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Nebraska voters have chosen to cap payday loan interest rates.  Ballot box Initiative 428 limits the annual percentage rate on payday loans at 36%.
A Nebraska Department of Banking report indicates that the average annual percentage rate on payday loans in Nebraska is 405%.
However, according to Thomas Aiello of the National Taxpayer Union, the cap on interest rates would actually hurt low-income Nebraskans by denying them access to credit.

This is an onerous rule that is more likely to decimate credit markets for Nebraskans in desperate need of a small, quick loan.” Thomas Aiello

Indeed, capping payday interest rates at 36% would devastate the industry.  Although loan rates average 405%, the default rate on those loans is also significant and the effective interest rate earned by payday lenders is much lower when those defaults are factored in.
Support for capping the interest rate is receiving support from many sources, including the Catholic Church.

“Payday lending too often exploits the poor and vulnerable by charging exorbitant interest rates and trapping them in endless debt cycles,” said Archbishop Lucas. “It’s time for Nebraska to implement reasonable payday lending interest rates. The Catholic bishops of Nebraska urge Nebraskans to vote ‘for’ Initiative 428.”

The amazing fact of payday lending  is that it is not restricted to low-income neighborhoods. You can find payday lenders in almost every neighborhood, regardless of income level.
Can payday lenders survive with a 36% cap on interest?
My guess is that the business model of payday lenders will have to change. Lending standards will be tightened and the least qualified borrowers will be denied credit. Is that a bad thing as Thomas Aiello suggests? Probably not. Other lending sources still exist, like pawn shops or family loans or selling unnecessary items.
Some commentators have told me that such interest rate caps are ineffective since lenders simply set up shop on the internet and use the National Bank act to argue that interest rates are controlled by the state of incorporation.  In other words, the evade the cap by incorporating in a different state and argue that our Nebraska laws do not apply to lenders that cross state lines.  Time will tell if this approach is followed.
Other attorneys have suggested that lenders will evade the cap by originating more Title Loans secured by vehicle titles.
It will be interesting to watch the payday lending industry going forward. Something tells me that neither the demand for these high-rate loans nor the lenders willing to make them are going away. The rules of the game will change, but somehow lenders will find a way to evade the cap.
 
Image courtesy of Flickr and HelenCobain
 
 

We Stop Navy Federal Trying to Pull a Fast One This is a story of Navy Federal trying to take unfair advantage of a disabled vet; and how we were able to stop them. Harry is the disabled vet. He wasn’t able to quite make ends meet when he filed Chapter 7 Bankruptcy in 2015, […]
The post We Stop Navy Federal Trying to Pull a Fast One by Robert Weed appeared first on Northern VA Bankruptcy Lawyer Robert Weed.

