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31

Jul 2021

The Wells Fargo Home Projects Card and Chapter 13

Posted by / in Chapter 13, Weekly Posts /

The Wells Fargo Home Projects Card and Chapter 13 Bankruptcy

The Wells Fargo Home Projects Card is issued differently than most credit cards. As far as I can tell, they don’t market it directly to consumers. Instead, they get home improvement businesses to sign people up. That way Wells Fargo finances the home improvement and the business gets paid.  Makes sense to me.

What doesn’t make sense to me is this:  Wells Fargo uses that card to butt in line ahead of other credit card creditors in Chapter 13 bankruptcy.  That’s because Wells Fargo claims to be a secured creditor.  Secured creditors have to be paid ahead of regular credit cards in a Chapter 13 bankruptcy payment plan. 

What’s a Secured Creditor?

What’s a secured creditor?  A secured creditor is a creditor with a “security interest.” UCC § 9-102(a)(73).  The Wells Fargo Home Projects card agreement claims they have a security interest:  “You grant us a purchase-money security interest under the Uniform Commercial Code in the goods purchased on your Account.”

What’s a security interest?  Your car finance company has a security interest in your car.  The car finance company has a lien attached to the title of your car.  If you don’t pay; they can come get it.  (Bankruptcy clears your personal liability–you don’t have to pay. But the car still has to pay.)

Consumer goods–something like a washing machine–don’t have a title.  But the people who finance them are still have a security interest.  They are secured automatically.  UCC § 9-309(1). Automatically, as long as you sign a paper with a description of the washing machine, so it can be reasonably identified.

Years ago Sears was very aggressive asserting their right to payment after bankruptcy on things like washing machines.  So aggressive that they ended up getting hit with multi-million dollar sanctions by the bankruptcy court in Massachusetts.  Conley v Sears 222 BR 181. D Mass 1998.  A few years later, Sears got out of the business of issuing their own credit cards.

Wells Fargo though isn’t claiming a security interest in a car, or in a washing machine.  In the cases I’ve seen, they claim a security interest in “trim,” in “replacement,” in “remodeling,” and most often in “items purchased.”

I call BS on the Wells Fargo Home Projects Card

I call BS on Wells Fargo.  These come nowhere near the legal requirement that the consumer sign an agreement that provides a description of the collateral. UCC § 9-203(b)(3)(A).  “Items purchased” could be anything. That’s not a description. By law, it’s not a description unless it “reasonably identifies what is described.” UCC § 9-108(a).

Second, a security interest does not exist in “ordinary building materials” once they become part of the building.  Trim obviously becomes part of the building. UCC § 9-334(a).

On their website, Wells Fargo tells home improvement businesses what kinds of things they finance. Here’s the list.

Flooring       Siding     Windows/Doors   

Remodeling   Roofing    HVAC

Doors and HVAC are a gray area.  Are they part of the building, or not?  Could go either way.  But Wells Fargo can never be secured in flooring (once it’s installed, of course.) Or siding. Or windows, or remodeling, or roofing.   

Most people would agree that flooring is part of the building.

It looked to me like Wells Fargo always claims a legal right that they hardly ever actually have.

Wells Fargo Caved In

In the case of Merida Mejicanos, 21-10600-KHK, Wells Fargo Home Projects claimed a security interest in “trim” and “door replacement.”  I objected, and privately dared them to come in and fight.  They caved.  Without admitting they were wrong, they dropped their claim. They said they wanted to avoid “the risk of further litigation.”

The big risk of course is that the judge would write that they were wrong–and other lawyers and judges would read it.

 

 

 

 

 

 

 

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27

Jun 2021

Supreme Court Says Being Listed as a Terrorist is ‘No harm.’

Posted by / in Blog, Weekly Posts /

Supreme Court Says Being Listed as a Terrorist is ‘No harm.’

Last Friday, in a case called TransUnion v Ramirez, the Supreme Court said the Fair Credit Reporting Act cannot give you the right to sue TransUnion for putting your name on their OFAC terrorist warning list. Led by Justice Brent Kavanaugh, a 5 to 4 majority held that people have no right to sue unless they can prove TransUnion actually showed someone the list with your name. TransUnion just putting you on the list isn’t enough.

