking one person 
for someone else with the same or similar name. Debt collectors will lie and 
say that they are calling on behalf of debt relief agencies, learn all about a 
debtor's situation and collect all of their personal information, and then use 
it against them. Collectors have been known to illegally call employers and 
inform them of employees' debts. In the most extreme cases, debt collectors 
have made disturbing threats to seriously harm debtors and their families. 5 
Although illegal, these tactics are rampant. 

Even debt collectors who follow the law can legally mislead you or trick 
you in other ways. Credit card companies have started data-mining cardhold- 
er's purchases and using software to create psychological profiles of them. 
These profiles are then used by debt collectors to psychologically manipulate 
debtors to pay more than they otherwise would have to, including artificial 
late fees that would otherwise have been waived. This tactic, although manip- 
ulative and immoral, is completely legal. After using a psychological profile to 
swindle one debtor out of an additional $2,000, debt collector Rudy Santana 
explained, "It's all about getting inside their heads and understanding what 
they need to hear." 6 

Know Your Rights 

With all of this in mind, it's important to know what debt collectors le- 
gally can and can't do. Below is a basic list to help protect you: 

• A debt collector can only call a third party once about you unless it 
believes the third party gave it false information the first time. 

• Contacting you before 8:00 AM or after 9:00 PM is illegal. 

• You must tell a collector not to contact you at work by sending them a 


cease and desist letter (see Appendix D, sample letter #2). You must send 
this certified mail and keep a copy for yourself so you have proof of 
receipt. If the collection agency contacts you again, other than to advise 
you of their intent to take action, then they are violating the FDCPA. 

• Under no circumstances does a default on a car loan equal theft. It can 

not be reported to law enforcement. Legal repossession is the credi- 
tor's right. 

• If you do not want to be in contact with a debt collector, then that's 
your right. It doesn't cancel the debt but it is your right not to speak 
with debt collectors. 

• A debt collector cannot sell a debt to another collection agency with 
full knowledge that it has expired (see SOU) or is in dispute. 

• A debt collector may try to lead you to believe that you have no grounds 

for requesting a validation of debt (see Appendix D, sample letter #2). 

• A debt collector may try to represent themselves as an attorney or law 

firm even if they are actually not an attorney or law firm. Regardless, it 
is important to remember that collection attorneys also have to follow 
the FDCPA just like collection agencies. 

• If a debt collector sends an initial notice advising you of your right to a 

validation of debt, then they cannot demand payment within the next 
thirty days. 

• A collector cannot call your job and tell your HR department that they 

need your work information (wages, schedule) unless a valid suit was 
filed by them and tried in a court of law with a judgment in their fa- 
vor. Until this happens (if it happens), they cannot contact your HR 
department or place of work, even if they claim to be looking for 
information to sue you. 

• It is not unheard of for debt collectors to use fake case numbers and 
fake lawyers to scare an alleged debtor into paying. Of course, this is in 
clear violation of the FDCPA. 

• Regardless of whether the initial contact is via mail or letter, the col- 
lector must provide you with a mini- Miranda (see above). The mini-Mi- 
randa should also be on each and every communication you get from 
a debt collector. 

• A collector is not allowed to reveal information about the envelope's 
contents on the outside of the envelope for others to see. Words such 
as "past due" or "collections" are in clear violation of the FDCPA. 

• A debt collector cannot impersonate a law officer or claim they can 
throw you in jail for not paying your alleged debt. 



There are two main ways to fight back against debt collectors: letter writ- 
ing and lawsuits for violating the FDCPA. Both could be made into mass ac- 
tions that attempt to overwhelm debt collectors while also helping us reduce 
our debts. With the right organizational structure, debtors being chased by 
a common debt collector or debt collection agency can coordinate a well- 
timed, well-thought-out letter writing campaign. If many debts with the same 
collector are disputed, it will clearly disrupt and possibly halt their business. 
As far as we know, this has never been tried. If a collector violates the FD- 
CPA (which won't be hard to find out), a class-action lawsuit could be orga- 
nized. As usual, we recommend you consult a lawyer before considering this. 


Carreon and Associates ( 
The Consumerist ( 
Debtorboards ( 

Fighting Collection Agency Debt ( 
National Consumer Law Center ( 

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Jude Chao, "How to Report Collection Agency Abuse," eHow ( 

"Debt Collection FAQS: A Guide for Consumers," National Association of Consumer 

Advocates ( 
"Debt Collection Info Packet," NEDAP, 2006 ( 
Alex Henderson, "Am I Going to Have to Kill You?': The Horrific Ways Abusive 

Debt Collectors Threaten and Harass Their Victims," AlterNet, April 17, 2011 

Lynnette Khalfani-Cox, "How to Handle Rude and Abusive Debt Collectors," 

AARP, January 16, 2012 ( 
"Know Your Rights When You Owe a Debt," National Association of Consumer Advo- 
cates ( 
Patrick Lunsford, "Debt Collectors Pursuing More than 14 Percent of Americans," 

Inside ARM, February 29, 2012 ( 
Chris Morran, "Debt Collectors Real & Fake: Top List of Most-Blocked Phone 

Numbers," The Consumerist, August 6, 2012 ( 
Chris Morran, "4 Things Debt Collectors Won't Tell You," The Consumerist, October 

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Yves Smith, "How to Beat Vulture Debt Collectors," Naked Capitalism, August 16, 

2012 ( 



1. "The Psychology of Collections," Professional Recovery Personnel, Inc. ( 

2. "Debt Settlement Letters and Sample Letters on Debt and Credit," Debt Consolida- 
tion Care ( 

3. LaToya Irby, "State-by-State List of Statute of Limitations on Debt," 

4. Jessica Silver-Greenberg, "Debt Collector is Faulted for Tough Tactics in Hospi- 
tal," New York Times, April 24, 2012 ( 

5. "As a Result of FTC Action, Two Defendants in Abusive Debt Collection Case are 
Banned from the Industry, Will Surrender Assets," Federal Trade Commission, March 
15, 2012 ( 

6. Charles Duhigg, "What Does Your Credit-Card Company Know About You?" 
New York Times, May 12, 2009 ( 




Bankruptcy, for some people, sometimes, can be a way to fight 
back against the creditors and escape a life of indebtedness. 
It is basically the modern version of debtors' protection (yes, 
like consumer protections), but as with any set of legal codes, 
it reflects the society that created it. And let's remember that it 
was created by an economic system predicated on maximizing 
profit at all costs. Accordingly, the protections that bankrupt- 
cy offers are anything but clear or straightforward. 

Bankruptcy can save lives and offers some people a world 
of relief. But there are many forms of debt relief out there, 
and bankruptcy is just one of them — a very legal one at that. 
Many prefer the route of "private" debt settlement or nego- 
tiation, others seek credit counseling or debt management 
programs, others fall prey to schemes plunging them further 
into debt and still others simply stop paying and walk away or 
go off-grid. This chapter aims to lend some clarity as to what 
possibilities bankruptcy offers, as well as to its limitations. 


Debt forgiveness has a long history. The Bible is literally 
full of passages about jubilees and other cancellations of debt. 
The Qur'an also advocates debt forgiveness for those who 
cannot pay. Of course not every society has protected its cit- 
izen debtors. In Ancient Greece, debtors unable to pay often 
lost their entire families to debt slavery. Even though the right 
to declare bankruptcy was legislated here in the United States 
at a much later date than in other industrialized countries, its 
application has been more debtor-friendly than most. 

