Debtor's Dictionary

A

Acceleration Clause---A provision in a credit contract which permits a creditor to declare all remaining payments immediately due and payable upon the occurrence of  certain “events of default”, or if the creditor feels “insecure” and the contract contains an “insecurity clause”.   Acceleration usually triggers a requirement of rebating the unearned portion of any pre-computed interest, finance charges or credit insurance premiums.

Acceleration Clause---A provision of a contract allowing the creditor to call the whole thing due if the debtor does not do what he is supposed to do, when he is supposed to do it.

Abecedarian---As easy as A, B, C…Not usually applied to understanding credit contracts.

Acceleration of Maturity---A declaration by the creditor that a debt contracted to be paid in the future is already due, usually based upon failure of the debtor to make a payment when due or the failure of the debtor to maintain insurance on collateral.  The creditor usually reserves the right to declare the entire remaining balance due in an “acceleration clause.”

Acceptance Company---A financial institution which makes a living by purchasing consumer installment paper from merchants and motor vehicle dealers.  Sometimes owned by the manufacturer of the goods or vehicles being financed.  As in General Motors Acceptance Corporation (GMAC)

Account or Charge Account---Usually an agreement with a small retailer that a customer may “charge” items by the month and receive a statement on or about the due date.   Also known as an Open Account.    Usually bears no interest and must be paid in full each month unless otherwise agreed.    What did the duck say to the pharmacist?   Put it on my bill.    Or, as they used to say in Oklahoma and Arkansas during the dry years of the Great Depression:   “Charge it to the dust and let the rain settle it.  I’m goin’ to California.”

Actuarial method---As applied to “interest”, the actuarial method means the computation of interest at a stated periodic rate upon the outstanding (unpaid) principal sum, and on any interest already earned and past due.  Interest on the unpaid principal is called “simple interest”.   Interest on past due interest is called “compound” interest.   The “actuarial method” is distinguished from the United States Rule, in that under the latter no interest is calculated on past due interest, but only on the principal.  Either the actuarial method or the United States Rule may be used in determining a Finance Charge under Truth in Lending, because the Finance Charge is usually only an estimate calculated upon the presumption that all interest will be paid when due.  The only contracts in which the Finance Charge is not an estimate are “pre-computed contracts”.    Pre-computed finance charges may, unless the law or contract provides otherwise, be rebated under the “actuarial method” if the term is cut short by prepayment. This is accomplished by re-calculation of the finance charge from the inception of the contract as if it had not been pre-computed.

Adhesion Contract---The non-negotiable printed portion of a contract that is merely “stuck onto” a consumer like “adhesive tape”.  The terms are dictated by the credit-grantor and neither the consumer nor the loan officer nor sales agent has the power to change a word of it.   A take it or leave it deal.  In credit sales, the terms are frequently written by the company to which the contract is later assigned.

Age of Majority---The age at which persons can sign legally binding contractual agreements.  There is nothing that happens on that birthday which makes a person any smarter---only more vulnerable to abuse if not informed and prudent.

Age of Minority---Being too young to sign a legally binding contract.  But a youth can sometimes buy necessities and charge them to his parents.

Agent---A legal representative of a seller, insurer or other business for the purpose of concluding transactions with consumers.

Aleatory Contract---A contract under which a person pays money on the chance of obtaining a greater amount of money in return, upon the occurrence of a specific event, such as a gambling contract or an insurance policy.   Usually illegal unless approved by an insurance regulatory official at the state level, or in the case of legalized casino gambling or state lotteries.   A bet.

Amortization Table---A chart showing the portion of each installment payment that is interest, and the portion that is to be credited to the principal, based on the assumption of certain payment dates.  For this purpose, front-end charges such as points and origination fees are sometimes considered part of the principal.

Amount Financed---A Truth in Lending term referring to the amount of credit extended to the debtor upon which the Annual Percentage Rate is computed to produce the Finance Charge.   The amount financed may include certain credit related charges such as credit life and accident and health premiums if they are voluntarily elected by the customer.   Property insurance premiums are part of the amount financed, and not of the finance charge, if the customer has a right to choose the company that writes the coverage.   See Truth in Lending.

Annual Percentage Rate (APR)---A required disclosure under Truth in Lending showing the true comparative cost of credit in simple interest terms, according to the federal definition of “finance charge” provided in the Act and in the accompanying Regulation Z.   Determined by comparing the Finance Charge to the Amount Financed over time.

Answer---A response to a civil complaint, usually required to be filed with the clerk and served on the Plaintiff within a limited number of days after service upon the Defendant.    Subsequent filings required by the filing of another are usually called “responses”, rather than Answers, such as a response to a motion or to a discovery request.

Anticipation of Payments---Paying either the entire balance of a debt or a number of installments before they are due.   On simple interest transactions this may reduce the total cost of credit by reducing the principal faster than contracted.   On pre-computed transactions there is usually no advantage to paying payments early unless the entire unpaid balance is paid at once, because the interest has been computed for the entire term on the assumption that the payments will be made when due---not earlier or later than scheduled.

Appraised Value---The value of real state or other valuables as determined by an expert.  Fair market value.   Insurance value.   May be significantly below replacement value.

Arbitration Clause or Arbitration Agreement---A popular device among many sellers, banks and other creditors to require customers who have complaints against them to submit the conflict to an arbitrator under the Consumer Rules of the American Arbitration Association or some other such private agency.    Mostly used to prevent individual consumers from qualifying as class representatives for the purpose of a Class Action.  Most such clauses only work one way…forcing the consumer to arbitrate his complaints against the seller or creditor while allowing the seller or creditor to file collection cases against consumers without compulsory arbitration.   Sometimes litigation in small claims court is permitted in spite of an arbitration clause.

ARM---Abbreviation for “adjustable rate mortgage”---An adjustable rate home loan, in which the rate changes from time to time based on an index.     There may be a cap on the amount of rate change that can occur within a certain period of time.   There may also be a Lifetime Cap on how much the rate can change over the life of the loan.   Some have suggested that some of the indices used to adjust mortgages are false because while they are supposed to reflect the “prime” or lowest rate charged by major lenders to their most favored customers there are major customers, such as public utilities, which can borrow from the same sources at lower rates.

“As Is” Clause---A provision in a sales agreement or bill of sale that the item being purchased is bought in its present condition, with none of the statutory warranties normally implied at law, such as the warranty of fitness for the purpose intended, or the warranty of merchantability.   The only warranty is the warranty of title.   Sometimes called “As Is, Where Is”.  Not legally effective under the UCC (Uniform Commercial Code) unless expressed in bold type or otherwise more noticeable than other writing on the agreement.  Under the federal Magnuson-Moss Act a dealer cannot insert an “as is” clause in a contract if the dealer sells a warranty contract to the buyer within a certain period of time after the sale of the item.

Assessed Value---The value of real estate as determined by the ad valorem tax assessor.

Assignee---Person receiving a contract or right under an “assignment”.   A finance company that buys car contracts from a car dealer.    A collection agency or law firm that buys defaulted contract balances in order to file collection cases on them.

Assumable Loan---A loan that may be freely assumed by a new debtor if the property is sold.   Whether or not the original debtor can free himself of the obligation by selling the property, however, depends on the contract language.    Opposite of a due-on-sale loan.

Attorney Fee Award---A requirement by a court that a party pay the other party’s attorney fees, or a portion thereof.   Usually awarded to creditors pursuant to contract language.  Sometimes awarded to consumers where authorized by statute or where a creditor intentionally sues for more than the debtor owes, and thereby acts in bad faith.

Attorney Fee Clause---A provision in a contract requiring that one party pay the other party’s attorney fees in the event of litigation to collect damages for breach of contract.   Usually only works against the debtor because the creditor’s lawyer wrote the contract.

B

Bad Debt Reserve---A fund made up of money taken from debtors by some subterfuge and used to cover other people’s bad debts.   One of the most common methods is to make the debtor pledge some type of used personal property as “security” for the debt so that the creditor can have an excuse for preparing a UCC Form 1 (the form on which such security interests are recorded at the courthouse).   Then instead of actually filing the Form 1, the creditor buys Non-Recording or Non-Filing Insurance supposedly to protect the creditor against the risk he took by not filing (or by improperly filing) the security interest documentation.    The cost of this “insurance” is usually identicalwith the cost of actually filing the documents, so presumably there is no harm to the debtor.   But no insurance is really purchased.    The creditor simply enters into an agreement with an insurer that perhaps 95% of the money so charged to customers will be put in a “bad debt reserve” fund, and the other five per cent will go to the insurer for its trouble in handling the account.   These agreements universally state that the insurer will never be called upon to pay out more than 95% (or 90% or whatever) of the “premium” money in benefits.    This is why it is not really insurance.   There is no risk being taken by the insurer.    The insurer is just a conduit for stealing money from the customers.    When a bad debt occurs, the creditor “files a claim”, which is not really an insurance claim at all but a draw against the bad debt reserve.  One knows it is not really an insurance claim because the payment is not based on the risk supposedly insured against---the risk taken that some other creditor will beat the creditor to the personal property because of non-recording or faulty recording.   The “claim” is just a request for money.    This kind of scam is declining as deregulation makes it possible for creditors to rip off consumers in the annual percentage rate without having to resort to such devices.     But it is still around in specific credit fields such as the small loan industry.  Insurance commissioners customarily shut their eyes so they won’t see this type of problem in their state.  Under Truth in Lending “premiums or other charges for any guarantee or insurance protecting the creditor against the consumer’s default or other credit loss” are supposed to be disclosed as part of the finance charge, and reflected in the annual percentage rate.  Reg. Z, Section 226.4(b)(5).  On the other hand “the premium for insurance in lieu of perfecting a security interest” is excluded from both the finance charge and the annual percentage rate.   Reg. Z, Section 226.4(e)(2).    Thus by disguising a bad debt reserve as “non-recording insurance”, the creditor can show a lower finance charge and APR than should really be disclosed under Truth in Lending, giving him a competitive advantage through false advertising.

Bad Faith---Raising an issue in litigation that is clearly not supported by the facts or the law.   May result in an award of attorney fees against the offending party.

Bailment Clause or Bailment Agreement---A provision in a sales finance agreement that until an assignee agrees to buy the contract the sale will not be final, and if the seller cannot sell the paper the seller can demand that the debtor (buyer) bring back the goods or vehicle.   Sometimes used to facilitate a bait and switch, where the car dealer puts the vehicle in the buyer’s possession and then tells him days later than he will have to bring the car back unless he signs for a higher rate of interest.   By that time the kids and neighbors have seen the new car, and the debtor is under great personal pressure to sign anything in order to keep it and avoid being embarrassed.

Bait and Switch---Advertising a wonderful deal, such as a very low product price, in order to get people into the store, and then revealing that the deal is “sold out” or otherwise unavailable.

Balloon Payment---A larger than normal payment which comes due at the end of a loan note.    May be many times the regular monthly payment, and may create a major financial problem for the debtor who is unable to pay, sell or refinance.  A typical feature of some lease-purchase contracts.

Bank---A term usually reserved for financial institutions that accept money from depositors and lend it out to debtors.   The trick is to acquire the depositors’ money at the lowest possible rate and lend the money out at as great a rate as the market will bear and the law allow, and make profit on the difference.    A way of using other people’s money to one’s own advantage.  Sometimes the term “bank” is used loosely to refer to an institution established by a retail store to handle its credit card accounts, such as a credit card bank.  But these are not really banks.   They are mostly scams used to export creditor-favorable interest rate and late charge laws of the home state of the credit card bank to more restrictive states where the retailer has retail stores and credit card customers.

Bank Holding Company---A corporation that owns a bank or banks, or a combination of banks and other types of businesses, such as insurance companies and small loan outlets.  National banks are regulated under the National Bank Holding Company Act and Regulation Y issued by the Federal Reserve Board for its enforcement.  If bank holding companies are going to engage in non-banking activities (such as insurance sales) they should be required to show a public benefit to offset the anti-competitive aspects of the acquisition.  Nonetheless, many bank holding companies engage in widespread self-dealing, particularly in the insurance field through the ownership of credit life insurance companies and the like.

Bankruptcy---Filing for protection from creditors under a chapter of the federal Bankruptcy Code.   In the case of consumers, this would usually be Chapter 7 (straight bankruptcy) or Chapter XIII (wage-earner bankruptcy).    Under the United States Constitution, states are prohibited from passing laws relieving people of the obligation of contracts (bankruptcy laws), and therefore all bankruptcies are filed in federal courts.   See homestead exemption.

Barratry---The practice of an attorney stirring up litigation among other people for his own financial benefit.   A crime under the Common Law.

Bearer Paper---A negotiable (sellable) instrument (could be a promissory note) which is payable to whomever has possession of it.  An unusual document in the Twentieth Century, except for checks payable to “cash”.

Beete vs. Bidgood---The Nineteenth Century English case which introduced the concept of a “time price differential” exempt from the usury law.

Bill of Sale---A statement by the seller of goods or vehicles that the property is being sold to the buyer at a certain price.    May contain things the seller and buyer have not discussed, such as an “as is” clause or a documentary fee for the preparation of instruments related to the transaction.   It may be signed only by the seller, but if the buyer accepts the property pursuant to it he is usually bound by its contents.

Binding Precedent---A decision of a clear majority of the judges on an appellate court interpreting the law.

Black Robe Fever---A mysterious illness which seems to affect only recently appointed small claims court judges, who believe that all issues should be compromised even if the truth is on one side rather than the other and that only they know the proper point of compromise.

Blue Process---An illegal action by a police officer to assist a creditor.   Such as when the debtor protests a self-help repossession and the repo man calls an officer to assist; and the officer examines the papers and declares that the repo man has a “right” to seize the collateral over the consumer’s protest.   The opposite of “due process”.  An officer assuming authority he does not have in a civil dispute.

Bluster, otherwise known as Puffing---Statements such as “this is the best little car in the State of Georgia” which are considered not to be promises under contract law.    As distinguished from statements of fact such as:  “We put a new engine in this car yesterday.”

Boat or Full Boat----A package of abusive goods and services sold to a car buyer or other debtor in addition to the car or other purchase or loan, such as GAP insurance, warranty insurance, window etching, anti-theft devices, credit life insurance, unemployment insurance, non-recording insurance and the like.

