Texas AG Takes on Anderson Crenshaw

DALLAS – Texas Attorney General Greg Abbott today charged a Dallas-based debt collection firm with using deceptive practices to collect payments from Texas consumers. The attorney general’s enforcement action asked the court to permanently enjoin Anderson, Crenshaw & Associates, L.L.C. from harassing Texas debtors with deceptive letters and unlawful telephone calls.

Since 2006, the Office of the Attorney General has received more than 75 complaints alleging misconduct by Anderson, Crenshaw & Associates in Texas and around the country. The Better Business Bureau has received 72 complaints against the firm.

Media links

Attorney General's legal action against Anderson, Crenshaw & Associates,
L.L.C. <http://www.oag.state.tx.us/newspubs/releases/2008/080608ac_pop.pdf> 

Sample company letter to debtors
<http://www.oag.state.tx.us/newspubs/releases/2008/080608ac_exhibit.pdf> 

“This debt collection firm is charged with unlawfully harassing Texas debtors,” Attorney General Abbott said. “At a time when too many Texans are struggling to protect their homes, the defendant’s unlawful letters are threatening debtors with legal action, homestead liens and wage garnishment in violation of the law. The Office of the Attorney General will vigorously enforce laws that prevent debt collectors from harassing or threatening Texas consumers.”

According to court documents, the defendant mailed deceptive letters to debtors that unlawfully engaged in debt collection efforts during the same 30-day period debtors were given to validate their debts. Federal courts have maintained that debt collection firms may not undermine debtors’ right to dispute the debt during this time period. The company’s letter s also misrepresent that the firm has filed lawsuits against debtors who fail to make timely payments. In many cases, the debts did not meet the defendant’s internal criteria to initiate legal action.

The state’s enforcement action also accuses Anderson, Crenshaw & Associates of threatening to garnish consumers’ wages or file liens against homesteads in violation of the Texas Debt Collection Act. According to several complaints, the defendant’s representatives harassed, abused and threatened debtors during profanity-laden, repeated or continuous telephone calls.

The attorney general’s enforcement action seeks civil penalties of up to $20,000 for each violation of the Texas Deceptive Trade Practices Act.

Texans who receive harassing calls or mail from debt collectors may call the Office of the Attorney General’s toll-free complaint hotline at (800) 252-8011 or file a complaint online at www.texasattorneygeneral.gov . For more information on Texas’ debt collection laws , access the Attorney General’s “Debt Collection” consumer brochure online.

Buyers' Give Old Debts New Life

Scott Barancik  Business Reporter  St. Petersburg Times

Used to be, banks didn't waste much time chasing credit card deadbeats.

Their staffs would hound debtors by phone for six or seven months, then invite outside collection agencies to take a crack. Few debtors were sued. Those who hunkered down long enough could escape without paying.

Not anymore. In the brave new world of debt, unpaid bills never die. Today speculators are buying thousands of these aging accounts at a time and extracting payments the original lenders could not.

Some debt buyers are hauling consumers into court and getting permission to garnishee their wages, empty their bank accounts or even seize their cars. Others are convincing debtors to pay down old bills that are no longer legally enforceable.

The amount of written-off credit card debt sold to debt buyers in 2004 - $63-billion worth, according to the Nilson Report - was 100 times the amount sold in 1993. This year, a Las Vegas convention hosted by the Debt Buyers' Association trade group drew 1,400 debt buyers, sellers, brokers, resellers and lawyers.

Other credit issuers are selling their unpaid bills, too, including such retailers as Radio Shack, Wal-Mart and Bally Total Fitness, and hospitals, auto lenders and utilities.

Asset Acceptance, one of five publicly traded debt buyers, operates a 52,000-square-foot collections center in Riverview. In 2000, the Michigan company sued 25 debtors across Pinellas, Hillsborough, Pasco, Hernando and Citrus counties. Last year, it sued 3,855.

Over the same period, the types of lawsuits debt buyers usually file - small-claims breach of contract, monies due or accounts suits - rose 56 percent across Pinellas, Hillsborough and Pasco counties.

A morning cattle call at the Tampa courthouse shows why.

Courtroom 306

Hillsborough County Judge Charlotte Anderson reviews small-claims lawsuits every Wednesday. This morning's docket allots 150 minutes for 165 pretrial hearings, more than half involving debt buyers.