https://www.nytimes.com/2020/11/07/your-money/student-loans-bankruptcy.html Originally appeared on The New York Times
 It’s an extremely difficult debt to discharge, and only a few hundred people a year even try. Here are the stories of some who succeeded —mostly.
With two mortgages, three children and $83,000 in student loan debt, the financial strain finally became too much for George A. Johnson and Melanie Raney-Johnson.New bills kept piling up: The couple had to buy another car when Mr. Johnson wrecked one in a snowstorm, but their insurance didn’t fully pay off the totaled vehicle. Old debts never seemed to get any smaller, either: A mortgage modification they spent months working on fell through when the bank lost their paperwork.And their student debt, an albatross born of aspiration, grew heavier each month.Bankruptcy was the only way out.“It was not an easy decision,” Ms. Raney-Johnson said of filing for bankruptcy in 2011. “It was a feeling of despair, for sure.” Bankruptcy gives over 700,000 debtors a fresh start every year. Bills for credit cards and medical expenses can be wiped away by a few strokes of a judge’s pen, and debts that don’t vanish are reduced.But student loan debts don’t go away as easily. For decades, politicians have slowly made them harder to discharge, while differing standards in courts across the country mean a debtor’s chances can depend on where he or she lives.The few debtors who attempt it are subjected to a morality play unlike anything else in the world of personal finance: so-called adversary proceedings, where they must lay themselves bare in court as opposing lawyers question how much they pay for lunch or give to their church.The Johnsons tried anyway. They had borrowed about $45,000 for Mr. Johnson’s degree in sociology at the University of St. Mary in Kansas and Ms. Raney-Johnson’s pursuit of a bachelor’s degree from the University of California, Davis. Unable to pay, they had received permission to put off their payments, but their balance nearly doubled as interest charges continued to pile up.Mr. Johnson lost his job after they filed for bankruptcy and, unable to afford a lawyer, Ms. Raney-Johnson prepared their case. She remembers how she felt when they arrived at the Robert J. Dole Federal Courthouse in Kansas City, Kan., on a sunny September day seven years ago.“My heart was beating, and I was sweating,” said Ms. Raney-Johnson, now in her mid-40s and a billing supervisor for a federal agency.In 2015, the year the Johnsons got their ruling, 884,956 personal bankruptcy cases flowed through the courts. Only 674 sought to discharge student debt, according to a recent analysis by Jason Iuliano, assistant law professor at Villanova University.The New York Times reviewed dozens of cases in which a judge issued a published opinion — the Bankruptcy Class of 2015 — to understand the pains and payoffs five years later. Some debtors are on a better course. But for others, the struggles never went away — or came back after they thought they were free.Rising Costs, Rising DebtsBankruptcy begins with debt, and student loans are the second-biggest form of household debt in the United States. More than 43 million borrowers hold over $1.6 trillion in student loans, a sum that has more than tripled in 13 years. It exceeds what Americans owe on credit cards or auto loans and trails only mortgages.Sixty-two percent of students who graduated from nonprofit colleges in 2019 had student loan debt, according to an Institute for College Access & Success analysis. Their average balance was $28,950 — not including borrowing by their parents.Many struggle mightily to pay: Before the government’s coronavirus relief efforts paused federal student loan payments, 7.7 million borrowers were in default and nearly two million others were seriously behind.The solution has been a public-policy patch job.About eight million additional borrowers use income-driven repayment plans, which can be challenging to enter.  And while the plans lower payments, borrowers accrue interest on the unpaid difference. The debt is eventually forgiven — usually after 20 or 25 years — but the forgiven amount is taxable income. A related program forgives the federal student loan debts of public-service workers, tax free, after 10 years, but it has been deeply troubled. Borrowers have made payments for years only to learn they were in the wrong kind of payment plan. It got so bad that Congress had to create a separate pot of money to try to fix it.The election could give momentum to a change: President-elect Joseph R. Biden Jr. — who supported a 2005 law that made private student loans harder to discharge — has vowed to change the loan rule back if elected. But few Republicans have voiced support for a plan to change bankruptcy rules. A House bill  has one Republican co-sponsor, Representative John Katko of New York, but the Senate's version, led by Senator Richard J. Durbin of Illinois, has only Democratic support.All the student debt poses a problem. Its weight, experts say, has macroeconomic effects, dragging on homeownership and small-business formation. But the fallout goes beyond simple economics.There is also a mental toll.  Noelle DeLaet said she had sent out hundreds of résumés but couldn’t get a better-paying job.Credit...Terry Ratzlaff for The New York Times‘No Way Out’ Noelle DeLaet earned a bachelor of fine arts degree from Nebraska Wesleyan University in 2008 — the teeth of the Great Recession. She tacked on another year for a degree in English to make herself more attractive to employers. Perhaps in publishing, she thought.She left school with $110,000 in debt: roughly $27,000 from the federal government and the rest in private loans co-signed by her mother. The $810 monthly bill, set to climb when the payment plan on one private loan expired, soon overwhelmed her.Ms. DeLaet, now 34, landed in the child welfare field as a foster care review specialist in Lincoln, Neb. — rewarding, but not lucrative. She sent out hundreds of résumés for better-paying jobs and pleaded with her lenders to reduce her payments. Soon, the creditors started in on her mother and put her on the verge of bankruptcy, too. Ms. DeLaet’s breaking point came in May 2012 when she ran up against the $4,000 limit on her credit card while trying to buy a burrito at a Mexican grocery. She felt so helpless at times that she considered suicide.