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Hypothetical OC Question


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Do the banks (BOA, Citi, Chase) have any insurance policies that would cover them on a default of a credit card? If so, are the premiums paid by the interest rates charged on the credit card? For the sake of argument, if Cardholder A has a 7% interest rate because they are less risky and Cardholder B has a 29% interest rate because more risk, could it be assumed that at least part of the interest rate is used to pay for an insurance policy for default? I know these Banks sell policies to protect the cardholder somewhat so to me it would seem that they would have something to cover themselves.

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I've heard this kicked around on the forum, it isn't clear whether they do or not. You could request this in discovery, but they will probably object that it is privileged information and has no bearing on the case. I like the idea, it goes toward double recovery, like collecting twice for the same car accident, which is illegal in most states.

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This is what I'm getting at. You can't be sued for a debt that is/has already been paid. Not that this could work but if you can get it in front of a jury, maybe, just maybe, someone could see it your way. Banks aren't stupid. There's a reason they can make billions. They're definitely not making it on the paltry savings account most us have stashed in their vaults. I'm not getting into the cusip # issue where a belief is had that the banks OWE us money. My thought is to either get it in front of a sympathetic jury or outright have the OC dismiss. Just a thought.

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Actually, you could still be sued, but the proper plaintiff would be the insurer. It's like uninsured motorist coverage.....your insurer pays for your damage, then they sue the other party to recover. The OC might still pursue you with a substitute plaintiff. It would be interesting to see how they react, but you'd have to get that info first. One poster said this was a credit default swap thing. Not my field, arcane defenses rarely work.

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Well, as long as this thing is being thrown out for discussion...What would probably be decided is who is the real party in interest which may cause a shift in standing.

But, going back to the oc bank being plaintiff, could not a debtor claim accord and satisfaction if they could show that insurance did somehow cover the bank for their lost? It would cause the oc bank to lose standing and their case would have to be dismiss.

The insurance company could then bring suit but, from a business point of view, I think the insurance company would look at the debtor as an informed consumer who caused the bank to throw away their money attempting to collect a debt, the same debt which is now theirs to collect.

The point is, make them think that it'll cost them to go after the debt and they may not.

Interesting idea about the insurance company paying for the loss on the debt. Kind of like some of the banks did in the past when they hedged against some of their own loans.

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My thought exactly. They're still hedging against their loans. It's an unregulated area of their business. With the mass disapproval of banks in general, why would they want to disclose this apsect in discovery? It's a long shot that couldn't be used against a JDB but an OC is a possibility. Especially since it's a hard fought battle, mostly losing, against them anyway. Why not make them sweat a little? I mean if you're going to lose, why not lose in a big way?

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They have insurance, it's called a tax write-off.

There is no insurance company out there that could insure against the incredible amount of bad debts charged off every year. I worked a hail storm many years ago. Our company, a huge nationwide company, had co-insurance that kicked in after 35 million had been paid out. In other words we had to insure ourselves so a huge storm did not wipe us out.

When the trade centers were hit, I believe over 125 insurance companies paid out on the claims. There was no way one company could insure against that type of loss.

Banks charge about 15% interest so it is their unofficial built in insurance policy.

On a side note, if there was insurance to back up defaulted debt, the creditor would just save money and time, charge it off and then collect their insurance. There would be no motivation to collect on past due accounts and/or ever sue to recover.

Ever heard somebody after totaling out their car shrug and say, "that's what I have insurance for."

2nd side note. Why pay for insurance anyway if you are a bank. The government will just bail you out. That was a common complaint with hurricane Katrina. Those that paid for insurance got their damages paid for and those that did not pay for insurance got their damages paid for. One party just collected from the insurance company and the other from the government. The ones that got their damages paid for by the government just saved the cost of insurance premiums.

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Coltfan1972 - So to expand on that thought of a tax write off just a little. A business loss is taken as a deduction on profits earned. If they did sue for the total past due (including interest, fees, etc.) could it be safely stated that the amount they are seeking relief on is not an accurate statement of what is due? For simplicity let's say the loss is $10Kand their tax liability is reduced by $1000 because of that loss. Can they still claim $10K as a loss?

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A business loss is taken as a deduction on profits earned. If they did sue for the total past due (including interest, fees, etc.) could it be safely stated that the amount they are seeking relief on is not an accurate statement of what is due?

No, because at the time they sue you they have not taken a profit or a loss on the account. In fact they are in the process of trying not take a loss, by getting a judgment that you will hopefully pay and assure they don't have a loss.

If they win at trial and you pay the 10K owed then there would never be a loss. In other words, in my opinion, your argument would be premature, as there is no loss until they give up their efforts and officially write it off and take the tax deduction. When they charge it off that is just an accounting term meaning they take the debt off the books. However, it's my understanding they have yet to take an actual loss on the account.

For simplicity let's say the loss is $10Kand their tax liability is reduced by $1000 because of that loss. Can they still claim $10K as a loss?

In this example they would have disposed of the account by taking their loss and getting the 1K tax credit. I would assume they would not sue you after this or if they did they would amend that part of the filing with the IRS.

The bottom line would be you owe 10K to the bank, the IRS and you are 100% independent of one another. What happens between the IRS and the bank in no way changes the 10K you owe. You pay the 10K then the IRS and the bank work out the tax situation.

This used to happen in insurance claims all the time. Our insured would hit a car. The person would then tell us they want 2K additional for loss of value when the sell the car. I would always say, you've not taken a loss yet, come see us when you actually sell the car, and can prove you got 2K less due to the damages caused by our insured, and since we are speculating, what if you drive this car off the lot repaired, an 18 wheeler runs a red light and totals out your car, and the trucking company pays you blue book for your car, are you going to call me and ask where to send the 2k I paid you when we were speculating about future damages.