In every case, the debt buyer has a lawyer. Not a single accused debtor does. Only two put up a fight.

Sandra A. Thompson, accused of stopping payment on a $2,003 credit card debt in 2001, tells the judge the debt was erased in bankruptcy court. The plaintiff agrees to dismiss Thompson's case on the spot.

Michael A. Johnson says he has "no recollection" of a 2001 credit card debt totaling $2,118. The answer earns him a trip to mediation.

Everyone else goes down without a punch. Each admits owing all or some of his alleged debt. Dozens more automatically lose because they didn't bother coming.

Debt buyers say landslides like this January morning's prove their account records are accurate. But critics like Bud Hibbs, a consumer advocate in Texas who calls debt buyers "scavengers," says more than 90 percent of all defendants would prevail if they could afford to hire a competent lawyer. Tampa lawyer Don Golden says many accused debtors would be better off filing for bankruptcy anyway, which can slay multiple debts at once for a fraction of the legal fees.

The consequences of losing in court are steep. A successful plaintiff in Florida is entitled to tap a debtor's wages and assets for up to 20 years, with interest.

Athena Funding Group, a Tampa debt buyer, successfully sued Allen Pankow in 2004 over a $924 credit card debt. When Pankow, then a 51-year-old Largo resident, ignored several court orders to disclose his income sources and assets, Athena asked that he be jailed for contempt, court records show.

He was. After his $500 bail was posted, Athena obtained the court's permission to snag it.

"Some people are only motivated by the stick," said Carol Freeland, who chairs the Asset Buyers Division at ACA International, a collections industry trade group.

Filing suit isn't for everybody.

Freeland, a partner at PRM Financial Services in Texas, says her company primarily buys accounts that are near or beyond the statute of limitations (three to 15 years, depending on the state). PRM offers to discount the amount owed and transfer the balance to a new credit card.

With regular payments, the debtor can improve his credit rating and eventually use the card for limited new purchases. Despite the 18.9 percent interest rate, Freeland says, many debtors are grateful.

What most debtors don't realize is that a person is not legally obligated to repay a debt whose statute of limitations has expired. But transferring the balance to a new credit card resets the clock to zero.

Debt buying: the science

Companies pay just pennies on the dollar for unpaid debts. Last year, for example, Asset Acceptance paid $102-million for $4.2-billion of consumer debt, about 2.5 cents per $1.

The discount is steep because the debts are difficult to collect. Half the accounts Asset bought in 2005 stymied at least three prior collectors. Even after spending several cents more per $1 on legal fees or other collection costs, most buyers would be happy to recover 20 or 25 cents per $1.

"The vast majority of what they buy never gets collected," says Charles Trafton, an industry analyst with America's Growth Capital in Boston. "It's old, they haven't had payments in a long time, (and) oftentimes you don't get great addresses, known places of employment."

"We're buying somebody else's discarded accounts," said Jeffrey Bovarnick, a principal at Asset Recovery Management in Needham, Mass. "We take huge risks, and we're entitled to make a return on our investment if we abide by the law."

That's why there's a science to buying bad debt.

Debt buyers kick a portfolio's tires before bidding on it. They obtain partial account data from the seller and dump the stats into a software program designed to assess value.

Key variables include the average account balance, length of delinquency, number of years remaining under the statute of limitations, number of previous collection attempts, whether Social Security numbers are available, and debtor characteristics such as ZIP code and credit score, according to ACA International's Buying Receivables.

Historical patterns show that middle-aged people and those living in more affluent ZIP codes are more likely to repay a debt.

A buyer who has had success collecting on auto loans may pay more for them at auction than someone skilled at medical collections. A buyer who expects to file many lawsuits may pay more for a portfolio that offers original account documentation.

After submitting the winning bid, a buyer typically scrubs his new portfolio of debtors who have died or otherwise are not worth chasing, such as those whose debts were erased in bankruptcy. The buyer informs the remaining debtors by mail that their accounts have been purchased and that they have certain legal rights, such as to end routine collection calls and letters. Most debt buyers piggyback a settlement offer onto the notice.

The next step is to assign each account a collection strategy. Every buyer handles this differently.

