Friday, August 25, 2017

CFPB weighs in on wisdom (or otherwise) of reverse mortgages to provide income while delaying claim for Social Security benefits


AUGUST 24 PRESS RELEASE RE-POST:

CONSUMER FINANCIAL PROTECTION BUREAU REPORT WARNS THAT TAKING OUT A REVERSE MORTGAGE LOAN CAN BE AN EXPENSIVE WAY TO MAXIMIZE SOCIAL SECURITY BENEFITS


CFPB Releases Consumer Guide and Video Explaining Reverse Mortgages 


WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) today issued a report warning older consumers about taking out a reverse mortgage loan in order to bridge the gap in income while delaying Social Security benefits until a later age. The CFPB report found, in general, the costs and risks of taking out a reverse mortgage exceed the cumulative increase in Social Security lifetime benefits that homeowners would receive by delayed claiming. The Bureau also released a consumer guide and video to help prospective borrowers and their families understand how reverse mortgages work so that they can make an informed decision before agreeing to borrow. 
“A reverse mortgage loan can help some older homeowners meet financial needs, but can also jeopardize their retirement if not used carefully,” said CFPB Director Richard Cordray. “For consumers whose main asset is their home, taking out a reverse mortgage to delay Social Security claiming may risk their financial security because the cost of the loan will likely be more than the benefit they gain.” 
Most reverse mortgages today are federally insured through the Federal Housing Administration’s (FHA) Home Equity Conversion Mortgage (HECM) program, which means they must comply with the related regulations. A HECM reverse mortgage is a special type of home loan that allows homeowners age 62 and older to borrow against the equity they have built in their homes and defer payment of the loan until they pass away, sell, or move out. The loan proceeds generally are provided to the borrowers as lump-sum payments, monthly payments, or as lines of credit. 
A variety of financial professionals are increasingly promoting the use of a reverse mortgage loan as a way to delay claiming Social Security benefits. With this approach, a homeowner uses a reverse mortgage loan to replace the income they would otherwise receive in Social Security benefits in the years between the minimum benefits age (age 62) and their full benefits age or later. When Social Security benefits are delayed, beneficiaries see a permanent increase in the monthly benefit, which, based on current life expectancies, results in an increased cumulative lifetime benefit. 
Today’s report cautions consumers considering taking out a reverse mortgage in order to delay claiming Social Security benefits. The CFPB report shows that this approach carries the following risks and costs: 
  • Costs of a reverse mortgage can exceed the lifetime benefit of waiting to claim Social Security: The average length of a reverse mortgage loan borrowed at age 62 is seven years. By age 69, borrowers that pursue this strategy will pay approximately 60 percent in costs (interest, insurance, and fees) for the amount borrowed to bridge the gap in income while delaying Social Security benefits until a later age. Because reverse mortgages are an expensive way to delay Social Security, the report found that by age 69, the costs of a reverse mortgage loan are $2,300 higher than the additional cumulative lifetime amount the typical borrower will expect to gain from an increased Social Security benefit.  
  • Decreased home equity limits options to handle future financial needs: A reverse mortgage reduces the equity homeowners have in their house. Homeowners who wish to sell their homes after taking out a reverse mortgage are particularly at risk because the loan balance is likely to grow faster than their home values will appreciate. This could limit options for moving or handling a financial shock. For example, a 62-year-old homeowner who has a home worth $175,000, with a 2 percent appreciation per year, will have 61 percent of the home’s total value available as equity at age 67. By age 85, this homeowner will have only about 16 percent of equity in the home if they sell the house. 
The CFPB is also releasing a new consumer guide and video designed to help consumers understand how a reverse mortgage works, associated risks, and the borrower’s responsibilities. The guide and video cover issues to consider before applying for a reverse mortgage, such as how much a homeowner can borrow and how the loans work; the possibility of losing the home by failing to meet loan requirements; and what happens to the home after the borrower no longer lives there. In 2015, the CFPB issued an advisory with consumer tips to help borrowers so they won’t be misled by deceptive advertising. 
The “Reverse Mortgage Discussion Guide” can be found at: http://files.consumerfinance.gov/f/documents/cfpb_reverse-mortgage-discussion-guide.pdf 
The video explaining reverse mortgages can be found at: https://youtu.be/L89d3faoFGw 
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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.

CFPB Action against Aequitas Capital Management over Corinthian Colleges Predatory Student Loan Scheme

WASHINGTON, D.C. — August 17, 2017 Press Release (re-post)

CFPB Takes Action Against Aequitas Capital Management for Aiding Corinthian Colleges' Predatory Lending Scheme