On the whole, bankruptcy in the United States has 
been used by businesses more than individuals. Bankrupt- 
cy laws in favor of businesses were repeatedly passed and 
repealed throughout the 19th century. The first truly mod- 
ern bankruptcy laws in the United States appeared during 
periods of "economic downturn" in the 1890s and 1930s. 

These laws were largely about saving companies and businesses deeply in 
debt. Businesses in the United States have always taken advantage of bank- 
ruptcy, especially in recent years, as companies have used it as a pretext to get 
out of pension obligations and to break union contracts. 

But starting in 1978, the United States passed a law that made it significantly 
easier for individuals and families to get similar benefits and protections. In the 
1980s, people began to take more advantage of this possible liberation from debt. 
In the 1970s, just over one in a thousand Americans filed for bankruptcy every year. 
That began to rise dramatically over the course of the next decade. By 1990, the rate 
had tripled to three in a thousand; by the late 1990s, it was up to five. 1 

1 1 c n*. 

rial Bankruptcies 1900-2004 

(per 1,W0 population) 

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 

A Tale of Two Chapters 

Over the last thirty years, the conflict over bankruptcy law has been a 
fight between creditors and debtors. It has largely been "a tale of two chap- 
ters": Chapter 7 and Chapter 13 of the Bankruptcy Code. Accordingly, there 
are two basic options if you are considering filing for bankruptcy, and they 
are named after the relevant sections of the law. With a Chapter 7 bankrupt- 
cy, all your eligible debt is wiped away (or "discharged"), and that's it. The 
huge downside is that your non-exempt assets (these vary by state, but often 
include basic things like your house, car, etc.) are also liquidated. 

With a Chapter 13 bankruptcy, disparate debts are consolidated into a 
single sum owed to the bankruptcy court, and a rigorous payment plan is set 
up (usually lasting three to five years). The monthly payments are for many a 
substantial and unbearable burden, but all creditor efforts at collection must 
stop. Foreclosure actions are also suspended during a Chapter 13 bankruptcy 
proceeding (unlike a Chapter 7), although they can be resumed once the case 
is completed. Many people choose Chapter 13 over Chapter 7 in an attempt 


to save their homes, cars and other non-exempt assets. The downside is that 
you must then commit most of your "disposable income" to repaying your 
debts. This in essence means living in dire poverty for three to five years to 
satisfy what are likely illegitimate loans and criminal interest rates (the aver- 
age interest rate on credit card debt is now around 13%). Still, the fact is that 
many, if not most, Chapter 13s fail during the payback period, ultimately be- 
coming counterproductive and leading to more debt. It's not hard to see why 
the creditors prefer it to Chapter 7. 

Unfortunately, bankruptcy can only eliminate or lessen some types of 
debt. Consumer debt (credit card, auto, stores, etc.) and medical debt are the 
major forms, but it can also eliminate other unsecured loans such as payday 
loans. A major victory for the creditors, however, is that the law prevents you 
from eliminating student debt, tax debt or mortgage debt. 

The Creditors Fight Back 

The credit industry was alarmed by the boom in bankruptcies over the 
last thirty years, and it began a vast lobbying and propaganda campaign to 
tighten up the code. The line was that a moral rot was spreading throughout 
the culture, and all the old moral lines about paying your debts were falling by 
the wayside along with all the other "traditional values." 

Industry lobbying to cut back bankruptcies came up short at first. During 
the Clinton years, bankruptcy overhaul bills were introduced but never made 
it all the way through Congress. The efforts finally paid off in 2005, when 
George W Bush signed the preposterously named Bankruptcy Abuse Preven- 
tion and Consumer Protection Act. The original draft of the legislation was 
done by Morrison & Forrester, a San Francisco-based law firm for the credit 
card industry. But don't think that "bankruptcy reform" was just a Republican 
effort — one of the main supporters who ensured this bill got passed was none 
other than current Democratic Vice President Joe Biden. The effect of this bill 
was to make it harder and more expensive to file for bankruptcy. But don't let 
that scare you away — it's still quite viable (if it's the right option for you). 

The reform has been very good for creditors. Although there was a spike 
in bankruptcy filings in the year or two leading up to the passage of the 
bill — nearly seven out of every thousand Americans filed in 2005, an all-time 
record — filings then collapsed to just two per thousand in 2006. Filings soon 
began rising again, but even during the Great Recession of 2008, the filing 
rate never broke above five per thousand , essentially where it was in the late 
1990s, when both the unemployment rate and debt levels were well below 
where they've been in recent years. According to a little statistical model we 
have put together, this "reform" has blocked over six million bankruptcies 
from being filed. (There would have been over 14 million filings instead of 
eight million.) And a study by the Federal Reserve Bank of New York — hard- 
ly an institution known for being hostile to creditors — suggests that tight- 


ening up the bankruptcy code also increased the number of foreclosures, 
because many debtors were denied this avenue of relief. 2 

The Battle Over Chapter 13 

Before the 2005 "reform," you had the option of choosing which chapter 
to file under. Under the guise of "abuse prevention," however, the new law 
denies the Chapter 7 route if your income is above your state median. (The 
median income is the one right at the middle of the distribution; half of all 
households are above the median, and half are below. State medians run from 
about $37,000 in Mississippi to $66,000 in Connecticut, with the national medi- 
an around $50,000.) Of course, you could have an above -median income in an 
expensive region like New York or San Francisco and not be living large at all. 
But despite the restrictions on Chapter 7 filings, they still account for about 70% 
of all bankruptcy cases, which isn't much different from the pre -reform share. 

The 2005 reform also increased the amount of documentation required to 
file — tax returns, pay stubs, household budget information, and so on. Because 
of that, and the increased amount of time that lawyers now have to devote to 
a bankruptcy filing, fees have risen dramatically. The new law also requires you 
to complete a counseling course offered by a government-certified provider. 
All of this contributed to lower filing rates than we would have seen otherwise. 

It is clear that in the name of "abuse prevention," the creditors and the 
government are forcing people to either not file for bankruptcy at all, or if 
they do, to file for Chapter 13. And it is not hard to see why. Chapter 13 is, in 
many ways, another creditor scam. Unlike Chapter 7, creditors often recover 
up to 30% of the original loan with Chapter 13. Many of those who file for 
Chapter 13 end up completely failing: the rate of "discharge" (getting one's 
debts forgiven) is around 30% according to most studies, and at most 50% 
according to others. If your Chapter 13 filing fails, you are left in a worse 
situation than where you started. 3 

And from here it only gets worse. One detailed law study found that 
bankruptcy laws, specifically Chapter 13, implicitly favor a certain profile, 
an "ideal debtor," who is usually white and married. Most bankruptcy laws 
tend to favor wealth over income, ownership over renting, formal depen- 
dents over informal dependents and heterosexual married couples, all of 
which have significantly higher rates in white communities. Before 2005, Af- 
rican Americans filed for Chapter 13 nearly 50% of the time, compared to 
less than 25% by whites. Why, you may ask? Here's one explanation: a study 
found that when all other factors are equalized (identical financial cases), law- 
yers are twice as likely to steer Black clients toward Chapter 13 than they are 
white clients. The study could find no other cause besides racism in all forms: 
conscious, unconscious, structural and institutional. 

