The work of the National Consumer Law Center (NCLC) and its network is profiled in the 23rd season of Visionaries, the award-winning public television series hosted by acclaimed actor Sam Waterston of Grace and Frankie, and formerly of The Newsroom and Law & Order. The episode, now being shown on PBS stations across the country, profiles NCLC attorneys and its civil legal-aid partners on location in Atlanta, Boston, Detroit, and Washington, DC as they work to protect low-income families from wrongful eviction, foreclosure, and other unfair and deceptive consumer abuses.

NCLC is grateful to the supporters who underwrote NCLC’s involvement in this program:

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Martha Tamayo is a Community Advocate and a member of the Board of Directors for Central California Legal Services. Martha has worked with the Kings Community Action Organization since 2012 to help residents and communities achieve self-sufficiency. She has also worked with the humanitarian program Palomas Mensajeras to arrange visits in the U.S. between elderly residents of Mexico and their family members now living in the U.S.

FOR IMMEDIATE RELEASE: November 22, 2019

National Consumer Law Center Contacts: Jan Kruse (jkruse@nclc.org) or Persis Yu (pyu@nclc.org) or (617) 542-8010

Boston – Advocates at the National Consumer Law Center (NCLC) condemned news that the U.S. Department of Education (Department) is delaying its plans to automatically forgive federal student loan debt for totally and permanently disabled veterans, citing regulatory hurdles. Advocates also urge the Department to go further and grant relief to all of the more than 200,000 of totally and permanently disabled student loan borrowers it has identified.

“I’m glad to see that the Department is now taking swift action to fix the regulations for disabled veterans. But if Secretary DeVos believes that regulatory hurdles stand in the way of getting relief to disabled veterans, she’s had nearly three years to address those hurdles and she didn’t,” said National Consumer Law Center attorney Abby Shafroth. “Instead, she prioritized regulatory changes pushed by the for-profit school industry—changes to make it easier for low-quality schools to access student loan dollars and harder for veterans and other students hurt by their schools’ fraud or closures to get loan relief. Even after a shocking string of actions by Secretary DeVos that harm students, today’s action harming totally and permanently disabled veterans is a new low.”

In April 2016, the Department established a data matching process with the Social Security Administration (SSA) to identify totally and permanently disabled borrowers who are eligible for student loan relief.  In April 2018, the Department expanded its matching program to include disability determinations by the Veterans Administration (VA). Then in August 2019, a Presidential Memorandum to Secretary DeVos identified the “pressing need to quickly” and automatically give loan relief to disabled veterans and a directive to implement an automatic relief process. However, that Memorandum did not include the more than 234,000 borrowers identified through the SSA.

“The Department’s proposed regulatory fix does not go far enough,” said National Consumer Law Center attorney Persis Yu, and director of NCLC’s Student Loan Borrower Assistance Project. “The Department of Education knows of more than 200,000 disabled borrowers who are eligible for loan cancellation and yet it is failing to cancel the loans. The Department should take immediate steps to provide relief to every disabled borrower identified as eligible for student loan cancellation. It is morally outrageous that any disabled borrowers should have to wait even one more day for the relief that they are entitled to under law.”

Related Resources

NCLC Student Loan guest blog post: DeVos’s unfinished business — student debt relief for 200,000 borrowers with disabilities (Oct. 2019).

NCLC Student Loan blog post: New Matching Program for Disabled Student Loan Borrowers (Dec. 2015).

NCLC: Disability and Death Discharges

U.S. Department of Education, Federal Student Aid: disabilitydischarge.com

FOR IMMEDIATE RELEASE: November 18, 2019

Contact: Jan Kruse (jkruse@nclc.org) or (617) 542-8010

OCC Proposes Rent-a-Bank Rule Today; Proposed Rule is on Agenda for FDIC Meeting on Nov. 19

Washington, D.C. – Advocates reacted with outrage to a new proposal from two federal bank regulators that could make it easier for payday and other high-cost lenders to use banks as a fig leaf so that online lenders can offer predatory loans at interest rates that are prohibited under state law.  Online lenders have become increasingly bold in using rent-a-bank schemes to offer loans up to 160% in states where their rates are illegal. The Office of the Comptroller of the Currency (OCC) proposed such a rule today and a proposed rule is on the agenda for the FDIC board meeting on November 19 beginning at 10:00 a.m.