Bureau’s Proposed Settlement Seeks $183.3 million in Relief for 41,000 Harmed Student Borrowers
AUG 17, 2017
The Consumer Financial Protection Bureau today filed a complaint and proposed settlement against Aequitas Capital Management, Inc. and related entities, for aiding the Corinthian Colleges’ predatory lending scheme. The CFPB alleges that Aequitas enabled Corinthian to make high-cost private loans to Corinthian students so that it would seem as if the school was making enough outside revenue to meet the requirements for receiving federal student aid dollars. The risky loans saddled students with high-priced debt that both Aequitas and Corinthian knew students could not afford. 
Under the CFPB’s proposed settlement, if approved, about 41,000 Corinthian students could be eligible for approximately $183.3 million in loan forgiveness and reduction. In collaboration with the CFPB, several state attorneys general have also reached proposed settlements with Aequitas.
“Tens of thousands of Corinthian students were harmed by the predatory lending scheme funded by Aequitas, turning dreams of higher education into a nightmare,” said CFPB Director Richard Cordray. “Today’s action marks another step by the Bureau to bring justice and relief to the borrowers still saddled with expensive student loan debt. We will continue to address the illegal lending practices of for-profit colleges and those who enable them.”
Aequitas Capital Management, Inc. and related entities are based in Lake Oswego, Ore. Aequitas was a private equity firm that purchased or funded about $230 million in Corinthian Colleges’ private loans, branded by the school as “Genesis loans.” 
On March 10, 2016, the Securities and Exchange Commission took action against Aequitas, alleging they had defrauded more than 1,500 investors. A receiver was appointed to wind down Aequitas and distribute its remaining assets.
The Bureau’s complaint alleges that Aequitas violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibitions against abusive acts and practices by funding and supporting Corinthian’s predatory Genesis loan program. 
Specifically, the Bureau alleges that Aequitas and Corinthian plotted to make it seem as if the school was getting outside revenue in the form of the Genesis loans, when in reality Corinthian was paying Aequitas to support the loan program. Corinthian and Aequitas engaged in this charade to satisfy Corinthian’s obligations under the 90/10 rule, a federal law requiring for-profit schools to obtain at least 10 percent of their revenue from other sources in order to get federal loan dollars.
Knowing that its students could not generally afford the additional 10 percent charge, Corinthian created the Genesis loan program to cover it. Corinthian enlisted Aequitas to purchase the existing Genesis loans, or originate new Genesis loans, so that they could be counted as a private source of revenue under the 90/10 rule. The Bureau charges that both Corinthian and Aequitas knew most Corinthian student borrowers would default on these loans. Under the scheme, the defaults would not affect Aequitas because Corinthian was committed to buying back all delinquent loans.

Enforcement Action

Pursuant to the Dodd-Frank Act, the CFPB has the authority to take action against institutions or individuals engaging in unfair, deceptive, or abusive acts or practices or that otherwise violate federal consumer financial laws. Under the proposed settlement, if approved by the U.S. District Court in Oregon, Aequitas and related entities would be required to:   
  • Forgive Genesis loans in connection with certain closed schools: Aequitas would forgive all outstanding balances on Genesis loans for borrowers who meet certain eligibility requirements. Eligible borrowers are those who did not complete their coursework or graduate and were enrolled at schools Corinthian announced in April 2015 would be closed; those who withdrew from those schools on or after June 1, 2014; and those who did not complete their coursework or graduate and were enrolled at the schools Corinthian sold to Zenith Education Group that subsequently closed. 
  • Forgive Genesis loans in default: Aequitas would forgive all outstanding balances for any Genesis loans it owns that were 270 days or more past due as of March 31, 2017. 
  • Reduce all other Genesis loans by more than half: On all other Genesis loans it owns, Aequitas would reduce the principal amount owed as of March 31, 2017 by 55 percent, and would forgive any accrued and unpaid interest, fees, and charges that were 30 or more days past due as of March 31, 2017. Borrowers could opt to have their monthly payments lowered after the remaining loan balance is reduced by 55 percent. Borrowers would receive a notice of this option, along with an explanation of the costs and benefits of this option versus maintaining their previous monthly payment amount.
If the proposed settlement is approved by the court, eligible borrowers will be notified within 90 days after approval. To ensure that they receive this notice, all borrowers should make sure their loan servicer has their current address.
This action is among a series of steps the CFPB has taken to help consumers who were harmed by the predatory lending scheme by Corinthian Colleges. 
In September 2014, the CFPB sued Corinthian Colleges, Inc. for tricking tens of thousands of students into taking out private Genesis loans to cover expensive tuition costs by advertising bogus job prospects and career services. 
In 2015, Corinthian filed for bankruptcy and was liquidated. The Bureau subsequently obtained a $530 million default judgment against Corinthian, which could not pay the judgment because it had dissolved and its limited assets had already been distributed in its bankruptcy case. The CFPB has continued to pursue relief for consumers harmed by Corinthian’s unlawful conduct. The proposed settlement is the latest step in that effort.
Other borrowers who were preyed upon by Corinthian have had loan balances reduced as a result of the Bureau’s efforts. The Educational Credit Management Corporation (ECMC), a company that provides support for the administration of the Federal Family Education Loan Program, worked with the Department of Education in November 2014 to acquire a substantial number of Everest and WyoTech campuses, formerly owned by Corinthian. ECMC agreed not to operate a private student loan program for seven years and agreed to a series of new consumer protections. In February 2015, the CFPB announced that, through an action with ECMC, it had secured $480 million in forgiveness for these Genesis loan borrowers.
The proposed settlement submitted today is not a finding or ruling that the company has actually violated the law. It has been filed with the U.S. District Court for the District of Oregon, and is only effective if it is approved by the presiding judge.
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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.

CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff,
v.
AEQUITAS CAPITAL MANAGEMENT INC., AEQUITAS MANAGEMENT LLC, AEQUITAS HOLDINGS, LLC, AEQUITAS COMMERCIAL FINANCE, LLC, CAMPUS STUDENT FUNDING, LLC, CSF LEVERAGE I LLC, AEQUITAS INCOME OPPORTUNITY FUND, and AEQUITAS INCOME PROTECTION FUND, Defendants.

Case No. 17-cv-1278-PK.
United States District Court, D. Oregon, Portland Division.

September 1, 2017.

Consumer Financial Protection Bureau, Plaintiff, represented by Rina Tucker Harris, Consumer Financial Protection Bureau.

