The Most Significant Change to the Bankruptcy Code in 40 Years

PLEASE NOTE:

THIS LEGISLATION BELOW IS ONLY PROPOSED AND HAS NOT BEEN PASSED BY CONGRESS.  PLEASE CONTACT YOUR UNITED STATES SENATORS, RICHARD BURR AND THOM TILLIS TO VOICE YOUR SUPPORT FOR THIS LEGISLATION. PLEASE ALSO CONTACT YOUR LOCAL REPRESENTATIVE OF THE UNITED HOUSE OF REPRESENTATIVES:

 

UNITED STATES SENATORS (2 for each state):

https://www.burr.senate.gov/contact/email 

https://www.tillis.senate.gov/public/index.cfm/email-me

 

FIND YOUR UNITED STATES REPRESENTATIVE (one for each district):

https://www.house.gov/representatives/find-your-representative 

 

 

Consumer Bankruptcy Reform Act of 2020

On December 9, 2020 United States Senator Elizabeth Warren (D-Mass.) and House Judiciary Committee Chairman Jerrold Nadler (D-N.Y.) introduced the Consumer Bankruptcy Reform Act of 2020, bicameral legislation to simplify and modernize the consumer bankruptcy system to make it easier for individuals and families forced into bankruptcy to get back on their feet.

The Consumer Bankruptcy Reform Act will make significant changes to the Bankruptcy Code. Among other amendments it will:

• Replace chapter 7 and chapter 13 bankruptcies with a single system.
• Allow for discharge of student loans.
• Allow discharge before completion of payment plans.
• Choice of state or new federal exemptions which includes new homestead floor.
• Assist renters with back rent avoid eviction.
• Allow discharge of local government fines.
• Exempt sources of income and assets traceable to alimony, child support income, the child tax credit, and the Earned Income Tax Credit (EITC).
• Crack down on predatory practices and hold corporate wrongdoers accountable by banning collection of debts that violate consumer protection laws, allowing lawsuits against creditors that attempt to collect previously discharged debt, and preventing creditors from pursuing consumers in mandatory arbitration.
• Allow cram-down and extended re-amortization of home mortgages
• Create a minimum federal homestead exemption

 

 

 

The members of NACBA’s Legislative Committee will discuss the major changes proposed in the Act and how they will affect consumers and attorneys. NACBA’s Legislative Committee has spent hundreds of hours reviewing the proposed changes in the Act and are ready to share their analysis with NACBA Members.

 

WSJ: Student Loan Losses Seen Costing U.S. More Than $400 Billion

The U.S. government stands to lose more than $400 billion from the federal student loan program, an internal analysis shows, approaching the size of losses incurred by banks during the subprime-mortgage crisis.

The Education Department, with the help of two private consultants, looked at $1.37 trillion in student loans held by the government at the start of the year. Their conclusion: Borrowers will pay back $935 billion in principal and interest. That would leave taxpayers on the hook for $435 billion, according to documents reviewed by The Wall Street Journal.

The analysis was based on government accounting standards and didn’t include roughly $150 billion in loans originated by private lenders and backed by the government.

The losses are far steeper than prior government projections, which typically measure how much the portfolio will cost the government in the next decade, not the entire life of the loans. Last year the Congressional Budget Office estimated that the student-loan program would cost taxpayers $31.5 billion, including administrative costs.

STUDENT LOANS ON CLIFF
Stimulus Aid Leaves Out Millions of Student-Loan Borrowers (May 4, 2020)
U.S. Student-Loan Program Now Runs Deficit, CBO Estimates (May 7, 2019)
Program to Relieve Student Debt Proves Unforgiving (May 7, 2019)
The Student-Debt Crisis Hits Hardest at Historically Black Colleges (April 17, 2019)
After decades of no-questions-asked lending, the government is realizing that it has a pile of toxic debt on its books. By comparison, private lenders lost $535 billion on subprime-mortgages during the 2008 financial crisis, according to Mark Zandi, chief economist at Moody’s Analytics.

The effect this time is different. The government, unlike private lenders, can borrow trillions of dollars at low rates to absorb the losses, without causing a panic. But taxpayers will end up paying a price because Congress will have to raise taxes, cut services or increase the deficit to cover the losses.

The absence of a cataclysmic event like the financial crisis is removing the impetus for the federal government to change its lending practices, which analysts said have enabled colleges to raise tuition far above the rate of inflation.

“There’s no market discipline here,” said Constantine Yannelis, a former Treasury Department official in the Obama administration who now teaches at the University of Chicago. “In 2007-2008, we saw a lot of lenders who were making risky bets going under. There’s no force like that in the student-loan market.”

