Members of Congress Join NACBA and NCLC to Discuss the Importance of Bankruptcy Reform in the time of COVID-19 and Beyond

For Immediate Release

The National Association of Consumer Bankruptcy Attorneys (NACBA) and National Consumer Law Center (NCLC) recently hosted a Congressional and expert panel featuring Senator Dick Durbin (D-IL), Senator Sheldon Whitehouse (D-RI), Congresswoman Zoe Lofgren (D-CA), and Chief Economist at Moody’s Analytics Dr. Mark Zandi calling on Senate to prioritize bankruptcy protections to help families and small business owners in upcoming bills, several of which were included in the House-passed HEROES Act.

The Coronavirus pandemic will leave devastating financial consequences for families and small business owners as many continue to lose their jobs and businesses close, ultimately leading millions to file for bankruptcy over the next few years. Immediate and substantial amendments to our nation’s Bankruptcy Code are needed to prepare for the expected increase in consumer debt, which is already at an all-time high. “It’s safe to assume that a wave of bankruptcy filings is on the way,” said Senator Dick Durbin. “Now is the time for bankruptcy reform. Whether it is finding ways to help families save their homes in bankruptcy, to restoring dischargeability of student loans, to reforming the Chapter 11 process to better protect workers and retirees instead of corporate executives; we must end years of delay and finally make our bankruptcy system fairer.”

Economist Mark Zandi highlighted that importance of Congress updating bankruptcy tools, given the current economic conditions, noting that “bankruptcy is a very critical tool for households to manage their financial problems.”

While a wave of consumer and individual bankruptcies has not hit yet largely because of the relief that was delivered in the early stages of the crisis, Congresswoman Zoe Lofgren warned it is coming. “But let’s not fool ourselves; more and more American families are likely to need bankruptcy relief especially as the economic damage deepens,” Rep. Lofgren explained. “In the HEROES Act… in addition to the relief given to individuals, there are several critical reforms to the bankruptcy system. To be honest, these reforms should have been included a long time ago.”

Other issues not included in the HEROES Act bankruptcy provisions, but very critical to address, are the dischargeability of student loans and debts for criminal court costs and fees. Senator Sheldon Whitehouse also pointed to the help people will need as a result of medical debt. He revealed that he, alongside Sens. Durbin, Brown and Warren, have filed a medical bankruptcy bill that addresses the problems dating back to the bankruptcy amendments of 2005 to help people forced into bankruptcy by medical debt. “These things are almost always unanticipated, massively expensive and uncontrollable,” Sen. Whitehouse explained.

Questions can be directed to Krista D’Amelio, Director of Government Affairs & Communications: krista.damelio@nacba.com.

NACBA Announcement – HEROES Act Bankruptcy Provisions

As a majority continue to follow stay at home orders due to the COVID-19 crisis, NACBA’s Legislative Committee with support from NACBA’s Board of Directors have been working nonstop with House and Senate staff to ensure significant bankruptcy provisions were included in H.R. 6800, Health and Economic Recovery Omnibus Emergency Solutions Act, also known as the “HEROES Act”. We are pleased to announce NACBA’s success in having many of our provisions included that will facilitate the availability of bankruptcy for victims of COVID-19 and its foreseeable economic consequences.

NACBA’s Legislative Committee and Board of Directors proudly share our association’s bankruptcy provisions included in H.R. 6800.

Protecting Homes and COVID Benefits. The House bill included a $100,000 homestead exemption floor, applicable to all cases where the homestead exemption would otherwise be lower, and a provision excluding COVID benefits from property of the bankruptcy estate. Many debtors will be filing bankruptcy cases solely because of the pandemic and its effects. They should not lose their homes just because these circumstances caused financial disaster. And debtors should also be protected from trustees seizing COVID benefits that are often essential to continued subsistence.

Protection from Discrimination Against Bankruptcy Debtors. In the initial days of attempting to obtain benefits afforded by the CARES Act, bankruptcy debtors were being told that they cannot receive the benefits such as mortgage relief and small business loans because they are in bankruptcy. Bankruptcy Code section 525 is amended to make clear that no entity can discriminate against past or current bankruptcy debtors in providing COVID-related mortgage assistance.