At Asset Recovery Management, the first priority is to quickly sue any debtor whose statute of limitations is nearly up. Others are given roughly six months to respond to the company's initial letter and make a deal, most likely a monthly repayment plan. Those who don't may be sued, too, though cost is an issue.

"That's not my preferred course of action," Bovarnick says.

It's what they do

What makes debt buyers better collectors?

A gentle touch, says Barbara Sinsley, legal compliance chief at Asset Acceptance, where debtors are called "customers" and 36 percent of all collections come via the courts.

"Our mantra is 'Just be nice,' " says Sinsley, who works at Asset's Riverview office. "I mean, frankly, if you're not working with a customer, they're less likely to pay."

Debt buyers can afford to be patient. Unlike creditors, most aren't subject to accounting rules that require them to quickly write off defaulted loans as a loss. Some are willing to wait as long as 10 years for a debtor to recover from the drug habit, gambling problem, illness, divorce, job loss or jail sentence that knocked him off his financial feet.

Because of their anonymity, debt buyers are freer to customize repayment plans.

"Citibank doesn't want to be known for settling with debtors for 10 cents on the dollar, because then everybody would try to settle with them for 10 cents on the dollar," says Gobind Sahney, chairman of Receivables Acquisition & Management Corp. in New York.

Debt buyers also are freer to turn the screws. A creditor, such as a retail chain, might soften its tactics for fear that an angry debtor will cease shopping at its stores and bad-mouth it. But the debt buyer's primary constraint is the law, including the federal Fair Debt Collection Practices Act and Fair Credit Reporting Act.

In short, the lender's core business is to lend. The debt buyer's is to collect.

Who's the bad guy?

Debt buyers don't appreciate being portrayed as heartless corporations sucking the marrow of innocents, whose only crime was getting sick, fired or divorced.

Freeland is still steaming over a recent episode of the television show Boston Legal in which a law firm employee complains she owes her credit card lender $50,000. After shattering the bank's window in frustration, the employee whines about the card's high fees and interest rate. Her boss, a lawyer, responds with a blowy tirade that scares the bank's attorney into erasing the debt. Never addressed is the fact that no one held a gun to the employee's head when she ran up her bill.

"Everyone's against the idea that we would have the gall to ask someone to pay their bills," says Michael Weinard, president of Tampa company Athena Funding.

Debt buyers are in business to make money, of course, but they say the debtor benefits as well - with flexible repayment terms, an improved credit rating, even relief from a guilty conscience. The debtor may be able to borrow money more cheaply in the future, too.

But forgive a debt? Out of the question.

"This business isn't for sissies," Freeland says. "We can't become so sympathetic that we just say, 'Oh, this is so awful, we can't collect this.' "

She harks back to the era of her grandfather, a banker, when "people jumped off roofs or shot themselves" rather than live with the shame of financial ruin.

"Now, people go to a cocktail party and they say, 'By the way, who's your bankruptcy attorney? I need one.' "

Consumer advocates aren't buying it. Mark Tischhauser, a Tampa lawyer who has sued several debt buyers for allegedly violating debtor-protection laws, says such companies naturally resort to abusive tactics because their old, overworked accounts are so hard to crack.

Tischhauser worries about the unlevel playing field in court, where few debtors can afford an attorney and most are unaware of their rights. How many debtors know there is a statutory time limit on most debts - as little as four years in Florida? How many know that the only way to stop a buyer from getting a judgment on a time-expired debt is to raise the issue themselves in court?

Of the 90 people called to face a debt buyer in Courtroom 306 that January morning, only two apparently understood the value of a good legal defense. And one of them, Michael Johnson, couldn't get a lawyer to return his calls.

Left to his own devices, Johnson sought legal advice on the Internet, where the "I don't recall" defense strategy is often recommended.

Debt-buyer attorneys decry such tactics, which they consider disingenuous. That Johnson purchased a $112,500 Tampa home in 2003, two years after he allegedly stopped paying off a credit card debt, would only stoke their ire.

Johnson says he suspects that a former acquaintance or his ex-wife may have run up the charges on his credit card. He makes no apologies for being skeptical about lawsuits.

