Student Aid Bill of Rights: Taking Action to Ensure Strong Consumer Protections for Student Loan Borrowers

WHITE HOUSE PRESS RELEASE

Office of the Press Secretary

FACT SHEET: A Student Aid Bill of Rights: Taking Action to Ensure Strong Consumer Protections for Student Loan Borrowers

Higher education continues to be the single most important investment students can make in their own futures. Five years ago this month, President Obama signed student loan reform into law, redirecting tens of billions of dollars in bank subsidies into student aid. His historic investments in college affordability include increasing the maximum Pell Grant by $1,000, creating the American Opportunity Tax Credit worth up to $10,000 over four years of college, and letting borrowers cap their student loan payments at 10 percent of income. He has also promoted innovation and competition to help colleges reduce costs and improve quality and completion, including a First in the World fund. While these investments have helped millions of students afford college, student loans continue to grow.

That is why, today, President Obama will underscore his vision for an affordable, quality education for all Americans in a Student Aid Bill of Rights. As part of this vision, the President will sign a Presidential Memorandum directing the Department of Education and other federal agencies to work across the federal government to do more to help borrowers afford their monthly loan payments including: (1) a state-of-the-art complaint system to ensure quality service and accountability for the Department of Education, its contractors, and colleges, (2) a series of steps to help students responsibly repay their loans including help setting affordable monthly payments, and (3) new steps to analyze student debt trends and recommend legislative and regulatory changes. In addition, the Administration is releasing state by state data that shows the outstanding federal student loan balance and total number of federal student loan borrowers who stand to benefit from these actions.

A Student Aid Bill of Rights

I. Every student deserves access to a quality, affordable education at a college that’s cutting costs and increasing learning.

II. Every student should be able to access the resources needed to pay for college.

III. Every borrower has the right to an affordable repayment plan.

IV. And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.

Today’s Actions to Promote Affordable Loan Payments

Americans are increasingly reliant on student loans to help pay for college.
Today, more than 70 percent of those earning a bachelor’s degree graduate with debt, which averages $28,400 at public and non-profit colleges. Today’s actions will help borrowers responsibly manage their debt, improve federal student loan servicing, and protect taxpayers’ investments in the student aid program:

. Create a Responsive Student Feedback System:The Secretary of Education will create a new web site by July 1, 2016, to give students and borrowers a simple and straightforward way to file complaints and provide feedback about federal student loan lenders, servicers, collections agencies, and institutions of higher education. Students and borrowers will be able to ensure that their complaints will be directed to the right party for timely resolution, and the Department of Education will be able to more quickly respond to issues and strengthen its efforts to protect the integrity of the student financial aid programs. In addition, the President will direct the Department of Education to study how other complaints about colleges and universities, such as poor educational quality or misleading claims, should be collected and resolved and to strengthen the process for referring possible violations of laws and regulations to other enforcement agencies.
These actions will help ensure more borrowers get fair treatment throughout the federal student loan process.

. Help Borrowers Afford Their Monthly Payments:The President will announce a series of steps to improve customer services and help borrowers repay their direct student loans, which are made with federal capital and administered by the Department of Education through performance-based contracts.
High-quality, borrower-focused servicing helps more borrowers successfully repay their federal student loans. Building on the stronger performance incentives put in place last year, the Department will now raise the bar by:

o Requiring enhanced disclosures and stronger consumer protections throughout the repayment process, including when federal student loans are transferred from one servicer to another, when borrowers fall behind in their payments, and when borrowers begin but do not complete applications to change repayment plans. These steps will better protect borrowers from falling behind in their payments and ensure consistency across loan servicers.

o Ensuring that its contractors apply prepayments first to loans with the highest interest rates unless the borrower requests a different allocation.

o Establishing a centralized point of access for all federal student loan borrowers in repayment to access account and payment processing information for all Federal student loan servicing contractors.

o Ensuring fair treatment for struggling and distressed borrowers by raising standards for student loan debt collectors to ensure that they charge borrowers reasonable fees and help them return to good standing; clarifying the rights of Federal student loan borrowers in bankruptcy; working with the Department of Treasury to simplify the process to verify income and keep borrowers enrolled in income-driven repayment plans; and working with the Social Security Administration to ensure that disability insurance recipients who can discharge their student loans are not instead seeing their disability payments garnished to repay defaulted loans.