Ensuring Chapter 13 is Available to Families that Need It. The debt limits in Chapter 13 have not kept up with increasing home mortgage and student loan debt. Chapter 13 can also provide a method of reorganization from many small businesses that is much less expensive than chapter 11. The chapter 13 debt limits are doubled by the bill, which would allow more families and small businesses to file chapter 13 cases to resolve the hardships caused by this crisis.

Ensuring a Fresh Start for Chapter 13 Debtors Who Become Unable to Make Plan Payments. Debtors currently in chapter 13 will lose jobs and income or have large medical expenses, making continued payments impossible. They now have the option to obtain a chapter 13 discharge without completing payments if they have been in chapter 13 for at least one year.

Allowing an Extended Period for Chapter 13 Debtors to Catch Up on Missed Mortgage Payments. Debtors currently must complete their chapter 13 plans within a five-year period. They are now allowed to extend their chapter 13 plans for up to an additional 2 years, not to exceed 7 years, solely to allow them to catch up on missed mortgage payments or on mortgage payments which had been subject to forbearances.
While not all offered provisions were incorporated into the current bill, NACBA is strongly continuing our efforts towards getting them into the final House and Senate compromise bill. One provision NACBA continues to push for is:

Giving Chapter 13 Debtors Options to Deal with Mortgage Payments When There Has Been Forbearance on Those Payments. This provision permits mortgage servicers to file a supplemental claim when there has been forbearance on mortgage payments during a chapter 13 plan. The debtor can request that the court modify the plan or order that the mortgage payments be deferred until then end of the mortgage period. The court can also order mediation to allow the debtor and mortgage servicer to work out a mutually satisfactory arrangement to deal with the payments.

Should you have any questions or comments, please direct them to Krista D’Amelio, Director of Government Affairs: krista.damelio@nacba.com

NC Attorney General Recovers $150K+ in Consumer Relief in Price Gouging Settlement

North Carolina Attorney General Josh Stein obtained a consent judgment against Ohio-based Scotts Tree Service and defendants Scott Lacey and Randy Shannon to resolve a Hurricane Florence price gouging lawsuit. The consent judgment bans the defendants from performing tree removal work in North Carolina, prohibits them from collecting $153,100 in outstanding invoices from North Carolina consumers, and orders them to pay $20,000 in restitution, civil penalties, and fees.

“As North Carolinians in eastern North Carolina work to recover from damage caused by Hurricane Dorian, I urge them to be vigilant of price gougers,” said Attorney General Josh Stein. “If you think you have been the victim of a price gouging scam, please report it to my office. As this post-Florence case demonstrates, we will not abide scammers who try to take advantage of this disaster.”

Attorney General Stein filed an enforcement action against Scotts Tree Service, Lacey, and Shannon in October 2018 after Hurricane Florence hit North Carolina. Homeowners in Castle Hayne alleged that Lacey, who owns Scotts Tree Service, and Shannon, its employee, billed them $14,500 to remove two fallen trees without first discussing or getting agreement on the price. Attorney General Stein’s lawsuit alleged that Scotts Tree Service had one of the homeowners sign a statement of work to be done and later filled in the document with the $14,500 price, which the homeowner had never agreed to pay. After the homeowners refused to pay this invoice, Scotts Tree Service sent the invoice to a bill collector, the co-defendant Goldberg & Donovan, Inc., a Massachusetts company. Attorney General Stein reached a $15,000 settlement with Goldberg & Donovan and its proprietors, Stephen and Amy Lombardi, in May.

During its investigation of Scotts Tree Service, Attorney General Stein discovered evidence that numerous other North Carolinians may have also been price gouged by the company. The company’s invoices to those consumers were cancelled as part of the consent judgment.

North Carolina’s price gouging law was in effect after Gov. Roy Cooper declared a state of emergency for Hurricane Dorian. People can report potential price gouging by calling 1-877-5-NO-SCAM or by filing a complaint at https://ncdoj.gov/file-a-complaint/price-gouging/.