"I had a paternity suit when I was 18 years old," Johnson says. "At that time I was very religious and still a virgin. I'd never even kissed a girl. They just subpoenaed every Michael Johnson they had."

Times staff writer Matthew Waite and staff researcher Angie Drobnic Holan contributed to this report. Scott Barancik can be reached at barancik@sptimes.com or (727) 893-8751.Lawsuits suit them


LAWSUITS SUIT THEM

Debt buyers say they are no more likely than lenders to sue a borrower. But in three Tampa Bay area counties* between 2000 and 2005, the types of small-claims lawsuits debt buyers and other collectors typically file - breach of contract, monies due and accounts suits - have gone up sharply.

Small-claims debt collection suits

County 2000 2005 Increase

Hillsborough 5,098 8,570 68 percent

Pasco 2,597 3,496 35 percent

Pinellas 4,676 7,244 55 percent

Total 12,371 19,310 56 percent

* Numbers not available in Hernando and Citrus counties

Source: County clerks of court, Times research


WHEN A DEBT BUYER CONTACTS YOU

If a debt buyer purchases your unpaid bills, it usually will notify you by mail. There are several ways to respond.

Dispute it

Do you really owe the money? Consumer advocates recommend you write back within 30 days and ask for proof.

There are four reasons why you might not owe the money: identity theft, identity confusion, clerical error or the passage of time. In Florida, a debt is not legally enforceable if it has been more than five years (sometimes four) since the debt became delinquent, your last payment was made or you promised in writing to repay it.

Be careful not to restart an expired debt. The statute-of-limitations clock resets if you make a payment, transfer a debt balance to a new credit card or declare in writing that you will repay the debt.

Settle it

Many debt buyers will offer a discount if you agree to settle right away. If you can pay off a debt within five years, request a long-term payment plan. If you can pay it all at once, your discount may be higher.

Ignore it

A collector might let you get away with ignoring your debt if it appears you have no money or property that can be legally seized. But ignoring a debt won't keep it off your credit report or guarantee you won't be sued.

FILE FOR BANKRUPTCY

If you have multiple overdue bills and can't repay them within five years, consider filing for bankruptcy court protection. Doing so can eliminate or reduce most of your credit card, medical or other unsecured debts. A bankruptcy lawyer costs about $1,000.

WHEN A DEBT BUYER SUES YOU

If you owe the money, contact the collector and try to settle (see above). As long as you stick with the payments, the lawsuit will be mothballed.

If the debt is inaccurate or not yours, consider hiring a lawyer. Note: In debt cases, most lawyers will want their legal fee up front.

Whatever you do, don't ignore a lawsuit. You automatically lose if you don't respond or show up at your hearing. That may entitle the debt buyer to garnish your pay, seize your bank accounts or even take your car.

Wounded Soldiers Fight Off Bill Collectors at Home

Congressman Calls It 'Financial Friendly Fire'; Military Blames Payroll Errors Army demands $2K from soldier in Iraqi bomb attack.

Financial Friendly Fire    Brian Ross - ABC News

 Hundreds of soldiers wounded in battle in Iraq have found themselves fighting off bill collectors on the home front, according to a report to be released tomorrow. The draft report by the Government Accountability Office, which ABC News obtained, said that hundreds of wounded soldiers had military debts incurred through no fault of their own turned over to collection agencies.

"Financial friendly fire," said Rep. Tom Davis, R-Va., chairman of the House Committee on Government Reform. "Because their financial records are so bad, this is a friendly fire where we are hurting and wounding our own."

Army specialist Tyson Johnson of Mobile, Ala., had just been promoted in a field ceremony in Iraq when a mortar round exploded outside his tent, almost killing him.

"It took my kidney, my left kidney, shrapnel came in through my head, back of my head," he recounted.

His injuries forced him out of the military, and the Army demanded he repay an enlistment bonus of $2,700 because he'd only served two-thirds of his three-year tour.

When he couldn't pay, Johnson's account was turned over to bill collectors. He ended up living out of his car when the Army reported him to credit agencies as having bad debts, making it impossible for him to rent an apartment.

"Oh, man, I felt betrayed," Johnson said. "I felt like, oh, my heart dropped."

Payroll Errors, Says Military

And there are many more like Johnson. Staff Sgt. Ryan Kelly lost his leg in a roadside bomb attack in Iraq.

