June 7, 2014
Solving Debt Collection Abuse With a Tax Credit?
Tax law is often used to encourage behavior modifications to promote certain governmental philosophies and interests. For example, to increase implementation of solar energy among consumers, the government created a meaty solar tax credit. Want to increase the attractiveness of the American dream of owning a home? Make the mortgage interest and property tax costs a write off.
People sit up and pay attention when it comes to tax breaks and credits.
Credit card debt is a ballooning problem in the U.S., with the average household carrying $15,191 in outstanding credit card bills. As a country, credit card debt totals $854 billion, according to NerdWallet’s latest figures.
Is there a way the IRS can help reduce these numbers? Bill Bartmann, CEO of a debt advisory firm, Bartmann Enterprises and CFSI thinks so. He claims banks sell $68 billion in delinquent credit card loans to private for-profit companies every year for pennies on the dollar. These companies in turn go after the debtors. Some of the collectors have been accused of fraudulent practices such as pursuing a debt that has been extinguished by the tolling of the statute of limitations. Other practices have put many families at financial risk.
Bartmann is familiar with the industry. He launched a privately-held debt-collection company, Commercial Financial Services (CFS), in 1986 that grew to be an estimated $3.5 billion. CFS made money from charged-off credit card loans: it bought the bad debts and went on to collect on them. In 1999, it imploded in scandal and wiped out Bartmann’s personal fortune. In 2010, he started CFS2, which has similar structure and business plan as CFS.
Bartmann has long rallied against dangerous and unethical debt collection practices. The company claims not to sue anybody and he says it strives to help debtors get back on their feet through an array of social services.
Bartmann has come up with a piece of legislation, the Bartmann Ethical Debt Collection Practices Act (SB1430), that sits before the Oklahoma legislature. It’s a tax credit that would incentivize banks to donate their delinquent credit card loans to 501(c)(3) organizations.
In a statement, Bartmann claims, “American taxpayers are being sought after by abusive debt collectors and as a result of these robo suing tactics 10 million unnecessary and fraudulent collection law suits clog the entire US Court system a year. In addition we’ve seen 2 million foreclosures and 80% of garnishments and repossessions. A tax credit would eliminate this… and would give economic mobility for 35 million families!”
The statement also claims the legislation would cut the national bankruptcy rate in half, and “reduce the burden of tax payers at the local, county and state level who are paying taxes to support the court system that has been hijacked by a half-dozen private companies for their own economic purpose.”
501(c)(3) organizations would renegotiate the debt to a level that the consumer can afford, and would agree to the following:
Not to sue the debtor;
Not to charge interest on the debt;
Not to attempt to collect beyond the statute of limitations;
Not to attempt to contact the debtor more than twice a day;
Not to resell the loans;
To help the consumer by negotiating with their other creditors;
To help the consumer find gainful employment;
To help the consumer find necessary social services;
To teach financial literacy;
To register the consumer to vote.
If the tax credit becomes successful and cost effective in Oklahoma, other states are likely to follow suit. Bartmann sums it up by saying, “Such a tax credit will create the most profound and most dramatic change to the debt collection industry in the past 5,000 years.”