The collapsed housing bubble, high unemployment and the high cost of health care have left consumers with not enough money to go around. More debt collectors than ever are trying to collect on past due debts. One gets a mental image of the carcass of a gazelle on the plains of Africa, with vultures fussing and scrambling to get their bite of that carcass before it is completely consumed by the other vultures.
In these modern times, it is not so much that consumers cannot pay any of their debts but that they cannot pay all of their debts. Thus, debt collectors are pitted against each other; each wanting to collect their debt ahead of the others. With the mentality of a vulture, the competitive debt collector looks constantly for ways to increase his share of what funds the consumer has. Consequently, there is a disincentive for a debt collector to work within the budgetary limits of a consumer because he knows he is only ceding territory to his competitors.
The result is an environment where basic rules of conduct are ignored, where corners are cut, illegal late-night phone calls, arrest threats and other abuse, where more aggressive behavior results in a "larger bite of the carcass."
This coming year about 10 millions lawsuits will be filed to collect old debt -- mostly credit card debt -- and almost universally the person sued will have been someone who fell behind because something tragic happened in their life. They may have lost their job when the company shut down to find lower wage workers in China. Someone in the family may have gotten sick and there was inadequate health insurance or perhaps none at all.
This is just not fair. I remember as a child my grandfather telling me that "fair is a place where you take a pig to win a prize." I know that he was trying to tell me that life is not fair. He's right. It isn't. But, sometimes there is something we can do to level the playing field just a little.
Last month I met with Brian Deese, the Deputy Director of the White House National Economic Council, to discuss the impact of a moratorium, and recently, I meet with political leadership and made a presentation to former Minnesota Gov. Tim Pawlenty, the newly named CEO of the Financial Services Roundtable, about a moratorium and the need for reform in the debt buyer industry.
A moratorium should be enacted because what is the point in suing someone for not paying a bill that they can't pay anyway? What is to be gained by driving someone's credit score so low that it kills their ability to get a decent job? Where is the honor in a wage garnishment by a debt collector that means your family goes hungry or you can't put gas in the car to get to work?
Those are the reasons I suggest putting a freeze on those debt collector lawsuits until unemployment falls to some more reasonable level -- 6 percent. That would give millions of Americans the breathing space to get back to work -- and then they can catch up on all those old past due debts.
There are many debt collectors who believe consumers "get what they deserve" when they are sued over an unpaid credit card debt. I concede that a few may have been irresponsible -- but most consumers just had bad luck and got caught up in economic events outside their control.
A temporary moratorium is not a free ride for anyone. The consumer will still owe the debt and will face his responsibility. But, it will happen in a time when overall economic conditions are much better than they are today.
The elimination of a lawsuit against a struggling family can make a difference between a lifetime of debt and the accumulation of real wealth in the form of a home and savings.