. Prioritize Further Steps to Meet the Needs of Student Borrowers:The federal government has a responsibility to ensure that students who borrow federal loans have every opportunity to repay those loans through fair, affordable monthly payments. To continue to improve the information and customer service offered those borrowers, the President will direct the Department of Education to:

o Work with the White House Office of Science and Technology Policy to find the most innovative and effective ways to communicate with borrowers, leverage the latest research identifying key factors that influence borrower repayment and keep actual borrower behavior in mind, so they stay in repayment and avoid default.

o Work with the Office of Management and Budget to regularly monitor key trends in the student loan portfolio, improving loan servicing and budgeting and considering possible policy changes.

o Invite expertise from across the government to review best practices for performance-based contracting that could further improve outcomes for borrowers.

In addition, new requirements may be appropriate for private and federally guaranteed student loans so that all of the more than 40 million Americans with student loans have additional basic rights and protections. The President is directing his Cabinet and White House advisers, working with the Consumer Financial Protection Bureau, to study whether consumer protections recently applied to mortgages and credit cards, such as notice and grace periods after loans are transferred among lenders and a requirement that lenders confirm balances to allow borrowers to pay off the loan, should also be afforded to student loan borrowers and improve the quality of servicing for all types of student loans. The agencies will develop recommendations for regulatory and legislative changes for all student loan borrowers, including possible changes to the treatment of loans in bankruptcy proceedings and when they were borrowed under fraudulent circumstances.

Making Progress on A Student Aid Bill of Rights

Together, we can continue our work toward ensuring that all Americans have meaningful opportunities for a high-quality, affordable postsecondary education without the threat of unmanageable debt. The President’s vision laid out in the Student Aid Bill of Rights incorporates the progress we’ve made, his existing proposals, and the new actions announced today.

I. Every student should have access to a quality, affordable education at a college seeking new ways to lower costs and increase learning.

. America’s College Promise: In January of 2015, the President released a bold new proposal to make two years of community college free for responsible students, letting students earn the first half of a bachelor’s degree and earn skills needed in the workforce at no cost, benefiting nearly
9 million students, and ensuring states and community colleges do their part to help students succeed.

. First in the World Grants: In September, the Department of Education awarded $75 million to colleges and universities across the country under the new First in the World (FITW) grant program to encourage colleges to adopt cutting-edge innovations and proven strategies that expand college opportunity, improve student learning, and reduce costs. This year, the President has proposed increasing FITW to $200 million.

. Call to Action on College Opportunity: Last December, the President, Vice President, and First Lady joined college presidents, K-12 superintendents, non-profit, foundations, and businesses to announce over 600 new commitments to help more students prepare for and graduate from college.

. College Ratings: The Department of Education continues its work to develop a college ratings system by the 2015-2016 school year that will help students and families compare the value offered by colleges and encourage colleges to improve by highlighting institutions that successfully educate students from all backgrounds; maintain affordability; and help students gain a degree or certificate of value.

II. Every student should be able to access the resources needed to pay for college.

. Dramatically Increasing Investment in Pell Grants: The President raised the maximum Pell Grant award to $5,730 for the 2014-15 award year – a nearly $1,000 increase since 2008, helping more than 8 million Americans a year afford college. This year, the President has proposed new investments to ensure the maximum Pell grant keeps up with the cost of inflation.

. Simplifying the Process to Apply for Federal Student Aid: The Department of Education has helped students and their families fill out the Free Application for Federal Student Aid (FAFSA) in a fraction of the time it used to take-20 minutes from over an hour-through a redesigned tool that asks less questions and helps filers get their income data directly from the Internal Revenue Service. This year, the President has proposed eliminating more questions from the FAFSA.

. Simplifying and Improving Education Tax Benefits:The President created the American Opportunity Tax Credit (AOTC) to provide families with up to $10,000 over four years of college. This year, the President has proposed simplifying and improving education tax benefits for more than 25 million families, including making AOTC available for up to five years and eliminating taxes on student loan debt forgiveness under income-driven repayment plans.