After Hurricanes Michael and Florence devastated North Carolina in 2018, Attorney General Stein brought seven lawsuits against 22 defendants under North Carolina’s price gouging statute. He has obtained eight judgments against 17 defendants, including a $274,000 settlement that was one of the largest price gouging settlements in the department’s history. The Attorney General’s Office has won more than $725,000 in these judgments, including:

$242,500 in consumer restitution
$392,500 in money companies are barred from collecting from homeowners
$94,500 in penalties and fees

FICO changes how credit scores are calculated

The company that calculates our credit scores is making changes in the way it comes up with your number. The name of the company is Fair Isaac Corporation, hence the term FICO SCORE.

FICO scoring models are typically updated every few years. With the latest change, your score will still be based on how much you owe, the number and types of accounts you have, and of course your payment history. But in the future, even if you pay your credit card and loan bills on time, your credit score might drop if your report shows a trend that your debt balance is going up.

Ted Rossman of Bankrate.com says one key adjustment involves the use of what’s known as trended data.

“One prime example of that is that recent behavior has the potential to help or hurt you more than in the past,” Rossman explained. “So, if you have a recent late payment, that’s going to have a big negative effect. Also, if you used to have better credit habits, like maybe you used to have a better on time payment history or you used to have lower debts, your debt has crept up. Trended data has the potential to negatively affect you for that reason,” Rossman said

Experts say under the latest credit scoring model people with scores below 600 could see their credit score drop by 20 points or more. Reports indicate some people might also face a credit score penalty for signing a personal loan, which is generally considered more risky because it’s not secured by thing with collateral value like your home or car.

How will your credit score hold up to the newest scoring model changes?

“The flip side though is that if you’re improving. If your the proverbial C student that starts getting a bunch of As, that’s going to help you,” said Rossman, using student grades as a metaphor for debt management.

Professionals in the non-profit credit counseling industry say this is another reminder of the importance of identifying your risks of drowning in debt, if you’re barely keeping your financial affairs afloat.

“This is where a non-profit credit counseling agency can directly assist in helping you get a plan to fix the issues that are holding your credit score down, get back on track with any bills that you’re paying late, and have a chance to completely restore any issues that are having an effect on your personal finances. Now is the time to do that, said Bruce McClary with the National Foundation for Credit Counseling.

“Some people might look at that 20 point decrease and say, ‘Well, that’s not a big deal.’ But if you’re on the threshold of either qualifying for credit or not, that 20 points can put you totally out of the game.”

Both McClary and Rossman agree that people may not be impacted right away by the recent FICO adjustments, since many lenders are still basing their loan decisions on older FICO scoring models.

As months go by, however, that could change, especially since consumer credit debt nationwide is now higher then levels before the financial crisis of 2008 and more people are dangerously over their heads in credit card and loan debt.

“I wouldn’t worry too much about being impacted right away by this, McClary said. “But if you do think that you will be impacted, now is the time to start addressing the problems that are holding your credit back.”

People who follow these FICO changes say if your credit score is 700 or higher, you could see a 20 point increase in your score and some people will see no change at all. But the key for everyone is to always pay more than the minimum payment, keep your overall debt balance going down, and whenever possible, pay before your payment is due, since the information that goes on your credit report is usually based on how things look as of your monthly statement date.

If you do have poor credit, beware of credit repair scams that promise to help you lower your debt. Regardless what you hear or see in advertising or solicitations, always seek help from a certified, non-profit credit counseling agency, or a licensed attorney, and never pay sums upfront.

Banks Are Handing Out Beefed-Up Credit Lines No One Asked For

It might sound like a risky strategy at a time when millions of Americans are drowning in debt: keep raising the limit on people’s credit cards, even if they don’t ask.

But that’s exactly what big banks have been doing lately to turbocharge their profits, leaving customers with the potential to rack up even bigger monthly bills.

For years after the financial crisis, Capital One Financial Corp. resisted that step for customers who looked vulnerable to getting in over their heads. In internal conversations, Chief Executive Officer Richard Fairbank characterized the restraint as a radical theology, in part because it went beyond post-crisis requirements, according to a person with direct knowledge of the discussions.

But then Capital One — known for its “What’s in Your Wallet?” slogan — reversed course in 2018, after the bank came under pressure to keep revenue growing. The company’s revenue reached a record last year.

The same reversal is playing out across U.S. banking, as more customers get unsolicited access to additional credit, in what’s becoming a new golden age of plastic. The goal: to get consumers to borrow more. The question, just like in the heady 2000s, is how it will end for lenders and borrowers alike. Research shows many consumers turn higher limits into debt. And the greater the debt, the harder it is to dig out.