“I looked all over Google for some sort of support group for others going through this,” Ms. DeLaet said. “I felt like there was no way out.” When Ms. DeLaet squared off in court against her student-loan creditors, they quibbled with the $12 she spent each month on recycling. She should have tried harder for a promotion, they argued. Or moved somewhere else for more money.Judge Thomas L. Saladino bristled at that idea. In his opinion, he wrote that she lived in the state’s second-largest city, “as good a place as any to seek a better-paying job.”The judge discharged about $119,000 in private loans, and an additional $23,000 was forgiven by one of her lenders. But her $27,000 in federal loans stuck: She’s paying those back through an income-driven repayment plan costing about $260 a month. Because she works at a nonprofit, her debt should eventually disappear via the Public Service Loan Forgiveness program.For Ms. DeLaet, the process was worth it: She has married her boyfriend, had two children and bought a home. Her mother is an “amazing” grandmother, she said, although they still cannot discuss the past. “It is an untouchable subject,” she said.Rumors and RulesThe transformation in the bankruptcy rules began in 1976, with unfounded rumors.A handful of legislators claimed to have heard about a parade of young doctors and lawyers who were trying to game the system and shed their debts while embarking on lucrative careers. The lawmakers toughened the rules, largely preventing borrowers from seeking a discharge within five years of graduation. The rules only got tougher over the next three decades.Borrowers must show that their student loans are an “undue hardship” — a standard interpreted differently, depending on where you live. Some judicial circuits, including those in Nebraska, where Ms. DeLaet filed, have the judge review a “totality of the circumstances” for the debtor and make a decision.Other jurisdictions employ a less flexible standard, the Brunner test, named for the case that established it. Judges must answer three questions affirmatively to discharge the debt. First, has the debtor made a good-faith effort to repay the loans? Second, is the debtor unable to maintain a minimal standard of living while making the payments? And, finally, is the debtor’s situation likely to persist?But even jurisdictions that use the Brunner test apply it differently. Some require the judge to find that the borrowers have a "certainty of hopelessness" in paying off their debt. Other jurisdictions do not.Here, the Johnsons may have benefited from geographic good fortune.‘Virtual Lifetime Servitude’Lawyers for the Educational Credit Management Corporation — a nonprofit that collects defaulted loans on behalf of the federal government — examined how the Johnsons spent their $2,100 monthly income.Every expense was scrutinized, including Ms. Raney-Johnson’s $35 monthly union dues, her $100 retirement contribution and $215 to repay loans from her retirement plan. None, the nonprofit’s lawyers argued, were necessary to maintain a “minimal standard of living.” In his opinion — written more than a year after hearing arguments — Judge Robert D. Berger disagreed. He wrote that the U.S. Court of Appeals for the 10th Circuit, which covers Kansas, had shifted from the most rigid interpretation of the three-part test, which he described as “an unfortunate relic.”Judge Berger wasn’t sure how the Johnsons were subsisting at all based on their income, and he said courts shouldn’t rely on “unfounded optimism” about a debtor’s future.“It is disconsonant with public policy and bankruptcy’s fresh start to leave debtors in virtual lifetime servitude to student loans,” he wrote.The judge discharged their student loans: $83,000 in debt, wiped away.“I was ecstatic,” Ms. Raney-Johnson said of the moment she received the decision letter. “I probably said some curse words.”Their good fortune didn’t last.  Pam Monroe saw education as a way to obtain independence she hadn’t had before.Credit...Joseph Rushmore for The New York TimesLaughs Over Lunches Opposing lawyers — whether they work for the federal government or for private lenders — are tenacious. Their approach can feel like bullying, if not humiliation.When Pamela Monroe went to an Arkansas bankruptcy court in 2015, she was 57 with a student-loan balance of about $56,000. She was working in the fragrance section of a Dillard’s department store, and her lunch habits — like $6.10 at Taco Bell and $12.72 at Olive Garden — were a focus of intense interest. Eating out, Ms. Monroe testified, was her primary form of recreation and a midday necessity: Co-workers would sometimes steal colleagues’ lunches from the break room.“They laughed about that when I told them,” she said. “I felt at that moment like I was a cornered animal and they were poking sticks at me.”Ms. Monroe said she had spent her life making choices that others seemed to dictate — marrying two years out of high school and becoming a mother, as her parents seemed to want. After two divorces, she reached for higher education in a bid for independence.She graduated from the University of Arkansas-Fort Smith with a communications degree and pursued a master’s in speech language pathology. She didn’t finish that program, leaving her with the debt but not the advanced degree. And she couldn’t seem to break out of low-paying work.“I would have loved to pay them back,” Ms. Monroe said. “But I never could, because nobody ever saw any value in me.” Judge Ben Barry found Ms. Monroe’s restaurant spending excessive, but noted that she had changed jobs frequently seeking higher pay. Her income, he wrote in his opinion, about doubled between 2010 and 2015, to over $26,000.But even a reduced budget he outlined would not leave her enough money to make her student loan payments, so he discharged just over half of her student loans.She would most likely have been paying that off until she was in her 80s. But last year, Ms. Monroe, now 63 and dealing with osteoarthritis and other health problems, received a disability discharge for the rest of her debt.Now all she wants to do is live out her days in her $510-a-month apartment in a retirement community. “It has a sprinkler system and an elevator, very safe,” she said.But she hasn’t stopped thinking about the way the system and its actors — like the lawyer on the opposite side in her case — seemed to render judgment on her life choices.“I didn’t do anything wrong,” she said. “I was just living, but I got in trouble for eating.”Back to Haunt ThemIn 2016, the Johnsons learned their loan discharge was being appealed by lawyers for Educational Credit Management Corporation.Paradoxically, they were worse off because their financial situation had improved: Ms. Raney-Johnson earned a promotion, and Mr. Johnson, now in his mid-40s like his wife, found a stable government job. A year after discharging their loans, Judge Berger concluded that the couple could now “easily” maintain a minimal standard of living and reinstated their debt — which had ballooned even more because of interest charges.Preparing to send their own children to college, the Johnsons requested another forbearance. Their balance continues to grow: It’s roughly $104,000 today.Ms. Raney-Johnson took the final class she needed for her biology degree over the summer. But the debt was already piling up for the next generation. Their oldest, a college sophomore, expects to owe about $45,000 when she graduates. Their middle child, a high school senior, is looking at colleges now. Ms. Raney-Johnson said she and her husband — who are putting about $5,000 a year toward their daughter’s tuition — would try to remain in forbearance for now.In August, they received a notice about an income-driven repayment plan, which would start out costing about $550 a month. From there, the cost depends on many factors, including job changes, raises and eligibility for forgiveness programs. If they’re able to get into the public service program, the debt could go away a decade after they start paying. If not, the bills could continue coming for about 20 years — right around the time the Johnsons will be trying to retire.The experience, Ms. Raney-Johnson said, has been “disheartening.” She and her husband had run up against opposition that could keep going with little regard for time or expense, knowing that they couldn’t.“It feels like getting screwed over by someone with a lot more power and money,” she said.