[PROPOSED] 

STIPULATED FINAL JUDGMENT AND ORDER

MARCO A. HERNANDEZ, District Judge
]
The Consumer Financial Protection Bureau (Bureau) commenced this civil action on August 17, 2017 to obtain consumer redress, injunctive relief, and other relief, from the Defendants. The Complaint alleges violations of §§ 1031(a) and 1036(a)(1) of the Consumer Financial Protection Act of 2010, 12 U.S.C. §§ 5531(a), 5536(a)(1) in connection with Defendants' funding, purchasing, and maintaining loans made to students at Corinthian Colleges, Inc. (Corinthian). Specifically, the Complaint alleges Defendants funded and maintained the private student loan program offered to . Corinthian students as part of a scheme to allow Corinthian to present a fa├žade of compliance with federal laws requiring that a certain portion of a for-profit school's revenue come from sources other than federal student aid. The Complaint also alleges that Defendants profited from this scheme, and in doing so, took unreasonable advantage of Corinthian's student borrowers who were unaware of the scheme associated with this loan program, and therefore were unable to protect their interests in taking out such loans.
The Securities and Exchange Commission commenced the Receivership Action in this Court on March 10, 2016 to, among other things, obtain injunctive relief against Defendants for violation of certain federal securities laws, and place Defendants and certain other related parties in receivership for purposes of orderly liquidation. The Court entered a preliminary injunction against Defendants on March 14, 2016, and by Order dated April 14, 2016 (Receivership Order) appointed the Receiver for Defendants and certain other related parties. Pursuant to the Receivership Order, the Receiver has the power and authority to enter into this Stipulated Final Judgment and Order (Order) and to perform certain duties set forth in this Order during the pendency of the Receivership.
The parties, by and through respective counsel, have requested the Court to enter this Order to resolve all matters in dispute arising from the conduct alleged in the Complaint.

I. FINDINGS

1. This Court has jurisdiction over the parties and the subject matter of this action.
2. The parties agree to entry of this Order to settle and resolve all matters in dispute arising from the conduct of Defendants alleged in the Complaint.
3. The Bureau makes no allegations against the Receiver, but only against Defendants. The Receiver is obligated under this Order for the sole purpose of acting on behalf of the Defendants to grant certain monetary relief from the assets of the Receivership and to perform certain obligations to the Bureau set forth in this Order. Defendants neither admit nor deny any allegation in the Complaint, except that for purposes of this Order, Defendants admit the facts necessary to establish the Court's jurisdiction over Defendants and the subject matter of this action.
4. The loan reductions, discharges and cancellations described in this judgment are based on alleged infirmities that relate back to the original sale of educational services by Corinthian and are for the purpose of correcting these alleged unlawful business practices by the Defendants, including alleged unfair, deceptive, and abusive acts and practices.
5. Defendants waive service under Rule 4(d) of the Federal Rules of Civil Procedure and waive all rights to seek judicial review or otherwise challenge or contest the validity of this Order. Defendants also waive any claims that they may have under the Equal Access to Justice Act, 28 U.S.C. § 2412, concerning the prosecution of this action to the date of this Order. Each party will bear its own costs and expenses, including, without limitation, attorneys' fees.
6. Entry of this Order is in the public interest.

II. DEFINITIONS

7. "Affected Consumers" means all consumers who were Borrowers of Aequitas Genesis Loans and have remaining unpaid amounts on such loans as of the Record Date.
8. "Active Aequitas Genesis Loans" means, as of the Record Date, all Aequitas Genesis Loans, with the exception of Defaulted Genesis Loans and Aequitas Closed School Loans.
9. "Defendants" means Aequitas Capital Management Inc., Aequitas Management LLC, Aequitas Holdings LLC, Aequitas Commercial Finance LLC, Campus Student Funding LLC, CSF Leverage I LLC, Aequitas Income Opportunity Fund, and Aequitas Income Protection Fund, as named in the Complaint.
10. "Aequitas Genesis Loan" means any private student loan referred to in the Complaint as either a Genesis loan or EducationPlus loan, which was made to a Borrower to pay for tuition, cost of living expenses and/or fees to attend a Corinthian school, and which as of the Record Date still has an outstanding balance on the books and records of Defendants in the possession of the Receiver (or on the books and records of servicers of said loans).
11. "Borrower" means a consumer who was a borrower of an Aequitas Genesis Loan, and his/her/its successors or assigns.
12. "Closed School Loan" means an Aequitas Genesis Loan to a Borrower who did not graduate or complete his/her course work and who (a) attended one of the Corinthian schools that Corinthian announced on April 27, 2015 would be closed (listed on Schedule 1 to this Order) and was either attending such school when it closed or withdrew from such school on or after June 1, 2014, or (b) attended one of the Corinthian schools sold to Zenith (listed on Schedule 2 to this Order) and whose loan is included on a list agreed upon between the Receiver and the Bureau prior to the filing of the Complaint.
13. "Defaulted Aequitas Genesis Loan" means an Aequitas Genesis Loan that is 270 days or more past due, charged off, or cancelled as of the Record Date.
14. "Current Payment Amount" is the monthly payment amount designated for each Active Aequitas Genesis Loan in order to keep the account current and non-delinquent.
15. "Effective Date" means the date on which this Order is entered on the docket.
16. "Enforcement Director" means the Assistant Director of the Office of Enforcement for the Consumer Financial Protection Bureau, or his or her delegate.
17. "Re-Amortization Payment Amount" is a new payment amount per month for each Active Aequitas Genesis Loan, calculated based on the principal reduction provided for in paragraph 32 as of the Effective Date such that the Active Aequitas Genesis Loan will be fully paid if the Re-Amortization Payment Amount is paid by the Borrower each month on time, by the end of that loan's actual or, in the case of loans that have ever been in or are currently in a forbearance plan, estimated remaining term.
18. "Receiver" means Ronald Greenspan, receiver of Aequitas, named as such in the Receivership Order, or any other receiver that is appointed by a superseding order in the same litigation.
19. "Receivership Action" means the matter of SEC v. Aequitas Management, LLC, et al., No. 3:16-cv-438(PK) (D. Or.).
20. "Receivership Order" means the Order Appointing Receiver, ECF No. 156, SEC v. Aequitas Management, LLC, et al., No. 3:16-cv-438(PK) (D. Or. Apr. 14, 2016).
21. "Record Date" means March 31, 2017.
22. "Retained Personnel" means the agents of the Receiver, as defined by the Receivership Order.