Justice Clarence Thomas, considered the court’s most conservative Justice, strongly disagreed.  He said that the law as written clearly covered TransUnion’s OFAC warning list.  Justice Thomas often says it’s the job of the courts to read and apply the law–not re-write it.  He said the court was re-writing a law they didn’t like.

Here’s the Rest of the OFAC Story

Besides the credit report you know about, TransUnion keeps and sells an “OFAC warning list.” OFAC stands for Office of Foreign Asset Control. It’s the Treasury Department list of terrorists, international drug kingpins, illegal arms smugglers, and other threats to national security.  People can’t have have money in an American bank or own any property in America if they are on that list.

TransUnion claims they matched that Treasury Department list with their list of Americans who have credit reports. That’s the TransUnion OFAC warning list.

The government keeps an OFAC list. TransUnion claims they matched that list with people who have American credit reports.

TransUnion was unable to prove that ANYBODY on their OFAC warning list was actually on the government OFAC lists of terrorist, drug kingpins and arms smugglers.

 A guy named Sergio Ramirez found out he was on the TransUnion OFAC warning list when he went to a buy a new Nissan in 2011.  The finance manager told him that he couldn’t buy a car. He couldn’t buy a car because “he was a terrorist.”  (The dealership then turned around and sold the car to Ramirez’s wife.) 

Ramirez knew wasn’t a terrorist or arms dealer. So, he sued.

The Ramirez trial lasted six days. Turned out that TransUnion had misidentified 8,165 people, falsely labeling ordinary consumers as “threats to national security.”

The jury agreed TransUnion was in the wrong. They awarded $7337.30 to each person on the list. $60 million total. (Do you think the $7337.30 was too high? The jury found TransUnion had been sued for this exact same thing way back in 2005, and did almost nothing to fix the problem.) 

No Harm, no Foul

The Supreme Court said only 1853 people out of the 8165 had the right to sue. Those 1853 people could prove that TransUnion had sent out their OFAC warning when those people applied for credit. (The trial only looked at a seven month period.)  The others didn’t apply for credit during those seven months.  So they had no right to sue.  “No…harm,” said Justice Brent Kavanagh, no foul.

Justice Thomas hit the ceiling. 

“TransUnion generated credit reports that erroneously

flagged many law-abiding people as potential terrorists and

drug traffickers… Yet despite Congress’ judgment

that such misdeeds deserve redress, the majority decides

that TransUnion’s actions are so insignificant that

the Constitution prohibits consumers from vindicating

their rights in federal court.”

 

A Business Built on Lies

The three liberal justices went on to point out one other angle. TransUnion was sending out false information because they made money. TransUnion couldn’t prove that anybody among the 8165 people in their OFAC warning list was really on the State Department’s official OFAC list!  (Would any actual terrorist or wanted drug kingpin come to America to open a credit card or buy a car? Would they do it in their own name?) 

TransUnion was making money selling a list that was totally inaccurate!  Here’s what the 9th Circuit said: “TransUnion’s misconduct was repeated and willful. TransUnion used name-only OFAC searches for more than a decade, resulting in thousands of false positives and not a single known actual match identified.” 951 F.3d 1008, 1036. Not s single known actual match.

According to the liberal judges, the TransUnion OFAC warning list was business built on lies.

Two Ways This Affects You After Bankruptcy

The rule that Justice Kavanaugh laid down here goes beyond TransUnion and OFAC. Justice Kavanaugh said, and the Supreme Court majority agreed, that just because Congress says you have a consumer right does not mean you can sue to enforce it. You can’t sue somebody who might violate your rights; they have to actually do it first.

That obviously applies when you, like Mr. Ramirez, need to correct credit report mistakes.

Improving your credit score is one of the important five ways bankruptcy gives you a fresh start.  That’s why I tell everybody to check your credit report after the bankruptcy discharge. Making it harder to sue the credit bureaus doesn’t help you make the most of your new start.