It is an uphill batde if you are an African American debtor: in another 
display of overt racism, you are 20% more likely to have your Chapter 13 


cases dismissed by a judge. This discrimination has had a major impact on 
African American debtors — they often avoid the option of bankruptcy alto- 
gether and seek other solutions: hiding, adopting aliases, refusing to pay and/ 
or relying on highly predatory fringe financial services. It may appear at first 
glance that the 2005 act actually began to equalize the playing field across race 
and gender by introducing the fairly objective "means test," but it has, on the 
contrary, continued the trend of favoring wealth over income and made the 
whole process more intimidating and more expensive. 4 

Who Files for Bankruptcy? And Why? 

The banks, government and media would have you believe that people 
file for bankruptcy to scam the system, or because they are financially irre- 
sponsible. This is nonsense of course. Elizabeth Warren made her career by 
clarifying these myths around bankruptcy: most bankruptcies are simply not 
caused by financial carelessness but by major life misfortunes such as unex- 
pected joblessness, illness or divorce. The major social reason for the rise in 
bankruptcy over the decades has been the rise in consumer debt burdens, and 
the major reasons for the rise in these debts are the stagnation of average 
incomes, the elimination of caps on interest rates starting in the late 1970s 
and massive public sector service cuts. The line of argument advanced by the 
credit industry ignores the source of the debt to begin with: in a time of 
vulnerable work markets and mass cuts in basic social services, most people 
have no choice but to accrue debt to simply survive. 

There has been a lot of talk about the role of medical debt in bankrupt- 
cies in the past few years — and for good reason. Medical debt is a major fac- 
tor in bankruptcies. But it is not the only factor. Bankruptcy is not "caused" 
by any one type of debt. Most individuals and families filing for bankruptcy 
have auto debt, credit card debt, mortgage debt, student debt and also medi- 
cal debt. The debt burden that households have been forced to take on is im- 
possible to bear. Bankruptcy and mass default in this system are structurally 
inevitable — bankers make loans they know we can't pay! 

And it would be a mistake to think, either pre- or post-2005, that the 
U.S. bankruptcy laws and proceedings are fair across lines of gender, race 
and class. Far from it. In terms of gender, it's a complicated story. While the 
rates of bankruptcy filings are far higher for women, especially single and/or 
divorced mothers, they also benefit from the structure of bankruptcy laws. 
Individuals with child support obligations (usually men) who declare Chapter 
7 are freed up to then satisfy these obligations, since consumer debt can be 
discharged but child support cannot. However, after the 2005 act, bankrupt- 
cy became more difficult for everyone, both single mothers and those with 
child support obligations. And all of this begs the question: why are so many 
single mothers (especially African Americans) declaring bankruptcy? And in- 
stead of looking for policy solutions or resorting to moral chiding, how can 


we avoid these situations of indebtedness in the first place? We haven't seen 
these questions asked in any serious public forum. 

In addition, there have been several reports in the last decade about the 
connection between race and bankruptcy. Anyone connecting the dots between 
race, predatory lending and the 2008 financial crisis shouldn't be surprised by 
these results. Neil Ellington, executive vice president of a credit counseling 
agency in Raleigh, N.C., had this to say on the matter of race and bankruptcy: 
"The same underlying issues that created the problem in mortgage lending, 
with minorities paying higher interest rates than their white counterparts hav- 
ing the same loan qualifications, are present in all financial fields." 5 

So how bad is it? One study, focused on a neighborhood in Chicago, 
found that the rate of filings by African Americans is triple that of their 
white counterparts. The reasoning isn't completely clear, but it's not hard 
to speculate: Black people have found themselves systematically targeted by 
financial predators who are taking advantage of the hundreds of years of 
material oppression that African Americans have faced in the United States. 
Beyond predatory lending, African Americans are targeted by fierce debt re- 
duction schemes, rescue scams and shady financial products promising to 
save them from their debt burdens. 6 


Anyone struggling with debt and/or contemplating bankruptcy is likely to 
confront a lot of dubious operators. Worst of all are the characters who advertise 
on late-night TV or on the web, offering debt-relief schemes. (Google the term 
"debt relief" for examples.) In the words of Charles Juntikka, a Manhattan-based 
attorney who handles many bankruptcy cases, "I've never seen one that was le- 
gitimate." Most operate at the margins of the law or beyond. Our advice: avoid 
them like the plague. 

But there are also more legitimate groups and financial advisors who will 
offer you still-dubious advice against filing for bankruptcy. The standard claim is 
that bankruptcy is an emotionally wrenching experience that will ruin your credit 
for years. According to these sources, you'll find it difficult or impossible to get a 
credit card or a mortgage after filing for bankruptcy. You might even find that it 
"carries a stigma in your community," according to the National Foundation for 
Credit Counseling (NFCC), a trade association for the advice industry. Better to 
tighten your belt and negotiate repayment plans with your creditors, they say. For 
example, one advocate, Dave Ramsey, who dispenses advice from the perspec- 
tive of the religious right, suggests selling everything but the bare necessities to 
placate the creditors. 

And they are right in one sense; bankruptcy is no picnic. But neither is "pri- 
vate" debt negotiation or settlement. Few people have the audacity and emotion- 
al strength to fight with creditors for months, especially without a lawyer. Groups 


like the NFCC have been suspiciously silent about releasing data showing suc- 
cess rates in private negotiations, debt settlement plans and other alternatives to 
bankruptcy. It's hard to know who to trust when everyone wants your money. 
Organizations like the NFCC will say terrible things about bankruptcy because 
they're funded by the financial industry and other private sector interests. While 
they divulge few exact details about their flinders, the program for its most recent 
conference thanks sponsors including Bank of America, Chase, Citi, MasterCard 
and Experian (the credit rating agency). The conference also featured "breakout 
sessions" for creditors and a Creditors' Day (as if the other days of the year 
weren't creditors' days). It goes without saying that advice dispensed by NFCC 
member organizations is not likely to be debtor-friendly 

NFCC's ideals can be seen in the winners of their most recent Client of the 
Year Award, Jerry and Sue Bailey of Jackson, Michigan. The Baileys "refused" 
the temptation of "walking away" from $92,000 in credit card debt, opting in- 
stead for a repayment program engineered by NFCC member firm GreenPath. 
They admit that paying off their debt was a struggle, but it was one "worth 
making." GreenPath (which, incidentally, paid its CEO about $600,000 in 2010) 
and other NFCC member firms are precisely the ones who run the counseling 
programs filers are required to attend. 

So who can you trust? Bankruptcy lawyers? Let's not forget that they make mon- 
ey off of debtors too. The only conclusion to arrive at is that every situation is differ- 
ent, and you should research the options that make the most sense for your situation. 
And the real conclusion is that we shouldn't have this debt in the first place. 

So, Should I File for Bankruptcy or Not? 

Mr. Juntikka (the lawyer quoted above) rejects claims by the credit indus- 
try and the academics and counselors on their payroll that the rise in bank- 
ruptcy filings over the last couple of decades is the result of spreading moral 
rot and a growing indifference to debt. Most people are close to their credit 
limit or behind on their payments — at a time when banks can raise the money 
they lend you for close to 0% — and getting rid of that rapidly compounding 
debt can be deliverance for many. 

Compound interest can be like a god demanding endless sacrifices with 
no reward. If you have a $5,000 balance at 18% and make only the minimum 
payment, it will take you almost twenty-three years to pay off the debt, and it 
will have cost you nearly $7,000 in interest. Bankruptcy can reduce your cred- 
it card balance to zero in a matter of months — and put an end to calls from 
collection agents too. There are consequences, of course, but being informed 
and doing it right often makes it worth the risk. 