The government lends more than $100 billion each year to students to cover tuition at more than 6,000 colleges and universities. It ignores factors such as credit scores and field of study, and it doesn’t analyze whether students will earn enough after graduating to cover their debt.

YOUR MONEY BRIEFING
Taxpayers On the Hook for Billions in Unpaid Student Loan Debt

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“We make no attempt to evaluate the quality of the borrower, the ability to repay, the effectiveness of the loans,” said Douglas Holtz-Eakin, former head of the Congressional Budget Office who now leads the American Action Forum, a conservative think tank. “The taxpayer ends up picking up the tab.”

Borrowers with subprime credit scores—indicating they have had previous trouble paying off debt—are among the most likely to default, Federal Reserve research shows.

Between 2005 and 2016, nearly four in 10 student loans—most of them federal ones—went to borrowers with credit scores below the subprime threshold of 620, according to a Wall Street Journal analysis of data from the credit-rating firm Equifax Inc. That figure excludes borrowers who lacked credit histories. By comparison, subprime mortgages peaked at nearly 20% of all mortgage originations in 2006.

Since the financial crisis, private lenders typically originate loans only to borrowers with clean credit and require cosigners, and default rates are far lower than on federal loans.

Congressional Democrats have stepped up calls for President-elect Joe Biden to use executive action to forgive student debt. Mr. Biden, a Democrat, has reiterated his support for legislation to forgive $10,000 for each borrower with a federal student loan.

The administration of President Trump, a Republican, has opposed wide-scale debt forgiveness. But the government is already effectively forgiving debt through programs known as income-based repayment, which require borrowers to pay only 10% of their discretionary income—defined as adjusted gross income minus 150% the federal poverty line—and then forgive balances after 10, 20 or 25 years.

Worried that government accountants had underestimated losses on student loans, the Education Department under Betsy DeVos hired FI Consulting to project losses. It developed a computer model to produce a much more detailed analysis than prior government methods to value the portfolio. The accounting firm Deloitte was hired to review the model. Neither contractor responded to requests for comment.

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What do you think would be an effective way to reduce student-loan debt in the U.S.? Join the conversation below.

The consultants found that income-based repayment programs are a major driver of projected losses. Some students—particularly those in graduate schools, who unlike undergraduates face no limits on how much they can borrow for tuition—rack up big debts and then enroll in income-based repayment. Borrowers in modest-paying jobs with less debt have also used the programs to avoid default. Borrowers in income-driven repayment will repay, on average, 51% of their balances, while borrowers in other plans will repay 80%, the Education Department’s analysis shows.

It is unclear how much debt that is set to be forgiven will be interest instead of principal. Balances typically rise in income-driven repayment because the monthly payments often aren’t big enough to cover interest.

Meanwhile, millions of other borrowers continue to default on smaller amounts—typically under $10,000—after dropping out of community college or for-profit colleges. Still others say they defaulted after being defrauded by their schools and failing to land well-paying jobs in their fields of study.

Write to Josh Mitchell at joshua.mitchell@wsj.com

NACBA Joins with 65 Organizations Calling for Cancelling Student Debt to Tackle Economic Fallout

Krista D’Amelio |

WASHINGTON, D.C.- On April 13th, 69 community, civil rights, consumer, and student advocacy organizations, including NACBA, sent a letter to House and Senate leadership, urging them to include student debt cancellation in the next coronavirus package. The letter also calls on leadership to extend the suspension of payments on federal student loans through March 2021, as current estimates indicate that the economy will not recover to pre-virus levels until the third quarter of 2021.

Opinion: Why bankruptcy must be an option for homeowners and small businesses to survive this COVID-19 recession

U.S. Bankruptcy Code should be overhauled to protect families and savings
Few Americans are unaffected by the recession and economic turmoil COVID-19 has wrought, with unemployment numbers spiking to Great Depression levels and millions in need of temporary benefits such as mortgage forbearance or expanded unemployment insurance. With no obvious end to the pandemic in sight, it’s increasingly clear that many Americans are sitting on a ticking financial time bomb.

If the U.S. is to avoid a disastrous repeat of the Great Recession, there must be a determined response from government. What Americans need now is a substantial overhaul of the U.S. Bankruptcy Code. Without this lifeline, millions of Americans could lose their homes, igniting a chain reaction that will slow the recovery and cripple the U.S. economy for years to come.