III. ORDER

A. CONDUCT PROVISIONS

IT IS HEREBY ORDERED as follows:
23. Defendants and their respective officers, agents, servants, employees and attorneys, who have actual notice of this Order, whether acting directly or indirectly, may not violate §§ 1031 and 1036 of the CFPA, 12 U.S.C. §§ 5531, 5536, including by engaging in abusive acts or practices in connection with lending to students of for-profit schools.
24. Within 30 days of the Effective Date, Defendants, or the Receiver on behalf of Defendants, shall obtain the following reports from servicers currently servicing the Aequitas Genesis Loans, with data as of the Record Date. Upon obtaining such reports, the Defendants or the Receiver on behalf of the Defendants shall provide copies of them to the Bureau. The following reports are to be obtained, to the extent the specified loan-level data are available:
a. a report of all Aequitas Genesis Loans including for each such Aequitas Genesis Loan, the amount of principal, interest, fees, and any other amount due and owing as of the Record Date on such Aequitas Genesis Loan, the associated Borrower's name, a unique identifying number, and most currently available postal address, phone number, and email address.
b. a report of all Active Aequitas Genesis Loans including for each such Active Aequitas Genesis Loan, the amount of principal, interest, fees, and any other amount due and owing as of the Record Date on such Active Aequitas Genesis Loan, the associated Borrower's name, a unique identifying number, and most currently available postal address, phone number, and email address.
c. a report of all Defaulted Aequitas Genesis Loans, including for each such Defaulted Aequitas Genesis Loan, the amount of principal, interest, fees, and any other amount due and owing as of the Record Date on such Defaulted Aequitas Genesis Loan, the associated Borrower's name, a unique identifying number, and most currently available postal address, phone number, and email address.
d. a report of all Closed School Loans, including for each such Closed School Loan, the amount of principal, interest, fees, and any other amount due and owing as of the Record Date on such Closed School Loan, the associated Borrower's name, a unique identifying number, and most currently available postal address, phone number, and email address.
25. For each Closed School Loan, Defendants, and the Receiver on behalf of Defendants, are permanently restrained and enjoined as of the Effective Date from:
a. Engaging in any collection activity with respect to each such Closed School Loan; however, Defendants will not be regarded as in violation of this Order if they send out routine statements or notices that could be considered collection activity within 20 days after the Effective Date;
b. Accepting any future payment on any such Closed School Loan, including any future payment made in connection with any statement or notice permitted by subparagraph (a), provided, however, that in the event that such a payment is discovered to be accepted and processed, Defendants, or the Receiver acting on Defendants' behalf, will return the payment to the Borrower within a reasonable time; and
c. Reselling, transferring, or assigning any such Closed School Loan.
26. For each Defaulted Aequitas Genesis Loan, Defendants, and the Receiver on behalf of Defendants, are permanently restrained and enjoined as of the Effective Date from:
a. Engaging in any collection activity with respect to each such Defaulted Aequitas Genesis Loan; however, Defendants will not be regarded as in violation of this Order if they send out routine statements or notices that could be considered collection activity within 20 days after the Effective Date;
b. Accepting any future payment on any such Defaulted Aequitas Genesis Loan, including any future payment made in connection with any statement or notice permitted by subparagraph (a), provided, however, that in the event that such a payment is discovered to be accepted and processed, Defendants, or the Receiver acting on Defendants' behalf, will return the payment to the Borrower within a reasonable time; and
c. Reselling, transferring, or assigning any such Defaulted Aequitas Genesis Loan.
27. For each Active Aequitas Genesis Loan, Defendants, and the Receiver on behalf of Defendants, are permanently restrained and enjoined as of the Effective Date from:
a. Reselling, transferring, or assigning any such Active Aequitas Genesis Loan, unless:
i. Defendants, or the Receiver on behalf of Defendants, ensure that the principal amount of each such loan sold, transferred or assigned reflects the reduction required in paragraph 32;
ii. Within five business days of reaching an agreement in principle to sell, transfer or assign any Active Aequitas Genesis Loans, in which the terms have been agreed upon by the parties but the Receiver has not yet sought the authority of the Receivership Court to make such a sale, transfer, or assignment, Defendants, or the Receiver on behalf of Defendants, must provide the Bureau:
1. notice of the fact that such agreement in principle has been reached;
2. the name of the proposed purchaser, transferee or assignee;
3. the list of Active Aequitas Genesis loans to be sold, transferred or assigned; and
4. the proposed written agreement memorializing the terms of the proposed sale, transfer, or assignment;
iii. Within five business days prior to filing a motion seeking court approval for any such sale, transfer or assignment of Active Aequitas Genesis Loans, Defendants, or the Receiver on behalf of Defendants, must provide the Bureau:
1. notice of its intention to file any such motion; and
2. the proposed motion papers, including any attachments thereto;
iv. Defendants, or the Receiver on behalf of Defendants, ensure that the final agreement memorializing any such sale, transfer or assignment of any Active Aequitas Genesis Loans contains a provision requiring the purchaser, transferee or assignee to adopt or abide by the terms and provisions of this Order requiring ongoing performance for the Bureau;
b. Any motion seeking approval for any such sale, transfer or assignment of Active Aequitas Genesis Loans shall (1) contain a request to the Court that the terms of this Order requiring ongoing performance for the Bureau shall be enforceable against the purchaser, transferee or assignee; and (2) not seek to sell, transfer or assign such loans free and clear of rights, claims or defenses of any borrower, co-borrower or guarantor on any such Loan.
28. For each Active Aequitas Genesis Loan, Defendants, and the Receiver on behalf of Defendants, are permanently restrained and enjoined as of 60 days after the Effective Date from:
a. Engaging in any collection activity with respect to each such Active Aequitas Genesis Loan that seeks an amount in principal greater than the amount identified in paragraph 32, including by:
i. calculating interest or fees based on a principal amount greater than the amount identified in paragraph 32, however, in the event interest or fees have been calculated on a principal amount greater than the amount identified in paragraph 32, the excess amounts that have been paid by the Borrower will be applied to the Borrower's principal balance unless the Borrower seeks a refund of such improperly charged amounts, in which case the Borrower will be supplied a refund; and
ii. representing to the Borrower of any such Active Aequitas Genesis Loan that the principal amount owed is greater than the amount identified in paragraph 32.
29. Within 30 days of the Effective Date, Defendants, or the Receiver on behalf of Defendants, must request that and use commercially reasonable efforts to follow up with any servicer that furnished trade line information for Aequitas Genesis Loans to credit reporting agencies to furnish deletion codes to said credit reporting agencies to delete such information from subject Borrowers' credit reports. For Borrowers of Active Aequitas Genesis Loans who perform under such Loans after the Effective Date, Defendants, or the Receiver on behalf of Defendants, may direct the servicer to report such performance to credit reporting agencies in accordance with applicable law. For any Borrowers who become or continue to be delinquent or in default after the Effective Date, Defendants, or the Receiver on behalf of Defendants, may direct the servicer to report such Borrowers' status to credit reporting agencies in accordance with applicable law; however, any such reporting shall reflect the balance as modified by this Order.
30. Defendants, or the Receiver on behalf of Defendants, shall direct any person or entity collecting on Active Aequitas Genesis Loans to fully comply with all applicable requirements of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §§ 1692 et seq., in any such collection.