Most Americans are afflicted with a deep sense that not servicing our 
debts is immoral and suffer immense amounts of guilt over falling behind. 
Worse still is the common myth that filing for bankruptcy means losing ev- 
erything. It isn't totally false, but every state has a list of exempt assets, and 


Chapter 13 is designed so that some can actually save their non-exempt as- 
sets. We recommend you research all of this carefully. In the end, filing for 
bankruptcy can be a tremendous relief. 

Mr. Juntikka points out that his clients have suffered visibly. He describes 
very vividly the emotional state of debtors when they first arrive at his office. 
They're miserable — sleeping badly, signs of stress written all over their bod- 
ies. As they get through the process of filing for bankruptcy, their demeanor 
changes dramatically. "They're sitting up straighter, their faces look better." 

And it's easy to see why — the biggest relief bankruptcy offers is the "au- 
tomatic stay" provision. In this provision, creditors and their debt collection 
goonies have to stop harassing you until the bankruptcy filing is completed 
and the court has ruled. In Chapter 13, the trustee assigned to your case 
ensures that you no longer have to deal with creditors as you pay back your 
debt for those three to five years (again, only if you are in the minority that 
successfully completes your plan). 

It can cost as much as $3,000 to file for bankruptcy these days (Chapter 
13 is more expensive), which, for people who are barely getting by, is a lot of 
money. You may be able to find a cheaper lawyer and get your costs down. Or 
you can often get free legal representation by contacting your local bar asso- 
ciation. It is possible to do it yourself using manuals and forms provided by 
the likes of, but it can be a complicated process (which is how the 
banks want it). And the failure rates without a lawyer are astonishing: 97% 
of Chapter 13s failed without a lawyer! So, we recommend getting a lawyer 
before filing; research carefully how to find a good one. It's worth the mon- 
ey. And it can't hurt to know the law a bit before you go — the study about 
lawyers discriminating against African American debtors shows this clearly. 7 

What about my credit (and other cautions)'? 

The consensus in the credit counseling industry seems to be that for 
most people, bankruptcy is actually, in the long run, good for your credit 
score. If you're considering bankruptcy, you've probably missed a few pay- 
ments and are dealing with delinquency and default — which will wreck most 
people's scores. Counterintuitively, debt management programs or similar 
plans don't seem to do much for your credit. At that point, you need to make 
a decision about bankruptcy. 

While the jury is not fully out, it seems that filing for either Chapter 7 or 
Chapter 13 has an equivalent impact on your credit score. Either way, your score 
will take a nosedive and you won't have access to cheap or fair credit for a while. 
But there is a difference: most lenders seem to be willing to lend if you file Chap- 
ter 7, as you are then clear of past debts and have disposable income. With Chap- 
ter 13, on the other hand, few lenders will do any lending during the payback 
period, which means it will take an extra three to five years to rebuild your credit. 
And remember, bankruptcy can stay on your credit score for seven to ten years. 


After bankruptcy, you will be an ideal target for the predatory loan sharks 
in the industry; they love people who are struggling. They will tempt you with 
low interest rates to start with, but then jack up rates and fees the minute that 
balances rise and payments fall behind. Be careful. The best strategy after 
bankruptcy is to accept a couple of cards. Study their terms and conditions 
and use them very carefully. Read up about how to build your credit (carrying 
a small balance, making regular payments, etc). Although a bankruptcy filing 
can stay on your credit report for a decade, within a couple of years after a fil- 
ing, it's possible to get a respectable credit score — and with no late payments 
and a steady job history, a mortgage could follow a couple of years later. 
Still, it might be wise to wait longer; remember, you are especially vulnerable 
to predatory lending at that point. All that being said, it can be disastrous to 
declare bankruptcy a second time. Few credit scores can recover from that 
(except patiently waiting seven to ten years). 

Lasdy, the biggest risk in filing for bankruptcy is that your case will be 
dismissed, in which case you've wasted time and money, accrued more debt 
(the interest accrues retroactively to the time of filing) and gained nothing. 
And, your bankruptcy would still be on your credit report. This is obviously 
the worst-case scenario. Remember, this happens for nearly 50% of those filing 
for Chapter 13. Is it a scam? We'll let you decide. We think the whole system 
is a scam. 8 


Unfortunately, for the most part bankruptcy offers only individual means 
of fighting the creditors. It is hard to imagine how to use the bankruptcy 
laws in order to organize mass direct action that would cause serious change 
in our debt society. In terms of the racist nature of the existing bankruptcy 
mechanisms, the most likely solutions to these problems would be continu- 
ing to fight structural and institutional racism in all its forms. This could of 
course be combined with launching a massive informational campaign in 
communities of color to clear up the myths and disinformation surrounding 
bankruptcy. And, although not ideal for many, there are other options for 
debtors: debt negotiation or settlement, refusal, living off the grid, leaving 
the country, etc. One form of collective action is to help each other and build 
networks of mutual support for those struggling with debt. 

With every bankruptcy, a bank or lender loses a certain amount of mon- 
ey — they have rigged the game, so they are probably recovering it in other 
places. Nonetheless, with every bankruptcy, their books are slightly shaken. 
One possible action would be a simultaneous mass bankruptcy of those eli- 
gible for Chapter 7. This could be organized so that a mass of debtors with 
debt towards a certain bank declares bankruptcy all at once. We don't know 
enough about the industry to know what effects this could have. The organiz- 


ers would need serious legal counseling: bankruptcy laws are laden with fraud 
protections, which would have to be carefully combed through before taking 
action. Another possibility would be to organize a critical mass to declare 
bankruptcy on student loans all at once — knowing they will be dismissed, 
but defiantly insisting in court that the debts are illegitimate and unpayable. 
These actions would need years of planning, preparation and organization. 

In reviewing the history of bankruptcy and how it has been used in the 
United States, the conclusion we have come to is that the best way to fight 
for debt forgiveness, cancellation and a society of fair and equitable credit 
is to build a debt resistance movement to challenge the most fundamental 
structures of this unjust economy — all while trying to help each other. 


Bankruptcy Data ( 


David Cay Johnston, "Five Questions for Elizabeth Warren; Bankruptcy Borne 
of Misfortune, Not Excess," New York Times, September 3, 2000 ( 

Aparna Mathur, Medical Debts and Bankruptcy Filings, American Enterprise Institute 
for Public Pokey Research, July 28, 2009 ( 

Elizabeth Warren, "Feminomics: Women and Bankruptcy," Huffington Post, Decem- 
ber 17, 2009 ( 


1 . Thomas A. Garrett, "The Rise in Personal Bankruptcies: The Eighth Federal Re- 
serve District and Beyond," Federal Reserve Bank of St. Louis Review, February 2007 
(, 15. 

2. Donald P. Morgan, Benjamin Iverson, and Matthew Botsch, "Subprime Foreclo- 
sures and the 2005 Bankruptcy Reform," Federal Reserve Bank of New York Economic 
Policy Review, 2011 ( 

3. Wenli Li, "What Do We Know About Chapter 13 Personal Bankruptcy Filings?" 
Federal Reserve Bank of Philadelphia Business Review, 2007 ( 

4. A. Mechele Dickerson, "Race Matters in Bankruptcy," Washington and Fee Faw Re- 
view, 61, no. 4 (2004) (, 1725. 

5. Tara Siegel Bernard, "Blacks Face Bias in Bankruptcy, Study Suggests," New York 
Times, January 20, 2012 ( 

6. Geoff Smith and Sarah Duda, Bridging the Gap II: Examining Trends and Patterns of 
Personal Bankruptcy in Cook County's Communities of Color (Chicago: Woodstock Insti- 
tute, 2011) ( 

7. Li. 

8. "12 Myths About Bankruptcy,", November 4, 2011 ( 




The chapters of this manual highlight various forms of debt 
injustice. Hopefully reading them has made you angry. Debt 
can be isolating and demoralizing. The most common emo- 
tion associated with debt is shame. We hope to transform 
that shame into outrage — and that outrage into action. 