So far, efforts by federal and state governments to provide relief to Americans blindsided by COVID-19 have helped to stanch the bleeding. But for many, these measures have come too little, too late. Despite more than 16 million people being unemployed, efforts to pass a second federal aid package have stalled, creating the real possibility that the lack of progress from politicians will accelerate the speed and size of the bankruptcy wave — a wave that would surpass the 2008 economic downtown, and possibly become the worst financial crisis of our lifetime.

The numbers are bleak — currently non-housing debt totals more than $14 trillion and more than 7% of residential mortgages are delinquent. This means millions of people can no longer meet their debt obligations, given the size and scope of this pandemic.

Far from being a way to escape financial obligations, bankruptcy is a key part of the social safety net for those who have been dealt a bad hand — and you’d be hard-pressed to find a worse hand than COVID-19. Bankruptcy is a vital and even necessary means for honest people struggling with finances to obtain relief.

The most common causes of personal bankruptcy include job loss, medical problems and divorce. In this current crisis, bankruptcy may truly be the only real solution for many families and small business owners who never dreamed they would need it. It should be seen as integral to surviving the recession for some Americans as unemployment insurance, loan forbearance, Paycheck Protection Program (PPP) loans, and other relief measures.

Yet the U.S. Bankruptcy Code has not evolved to address today’s global crises. Whatever Congress’ intentions might have been in passing the Bankruptcy Abuse Prevention Consumer Protection Act (BAPCPA) of 2005, it is clear they did not anticipate the seismic economic shocks that Americans have experienced since then. Accordingly, there remain substantial barriers to accessing bankruptcy relief that make a quick and meaningful recovery unavailable to many families.

In May of this year, the House of Representatives took an important step toward reversing this obstacle when it passed H.R. 6800, also known as the “HEROES Act.” The bill includes provisions that would provide critical relief to those burdened by the impact of COVID-19.

For example, it would increase the homestead exemption floor so that debtors forced to file bankruptcy as a result of the pandemic do not lose their homes due to a financial disaster that is far beyond their control. The legislation would protect debtors from having their COVID-19-related benefits, often the only resource standing between them and deprivation, seized by trustees during the bankruptcy process. And it would dramatically expand access to and effectiveness of Chapter 13 bankruptcy by raising debt limits for filing and providing more flexible options for discharging debts or extending repayment plans.

This legislation is a move in the right direction. It now falls to the Senate to craft a companion bill that goes the distance to relieve debtors and provide a light at the end of the tunnel. There is more that can be done, including giving Chapter 13 debtors options to deal with mortgage payments when there has been forbearance on those payments, as well as expanding provisions for relief from onerous student loan debts. One thing is clear: doing nothing is not an option.

Without decisive action, Americans who have lost jobs or businesses through catastrophes beyond their control will be mired in crippling debt they cannot repay. They will not soon return to the earning, spending and investing behavior that will be essential for America’s recovery. The long-term health and competitiveness of the U.S. economy will suffer for this mistake.

Bankruptcy reform is the fresh start — and the economic kick-start — we desperately need. It’s a solution with bipartisan appeal, and with the pandemic not likely to end anytime soon, it’s time for Congress and the Trump administration to come together to make this a priority.

John C. Colwell is president of the National Association of Consumer Bankruptcy Attorneys.

Read the article on MarketWatch

FICO changes how credit scores are calculated

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Record Borrowing

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

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

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

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

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

Banned in Australia

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

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

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

Courtesy: Bloomberg

FTC Halts Deceptive Mortgage Loan Modification Scheme

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

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

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

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

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

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

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

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

Credit Freezes, Credit Locks, and Fraud Alerts

Every few months it seems we hear about another major hack of consumer information from some huge company. None, however, had quite the chilling effect as the data breach at Equifax, one of the “big three” credit bureaus. The Better Business Bureau now warns consumers that is probably no longer a matter of if your data is available to scammers but more a matter of when they will use it against year. If you were a victim of the Equifax data breach (and most American adults were), Identity thieves now have everything they need to steal your identity and open new accounts in your name.

With this new fear, however, comes a lot of good information. For the first time, millions of consumers are adding fraud alerts to their credit reports, or considering a credit freeze or a credit lock. Our friends at the Federal Trade Commission recently explained how these three differ, and what each can do to protect your personally identifiable information.

Fraud Alert

What is it? A fraud alert requires companies to verify your identity before extending new credit. Usually that means calling you to check if you’re really trying to open a new account.
How does it work? The process is easy – you contact any one of the three nationwide credit reporting agencies (Equifax, Experian, TransUnion) and that one must notify the other two.
How long does it last? An initial fraud alerts last 90 days. After 90 days, you can renew your alert for an additional 90 days, as many times as you want. Military who deploy can get an active duty alert that lasts one year, renewable for the period of deployment. Identity theft victims (whose information has been misused, not just exposed in a breach) are entitled to an extended fraud alert, which lasts seven years.
How much does it cost? Fraud alerts are free.
Is this for me? With a fraud alert, you keep access to your credit and federal law protects you. But an initial fraud alert lasts only 90 days and then you’ll need to remind yourself to renew it every 90 days.