Borrowing from Peter to Pay Paul---An old expression reflecting a financial crisis in which one is trying to borrow his way out of debt.   It can’t be done.  But sometimes it can give temporary relief, as by using one credit card to pay another.  Eventually both bills come due, with interest.

Breach of Contract---A violation of the duties one owes under an oral or written agreement.

Breach of the Peace---The Uniform Commercial Code prohibits self-help (non-judicial) repossession of chattels (personal property, such as automobiles) unless it can be accomplished without a “breach of the peace.”    Different courts have interpreted this phrase differently---some broadly and some narrowly.   But most courts hold that a breach of the peace occurs whenever the repossession occurs over the present  unequivocal verbal protest of the debtor or the debtor’s representative.   The debtor does not have to get in a fight with the repo man.   He can “just say no”, and trigger a requirement that the creditor obtain a court order to get the car, which will give the debtor an opportunity for notice and an opportunity to be heard regarding defenses and claims against the creditor.   The use of off-duty police officers to assist in repossession or to keep the debtor at bay while the car is hauled off is definitely a “breach of the peace” because the officer constitutes a threat of force, or a threat of deprivation of liberty (arrest).    On-duty police officers cannot legally assist a creditor in a repossession without being authorized by a court order, because their actions are “state action” in violation of the Fourteenth Amendment.  If a creditor takes a vehicle through breach of the peace, the debtor can sue for damages for conversion or trespass.   The creditor may also be subject to statutory penalties under the Uniform Commercial Code…usually equal to the disclosed finance charge plus 10% of the cash price.  Unfortunately, most police officers are not trained in how to handle repossession conflicts, and many will simply look at the so-called “orders” from the finance company or bank and then tell the debtor to back off and let the repo man take the vehicle.   Likewise, some officers become confused between the concept of unequivocal verbal protest and “concealment” of security or “hindering” a security interest holder, or even “obstruction of justice”, which may be a crime in some jurisdictions.   The debtor may wind up going to jail over his verbal protest.   If so, he has an excellent false imprisonment claim against the creditor who induced the officer to jail him, and perhaps a civil rights action against the officer.  See repossession, self-help repossession, concealment, hindering, obstruction.

Bribe---Money paid to a legislator or other public official in order to avoid regulation or prosecution, or to obtain sponsorship or passage of favorable legislation.   Sometimes in the form of large campaign contributions, depending upon the intent of the giver.

Bundled Credit Insurance---The abusive practice of tying the sale of an unregulated form of credit insurance (such as unemployment insurance) to the sale of a regulated form (such as credit life insurance) in order to exaggerate the commission income earned by the creditor.    Almost universally used by banks as a product sold in connection with credit card accounts.   May include coverage analogous to life insurance, accident and sickness insurance, hospitalization insurance, involuntary unemployment insurance, family leave of absence insurance and others.    Not regulated by the State Insurance Department, except for rates charged on individual types of coverage.   Rates for the bundled products usually run from 85 to 95 cents per $100 of account balance per month, which is nearly 12% per annum.

Burden of Proof---The burden on a party in litigation of establishing certain facts which prove his case.   The burden is on the plaintiff in the main claim, but on the defendant in a counterclaim.   Certain “affirmative defenses” such as “payment” or “accord and satisfaction” must be proved by the defendant.

Burial Insurance---See “industrial life” or “debit life” insurance.  

Business Records Exception (to the Hearsay Rule)---Normally a witness is not allowed to testify as to matters not within his or her personal knowledge.   But when it comes to proving the balance on an account, creditors are entitled to the “business records exception”, which basically says that if the records are kept in the ordinary course of business and the entries are customarily made promptly at or about the time the events occur, the record may be placed in evidence even if there is no one who has personal knowledge of its contents sufficient to allow cross-examination.   The business records exception does not, however, extend to the “opinions” of persons employed by the party, whether duly recorded or not.   Such opinions are always “hearsay.”   Some assignees who buy contracts from creditors after they are in default are unable to meet the requirements of the business records exception, in order to prove the balance of the account, because the records are not their records.   Debtors who challenge the claims of such assignees can frequently prevail because of this inability on the Plaintiff’s part to prove the case.

C

 

Car Store---A place to purchase motor vehicles at retail.  Usually licensed by state or local government.   Usually required to be bonded in some amount, although inadequately for most major ripoffs.

Case Law---A legal interpretation of contract or statutory language by a court of appellate jurisdiction that is considered binding precedent for lower courts to follow.   Usually requires unanimity or clear majority of the court or panel handing down the decision.   Decisions which are subscribed to by less than a majority of judges, with others simply “concurring” in the result without agreeing with the language of the opinion are usually considered “physical precedent” only, and not binding on lower courts.

Cash in Advance---A scheme to induce a customer to sign an unconscionable contract by offering to pay him cash upon the signing of the agreement.  Example:   For a $300 cash advance a customer agrees to purchase 52 telephone long-distance calling cards over the next year for $20.00 each.    The cards actually cost $2.50 wholesale and can be purchased in convenience stores for $5.00.   The scheme is often viewed as a cover for usury through the “tie in sale.”

Caveat Emptor---In Latin, “let the buyer beware”.   A theory that those who sign unconscionable contracts should be stuck with their bargains, however bad, because they should have had more sense than to sign them.  As opposed to the idea that the public should control the enforceability of contracts through clear statutory and regulatory expressions of social and economic policy. 

Chattel Paper---a contract which evidences both a money obligation and a security interest in or a lease of specific goods or personal property.

Check-Credit—The very bad practice of obtaining a loan against a post-dated check, which can be presented to the bank on the due date.    The problem is that if the check bounces the creditor may try to use the criminal bad check laws to enforce collection, in spite of the fact that a post-dated check is nothing more than a promissory note.  It does no good for someone to say “they can’t lock you up for that” when you are already in jail.  Not to be confused with a “Credit Check” which is simply an inquiry into how one has been paying one’s bills.

Civil Action---A claim filed in a civil (as opposed to criminal) court, usually either seeking a money judgment or seeking possession of property in the hands of another.

Class Action---A civil claim brought on behalf of a large number of people who have been similarly bilked or mistreated by a creditor or seller.   No one has the right to represent a class, but under appropriate circumstances class certification can be obtained from a Court of Equity, or any Court of General Jurisdiction.    The criteria vary from state to state and subject to subject, but in general one must show (1) typicality (that the name plaintiff’s claim is typical of those of the class); (2) numerosity  (that there are a lot of people similarly affected, so as to make individual litigation impracticable); and (3) capacity (that the plaintiff and plaintiff’s counsel are capable of carrying the action forward for the class).   Creditors and sellers have gotten legislation passed in many states banning certain types of class actions, such as those involving claims of “usury”.     Even at the federal level, class actions have been limited by law, most notably under Truth in Lending, where the maximum statutory penalty against a creditor has been established at five per cent of net worth or $500,000, whichever is less.   See “Friendly Class Action”, “Selling Out the Class”.   In a class action the common elements must substantially outweigh any differences among class members or the whole purpose will be lost.   Creditors and sellers also often escape class actions by having customers sign an arbitration agreement.

Closing Costs---Supposed to be the actual out of pocket costs of completing a loan transaction, including filing fees, appraisals, surveys, credit investigation and attorney fees, if any.    Commonly a source of additional profits for the lender or seller.

Collateral---Property pledged to be available for satisfaction of a debt.   Where the creditor holds a “security interest” in property, the property is commonly called “collateral” for the debt.  If the security interest is properly perfected (e.g., recorded at the courthouse) then the creditor has the first shot at that particular property if the debtor goes broke, to the exclusion of most other creditors.

Collection Agency---a business devoted to collecting money, or recovering property, from debtors.   See also Credit Bureau, Collection Lawyer, Fair Debt Collection Practices Act.   Under federal law this would include one who buys debts from creditors after they are in default with the intent to sue the debtor to collect the face amount of the account.   Such accounts are sometimes purchased for as little as 10 cents on the dollar.

Collection Lawyer---An attorney who devotes his practice to extracting money from debtors and delivering it to his creditor clients, for a fee.  Usually distinguished from a “Landlord’s Lawyer” or “Eviction Lawyer”, who only tries to regain possession of real estate for his client.  The Collection Lawyer’s fee is usually a percentage of the take, called a “contingent fee”.   Sometimes, however, the Collection Lawyer actually purchases the account from the creditor at a fraction of its face value and then sues for the face value.  Some unscrupulous collection lawyers allow collection agencies to use their letterhead to write collection letters, to give the correspondence more clout.   This practice is both illegal and unethical, but widespread.  See Fair Debt Collection Act.

Co-maker---Like a co-signer, one who signs a note with the debtor agreeing to be fully responsible for the repayment of the money.    Principally, and not secondarily, liable on the note.    May be sued even if the debtor is not sued.    A co-maker or co-signer is entitled to the same types of default notices and post-repossession notices as the debtor who principally benefited from the purchase.

Commission Cap---A rule or regulation of a State Insurance Department (there is no federal insurance department) supposedly protecting consumers by setting a percentage limitation on the premium commissions which can be paid to creditor-agents selling credit-related insurance coverage.   Actually it makes no difference to the consumer how much the creditor gets, as long as the rate is reasonable. The real intent of these commission caps is to limit competition between insurers to see who can compensate the creditor the best and therefore attract the most business.  If insurers have to keep rewarding creditors more and more in order to attract them, then all insurers begin to suffer, and no one wants that, do they?   Competition is good, except when it hurts the wealthy.  The practice of excessive compensation of creditors for writing credit-related insurance coverage tends to force rates up, rather than down.   This is called “reverse competition” because normally competition is supposed to force rates down.

Commissioner---A regulatory official who is supposed to address the concerns of the public with respect to regulated businesses, such as an Insurance Commissioner, Public Service Commissioner, or Small Loan Commissioner.    Sometimes called an Administrator, or Secretary, as in Secretary of State.

Compound Interest—Interest charged upon interest.   Some courts distinguish between charging interest on earned interest which is not yet due and charging interest on past due interest, the former being called compound and the latter not because in the latter case the past due interest has become principal.    Definition varies from state to state according to statutes and case law interpretations by the courts.

Concealment---A criminal charge often brought against a consumer who protests self-help repossession.   Should not be brought unless the consumer has hidden the collateral.

Cooling Off Period---A statutorily specified number of days allowed in certain consumer transactions to think more about it and void the deal.     Examples:  A three-day period for canceling a “home solicitation sale”.    The three-day cancellation period required by Truth in Lending where a credit transaction will or may result in a security interest in or lien upon residential real estate used as the debtor’s principal place of resident.

Conflict of Interests---A state of facts in which a decision maker must answer to two or more masters and may be persuaded to do injustice to one for the benefit of the other.   Such as a banker who has to decide whether to pay an insurance claim to a debtor where the bank holding company owns the insurance company.

Consideration---The Quid Pro Quo (this for that) in a contract.    The thing given for the thing received.   Without consideration there is no enforceable contract.   Without “consideration” given by one side there can be no duty on the other side to do anything.    A promise without consideration is sometimes called a gift.

Co-signer---See Co-maker.

Construction---Interpretation of a contract or statute to fit a particular fact situation.   Strict construction means strictly according to the language, even if unintended injury results.   Liberal construction means interpretation consistent with the overall purpose of the agreement, and which will preserve the legality of the contract if possible.   The term is also applied to regulatory legislation and its interpretation.   Most consumer protection statutes should be construed keeping in mind the evil to be fought and the remedy intended.   In some cases, judges will try to interpret statutes in keeping with the common law.   Statutes in conflict with the common law should be strictly construed, unless they are for a remedial purpose, in which case they should be construed in keeping with that purpose.    A statute which appears to be in conflict with an earlier existing statute may be construed as amending the earlier statute by implication, even if it is not referred to specifically in the new law.

Consumer---A person who buys goods or land or uses credit primarily for personal, family or household purposes.    A commercial transaction, on the other hand, is principally for business purposes.   Agricultural family transactions are sometimes deemed to be a mixed bag because farm family activities (e.g., buying a pick-up truck) may be commercial, consumer, or both, depending on the circumstances.    Truth in Lending deems as “consumer” those transactions which are “primarily” for personal, family and household purposes.

Consumer Credit Contract---A contract pursuant to which a consumer acquires property or money for personal, family or household use and agrees to pay a creditor a sum of money, or a series of sums, in the future.  See retail installment contract, loan contract, small loan contract, home loan, car loan, time-price contract, credit card agreement, revolving charge account, home equity loan, second mortgage loan, pawn contract, installment note, education loan, security agreement, chattel paper.

Consumer Credit Counseling Service---A non-profit agency, usually receiving support from a community chest or united fund drive, which assists creditors in collecting debts and keeping debtors from filing bankruptcy.   A non-profit collection agency.  Due to its close relationship with creditors it can sometimes work out alternative payment plans which are as effective as some Chapter XIII wage-earner plans, and without the attorney fees.   But don’t expect them to challenge the validity of a debt contract that is excessive or illegal.  Their advertising sometimes preaches the immorality of bankruptcy.    Can be a great help to someone who just doesn’t know how to manage finances and is temporarily overloaded, such as the middle-class compulsive spender.  Not much help for the poor person or the victim of creditor abuse.

Consumer Credit Protection Act---Another name for Truth in Lending, Truth in Leasing and related federal laws.

Contempt---Usually, the result of the failure to obey a court order to do or not do something, such as answering post-judgment discovery.

Contingent Fee Agreement---A contract between a collection lawyer and a creditor or its agent under which the attorney receives a percentage of the funds collected, and does not get paid unless he collects.   Can also be used to seek redress for consumers against

creditors where the consumer lawyer is willing to wait to get paid and the claim against the creditor is more than the debt owed by the debtor.  See Attorney Fee Award.

