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California Moves to Regulate Booming Debt Settlement Industry

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Prior to the pandemic, Graciella Gomez relied on two jobs to keep up with her costs. After losing her part-time job at Macy’s in March 2020, she had to choose between paying a credit card and paying rent. She chose the latter.

“I didn’t know who to talk to and who to contact. It was embarrassing,” Gomez said.

An ad for a debt settlement company appeared in her social media feed, promising to reduce her debt. After following up, she says it was a proceeding from one of her credit card companies in March. She is still fighting today.

“I didn’t know who to talk to and who to contact. It was embarrassing.”

As California emerges from the pandemic, some inhabitants Face catastrophic personal debtEven if many of the state’s wealthiest inhabitants see their wealth grow. Among the financial winners is the fast-growing debt settlement industry, which is primarily made up of online companies that promise to reduce personal debt by negotiating with banks and credit card companies on behalf of their customers. There is. However, consumer advocates point out that these companies often prey on financial despair and do not warn customers about potential consequences such as reaching court.

California State Legislatures are now considering legislation that will tighten the industry after significantly overlooking personal debt from credit cards and loans. Pandemic era law Focuses on reducing rent and utility debt. Invoice Has a long-standing debate in the Capitol about whether alternative financial services such as payday loans, debt settlement, and credit repair are financial predators or a necessary lifeline for Californians with little or poor credit. Is being revived.

Oakland Democrat Buffy Wicks, who drafted the bill, argues that existing federal regulations are not sufficient to protect Californians.

“If they work with these companies, make sure they give consumers transparency and empowerment in the process,” Wicks said.

Debt settlement mechanism

After her first call to debt settlement company ClearOne Advantage, she said she was impressed that the company would repay all of her debt and that she only had to pay the company once a month to repay it. It was. Balance.

“She made it easy to hear.” We are here to help you … your life will change. It will be very easy. “And I believe it. “Gomez said.

ClearOne Advantage declined to comment on Gomez’s experience. The company said it was testimony from a satisfied customer, but refused to provide Cal Matters with contact information so that they could be interviewed.

Desiree Nguyen Orth, director of Consumer Justice Clinic at the East Bay Community Law Center, explained how most debt settlement companies work.

Customers who have a debt settlement plan pay monthly to the debt settlement fund. According to Nguyen Orth, debt settlement companies wait for customers to default (which can take up to six months) before they begin negotiations with creditors.

According to Nguyen Oath, defaults need to occur before the negotiation process begins, but debt settlement companies avoid saying this explicitly. Debt settlement companies like ClearOne Advantage make money by charging their customers a percentage of their total debt.

In the best scenario, the voluntary creditor agrees to settle the debt for less than the debt amount. After the customer agrees to the new terms, the Debt Settlement Fund will be used to pay the debt.

The result is even worse if the creditor refuses to work with the debt settlement company. As part of the program, customers will sign a cease and desist letter prohibiting creditors from contacting them directly. In debt collection efforts, creditors sue customers, and judges often order them to withdraw money from their bank accounts or salaries.

“They came to me when they were sued, and they said,” Why am I being sued? I registered for a debt settlement plan. I don’t know, “Nguyen Oath said.

She added that most customers are unaware that they can negotiate with creditors. For free.

“I think (debt settlement) is one of the options we need,” said Tomas Gordon, CEO of ClearOne Advantage and president of the Consumer Debt Relief Initiative, an advocate for the debt settlement industry. “We educate people in the right way and voluntarily crack down on the industry to get the best possible results for consumers.”

“Why are there states that remove debt settlement as an option for these families during this pandemic?”

As part of the registration process, Gomez provided income, expenses, and debt to set a monthly budget. But she said she was left with the impression that she could afford to pay a $ 250 monthly deposit to her settlement fund when she really couldn’t.

A ClearOne Advantage representative told her that she couldn’t help her without registering a debt of at least $ 10,000. We encouraged you to register your regular payment credit card so that you can participate in the program.

The Gomez-signed contract, reviewed by Cal Matters, does not mention the minimum requirements for enrolling in the program, but charges a fee valued at 25% of total debt. So the company will eventually charge her over $ 2,500. As of June 2021, Gomez had deposited $ 2,259 in her settlement fund, of which $ 1,053 was debited as service and transaction fees.

Only after Gomez was sued by Bank of America, she learned that all her credit cards had become the default and said she was currently facing a court ruling.

“If we knew we could be sued from day one, we would have stopped right away and tried to do more research to understand what would be paid (ClearOneAdvantage),” Gomez said. Said.

What does the bill do

Parliamentary bill 1405 does not change the way debt settlement companies work, but adds more regulation. Existing federal regulations are limited to companies that serve customers across state boundaries.

The state bill mimics some of these federal regulations, applies them to California-based businesses, and adds new rules, such as giving customers a three-day “cooling-off period” before the contract goes into effect. To do.

Despite the almost unanimous opposition from the Republicans, the bill is on the way. Some lobbying activities have eliminated opponents after successfully promoting amendments, including those that remove restrictions on referral fees, which are a major source of income for the industry.

But before the recent amendment, the debt settlement industry was coalescing against the bill. The Consumer Debt Relief Initiative, made up of members of the debt settlement industry, said the new regulation would harm consumers the bill is trying to protect by driving debt settlement companies out of California, leaving consumers with few options. Insisted.

“Why are there states that take off debt settlement as an option for these families during this pandemic?” Former Speaker of Parliament and Mayor of San Francisco Willie Brown said. Video of Consumer Debt Relief Initiative.. “It’s an essential service for those who need it most.”

The alternative for many families is bankruptcy or worse, as Brown and the industry claim.

Gordon, president of the group, said:

Congressman Wicks disagreed. “For villains, if they feel they can’t work in California, they can go somewhere,” she said. “And for good actors, they can stay here and help our working family in need.”

Gordon said he believes the bill is about benefiting banks and credit card companies that don’t have to negotiate their customers’ debt.

OneMain Financial, the only creditor in favor of the bill, declined to comment, Support letter Because of the bill, their main goal is to work directly with defaulted customers.

Prepare for debt settlement

Despite the withholding of loans under federal CARES law and the state-wide eviction moratorium to protect Californians Personal debt Credit cards, medical bills, etc. are mostly overlooked by lawmakers, exposing consumers to potential predatory practices with alternative financial services.

“It’s a huge bubble of people ready to settle debt,” Nguyen Oath said.

We expect the debt settlement industry to be very successful. At the meeting in February Consumer Debt Relief Initiative, According to Accenture’s market analysis, the industry predicts that the number of accounts enrolled in debt settlement services will increase by 75% in 2021.

The new California Consumer Financial Protection Act, which came into force on January 1, gave the state’s Department of Financial Protection and Innovation new authority to regulate the industry.The agency says it will not start tracking debt settlement companies Until 2023..

Is the bill well advanced?

According to Nguyen Orth, everything ClearOne Advantage did in this case is legal, so it’s unlikely that the AB1405 has changed significantly for Gomez.But the bill will address some more Terrible practice Nguyen Oath seemed to promise unrealistic results without advising clients on possible risks or offering predatory lending that could lead to further debt, she said. ..

Gomez terminated his contract with ClearOne Advantage at the end of June, but is working with Bank of America to resolve the proceedings and outstanding balances. What is her advice to others? Never avoid debt settlement companies.

“It’s an absolute scam. They prey on people like me,” Gomez said. “Call your credit card or collector yourself … it’s easy and the money goes directly to the person you borrow.”

Erika Paz is a reporter for Cal Matters.This article is part of California divide, A collaboration between newsrooms investigating income inequality and financial survival in California.

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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