Debt collectors doubled their earnings – all thanks to COVID-19

10/5/20 According to an article in ProPublica, debt collections have made a fortune this year due to the COVID stimulus monies.  Those who really needed those funds used them to pay past-due debts, rather than saving the money to pay rent, utilities, food, health care and other very important necessities.
This article will help to explain the debt buying world and how our bad luck is their good luck.
“In August, Encore Capital, the largest debt buyer in the country, announced that it had doubled its previous record for earnings in a quarter. It primarily had the CARES Act to thank: The bill delivered hundreds of billions of dollars worth of stimulus checks and bulked-up unemployment benefits to Americans, while easing pressures on them by halting foreclosures, evictions and student loan payments. There was no ban on collections of old credit card bills, Encore’s specialty.”
Encore sued by CFPB for False actions.
Note – in September, 2020 Encore was sued by the Consumer Financial Protection Bureau because Encore had “pressur(ed) consumers with false statements and churning out lawsuits using robo-signed court documents,”

As the economy continues to struggle and under or unemployment continues to rise, the borrowers’ situation will become even more desperate.  Which means they will default on more of their credit card debts, which will result in the debt buyers buying more and more debts at dramatically reduced prices.  According to the article “In recent years, Encore has bought around 2 million to 3 million U.S. accounts per year, according to public filings. Last year, on average, the company paid 8.6 cents on the dollar for each account. For a typical debt of $3,142, Encore paid $271.”
They bully the borrowers into paying debts, rather than paying rent or buying food.  The debt collectors lie about the law and mislead the borrowers about their rights.  Such as harassing the borrowers at work, or calling family or neighbors.
There are long lasting consequences to choices made in haste.
According to the article “Collection suits can have a lasting negative effect on consumers. A recent study by economists from Dartmouth’s Tuck School of Business and the University of California, San Diego, focused on debtors who, after being sued, agreed to pay in order to avoid garnishment. The settlements left consumers worse off: They were more likely to fall behind on other debts or end up in foreclosure or bankruptcy, the study found. The main reason was that paying up on one debt had drained those consumers’ cash buffer and that left them vulnerable to falling behind on others.”
The moral to this story – know your rights.
There are federal and state laws that protect the consumer (that is you).  Take the time to learn about those laws and NEVER assume the debt collector is telling you the truth.

.fusion-body .fusion-builder-column-1{width:100% !important;margin-top : 0px;margin-bottom : 0px;}.fusion-builder-column-1 > .fusion-column-wrapper {padding-top : 0px !important;padding-right : 0px !important;margin-right : 1.92%;padding-bottom : 0px !important;padding-left : 0px !important;margin-left : 1.92%;}@media only screen and (max-width:980px) {.fusion-body .fusion-builder-column-1{width:100% !important;}.fusion-builder-column-1 > .fusion-column-wrapper {margin-right : 1.92%;margin-left : 1.92%;}}@media only screen and (max-width:640px) {.fusion-body .fusion-builder-column-1{width:100% !important;}.fusion-builder-column-1 > .fusion-column-wrapper {margin-right : 1.92%;margin-left : 1.92%;}}@media only screen and (max-width:980px) {.fusion-title.fusion-title-1{margin-top:15px!important;margin-bottom:0px!important;}}@media only screen and (max-width:640px) {.fusion-title.fusion-title-1{margin-top:10px!important;margin-bottom:10px!important;}}MUSINGS BY DIANE:We all want to believe that we would know when someone is lying or trying to steal from us.  Right?  Unfortunately, those of us who trust are viewed as “easy prey” to many who appear, on the face, to be people we can trust.  Now I am not saying that everyone who is nice is really there to rip-off their neighbor.  But there are so many scams now that it is hard to tell the “white hats” from the “black hats”.  For you Millennials – that means the good guys from the bad guys. 
The older generations tend to trust more than the younger ones.  Probably because the younger generations have seen schemes that never existing even 20 years ago.  My point in this rambling is to remind everyone to “trust, but verify”.

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