Contract---An agreement, supported by some “consideration”, to do or not do something in the future.  The term “consideration”, in laymen’s terms, means “what you got” out of the transaction, which caused you to be obligated to the creditor.   If you got nothing of value, then you cannot be obligated, because there is a “failure of consideration”. A debtor can seldom get out of a transaction by arguing “inadequacy of consideration,” even if he got very, very little.  This is because contracts universally have a “consideration clause”, such as “…for good and value consideration, receipt of which is hereby acknowledged….”   The “inadequacy of consideration” or “excessive consideration” is very difficult to argue, unless the contract is so abusive that it is deemed “unconscionable”. In general, if a consumer agrees to purchase an apple on credit for $10 he is stuck with a $10 apple.   If he agrees to pay $100 in a month to see a green monkey jump out of a trash can across the street, and the monkey jumps, the debtor must pay for the entertainment.  See consideration, consumer credit contract, sales finance agreement, meeting of the minds.  To be distinguished from cash sales that carry no future obligations except to honor the implied warranties of ownership and merchantability, and in some cases of fitness for the particular use.  See sale.  See implied contract.

Co-signer or Co-maker---a person who signs an obligation with the debtor and is principally obligated to pay the debt.   In other words, the creditor can come directly after the co-signer with out trying to get the money from the debtor first.   The co-signer or co-maker is a debtor.   In sales finance transactions sometimes called “co-buyer”. To be distinguished from “guarantor”, which is someone who is “secondarily” liable on an obligation----usually the creditor has to first try to collect from the debtor before coming after the guarantor.

Course of Conduct---A pattern of behavior which departs from the strict wording of a contract, such as the creditor allowing the debtor to pay on a date other than the stated due date.   Frequently construed as an oral modification of the contract terms, unless the creditor has notified the debtor, in writing, that it intends to go back to the original contract terms.

Court of Equity---The place to go for a restraining order against a creditor’s interference with property, including foreclosures and repossessions.   Formerly states had two types of courts:  “law” and “equity”.   But nearly all have been merged now into a general civil court system under the state’s version of the Federal Rules of Civil Procedure, a great advance toward uniformity in the justice system.   Today the “equity” powers of courts are found in the “courts of general jurisdiction”, which in some states are called “superior courts” (as in Georgia)  and in others may be called “district courts” or even “supreme courts” (as in New York).    Whatever the title, the term usually means either the highest court of trial jurisdiction, or a special trial level court with “equity powers”.   Thus when a consumer is trying to get a restraining order it is essential to file in the right trial-level court.   In some states only certain appeals courts can hear “equity” cases, and others cannot.  Most courts of equity have a “maxim” or rule that “he who would have equity must do equity”.   What this means is that the debtor may have to tender either to the creditor or to the court the unpaid portion of whatever money the creditor has actually given him (or at least that portion the debtor admits is now due) in order to stop a foreclosure while the court considers other arguments, such as fraud, usury and improper foreclosure procedures.  In most jurisdictions, a debtor cannot file a “pauper’s affidavit” to get around this type of tender requirement, and thus may be barred from justice by his poverty.

Credit—an asset.   A positive account.   As in “I received a credit on my checking account when I deposited the check.”   Not to be confused with debt, which is something you owe.  A person who owns a “credit” is a “creditor”.  A person who owes a debt is a debtor.   Sometimes the term “credit” used in error to refer to an “opportunity to go into debt.”   Some people believe that having a lot of credit is a good thing. Having a “lot of credit” is being deeply in debt, which is a bad thing.   Having “good credit” means having a good reputation for living up to one’s financial obligations.   That is a good thing.

Credit Bureau---An agency that maintains records of persons debts and how good they are at paying obligations as they come due.   May also maintain records of other information regarding a debtor, collected in the course of various “investigations”, such as those commissioned by insurance companies on the question of insurability.   See also Credit Reporting Service.  A creditor that makes its credit data available to others may be deemed a Credit Reporting Service.

Credit Card---A plastic card with an electronic code imbedded into it, which can be used by a seller or lender to access and add charges to a pre-approved account in the name of a debtor.  See lender credit card and retail credit card.

Credit Card Bank---A limited purpose (usually non-depository) national bank set up for the purpose of importing liberal credit regulations into states with more restrictive regulations by chartering in the banker-favorable state.

Credit Check---An investigation into one’s debt-paying habits, particularly through a credit bureau or reporting service.

Credit Accident and Sickness (or Accident and Health) Insurance---One of the various types of credit insurance marketed by creditors. Sold more for the commission on the premium than for the benefits it might provide.  There is usually a minimum duration of disability required in order to collect benefits, which may be 30 days, 14 days, 7 days or only 3 days.    The shorter the minimum disability duration the higher the premium.   Many states have banned three-day and seven-day disability policies because they are so expensive.  Studies have shown that people do not really file claims unless the disability is at least a couple of weeks, because it is just too much trouble and expense.   Just paying the doctor to fill out the disability statement may cost more than the benefits.   Benefits may be “retroactive” to the onset of the disability, or “non-retroactive” (“exclusive”), meaning that the benefits begin at the end of the minimum disability period.   “Retroactive” coverage is more expensive than “non-retroactive” coverage.    The benefits should not exceed the periodic payment required on the debt, and are usually calculated on a per diem basis.  Voluntary credit A&H insurance premiums are included in the “amount financed” for Truth in Lending disclosure purposes, whereas compulsory premiums are included in the “finance charge” and reflected in the “annual percentage rate”.   Of course this disclosure factor is easy to resolve for a greedy creditor----if the debtor doesn’t voluntarily buy the coverage he doesn’t get the loan, and therefore has no Truth in Lending claim.  Some courts have held that where a creditor-related insurer unjustly denies disability benefits, the creditor is estopped (see estoppel) to declare a default.

Credit Insurance---One of various types of insurance contracts used by creditors to increase profits and decrease risk.   See Default Insurance, Unemployment Insurance, Credit Life Insurance, Household Goods Casualty Insurance, Motor Vehicle Casualty Insurance, Homeowner’s Insurance, Credit Accident and Sickness Insurance, Vendor’s Single Interest Insurance (VSI), Non-Recording (or Non-filing) Insurance.   It is usually not illegal for a creditor to require insurance as part of the deal.   But many types of insurance are merely alternative ways to make money, as through the collection of commissions on the premiums by the creditor.  Certain mandatory insurance premiums may be considered finance charges under Truth in Lending, and may have to be reflected in the Annual Percentage Rate disclosed to the debtor.

Credit Life Insurance---Creditors are allowed to require a debtor to secure a loan with a loan insurance policy payable to the creditor.   But security appears to be only a secondary concern.   The vast majority of life insurance sold by creditors to debtors is motivated by the creditor’s desire to earn commission income on the premiums.    It has been speculated that more than twice as much premium money over time has been paid out in creditor commissions than has gone to life insurance benefits.   Only credit unions as a rule sell credit life insurance for its original purpose---to secure the loan---and they usually do not charge a separate premium for it.   It is included in the interest rate.  
There are three types of credit life insurance commonly sold: Gross decreasing life, net decreasing life, and level life.  All are “term” coverages, having no cash value unless death occurs during the term.  Level term life insurance has a constant benefit throughout the term, and is in nearly all cases related to single-payment obligations, or revolving charge accounts where a premium is charged for the month based on the outstanding balance for the month.   Gross decreasing life insurance is sold on the “total of payments” (principal plus finance charge) of an installment-payment transaction.   Net decreasing life is sold on the anticipated outstanding principal balance as it declines throughout the term of an installment debt.
If gross decreasing life insurance is sold on the “total of payments” of a debt as disclosed under Truth in Lending there is always excess coverage at the time of death unless the debtor is substantially in arrears.    For example, if a person signs a car note for $10,000 principal and $4,000 in pre-computed finance charges, and the creditor sells a “gross decreasing” policy, the customer has $14,000 in initial coverage which reduces each month by the amount of a monthly payment.   However, if he dropped dead as he walked out of the car store he would not owe $14,000, but that amount less the refund of unearned charges, or about $10,000 and change.    What happens to the excess coverage?    It is supposed to be paid to the estate of the customer, because the creditor is only entitled to the principal plus earned interest as of the time of death.   Some courts have held that it is illegal to sell gross decreasing life on a note where the contract or the applicable law requires a refund of unearned finance charges upon prepayment.    Some states allow the sale of what might be termed “compromise” life insurance that tracks the anticipated principal balance plus a few months payments.
A few states allow level life insurance to be sold on installment debts, even though this is very abusive.   The cost of level term life insurance is usually about double that of decreasing coverage, and only decreasing coverage is needed on an installment indebtedness.   Again, if the debtor dies during the term there is substantial excess coverage which should be paid to the estate.
Some contracts permit a creditor to cancel credit life insurance if the debtor defaults, and apply the refund of the unearned portion of the premium to reduce the indebtedness.   In fatal wreck cases such clauses may be misused, depriving the debtor’s family of needed insurance benefits.   For example, if the car note is secured both by automobile collision coverage and credit life coverage, and the owner totals the car by driving it off a mountain and dies in the process, both coverages should pay off.   The automobile collision coverage should pay off the note, and the life insurance proceeds should be paid to the estate, or second beneficiary if one has been named.  This is one of the problems with creditors selling life insurance issued by companies owned by the creditor, or owned by the same bank holding company as the creditor.  There is a conflict of interests between the creditor and the estate, with the creditor desiring cancellation of coverage and the estate desiring the benefits to be paid.    Millions of dollars in potential benefits have been lost in this manner because the estate representative did not understand what was happening.
If credit life insurance is compulsory the premium should be included in the “finance charge” and “annual percentage rate” for Truth in Lending disclosure purposes.  If it is purely voluntary, and the debtor has been so informed, then the premium may be included in the “amount financed.”

Credit Record---A record of the debts a person currently owes, how the person has paid debts in the past, and other information useful in determining “credit-worthiness”.   Should be called a “debt record”, except to the extent intended to reflect “creditably” on the person’s character…as in “How much credit should I give to his promise?”  See “credit worthy”, “credit reporting service”, and “credit bureau”.   In some states a person is entitled to one or more credit reports free of charge each year from the three primary credit reporting services.

Credit Reporting Service---A business which collects personal information on debtors and provides it to businesses to assist them in making business decisions, such as whether or not to loan money to the debtor, or to sell the debtor an insurance policy.    Information sometimes used to affect employment opportunities.  See Fair Credit Reporting Act.  See also, Credit Bureau.

Credit Union---A non-profit financial institution usually associated with a particular employer or a trade union the members of which may deposit funds and borrow money as they would with a bank.    The difference is that because it is non-profit the rates of interest charged on loans are usually lower than other sources.   Also, the depositors may be “members” which entitles them to vote for corporate officers and help influence policies.   Credit unions also frequently provide credit life insurance on their accounts at no extra charge to the debtor.  Banks don’t like credit unions.  The savings and loan associations which went bust several year ago and cost United States taxpayers billions of dollars were sort of over-extended credit unions which were run for the benefit of very large depositors.   Most of them were taken over by banks.  Many credit unions are members of the Credit Union National Association (CUNA) which provides them substantial assistance.   CUNA’s insurance subsidiary is CUNA Mutual, which is also non-profit.

Credit-worthy---A finding that a particular consumer is very likely to repay debts, and therefore is an excellent credit risk.  A consumer who is deemed “credit worthy” no longer has to prove himself worthy of going into debt, at least until he has overused his status.

 

D

Debt Record---See Credit Record.

Debtor---A person who owes money to another.   In secured transactions in which the collateral is owned by someone other than the debtor, but has been pledged for the repayment of the debt, the owner of the property may also be considered a debtor.  Also, a cosigner or co-maker is considered a debtor.

Debtor’s Prison---Incarceration of debtors for non-payment of their debts.  In the United States today no state may deprive any person of his liberty except as punishment for a crime.  But in the days of the Founding Fathers debtor’s prisons were all the rage.   At least one signer of the Declaration of Independence wound up in debtor’s prison.  James Oglethorpe brought inmates from England’s debtors’ gaol to Georgia as original settlers.    Oglethorpe had met a lot of debtors while he was in jail for killing a man in a duel.

Debtor’s Act of 1869---In England, the law by which debtor’s prisons were finally abolished.

Default Insurance---A type of credit insurance that pays the debt if the debtor fails to pay.   The insurer is then “subrogated” (see subrogation) to the position of the creditor and undertakes collection of the obligation from the debtor.

Defenestration---The act of throwing someone or something out of a window, as in:  “John’s so broke he doesn’t have a pot to piss in, or a window to defenestrate it.”

Deficiency---The amount of a debt which remains unpaid after the creditor has seized and sold the collateral, especially applicable to motor vehicle credit contracts.  Normally a creditor cannot pursue a deficiency claim except under very narrow circumstances.   The creditor has to be able to show that he sent proper notices to the debtor after the seizure of the personal property, and that all aspects of the sale were “commercially reasonable.”   In the case of a deficiency after foreclosure on a home, the creditor may have to prove that the sale actually brought the fair market value of the property before the creditor can come after any more money from the debtor.   In real estate transactions, however, it is usually the creditor who buys the property at foreclosure and it is easier for the creditor to recoup its losses through a second sale at retail than to pursue the defaulting debtor.    In many cases the creditor actually collects more though the second sale than was owed to it at the time of default.

 

Declare---Not just to say something out loud, but to say it to the person involved, as in “declare all remaining payments due and payable”.   If the creditor doesn’t communicate the “declaration” it doesn’t exist.    If a tree falls in the forest and there is no one to hear it……

Debt Cancellation Clause---A provision in a bank loan contract that the debt will be cancelled upon the death of the debtor.   A type of credit life insurance, normally bundled with other types of quasi-insurance products.

Deed under Power---A deed given to the buyer at a foreclosure sale by the creditor, acting in the name of the debtor under a “power of attorney” to convey the property at such a sale upon default.

Default---A declaration by a creditor that a debtor has failed to comply with the contract, usually accompanied by an acceleration of maturity of any remaining installments or obligations.

Default Rate---A higher than normal rate of interest imposed on a consumer as a penalty for allowing his account to go past due one or more times, depending on the contract provisions.

Delinquency---The failure to perform obligations, or to pay debts when due.

Demand---To claim something one is entitled to receive.   To communicate to another that you expect him to perform an obligation.    Also used to describe the setting of a due date on a demand obligation.