Banks are generally exempt, when they offer credit, from state rate caps that cover payday lenders and other online lenders. For many years, payday lenders and others have attempted to take advantage of this exemption by entering into rent-a-bank schemes where they launder their loans through banks and then purchase those loans back but continue to charge high rates that would be illegal for the online lenders to charge directly. The OCC and FDIC are now proposing a rule that would state that when a bank sells, assigns, or otherwise transfers a loan, interest permissible prior to the transfer continues to be permissible following the transfer.  The proposal does not include any exception for assignments that are intended to evade state interest rate limits. The Supreme Court has held since the 19th century that contracts governing the interest rate on a loan will not be upheld if they were formed with the intent to evade usury laws. The OCC’s proposal notes that it does not address whether the bank is the “true lender” that is fronting for a high-cost lender.

“The FDIC and OCC proposal will encourage predatory lenders to try to use rent-a-bank schemes with rogue out-of-state banks to evade state laws that prohibit 160% loans,” said Lauren Saunders, associate director of the National Consumer Law Center. “States have had the power to limit interest rates since the time of the American Revolution,” she added.

“The courts rejected the OCC’s first effort to eviscerate state interest rate caps through a fintech ‘bank’ charter that would give companies that are not banks the power to ignore state law, and I expect courts to strike down this effort as well, which risks gutting the laws of more than 40 states that prohibit high-cost lending” Saunders emphasized. On October 21, 2019, a New York court upheld a claim by the New York Department of Financial Institutions that the OCC did not have the authority to give national bank charters to companies that do not accept deposits.  “In 2010 in the Dodd-Frank Act, Congress limited the bank regulators’ authority to preempt state consumer protection laws, yet the OCC and FDIC are ignoring those limits,” she added.

“Voters of both parties overwhelmingly support limiting interest rates to 36% or lower, and we encourage all to speak up loudly against the proposal to let banks help predatory lenders charge rates that voters have said should be illegal,” said Rebecca Borné, senior policy counsel at the Center for Responsible Lending.

Recent developments have highlighted the threat posed by allowing predatory lenders to use rent-a-bank schemes to evade state interest rate limits:

1. Three large payday lenders (Elevate, Enova and Curo) have announced to investors that they plan to use rent-a-bank schemes to evade a new 36% California rate cap effective January 1, 2020, which will outlaw their loans that currently go up to 191%.
2. A new analysis shows that two banks are helping online predatory lenders to evade state rate caps:

• OppLoans charges 160% APR in 20 states and D.C. through a rent-a-bank scheme with FinWise Bank, chartered in Utah. For example, OppLoans charges 160% on a $500, 9-month loan in Maine, where the legal maximum rate is 36%.
• FinWise Bank also helps Elevate’s Rise online loans charge 99% to 149% APR in 16 states and D.C. where that rate is illegal. In D.C., for example, the legal rate on a $2,000, 2-year loan is 25%, but Rise charges 99% to 149%.
• Elevate also uses this rent-a-bank scheme to offer an online line of credit, Elastic, at an effective APR up to 109%, in 14 states and D.C. that prohibit triple-digit rates. For example, Elastic is available in South Dakota, where voters in 2016 adopted a 36% rate cap by an overwhelming bipartisan vote, but Elevate makes Elastic brand loans there that exceed this cap.

In the early 2000s, the federal bank regulators shut down rent-a-bank arrangements like these, but now the OCC and FDIC are taking actions that could enable them. The OCC and FDIC recently filed an amicus brief in support of a predatory small business lender, World Business Lenders, used a Wisconsin bank to camouflage the illegality under state law of a $550,000 loan at 120% to a business in Colorado.

Some states are fighting these rent-a-bank evasions of their laws. For example, the Colorado Attorney General has sued two online lenders, Avant and Marlette (BestEgg), for charging high rates on loans up to $75,000 despite Colorado’s 21% interest rate limit. In the Avant case, the court noted that WebBank “plays only an ephemeral role in making the loans,” that Avant and other nonbank entities keep 99% of the profits, and that “Avant is for all practical purposes in control of the Avant loans, and it has indemnified WebBank, whose role was short-lived and is now entirely in the past.”