“It’s like putting a sandwich in front of me and I haven’t eaten all day,” said D’Ante Jones, a 27-year-old rapper known as D. Maivia in Houston who was close to hitting the ceiling on his Chase Freedom card when JPMorgan Chase & Co. nearly doubled his spending limit a year ago without consulting him. He soon borrowed much more. “How can I not take a bite out of it?”

The banks say the increases are good customer service and that they raise spending limits carefully, discourage reckless borrowing and let customers reverse the increases at any time.

Record Borrowing

Whatever the case, the immediate result is clear: debt, and lots of it. Outstanding card borrowing has surpassed its pre-crisis peak, reaching a record of $880 billion at the end of September, according to the latest data from the New York Fed’s consumer credit panel. That’s boosting profit at top lenders like Capital One, JPMorgan and Citigroup Inc. a decade after banks cut credit limits without warning during the crunch.

“Capital One examines a number of factors before determining whether a customer is eligible for a credit line increase, including reviewing their credit and payment history, debt-to-income ratio and ability to pay,” a spokeswoman said in a statement. She said the company offers customers tools to “help them manage credit wisely.”

JPMorgan said it makes sure borrowers don’t owe too much and avoids raising limits for subprime cardholders.

“In a very targeted way, we grant credit line increases to creditworthy customers who have demonstrated consistent usage of the card and have shown strong repayment patterns,” a JPMorgan spokeswoman said. Less than 1% of increases are reversed by customers, she said.

“I didn’t know there was a way to say no,” said Jones, the Texas rapper. He was making less than $30,000 after taxes when Chase gave him access to an additional $1,500 during the 2018 Christmas season. A lot of people would celebrate access to more money. But he said he was terrified he’d spend more than he could handle. After thieves damaged his car, he tapped the full credit line and could only afford to make the minimum monthly payment.

Banned in Australia

Proactive credit line increases, known in the industry as PCLIs, emerged in the 1990s but virtually disappeared after regulators clamped down on the practice following the 2008 financial crisis. But as banks struggled to ramp up lending, PCLIs made a comeback with executives finding more aggressive ways to work within the consumer-protection laws.

U.S. issuers boosted credit lines for about 4% of cards in each quarter of 2018, according to the Consumer Financial Protection Bureau’s most recent data. That’s double the rate in 2012.

Subprime and near-prime customers got increases at a higher-than-average pace, according to the agency. That means many of the people getting boosts have blemished or limited histories of paying bills.

Courtesy: Bloomberg

North Carolina Bankruptcy Court Announces Mortgage Loan Modification Management Program

Effective July 1, 2019, the United States Bankruptcy Court for the Western District of North Carolina has instituted a Loan Modification Management Program. The goal of the program will be to expedite residential mortgage modifications for Chapter 13 debtors and mortgage creditors. The program will use an internet portal and independent facilitators to assist communications and the transfer of documentation between the parties.

If you are interested in pursuing a modification of the terms of your home mortgage, we at Vujovic Law would be happy to discuss the procedures and possible options with you.

NACBA Calls to Restore the Student Loan Bankruptcy Discharge

The National Association of Consumer Bankruptcy Attorneys (NACBA) was recently given the opportunity to testify before the House Judiciary Committee Subcommittee on Antitrust, Commercial and Administrative Law during the hearing “Oversight of Bankruptcy Law and Legislative Proposals”.

NACBA’s Vice President, Ed Boltz of North Carolina, as well as the other witnesses on the panel, made a strong call for restoration of the student loan bankruptcy discharge. The call for bankruptcy relief for student loan debtors was unanimously supported by the witness panel that included Ms. Hollister K. Petraeus (Former Assistant Director, Consumer Financial Protection Bureau’s Office of Servicemember Affairs), Mr. Robert Keach (on behalf of The American Bankruptcy Institute), Mr. John Rao (on behalf of The National Consumer Law Center), Ms. Dalié Jiménez (Professor, University of California Irvine School of Law) and The Honorable Thomas Small (Professor, University of California Irvine School of Law and former North Carolina bankruptcy judge).