Demand Obligation or Demand Note---a contract to pay money at such time as the creditor may require or demand, with no specific original due date.

De Novo Trial---An entirely new trial, with new evidence, as if the first trial had not been conducted.   Frequently where a creditor has sued a debtor in small claims court or “magistrate” court, and the debtor has lost, the debtor may appeal to a higher trial level court for a “trial de novo”, where he can correct his mistakes or bring in legal counsel and finally get his point across.   Unfortunately, the debtor sometimes finds himself arguing before the same judge who heard it the first time, sitting “by designation” in the higher court to conduct non-jury trials.    An appeal for a de novo trial at a higher court may, however, give the debtor more “discovery” rights than he had in small claims court.

Deposition---Taking a statement from a witness prior to trial, before a court reporter, either for “discovery” purposes or to preserve his testimony for trial if he is about to die or move from the state or might not otherwise be available for live testimony.

Discovery---The right of a litigant to compel the opponent to answer questions in writing (interrogatories), answer questions before a court reporter prior to trial (deposition) or produce documents for inspection and copying.

Discount---A form of pre-computed and prepaid finance charge that is taken at the front end of a loan transaction.   Similar to “points” or “loan origination fees”. Example:    Debtor wants to borrow $1000.  The bank says: “We will charge you eight per cent per annum”.   A note is drawn up for $1086.96.   The bank computes eight per cent for the year ($86.96) and subtracts it from the face of the note, leaving $1000 which is given to the borrower.   At year’s end, the debtor pays $1086.96.  Nominal rate?   Eight per cent per annum.   Actual Annual Percentage Rate?  8.7% per annum. Tricky.   Formerly used to get around eight per cent usury laws, but since there are no longer any eight per cent usury laws it is seldom used today.  The term “discount”, in another context, also refers to the sale of chattel paper at less than its face value.    Some small loan statutes permit a discounted service charge on the front end of the transaction plus an interest rate charged on the non-discounted face amount of the loan.

Documentation or “Doc” Fee---A fee or charge imposed on a car buyer by a car store ostensibly for the preparation of legal documents related to a credit sale.   Car customers are led to believe that these “fees” are like “official fees” and therefore non-negotiable.    Actually they are illegal charges for the preparation of legal documents.   Only an attorney can charge for the preparation of legal documents in most states.   Additionally, the costs frequently exceed substantially the actual cost of having someone in the office type up the papers, or having the computer do it.    Such charges should be “finance charges” on the Truth in Lending disclosure statement, but frequently are disclosed as part of the cash price of the vehicle.     Sales tax is even collected on these fees.    One test for proper disclosure is whether the creditor/seller charges the same fees to cash customers.     If so, then there may not be a Truth in Lending violation.    But there may not be any cash customers to compare within the same time frame.  People who borrow money for their car purchase from a bank or credit union could be considered “cash customers” for this purpose.  But in any event, as noted above, the charges are mostly illegal attorney fees paid to non-attorneys.     Some courts have approved these charges where they are nominal.    But where they exceed $100 or so, legal challenge is common and appropriate.

Due Diligence---A rule requiring that a consumer’s reliance on misrepresentations by sellers must be “reasonable” in order to sustain a claim of fraud.    Look before you leap.   Caveat Emptor.

Due on Sale Clause---A provision in a home loan under which the creditor can accelerate the maturity of a loan if the debtor sells or conveys any interest in the real estate.   Used by creditors as an opportunity to increase the interest rate on low interest loans, or require them to be paid off through a new loan from another creditor, if the cost of money has gone up since the loan was made.   Supposedly the creditor’s approval of the new debtor should not be “unreasonably withheld”, but in fact creditors have an almost limitless right to call debts due on sale.    Many have argued that such clauses are an undue “restraint on alienation”, inconsistent with the provisions of a warranty deed.  But in Congress, as in the State legislatures, creditors usually rule.   See Plutocracy.

Due Process of Law---In the context of consumer credit, the “due process  of law” means notice and an opportunity to be heard in a judicial proceeding.   Until the last few decades it was possible to obtain a court order for the repossession of a motor vehicle without notice to the debtor.   Similarly, it was possible to run a garnishment on a person’s wages without first getting a judgment against the debtor.  In several decisions, the Supreme Court of the United States held that consumers were entitled to “due process” in the form of notice and an opportunity for a hearing before their property or wages could be taken, with very few exceptions.   There are two “due process clauses” in the Constitution, one in the Fifth Amendment, which protects consumers against deprivations of property by federal authorities and one in the Fourteenth Amendment, which protects consumers against improper “state action”.  There is nothing in the Constitution that protects a person against a “self-help repossession”, because creditor action is not “state” action, even if the financial institution is a chartered federal or state bank.    Those seizures are governed by statutory law, particularly the Uniform Commercial Code, and to a lesser extent Motor Vehicle Sales Finance and Retail Installment Sales acts.

E

 

Encumbrance---A creditor’s interest in property which is security for a debt, including real estate mortgages, deeds to secure debt and other liens on real estate and all other rights in real estate that are not ownership interests.

Equal Credit Opportunity Act (ECOA)---A law that is intended to protect minorities and women from discrimination in credit approval or terms of credit.

Equity---See Equity of Redemption.   The term may also be used to refer to a “Court of Equity”, see above.

Equity of Redemption---Also known as “equitable right to redeem”.    The interest in real estate which is left when one has transferred the title to a creditor under a deed to secure debt.   Usually the “first” deed to secure debt on a home is for the purchase money.   The deed actually conveys the title to the property to the creditor, subject to the debtor's “equitable right to redeem” the title by paying off the obligation.   If the debtor wants to borrow more money against the home, all he has left to pledge is that “equitable right to redeem”, “equity of redemption”, or in its shortest form, “equity.”  See “home equity loan”.

Escrow Account---An account maintained by a creditor for the payment of insurance premiums and ad valorem taxes on the debtor’s home.   Usually required in any home loan.   The debtor pays into the fund each month in advance so that the money will be available when the bill comes due.    Sometimes also used to refer to an attorney’s trust account where client funds may be held separate from the attorney’s own funds.

Excess Coverage---In credit-related insurance, the amount by which the insurance proceeds exceed the debt.   Writing level term life insurance on an installment loan.   Writing coverage on the “total of payments” instead of the principal amount of the debt.

Execution---In the civil context, action by the Sheriff, Marshal or Constable to seize property of a debtor to satisfy a civil judgment held by the creditor.

Exhaustion of Administrative Remedies---The rule, too often invoked,  that consumers who want to complain about the activities of insurers and creditors must first complain before administrative agencies (which may be favorable to the industries they regulate) before taking the practice before a court of law (which doesn’t sleep with the enemy).

F

 

Fair Business Practices Act---A “nice” name for a state law regulating unfair and deceptive acts and practices by sellers and creditors (UDAP Acts).

Fair Credit Reporting Act---A federal law regulating and penalizing under very limited circumstances companies that engage in Credit Reporting.

Fair Debt Collection Practices Act---A federal act governing the activities of debt collectors, including attorneys who collect debts, and providing consumer remedies in federal or state courts.

Federal Housing Administration (FHA)---A federal agency which guarantees home loans, allowing buyers to obtain slightly lower rates in some cases.

Fiduciary duty---A duty of “good faith” imposed by tradition, professional standards, agreement or law requiring one who acts for another to act primarily for that person’s benefit and not primarily for his own or his employer’s.    Example:  An attorney handling a class action has a higher duty to the class members than to his own financial interests.   See “selling out the class”.   An insurance agent seeking an insurance policy for a customer should look for the policy with the lowest practicable rate, rather than seek an expensive policy in order to enhance his own commission income. A “counselor” at a consumer credit counseling service should advise the consumer when he comes across an illegality in a transaction, rather than acting for the creditor and insisting that the debt be paid.    A bankruptcy attorney should counsel a debtor not to go bankrupt when there is a legal or equitable defense to the major debt, even though the attorney earns his living collecting attorney fees through Chapter XIII bankruptcy plans.   An insurance claims adjuster should remind a customer who has just been in a bad accident that he has uninsured motorist coverage which may help cover the damage if the person who caused the injury is underinsured.   A credit life insurance company should advise the widow of the insured that there is more coverage than is needed to pay off the debt, if that is the case. After a fatal crash the heirs should be advised that the motor vehicle policy will pay off the debt and they can then have all the credit life insurance money.  In the absence of a clear defense, an insurance company should try to settle a claim against its insured within the limits of the policy, rather than expose the insured to a judgment in excess of the coverage.   National car valuation services should not have one “retail” book designed to assist their members in selling used cars at high prices and another “retail” book to be used by insurers in settling claims with customers who have “totaled” their car.  A creditor who has repossessed a car should try to sell it for the best price reasonably available, rather than selling it quickly and cheaply and going after the customer for a deficiency.  The list goes on and on.   The attorney exercising a “power of sale” on the courthouse steps to foreclose on a debtor’s home should declare “no sale” if the bids are far below the fair market value.    The mortgage company foreclosing on a home should willingly advise prospective bidders how much is owed on the home, in order to attract competing bids on property with high equity.   The small loan company manager should actually assist the customer in making a legitimate accident and health insurance claim, rather than frustrating the claim in order to protect his year-end “experience refund” on the premiums.   But don’t hold your breath until the world operates “in good faith”.

Finance Company---A term usually confined to institutions which assist in financing the purchase of personal property, including automobiles, either through making loans for the specific purpose or by purchasing dealer paper.  Sometimes used to refer to small loan companies and industrial loan companies.

Fine Print---The portion of the printed agreement which the creditor really does not want the buyer or debtor to read.   The place where the oral representations are taken away in favor of time-tested legalese.

Flipping---The practice in the small loan industry of getting a customer to renew a loan before its term expires in order to obtain additional service fees and increase loan yield to the creditor.   Very effective where there are prepayment penalties, or where there are significant non-refundable service fees, origination fees or “points” taken on the front end of the loan.   Also effective in jurisdictions where small loan administrators permit companies to “round upward” in computing rebates of pre-computed charges, such as allowing them to count a few days as a full month by rounding to the next due date.

Floor Plan---An arrangement between a financial institution and a car store or other retailer under which the financial institution finances the acquisition of inventory in exchange for an agreement by the retailer to sell consumer credit contracts back to the financial institution.  Usually under these circumstances the financial institution dictates the contract forms and terms and conditions of credit instruments which are going to be assigned to it under the plan.

Foreclosure---A legal act cutting off a debtor’s right to redeem the title of property pledged to secure a debt or, in the case of a secondary security interest, the sale of the right to redeem.    The debtor is “foreclosed” from exercising his equitable right to redeem.  The most common type of foreclosure occurs when the creditor or its agent or attorney stands on the courthouse steps (or where the law or contract otherwise dictates) and auctions off the property interest of the debtor to the highest bidder.  More often than not, the creditor is the only bidder, starting the bidding with the amount claimed to be owed to it by the debtor.   Unless there is a good bit of “equity” held by the debtor other bidders are not interested in participating.   Yet there are always “vultures” hanging around the site of foreclosure sales hoping to find a bargain.  If they bid at all it is usually just a dollar or two above the creditor’s bid.  This is the kind of “equity stealing” which is touted as a get-rich-quick scheme on late night television. Non-judicial foreclosures are authorized by a “power of attorney” contained in the security instrument authorizing the creditor to act on behalf of the debtor to sell the debtor’s property.  The proceeds of the sale go first to pay the debt (including expenses of sale) and the remainder, if any, to the debtor. Legal advertisement of the sale is usually required, as well as a mailed notice to the debtor of the intent to exercise the power of sale.  The person buying the property receives a “deed under power” which is short for “deed under power of attorney”.  Such   foreclosures do not require advance judicial approval, but if the creditor is still not satisfied after the foreclosure and wants to recover a “deficiency” against the debtor, judicial approval of the sale may be required.  In disputed cases, the burden is on the debtor to bring the matter into court with a request for an injunction.  See tender rule, restraining order.  Foreclosures may also be stopped by a bankruptcy stay, but this is usually only a temporary fix because the creditor may file a “petition for relief from the stay” and the Bankruptcy Court may allow the creditor to proceed with the foreclosure if everything is in order.  Judicial foreclosures are court actions seeking permission to foreclose, and are the exception to the rule in most jurisdictions.

Forum Non Conveniens---The practice of specifying a court for the resolution of civil conflicts between contracting parties which is inconvenient to one but very convenient to another.    Such as where a Georgia trucker buys an  18-wheeler which is financed by a company located in Wisconsin, and the contract provides that if the debtor defaults the collection case may be brought against him in Wisconsin.

Four Corners---The language of the contract as contained in the document, without reference to any extraneous or “outside” promises, guarantees, conditions, requirements or terms.

Friendly Class Action---A class action brought by a plaintiff who is not truly adverse to the position of the creditor, for the purpose of minimizing losses through a quick and inadequate settlement of a known company-wide problem.

 

Full Boat---A term used by car dealers and their assignees to indicate that every possible additional charge for the use of credit has been inserted into a consumer’s contract.

G

 

GAP Insurance---Insurance against the risk that if your financed motor vehicle is totaled the primary casualty carrier will not pay enough to discharge the debt.

Grace Period---A period of time, after a due date, during which the debtor may pay the bill (perhaps with penalties added) in order to avoid a declaration of default.

 

Group Insurance---Insurance policy issued to a creditor covering a group of debtors who are enrolled under the same policy and issued a “certificate of coverage” rather than an insurance policy.  Typical of Credit Insurance.

Guarantee---One to whom a guaranty is made.   Also may be used to refer to the contract itself.

Guarantor---A person who signs a guaranty, obligating himself to pay the debt of another.  For example, a co-signer.

Guaranty---To agree to answer for the payment of another’s debt.  Usually a “secondary liability”, in that the creditor has to pursue the debtor first, and if he does not pay, then he can come after the person who signed the guaranty.

Greed---Avarice.   The desire to have more than you presently have, and to use almost any means to acquire it, including taking advantage of the poor, the desperate, the uneducated and the unwary.

H

 

Harrassment---The practice of making repeated telephone calls and other contacts with a debtor and the debtor’s relatives, employers and neighbors, in an effort to collect a debt.  Usually actionable under either the tort of “harassing telephone calls” or under the Fair Debt Collection Practices Act.