(After-bankruptcy credit reports are now usually right–they didn’t used to be.  Because they are usually right, you have to dispute wrong info at least twice, before you can sue to have it corrected. Now, you probably also need to wait until you’ve applied for credit and been turned down. And even then, how can you prove you were turned down because of the error on your report, instead of the bad history from before you filed bankruptcy. You can see the problem.)

Stopping creditor harassment

Stopping creditor harassment is another way bankruptcy give you a new start. But it doesn’t always work as it should.

Just this past week, Zarah got a hate letter from a debt collector, threatening to file court papers on a debt that was cleared by her bankruptcy. That’s an obvious violation of the bankruptcy law. But are we allowed to do anything about it? Did Justice Kavanaugh just say we can’t complain about the threat? Do we have to wait until they actually do send her court papers?

Some judges do not want to be bothered by “insignificant” consumer complaints. Most businesses don’t want to be sued.

So, when you and I try to defend your rights, the credit bureaus or debt collectors can just say, there’s “no harm.”  They can use Justice Kavanaugh to tell you the door to the courthouse is locked.                         

                                                                                                                                                                                                                       

 

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06

Jun 2021

Does Reaffirming Your Car Loan Help Your Credit Score?

Posted by / in After Bankruptcy, Weekly Posts /

“Does Reaffirming My Car Loan Help My Credit Score?”

Ray and Theresa, who filed bankruptcy with me last fall, asked me that last week.

Lots of people ask that same question after they look at their after-bankruptcy credit report and see that their car payments don’t show.  Then, they are told by their car finance company, “Your lawyer should have had you reaffirm your car. That way your payments would show and your credit score would be better.” 

What’s the truth? 

Does Reaffirming Your Car Loan Help Your Credit Score? A Top Bankruptcy Judge Wanted to Know

Last fall, Judge Margaret M. Mann asked that same question. She had a a stream of people in her courtroom reaffirming car loans and she wanted to know why. They told her it was to help their credit scores. So she asked–actually ordered–Wells Fargo to send their credit score expert and explain.  What Judge Mann heard was this: Reaffirming the debt cannot be said to affirmatively help debtors rebuild their credit since the benefit is minimal at best.

In other words, reaffirming your car loan is hardly any help to your credit score–and that’s if you make the payments on time. (It you miss a payment–if the car needs a repair you can’t afford or gets totaled, or any of the things that can happen–then you drag your score way down with after-bankruptcy bad credit.)

The Judges in Alexandria Already Hated Reaffirming

Bankruptcy Judge will turn down your reaffirmation

Chief Judge Margaret M Mann says reaffirming you car loan is hardly any help for your credit score.

 As far as I can tell, Judge Mann is the only bankruptcy judge who has put in writing her opinion on reaffirming car loans. But she is the Chief Bankruptcy Judge in the Southern District of California, the busiest bankruptcy court in America. So you can bet bankruptcy judges around the country read what she said on this.

Even before that, the judges here in Alexandria VA made it clear they didn’t like reaffirmations. Now they like them even less. So–unless it’s Ford Motor Credit or your credit union–I will not agree to reaffirming your car loan.  And even I did, the Judges here mostly won’t approve it.

Your After Bankruptcy Credit Report is Very Important

For most people with damaged credit, filing bankruptcy is the fastest way to fix it. 

That’s one reason why its very important for everybody to check your credit score two or three months after bankruptcy. 

When you do, you’ll see your  after-bankruptcy car payments don’t show on your credit report.  (The payments don’t show because after bankruptcy because you don’t have to make the car payment. The car still has to pay, but you don’t.) But even if those payments showed on your credit, the car payments would help your credit score hardly at all.  

I have some tips on how to rebuild your credit here and here.  As long as you need a car–and need that car–you should keep up the car payment. But filing bankruptcy means you don’t have to keep the car once you can get a better deal when your credit is better.  

That’s why we don’t reaffirm car loans. Reaffirming your car loan doesn’t really help your credit if you. And if you get behind, it’s a disaster.  

PS

Stephen Dunne, a bankruptcy lawyer in Philadelphia, also has a helpful article on Judge Mann’s opinion.  

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