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Don’t Bank on Avoiding COVID-19 Fallout

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Elected officials and regulatory agencies have issued a series of emergency orders, regulations, and guidance in response to the global health and economic crisis. The financial and legal implications of these actions impact a wide range of financial activities.

Focusing on consumer impact, Richard Cordray (former Director CFBP), John Roddy (Partner Bailey & Glasser LLP), Alan S. Kaplinsky (Consumer Financial Services, Ballard Spahr), and Christopher J. Willis (Consumer Financial Services Litigation, Ballard Spahr) addressed a number of pressing legal issues in the Ballard Spahr webinar: Consumer Financial Regulatory and Litigation Fallout from the COVID-19 Crisis.

Fraud

The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB), among others, are warning consumers about the need for caution amidst the proliferation of fraud as bad actors take advantage of the COVID-19 crisis to line their own pockets. Predatory lenders are likely to target those who have suddenly been laid off with high cost loans. Scam artists may use tactics similar to those seen during the 2008 recession relating to foreclosure rescue, debt relief, and credit repair.

Debt Collection

Numerous states are enacting emergency debt collection regulations that limit debt collection during the pandemic. The Massachusetts attorney general has issued emergency regulations making it a UDAP (Unfair and Deceptive Acts and Practices) violation “to file a collection suit, garnish wages, repossess a vehicle, serve a capias warrant, or threaten any such action until 30 days after the governor lifts the emergency declaration. These regulations prohibit debt collection calls for the same period.” The federal CFPB could adopt similar debt collection measures.

Fair Debt Collection Practices Act (FDCPA) and State collection law violations are bound to happen. As more people start to fall behind on their bills, they become subject to increased collection activity, resulting in more problems with lenders, servicers, and debt collectors, and potential litigation. According to Willis, it will be necessary to take a “looser approach with debt collection right now” and companies that fail to do so will have to answer to the regulators when the crisis starts to resolve.

Credit

Corday suggested that the CFPB should be more proactive in assisting consumers during the economic crisis. The CFPB could take a number of steps, such as: enforcing government backed mortgage protections, waiving bounced check and late/insufficient payment fees, and encouraging CRAs to use “natural or declared disaster” flags to prevent credit scores from collapsing.

The CARES Act provides that if an institution grants an accommodation on a credit obligation because of the COVID-19 pandemic, then the institution must report the account as “current” if the account was current before the accommodation.

At the state level, any changes that impact the terms of credit (e.g. late fees, payment due dates, interest accrual) will only apply to state chartered entities. National banks and financial institutions will not be legally obligated to comply, though they may be compelled to do so or risk reputational damage.

Housing and Mortgages

The CARES Act provides a foreclosure moratorium and a right to forbearance for federally held residential loans. Furthermore, the CARES Act has simplified the paperwork required to get a foreclosure deferral. Roughly 70% of home mortgages are federally backed, leaving 30% that are not covered by the CARES Act. Several state governors are working to expand mortgage moratoriums while the CFPB is providing guidance to lenders, and servicers, and borrowers impacted by the pandemic.

In comparison to the 2008 recession, there is an expectation that lenders will take a “more reasoned and thoughtful approach” to foreclosure issues. Nonetheless, legal experts anticipate an “avalanche” of foreclosure activity in the wake of the pandemic, including wrongful foreclosure and failure to comply with emergency restrictions.

Several state governors are addressing the concerns of renters by issuing emergency orders restricting evictions or implementing measures to impede the process.

Student Loans

Payments and interest on certain federal student loans (primarily Family Federal Education Loans) have been suspended payments for 180 days. The roughly 30% of student loans that are not government owned do not qualify for suspended payments and interest, potentially resulting in financial hardship for millions of borrowers.

Lenders and servicers of these loans are facing an even more difficult financial situation, as evidenced by the fact that Navient (one of the largest student lending institutions) saw its stock price drop 75% in one week.

Due to continual changes in guidance and regulation surrounding student loans and mortgages, call center representatives are not always aware of the most up to date information. As a result, borrowers are being given incorrect information. The rapid changes and effect of misinformation will likely hurt a large number of borrowers, leading to both individual and class action lawsuits.

Other student loan issues that could lead to litigation include: “charging fees for no or suspended service, loan grace period abuses, and predatory practices.”

Businesses that Remain Open

Businesses that remain open need to prioritize the health and safety of their employees and customers. Business owners want to know, from a legal standpoint, what to do if one of their employees is diagnosed with COVID-19. It is important that businesses tell people what risks may exist and that they take sufficient preventative measures to ensure, in the event of a lawsuit, that they have done everything reasonably possible to secure the safety and health of their employees and customers. “The number one duty that sellers have is to fully disclose all of the material considerations that a reasonable consumer would think about in deciding whether to enter into a transaction.”

Financial Institutions

Working remotely could negatively impact a number of operational areas which, if not functioning correctly, could lead to regulatory problems or litigation. To reduce exposure to increased regulation and litigation, financial institutions would be wise to consider the long term implications of their actions.

Conclusion

The barrage of emergency orders and increased regulation at the federal, state and local levels have made it difficult for businesses to stay informed of and in compliance with the most current guidance. Regardless, those in violation will be subject to enforcement and penalties. Emergency orders are given a lot of leeway in benefit of the consumer, so if in doubt, business would be well advised to favor the consumer.

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Don’t Bank on Avoiding COVID-19 Fallout

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Don’t Bank on Avoiding COVID-19 Fallout

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Elected officials and regulatory agencies have issued a series of emergency orders, regulations, and guidance in response to the global health and economic crisis. The financial and legal implications of these actions impact a wide range of financial activities.

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Karen Humphreys

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PaymentsJournal

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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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