III. Every borrower has the right to an affordable repayment plan.

. Pay-As-You-Earn Loans: Under the President’s Pay As You Earn plan, recent student borrowers can cap federal loan payments at 10 percent of their income. Last June, the President directed the Department of Education to amend its regulations to make the plan available to all direct loan borrowers, helping nearly 5 million additional borrowers by December 2015.
This year, the President has proposed reforms to the program that will streamline and better target all income-driven repayment plans to safeguard the program for the future.

IV. And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.

. Transitioning to a Student-Centered Direct Loan Program: In 2010, the Administration took action to make federal student loans more reliable and efficient by eliminating subsidies to banks and successfully transitioning all new originations to the Direct Loan program. New performance-based contracts that were created by the Department incented servicers to find new and innovative ways to best serve students and taxpayers and this June, the contracts were strengthened to improve the way servicers are compensated to help borrowers repay their loans on time and ensure high-quality servicing.

. Simplifying Income-Driven Repayment Plans and Improving Borrower Outreach:
In 2012, in partnership with the Internal Revenue Service (IRS) the Department of Education made it easier for borrowers to enroll in an income-driven repayment plan by creating an online application that lets borrowers get their required income information directly from IRS. Along with outreach efforts spanning targeted email campaigns, social media, and partnerships with outside organizations, more than 2.4 million borrowers are able to manage their debt through and income-driven repayment plan.

. Building Tools and Resources to Support Federal Student Loan Borrowers:
Since 2012, the Department of Education has developed a suite of tools and resources to help federal student loan borrowers, including a financial aid counseling tool that helps borrowers make good education financing decisions, understand their options for paying back their loans, and accurately compare and select repayment options customized to their individual circumstances.

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NC ATTORNEY GENERAL ROY COOPER SHARES TOP TEN CONSUMER COMPLAINTS FOR 2012 Do Not Call, lending, and telemarketing fraud top the list of complaints: A total of 23,205 consumers filed complaints with the Consumer Protection Division of North Carolina Attorney General Roy Cooper's Office in 2012. Cooper encouraged consumers to learn about the top sources of complaints as a way to avoid costly problems. If you think you've been ripped off or just didn't get what you paid for, let my office know about it. Even better, we'd like to help you avoid trouble in the first place by helping you learn to avoid common problems, Cooper said. Complaints were up 25 percent from 2011, when 18,483 written consumer complaints were filed with Cooper's office. Complaints about Do Not Call violations topped the list for 2012, with 6,126 complaints total. Many consumers complained about continuing to get unwanted telemarketing calls after they'd placed their number on the Do Not Call Registry, while others complained about illegal prerecorded robocalls pitching things like lower interest rate credit cards and home alarm systems. Cooper would like to see stronger penalties for telemarketers who violate Do Not Call and related laws. Cooper's office has been fighting a case in federal court for three years that is expected to have a major impact on Do Not Call enforcement. The case, against satellite television provider DISH, involves several million calls to consumers made by DISH, its dealers and representatives. North Carolina law makes it illegal for a business to call you using a recorded message, and the Consumer Protection Division has been able to use consumers' complaints to identify the culprits behind some illegal robocalls and take action to shut them down. Cooper has also warned consumers to simply hang up on robocalls, since pressing a number to get more information or try to stop the calls is actually likely to result in more calls. The Federal Trade Commission is currently offering a $50,000 prize to encourage people to develop new technology to block robocalls. Also included in complaints about unwanted telemarketing calls are complaints about political robocalls, which Cooper has long pushed to ban to numbers listed on the Do Not Call Registry. He would also like political robocallers to be required to provide a contact name and number to stop the calls at the beginning of each recorded message instead of at the end of the call. Complaints about lending were number two on the list for 2012, with 4,314 complaints filed about issues such as interest rate hikes, charges for late payments, foreclosure relief scams and other lending related matters. Last year, Cooper won a landmark national settlement to reform mortgages and prevent foreclosure abuses, winning more than $338 million in help for North Carolina homeowners. The Attorney General is fighting a proposal to bring payday lending back to North Carolina, which would likely lead to more complaints about lending. Cooper fought in court for years to chase payday lenders out of North Carolina, and the last storefront payday lenders operating in the state closed their doors in 2006. Senate Bill 89 would allow payday lenders to open up shop again, charging interest rates of more than 300 percent on loans that must be paid back in two weeks. Complaints about telemarketing fraud came in at number three on the list, with 3,418 filed in 2012. Popular telemarketing fraud schemes include phony sweepstakes and lotteries, sweetheart scams, fake government grants, and counterfeit check scams. Fraud artists usually operate from outside the country and try to trick victims into sending them money overseas, through wire transfers, reloadable debit cards, or even by bringing or sending them large amounts of cash. Victims reported $8.5 million in losses to telemarketing fraud to us last year, with victims losing on average $10,000 each. Cooper's telemarketing fraud experts work with federal and international law enforcement to try to unravel the schemes, and they've also negotiated agreements with Western Union and Moneygram to make it harder for telemarketing fraud rings to use their services. They also help families deal with the often difficult process of convincing senior loved ones that they're being scammed, and work to keep victims from being ripped off repeatedly. Complaints about health care, home repair, motor vehicles, credit and collections, television services, Internet and computers, and telecommunications rounded out the top ten. See the complete list of top ten consumer complaints of 2012 at www.ncdoj.gov. The top ten list is based on written complaints filed with the Attorney General's Consumer Protection Division. Tens of thousands of North Carolina consumers also get help from consumer protection experts from the office over the phone and by email as well as at scam jams and other educational events across the state. Scammers are never shy about making money at your expense, and they can be very convincing, Cooper warned. Learn to recognize scams so you can avoid them, and report them to help us enforce the law. Cooper shared information about top complaint sources and top tips as part of National Consumer Protection Week, March 3-9, 2013. Cooper also issued a list of top ten tips to help North Carolinians avoid scams and unfair business practices. Visit www.ncdoj.gov for more consumer tips and tools. North Carolina consumers who want to check up on a business, get tips or file a complaint can contact the Attorney General's Consumer Protection Division. Call 1-877-5-NO-SCAM toll-free within North Carolina or submit a complaint online. Once a consumer files a written complaint, the NC Attorney General's office can try to help resolve the situation. In cases where there is a pattern of illegal business practices, the Attorney General may also take action to enforce the law on behalf of all North Carolina consumers. Media Contact: Noelle Talley (919) 716-6413