Hatch Act---A federal law prohibiting federal, state and local agency employees from engaging in political advocacy.    Tends to deprive consumers in many instances of the expertise of government officials when trying to counter the lobbying activities of big banks and other financial institutions.    Also has been used to keep publicly-funded legal aid lawyers from commenting on proposed law-making at the State level, and from appearing before regulatory rule-making authorities on behalf of consumers.

High Employment Problem---An ages-old problem for those with accumulated great wealth: What to do when everyone has a job and we actually have to raise the basic wage rate in order to get people to do the “---- work”, such as collecting our garbage, blowing our leaves, and cleaning up after our aged parents who can’t control their bodily functions any more?   If those at the bottom get a raise, then there may be a ripple effect all the way up the ladder.   The value of the dollar will shrink, because it will be more difficult to get someone to do something for the same price as in the past.   So, we’d better get on the horn to the Federal Reserve Board and get them to up the interest rate businesses pay for construction loans and new equipment, so that some of them won’t be able to borrow, and there will be fewer jobs, and Mary won’t quit the nursing home for a more attractive and better-paying job at McDonalds or Wal-Mart.

Hoc quidem perquam durum est, sed ita lex scripta est---In Legal Latin, an excuse used by courts of equity for not helping a poor man by restraining his creditor’s acts, or relieving him of a bad bargain.    In English: “I know this is exceedingly harsh, but it’s the law”.   Or, in the vernacular:  “Tough hockey.   Write your Congressman.”

 

Holder in Due Course---A legal principle that allows the “holder” of a negotiable instrument (such as a promissory note or retail installment sales contract) to avoid any defenses to the obligation unless the defenses (or the defect giving rise to the defense) appears within the “four corners” of the note itself.   Stated in full:   “holder in due course for value and without notice of defects”.    This rule has been eliminated with respect to consumer credit contracts by a Federal Trade Commission rule (The “holder rule”), which requires consumer credit contracts to contain a provision making any holder or assignee subject to any claims and defenses which could have been raised against the original creditor.

Holder Rule---See “Holder in Due Course”.    A federal regulation applicable to consumer credit contracts provides that all such contracts contain a clause which makes the holder or assignee subject to the claim claims and defense (with certain limitations) as might have been brought against the original seller.   Also applies to loan notes issued by banks and others where the lender knows that the loan is for a specific purchase.

Home Equity Loan---A loan secured by the debtor’s “equity of redemption” or “equitable right to redeem” the title to the debtor’s home.    This is a “secondary” security interest loan.   The first security interest involves the conveyance of title to the lender or seller, usually for purchase money.    Secondary and Tertiary security interests are “subordinate security interests” to the holder of the first.   When a “home equity loan” is foreclosed after default, all the buyer at that foreclosure sale receives is the debtor’s right to obtain the title free and clear by paying off the first mortgage.   If the first mortgage is also in default at the time this interest is purchased the buyer may be in jeopardy unless he can quickly put together the money to pay off the first, or at least make the first lender happy by curing the arrearage.  Formerly called a “second mortgage loan”, but changed by creditor advertising companies to remove the stigma and appearance of financial distress associated with the old name.

Home Solicitation Sale---A sale of goods, home improvements or other property or services where the initial solicitation occurs in a home other than the home of the seller (e.g., in the buyer’s home).   In some circumstances there is a “cooling off period” of three or more day during which the debtor (buyer) can cancel the purchase, often without penalty.  Controlled by state law, sometimes as part of a combined Retail Installment and Home Solicitation Sales (RIHSSA) Act.

Homestead Exemption---Certain property or total dollar value of property considered exempt from levy.    Does not normally include property pledged to secure a debt.   See waiver of homestead.

Horse Mackerel---A “tuna fish” before Madison Avenue took over. 

Horse Trading---Driving a hard bargain.

Household Goods Casualty Coverage (HHG)---A high-priced insurance contract which is ostensibly intended to protect the creditor’s interests in collateral if your house burns down, but which is really intended to reward the creditor with a high commission on the premium.    These policies frequently pay out less than twenty per cent of the premium in benefits, leaving the other 80% available for insurer and creditor compensation.   Easily three times as much money is received by creditors from insurance premium commissions on this type of coverage than is received in benefits on claims filed by consumers.   Frequently sold by small loan companies which take security interests in household furniture, cheap furniture stores and rent-to-own outlets.  A study several years ago under the auspices of the Federal Insurance Administration (an office of HUD) showed benefit payments as low as ten per cent of the premiums among many companies.

Household Goods Security Interest---A non-possessory (non-pawn) security interest held by a seller or lender in household goods of the debtor.   Such security interests are very much limited by federal law, except in the case of purchase money security interests created by the Uniform Commercial Code.

I

 

Incorporation Clause---A clause or phrase in a contract providing that there are no other contracts or terms between the parties than appear within the four corners of that instrument.    All parts of the agreement have been “incorporated” into the one contract.

“Industrial” or “Debit” Life Insurance---Another import from England where there is an “industrial class” to be mistreated.   In America “industrial life insurance” is sold primarily to poor people.    It has outlandish rates compared with the benefits paid out, sometimes paying out less than 25% of the premiums in benefits.    Coverage is quite limited---frequently less than $1000---and the marketing agents tout it as “burial insurance” because it is usually paid over to the mortician to cover interment.   Black preachers in the South used to sell it through their churches for extra income.   Dr. Martin Luther King’s father, for example.   Many states have prohibited funeral directors from selling this coverage.  Many life insurance companies, including the few owned by minorities, got their start with this abusive coverage, and many still thrive on it.  Premiums are still collected weekly or monthly on a “route” in many areas of the South.  

Injunction---A court order prohibiting someone from doing something.   For example, an injunction against a mortgage company foreclosing on a home.   Analogous to a “stay” in bankruptcy.   A short-term injunction is sometimes called a “restraining order”.   An injunction which is good until a matter can be finally litigated is called an “interlocutory injunction.”

Insecurity Clause---A provision allowing a creditor to call a loan due (acceleration) when the creditor “feels insecure”.    Usually requires some substantial reason for such feelings, but sometimes exercised arbitrarily.

Installment Loan---A loan repayable in regular periodic payments, usually monthly.

Installment Discount Interest---Interest calculated on the full amount of an installment loan for the entire terms of the loan and then discounted in advance from the face amount of the loan.   Abusive in two different ways:    By failing to consider the decline in principal over time and by computing interest on a figure larger than the benefit to the consumer.

Interest---Money paid or to be paid by a debtor to a creditor for the use of the creditor’s money.    See simple interest, add-on interest, discounted interest, compound interest, annual percentage rate, finance charge, time price differential, rebate formula.    What is and is not “interest” is usually defined by statutory law or agency regulations.   What is or is not a “finance charge” under Truth in Lending may not be identical to what is or is not interest at the state level.  Some costs associated with an extension of credit may not count as “interest” for regulatory purposes, such as the cost of searching public records to determine the true ownership of property intended as collateral.   In some states, points or origination fees charged in connection with real estate loans are not considered “interest” for usury purposes.

Introductory Rate---An attractive Annual Percentage Rate offered by a credit card company for a limited period of time in order to attract customers to run up large balances.    After the “introductory period” of perhaps six months the rate goes up to the “normal” APR which may be eight or ten per cent per annum higher.

J

 

Judicial Repossession---A procedure by which the seizure of collateral is requested in a court complaint, and in which the consumer normally has a right to notice and an opportunity to be heard pursuant to the Fourteenth Amendment.

Judicial Sale---A “sheriff’s sale” in which property of a debtor is auctioned off by a state official to satisfy debt.  Distinguished from a private “sale under power”, in which a representative of the creditor, holding a power of attorney signed by the debtor, sells the debtor’s property and turns the proceeds over to a creditor.    Distinguished also from a private “repossession sale” where a creditor personally or through an agent or professional auction house disposes of property which has been repossessed, as authorized by the Uniform Commercial Code or by contract terms.

Judicial Activism---The term used by “conservatives” to accuse a judge of  “making law” in violation of the separation of powers.    Usually, in fact just an interpretation unfavorable to the powers-that-be but consistent with the procedural and substantive law.

July 4th Sale---In those States where the day fixed for foreclosure sales is the first Tuesday after the first Monday of each month, there cannot be a New Years Day sale, but there is a July 4th sale once every seven years on the average.   The courthouse and banks are closed, but the sales of people’s homes go right on.    Considered to be a boon to creditors who don’t want competition in the bidding, because the creditor can bid up to the amount of the debt without having to go to the bank for money, while other bidders have to find a place to get a large money order before the close of business in order to complete their sale.

K

 

Kiting---The illegal practice of depositing in a bank account a check known to be bad, for the purpose of creating a false deposit which can be drawn upon to make another bank deposit, and so on.    Living on the “float”, or the time it takes for a check to clear the bank on which it has been drawn after being deposited in another bank.  Basically the check kiter is using money which is not his, and which only “appears” to exist.  Eventually check kiters’ kites flutter down to earth and they often wind up in jail.  Not to be confused with a paper hanger, who simply writes bad checks and doesn’t worry about covering them.

Knock Down---To bang the gavel signaling the sale of property in a foreclosure or repossession auction.

L

 

Laches---A doctrine of the old courts of equity holding that a person who sleeps on his rights loses them.   Equity aids the vigilant.   (Today few jurisdictions have separate courts for law and equity, and the equity powers are exercised by courts of general jurisdiction, such as “district courts”, “superior courts” or in a few states, “supreme courts”)  For example, if a person is overcharged on the interest in an obligation he is expected to go as quickly as possible to the courts for relief or he will be considered to have “slept on his rights”.   Sometimes these rules become codified as a statute of limitations, or statute of repose, which establishes the time limit for taking action.   In Truth in Lending, for example, most remedies must be pursued within one year from the date of disclosure.  Actions for fraud, also, usually have short time limitations, as do actions for the recovery of illegal interest paid to a creditor.   Sometimes it is held that the doctrine of laches does not apply unless the delay has caused the opponent to be less able to defend himself from the claim

Latent ambiguity---Where the language of a contract appears to make good sense, but there are facts in the real world that cause its words to be subject to more than one interpretation.   For example, a contract is payable in “Columbus”, which in the real world may apply to Columbus, Georgia, or Columbus, Ohio, or a number of other cities so named.

Legal Tender---Either cash or the medium of exchange specified in a contract, used to satisfy monetary obligations.

Legalese---The specialized and technical language commonly employed by creditors’ lawyers in drawing up contracts for consumer use.   Frequently unintelligible to the average layman.

Lender Credit Card---A credit card issued by a bank or other lending institution that can be used either to buy merchandise or services or to obtain money (cash advances).   To be distinguished from a retail credit card or merchant credit card.

Lex Loci Contractus---The law of the place where the contract was made or, sometimes, the “law by which the contract is to be governed”.   Normally a credit contract is governed by the law where the parties entered into the contract, but more and more often national creditors are picking creditor-favorable jurisdictions and then inserting into their adhesion contracts that the contract will be governed by the law of that favorable state.   Sometimes the contract even states that litigation arising out of the contract will be brought only in a certain state, which may be quite inconvenient to the debtor…a “forum non conveniens”.

Liberal---Supposedly a  “liberal” is a person who wants change, and a “conservative” is one who wants to preserve the old ways of doing things.   But for some reason in the consumer credit field it has been the “conservatives” who have favored change, in the form of deregulation of interest rates and other finance charges.   Perhaps the term “conservative” should be better defined as “those who support creditors against debtors,” and liberal should be defined as “those who support debtors against creditors.   

Limitation of Actions---The time limit within which an action must be asserted or be lost forever.    Contract actions typically have long statutory periods.   Certain consumer counterclaims have relatively short limits…such as Truth in Lending claims that must be brought within one year after the contract is consummated, with rare exceptions.  A statute of limitations on a civil claim.

Limited Guaranty---A guaranty limited to the particular transaction, as distinguished from a General Guaranty that may guarantee future advances as well as the present debt.

Liquidated Damages---A sum agreed upon by both parties to a contract as the amount to be paid to a non-breaching party if the other party breaches the contract.  Such agreements are usually enforceable only if the figure agreed upon reasonably approximates the actual damages caused by the breach.

Loan Company---A private lending (non-banking) institution which usually specializes in making small loans to consumers at above-average finance charge rates.   A “below prime” or “sub-prime” lender, not meaning that the rates are “below prime” rates but that the customers are “below prime” borrowers.  Frequently operates under a “small loan act” or “industrial loan act”.   The term “industrial loan” does not refer to loans to “industries” but to loans to the “industrial classes”.   The term has obvious English origins.  Some states limit the number of companies that can operate in a given geographical area through a system of “certificates of public convenience and advantage” or “certificates of public necessity and convenience.”  Such certificates were gold mines for their holders in the past, prior to the advent of credit cards.   But through the credit card system banks were able to relax their tight credit standards and make loans at rates higher than offered to their best customers.    Thorough this process banks were able to “skim the cream” from the loan companies (take their best customers) leaving them with the very high risk borrowers.   The small loan business has be on the decline ever since, most of them now supplementing their income through the purchase of consumer installment paper from merchants and car stores. A small loan company, or industrial loan company.

Loan Shark---A predator who takes advantage of people’s misery, ignorance, necessity or human frailty by getting them to sign contracts to pay outlandish interest rates for short-term borrowings.   Sometimes associated with illegal collection tactics where judicial enforcement is not an option.    May also be applied to any lender who charges interest considerably above the market rate, such as certain second and third mortgage lenders who lend to people in financial distress with the real intent to foreclose on their homes.

Loss Leader---An item which is offered for sale at considerably below its market value, or even below wholesale cost, just to attract customers into the store.   Usually in very limited supply.   See “bait and switch”.

M

 

Malum in se---A misdeed or illegality which is “evil in itself”, or evil according to concepts of “natural law”.    As distinguished from “Malum prohibitum”, which is evil only because it is prohibited by law.