B. REDRESS AND REMEDIATION

IT IS FURTHER ORDERED that:
31. Within 60 days after the Effective Date, Defendants, or the Receiver on behalf of Defendants, will discharge and cancel all amounts shown as owed in the report provided to the Bureau under paragraph 24, including principal, interest, fees or any other amounts, in connection with:
a. all Closed School Loans; and
b. all Defaulted Aequitas Genesis Loans.
32. Within 60 days after the Effective Date, Defendants, or the Receiver on behalf of Defendants, shall reduce the principal amount owed as of the Record Date on each Active Aequitas Genesis Loan, as identified in the report provided to the Bureau under paragraph 24, by 55% and discharge and cancel such principal and any accrued and unpaid interest, fees and charges that are 30 or more days past due as of the Record Date.
33. Defendants, or the Receiver on behalf of Defendants, shall use commercially reasonable efforts to obtain guidance from the Internal Revenue Service indicating that the Receiver is not required to make federal tax filings (including sending 1099 forms to Borrowers) as a result of the debt relief provided in this Order, prior to the time such forms would be required to be sent. If the Receiver, in consultation with his counsel, is satisfied that such guidance is reliable, the Receiver shall not make applicable federal tax filings and shall not send Borrowers 1099 forms.
34. Defendants, or the Receiver on behalf of Defendants, must provide each Borrower of a Closed School Loan and each Borrower of a Defaulted Aequitas Genesis Loan with the following notice within 90 days of the Effective Date. Nothing else but such notice shall be sent in combination with the mailing of this notice and such mailing will be sent to the most recently available postal address as contained on the servicer's system of record. The notice shall contain the following information:
a. The outstanding amount that had been owed under each Aequitas Genesis Loan as of the Record Date by such Borrower;
b. The fact that each such amount has been reduced, discharged and canceled in full and such Borrower no longer owes any amounts under his or her Aequitas Genesis Loan;
c. The fact that the cancellation of the amounts owed for each such Aequitas Genesis Loan is pursuant to this Order;
d. The fact that the Borrower will not be subjected to any new debt-collection or credit-reporting activities related to each such Aequitas Genesis Loan;
e. Any such reduction, discharge or cancellation of principal may result in tax liabilities of the borrower to the Internal Revenue Service and state taxing authorities;
f. No amounts that were due and owing and were paid prior to the Record Date will be returned to the Borrower.
35. Within 90 days of the Effective Date, Defendants, or the Receiver on behalf of Defendants, must provide each Borrower of an Active Aequitas Genesis Loan written notice as described in paragraph 37 of his/her option to either continue paying the Current Payment Amount on the lowered principal balance or elect to have the loan re-amortized using the lowered principal balance and remaining term of the subject loan, which will result in a Re-Amortization Payment Amount. No such notice is required to a Borrower and no Re-Amortization Payment Amount will be available to a Borrower, however, if such Borrower's Current Payment Amount before re-amortization is less than $20; in any event, a Borrower's Re-Amortization Payment Amount will not be less than $20.
36. Each Borrower of an Active Aequitas Genesis Loan will have 90 days from the mailing date of such notice to make his/her election by completing the notice and returning it to Defendants, the Receiver (on behalf of Defendants) or the applicable servicer. If the Borrower does not make such an election, he or she will be required to pay the Current Payment Amount and the loan will not be re-amortized. For Borrowers as to whom Defendants, the Receiver on behalf of Defendants or the applicable servicer timely have received affirmative notice of election of the Re-Amortization Payment Amount, within 30 days following the expiration of the 90 day election period, Defendants, or the Receiver on behalf of Defendants, will re-amortize loans and adjust the monthly payment amount for all future unbilled and un-accrued loan payments to the Re-Amortization Payment Amount. Notwithstanding the foregoing, for any Active Aequitas Genesis Loan which already has been amended or modified pursuant to a forbearance plan to provide a Borrower with a monthly payment that is less than the applicable Re-Amortization Payment Amount and the Borrower has elected to accept the re-am01tization option, Defendants, or the Receiver on behalf of Defendants, shall not be required to adjust the monthly payment until the end of the applicable forbearance period. Defendants, or the Receiver on behalf of Defendants, will adjust the monthly payment to a Re-Amortization Payment Amount based on the principal balance of the Borrower's loan at the end of the applicable forbearance period.
37. Defendants, or the Receiver on behalf of Defendants, must provide each Borrower of an Active Aequitas Genesis Loan with the following notice pursuant to paragraph 35. Nothing else but such notice shall be sent in combination with the mailing of this notice and such mailing will be sent to the most recently available postal address as contained on the servicer's system of record. The notice shall contain the following information:
a. Identification information that associates the loan to the Borrower;
b. The amount of principal owed as of the Record Date of each Active Aequitas Genesis Loan associated with such Borrower;
c. The amount of principal owed for each such Active Aequitas Genesis Loan after the reduction required in paragraph 32 has been applied;
d. A statement notifying the Borrower that the principal has been reduced by 55% pursuant to this Order;
e. A Re-Amortization Payment Amount option whereby the Borrower has 90 days from the mailing date of such notice to inform the servicer of his or her election to opt-in and have his or her loan re-amortized with the minimum monthly payment modified from the Current Payment Amount to a Re-Amortization Payment Amount;
f. The fact that if the Borrower does not make such an election by the required date, the Current Payment Amount will continue as the amount due on his or her loan each month;
g. The fact that replacing the Current Payment Amount with the Re-Amortization Payment Amount may reduce the amount such Borrower pays each month but will cost the Borrower more over the life of the loan than if he or she continued with the Current Payment Amount;
h. The fact that a Borrower's election will not waive any rights, claims or defenses that the Borrower and any co-borrower or guarantor may have with respect to the loan.
i. The fact that continuing to pay the Current Payment Amount (or more) each month will result in full satisfaction of his or her loan before the payment term has expired, and will cost the Borrower less overall than if he or she elected to use the Re-amortization Payment Amount;
j. The following specific information individualized for each Borrower on an Active Aequitas Genesis Loan:
i. The estimated total amount of principal and interest the Borrower will pay if the Borrower pays each current Payment Amount as scheduled, as well as the estimated date of pay-off of the Active Aequitas Genesis Loan under these circumstances;
ii. The estimated total amount of principal and interest that the Borrower will pay if the Borrower elects his or her option to pay the Re-Amortization Payment Amount and pays such Re-Amortization Payment Amount as scheduled, as well as the estimated date of pay-off of the Active Aequitas Genesis Loan under these circumstances;
k. Any reduction, discharge or cancellation of principal may result in tax liabilities of the borrower to the Internal Revenue Service and state taxing authorities;
l. A statement notifying the Borrower that, if the Borrower desires, the Borrower at any time may make payments larger than the Re-Amortization Payment Amount, which if the loan is current would result in a shorter payoff period and interest savings; and
m. A statement notifying Borrowers on forbearance plans of their alternative payment options as set forth in paragraph 36.
n. A statement notifying Borrowers that the relief described does not waive or extinguish any rights, claims or defenses that the Borrower, any co-borrower and/or guarantor may have with respect to his or her loan.
38. A proposed form of the notices required by paragraph 34 and 35 shall be provided to the Enforcement Director for his non-objection within 30 days of the Effective Date.
39. Defendants, or the Receiver on behalf of Defendants, shall include no materials other than the notices provided in paragraphs 34 and 35 in any envelope containing such notices, unless Defendants, or the Receiver on behalf of Defendants, have obtained written confirmation from the Enforcement Director that the Bureau does not object to the inclusion of such materials.