North Carolina Attorney General Roy Cooper makes his position quite clear: “This is the same old rip-off we ran out of our state years ago. These overpriced loans trap borrowers in a cycle of debt many cannot escape. Payday lending was a bad idea then, and it’s a bad idea now.” Background: Cooper fought in court for years to chase payday lenders out of North Carolina. A bill filed recently in the NC Senate would allow payday lenders to open up shop yet again in the state, charging excessive interest rates on loans that must be paid back quickly. Senate Bill 89 would amend the Check Cashing Licensing Act to allow a check casher/lender to pay out cash loans of up to $500 for a fee of 15 percent of the cash advance. On a typical loan repayable in two weeks, the annual percentage rate would be more than 300 percent. Current state law allows a maximum rate of 16 percent on consumer loans under $25,000 except that licensed consumer finance lenders can charge up to 36 percent on loans under $600. The bill would not allow payday loans to be made to military personnel or their spouses. Congress already banned payday lending to military personnel in 2007 to protect service members from these predatory loans. In the late 1990’s, payday lenders expanded rapidly across the state. Many North Carolina consumers who took out payday loans saw their debts mount quickly when they were unable to find the money to repay their original loan in such a short period of time. After legislators outlawed payday lending in 2001, some payday lenders closed their doors while others used a variety of ruses to keep operating. Cooper and the Commissioner of Banks’ office fought a long legal battle to shut down illegal payday lenders in North Carolina, winning agreements to close the last storefront payday lenders operating in the state in 2006. Last year, Cooper became concerned about payday-type loans being offered by Regions Bank, which tried to claim protection under federal law because it is chartered in another state. Thanks to pressure from Cooper’s office and other consumer advocates in the state, the bank stopped making those loans in North Carolina last month. Media contact: Noelle Talley (919) 716-6413

Student Loans: Debt for Life

This much we know: College pays. You can lose your house to foreclosure, but never your education. Four-year college graduates’ pay advantage over high school grads has doubled over the past 30 years. If money for tuition is tight, the advice goes, borrow what you need. Students have been listening. In 2010 student debt exceeded credit-card debt for the first time. In 2011 it surpassed loans for vehicles. In March, the Consumer Financial Protection Bureau announced that student debt had passed $1 trillion. It grew by $300 billion from the third quarter of 2008 even as other forms of debt shrank by $1.6 trillion, according to a separate tabulation by the Federal Reserve Bank of New York. In a press briefing at the White House in April, Education Secretary Arne Duncan said, “Obviously if you have no debt that’s maybe the best situation, but this is not bad debt to have. In fact, it’s very good debt to have.”