Credit Freeze

What is it? A credit freeze limits access to your credit file so no one, including you, can open new accounts until the freeze is lifted.
How does it work? To be fully protected, you must place a freeze with each of the three credit reporting agencies. Freezes can be placed by phone or online. You’ll get a PIN to use each time you freeze or unfreeze, which may take one to three business days.
How long does it last? A freeze lasts until you temporarily lift or permanently remove it (except in a few states where freezes expire after seven years).

How much does it cost? Fees are set by state law. Generally, it costs $5 to $10 each time you freeze or unfreeze your account with each credit reporting agency. You can get a free freeze if you are an identity theft victim, or in some states, if you’re over age 62. Equifax is offering free freezes until January 31, 2018.
Is this for me? Freezes are generally best for people who aren’t planning to take out new credit. Often, that includes older adults, people under guardianship, and children. People who want to avoid monthly fees also may prefer freezes over locks.

Credit Lock

What is it? Like a freeze, a credit lock limits access to your credit file so no one, including you, can open new accounts until you unlock your credit file.
How does it work? Like a freeze, to be fully protected, you must place locks with all three credit reporting agencies. With locks, however, there’s no PIN and usually no wait to lock or unlock your credit file (although the current Equifax lock can take 24 to 48 hours). You can lock and unlock on a computer or mobile device through an app – but not with a phone call.
How long does it last? Locks last only as long as you have an ongoing lock agreement with each of the credit reporting agencies. In some cases, that means paying monthly fees to maintain your lock service.

How much does it cost? Credit reporting agencies can set and change lock fees at any time. As of today, Equifax offers free locks as part of its free post-breach credit monitoring. Experian and TransUnion may charge monthly fees, often about $20.
Is this for me? Depending on your particular lock agreement, your fees and protections may change over time. So, if you sign up for a lock, it’s hard to be sure what your legal protections will be if something goes wrong later. Also, monthly lock fees can quickly exceed the cost of freezes, especially if the lock fees increase over time.

Additional information:

BBB offers advice in the wake of a data breach: go.bbb.org/databreach

FTC’s Credit freeze FAQs, Fraud alert or credit freeze – which is right for you?, and Free freezes from Equifax.

If your personal information is misused, visit IdentityTheft.gov to report identity theft and get a personal recovery plan.

NC ATTORNEY GENERAL PROTECTS CONSUMERS FROM PREDATORY LOANS

North Carolina Attorney General Josh Stein recently announced that the Department of Justice has resolved a lawsuit against predatory auto title lenders in North Carolina. Liquidation, LLC made illegal loans to more than 700 North Carolinians under many names and charged interest rates of 161 percent to 571 percent, which far exceed legal limits in North Carolina. Loan amounts ranged from $800 to $7,000.

“Law-breaking lenders can wreak havoc on a person’s credit and cause financially-strapped people to get even further behind,” said AG Stein. “My office will not allow predatory lenders to take advantage of consumers in this state. Companies that attempt to charge loan shark interest rates will be shut down.”

The defendants solicited the loans online, after which they asked people to send the defendants their vehicle title to secure the loan. If people failed to make a payment, the defendants repossessed the borrower’s vehicle. The defendants were not licensed to make loans in North Carolina and often failed to disclose all of the loan terms until after the borrowers agreed to the loans.

The NC Department of Justice obtained a temporary restraining order and preliminary injunction order against Liquidation, LLC, also known as Auto Loans, LLC, Car Loan, LLC, and Sovereign Lending Solutions, LLC in 2016. After the defendants failed to appear in court, the NCDOJ traced their bank accounts to secure restitution funds and successfully froze $178,000.

The Court’s final judgment provides that:
· Loans made by the defendants are void and cancelled;
· Defendants are permanently prohibited from engaging in loan business in North Carolina;
· The $178,000 in frozen funds will be transferred to NCDOJ for consumer restitution and consumer protection purposes;
· Defendants liens are cancelled;
· Consumers who still have their vehicles can receive a new title without the lien;
· And a civil penalty of $3.5 million will be entered against the default defendants.

Two former employees also entered a consent judgment in which they agreed to permanent injunctions and substantial money judgments unless they collectively pay $15,000 to NCDOJ for consumer restitution.
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