Malum Prohibitum---Something which is not evil in itself (e.g., murder) but which is evil because it is prohibited by law (e.g, smoking marijuana, charging excessive interest on a loan (loan sharking), jaywalking, selling whiskey on Sunday)

Minor---A person who is considered to be below the age of “legal competence”, in the sense that he or she cannot sign a legally binding contract.  Usually refers to a person under 18 years of age.   A person 18 or older has in most states “reached the age of majority” for nearly all purposes, except purchasing cigarettes and alcohol.

Mitchell vs. Grant---Decision of the Supreme Court in the 1970s upholding an abusive repossession procedure under Louisiana’s “civil law” system.

Morris Plan Bank---An outdated type of small loan company, started by A.J. Morris,  that used rather ingenious devices to try to get around usury laws.    One of the devices was to open a loan company next door to a savings company, both owned by the same company.   The loan company would lend money, for example, at eight per cent simple interest, but it would require that the loan be secured by a savings account next door which paid no interest at all.   On a $1000 loan for one year, the debtor was charged eight per cent ($6.67 per month) on the entire principal balance for the year, although he was in reality paying the loan back by depositing $90.00 per month into the “savings” account.   The result was that the eight per cent interest rate was converted in reality to about 14.5 per cent.   See “Add On Interest”.    Such devices were one of the primary reasons for the passage of Truth in Lending in the late 1960s.

Mortgage---An instrument securing a creditor’s position with respect to property pledged as collateral for a money obligation.   See Deed to Secure Debt.

Mortgage Company---A financial institution which makes home loans or buys home loans made by others, and takes a “mortgage” or “deed to secure debt” on the property to secure repayment of the debt.

Motion for Judgment on the Pleadings ---A motion, usually filed by the plaintiff in a collection case, saying essentially that even if the answer is true it provides no defense for the debtor.   Example:   I lost my job and could not pay this bill.   A lost job is no defense.

Motion for Summary Judgment---A motion, with factual affidavits or other types of proof attached, contending that there are no substantial questions of contested fact and the moving party should be granted partial or total judgment as a matter of law.   Usually accompanied by a separate listing of supposedly uncontested (undisputed) facts and a “brief”, or argument of the law and how it applies to the stated facts.   Such motions are often used by collection attorneys to take advantage of defendants who are pro se…that is, representing themselves in court.

N

National Association of Insurance Commissioners (NAIC)---A semi-public organization which is supposed to facilitate the regulation of insurance by providing data, studies and model rules and regulations to attack common problems in the insurance field.  

Negotiable Instrument---A document representing an obligation to pay money that can be “negotiated” or sold to another, passing along the right to collect the money.  Normally the buyer of a negotiable instrument is not subject to any defenses which do not appear within the four corners of the contract unless it can be shown that the holder had notice of possible defects when he bought the instrument.  (e.g., where the instrument was already past due and unpaid when it was purchased).

Non Compos Mentis---A person who is so mentally deficient as to be unable to understand the terms of a contract, and thus is not bound by it.

Non-Recording or Non-Filing Insurance---This is supposed to be an insurance policy purchased by a creditor to protect it against the failure of its employees to record, or to record properly, a security interest in personal property.   The premium is passed along to the debtor, and is usually the same as the cost of recording a security interest under the Uniform Commercial Code.   Frequently, however, these “policies” are mere devices to pass the cost of the filing fee into the hands of the creditor.   The supposed “insurer” simply takes the supposed “premiums” and deposits them into a savings account for the creditor, taking maybe five per cent off the top for administrative costs.   Whenever the creditor has a bad debt (charge off) for any reason (not just non-recording or improper recording) the creditor gives the “insurer” a call and asks for some of the money.   Such “bad debt pool” charges are supposed to be disclosed as finance charges under Truth in Lending, but by falsely calling them insurance premiums creditors frequently avoid true and accurate disclosures.  Sometimes this fake coverage is actually sold by retailers who have a Purchase Money Security Interest (PMSI) which does not even require filing.  Several major class actions have resulted from this practice.   See Bad Debt Reserve for more details.

Novation---In the sale of property subject to a pre-existing security interest, a three-way agreement between a buyer, seller and creditor that the buyer will be solely responsible for the existing debt on the property, and the seller is completely released from further obligation.     Thus if the buyer doesn’t pay off the existing debt on the property and lets it go into foreclosure or repossession the seller cannot be pursued for any deficiency, and will not have a blot on his credit record.  Must be in writing to be effective.   Selling the property without the existing creditor’s consent is usually illegal, and does not automatically relieve the seller of further responsibility to the creditor.

Null and Void---A contract which is illegal on its face.

 

O

Official Fees---Actual expenses incurred by a creditor, and passed along to a debtor, for the filing or recording of security instruments, such as car title liens and the like.  Not to be confused the “doc fees” which are fees kept by the creditor to pay its employees for preparation of loan documents, or just to line the creditor’s pockets.

Oreo---A politician who is “black on the outside and white on the inside.”  Gets elected by telling black people he or she will look out for the interests of the common man, including the poor, and then votes on behalf of bills which benefit only lenders, landlords and used car dealers.   More prevalent in the South, where there has always been a class of “black leaders” who have made their living fleecing poor blacks, simply because they were not allowed to fleece whites, poor or otherwise.   Tom Watson, then a populist from Georgia, is quoted as having told a group of poor blacks and whites year ago: “You are being kept apart so that you may be separately fleeced of your wages”.   Few in power have done anything about it since, black or white.  

Other People’s Money---One of the great tricks in America for attaining great wealth without producing anything is to manipulate other people’s money, and treat it as your own for the purpose of making more.    Insurance companies and banks are the classic example.     Banks accept “deposits” on which little or no interest is paid, and then lend the money out and make profit on the interest charged.   Banks play on the fear of theft by providing a safe depository for your cash.  Insurance companies accept “premiums” which are supposedly pooled and used to pay some portion of damages when disaster strikes.  Insurance companies play on your fear of economic disaster due to catastrophic losses of property or a death in the family or a judgment for personal liability due to negligence.   Even state lottery programs have gotten into the game, pooling revenue from tickets and handing out a small portion of it a prizes….effectively educating middle class children at the expense of the poor.  Once the “money pump” has been primed and is up and running great political forces gather around to maintain it.    To the extent that asset pooling facilitates economic progress it is a good thing.   But power corrupts, and absolute power corrupts absolutely, and you have to watch these people like a hawk.   They will pick your pocket.

Outgo---Expenditures.   When your outgo exceeds your income you are in trouble.  Sometimes the use of credit gives people a false sense of buying power by temporarily expanding their ability to spend.  This causes their outgo to outstrip their real income, because the ability to borrow is not income.    A person who uses debt to pay for goods actually constricts buying power.   Compare two persons who have $30,000 per year take-home pay.   One is debt-free and the other perpetually owes $15,000 in 18% per annum debts.  Whenever he pays the debt down a little he goes on another spending spree and takes his cards back to the limit.   The one who owes the $15,000 pays $2,700 interest each year.   He therefore has only $27,300 per year in buying power, compared with the $30,000 in buying power possessed by the debt-free person.   The difference computes to $225 per month…which can buy a lot of groceries.
Over-Limit Fee---In revolving charge accounts and credit cards, a fee for exceeding the credit limit established by the creditor.

P

 

Pawn Shop---A lender who advances a portion of the fair market value of personal property to its owner, giving the debtor a “pawn ticket” which can be used to redeem the property within a limited period of time---usually one month.   The debtor redeems by paying the principal, interest, and incidental pawn shop charges authorized by law.   If the debtor does not redeem within the period, he may lose the property to the pawnbroker, who is free to sell the property for his own account.   This is unlike other secured creditors, who must account to the debtor for any excess money derived from the sale of the security.    Historically pawn brokers would required to take personal property into their physical possession during the pawn term, but in recent years the trend has been toward allowing pawning of intangibles, such as car titles, without the property itself being in the possession of the pawn shop.   Some pawn shops charge extremely high rates (sometimes 300 per cent per annum) and are considered to be lenders of last resort for those who are not “credit worthy”.  Pawn  shops are not allowed to sue the debtor if the debtor does not redeem, but must look to the sale of the property alone for repayment.

Pawn Transaction---Borrowing money from a pawn shop.

Pawnee---This is not a Native American tribe.  It is a person who receives the goods of another (or a title representing goods) in exchange for lending money to them on a pawn ticket.

Pawned Goods---Personal property pledged to a pawnshop in exchange for a loan of money.    Some laws require pawned goods to consist of tangible personal property actually taken into the pawnbroker’s physical possession.  More and more states are allowing the pawning of “intangible” property, such as car titles.

Pawnor---A person who pawns his goods in exchange for an advance of money.

Penalty---A provision in a contract punishing a person for doing, or not doing, a certain act.    Penalties are not usually enforceable except as “liquidated damages”…that is, damages which approximate the actual harm done to the non-breaching party by the breach.

Plutocracy---Government of the wealthy, by the wealthy and for the wealthy.

Post-claim Underwriting---The practice of many credit-related insurance companies of writing coverage on any borrower who qualifies for a loan or credit purchase, and only if a claim is filed checking to determine whether the person was qualified to purchase the coverage.   The company hopes to get lucky by earning a premium from the unqualified insured without a claim being filed.   If a claim is filed, it is rejected based upon underwriting standards not previously applied, such as “too old” or “not fully employed” at the time of the loan.

Post-repossession Notice---A notice required by law or contract to be sent to a debtor after a repossession in order for the creditor to protect his right to a deficiency claim if the sale does not bring enough money to pay the entire debt, plus costs of repossession, storage and getting the property ready for the sale.    Some must be sent within X days after the repossession.   Some must be “reasonable notification”, whatever that means.   Must usually advise the customer of his right to redeem, of his right to elect a public or private sale, and his obligation for a deficiency if the sale proceeds are insufficient to pay the debt.

Power of Attorney---A contractual right of a person or institution to act for another in performing some legal act, such as a power of sale in a home mortgage.  A power of attorney which is held by one who has a security interest in property is called a “power coupled with an interest” and may not be terminated by the debtor without the creditor’s consent.   Other powers of attorney, in which the holder of the power does not have a financial interest to protect, may be cancelled at will by the person granting that power or by his death or mental disability, unless otherwise provided.  A power of attorney which survives the ability of the grantor to revoke it (as in the case of mental disabilities) is called a durable power of attorney.  A power of attorney does not have to involve an attorney at law.   A person holding such a power is called an “attorney-in-fact”.  

Power of Sale---A power of attorney contained in a mortgage or home loan note giving the creditor the power to sell the debtor’s property to pay the debt if a default occurs.  A deed obtained by a purchaser at such a sale is called a deed under power.

Pre-computed transaction---An installment debt contract in which the finance charges have been determined in advance for a specific number of months and the debtor has contracted to pay the “Total of Payments”, consisting of the principal plus interest or time price differential.   Most pre-computed finance charges are subject to rebate requirements in the event the term is cut short by prepayment or by default and acceleration of maturity.  The rebate may be calculated under the Rule of 78ths (or “sum of the digits”) method, the actuarial method, the pro rata method, or some special method dictated by statute or contract.

Predatory Lending---Lending money to a borrower with the intent to take the borrower’s property, rather than just to make money on the interest earnings on the loan.

Premium finance company---A financial institution advancing premiums to automobile insurance companies (usually) on behalf of low-income people who cannot afford the normal 40-30-30 premium breakdown.    The finance charge rates for such premium advances are very high compared to the risk, which is minimal.  If the insured doesn’t make his payment, the insurance is cancelled and there goes the risk.  Not to be confused with Credit-Related Insurance, which is used to secure credit transactions and provides commission income to creditors.  Premium finance companies thrive because the automobile insurance premiums of the poor, particularly blacks and Hispanics, are significantly higher than those of whites with the same age and coverage.   The higher premiums are supposedly justified by a higher volume of traffic ticket convictions.   The higher volume of traffic ticket convictions in turn stems from a deeply imbedded bias in the exercise of “officer discretion” in deciding who to stop and who to “warn” rather than “cite”, whether the citation is a true traffic stop or a “profile”-motivated attempt at drug interdiction.  Although the evidence of this bias is primarily anecdotal due to lack of concern on the part of social scientists and government agencies, a scientific analysis would in all probability yield the same conclusions.   White people just don’t speed.   Look at NASCAR.

Prepayment Penalty---Any increase in the cost of credit imposed because of payment of the debt before its full term has run.    Distinguished from “points” or “origination fees” which have an increased impact on the Annual Percentage Rate if the term is cut short, but have been a part of the loan obligation since its inception.   Prepayment penalties include the failure to refund, or inadequate refund of pre-computed interest charges.   They may also include fixed charges (liquidated damages) for paying the loan off early, or penalties expressed as a percentage of the remaining balance.    In some notes, prepayment penalties decline as time passes (e.g., 5% if paid in the first year, 4% if paid in the second year, 3% if paid in the third year and so on).     Some prepayment penalties only apply to payments from outside sources, and do not apply to renewals, extensions and re-financing through the same creditor.    Some are very deceptively worded, such as one in vogue within the past several years which provides for a rebate of unearned interest in the amount of “1/2 the Rule of 78ths” See Rule of 78ths.

Prime Rate---Supposedly, the rate charged to the most credit-worthy customers of a lending institution.    Also, a composite or average rate printed in a financial publication such as the Wall Street Journal which is supposed to represent the lowest rate available at a selected number of banking institutions, and which may be used as a basis or guide mark for the fluctuation of “variable rate” loan and credit transactions.   In fact, however, some of the reporting backs are thought to submit rates higher than their absolute base lending rate.   Unfortunately there is no government regulation of the publication of such prime rate composite figures.

Principal---The portion of a debt that is not interest.

P&I---Principal and Interest.    The portion of a mortgage payment which is not made of taxes, insurance premiums and other escrow charges.

Principle---A person who employs an agent.   Also, a rule of law.

Private Mortgage Insurance (PMI)—Insurance required by a lender on a real estate loan when the loan-to-value ratio is above a certain percent…such as 80% of the value.  Analogous to GAP insurance in the motor vehicle sales finance field.   When the customer has paid the debt down sufficiently he can usually be relieved of the PMI requirement and lower his cost of credit.