NACBA strongly supports current bipartisan legislation in the Senate (S. 1414) and House (H.R. 2648), introduced respectively by Senator Dick Durbin and Congress members Jerrold Nadler and John Katko, to restore the bankruptcy discharge for student loan debt. “Growing evidence indicates that student loan debts not only severely restrict borrowers’ futures, but also are choking economic productivity”, testified Boltz. “These minimal efforts show the inadequacy of piecemeal, non-comprehensive changes that stop short of restoring the general dischargeability of student loans in bankruptcy.”

The hearing comes one day after Senator Bernie Sanders introduced legislation that would cancel all of the $1.6 trillion in outstanding student loan debt in this country. This follows recent proposals from other national figures, including Senator Elizabeth Warren, all of which are bringing into focus the fact that the student debt bomb is real and has already overwhelmed many Americans who do not have the ability to pay this debt back.

NACBA’s Legislative Co-Chair Ike Shulman stated, “Because eligibility for bankruptcy is limited to people who must demonstrate their financial difficulty and their need for bankruptcy relief, these bills will not affect student borrowers who are fully able to pay back their student loans. Instead, this legislation will help those who most need relief and are unable to pay back this debt.”
To further strengthen the call to restore student loan bankruptcy discharge, NACBA is proud to introduce a new project: studentdebtbomb.com, a social media campaign to promote the Student Borrower Bankruptcy Protection Act of 2019 (S. 1414 and H.R. 2648), which seeks to make student loans fully dischargeable. The goal of the social media campaign is to encourage people to contact their Senators and Congressional Representatives, urging them to cosponsor the bills.

For further information, please contact Krista D’Amelio, NACBA Director of Government Affairs & Communications, at krista.damelio@nacba.com.

ID Theft Services That Charge a Fee Could be a Waste of Money, According to a Federal Government Report

ID theft services, which offer to help consumers monitor their credit accounts or restore identities for a fee, are a waste of money, suggests a new report from the investigative arm of Congress, the Government Accountability Office.

“We did not identify any studies that analyzed whether consumers who sign up for or purchase identity theft services encounter fewer instances of identity theft or detect instances of financial or other fraud more—or less—rapidly than consumers who take steps on their own,” the authors say.

Additionally, the services could actually create more opportunities for hackers to steal from you, the report observes. “One consumer group representative noted that identity monitoring services require consumers to provide additional personal information to enroll—which also could be compromised if the service provider’s information were breached,” the GAO report states.

The authors point out the services have limitations: among them is the vendors don’t address all data breach risks.

The Federal Trade Commission and Consumer Financial Protection Bureau urge people considering paying for ID theft services to compare them with free or low-cost options before signing up.

Hackers can make purchases, take out loans or seek medical care in a victim’s name with stolen financial account numbers, passwords and Social Security numbers.

If you haven’t been a victim of ID theft, you probably know a few people who have.

For FREE information on how to protect yourself from ID theft and how to “freeze” your credit to prevent hackers and unauthorized persons from accessing your credit files, visit the website of the North Carolina Attorney General: https://www.ncdoj.gov/Consumer/Credit-and-Debt/2-4-3-1-1-Freeze-Your-Credit.aspx

A “security freeze” blocks access to your credit unless you have given your permission. This can prevent an identity thief from opening a new account or getting credit in your name. All consumers can get a free security freeze online, by phone or by mail. A security freeze, also known as a credit or a file freeze, can be lifted (or “thawed”) temporarily when you are applying for credit, or removed permanently.

Parents and guardians can also shield their children’s credit report with a special Protected Consumer security freeze. These freezes can also be used to safeguard incapacitated adults.

How a Security Freeze Works:

Once you’ve placed a security freeze on your credit, a creditor who asks to see your file will see a message that your file is frozen. The creditor will not see your credit score, and may treat your application as incomplete but not rejected.

Government agencies collecting child support payments or taxes and your existing creditors or collection agencies acting on their behalf can continue to access your credit despite the freeze.

Other creditors may also use your information to offer you pre-approved credit. You can stop most credit offers by calling (888) 5-OPT-OUT or visiting www.optoutprescreen.com

You will still be able to get a free copy of your credit report annually from each credit bureau.

