Category Archives: credit card fraud

Lewisville Texas Bankruptcy Attorney: LEGISLATION PROTECTS COLLEGE STUDENTS FROM PREDATORY LENDING

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Lewisville Texas Bankruptcy Attorney: LEGISLATION PROTECTS COLLEGE STUDENTS FROM PREDATORY LENDING

When I went to college, students didn’t just get degree.  They also accumulated huge amounts of credit card debt.  Anyone who has attended college during the last ten years can tell you that credit card applications were offered to them everywhere on campus.  Credit card companies had booths at school fairs and advertisements on classified boards in common rooms.  I even used to find flyers attached to the walls in classrooms.  This type of marketing makes a lot of sense.  College students are usually poor and in need of money, and they are financially inexperienced and unsophisticated.  And when they can’t pay off their credit card debt, one of two things happens.  They either go to their parents for money or they default on their debt.  Defaulting on a credit card can be very expensive.  Upon default, credit card companies raise interest rates, sometimes as high as 30% and charge fees as well.  Small balances can become very large very quickly, so that by the time a student has finished college and begun working they are drowning in debt.

 

Fortunately, recent legislation has been implemented to prevent these types of predatory lending practices.  The CARD Act prevents credit card companies from being allowed to consider the student’s parents income when reviewing applications for credit, unless the parent cosigns the application.  In addition, credit card companies cannot go on campus to solicit college students.  In fact, this legislation states that credit card companies must remain at least 1,000 feet off campus.  But for many recent graduates, this legislation is too late.  Large credit card balances leave them with few options for relief from their debt.

BANKRUPTCY: CREDIT CARD TRANSACTIONS FRAUD? IT’S A MATTER OF TIMING

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Some types of debts cannot be discharged in bankruptcy.  These include income tax, child support and student loans.  Then there are other types of debts that should be dischargeable in bankruptcy, but become non-dischargeable because of how the debt was incurred.  For example, debtors that obtain money, property, or services through fraud remain liable for these debts after they receive their discharge.

 

To have a debt determined to be nondischargeable due to fraud, a creditor must show:

 

  1. The debtor made false representations to the creditor;
  2. The debtor knew the representations were false;
  3. The debtor made the representations with the intent of deceiving the creditor;
  4. The creditor relied on the representations; and
  5. The creditor sustained a loss as a result of the debtor’s misrepresentations.

 

It appears from the list above that fraud should be difficult to prove.  It’s actually surprisingly simple in cases involving credit card debt.  Debtor’s use of a credit card is often treated as an implied representation to the credit card company that the cardholder intends to pay the charges incurred.  AT&T Universal Card Servs v. Mercer 246 F.3d 391, 404 (5th Cir. 2001).  Since the debtor’s use of the credit card is a representation to the company that the cardholder intends to pay the charges, the biggest hurdle for the creditor to proving fraud is establishing that the debtor had no intention of repaying the debt.  Courts will consider many factors when determining if a debtor had no intention of repaying the debt, including the time between use of the card and the bankruptcy filing, debtor’s financial condition when the card was used, whether the card was used for luxuries or necessities, and whether the debtor consulted with an attorney about bankruptcy before incurring the debt.

 

As a general rule, debtors should not use a credit card during the six month period prior to filing bankruptcy.  Additionally,  debtors should not use a credit card once they make a decision to file bankruptcy or realize they will not be able to repay the debt.  Debtors who do not follow this advice risk being sued in bankruptcy court and having their debts declared nondischargeable.