Promotional Rate---An initial or introductory rate on a credit card in order to attract customers, which is increased substantially once a considerable balance has been reached.

Pro Rata Method---A method of rebating pre-computed charges which assigns an equal share of the charge to each time period, regardless of the amount of principal outstanding during that period.   Example:    An $80 pre-computed interest charge on a $1000 loan for one year would be distributed $6.67 to each month.    This would normally be associated with single-payment transactions, but there are some statutes and case decisions in some states requiring pro rata distribution of interest even on installment transactions.   One should check both the contract and the law of the jurisdiction where the contract was made (the lex loci  contractus)

Pro Se Party---A party to a civil action who is trying to represent himself without legal counsel of record.   Unfortunately, most courts of record hold such parties to the same standards as represented parties and when they fail to respond appropriately to discovery requests or motions filed by the collection attorney they may be severely penalized or “sanctioned”, including the striking of defenses in some cases.  From the Latin:  “for self”.

Puffing---Representations made by a seller which are deemed “opinion” and cannot be relied upon by a buyer.   See Bluster.

Purchase Money Security Interest (PMSI)---A security interest implied at law in the purpose of goods on credit, giving the creditor a superior interest in the property until the purchase price is paid in full, with finance charges.

Q

 

Quid Pro Quo---In a contract, that which is given or agreed to by each party in exchange for the promise or action of the other.   In English, “this for that”.

Quisling---A traitor.  A person who helps the enemy occupying force.   An employee of a consumer credit counseling service who seems to be aiding the consumer but is actually a debt collector for a creditor.

Quitclaim Deed---A deed in which the seller promises the buyer nothing about the title except that the buyer shall receive all the seller’s interest, if any.  As distinguished from a warranty deed.

Quixote, Don---A person who goes tilting after windmills.  A consumer lawyer who devotes his time to fighting creditors, knowing that they not only write the contracts but have bought and paid for the General Assembly which writes the laws governing the contracts.   A noble person.

R

 

Redemption---Paying to get back goods or a vehicle after repossession.

Refund Upon Prepayment---The right of a consumer to obtain a refund of precomputed interest or other precomputed or prepaid charges by paying off a debt earlier than scheduled.

Regulation Y---The regulations issued by the Federal Reserve Board governing certain activities of Bank Holding Companies and their acquisition of non-banking activities such as small loan companies and insurance companies.

Regulation Z---Regulations interpreting the Truth in Lending Act, binding as law.

Reinsurance Treaty---An agreement between an old line insurance company and a small insurance subsidiary set up by a creditor holding company under which the old line company charges premiums to the customers of the holding company’s credit-granting subsidiaries,  and then passes a portion of those premiums back to the holding company through its insurance subsidiary.   In theory, the insurance subsidiary of the holding company “re-insures” the credit insurance business---that is, guarantees to the old line company that it will not lose money on the business.   But in reality the prices charged for the coverage are so high that there is very little risk of loss short of a nuclear war.  The “reinsurance treaty” is sometimes used as a scam to get around state regulatory laws governing profiteering on insurance premiums.  See Bank Holding Company.   There may also be tax advantages to earning the money as “life insurance profits” rather than ordinary earnings.

Rent-to-Own Contract---A particularly abusive and uneconomic method of financing the purchase of consumer goods.    The consumer, usually with little or no down-payment, takes possession of the goods and “rents” them for a period of time after which the consumer either owns them outright or can purchase them for a nominal fee.   Frequently the consumer pays several times the fair market value of the goods.   Sometimes used to evade finance charge rate limitations in Retail Installment Sales Acts, or Usury Laws.

Repo Man or Repossession Agent---A person who makes a living by seizing vehicles and other chattels through “self-help repossession”.   Although the law strictly prohibits such persons from breaching the peace, conflicts with the consumer are common.  Technically in most states all a consumer has to do to drive off a repo man is make an “unequivocal verbal protest”, or chain the vehicle or other goods to a fixed object so they cannot be removed without breaking the chain or lock…a breach of the peace.  Repossession personnel are allowed to carry weapons for self-defense only, and a display of a weapon other than for self-defense may be construed as a breach of the peace…even if the weapon is displayed by an off duty police officer.

Repossession---The act of taking from the debtor property that has been pledged as security for a debt.   Because the practice developed in retail sales businesses, it is called “re-possession” even if the creditor has never before been in possession of the property.   Repossession can be either through “self-help repossession” or “judicial repossession.” 

Resale---The public or private sale which takes place after a repossession.   The debtor usually has the choice of whether the property is sold at a private or public sale.

Restraining Order---A temporary order issued by a state court of equity restraining someone from doing something, such as restraint against a creditor’s interference with or foreclosure against the debtor’s property.  Usually good for only 30 days or less, until a hearing can be held on an interlocutory injunction.   Analogous to a stay in bankruptcy, except that restraining orders are based on allegations of illegality (fraud, usury, excessive money demands, improper crediting of payments, etc.) on the part of the creditor, rather than allegations of financial embarrassment on the part of the debtor.

Retail Installment Contract---A contract pursuant to which a debtor buys something from a creditor and agrees to pay for it in the future, with or without a “service charge” or “time price differential” or “interest”.    Usually contains a “security agreement” setting forth the conditions under which the creditor may repossess the property being purchased if the debtor defaults.   Even if no “security agreement” is included, the creditor retains a “purchase money security interest” unless otherwise agreed, giving the creditor the right to seize the goods on default.  May be combined with a Truth in Lending Disclosure Statement.   To be distinguished from a “loan” contract, under which a consumer borrows money from a lender in order to facilitate a purchase of consumer goods.   The retail installment contract may be sold or “negotiated” to a finance company or bank, which then has a right to collect the payments.   The bank or finance company is called an “assignee” of the retail installment contract.

Reverse Competition---Since credit-related insurance is sold to a “captive” market of debtors, there is no competition at the point of sale.    The only competition in the industry is that between insurance companies to see who can pay the creditor the most to sell coverage.   This tends to force expenses up and rates go up also.   This is the reason

credit life insurance, for example, is rate-regulated when other types of life insurance are not.   But the rate regulation in many states is totally ineffective, with rates so high that benefit pay-outs are frequently less than twenty-five per cent of premiums, particularly in the Southeastern States where there is a tradition of economic abuse of black and poor people.

Revolving Charge Account---A type of open end credit account which allows the buyer to charge a string of small to moderate purchases and pay by the month against the outstanding balance.   Usually bears interest in the range of 18 to 21 per cent per annum (1.5 to 1.75 per cent per month), with the minimum payment set at perhaps five per cent of the total account balance.    Of the five per cent, about a third goes to interest and the remainder to principal, tending to stretch out the indebtedness over a long period of time.

Right to Redeem---A contractual or statutory right to get back goods or a vehicle after repossession by paying the sum due, including allowable penalties and costs.

Right to Rescind---The right of a debtor under Truth in Lending to cancel a transaction which has resulted in a security interest or lien against his principal place of residence.  Any “cooling off period” giving the consumer an opportunity to quit a contract during a limited period of time…perhaps three business days.

Rule of Remedial Intent---A rule of statutory construction in which the court looks first to the harm sought to be prevented by the statute and the penalty prescribed to regulate or eliminate such harm.

Rule of 78ths--- A method of refunding unearned pre-computed finance charges and insurance premiums which attributes the lion’s share to the front end of the contract.   Actually a pretty close approximation of the actuarial method, which relates the interest earned in a given period to the amount of principal outstanding during that period.  The rule gets its name from the fact that the numbers 1 through 12, representing the months in a year, add up to 78.   In an installment-payment obligation, the principal is gradually reduced by periodic payments.   Under the Rule of 78ths it is assumed that in a one-year installment debt there is 12 times as much principal owed in the first month as in the last month of the term.  Thus the interest is distributed by assigning 12/78 of the interest to the first month, 11/78 to the second month, 10/78 to the third month and so on until the last month only gets 1/78.    Add them all up and you have 78/78 of the interest, or 100% of the pre-computed charge.     To determine how much of the pre-computed interest should be refunded to the account at the end of any month during the term, one has only to add up the remaining 78ths.   For example, with six months to go on a twelve-month term, one would add 6/78, 5/78, 4/78, 3/78, 2/78 and 1/78, for a total of 21/78 of the interest still unearned.    Dividing 78 into 21 gives a percent that can be multiplied times the original pre-computed finance charge to determine the dollar refund.     The Rule, of course, works with other terms of months just as well, but the fraction must reflect the term being used.    For example, for a term of 24 months one would add the numbers 1 through 24, and distribute the interest by 300ths, rather than 78ths.     The algebraic method for adding a string of whole numbers beginning with 1 and ending with “n” is n(n+1) divided by 2.   Example:  12(12+1) divided by 2 equals 78.  The Rule is slightly creditor-favorable compared with the actuarial method, and becomes more so with long terms and high interest rates.    The most favorable method of rebating unearned charges on installment obligations from the debtor’s perspective is the pro rata method, which assigns equal amounts of finance charge to each month of the term.  Federal law prohibits the use of the Rule of 78ths on contracts longer than 60 months in consumer credit transactions.  In rebating finance charges, the Rule is normally associated with installment payment transactions.  In rebating insurance premiums, the Rule should be limited to those premiums charged for coverage in which the risk declines over time, such as decreasing term credit life insurance.    Level term credit life insurance, having an equal exposure throughout the term, should have a pro rata rebate of unearned premiums.   Similarly, single-interest property insurance (covering only the creditor’s interest as it declines through the term) should normally have a Rule of 78ths or actuarial rebate, whereas dual-interest coverage (covering both the creditor’s interest and the debtor’s interest---in other words, the fair market value of the property) should have a pro rata rebate.  But logic seldom prevails.   One should consult the Insurance regulations of the state, and if they are screwy and illogical ask why.

Rule of Strict Construction---A rule requiring that courts construe ambiguous contracts against the person who drafted it, usually the landlord, seller or creditor.    Also applied to construing regulatory statutes in favor of the common law rule, so that if the common law did not have a rule the statute is construed against regulation.   Sometimes conflicts with the Rule of Remedial Intent, which requires courts to construe ambiguous statutes in favor of the remedial purpose…the harm sought to be avoided or regulated by the statute.

S

 

Salary Buying---The practice of lending money by “purchasing” the debtor’s “account for wages”, usually at a steep discount.    For example, if the debtor is expecting a $300 paycheck on Friday, the lender might “buy the account” on Tuesday for $250.00, taking a written assignment from the debtor.   The assignment is then presented to the employer to insure payment.   Some employers do not recognize assignment of wages and refuse to participate in the scam.   The annual percentage rates on these transactions may be as high as several hundred per cent per annum.  A scheme for getting around usury laws.   Not favored in the courts, but seldom litigated because the amounts in controversy are so small as to not justify hiring a lawyer, or the customers involved do not have enough money to hire one but cannot qualify for Legal Aid.

Second Mortgage---A loan against the debtor’s equity of redemption, secondary to a first mortgage or first deed to secure debt.

Secured Party---A secured party in a secured transaction is a lender, seller, or other person in whose favor there is a security interest, including an assignee.

Secured Transaction---A transaction creating an obligation that is secured by a security interest.

Security Deed---A deed to secure a debt, wherein title is transferred to the creditor but must be returned when the debt is paid.

Security Interest---Under the Uniform Commercial Code, a “security interest” is defined as “an interest in personal property or fixtures which secures payment or performance of an obligation.”   A security interest gives the creditor the right to repossess or seize the goods and sell them to satisfy the obligation. 

Self-Dealing---Where a person in a fiduciary or semi-fiduciary capacity acts for another in his own interest.    Example:   A licensed insurance agent working at a car dealership arranges to sell the customer the highest priced insurance available in order to enhance his or the dealership’s commission income, instead of seeking out coverage at the lowest practicable rate.

Self-Help Repossession---The repossession of the debtor’s property pledged as collateral for a debt, without a court order.    Where a court order is involved the process is called “judicial repossession”.   An armed  policeman, even off duty, cannot assist a creditor in a self-help repossession because that would entail “state action” requiring the due process of law (a court order).   Additionally, the threat of force represented by an armed policeman would constitute a “breach of the peace” in violation of the Uniform Commercial Code.   A creditor can always effect a self-help repossession where there is a valid security interest, a default, and the act can be completed without a “breach of the peace”.    See “breach of the peace”.

Seller’s Points---A fee paid by the seller of real estate to the lender in order to induce the lender to approve financing of a sales transaction.

Selling Out the Class---In class action litigation, the practice of bringing a class action ostensibly for the benefit of the class but actually for the benefit of the named plaintiff and his legal counsel, particularly the latter.    The class gets little of value in exchange for a hefty award of attorney fees to the named plaintiff’s attorney, which may be shared with the named plaintiff under the table.  A practice justified by some class action plaintiffs’ counsel on the basis that “My primary duty was to my actual client”, with no explanation for why counsel allowed the class to be certified and screwed.

Severance or Severability Clause--- A provision in a contract stating that if part of it is ruled illegal the remainder will still be valid.  Used by creditors to salvage most of their rights even if the contract violates statutes or regulations.

Sewer Service---The action of a collection attorney’s process server throwing the papers down a sewer and then reporting in his “return of service” that he handed the papers to the consumer personally.

Shylock---A loan-shark.   A lender for high interest.   From a character in Shakespeare’s The Merchant of Venice.

Signature Loan---A loan transaction in which the lender relies entirely on the reputation of the debtor.   Otherwise known as an “unsecured loan”. 

Signature---A written indication of the assent of a party to a contract.   Does not have to be written by hand, but may be printed, stamped, sealed or otherwise placed on the document.