In writing this manual we've struggled to balance 
advice that you, the reader, can use to survive under this 
debt regime with a structural analysis of the system that 
put you in debt. The reason you have tens of thousands 
of dollars of student loan debt or medical bills that you 
cannot pay is because we live in a society that refuses to 
make education and health care accessible and free to all. 
You didn't make some horrible mistake to get into the 
situation you are in. You are not a failure, and millions 
of people are in similarly dire straits. To again quote one 
of Strike Debt's early slogans: You are not alone I You are 
not a loan. 

There is strength in numbers. Individually our 
debts overwhelm us; collectively our debts can overwhelm 
the system. There are ways of fighting back and reclaiming 
our lives and our communities from the current state of 
affairs. We are not looking for debt "forgiveness"; what we 
seek is the abolition of debt profiteering and its replace- 
ment by a society that nurtures the common good. 

We should be clear: we are not against all debt nor 
are we against credit. Rather, we call for new, fair arrange- 
ments that help us exceed the boundaries of the present 
(as credit does) without burdening the future in chains of 
compound interest. 


All around the world, debtors are ratding the chains 
of debt. We are seeing debt for what it is — a form of dom- 
ination and exploitation — and we are collectively rising up 

against it. From Chile to Quebec, students have combined massive waves of 
protests with organizational initiatives to challenge the debt bondage that 
results from corporatized education. Countries like Spain and Greece are 
experiencing massive popular uprisings against austerity. Their governments 
have prioritized paying back foreign bondholders over providing for the peo- 
ple, and the people have had enough. 

Students in Quebec have popularized the symbol of the red square to 
signify being financially "squarely in the red" amid tuition hikes, cuts in social 
entidements and the specter of spiraling student and consumer debt. In Eu- 
rope, where elites tried to pass on the costs of their sovereign debt crises to 
the most vulnerable populations — the young and the poor — protesters have 
shouted, "We won't pay for your crisis!" 

Occupy Wall Street is another incarnation of this global uprising. Since 
the fall of 2011, it has helped expose the double standards that have al- 
lowed the oligarchs to maintain their rule even as they ravage the economy. 
Nowhere are these double standards more apparent than in Wall Street's re- 
lationship with debt. Every month, the 99% dutifully make debt payments 
under conditions set by the 1%. Like an ancient tribute payment to the em- 
pire, we pay our mortgages, student loans, credit card, car and medical debts, 
and Wall Street gobbles up the profit. If an individual refuses to make these 
payments, the banks and the government have the means to ruin their life. In 
the years since the financial crash, the disparity between the generosity shown 
to Wall Street (more than three trillion dollars of public money spent already, 
with an additional 12.2 trillion committed by the U.S. government) and the 
blatant lack of relief for household debtors and bankrupted municipalities 
has made it quite clear whose debts are expected to be honored and whose 
will be written off. 

One person's debt is another's profit. While Occupy Wall Street has been 
an encouraging sign that outrage around these issues is mounting, somehow 
the conversation about debt in the United States is still dominated by right- 
wing pundits. They place all the blame for our nation's mounting indebted- 
ness on irresponsible individuals. Businessmen-turned-politicians tell us over 
and over again that we must slash social spending and entitlement programs 
because of this deficit. It is time to set the record straight. 

As we have shown in this manual, millions of us are the victims of preda- 
tory lending. And we understand that government debt is nothing like personal 
debt. Around the world, debt is used to justify the cutting of basic services. The 
problem is not that we are broke but that our public wealth is being hoarded. 
We need a new social contract that puts public wealth to equitable use and 
enshrines the right to live without the requirement of lifelong debt servitude. 

This is the beginning of a radical debt resistance movement, and we 
need you to be a part of it. There is a long and important history of debt re- 
sistance — a history that is as old as it is revolutionary — for us to learn from. 


Looking Backward 

From ancient times to the present, there have been powerful debt resis- 
tance movements that have challenged the harsh penalties associated with 
debt default, including debt enslavement and debt incarceration. In ancient 
Athens there was a practice of enslaving either the debtor or one of their 
family members if their debt was unpaid. This practice expanded to the point 
that civil wars broke out between debtors and creditors so often that the very 
survival of the city-state of Athens was in question. This crisis stimulated a 
major change in the Athenian legal system that outlawed the debt enslave- 
ment of fellow citizens and became a model for many societies down to the 
formation of the American republic. 

There was still widespread debt incarceration in the United States after 
the "American Revolution." (Even two signers of the Declaration of Inde- 
pendence were later imprisoned!) The first major rebellion in U.S. history 
after independence, Shay's Rebellion in 1786, was against foreclosures and 
debt imprisonment. It took many struggles throughout the first half of the 
nineteenth century to end the practice of debt imprisonment. The great 
post-Civil War struggles against foreclosures on small farmers in the Midwest 
and South were moments of insurrection against the rule of the creditors' 
logic. During the Great Depression, urban workers and rural farmers banded 
together to block home evictions and farm foreclosures. Workers also orga- 
nized their own credit and mutual aid associations to create alternative ways 
to borrow and lend without the threat of slavery and torture. Finally these 
insurrections forced the federal government into passing "personal bank- 
ruptcy" laws that limited the "pound of flesh" some capitalist creditors were 
demanding from workers who defaulted. 

Debt resistance movements have been the driving force behind many 
of the most important struggles in the last twenty years. For example, the 
alter-globalization movement of the late 1990s and early 2000s was a broad 
constellation of social struggles against paying "odious" national debts to 
international banks. The global justice movement that emerged in much of 
the global south forced many banks (both private and international, like the 
World Bank and International Monetary Fund) to renegotiate the loans by 
cutting their interest rates, reducing the principal, and in some cases simply 
"forgiving" the loan. 

Along with these struggles against "national" debts there have been 
remarkable recent struggles against personal debt like the movement of El 
Barzon in Mexico. In 1994, the Mexican peso dramatically lost value com- 
pared to the dollar, which set off a steep inflation that increased the interest 
on variable-rate loans and often made loans, including mortgages, that were 
denominated in U.S. dollars (as many were) ten times larger. This brought 
nearly 30% of the people indebted to banks into default. The El Barzon 
movement began by claiming that the loan repayment conditions after the 


collapse of the peso were the fault the government and the banks, and 
that it would be unfair to hold the debtor responsible. Their slogan was, 
"Debo, no niego, pago lo justo" ("I owe, I don't deny it, I'll pay what is fair"). 
The movement grew rapidly across the country and was known both for 
its practical approach (by setting up legal consultation services for debtors) 
and its riveting tactics. It forced the government to come to the aid of the 
embatded debtors and had a definitive positive impact on their situation. 

Looking Forward 

Almost two decades later, Strike Debt, an offshoot of Occupy Wall 
Street, emerged out of a series of open assemblies. It continues to spark 
conversations about debt as a global system of domination and exploitation. 
Debt binds the 99% — although as we've seen in this manual it binds some 
people (women, people of color, and the poor) more tightly than others. 