C. REPORTING REQUIREMENTS

IT IS FURTHER ORDERED that:
40. Defendants, or during the pendency of the Receivership Receiver on behalf of Defendants, shall notify the Bureau of any development that may affect their obligations arising under this Order, including, but not limited to, the replacement of the Receiver or the filing of any bankruptcy or insolvency proceeding by or against Defendants. Defendants, or the Receiver on behalf of Defendants, must provide this notice at least 30 days before the development or as soon as practicable after learning about the development, whichever is sooner.
41. Within 180 days of the Effective Date, and again one year after the Effective Date, Defendants, or the Receiver on behalf of Defendants, must submit to the Enforcement Director an accurate written compliance progress report, which, at a minimum:
a. Describes in detail the manner and form in which Defendants, or the Receiver on behalf of Defendants, as applicable, have complied with this Order; and
b. Attaches a copy of each Order Acknowledgment obtained under Section D, unless previously submitted to the Bureau.
42. Defendants, or the Receiver on behalf of Defendants, in carrying out the provisions of this Order, are permitted to make such adjustments to loan balance amounts, accrual of interest and Borrower payment amounts and process refunds to Borrowers (including providing Borrower refunds or reimbursements not expressly required by this Order) as may be necessary to assure compliance with this Order, but in any event in a manner that is fair and transparent to Borrowers subject to such adjustments and in a manner that is otherwise in compliance with this Order.

D. ORDER DISTRIBUTION AND ACKNOWLEDGEMENT

IT IS FURTHER ORDERED that:
43. Within 15 days of the Effective Date, Defendants, or the Receiver on behalf of Defendants, must deliver a copy of this Order to each employee or agent of the Receiver who or which is, as of the Effective Date, employed or retained by the Receiver and who or which has responsibilities that extend beyond the Effective Date related to the subject matter of this Order.
44. Within 30 days of the Effective Date, the Receiver shall provide a signed and dated statement to the Bureau of the Receiver's compliance with paragraph 43, and shall provide a signed and dated statement from the servicer, or any other third-party service provider tasked with canying out responsibilities under this Order, acknowledging receipt of this Order, ensuring that any electronic signatures comply with the requirements of the E-SignAct, 15 U.S.C. §§ 7001 et. seq.

