Is the new student loan bill a good deal?

In August, President Obama signed into law a bipartisan student loan bill. Without congressional action, interest rates on loans to college students were increasing from 3.4 percent to 6.8 percent. However, under the law signed by Obama, the interest rate for undergraduate loans will fall back to 3.86 percent. Graduate unsubsidized Stafford loans will be 5.41 percent  and Grad PLUS loans will be 6.41 percent. The bill ties interest rates on Stafford loans, as well as graduate and Parent Direct PLUS loans, to that of the 10-year Treasury note, which reflects the federal government's cost to borrow. The rates are determined as of June 1 each year and locked in for the life of the loan.

While the new bill reversed an interest rate hike on subsidized loans, experts are concerned about the long-term effect of the legislation.

On one hand, the new bill provides some stability in interest rates for subsidized loans. "Interest rates on subsidized federal loans for college won't double from last year and a long-term fix will be in place to avoid these annual political chess matches over the loan program", stated Peter McPherson, president of the Association of Public Land-grant Universities.

On the other hand, as the economy improves, the interest rates will rise. This is because market-based interest rates are not static. The bill passed in August caps how high the rates can go: 8.25 percent and 9.5 percent for subsidized and unsubsidized Stafford loans, respectively, and 10.5 percent for all PLUS loans. Those caps are higher than where rates were in July 2013. Students could face those high rates in just a few years.

In the grand scheme, however, interest rates are not a factor in student's decision to borrow. Rather, their eligibility for the loans themselves is what factors into their decision. The ultimate effect of the current legislation does not address over-borrowing and the ominous student debt crisis.

Source: Kelsey Sheehy, New Student Loan Deal Good, and Bad, for Borrowers, U.S. NEWS (August 5, 2013) http://www.usnews.com/education/best-colleges/paying-for-college/articles/2013/08/05/new-student-loan-deal-good-and-bad-for-borrowers.

Automaker's Lending Practices Investigated by the U.S. for Bias

The Consumer Financial Protection Bureau (CFPB) and the Department of Justice are examining the lending practices of major auto manufacturers for possible discrimination in lending, according to regulatory filings.

Toyota Motor Credit Corporation said in a September 13 regulatory filing that the CFPB and Department of Justice sought information from it and other auto finance providers about pricing practices for loans that the company funds for auto dealers.

Toyota could face legal action if the agencies find that it violated the Equal Credit Opportunity Act, a 1974 law barring discrimination in lending.

The CFPB and Department of Justice have sought data about a practice the agency refers to as "dealer markup" and auto dealers can "dealer participation" or "dealer-assisted finance." Under this system, lenders work indirectly by allowing dealers to add to the interest rate the lenders charge and pocket the difference.

The CFPB cautioned banks that they may face enforcement action if they fund discriminatory loans.

The CFPB applies a legal doctrine known as "disparate impact" to consumer financial products. The doctrine states that lenders can be sanctioned for actions that have a discriminatory effect, even where the lender did not intend to discriminate. To determine disparate impact, the CFPB has sought large amounts of data from lenders regarding borrowers' races and interest rates.

Source: Carter Dougherty, Automakers' Lending Practices Probed by U.S. for Bias, BLOOMBERG (September 20, 2013) http://www.bloomberg.com/news/print/2013-09-20/automakers-lending-practices-probed-by-u-s-for-bias.html.

The New College Exit Exam, "CLA+"

Many college seniors returning to class around the U.S. will be required to take a new standardized test, the Collegiate Learning Assessment Plus (CLA+). The goal of the test is to help compare the intellectual achievements of undergraduates from different schools.

Approximately 200 colleges and universities have signed up to give the CLA+ tests at the end of the current academic year. The test will measure analysis, problem solving, writing, quantitative reasoning and reading according to the Council for Aid to Education.

The student has the option of placing his or her corresponding score on their resume, which may demonstrate the ultimate value of their college education.

Douglas Bennett, a Council for Aid board member, said that the test showed promise.

Source: Daniel Lovering, Not enough to graduate college: Now there's an exit exam, NBC NEWS (August 26, 2013) http://www.nbcnews.com/business/not-enough-graduate-college-now-theres-exit-exam-8C11006596.

Third Circuit Rules that Consumers Can Revoke Express Consent Under the TCPA

Gager v. Dell Financial Services LLC, 3rd U.S. Circuit Court of Appeals, No. 12-2823

The 3rd Circuit handed down a ruling in favor of a Pennsylvania woman who was called 40 times by Dell after she sent Dell a letter requesting that its automated calls stop. She had originally filed papers in 2007 allowing the calls. Her letter asking that the calls stop was sent to Dell in 2010, but the calls continued. While the court ruled that Dell could still call her regarding her delinquent account, it would not be able to use its automated dialing system to do so.  The court found that the TCPA provides consumers with the right to revoke their prior express consent to be contacted on cellular phones by autodialing systems.

Source: Jonathan Stemple, Federal court: Consumers can prevent robocalls, NBC NEWS (August 22, 2013) http://www.nbcnews.com/business/federal-court-consumers-can-prevent-robocalls-6C10981035.  

San Bernardino to have bankruptcy "outline" by October 15

San Bernardino officials committed in bankruptcy court have an "outline" to aid in mediations with creditors by October 15. Paul Glassman, the city's bankruptcy attorney, said that "the council is fully supportive of whatever date the court sets" and that the "city got the message, so they're fully on board."

The goal of the mediation is to streamline the city's bankruptcy so that it can quickly put together a reorganization plan.

A status conference for the parties in bankruptcy was scheduled on October 2.

Source: Ryan Hagen, San Barnardino commits to bankruptcy plan 'outline' for mediation, THE SUN (Sept. 4, 2013), http://www.sbsun.com/government-and-politics/20130904/san-bernardino-commits-to-bankruptcy-plan-outline-for-mediation.