“This is why banks must be subject to interest rate limits and why Congress must pass the Veterans and Consumers Fair Credit Act, which would extend the 36% rate cap which servicemembers and their immediate families enjoy to veterans and other consumers while allowing states to set lower limits,” said Linda Jun, senior policy counsel at the Americans for Financial Reform.

For more information

Issue Brief: Stop Payday Lenders’ Rent-a-Bank Schemes!, November 2019 (showing the states in which lenders are evading state interest rate caps)

Issue Brief: Payday Lenders Plan to Evade California’s New Interest Rate Cap Law through Rent-A-Bank Partnership, October 2019

Press Release: “Groups: FDIC & OCC Are Wrong to Support Predatory Small Business Lender” (Oct. 24, 2019)

Lauren Saunders, The Hill, Op-ed: Rent-a-bank schemes trample voters’ and states’ rights (Feb. 8, 2018)

FOR IMMEDIATE RELEASE: November 13, 2019
National Consumer Law Center contacts: Chi Chi Wu (cwu@nclc.org) or Jan Kruse (jkruse@nclc.org), (617) 542-8010

Boston – As Black Friday approaches, the National Consumer Law Center warns holiday shoppers of a lurking danger in the local mall, big box store or online: deferred interest promotions on credit cards. These promotions entice consumers with promises such as “no interest for 12 months” or “0% interest until December 2020,” but there is a debt trap at the end. Consumers who don’t pay off the entire balance before the promotional period ends will be hit with a huge lump sum interest charge going back to the date that they bought the item, even on amounts that have been paid off.

For example, if a consumer buys a $2,500 laptop on November 29, 2019 using a one-year 24% deferred interest plan, then pays off all but $100 by November 29, 2020, the lender will add to the next bill nearly $400 in interest on the entire $2,500 dating back one year. NCLC’s report Deceptive Bargain: The Hidden Time Bomb of Deferred Interest Credit Cards details the risks and abuses of these promotions.

Deferred interest promotions are offered at many stores, including Amazon, Apple, J.C. Penney, Menards, Home Depot, Zales, and Best Buy, where they are used to sell big-ticket items, such as electronics or appliances. The biggest credit card issuers offering deferred interest are Synchrony Bank, Comenity Capital Bank, and Citibank. While there are a number of well-known retailers that offered deferred interest, one prominent retailer has dropped the product: Walmart, which instead began offering true 0% interest promotions in 2017. Walmart subsequently replaced Synchrony as its credit card issuer and switched to Capital One, which does not offer deferred interest cards.

“Deferred interest promotions are one of the biggest credit card traps on the market today,” stated National Consumer Law Center staff attorney Chi Chi Wu, who authored the report. “Avoid them at all costs. No interest sounds tempting now, but you could end up in the trap of huge interest payments later.”

Wu noted that the Federal Reserve Board found that the plans were so deceptive that the Board banned them in 2009, but then reversed itself under pressure from retailers. The CFPB has also called the plans “the most glaring exception to the general post-CARD Act trend towards upfront credit card pricing.”

Pitfalls of deferred interest plans include:

• Confusion and deception.It’s hard to understand the complicated and confusing nature of these promotions.
  ● Minimum payments don’t pay off the balance. If you make only the minimum payment, you’ll inevitably be hit with retroactively assessed interest.
  ● “Life Happens.” One of the biggest risks with deferred interest is when something unexpected happens, like a job loss or serious medical condition, and you can’t pay off the purchase by the end of the promotional period. You’ll be socked with a huge lump sum of retroactive interest at the worst possible time, when you can least afford it.
  ● High Annual Percentage Rates (APR)s. Deferred interest credit cards typically carry very high interest rates, with an average of 24% and as high as 29.99%, compared to a typical APR of 14% for mainstream credit cards.
  ● Difficulty avoiding retroactive interest if you make other purchases. A particularly thorny problem happens when you make another purchase using the same credit card that does not have a deferred interest promotion. Most of your payments above the minimum will be applied to the other purchase, making it nearly impossible to pay off the deferred interest balance, unless you make special arrangements with your credit card company.

Wu urged that deferred promotion plans be abolished. “Nine years after the passage of the Credit CARD Act, it is well past-time to get rid of one of the last tricks and traps for credit cards.”