NC ATTORNEY GENERAL LEADS COALITION TO PROTECT BORROWERS FROM PAYDAY LENDERS

North Carolina Attorney General Josh Stein led a coalition of 25 states urging the Consumer Financial Protection Bureau (CFPB) to take immediate action to protect consumers from abuses in payday lending, vehicle title lending, and other types of high-cost exploitative consumer lending.

“In North Carolina, we drove out the payday lenders who hurt working people with loan shark interest rates,” said Attorney General Josh Stein. “I urge the CFPB to protect borrowers from these abusive loans that put borrowers on a debt treadmill and, all too frequently, lead to default.”

It was announced by CFPB in 2017 that a new rule would help protect borrowers and ensure they’d have the ability to repay loans while also prohibiting lenders from using abusive tactics when seeking repayment. The rule went into effect in early 2018, but compliance was delayed to Aug. 19, 2019, to give lenders time to develop systems and policies. CFPB has now proposed to further delay compliance to Nov. 19, 2020, more than three years after the regulation was finalized. At the same time, CFPB is reviewing another rule that would altogether rescind this one.

Together, these actions would put at risk hard-fought borrower protections. In their comments, the attorneys general cite CFPB’s own findings that demonstrate the many ways the short-term payday and title lending model is broken – specifically as a significant percentage of these loans are expected to fail. In fact, 90 percent of all loan fees come from consumers who borrow seven or more times in 12 months. Twenty percent of payday loan transaction series end in default and 33 percent of single-payment auto title loan sequences end in default.

Attorney General Stein is joined in filing these comments by the Attorneys General of California, Colorado, Connecticut, the District of Columbia, Delaware, Hawaii, Iowa, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, New York, Nevada, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Washington, and Wisconsin.

FTC Halts Deceptive Mortgage Loan Modification Scheme

The Federal Trade Commission has charged a mortgage loan modification operation with deceiving financially distressed homeowners by falsely promising to prevent foreclosure and make their mortgages more affordable. A federal court temporarily halted the scheme and froze the defendants’ assets at the FTC’s request.

According to the FTC, the defendants typically charged consumers $3,900 in unlawful advance fees, in $650 monthly installments, falsely promising expert legal assistance and touting a 98-100 percent success record. They also allegedly misrepresented they would cut homeowners’ interest rates in half and reduce their monthly mortgage payments by hundreds of dollars.

The FTC alleges that the defendants used doctored government logos in correspondence with consumers, falsely suggesting they were affiliated with or endorsed by the federal government’s Making Home Affordable loan modification program. They also claimed to have special relationships with particular lenders and unlawfully told consumers not to pay their mortgages to or communicate with their lenders. In many instances, the FTC alleges, consumers paid hundreds or thousands of dollars only to learn that the defendants had not obtained the promised loan modifications, and in some cases had never even contacted the lenders. As a result, many people incurred substantial interest charges and other penalties for paying the defendants instead of their mortgage payments, and some lost their homes to foreclosure.

The defendants, charged with violating the FTC Act and the Mortgage Assistance Relief Services Rule [MARS Rule (Regulation O)], are Preferred Law PLLC; Consumer Defense LLC (Nevada); Consumer Defense LLC (Utah); Consumer Link Inc.; American Home Loan Counselors; American Home Loans LLC; Consumer Defense Group LLC, formerly known as Modification Review Board LLC; Brown Legal Inc.; AM Property Management LLC; FMG Partners LLC; Zinly LLC; Jonathan P. Hanley; Benjamin R. Horton; and Sandra X. Hanley.

The FTC appreciates the assistance provided by the Utah Attorney General’s Office, the Utah Department of Commerce – Division of Consumer Protection, the New Mexico Attorney General’s Office, the Connecticut Department of Banking, and the Oregon Department of Consumer and Business Services in bringing this case. The Commission vote approving the complaint was 2-0. The U.S. District Court for the Nevada entered a temporary restraining order against the defendants on January 10, 2018.

For consumer information about avoiding mortgage and foreclosure rescue scams, see Mortgage Relief Scams.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.

The Federal Trade Commission works to promote competition, and protect and educate consumers. You can learn more about consumer topics and file a consumer complaint online or by calling 1-877-FTC-HELP (382-4357).