Simple Interest---Interest computed under the “actuarial method” or the United States Rule, where the rate is applied to the outstanding balance of principal at a fixed rate per diem, per week, per month, per quarter, or per annum.   Under the “actuarial method” unpaid accumulated interest begins to bear interest after its due date, otherwise known as “compounding”.    Under the United States Rule, interest is not charged on unpaid past due interest, but only on the principal balance.   
When a payment is made, it is credited first to accumulated unpaid interest and the balance, if any, to reduce the principal.   As the principal declines the periodic interest declines proportionately.    Thus on a fixed monthly payment obligation, such as a house note, the portion of the payment which goes to interest declines as the outstanding principal balance declines.    For example, on a thirty-year home purchase obligation the first monthly payment may be 90 or 95% interest and only a small amount principal, whereas the payments toward the end of the note are mostly principal and very little interest.    This means that if a person pays extra principal payments at the beginning of a note a substantial savings can be achieved at the end, because the principal is being reduced faster, increasing the portion of each monthly payment which goes toward principal.    As an example, a $1000 loan at eight per cent per annum simple interest will earn the creditor $6.67 during the first month.  (one-twelfth of $80).   If the debtor then makes a $100 payment, the first $6.67 goes to pay that accumulated interest, and the remaining $93.33 goes to reduce the original $1000 balance.    During the second month, the creditor does not earn $6.67, because the principal to which the interest rate is being applied has been reduced.   Thus a smaller portion of the payment goes to interest and a correspondingly greater portion goes to principal.   As distinguished from “compound” interest, which is the charging of interest upon earned but unpaid interest.  

Spurious Defense---A “defense” asserted by a debtor that has absolutely no merit and is interposed solely for the purpose of delay.    Should be avoided.   Can be punished by the court by the imposition of sanctions for contempt, or by imposition of attorney fees incurred by the other party.

State Action---Official state action governed by the due process and equal protection clauses of the United States Constitution, derived from the fact that the 14th amendment begins with the words “No state shall…” As distinguished from private action by a business not related to the state.   A policeman (state officer) attempting to repossess a car is governed by the rules of due process because he represents “state action”.  A repo man may repossess without a court order, if it can be accomplished without a breach of the peace, because his actions are private actions and not state actions.

Statute of Frauds---A statute prohibiting courts from considering oral evidence that contradicts the terms of a written contract.    Probably has aided in perpetrating more frauds than it has prevented.    See incorporation clause.

Statute of Limitations or Limitation of Actions---The amount of time, usually expressed in years, during which a claim may be brought for a tort or a violation of a statutory mandate or breach of contract.    In Truth in Lending, for example, the statute of limitations is one year.    Many claims for recovery of usurious interest paid must be brought within one year after payment.   Determined by the law of the jurisdiction or the law creating the remedy.

Surplusage or Overplus---Money produced through the forced sale of a debtor’s asset in excess of what is owed to the creditor.

T

 

Tender---A present offer to discharge a debt with legal tender, which is either cash or the medium of payment required by a contract.

Tender of Admitted Sum  (sometimes called the “Tender Rule”)---A rule of “Equity” which requires a debtor who is suing to enjoin a foreclosure or repossession, and who admits that some sum is legally due, to pay or tender that admitted sum as a precondition to obtaining an injunction.   For example, if the creditor is threatening foreclosure on a debtor’s home, claiming the debtor owes $5,000, and the debtor believes the true sum is only $2,500, the debtor must tender or pay the $2,500 before seeking an injunction.   Otherwise relief will be denied on the principle of equity that “He who would have equity must do equity.”

Thirty-Year Note---The usual method by which the American consumer buys a home.    Designed to keep him indebted for his entire working life.

Three Hundred and Sixty Day Year---The practice of some creditors of dividing the annual interest rate by 360 instead of 365 and then applying it to the outstanding balance on a per diem basis, thus gaining five extra days of interest each year.

Tie-In Sale---The practice of getting around usury laws by combining a loan transaction with a compulsory purchase of some item or service for a price far above its value, as in “I’ll lend you $100 for a month if you purchase this apple for $25.00.”  A scheme or device for violating the law.   See cash-in-advance schemes.   Also used to get around limits on credit related insurance premiums by the bundling of regulated and non-regulated insurance products, so that the regulated product cannot be purchased without the unregulated product.

Time Price Differential---Under the time price doctrine, the difference between the cash price and the price of the goods or land if bought on time.

Time Price Doctrine---A Nineteenth Century judicially-created exception to the usury laws holding that if a seller offers goods or land at two prices, a cash price and a higher “time price”, the difference between the cash price and the time price (the “time price differential”) was not to be considered “interest” and therefore was not subject to the usury laws.  The doctrine started in King’s Bench with the case of Beete vs. Bidgood, and was quickly imported to the United States where, by the 1930s, it had become the dominant means of financing retail sales.   The doctrine was nor normally applicable to revolving charge accounts or other transactions where the actual sale was for cash plus interest.

Title Insurance---Insurance bought by the purchaser of real estate guaranteeing that the seller has clear title to the property and that the property fits the description in the deed.   Also benefits the lender by insuring the legitimacy of the collateral.    Sometimes grossly overpriced, with the closing attorney taking as much as half the premium as a commission.

Truth in Lending---The popular name of the federal Consumer Credit Protection Act, as amended.    The text of the Act may be found at 15 USC (United States Code) 1601 et seq.; 82 Stat. 146; Public L. 90-321 (May 29, 1968) The major amendments occurred in 1974 (88 Stat. 1511), 1976 (90Stat. 257), and 1981 (95 Stat. 1515).    The principal purpose of this Act, and Regulation Z which interprets it, is to promote fair competition among creditors and deter debtor abuse by imposing uniform standards for the disclosure of credit information, especially uniform use of the terms “finance charge” and “annual percentage rate” (APR).   The Act only applies to consumer credit (credit used primarily for personal, family and household purposes), and not to credit use by businesses.    The Act does not apply to transactions over $25,000, unless a security interest is created in a person’s home.   Title IV education loans are also not covered.  Many terms have specialized meanings under Truth in Lending that may not apply when dealing with state law issues. See Accepted Credit Card, Adjusted Balance, Advertisement, Annual Percentage Rate, Assumption, Assumption Policy, Average Daily Balance, Balance-computation Method, Balloon Payment, Billing Cycle, Billing Error Resolution, Business Day, Card Issuer, Cardholder, Cash Advance Fee, Cash Price, Closed-end credit,  Closing Date of Billing Cycle, Consumer,  Consumer Credit, Consummation, Credit,  Credit Advertising, Credit Card, Credit Sale, Creditor,  Demand Feature, Disclosure Statement,   Discount, Discounted or Premium Rates, Downpayment, Dwelling,  Fee for Issuance or Availability, Finance Charge, Free Ride Period, Grace Period,  Home Equity Plan, Late Payment Fee, Material Disclosures, Minimum Finance Charge,  Mortgage, Nonsale Credit, Obligation, Open End Credit, Over-the-limit Fee, Payment Schedule, Periodic Rate, Points and Fees, Prepaid Finance Charge, Previous Balance, Public Utility Credit, Refinancing, Regular Price, Regulation Z, Required Deposit, Rescission, Residential Mortgage Transaction,  Reverse Mortgage Transaction, Right to Rescind, Sale Credit, Securities and Commodities Accounts, Security Interest, Spanish Language Disclosures, Total of Payments, Transaction Charges, Two-Cycle Average Daily Balance,  Unauthorized Use of Credit Card, Variable Rate, Variable Rate Adjustments, Waiver of Right to Rescind as those terms are defined in Truth in Lending.    Get your free copy at the Federal Trade Commission.

U

 

UDAP Act---A state law prohibiting certain “Unfair and Deceptive Acts and Practices”.  Usually does not affect debtor-creditor relations to a great extent, although helpful in specific isolated circumstances.

Unconscionability  or Unconscionable Contract---A deal so bad that no person with a choice would enter into it, and no person with a conscience would require him to.

Underwriter---A person who investigates and approves a transaction on behalf of a lender or an insurer.   See also, post-claim underwriting.

Unemployment Insurance---A relatively new type of credit insurance product insuring that the creditor will be paid if the debtor loses his or her job other than being fired for cause or quitting voluntarily.   Another scam to line the creditor’s pocket with supposed “commissions” on “insurance premiums” to get around laws limiting finance charges.

Unequivocal Verbal Protest---In most states, this is all the debtor must do in order to resist a repossession and force the creditor to apply for a court order in order to repossess the vehicle or other goods.    A consumer should not have to fight with a repo man in order to get his due process rights.

Upside Down---Owing more on an item than it is worth.

Usury laws---Statutes or regulations limiting the rate or amount of interest or other finance charges which creditor can obtain from debtors in a credit contract.  Many such laws prohibit “charging, taking or contracting to take” the charges above a certain rate or level, so that even if the creditor takes the money outside the four corners of the written agreement the agreement is said to be “infected” by the usury.  In the Twentieth Century creditors have become so powerful in most legislatures that they have achieved substantial deregulation.  There are also instances of judicial deregulation, such as the time price doctrine.

Usury---The practice of charging, taking or contracting to take from a debtor more money for the use of money (interest, finance charge, etc.) than the law allows.   “Usury” is generally considered to be a “civil” law concept, whereas “loan sharking” is a “criminal” law concept.  Thus a state may have one maximum rate for “civil” penalty purposes and a higher maximum rate that will land the creditor in jail, if the debtor can find a prosecutor willing to enforce the law.    Such prosecutors are few and far between.

V

 

Variable Rate Contract---A contract in which the rate of interest or finance charge is not fixed but subject to change, based upon some independently published standard, such as the composite or average prime rate published in a reputable financial newspaper.    Opposite of a fixed rate contract.   The term may also be applied to the sale of deregulated utility services, such as natural gas, where the rate varies according to certain market conditions or actual costs incurred.

Voidable Contract---A contract which appears on its face to be valid but for some reason is not, which must be shown by extrinsic evidence.

VSI or Vendor’s Single Interest---Insurance purchased by a creditor to protect the creditor’s interest if the debtor let’s required insurance on the collateral lapse.  Frequently grossly overpriced.   Sometimes VSI carriers are actually owned by the same holding company that owns the creditor.   Frequently, when the carrier is independent, very large commissions are paid to the creditor on the premium.  In other words, the customer is charged far more for the VSI than it actually costs the creditor to procure it.   Sometimes called “forced placed insurance.”

Vulture---A person who makes money by taking over the debtor’s equity in real estate, usually by bidding just above the creditor’s bid in a foreclosure sale.  Sometimes vultures get to the debtor just before the foreclosure sale and make arrangements to take over his right to redeem for a nominal sum.    One of the tricks of this trade is to string the debtor along until just before the foreclosure sale with a promise of “helping” the debtor save the property, so he won’t go bankrupt or deal with other vultures.    When the debtor’s options have dwindled to practically none, the “bait and switch” is pulled, and the debtor is informed that the loan did not go through.   But the vulture has another deal---not so attractive, but “at least you’ll get something out of the property”.   The scum of the earth, who learn real estate lessons through courses ordered on late-night television.

 

 

W

Wage and Salary Buying---The practice of purchasing a debtor’s future wages at a discount.   A form of loan sharking.  Example:    John is entitled to $250 in wages on Friday, but needs to pay his rent on Tuesday.    Ima Shark lends him $200 on Tuesday and takes an assignment of the $250 to be received on Friday.    Rate is $50 on $200 for three days, which is several thousands per cent per annum.   Not to be confused with the practice of certain employee credit unions of having payments on credit accounts deducted from pay.   

Wage Garnishment---A form of garnishment (levying against funds held by another for the debtor) directed at income accounts.     Under federal law, wage garnishment is limited to twenty-five per cent of take-home pay (pay after legal deductions), provided that the debtor is always entitled to claim free of garnishment a minimum of 30 times the federal minimum wage.   Under the 14th Amendment to the United States Constitution state courts usually cannot permit garnishment of wages except after a   final judgment has been taken against the debtor.  Pre-judgment garnishment is very seldom permitted.

Wage Slave---A person who depends on current income, rather than savings, to pay financial obligations, and who therefore is not free to quit a job because the disruption of income would force him into bankruptcy.   A person who lives from hand to mouth.

Wager---An aleatory (gambling) contract, including an insurance contract.   Insurance, after all, is but a wager in which the insured bets his premium that he will suffer the loss insured against, and the insurer bets he won’t.   Many state lotteries are based on the belief, usually correct, that people know absolutely nothing about “odds”, just as they know very little about “interest” and “premiums” and other mathematical matters.    The poorer one’s education, the more likely he is to bet money when the odds are at least two-to-one against a win, such as the popular “scratch off” games and the three-number lottery which was formerly operated by gangsters.   The three-number game has 1000 combinations of numbers from “000” to “999”, yet pays off only $500 to $1 on a straight win.     But who’s knocking it?   How else can the poor be induced to pay for college education for middle-class kids?

Waiver of Homestead---A clause in a contract purporting to waive the debtor’s homestead rights against a judgment taken by the creditor.

Warranty Deed---A deed to property in which the seller warrants that the title is free and clear of encumbrances and the buyer is entitled to quiet enjoyment of the property.  

Wiggle-Room---A situation created by ambiguous language in a contract which supports an argument a party desires to make if interpreted his way.   By the rule of strict construction, such ambiguities should usually be interpreted in favor of the customer, since the seller or creditor’s lawyer wrote the contract.

X

 

Xenophobe---A creditor who refuses to lend money to people based upon their national origin.

Y

 

Yo-Yo---Selling the same used Cadillac over and over and over, while building up deficiency claims against defaulting debtors.

Z

 

Zero Trade In—Where a car dealer gives a debtor exactly the same value on his trade-in vehicle as the debtor still owes some creditor on that vehicle.     Example:     Debtor owes the bank $5,500, and dealer allows $5,500 on the vehicle in trade.   Dealer then takes the trade in vehicle and tries to sell it to recoup his money.   Debtor gets basically 100% financing on the new car, unless some other cash down-payment is involved.  If dealer goes bust and doesn’t pay off the debt on the trade-in, the debtor will go into default, the trade-in may be repossessed, and the debtor may get hit with a deficiency claim.   Of course, under the FTC “holder rule” anything the debtor has to pay on the deficiency claim can be taken as a credit against the new car contract, even if the new contract is in the hands of an “assignee”.  The net effect is that the creditor agrees to pay off the old vehicle and the debtor gets no credit toward the new purchase.   It is always better not to trust the dealer on these transactions, but to obtain an agreement with the original creditor that the dealer will be fully responsible for the payment of the debt and the debtor is being released.    This is called a novation.