If student loans are good debt, how do you account for the reaction of Christina Mills, 30, of Minneapolis, when she found out her payment on college and loans from law school would be $1,400 a month? “I just went into the car and started sobbing,” says Mills, who works for a nonprofit. “It was more than my paycheck at the time.” Medical student Thomas Smith, 25, of Hamilton, N.J., is $310,000 in debt and is struggling to make ends meet even before beginning to repay his loans. “I don’t even know what I eat,” he says. “I just go to the supermarket and buy the cheapest thing I can and buy as much of it as I can.” Then there’s Michael DiPietro, 25, of Brooklyn, who accumulated about $100,000 in debt while getting a bachelor’s degree in fashion, sculpture, and performance, and spent the next two years waiting tables. He has since landed a fundraising job in the arts but still has no idea how he will pay back all that money. “I’ve come to the conclusion that it’s an obsolete idea that a college education is like your golden ticket,” DiPietro says. “It’s an idea that an older generation holds on to.”

Even if you buy into the notion that education debt is good debt, at what point does it become too much of a good thing? Mark Kantrowitz, publisher of FinAid.org, which researches aid to financially assist students, estimates that student debt, compounded by rising enrollments, is growing by nearly $3,000 a second.

“The question isn’t the debt per se. It’s what the students are getting in return,” says Richard Arum, a New York University sociologist who specializes in education. Many students are incurring heavy debts for an education (ethnomusicology, theater arts) that just isn’t worth it from a strictly financial viewpoint. (Money isn’t everything, but try telling that to the collection agency.) Education is a benefit to society by creating a workforce that creates wealth, pays taxes, and stays off welfare. But state governments—whose schools educate 7 in 10 students—have raised tuition abruptly because of their own financial problems. So far the federal government has offset the state cutbacks by boosting financial aid, but Education Under Secretary Martha Kanter testified to Congress earlier this year that “this path is not fiscally sustainable.”

There’s a lot of speculation that college debt is the next bubble after housing, the latest sector in which prices leap above real value. American colleges may not be turning out the kind of graduates that employers want. In Academically Adrift: Limited Learning on College Campuses, NYU’s Arum and sociologist Josipa Roksa of the University of Virginia write that employers are being forced to turn to foreigners or graduate and professional schools to fill jobs that they once filled with homegrown college graduates.

That’s the value side. The cost side is ugly, too. The economic slump that began in 2007 has forced people to pay more for college even as it has driven more of them into it as a refuge from an unfriendly job market. The National Center for Education Statistics projects that college attendance this fall will be up 19 percent from the fall of 2007. Meanwhile, state and local support for higher education last year was the lowest in 25 years of measurement, in inflation-adjusted dollars per student, according to the State Higher Education Executive Officers Association. Two-thirds of college seniors graduated with loans in 2010, and those who did had an average of about $25,000, according to the Institute for College Access & Success.

zachmanifold@gmail.com posted on September 06, 2012 14:08

What a Half Million Unwary Consumers Don’t Know: Schemes Only Work for 1 in 10 Who Pay for Them; Consumer Alert: Programs That Promise to Settle Debt are Seen as “#1 Threat to America’s Most Indebted Consumers.”

WASHINGTON, D.C. – As few as one in 10 unwary consumers who are lured into so-called “debt settlement” schemes actually end up debt free in the promised period of time, making the risky schemes the No. 1 threat facing America’s most deeply indebted Americans, according to a major new consumer alert issued today by the nonprofit National Association of Consumer Bankruptcy Attorneys (NACBA).