Debt resistance can take many forms and Strike Debt is developing tac- 
tics, resources and frameworks for generalizing the fight against the debt 
system. These initiatives include publishing this manual and hosting debtors' 
assemblies; supporting the work of the Occupy Student Debt Campaign and 
their Pledge of Refusal; launching the "Rolling Jubilee," a mutual-aid project 
that buys debt at steeply discounted prices and then abolishes it (to learn 
more, email; and planning direct actions across 
the country, ranging from debt burnings to targeted shutdowns of predatory 
lenders of all kinds. 

Planning for the slightly longer term, Strike Debt is focused on bring- 
ing debt resistors together with the aim of growing the struggle against 
debt into a force to be reckoned with. Imagine, if you will, a global Debt- 
ors' Union made up of a network of lender-specific sub-unions. For ex- 
ample, if someone had a mortgage with Bank of America, tuition debt 
from Sallie Mae and Citibank, and credit card debts with Wells Fargo 
and Chase, when this person joins the union they automatically join the 
sub-unions for Bank of America, Sallie Mae, Citibank, Wells Fargo and 
Chase. These unions could, eventually, be platforms for sustained agita- 
tion, providing support for strategic actions, including debt strikes, akin 
to the labor battles of earlier eras. 

Underlying all these projects is Strike Debt's support for a Jubilee — a 
full cancellation of all debts. Civilization after civilization has recognized that 
when debt gets unmanageable, it must be cancelled. This has happened many 
times throughout history. We should remember that there are conservative as 
well as revolutionary jubilees; debt cuts can save the system if what follows 
is business as usual. A Debt Jubilee needs to be accompanied by a program 
of social transformation. 

Consider this call for a global jubilee from David Graeber's Debt: The 
First 5,000 Years: 


We are long overdue for some kind of Biblical-style Jubilee: one that 
would affect both international debt and consumer debt. It would 
be salutary not just because it would relieve so much genuine human 
suffering, but also because it would be our way of reminding ourselves 
that money is not ineffable, that paying one's debts is not the essence 
of morality, that all these things are human arrangements and that if 
democracy is to mean anything, it is the ability to all agree to arrange 
things in a different way. It is significant, I think, that since Hammurabi, 
great imperial states have invariably resisted this kind of politics. 
Athens and Rome established the paradigm: even when confronted 
with continual debt crises, they insisted on legislating around the edges, 
softening the impact, eliminating obvious abuses like debt slavery, using 
the spoils of empire to throw all sorts of extra benefits at their poorer 
citizens (who, after all, provided the rank and file of their armies), so 
as to keep them more or less afloat — but all in such a way as never to 
allow a challenge to the principle of debt itself. The governing class of 
the United States seems to have taken a remarkably similar approach: 
eliminating the worst abuses (e.g., debtors' prisons)*, using the fruits of 
empire to provide subsidies, visible and otherwise, to the bulk of the 
population; in more recent years, manipulating currency rates to flood 
the country with cheap goods from China, but never allowing anyone to 
question the sacred principle that we must all pay our debts. 

At this point, however, the principle has been exposed as a flagrant 
lie. As it turns out, we don't 'all' have to pay our debts. Only some of us 
do. Nothing would be more important than to wipe the slate clean for 
everyone, mark a break with our accustomed morality, and start again. 

What is a debt, anyway? A debt is just the perversion of a promise. 
It is a promise corrupted by both math and violence. If freedom (real 
freedom) is the ability to make friends, then it is also, necessarily, the 
ability to make real promises. What sorts of promises might genuinely 
free men and women make to one another? At this point we can't even 
say. It's more a question of how we can get to a place that will allow us to 
find out. And the first step in that journey, in turn, is to accept that in the 
largest scheme of things, just as no one has the right to tell us our true 

value, no one has the right to tell us what we truly owe. 1 

We all know that promises have been broken. The 1% have gambled with 
our livelihoods. In contrast to their recklessness, those of us who advocate 
debt refusal take our collective responsibility very seriously. By dissolving the 
bonds which bind us to the 1%, we seek to forge new and equitable bonds 
with one another. We recognize that everyone deserves adequate housing, 
meaningful work, short hours, fair wages, access to health care and a truly 
liberating education. We cannot fulfill these obligations if we continue to 
cooperate with the system as it currendy exists. Why keep paying our money 
to the Wall Street mob? We know our resources could be better spent. 

Remember: we don't owe Wall Street anything, we owe each other ev- 


erything. The possibilities of organizing around debt resistance are only be- 
ginning to be realized. Strike Debt, like Occupy Wall Street, hopes to inspire 
autonomous action. It encourages all to resist. To contact Strike Debt, please 
email or visit 


Articles and Books 

George Caffentzis, "University Struggles at the End of the Edu-Deal," Mute Maga- 
zine, April 15, 2010 ( 

George Caffentzis, "Workers Against Debt Slavery and Torture: An Ancient Tale 
with a Modern Moral," Edu-Factory, July 2007 ( 

Harry Cleaver, Jr., "Notes on the Origin of the Debt Crisis," Midnight Notes, 1990 

Silvia Federici, "African Roots of US University Struggles: From the Occupy Move- 
ment to the Anti-Student-Debt Campaign," unsettling knowledges, January 2012 (ti- . 

Silvia Federici, "The Debt Crisis, Africa and the New Enclosures," Midnight Notes, 
1990 ( 

Silvia Federici, George Caffentzis, and Ousseina Alidou (Eds.), A Thousand Flowers: 
Social Struggles Against Structural Adjustment in African Universities, (Trenton, NJ: Af- 
rica World Press, 2000). 

David Graeber, Debt: The First 5,000 Years, (New York, NY: Melville, 2011) (tinyurl. 

Midnight Notes Collective and Friends, Promissory Notes: From Crisis to Commons, 

2009 ( 


1. David Graeber, Debt: The First 5,000 Years, (New York, NY: Melville, 2011) (ti-, 390-391. 



This information is slightly modified from Carreon and Associates (carre- We know you're probably broke, especially if you're in 
debt, but of the resources we've found, this one is really worth the money if 
you can afford it ($29.95). 

1. Request for investigation of credit report 

2. Dispute letter to credit bureau 

3. "Intent to sue" letter to credit bureau 
Reply to a CRA accusing you of credit repair 

Send your letters to the address of the appropriate agency: 


P.O. Box 9556 

Allen, TX 75013 


P.O. Box 740241 

Adanta, GA 30374-0241 

TransUnion Consumer Relations 

P.O. Box 2000 

Chester, PA 19022-2000 


[Your Name] 

[Your Address] 

[Experian, Equifax or TransUnion address] 

Attn.: Consumer Relations 

Consumer Relations Dept: 

I am requesting with this written notice that the following inaccurate 
items be removed from my credit report. The items are not correct and are 
causing me financial distress because of their derogatory information. The 
items are as follows: 


[Account number] 

[Rating (e.g., curr was 30, charge off, 90 days, etc.)] 

[Reason why it should be removed: i.e. not mine, never late, disputed be- 
fore yet still remains, incorrect information like payment history, date 
opened or balance owed.] 

I understand you are required to notify me of your investigation results 
within 30 days. 

My contact information is as follows: 

[Your Name, not signed] 

DOB: [Date of birth] 

SSN: [Social Security number] 



[Your Name, signed] 



Provide any proof you have with this dispute. 

[Your Name] 

[Your Address] 

[Experian, Equifax or TransUnion address] 


To Whom It May Concern: 

In reviewing my credit report, I realized there are several inaccurate list- 
ings. These accounts are incorrect and several are outdated. The following ac- 
counts need to be investigated immediately to reflect my true credit history: 

Acct: [-xxxx-xxx:] 

This account is listed as being 60 days late. I have never been late on 
this account. 