For more information about NCLC’s work on credit card abuses, please visit:  https://www.nclc.org/issues/credit-cards.html

FOR IMMEDIATE RELEASE: November 12, 2019
National Consumer Law Center contacts: Jan Kruse (jkruse@nclc.org) or (617) 542-8010; or Lauren Saunders (lsaunders@nclc.org) or (202) 595-7845

Washington, D.C. –  Advocates at the National Consumer Law Center (NCLC) applauded today’s introduction in Congress of a bill to cap interest rates nationwide at 36%, including fees, which NCLC is supporting on behalf of its low-income clients.

“It is fitting that as we celebrate Veterans’ Day that we honor our veterans by extending to them and all Americans the same protection that our servicemembers receive: protection against usurious loans that exceed 36% APR,” said Lauren Saunders, associate director of the National Consumer Law Center. “Most Americans would be shocked to learn that today predatory lenders can legally charge 100%, 200%, or even higher interest rates in many states. While a 36% rate cap sounds high to most people, and it will not hurt legitimate businesses, it will stop the most egregious forms of loan sharking. The 36% interest rate cap goes back more than a century and is widely supported by the American public on a bipartisan basis. Reasonable interest rate caps are the simplest most effective protection against predatory lending.”

The Veterans and Consumers Fair Credit Act would stop high-cost predatory loans, and also prevent banks from getting back into the payday loan business, by setting a maximum national rate of 36% APR including fees on consumer loans.  A few years ago, banks were making “deposit advance” loans, aka bank payday loans, at rates over 200%, and with a change of leadership at the bank regulators, some banks are thinking of returning to those loans. Currently there is no generally-applicable national interest rate cap, though many states limit interest rates. In 2018, Colorado joined a growing number of states, including South Dakota (2016) and Montana (2010), whose voters have resoundingly passed initiatives on a bipartisan basis to cap interest rates at 36% or less.

The Act is sponsored in the Senate by Senators Merkley (D-OR), Brown (D-OH), Reed (D-RI), and Van Hollen (D-MD); and in the U.S. House of Representatives by Reps. Grothman (R-WI) and Chuy Garcia (D-IL).

The legislation is modeled after the federal Military Lending Act, which caps loans to servicemembers and their dependents at 36%. But the MLA does not cover veterans or other consumers.

“Importantly, the Veterans and Consumers Fair Credit Act would allow states to set a lower rate, which is especially important for larger loans. While 36% is a reasonable rate for small loans, many states limit a $10,000 loan to 25% APR or lower,” Saunders added.

For more information:

• Issue Brief: After Payday Loans: How do Consumers Fare When States Restrict High-Cost Loans? 2018
• Report: Why 36%? The History, Use, and Purpose of the 36% Interest Rate Cap, April 2013
• Fact Sheet: State Annual Percentage Rate (APR) Caps for $500, $2,000, and $10,000 Installment Loans, March 2019

FOR IMMEDIATE RELEASE: NOVEMBER 12, 2019

National Consumer Law Center Contacts: Jan Kruse (jkruse@nclc.org) or Carolyn Carter (ccarter@nclc.org); (617) 542-8010

Download the full report, state maps and state-specific information: https://www.nclc.org/issues/report-still-no-fresh-start.html

National Consumer Law Center’s 50-State Review: ‘Horse and Buggy’ Laws Need Major Reform

Boston – Millions of families have still not recovered from the Great Recession of 2008, and the astronomic growth of the debt buyer industry makes them increasingly vulnerable to seizure of essential wages and property to pay their oldest debts. A new report from the National Consumer Law Center surveys the exemption laws of the 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands that protect wages, assets in a bank account, and property from seizure by creditors. No Fresh Start in 2019: How States Still Let Debt Collectors Push Families into Poverty finds that not one jurisdiction’s laws meet basic standards so that debtors can continue to work productively to support themselves and their families.

Some state exemption laws are still parked in the horse and buggy days. For example, while Pennsylvania has strong protections for debtors’ wages, that state protects almost none of a debtor’s property: just clothing, a Bible, school books, sewing machines not held for resale, military uniforms and $300 of other property—in total. Michigan protects five swine, two cows, and five roosters, but provides only $3,500 in protection for the family home—just 2% of the median value of a home in the state. Delaware protects a seamstress’s sewing machine, $75 of work tools, and an additional $500 of property unless the debtor files bankruptcy. “It’s a travesty when outdated state laws protect sewing machines and roosters but not a living wage, a working car, and a bare bones checking account,” said Carolyn Carter, National Consumer Law Center deputy director and author of the report.