Available online at http://www.nacba.org, the NACBA consumer alert notes: “Already struggling with home foreclosures, harsh bank and credit card fees, and other major financial challenges, America’s most deeply indebted consumers are now falling victim to a major new threat: so-called ‘debt settlement’ schemes that promise to make clients ’debt free’ in a relatively short period of time. Unfortunately, most consumers who pursue debt services offering to settle debt find themselves facing not relief but even steeper financial losses. Even the industry acknowledges – though not in its ever-present radio and online advertising – that debt settlement schemes fail to work for about two thirds of clients. Federal and state officials put the debt-settlement success rate even lower – at about one in 10 cases – meaning that the vast majority of unwary and uninformed consumers end up with more red ink, not the promised debt-free outcome.”

The private debt-settlement industry remains robust. More than 500,000 Americans with approximately $15 billion of debt are currently enrolled in programs that promise to settle debt, according to industry estimates. And there is room for further growth: One in 8 U.S. households has more than $10,000 in credit card debt.

Durham, NC bankruptcy attorney Ed Boltz, NACBA Board member and incoming NACBA president, said: “Based on what bankruptcy attorneys are seeing across the nation, we believe that debt settlement schemes are the number one problem facing America’s most deeply indebted consumers today. Bombarded with slick radio and Web advertising falsely promising a smooth road to being debt free in a short period of time, these companies prey on the most desperate victims of the economic downturn. These particularly vulnerable consumers usually end up getting sued, stuck with outrageous fees, more deeply in debt, and far worse off in terms of their credit score.”

Earlier this year, NACBA focused national attention on the “student debt bomb,” which then was identified as the fastest growing consumer debt problem being handled by consumer bankruptcy attorneys.

Richard Thompson, a Rialto, California, retiree and victim of a debt settlement scheme, said: “I was told they could settle my $89,000 in debts for a total of $39,000 if I made payments of $1,800 for 22 months. I was contacted about a chance to settle $15,000 debt for $6,000 but my debt-settlement company ignored the offer. In fact, I paid them a total of $25,200 as they kept on ignoring settlement offers from creditors. I thought they were taking care of me by bringing my debt down, but all they were doing was taking my money. I ended up with $25,000 more in debt than I started out with. Before I retired I worked 25 years as a manager, now I have had to go back to work as a part-time security guard to help make ends meet.”

Bankruptcy attorney Trisha Connors, a NACBA member from Glen Rock, New Jersey who has testified before the New Jersey Law Revision Commission on debt settlement abuses, said: “Over the last three years, I have worked with 12 different for-profit debt settlement companies and over 25 clients who came to me after their debt settlement program failed to serve them. The results with each client were the same: exorbitant fees being paid, settlement (at best) of one small credit card debt, and mounting late fees and penalty interest charges on the unsettled debts. When clients informed the companies that promised to settle their debts of their desire to exit the program, the firms kept all or most of the accumulated savings for debt reduction as ‘fees.’ Every person I dealt with who had been current on their debts prior to contacting a debt settlement program told me that the sales representative told him the only way to be successful in the program is to stop paying credit card bills.”

Ellen Harnick, senior policy counsel, Center for Responsible Lending, said: “Debt settlement companies require clients to default on their debts before they will negotiate. This adds late fees and penalty interest to their debt and frequently results in the client being sued by creditors. Since only a tiny proportion of debts are actually settled by these companies, clients are typically left worse off than they were when they started.”

In addition to highlighting the stories of three victims of debt settlement schemes, the NACBA consumer alert notes the following:

• There is now across-the-board agreement on the danger that debt settlement schemes pose to consumers. The Better Business Bureau has designated debt settlement as an “inherently problematic business.” Similarly, the New York City Department of Consumer Affairs called debt settlement “the single greatest consumer fraud of the year.” Across the country, the U.S. Government Accountability Office (GAO), the Federal Trade Commission, 41 state attorneys general, consumer and legal services entities, and consumer bankruptcy attorneys have all uncovered substantial evidence of abuses by a wide range of debt settlement companies.

• Debt settlement schemes encourage consumers to default on their debts. Because creditors frequently will not negotiate reduced balances with consumers who are still current on their bills, debt settlement companies often instruct their clients to stop making monthly payments, explaining that they will negotiate a settlement with funds the client has paid in lieu of their monthly debt repayments. Once the client defaults, he or she faces fines, penalties, higher interest rates, and are subjected to increasingly aggressive debt-collection efforts including litigation and wage garnishment. Consequently, consumers often find themselves worse off than when the process of debt settlement began: They are deeper in debt, with their credit scores severely harmed.

