Student Loans, Tragedy, and Forgiveness

Wednesday, May 1st, 2013 at 5:00 am  
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Understandably, parents often readily agree to cosign their child’s student loans for college. After all, who wouldn’t want their children to be able to attend college and achieve their goals. Unfortunately, some parents are in the tragic position of having student loan debt collectors come after them to repay cosigned student loans taken out by their deceased children. The New Jersey Star-Ledger reports about one such family, whose son died at the age of 30. When he died, he had $27,000 worth of loans, which Sallie Mae expected his parents to pay. The parents asked Sallie Mae to forgive the loan, but they refused. According to the news story, the Smart Option Student Loan program – which provides automatic loan forgiveness if the primary borrower dies – was launched in 2009, but this couple’s son had loans that were older.

U.S. Department of Education loans are forgiven if the borrower dies, as are parent PLUS loans. However, when a loan greater than $600 is forgiven, it is reported to the IRS and is considered taxable income. The report should be listed under the primary borrower’s social security number, but all too often it is sent under the cosigner’s social security number. If you receive the form by mistake (it’s called a Form 1099-C), you should ask the entity that issued the form to correct it.

CFPB Finds that Payday Loans Trap Consumers in Debt

Tuesday, April 30th, 2013 at 3:22 pm  
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The Consumer Financial Protection Bureau recently issued a report on payday loans and deposit advance loans, finding that these financial services products “lead to a cycle of indebtedness.” No surprise there.

Consumers often take payday loans as a way to bridge the gap, perhaps in order to pay for things like unexpected car repairs or medical bills – or simply to make ends meet until the next check arrives. Typically, the loans come due in one lump sum, along with a fee. Payday loans are administered by non-financial services storefronts, whereas deposit advance loans are typically administered by banks and are more akin to a line of credit.

The fees associated with payday loans are astronomical. Typically, the fees range between $10 and $20 for every $100 borrowed. According to the CFPB report, a fee of $15 per $100 “would yield an APR of 391% on a typical 14-day loan.”

The CFPB study looked at 12 months worth of records from payday lenders, and analyzed the consumers who had loans within the first month of the 12-month period, tracking them throughout subsequent months. In total, the CFPB studied 15 million storefront loans across 33 states. The average loan was $392, the average loan term was 18.3 days, the average fee was $14.40 per $100 borrowed, and the average APR was 339%. The average income of the borrower was $26,167 per year, although a quarter had an annual income of $14,172 or less. Three-quarters of borrowers were employed either part or full-time, while a quarter received either public assistance or retirement funds – Social Security, unemployment, disability, or other government assistance.

In the CFPB study, 48% of borrowers had more than 10 loans during the 12-month period, including 14% of borrowers who had more than 20 transactions. Twenty-five percent of borrowers paid $781 or more in fees during the study period. On average, borrowers were in debt 196 days of the year.

According to CFPB Director Richard Cordray, “This comprehensive study shows that payday and deposit advance loans put many consumers at risk of turning what is supposed to be a short-term, emergency loan into a long-term, expensive debt burden. For too many consumers, payday and deposit advance loans are debt traps that cause them to be living their lives off money borrowed at huge interest rates.”

The CFPB report can be downloaded here: http://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf

Debtors’ Prison? Still Used, though Unconstitutional

Tuesday, April 23rd, 2013 at 5:00 am  
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CBS MoneyWatch reports that, although the practice violates the Equal Protection Clause of the U.S. Constitution, about a third of states jail people for failing to pay their debts. The American Civil Liberties Union of Ohio issued a report saying that, even though sending consumers to jail for failure to pay debts is also against Ohio state law, seven of the state’s 11 counties do so. The news story noted that such a justice system “in effect criminalizes poverty.” In addition, it reported that many states institute a so-called “poverty penalty” by tacking on interest, late fees, and payment plan fees if a consumer isn’t able to pay the entire balance at once. In some places, like Florida, consumers jailed for debts don’t have a right to a public defender, while in other places, consumers are charged a fee for using a public defender. Anyway you look at it, these practices are both illegal and heartless.