E. RECORDKEEPING

IT IS FURTHER ORDERED that:
45. Defendants, or the Receiver on behalf of Defendants, must maintain for 3 years from the Effective Date or the duration of the Receivership, whichever is lesser, all documents and records necessary to demonstrate full compliance with this Order, including all submissions to the Bureau.
46. Aequitas, or the Receiver onAequitas's behalf, must make the documents identified in paragraph 45 available to the Bureau upon the Bureau's request.

F. NOTICES

IT IS FURTHER ORDERED that:
47. Unless otherwise directed in writing by the Bureau, Defendants, or the Receiver on behalf of Defendants, must provide all submissions, requests, communications, or other documents relating to this Order in writing, with the subject line CFPB v. Aequitas Management, LLC, 17-cv-1278 (D. Or.) and send them either
a. By overnight courier (not the U.S. Postal Service), as follows:
Assistant Deputy Enforcement Director Consumer Financial Protection Bureau ATTENTION: Office of Enforcement 1700 G Street NW Washington, DC 20552; or
b. By first-class mail to the below address and contemporaneously by email to Enforcement_Compliance@cfpb.gov:
Assistant Deputy Enforcement Director ATTENTION: Office of Enforcement 1700 G Street NW Washington, DC 20552

G. COOPERATION WITH THE BUREAU

IT IS FURTHER ORDERED that:
48. Defendants, or during the pendency of the Receivership the Receiver on behalf of Defendants, will cooperate fully with the Bureau as necessary to achieve the goals and carry out the requirements of this Order.
49. Defendants, or during the pendency of the Receivership the Receiver on behalf of Defendants, will cooperate fully to help the Bureau determine the identity and the location of, and the relief provided pursuant to this Order for each Affected Consumer, from the information within Defendants' or the Receiver's possession and control or a servicer's system of record.

H. MODIFICATIONS TO NON-MATERIAL REQUIREMENTS

IT IS FURTHER ORDERED that:
50. Notwithstanding the provisions of paragraph 53 (section K), any time limits for performance fixed by this Order may be extended by mutual written agreement of the parties (or, as applicable, the Receiver) and without further Court approval. Additionally, details related to the administration of Sections C through G of this Order may be modified by written agreement of the parties (or, as applicable, the Receiver) and without further Court approval. Any other modifications to this Order may be made only upon approval of the Court, upon motion by any party.

I. RELEASE

IT IS FURTHER ORDERED that:
51. The Bureau releases and discharges Defendants from all potential liability for law violations that the Bureau has or might have asserted based on the practices described in the Complaint, to the extent such practices occurred before the Effective Date and the Bureau knows about them as of the Effective Date. The Bureau may use the practices described in this Order in future enforcement actions against Defendants, including, without limitation, to establish a pattern or practice of violations or the continuation of a pattern or practice of violations or to calculate the amount of any penalty. This release does not preclude or affect any right of the Bureau to determine and ensure compliance with the Order, or to seek penalties for any violations of the Order.

J. LIMITATION OF LIABILITY UNDER RECEIVERSHIP ORDER

IT IS FURTHER ORDERED that:
52. Notwithstanding any other terms, conditions or provisions of this Order, pursuant to the Receivership Order, the Receiver and the Retained Personnel are entitled to rely on all outstanding rules of law and the orders of the Receivership Court and shall not be liable to any person or party (including, without limitation, the Bureau) for their own good faith compliance with this Order. Pursuant to the Receivership Order, in no event shall the Receiver or Retained Personnel be liable to any person or party (including, without limitation, the Bureau) for their good faith compliance with their duties and responsibilities as Receiver or Retained Personnel, nor shall the Receiver or Retained Personnel be liable to anyone for any actions taken or omitted by them except upon a finding by the Receivership Court that they acted or failed to act as a result of malfeasance, bad faith, gross negligence, or in reckless disregard of their duties.

K. RETENTION OF JURISDICTION

IT IS FURTHER ORDERED that:
53. This Court retains jurisdiction of this matter for purposes of construction, modification, and enforcement of this Order.
IT IS SO ORDERED.

Schedule 1

Schedule 2

Tuesday, August 22, 2017

CFPB: Surge in student debt load

CFPB PRESS RELEASE FROM AUGUST 16, 2017 (RE-POST) 


