William R. Mapother has made it his business to stem the tide of bankruptcies that has been a major concern of credit card bankers and other consumer lenders in recent years.
The Louisville, Ky.-based attorney president of the Mapother & Mapother law firm, has made a big business out of representing creditors and gives frequent speeches on how to mitigate losses.
In 1979, he opened the Creditors Law Center as a clearing house on bankruptcy information. Mr. Mapother also writes a monthly newsletter and has written a number of books about bankruptcy, fraud, and collections.
In an interview with American Banker reporter Mickey Meece, he focused on cardholder bankruptcies.
Q.: Why have you specialized in bankruptcies?
MAPOTHER: I have developed a niche for myself in consumer bankruptcy consulting because my consulting and my training seminars save bankers so much money.
The reason they save them so much money is because the bankers are not doing what they need to do to cut their losses.
The fact is they are unaware of what their rights are, and therefore they fail to take advantage of the rights they have.
Q.: How can bankers cut their losses?
MAPOTHER: One of the things I promote is trying to encourage your good credit card customers to voluntarily repay in spite of their filing [for bankruptcy protection]. It's a marketing strategy that I use. I've got letters that I have drafted for banks to send to their good customers.
A lot of banks are not doing this, usually because they think that legally they cannot do it, or they think it will not work.
Q.: And what have you found?
MAPOTHER: If it's done correctly, it is legal - and the recovery is unreal. I have one bank in this country that is recovering over $100,000 a month on Chapter 7 bankrupts - strictly credit card accounts - by using my four letters.
Q.: So what does this say about consumers - that they are earnest about paying back their debts?
MAPOTHER: What it says about the consumer is:
A) Bankrupts do not change their lifestyle by filing bankruptcy. They still want credit.
B) Credit is difficult to obtain if you have filed bankruptcy, and therefore
C) If you offer future credit to your customer if they repay you, they will repay.
Those three things are the key to my marketing strategy.
Q.: Are these letters legal?
MAPOTHER: I've got two court decisions now specifically upholding these letters. One is a circuit court decision, one of them is a very recent bankruptcy decision.
Q.: What is the rule of law they are concerned with?
MAPOTHER: The rule of law is called the automatic stay.
When someone files bankruptcy, the creditors are enjoined from trying to collect their debts. So some lawyers say: If you write a letter to the customer saying, "Pay me my debt and I will give you future credit," that's trying to collect - and that's prohibited. That's what they're concerned about.
My answer is that my letters are mild letters, not offensive.
Q.: How else can bankers cut their losses?
MAPOTHER: Another thing I talk about is how to offset credit card debt with a checking or savings account. That means the debtor owes on a credit card, he defaults, and the bank takes the money out of the checking or savings account and applies it to the debt.
Basically, that has been ruled illegal by Congress in the Truth-in-Lending laws. There is a way to get around that prohibition. and I teach them how to do it. There is a way of putting a provision in your credit card agreement to avoid the prohibition.
Another thing that I talk about is how to win lawsuits economically. Banks are being defrauded on their credit card accounts, and they are failing to seek to recover. And the reason they are failing to fight back is because of the legal expense.
I have had an ongoing battle with the Visa bankruptcy-reduction program. The program in theory is fine, but in practice it is not working.
It's not working because it is structured in such a way as to be too costly to banks, and therefore banks are reluctant to fight back except in the most egregious cases. By egregious I mean outrageous fraud, usually involving amounts in four or five figures.
I want banks to fight back on $3,000 to $5,000 losses. In the Visa program, the legal fees are so much that banks are reluctant.
Q.: How does the Visa program work?
MAPOTHER: Visa has selected one or more law firms in each state on recommendations from banks. The problem is that these law firms know how to fight fraud, but they do not know how to fight it economically.
I am involved in a case where a law firm in New England has already charged a lot more than the balance on the account. The bank might as well charge the account off. And that's exactly what's happening, and that's why the system is not working.
A creditor gets burned like that once or twice, and you know what happens? Some senior vice president says: Stop fighting fraud.
The answer is obvious - learn to fight it economically.
My rule of thumb is a bank cannot afford to spend in legal fees more than 40% to 50% of the balance - if they have a good likelihood of winning.
Obviously, if there's little chance of winning they're not going to spend 50 cents.
This is common sense to me. The problem with these Visa lawyers is they know how to handle large bank litigation, but they don't know how to handle consumer fraud.
Q.: What's to stop a bank from finding its own lawyers?
MAPOTHER: That's one of the things that I talk to them about. They can find their own attorney.
We're not talking about fighting fraud in your hometown. That's not the problem. The problem is when you have a one-time case in Albuquerque. And that's where the Visa program was designed to help. But the chosen firms are typically not right.
There's work involved in finding the right lawyer. in Louisville, for example, we probably have 1,000 lawyers. There are probably 10 that are good that are fighting fraud, and maybe half of those will work to fight it economically.
You can't just tell a law firm "Do your thing." You can't do that in a $3,000 fraud case.
Q.: What are the bankers' concerns about credit card fraud? Will they be changing over the next 10 years?
MAPOTHER: What's happened in this country in the past two decades has been a great shift in consumer lending from small loans to credit cards.
In the past, if you needed to buy a refrigerator, you went into a bank or finance company for a loan of $1,000 or $1,500. Today we don't have loans like that. You charge it on a credit card. The consumers are still getting the credit, but we have this enormous credit card debt that we didn't have 20 years ago.
Credit cards are very profitable, but they also bring a lot of losses. My job is to teach people how to cut their losses.
Q.: If these ideas are based on common sense, why aren't more people using them?
MAPOTHER: They [bankers] don't see themselves as needing any help. We're all that way. We frequently don't react to things unless there's a crisis.
The second problem is they think there's nothing else that can be done. That attitude is frequently reinforced by lawyers. The lawyers are not aware of all the things that can be done.