“This report serves as a wake-up call for states to update their exempt property laws and stop putting millions of families at risk. Doing so will allow local courts to redirect their focus from the insatiable appetite of a debt machine that churns out millions of undocumented debt collection lawsuits each year,” said Carter.

Despite the importance of state exempt property laws, this National Consumer Law Center report finds that not one state meets five basic standards:

• Preventing debt collectors from seizing so much of the debtor’s wages that the debtor is pushed below a living wage,
• Allowing the debtor to keep a used car of at least average value;
• Preserving the family’s home—at least a median-value home;
• Preserving at least $3,000 in a bank account so that the debtor has minimal funds to pay such essential costs as rent, utilities, and commuting expenses, and
• Preventing seizure and sale of the debtor’s necessary household goods.

Better states: High B grade states are Massachusetts and Nevada. Jurisdictions earning a solid B are Texas, Puerto Rico, and the District of Columbia. Low B ratings are: New York, Oklahoma, and South Carolina while Kansas, North Dakota, and Wisconsin each earned a high C.

The worst states allow debt collectors to seize nearly everything a debtor owns, even the minimal items necessary for the debtor to continue working and providing for a family. Earning an F grade are: Delaware, Georgia, Kentucky, Michigan, New Jersey, and Utah. Close on the failing heels with a low D grade are: Alabama, Arkansas, Indiana, Maryland, Missouri, Pennsylvania, and Wyoming

Key Recommendations

The NCLC report recommends that state exemption laws should be reformed to:

• Preserve the debtor’s ability to work, by protecting a working car, work tools and equipment, and money for commuting and other daily work expenses.
• Protect the family’s housing, necessary household goods, and means of transportation.
• Protect a living wage for working debtors that will meet basic needs and maintain a safe, decent standard of living within the community.
• Protect a reasonable amount of money in a bank account so that debtors can pay commuting costs as well as upcoming rent and utility bills.
• Protect retirees from destitution by restricting creditors’ ability to seize retirement funds.
• Be automatically updated for inflation.
• Close loopholes that enable some lenders to evade exemption laws. For example, states that allow payday lending enable these lenders to evade state laws that protect wages and exempt benefits from creditors. States that allow lenders to take household goods as collateral enable these lenders to avoid state household good exemptions.
• Be self-enforcing to the extent possible, so that the debtor does not have to file complicated papers or attend court hearings.

Model language for states to achieve these goals is provided in the National Consumer Law Center’s Model Family Financial Protection Act, The model law also includes steps that states can take to reduce the pervasive abuse of the court system by debt buyers. Seizure of debtors’ wages and property would not be such a problem if debt buyers did not churn out such an endless stream of judgments on old, poorly documented debts—many of them not even owed.

By updating exemption laws, states can prevent over-aggressive debt collectors from reducing families to poverty. These protections also benefit the state by keeping workers in the workforce, helping families stay together, and reducing the demand on funds for unemployment compensation and social services.  Both current creditors and debt collectors collecting on old bills are benefited by consumers having the financial resources to improve their earning power and meet their new and old obligations in an orderly manner.

The report includes stories of real people harmed by draconian and dubious debt collection judgments, each state’s overall rating, and ratings for the five primary asset-preservation standards as well as appendices with specific exemption information on all 53 jurisdictions. Also included: Recommendations for the minimal exemption amounts that will allow a debtor to continue to work to support a family. For more information on NCLC’s body of work related to fair debt collection, visit: www.nclc.org/issues/debt-collection.html.

Related NCLC materials

• The Debt Machine: How the Collection Industry Hounds Consumers and Overwhelms the Courts (July 2010):
• Model Family Financial Protection Act (model state law)
• What States Can Do to Help Consumers Debt Collection, May 2019
• State Debt Collection Fact Sheets, 2018
• Fair Debt Collection (legal treatise):
• Surviving Debt (consumer book) and Consumer Debt Advice (free articles)