Acct: [-xxxx-xxx:] 

This account is listed as being 30 days late. This account does not 
belong to me. 

Acct: [-xxxx-xxx:] 

This account is listed as being 60 days late. The creditor lost my check 
and agreed to correct the late notation. (Enclosed is a copy of their 
letter stating such). 

Additionally you are reporting several other accounts as delinquent that 
are past the seven-year reporting time as allowed under the Fair Credit Re- 
porting Act. The following accounts should be deleted immediately: 

Acct: [-xxx:] over seven years old 

Acct: [-xxx:] over eight years old 

Acct: [-xxx:] over seven years and four months old 

Please forward an updated copy to me at your earliest convenience with 
the above noted corrections. My current address is listed above. 

[Your Signature] 
[Your Printed Name] 



Send this letter to the CRA if you intend on suing them. You can sue them in jour county for 
damages and subsequently send a copy of that to them, offering to settle or appear. If you sue 
them, be sure you have a case. 

[Your Name] 
[Your Address] 
[Experian, Equifax or TransUnion address] 

To Whom It May Concern: 

REF: Intent to file suit: violation of the FCRA 

It is a crime to threaten suit with no intention of doing so, therefore you 
can take heed that I am very serious about filing suit against your company. I 
have sent [#] previous letters to you, all by certified mail (receipts enclosed) 
requesting that you remove inaccurate information from my file and you have 
failed to do so. 

Accordingly, I can show a judge that these accounts are inaccurate and 
that you violated the Fair Credit Reporting Act by ignoring my requests to 
investigate the items. My previous letters — all sent certified mail — stated my 
reasons for an investigation and these reasons were not frivolous in any way. 

If this final request does not prompt you to conduct a proper investiga- 
tion of the accounts in question, and send proof to me of said investigation, 
I will file a civil suit in [name of your county, state] for damages. You can then 
travel to defend yourself. 

I take my credit very seriously and your lack of professionalism and as- 
sistance disgusts me. I am well aware of my rights under the FCRA and 
intend to pursue them to the maximum. 

I anticipate your response. 

[Your Signature] 
[Your Printed Name] 



Use this letter to demand that a credit bureau continue to investigate items you have initiated 
a dispute on. Often a CRA will accuse jou of using a credit repair company, which by the 
way is jour right! Here is a letter to put them in their place and to avoid slowingyour disputes. 

[Your Name] 
[Your Address] 
[Experian, Equifax or TransUnion address] 

To Whom It May Concern: 
RE: Credit Repair Accusation 

Please be advised that I have received your computer generated letter stating 
that you have ceased investigation of my credit reports because, in your opinion, you 
believe that I have used a third party credit repair agency. Not only do I believe this 
to be a stall tactic on your part to grant you an additional 30 days to comply with my 
original request, but I believe it to be a blatant violation of the FCRA. 

You were advised by me on [insert date] by certified mail (copy enclosed) that I 
questioned the accuracy of a few items on my credit reports. That request was written 
by me and mailed by me — not a third party agency. It appears obvious to me that you 
are abusing your power under the FCRA to escape a complete investigation. 

Additionally there is no law that states a consumer cannot use a third party, so 
using that as your excuse is a moot point. As a matter of fact, Congress has found the 
whole process so overwhelming that they afford consumers the right to use a third 
party on their behalf if the consumer so chooses. This is why your statement is so 

I reserve the right to sue a credit bureau for violations of the FCRA and I believe 
I can prove that you did not use reasonable measures to insure the accuracy of my 
credit reports and now you are stalling the process further. 

I realize disputes may be expensive and therefore it is your job to stall them, but 
you do so at great risk. Please take notice that this letter dated [insert today's date] is 
formal notice to you that I am requesting that you continue forward with my original 
investigation request and send the results to me within 15 days. I therefore legally and 
lawfully refuse your "form letter," thus giving you only 15 days, not 30 more. 

I am outraged at your accusation and I have fully researched my rights in regards 
to my credit file. I look forward to your expediting my original request immediately 

[Your Signature] 
[Your Printed Name] 



All five sample letters have been modified from those made available on 
ChexSystems Victims ( 

ChexSystems/TeleCheck Letters 

1 . Initial dispute 

2. Demand for removal to reporting agency 

3. Procedural request 
Financial Institution Letters 

4. Demand for removal to financial institution (abuse/fraud) 

5. Demand for removal to financial institution (non-sufficient funds) 

Send your letters to the address of the appropriate agency: 

TeleCheck Services, Inc. 

Attention: Consumer Resolutions-FA 

P.O. Box 4514 

Houston, TX 77210 

ChexSystems Consumer Relations 

7805 Hudson Road 

Suite 100 

Woodbury, MN 55125 


[Your Name] 
[Your Address] 
[ChexSystems or TeleCheck address] 
RE: Consumer ID # [Your Consumer ID #] 

Consumer Relations Dept: 

I have recently been informed that there is negative information report- 
ed by [Name of Bank] in the file [ChexSystems /TeleCheck] maintains under 
my Social Security number. Upon ordering a copy of the report, I see an en- 
try from this bank listing a "[condition, e.g., NSF, overdraft, account abuse]" 
in [month] [year]. 

I am unaware of ever having a "[same condition]" from this bank. Please 
validate this information with [name of bank] and provide me with copies 
of any documentation associated with this "[same condition]" bearing my 
signature. In the absence of any such documentation, I ask that this infor- 
mation be immediately deleted from the file you maintain under my Social 
Security number. 

You have 30 days to verify this information and to provide me with a 
document bearing my original signature. If you cannot, I am demanding re- 
moval under the Fair Credit Reporting Act. 

This report is severely restricting my banking abilities. 

My contact information is as follows: 
[Your Name, not signed] 
[Social Security Number] 
Cc: [Lawyer's name] 


[Your Name, signed] 



[Your Name] 
[Your Address] 
[ChexSystems or TeleCheck address] 
RE: Consumer ID # [Your Consumer ID #] 

Consumer Relations Dept: 

This letter is in response to your recent claim that [Name of Bank] has 
verified this account to be mine. Yet again, you have failed to provide me 
with a copy of any viable evidence submitted by [Name of Bank]. Be advised 
that the description of the procedure used to determine the accuracy and 
completeness of the information is hereby requested, to be provided within 
fifteen (15) days of the completion of your reinvestigation. 

Additionally, please provide the name, address, and telephone number 
of each person contacted at [Name of Bank] regarding this alleged account. 
I am formally requesting a copy of any documents provided by [Name of 
Bank]. If [Name of Bank] does not validate the debt, it is a violation of the 
FCRA [611 [15 U.S.C. § 16811] a 6 B ill: 

"a notice that, if requested by the consumer, a description of the 
procedure used to determine the accuracy and completeness of the 
information shall be provided to the consumer by the agency, including 
the business name and address of any furnisher of information contacted 
in connection with such information and the telephone number of such 

furnisher, if reasonably available" 

The listed item is entirely inaccurate and incomplete, and represents a 
very serious error in your reporting. 

Failure to comply with federal regulations by credit reporting agencies 
is investigated by the Federal Trade Commission (see 15 U.S.C. § 41). I am 
maintaining a careful record of my communications with you for the pur- 
pose of filing a complaint with the FTC and the State Attorney General's 
office, should you continue in your noncompliance. 