• “Self help” may be the best answer for smaller debt burdens. If you have just a single debt that you are having trouble paying (such as a single credit card debt) and you have cash on hand that can be used to settle the debt, you may be able to negotiate favorable settlement terms with the creditor yourself. Creditors typically require anywhere from 25 to 70 percent on the dollar to settle a debt so you will need that much cash for a successful offer. Be sure to get an explicit written document from the creditor spelling out the terms of the debt settlement and relieving you of any future liability. Also be prepared to pay income taxes on any of the forgiven debt.

• Nonprofit credit counseling agencies can help, but must be vetted carefully. If, like most people, you owe multiple creditors and do not have the cash on hand to settle those debts, you may want to consult a non-profit credit counseling agency to see if there is a way for you to get out of debt. But make sure to check it out first: Just because an organization says it’s a “nonprofit” there is no guarantee that its services are free, affordable or even legitimate. Some credit counseling organizations charge high fees (which may not be obvious initially) or urge consumers to make “voluntary” contributions that may lead to more debt. The federal government maintains a list of government-approved credit counseling organizations, by state, at www.usdoj.gov/ust. If a credit counseling organization says it is “government approved,” check them out first.

• Bankruptcy will be an option for some consumers. Bankruptcy is a legal proceeding that offers a fresh start for people who face financial difficulty and can’t repay their debts. If you are facing foreclosure, repossession of your car, wage garnishment, utility shut-off or other debt collection activity, bankruptcy may be the only option available for stopping those actions. There are two primary types of personal bankruptcy: Chapter 7 and Chapter 13. Chapter 13 allows people with a stable income to keep property, such as a house or car, which they may otherwise lose through foreclosure or repossession. In a Chapter 13 proceeding, the bankruptcy court approves a repayment plan that allows you to pay your debts during a three to five year period. After you have made all the payments under the plan, you receive a discharge of all or most remaining debts. For tax purposes, a person filing for bankruptcy is considered insolvent and the forgiven debt is not considered income. Chapter 7 also eliminates most debts without tax consequences, and without any loss of property in over 90 percent of cases. To learn more about bankruptcy and whether it makes sense for you, go to www.vujoviclaw.com for more information.

NACBA urges consumers to steer clear of any companies that:

• Make promises that unsecured debts can be paid off for pennies on the dollar. There is no guarantee that any creditor will accept partial payment of a legitimate debt. Your best bet is to contact the creditor directly as soon as you have problems making payments.

• Require substantial monthly service fees and demand payment of a percentage of what they’ve supposedly saved you. Most debt settlement companies charge hefty fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee– a percentage of the money you’ve allegedly saved.

• Tell you to stop making payments or to stop communicating with your creditors. If you stop making payments on a credit card or other debts, expect late fees and interest to be added to the amount you owe each month. If you exceed your credit limit, expect additional fees and charges to be added. Your credit score will also suffer as a result of not making payments.

• Suggest that there is only a small likelihood that you will be sued by creditors. In fact, this is a likely outcome. Signing up with a debt settlement company makes it more likely that creditors will accelerate collection efforts against you. Creditors have the right to sue you to recover the money you owe. And sometimes when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home.

• State that they can remove accurate negative information from your credit report. No company or person can remove negative information from your credit report that is accurate and timely.

Boltz emphasized: “Many different kinds of services claim to help people with debt problems. The truth is that no single solution works in all cases. Bankruptcy is an option that makes sense for some consumers, but it’s not for everyone. For example, the National Association of Consumer Bankruptcy Attorneys and its individual consumer bankruptcy attorney members do not encourage every person who looks at bankruptcy to enter into it. What makes sense for each consumer will depend on their individual circumstances. We encourage everyone to get the facts and do what makes the most sense in their situation.”

ABOUT NACBA

The National Association of Consumer Bankruptcy Attorneys (http://www.nacba.org) is the only national organization dedicated to serving the needs of consumer bankruptcy attorneys and protecting the rights of consumer debtors in bankruptcy. Formed in 1992, NACBA now has more than 4,000 members located in all 50 states and Puerto Rico.