A Snapshot of Consumer Debt

Monday, April 22nd, 2013 at 5:43 pm  
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The Federal Reserve Bank of New York issues a quarterly report on household debt and credit. Their report covering the fourth quarter of 2012 provides an interesting snapshot of where Americans stand when it comes to debt:

Total Consumer Indebtedness: $11.34 trillion
Mortgage Balances: $8.03 trillion
Home Equity Lines of Credit: $563 billion
Debt in Delinquency: $978 billion
New Bankruptcies: 336,000
New Foreclosures: 210,000
Student Loan Balances: $966 billion
90+ Day Student Loan Delinquency: 11.7%
New Auto Loans: $89.4 billion

Ivies Suing College Graduates Over Student Loans

Thursday, April 18th, 2013 at 5:00 am  
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Elite universities promise a world-class education and imply access to movers and shakers and lucrative career opportunities. Bloomberg reports, however, that Ivy League colleges Yale and Penn are suing graduates for defaulted federal Perkins loans. Perkins loans are offered to students with significant financial need and are administered by the universities. Bloomberg notes that Yale, which has an endowment of $19.3 billion – second only to Harvard – stopped offering Perkins loans a few years back. Nevertheless, when top-tier universities sue graduates in court, they tack on considerable collection fees. The articles states, “On the first attempt, schools can charge 30 percent of loan principal, along with interest and late fees. They can charge 40 percent for the second effort and an additional 40 percent on litigation.”

Unlike federal Stafford loans, Perkins loans recipients aren’t eligible for newer income-based repayment plans. However, President Obama is advocating an increase in the money available for Perkins loans, and is proposing that the Department of Education service the loans. Conceivably, future Perkins borrowers would be eligible for modified repayment programs and would be charged less for collection fees.

Down the Debt Collection Rabbit Hole

Wednesday, April 17th, 2013 at 1:12 pm  
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Ever feel like you fell down the proverbial debt collection rabbit hole? That was the case for one New Jersey man, whose insurance company paid his medical bill, yet was hounded by debt collector Financial Recoveries and saw his credit score plummet until he paid the bill – again – out of his own pocket.

According to the Newark Star-Ledger, the consumer provided the emergency room he visited with his health insurance information and his copayment. A few months later, he received a collection letter from Financial Recoveries. He contacted the hospital, which reported that it had the incorrect insurance information and assured him that it would call off the debt collector. Nevertheless, the consumer discovered that Financial Recoveries had reported the debt the credit bureaus, and that his credit score had plummeted 80 points.

Even though the consumer’s insurance company paid the bill, a year later Financial Recoveries was still dinging his credit report, and the consumer’s score took another nosedive. In order to stop the credit abuse, the consumer paid Financial Recoveries, and when he explained that the bill had been paid twice, the debt collection agency refused to send a refund. After the Star-Ledger intervened, the situation was corrected, but this is a good illustration of the damage that a rogue debt collection agency can do to a consumer’s credit score.

Lemberg & Associates Wins $350,000 Class Action Award Against Debt Collectors Portfolio Recovery Associates

Thursday, March 28th, 2013 at 6:58 pm  
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On behalf of Jason Zimmerman and other consumers, Lemberg & Associates (www.stopcollector.com) has won a $350,000 class action award against debt collection agency Portfolio Recovery Associates for violations of the Fair Debt Collection Practices Act (FDCPA). This is the largest reported judgment in a Fair Debt Collection class action case. According to Sergei Lemberg, who was labeled the “most active consumer attorney” of 2012 by debt collection industry insider WebRecon LLC, “We are gratified that the judge saw it fit to impose a significant, meaningful penalty for PRA’s intentional violations of the FDCPA.”

The court ruled that Portfolio Recovery Associates violated the FDCPA by sending 990 consumers debt collection correspondence that simulated legal process. The package consisted of a letter plus a set of legal-looking documents, such as a draft Summons and Complaints. According to Lemberg, “The FDCPA prohibits dissemination of fake legal papers on its face. The court rightfully labeled Portfolio Recovery Associates’ behavior ‘unscrupulous.’”