CONSUMER FINANCIAL PROTECTION BUREAU FINDS PERCENTAGE OF BORROWERS WITH $20K IN STUDENT DEBT DOUBLED OVER LAST DECADE


Record Student Debt Spurring Employers to Offer Student Loan Repayment Benefits
Washington, D.C. – Today, the Consumer Financial Protection Bureau released a new data point finding that nearly half of student loan borrowers leave school owing at least $20,000 – double the share of borrowers a decade ago. The Bureau also found that more borrowers are taking out student loans later in life, and fewer borrowers are paying down their student debt in five years. Record student debt and associated borrower stress is spurring more employers to offer student loan repayment benefits to their employees, according to a separate CFPB report released today. This report features a series of recommendations to help employers and other companies that manage benefits programs ensure that borrowers receive the maximum value. 
“The Bureau’s research shows that people are taking on more student debt later in life, and having a tougher time paying it back,” said CFPB Director Richard Cordray. “Many employers have taken notice and are developing student loan repayment programs to assist employees in tackling their student debt. Our recommendations are aimed at helping employers ensure these innovative programs deliver their intended benefits." 
Student loans are used to pay for college, trade school, or graduate education. The loans can be funded by the federal government, or privately through banks and other lenders. The student loan market has grown rapidly in the last decade, with about 44 million Americans currently owing money. The combined total of outstanding federal and private student loan debt now exceeds $1.4 trillion – the vast majority of which are federal loans. Student loans are usually “serviced” by third parties. These servicers are a critical link between borrowers and lenders. They manage borrowers’ accounts, process monthly payments, and communicate directly with borrowers. 
Borrowers Taking on More DebtBased on an analysis of over one million anonymized student loan borrowers’ credit reports, the Bureau looked at groups of borrowers who began repaying loans from 2002 to 2014. The Bureau analyzed each group’s repayment experience through 2016. Through this analysis, the Bureau identified key changes in the way consumers borrow and repay student debt. Specifically, the Bureau found: 
  • More than 40 percent of student loan borrowers leave school owing $20,000 or more: The study finds that the percentage of borrowers owing $20,000 or more at the start of repayment has more than doubled since 2002, from 20 percent to more than 40 percent. The percentage of borrowers owing $50,000 or more has seen even more rapid growth, tripling over this same period from 5 percent to 16 percent. 
  • Half of student loan borrowers are older than 34 when they start repayment: Since 2003, the percentage of borrowers starting repayment over the age of 34 has doubled, increasing from 25 percent to nearly 50 percent. The study also found the percentage of consumers beginning repayment under the age of 25 has decreased from 30 percent to 15 percent. 
  • 30 percent of borrowers are not paying down their loan balances after five years in repayment: The percentage of borrowers who are not paying down their loan balances has nearly doubled, increasing from 16 percent in 2008 to 30 percent in 2016. This means that even if borrowers are making payments, those payments are not enough to cover the interest on their loans. Therefore, the amount of principal is the same and the overall amount of debt is the same or more, depending on how much interest has accrued. The percentage of borrowers whose debt has grown while in repayment has increased from 8 percent in 2008 to 12 percent in 2016. The share of borrowers who have fully repaid their loans five years into repayment has fallen nearly 20 percent over the last ten years from 50 percent to 41 percent 
  • More than 60 percent of borrowers not reducing their balances are delinquent: Income-driven repayment plans can allow borrowers to make small or zero-dollar payments and still remain current on their loans. These affordable payments may not decrease their loan balance but can help them avoid delinquency. Despite increases in the availability of these plans, 60 percent of borrowers who are not paying down their balances five years into repayment are delinquent on their loans. Among these borrowers, those with less than $20,000 in student loans are even more likely to be in poor standing, with 75 percent delinquent on at least one of their loans.  
  • More information on this key finding can be found in the Bureau’s explainer blog: https://www.consumerfinance.gov/about-us/blog/too-many-student-loan-borrowers-struggling-not-enough-benefiting-affordable-repayment-options/ 
This new report, titled “CFPB Data Point: Student Loan Repayment,” is available at: http://files.consumerfinance.gov/f/documents/201708_cfpb_data-point_student-loan-repayment.pdf   
Employers Offering Student Loan Repayment BenefitsIn response to historic levels of student loan debt and evidence that it can have a far-reaching impact on borrowers’ lives, employers and other actors such as state governments have sought new ways to assist in managing this debt. This assistance is typically offered as an employee benefit where payments are sent directly to borrowers’ student loan servicers. Borrowers may use the employer contributions to prepay principal on their student loans or to replace all or a portion of their monthly student loan payment. Because student loan borrowers typically have multiple loans, each with different loan terms and repayment schedules, employers often outsource the administration of these benefits programs to third parties. These companies are often fintech or technology-platform companies that issue third-party payments to student loan servicers. 
Today’s report highlights the increased interest in these programs as a positive development for consumers in a marketplace grappling with record debt levels. The Bureau highlights issues identified by student loan borrowers, as well as feedback from a range of private and public-sector entities including employers providing student loan repayment benefits to borrowers. Highlights of the report include: 
  • Growing number of employers offer repayment assistance to employees with student debt: Recognizing that student debt can have a domino effect on consumers’ financial lives, separate industry and media reports suggest increased interest among both large and small employers in helping employees pay down student debt. One industry survey shows that nearly one-in-10 employers with over 40,000 employees offer a third-party repayment assistance program. These programs may be designed to support recruiting efforts, improve retention, or supplement wellness benefits, among other goals. 
  • Student loan repayment assistance can save some borrowers hundreds or thousands of dollars: Borrowers may save hundreds or thousands of dollars in interest payments over the life of a loan when employers prepay student debt. For example, with a 10-year, $30,000 loan at 6 percent interest, an employer paying $100 a month will save the borrower more than $11,000 over the life of the loan. Alternatively, borrowers may free up cash by using their benefits to replace all or a portion of their monthly student loan bill. However, today’s report also warns that many of the most vulnerable borrowers – for example, those in default – may not have access to benefits offered under a typical employer program. 
  • Servicing problems can create roadblocks to providing and improving student loan repayment benefits: Companies and other benefit providers caution that problems initiating, transmitting, and processing payments may hinder certain borrowers’ ability to maximize the benefits of repayment benefits.These roadblocks may deter consumer-friendly developments that could better support employees repaying student loans and may reduce the potential value of employer payments. These practices also may make it difficult for employer programs to coordinate with other federal student loan benefits that could increase the value of these programs.  
  • Employers and benefits administrators can tailor programs to better meet employees’ needs: Student loan borrowers’ circumstances vary widely, and repayment assistance programs do not have to be one-size-fits all. The Bureau notes that certain types of employers are uniquely situated to tailor repayment benefits to fit the specific needs of their employees. For instance, a nonprofit organization or government agency can better tailor its benefit programs to complement public service benefits that may be available to those repaying their federal loans under an income-driven repayment plan.  
This report features a series of recommendations to student loan servicers, policymakers, and administrators of student loan repayment programs. These recommendations are designed to address these concerns and promote future growth and innovation to assist consumers with student debt. 
This new report, titled “Innovation Highlights: Emerging Student Loan Repayment Assistance Programs,” is available at: http://files.consumerfinance.gov/f/documents/cfpb_innovation-highlights_emerging-student-loan-repayment-assistance-programs.pdf 
The CFPB provides a Repay Student Debt tool, which helps borrowers get unbiased tips on how to navigate student loan repayment, along with other sample letters they can send to their student loan servicers. More information is available at: consumerfinance.gov/students. 
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