He didn't realize it, but the Army continued to mistakenly pay him combat bonus pay, about $2,000, while he was in the hospital rehabilitating, and then demanded that he pay it back.

He, too, was threatened by the Army with debt collectors and a negative credit report.

"By law, he's not entitled to the money, so he must pay it back," said Col. Richard Shrank, the commander of the United States Army Finance Command.

The Army said it moved wounded soldiers out of the battlefield so quickly its accounting office could not keep up, resulting in numerous payroll errors.

"This is no way to win a war, I can tell you that," said Davis. "You'd think after four years after fighting a war in Iraq, the government would have its act together."

But the Army said it is now trying to correct the problem. Since ABC News first reported on the plight of soldiers, featuring Johnson and Kelly in a "Primetime" investigation in October 2004, the Army has forgiven most of their debts.

But Davis said there may be thousands more whose thanks for putting their lives on the line has been a knock on the door from a Pentagon debt collector.

ABC News' Maddy Sauer contributed to this report.

Debt Collectors Seek To Auto-Dial Cellphones

By Caroline E. Mayer     Washington Post Staff Writer

Debt collectors are asking the Federal Communications Commission for
permission to use automated dialers to call a debtor's cellphone about
overdue bills.

ACA International, the trade association that represents collectors, said
federal rules formerly permitted collection agencies to call cellphones
using a computerized system that stores and dials numbers. But a change in
FCC rules in 2003 barred collectors from using such technology to call
cellphones. They may use dialers to call land lines, but they must dial
cellphones manually.

Earlier this month, the FCC said it would review the request and sought
public comments which are due next month. Its review comes as complaints about debt collectors continue to mount.

The Federal Trade Commission last week issued its annual report on the collection industry, showing consumer complaints rising to a high of 66,627 in 2005, up 13.5 percent from 58,698 in 2004. More complaints were filed about debt collection than any other industry. They accounted for 19.1 percent of all complaints filed with the FTC in 2005, up from 17 percent of all complaints in 2004.

The FTC said that, given the millions of collection calls made to consumers each year, the number of complaints it received is a "small percentage of the overall number of consumer contacts." However, it said it thought the number of consumers who complain is only a "relatively small percentage of the total number of consumers who actually encounter problems with debt  collectors."

The debt-collection association argues that the FCC ban on cellphone calls
was inadvertent, part of the commission's attempt to curtail abusive
telemarketing calls by auto-dialers that randomly or sequentially called
cellphones.

The ACA says collectors don't dial randomly, but rather selectively call
consumers who owe money. "We're not buying lists of consumers just to call them for the fun of it; we're not looking for cellphone numbers we don't
have," said Rozanne M. Andersen, the ACA's general counsel. Andersen added
that creditors and collectors have the cellphone numbers because consumers
provided them when they applied for credit.

Not being able to call cellphones with auto-dialers will be "extremely
detrimental to the industry and consumers," she said. According to the FCC,
6 percent of U.S. households now rely exclusively on wireless service, up
from 1.2 percent in 2001. "We have generations of people moving exclusively
to cellphones, and there is no practical way for creditors and debt
collectors to communicate with them," she said. The ACA says creditors could
lose billions of dollars annually if the rule is not changed.

The National Consumer Law Center, a public-interest consumer advocacy group,
has already filed an objection to the ACA's petition, saying consumers will
be "hard pressed to see the benefit" because the automatically placed calls
will use up high-cost daytime minutes. The NCLC added that a consumer giving
a cellphone number when applying for credit shouldn't be considered as
giving permission to a debt collector to call that number later.
 

PUBLIC REPRIMAND

Attorney General Charles M. Condon and Senior Assistant Attorney General James G. Bogle, Jr., both of Columbia, for the Office of Disciplinary Counsel.
S. Jahue Moore, of Wilson, Moore, Taylor & Thomas, P.A., of West Columbia, for respondent.

PER CURIAM: In this attorney disciplinary matter, the Commission on Lawyer Conduct filed formal charges against respondent. Respondent filed a response and later agreed to a stipulation of facts. After a hearing, the Panel recommended respondent be given a public reprimand.