MEDIA CONTACT: Patrick Mitchell, for NACBA, (703) 276-3266, or pmitchell@hastingsgroup.com.

Though complaints about debt collectors are pouring into a federal database that tracks allegations of illegal late-night phone calls, arrest threats and other abuse, few of the complaints are likely to result in enforcement actions, the Wall Street Journal reported recently.

The debt-collection industry, booming as many Americans struggle to catch up on their payments or walk away from what they owe, was the subject of a record 164,361 complaints through Dec. 8 of 2011, according to the Federal Trade Commission.

The total is 17 percent higher than the 140,036 debt-collection complaints the FTC got for 2010.

Since the start of 2011, though, the FTC has launched just four enforcement actions against debt-collection firms under the primary federal law used to oversee the industry.

From 2005-10, the average was two cases a year. FTC officials said that the small number of enforcement actions against debt collectors is a misleading barometer of its determination to punish violators.

J. Reilly Dolan, acting director of the agency’s financial-practices division, said that the FTC "is cracking down on abusive collection practices and directs its resources to go after some of the largest debt collectors."

The United States Senate has blocked a vote on the nomination of Richard Cordray as Director of the new Consumer Financial Protection Bureau (CFPB). Without a Director, the CFPB cannot exercise its full authority to protect students and their families from deceptive and predatory private student loan practices.

Consumers across the country are counting on the CFPB to oversee and supervise the consumer financial products that affect their lives, including private student loans. Private student loans are one of the riskiest, most expensive ways to pay for college.

Like credit cards, private student loans can have uncapped variable interest rates that are highest for those who can least afford them. They also lack the consumer protections and flexible repayment options that are provided by federal student loans, and they are usually not dischargable in bankruptcy.

That is why a broad coalition of student, consumer, civil rights and higher education organizations strongly supported the creation of the CFPB with authority over all private student loans.

As Senate Banking Committee Chairman Tim Johnson, Senator Jack Reed, and others noted in their floor statements, the CFPB plays a crucial role for private student loans. Students and their families need the CFPB now more than ever to fulfill its critical mission with full authority. Richard Cordray is highly qualified to serve as its director, and blocking his nomination has done a great disservice to all consumers.

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An independent, nonprofit organization, the Institute for College Access & Success works to make higher education more available and affordable for people of all backgrounds. The Institute’s Project on Student Debt works to increase public understanding of rising student debt and the implications for our families, economy, and society. For more information see
www.projectonstudentdebt.org
and  www.ticas.org.

North Carolina’s Supreme Court heard arguments in a case that could decide whether mortgage lenders can foreclose on a home without producing original documents that prove they are owed the money, the Associated Press reported.

The court heard from attorneys representing Wells Fargo and a Duplin County homeowner whose $50,000 loan was transferred to a series of secondary financial companies.

Lawyers for Linda Dobson of Magnolia, NC argued that Wells Fargo and its affiliates cannot foreclose on her home without producing the original promissory note proving they are due the debt, something they have not done after more than three years.

Wells Fargo attorney John Mandulak said it has not produced the original loan documents yet, but might be able to do that if the court agrees to revive its case and send it back to a lower court for trial.

In its first three months in operation, the Consumer Financial Protection Bureau (CFPB) received more than 5,000 complaints from credit card customers, led by billing disputes and interest rate problems, the Reuters news agency recently reported.

The CFPB said that complaints varied but at the top of the list were billing disputes, interest rate problems and fraud concerns.

The CFPB said it forwarded 4,254 of the complaints to card issuers. According to the issuers, 74 percent of those cases have been at least partially resolved, and in 71 percent the customer did not disagree, the agency said.

Former Ohio Attorney General Nominated to Head Consumer Financial Protection Bureau

President Obama said that he would nominate Richard Cordray, the former attorney general of Ohio, to lead the new Consumer Financial Protection Bureau, passing over Elizabeth Warren, the Harvard law professor who was the driving force behind the agency’s creation, the New York Times reported.

Cordray came to national attention for his aggressive investigations of mortgage foreclosure practices while he was attorney general. He is already an employee of the watchdog agency, as the leader of its enforcement division.