Portfolio Recovery’s unscrupulous behavior was just one of the factors the court used in determining the $350,000 award. According to Lemberg, “We were pleased that the judge noted that Portfolio Recovery’s FDCPA violations were ‘intentional’ and ‘egregious,’ and that a sizeable award was appropriate.” Indeed, the judge wrote, “The sanction imposed must be sufficient to deter PRA from engaging in abusive practices in the future.”

The court determined that each class member who returned the appropriate claim form would receive $500, that the lead plaintiff, Mr. Zimmerman, would receive $1,500, and that any remaining monies would be awarded “to a non-profit organization working to curb abusive debt collection practices or to increase consumer awareness of such practices.”

Lemberg concluded, “It’s fitting that a portion of the award will go to consumer advocacy organizations. The court’s decision should a clear message to debt collectors that they will be held accountable when they engage in shady practices.”

This release references Zimmerman v. Portfolio Recovery Associates, LLC (U.S. District Court, Southern District of New York, 09 Civ. 4602 (PGG)).

Appellate Court Throws Out Settlement in Encore Capital Robo-Signing Case

Thursday, March 21st, 2013 at 5:50 pm  
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In August 2011, a federal judge approved a $5.7 million settlement in a class action lawsuit brought against Encore Capital Group and its Midland subsidiaries. The case revolved around the practice of “robosigning” affidavits, which in turn were used to sue consumers and obtain judgments against them. Because the case was precedent-setting, 38 state attorneys general, the Federal Trade Commission, and consumer advocacy groups filed amicus briefs urging the judge to reject the settlement proposal.

Late in February, the 6th Circuit Court of Appeals voided the settlement, which would have awarded each consumer a measly $17. The appellate court ruled that the lower court judge had abused his discretion in approving the settlement, and that the monetary relief to consumers was “perfunctory at best.” The court also noted that the order meant to prevent Midland from engaging in robosigning behavior was hollow, in that it didn’t prohibit false affidavits and expired after one year. The case was remanded to the district court.

NRA Group: From Our Case Files

Thursday, March 21st, 2013 at 5:00 am  
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On behalf of our client, Lemberg & Associates recently filed a complaint in U.S. District Court, District of Maryland, against NRA Group. Our client alleges that NRA Group contacted him in order to collect a $32 medical bill. Our client explained that he couldn’t pay the bill and was in the process of filing for bankruptcy. He asked NRA Group to cease communications with him. Nonetheless, NRA Group continued to call his cell phone, telling him that they would continue to call until the debt was paid. In addition, NRA Group threatened to take legal action unless the debt was paid.

The lawsuit charges that NRA Group violated the Fair Debt Collection Practices Act (FDCPA) by engaging in harassing behavior; by using false, deceptive, or misleading representation in connection with the collection of a debt; by misrepresenting the character, amount, and legal status of a debt; by threatening to take legal action without actually intending to do so; by using unfair and unconscionable means to collect a debt; and by failing to send a validation notice. In addition, the lawsuit alleges that NRA Group violated the Maryland Consumer Debt Collection Act and invaded our client’s privacy.

Asset Recovery Associates: From Our Case Files

Wednesday, March 20th, 2013 at 5:00 am  
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On behalf of our clients, Lemberg & Associates recently filed a complaint in U.S. District Court, Southern District of Texas, against Asset Recovery Associates. Our client alleges that Asset Recovery Associates called both her home and cell phones, as well as her husband’s cell phone. During the conversations, our client alleges that Asset Recovery Associates threatened to file a lawsuit against our client if she didn’t pay. Asset Recovery Associates also threatened to place a lien on our client’s property.

The lawsuit charges that Cross Check violated the Fair Debt Collection Practices Act (FDCPA) by engaging in harassing behavior; by threatening violence; by using false, deceptive, or misleading representation in connection with the collection of a debt; by threatening our client with attachment of her property; by threatening to take legal action without actually intending to do so; and by using unfair and unconscionable means to collect a debt. The lawsuit also charges that Asset Recovery Associates violated the Texas Debt Collection Act.

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