FACTUAL BACKGROUND

The charges against respondent stem from his involvement with a collection agency, the Collect America Network. U.S. Collections, a franchise of Collect America, and the Zenner Law Firm entered into a contract on February 16, 2000.

Refinance America, a wholly owned subsidiary of Collect America, purchased uncollected debt from, for example, credit card companies and forwarded it to Collect America, who then forwarded it to respondent's firm. Collect America would send batches of these accounts in contract form. According to the accounts contract, a placement of the amount with respondent's firm was made for a limited period of 120 days for a contingency fee of twenty-five percent (25%) of any recovered funds.

Collect America operated with two types of franchise agreements, including one in which a private corporation, for example U.S. Collections, bought the franchise and the license to use a particular software (STARS) to collect the debt. As a franchise, U.S. Collections was required to retain an attorney, such as respondent, to collect the debt.

U.S. Collections employed collectors and paid them through respondent's payroll account.(1) Further, U.S. Collections owned the computers and telephones, and provided respondent with an office for his private practice, adjacent to the property leased by U.S. Collections. All collectors made telephone calls to debtors, identifying themselves as "Zenner Law Firm," in the adjacent building.(2)

Each collector was required to generate collections of $30,000 each month. They were paid a base salary and received a bonus of a percentage of any excess collected over $30,000.

Respondent's first contract with U.S. Collections allowed him ten percent of the total amounts collected and paid his costs, except for payroll. Under his last contract, which was imposed on respondent and not reduced to writing, he received a flat $3,000 per month. U.S. Collections then paid the collectors through respondent's account.

PUBLIC REPRIMAND.

s/Jean H. Toal C.J.

s/James E. Moore J.

s/John H. Waller, Jr. J.

s/E.C. Burnett, III J.

s/Costa M. Pleicones J.

1. Respondent testified the collectors were employees of his law firm and that they each received a W-2 from his law firm.

2. One collector testified that when respondent visited the area where collection calls were made, his supervisors told the collectors to "behave," and to watch their "P's and Q's because he was an attorney."

3. Two statutes govern debt collectors' conduct when contacting debtors. S.C. Code Ann. § 37-5-108 (Supp. 2000) prohibits a debt collector from:

(1) threatening to use criminal prosecution against the consumer;

(2) communicating with the consumer at frequent intervals during a twenty-four hour period or at unusual hours so that it is a reasonable inference the primary purpose of the communication was to harass the consumer;

(3) communicating with a consumer at any unusual time or place known or which should be known to be inconvenient to the consumer, with convenient time being between 8 a.m. and 9 p.m.;

(4) contacting a consumer at his place of employment after the consumer or his employer has requested in writing that no contacts be made;

(5) using obscene or profane language or language the natural consequence of which is to abuse the hearer or reader.

The Federal Consumer Protection Act, 15 U.S.C. §§ 1671, et. seq., also prohibits the debt collector from engaging in the conduct listed above.

4. Melton admitted at the hearing that he would sometimes threaten criminal

Bankruptcy law backfires on credit card issuers
 

The industry muscled through tough changes that were supposed to make more filers repay some of what they owe. But that isn’t happening.

 By Liz Pulliam Weston

Credit card issuers and other lenders spent a small fortune to get bankruptcy reform legislation passed. Now the new law is costing them even more.

An unprecedented spike in filings before reform took effect in fall 2005 is chewing into lenders' bottom lines, and the subsequent lull is showing signs of being short-lived. Bankruptcy attorneys say their caseloads are starting to pick up, and credit counseling agencies -- which provide now-mandatory sessions for consumers who want to file -- say they're seeing significantly more people than they initially predicted.

All this is raising questions about whether lenders will profit as much from the new bill as they hoped.

It wasn't supposed to be this way. The new law contains a “means test” that was supposed to steer higher-income filers toward repayment plans. Lenders expected a rush of consumers trying to beat the bankruptcy deadline, but nothing like the surge that actually occurred. More than 500,000 bankruptcy cases were filed in the two weeks before the law took effect, compared with a normal weekly volume of 30,000 to 35,000. So far this year more than 2 million cases have been filed, 49% more than the same period last year and eclipsing all previous records.

"I think the actual magnitude really surprised some people," said Cynthia Ullrich, a director in the Fitch Ratings credit card group. "The feedback we received (from credit card issuers) is that it was larger than anticipated."