My contact information is as follows: 
[Same as sample letter #1] 



[Your Name] 
[Your Address] 
[ChexSystems or TeleCheck address] 
RE: Consumer ID # [Your Consumer ID #] 

Consumer Relations Dept: 

As I have not heard back from you in over [15/30/45] days regarding my 
notice of dispute dated [date letter was sent], I must presume that no proof 
in fact exists. 

You are currendy in violation of the Fair Credit Reporting Act. 

Your failure to respond, in writing, hand signed, and in a timely manner, 
will work as a waiver to any and all of your claims in this matter, and will 
entitle me to presume that you are reporting my name and Social Security 
number in error, and that this matter is permanently closed. Remove me 
from your records immediately. 

Failure to respond within 30 days of receipt of this certified letter will 
result in a small claims action against your company. I will be seeking $5,000 
in damages for: 


Negligent enablement of identity fraud 

Violation of the Fair Credit Reporting Act 

For the purposes of 15 U.S.C. § 1692 et seq., this notice has the same 
effect as a dispute to the validity of the alleged debt and a dispute to the va- 
lidity of your claims. This notice is an attempt to correct your records, and 
any information received from you will be collected as evidence should any 
further action be necessary. This is a request for information only, and is not 
a statement, election, or waiver of status. 

My contact information is as follows: 
[Same as sample letter #1] 



[Your Name] 
[Your Address] 
[Name and address of original bank] 
RE: Acct # [Your Account #] 

To Whom It May Concern: 

This is a formal notice of dispute regarding information that [Name of 
Bank] sent to [ChexSystems/TeleCheck], a consumer reporting agency. 

The following false information was sent to [ChexSystems/TeleCheck]: 

[List the information the way it is shown in the report] 

This information was disputed with [ChexSystems/TeleCheck] on 
[date]; however, [Name of Bank] verified the information as accurate. This 
falsely reported information damages my financial reputation and should be 
removed immediately. 

[Name of bank] reported [account abuse/suspected fraud/fraud] when in 
fact, no [abuse/fraud] took place. There was no illegal activity on the account. 

[Only include these two sentences if no money is owed to the reporting 
bank]: [Name of Bank] did not experience any financial loss and no money is 
owed on this account. There was no violation of the account agreement that 
governed the account. 

Under my rights under the Fair and Accurate Credit Transactions Act, I 
am asking for an investigation of this reported information, and removal of 
the false information reported to [ChexSystems/TeleCheck]. 


[Your Name] 

cc: [Bank branch where account was opened] 



[Your Name] 
[Your Address] 
[Name and address of original bank] 
RE: Acct # [Your Account #] 

To Whom It May Concern: 

This letter is regarding account # [xxxx-xxx], which you claim [condi- 
tion, e.g., "I owe $100.00]. This is a formal notice that your claim is disputed. 

I am requesting validation, made pursuant to the Fair Debt Collection 
Practices Act. Please note that I am requesting "validation"; that is, compe- 
tent evidence bearing my signature, showing that I have, or ever had, some 
contractual obligation to pay you. 

Please also be aware that any negative mark found on my credit reports, 
including [ChexSystems/TeleCheck], from your company or any company 
that you represent for a debt that I do not owe is a violation of the Fair Credit 
Reporting Act. Therefore if you cannot validate the debt, you must request 
that all credit reporting agencies delete the entry. 

Pending the outcome of my investigation of any evidence that you sub- 
mit, you are instructed to take no action that could be detrimental to any of 
my credit reports. 

Failure to respond within 30 days of receipt of this certified letter will 
result in legal action against your company. I will be seeking a minimum of 
$5,000 in damages for: 

1. Defamation 

2. Negligent enablement of identity fraud 

3. Violation of the Fair Credit Reporting Act 

For the purposes of 15 U.S.C. § 1692 et seq., this notice has the same 
effect as a dispute to the validity of the alleged debt and a dispute to the va- 
lidity of your claims. This notice is an attempt to correct your records, and 
any information received from you will be collected as evidence should any 
further action be necessary. This is a request for information only, and is not 
a statement, election, or waiver of status. 

My contact information is as follows: 
[Same as sample letter #1] 



This information is slightly modified from Carreon and Associates 


[Your Name] 
[Your Address] 
[Address of Collection Agency] 

Amount of debt: [ 
Date of Service: [ 
Provider of Service: [ 

Dear Collection Agent, 

I received a bill from you on [date] and as allowed under the Fair Debt 
Collections Practices Act (FDCPA), I am requesting that you allow me to val- 
idate the alleged debt. I am aware that there is a debt from [name of hospital/ 
doctor], but I am unaware of the amount due and your bill does not include 
a breakdown of any fees. 

Additionally, I am allowed under the Health Insurance Portability and 
Accountability Act (HIPAA) to protect my privacy and medical records from 
third parties. I do not recall giving permission to [name of provider] for 
them to release my medical information to a third party. I am aware that the 
HIPAA does allow for limited information about me but anything more is 
to only be revealed with the patient's authorization. Therefore my request is 
twofold — validation of debt and HIPAA authorization. 

Please provide breakdown of fees including any collection costs and 
medical charges. 

Provide a copy of my signature with the provider of service to release 
my medical information to you. 

Cease any credit bureau reporting until the debt has been validated by me. 

Please send this information to my address listed above and accept this 
letter, sent certified mail, as my formal debt validation request, which I am 
allowed under the FDCPA. Please note that withholding the information you 
received from any medical provider in an attempt to be HIPAA compliant 
can be a violation of the FDCPA because you will be deceiving me after my 
written request. I request full documentation of what you received from the 
provider of service in connection with this alleged debt. 

Additionally, any reporting of this debt to the credit bureaus prior to al- 
lowing me to validate it may be a violation of the Fair Credit Reporting Act, 
which can allow me to seek damages from a collection agent. I will await your 
reply with above requested proof. Upon receiving it, I will correspond back 
by certified mail. 

[Your Signature] 
[Your Printed Name] 
Certified mail No: [ 



Both sample letters have been modified from those made available on Debt 
Consolidation Care ( 

1. Dispute letter 

2. Cease and desist letter 


[Your Name] 
[Your Address] 
[Collection Agency's Address] 

Dear [Insert Name of Collection Agency]: 

I am writing in response to your petter or phone call] dated [insert date], 
(copy enclosed) because I am disputing the alleged debt. 

Before you contact me again, please provide me with the following documentation: 

proof that you own the debt and/or are authorized to collect on this debt on be- 
half of the current owner; 

proof that the debt was actually incurred by me with respect to the 
original creditor; 

a copy of any judgment (if applicable); 

proof that you are licensed to collect debts in [insert name of your state] 

Be advised that I have documented all correspondence with respect to 
this debt and will not hesitate to report any violations of the law to my State 
Attorney General, the Federal Trade Commission and the Better Business 

Finally, if you are not authorized to collect this debt thereon, I demand 
that you immediately forward this dispute letter to the original creditor to 
inform them of my dispute. 

[Your Signature] 
[Your Printed Name] 


[Your Name] 
[Your Address] 
[Collection Agency's Address] 

Dear [Insert Name of Collection Agency]: 

This letter comes in response to your repeated attempts to contact me 
regarding an alleged debt, which I am contesting. 

I demand that you cease and desist from any further attempt to contact 
me at work or by phone. 

Please be aware that I will continue to document all attempts to com- 
municate with me with respect to the alleged debt, and that any further such 
attempts may constitute a violation of the Fair Debt Collection Practices 
Act (FDCPA). I will not hesitate to report violations of the law to my State 
Attorney General, the Federal Trade Commission and the national Better 
Business Bureau. 

[Your Signature] 
[Your Printed Name]