Same thing here, you would be speculating and your argument would be premature.

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Coltfan1972 - So to expand on that thought of a tax write off just a little.

coltfan went the long way about explaining this but the short answer is the 1099c that collectors send you if you don't pay the debt.

The idea is that you owe the debt, did not pay, thus you made a profit. The IRS wants you to pay taxes on that profit.

So, paying taxes on the profit from the nonpayment of the debt is not paying on the debt itself.

There is no insurance company out there that could insure against the incredible amount of bad debts charged off every year

So, they just take the loss, minus the tax write off? I guess the banks must make enough in their other fees to cover?

Edited by Downto0
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I had read somewhere, online, that HSBC accounts are insured.

Citi claimed in an interrogatory response that they did not have insurance.

A JDB, CACH, also lists as its permissible purpose in pulling my credit reports, "to acquire, insure and service account."

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coltfan went the long way about explaining this but the short answer is the 1099c that collectors send you if you don't pay the debt.

I think that before they can 1099 you they have to have a court decision concerning the case. If they win, no 1099, because they get a judgment. If they lose, no 1099 because you do not legally owe the debt. The only scenario I see is if you settle for 3 grand on a 10 grand debt, then they can 1099 you for the other 7. That's why we never recommend settlements. Unless you make a stipulated judgment agreement where they agree not to 1099 you, which I doubt they would do, but you never know.

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what you are also looking for is credit default swaps. The insurance angency names should be listed in government forms. also check The FDIC they regulate banks and may have the name of that institution.

As soon as you get the name make a subpoena duces tecum for those records and insure that they file an appropriate affidavit.

That will make them squirm.

Credit default swap - Wikipedia, the free encyclopedia

Edited by Seadragon
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Interesting Seadragon - I just read an article about a Federal Judge siding with Citibank on a CDS. I think there's more to this than most people realize.

http://apps.americanbar.org/buslaw/newsletter/0078/materials/pp3.pdf

Now while this particular article isn't referencing revolving lines of credit, it can't be too far off.

Thanks for the information. I'll be doing some reading.

Edited by Simpleaim
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The banks might have insurance for overall losses, like our insurance company did, but not a particular account.

Also banks charge 20% interest so they can absorb the losses (or that is the theory) via the ones that don't default.

Look at your auto insurance and compare what you pay in premium compared to what you're insuring in the event of a total loss. Look at that percent and then compare that with the percent you pay on credit cards. That is your answer right there.

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The only scenario I see is if you settle for 3 grand on a 10 grand debt, then they can 1099 you for the other 7. That's why we never recommend settlements. Unless you make a stipulated judgment agreement where they agree not to 1099 you, which I doubt they would do, but you never know.

That is why I always say in your settlement agreement, make sure the remaining amount is listed as being in dispute and not just forgiven. However, the bank or JDB agrees to give up on collecting.

Don't know if that protects you from a 1099 but it has to be better than freely saying, yep I got 7K forgiven, where do I send my tax on that amount.

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Post by leagleable:

I think that before they can 1099 you they have to have a court decision concerning the case.

Not according to what the IRS has posted on their website and not according to DVA v Snow. The IRS requires that all collectors send 1099's to debtors. Your beef is now with them. Check out this thread:

http://www.creditinfocenter.com/forums/there-lawyer-house/301713-cancellation-debt-income-101-1099-cs.html?highlight=1099

Post by coltfan:

That is why I always say in your settlement agreement, make sure the remaining amount is listed as being in dispute and not just forgiven. However, the bank or JDB agrees to give up on collecting.

Don't know if that protects you from a 1099 but it has to be better than freely saying, yep I got 7K forgiven, where do I send my tax on that amount.

It won't. The IRS demands that the collector send a 1099 and, as I said, your beef is now with them.

Post by coltfan:

The banks might have insurance for overall losses, like our insurance company did, but not a particular account.

Also banks charge 20% interest so they can absorb the losses (or that is the theory) via the ones that don't default.

Sometimes they charge 30%, and don't forget about the late fees and all the rest of the scalping charges. However, banks are always dreaming up new ways to make more money, more money, and more money. Now that the subject has been brought up, insurance and hedging would seem appropriate affirmative defenses and probably even counterclaims.

If you are fighting an OC it would be a real issue to bring up. Posing the claim the right way itself could throw the burden of proof on the OC and they would have to answer the double dipping claim.

Edited by Downto0
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Here it is called double recovery. Here is a CT Supreme CT case covering it.

Double Recovery has been adequately addressed by our own Supreme Court in Gionfriddo v. Gartenhaus Cafe, 211 29*29 Conn. 67, 71-72, 557 A.2d 540 (1989) (applying no double recovery principle to bar action under Dram Shop Act where plaintiff had already recovered full measure of damages from other, unrelated tortfeasor), in which the Court stated: “Rather, we dispose of this case by paying heed to the simple and time-honored maxim that"`[a] plaintiff may be compensated only once for his just damages for the same injury.'" Virgo v. Lyons, 209 Conn. 497, 509, 551 A.2d 1243 (1988), quoting Gionfriddo v. Gartenhaus Cafe, supra, 406; see also Peck v. Jacquemin, 196 Conn. 53, 70 n.19, 491 A.2d 1043 (1985) ("an injured party is entitled to full recovery only once for the harm suffered").”

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