The hurting begins
Once a consumer files bankruptcy, lenders have 60 days by federal law to "charge off" the filer's accounts -- essentially recognizing that the debt is uncollectible and taking the loss. Fitch predicted the charge-off rate for major issuers could rise more than 30% to 7.5% in the next few months, compared with 5.7% of accounts currently.

Some issuers have already admitted their pain:
 

• J.P. Morgan Chase & Co., the nation's largest credit card issuer, said its charge-off volume would rise 44% in the fourth quarter to $2.3 billion from $1.6 billion for the same period a year ago.
   

• Capital One warned its charge-off rate could rise up to 1 percentage point from the year's previous range of 4.05% to 4.14%.
   

• Discover said it expected the bankruptcy surge to add $250 million to its costs.

Lenders initially said that the rush of filers merely accelerated losses that would have happened anyway -- that people essentially decided to file sooner, to beat the deadline, rather than a little later.

Indeed, filings dropped sharply to 9,447 the week following reform, according to Lundquist Consulting.

But the following week, filings rose to 14,291. Some of those cases appear to be backlog -- filings under the old law that courts are just getting around to reporting -- but the numbers are expected to climb as weeks pass. How far is the question.

Counselors see lots of traffic
Sam Gerdano, head of the nonpartisan American Bankruptcy Institute, said he wouldn't be surprised if filings remain extremely low at least through the first half of the year.

"We could be seeing records in the other direction," Gerdano said, "with filing numbers we haven't seen since the 1980s."

But some believe the respite will be shorter than lenders hope.

"There was a real lull for awhile, but we're starting to pick up again," said Los Angeles bankruptcy attorney Leon Bayer. "We're getting back to normal now."

Credit counselors report a similar uptick. Demand for pre-bankruptcy counseling, which is now required before consumers can file, has been unexpectedly strong at the 71 agencies affiliated with the National Foundation for Credit Counseling that have been approved by the Department of Justice to provide such services, said foundation President Susan Keating.

"The volume is significantly higher than their original projections," Keating said. "We originally expected our client volume of 1 million to double in 2006 (because of the new requirement). Now we're thinking we may be looking at even more."

Few able to repay
Bankruptcy attorneys and many consumer advocates worry the counseling requirement will allow agencies to divert potential filers into debt repayment plans that the debtors can ill afford. But Keating said her agencies, which currently represent 80% of the counselors approved by the Justice Department, aren't seeing many clients who have the ability to repay their debts.

"The conversion rate of customers who are eligible to go into an alternative, a debt-management plan, has been very, very low," Keating said. "These customers are really in serious financial trouble and have no alternative other than filing for bankruptcy."

That's certainly been true at Riverside, Calif.-based Springboard, which counseled 2,200 pre-bankrupts between Oct. 17 and Nov. 28, said President Dianne Wilkman. Wilkman said her counselors, who mostly talk with customers by phone, sometimes have to strain to average the 90 minutes the Justice Department requires of pre-bankruptcy counseling sessions because their clients' situations are so cut and dried.

"After 45 minutes you're left with saying, 'So, what about those Dodgers?'," Wilkman said. "But then with other clients with more complex situations, you use much more than 90 minutes."

The bottom line?
Even if filings don't return to previous levels, the reform law may not contribute much to lenders' bottom lines. Fitch and Barclay Capital have predicted charge-off rates will "normalize" to usual levels, but won't drop.

"If a consumer can't pay their bills, they might not file for bankruptcy" but their accounts will still be charged off, Fitch's Ullrich said.

Lenders may recoup some money from filers who are forced into Chapter 13 repayment plans rather than being allowed to erase their debt in Chapter 7 bankruptcy. But the dollar amount recovered may not be significant, given the small number of bankrupts that will be diverted to Chapter 13 -- less than 3%, by Gerdano's estimate -- and the high number of Chapter 13 plans that fail. Under the old law, about two-thirds of Chapter 13 cases never completed their repayment plans; that percentage isn't expected to change much under the new law, Gerdano said.

"The official word is that (lenders are) still confident the law will have its desired impact" of reducing bankruptcy filings and increasing repayments, Gerdano said. "But it may take a year before you know who really won and who really lost."