Module 11- Consumer Protection Laws

Bankruptcy for student loan options

-Filing for Chapter 13 allows those loans to be restructured over a 3-5 year period with student loan payments dictated by the court. These court-approved payments may be far more manageable than what your clients are liable for under the terms of their original loan agreement. -Filing for Chapter 13 also prevents lenders from coming after your clients for more money, and from having their wages garnished-a consequence they might face if they fall behind on payments and do not have the protections afforded by a bankruptcy filing. -Clients who qualify for Chapter 7 must prove that they do not have the ability to pay back their student loans. The Brunner Test is used to measure the hardship involved in repaying student debt. Under this test, student debt may be eliminated if it can be proved that: o You'd have no means of maintaining a basic or reasonable standard of living if you were to be compelled to make loan payments o The hardship involved in repaying your loans will last for the bulk of your loans' repayment period/your financial situation is unlikely to change for the bulk of your repayment period o You've made a reasonable effort to repay your loans already

Consumer Financial Protection Bureau

-The purpose of the CFPB is to create a single point of accountability in the federal government for consumer financial protection. The CFPB's responsibilities include educating consumers, enforcing federal financial laws and conducting research that benefits consumers -· The CFPB ensures that prices and risks in financial products are transparent, that products can easily be compared, that consumers have the information they need to understand the terms of financial agreements, and that unfair practices by providers are abolished. -The CFPB makes and enforces federal consumer financial protection laws. The CFPB also supervises banks, credit unions and other financial institutions. They strive to make regulations clear and streamlined so that providers of financial products and services are able to follow them. They investigate consumer complaints and inquiries, and monitor financial markets for new risks to consumers. Furthermore, they enforce laws that outlaw discrimination and other unfair treatment in consumer finance..

The Gramm-Leach Bliley Financial Modernization Act of 1999

-contains provisions that safeguard the privacy of consumer information held by financial institutions. These provisions protect an individual's personal financial information by placing restrictions on when firms can disclose this information to others. -The GLB Act requires that financial institutions send privacy notices to consumers that explain their information-sharing practices, and which give individuals an opportunity to "opt-out" or decline to have some of their personal information shared with third parties. -Financial institutions are defined under the GLB Act as companies that are significantly engaged in financial activities, such as banks, insurance companies, and brokerage firms. This list also includes companies that offer financial services such as lending and loan services, financial planning advice, tax preparation, residential real estate appraisal and settlement services, consumer debt counseling and debt collection services to name a few.

Fair Credit Reporting Act (FCRA) 1971

-you have the right to view your credit report -over half of credit reports contain, misleading, or obsolete material. -FCRA also requires that employers get written permission from current or prospective employees before reviewing their credit files. -allows consumers to sue creditors if reporting errors are not corrected -If the credit bureau investigates and determines that the information in your report is accurate, you have the right to have in your file a statement presenting your view of the issue. -limits the length of time damaging information can remain in your file. Bankruptcy information can remain in your file for only ten years, and other negative information must be removed from your file after seven years. -limits access to your credit file to those who have a legitimate right to view it, such as a financial institution considering extending you credit, an employer, creditors, life insurance underwriters, or a company doing business with you (any others need court order) -You also have the right to know who has seen your credit report and should contact a credit bureau agency to obtain this information.

Warning Signs of Bankruptcy

No ownership of health insurance, Home equity loans are used to pay routine bills, Credit cards are maxed out to their credit limits, Only minimum balances are paid on credit card bills every month, Student loans are outstanding, No emergency funds are available

Chapter 7 Bankruptcy

The forfeiture of an individual's assets in exchange for the discharge of debts. -Chapter 7 is considered a liquidation type of bankruptcy procedure. Chapter 7 eliminates a consumer's debt by having a trustee sell some of the debtor's personal property to repay their creditors. -In reality, many debtors do not own any assets beyond what the law allows them to keep, so assets cannot actually be sold to repay their debt. Debtors in this situation should choose to file Chapter 7 rather than Chapter 13 since they would not lose any of their property to a forced sale of their assets

Chapter 13 Bankruptcy

a reorganization form of bankruptcy for individuals that allows the debtors to keep their property and use their income to pay a portion of their debts over three to five years -A Chapter 13 bankruptcy may make sense when debtors earn a good income but are struggling to pay their immediate creditors. Chapter 13 allows debtors to keep all of their personal assets, but they are obligated to repay their debt in full, over a period of time. Homeowners may choose the Chapter 13 bankruptcy option because it protects their homes from repossession as long as they continue to meet their repayment obligations. Any secured property that was bought within a year of filing must be fully repaid, including cars bought for personal use within the past 2½ years.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

affects the use of traditional creditor protectors such as state homestead acts, trusts, IRAs, pensions, 529 savings accounts, and Coverdell Education Savings Accounts (ESAs). Financial planners need to become familiar with this law to advise their clients on ways to protect their financial assets, and provide them with guidance on potential bankruptcy issues. o All types of qualified retirement accounts are considered to be exempt assets in federal and state bankruptcy proceedings. These retirement accounts include 401(k)s, 403(b)s, 457 plans, defined benefit plans, profit-sharing and money purchase plans, SEP and SIMPLE IRAs. Bankruptcy protection also extends to rollovers from qualified retirement plans, so that qualified plan assets no longer need to stay within the company's plan to obtain protection. Non-qualified annuities do not fall under federal creditor protections, but may still be protected by state law. o For Roth IRAs and traditional IRA accounts, bankruptcy protection is limited to an aggregate IRA account value of $1,362,800, which is adjusted every three years for inflation. The next adjustment is in 2022. However, this cap does not apply to IRA rollovers from any qualified employer retirement plans, so the exemption remains unlimited for that IRA. The exemption cap of $1,362,800 only applies to rollovers from one Roth or traditional IRA account to another Roth or traditional IRA account, not to SEP or SIMPLE IRAs. Consequently, SEP or SIMPLE IRAs should not be rolled over into traditional or Roth IRA accounts or they will lose their unlimited creditor protection. Financial planners should advise clients to keep good records when rolling over accounts for tracking purposes. Presently, there is no guidance from the IRC regarding how the cap is applied to IRAs funded with both rollover and regular contributions. Also note that a loan taken from a retirement plan is not considered a bankruptcy debt and payments withheld from an employee's wages to repay the loan is not stayed by the filing of bankruptcy. -The bankruptcy law provides additional protection for assets held in 529 college savings accounts and Coverdell ESAs that were contributed more than two years before a bankruptcy filing. Account assets are excluded from the bankruptcy estate if the beneficiary is the debtor's child, step-child, grandchild or step-grandchild, and if the assets did not exceed any amounts allowed to be contributed per beneficiary. Contributions made from one year to two years ago for these beneficiaries are only protected up to $6,425 per beneficiary. There are no protections for contributions made less than one year from a bankruptcy filing

Immediate benefit of filing for bankruptcy

an automatic stay is issued that stops creditors from attempting to collect what is owed them. Automatic stays also stop foreclosures, property repossessions, and sales of property while repayments are made. Automatic stays do not apply to alimony or child support payments or criminal suits.

Debts that cannot be discharged

child support alimony income taxes student loans condo or co-op fees court ordered damages **cannot file bankruptcy again for 8 years**

The homestead exemption

designed to protect the equity (value of your property less the balance of your mortgages or other liens on it) in the home that serves as your principal residence if you file for bankruptcy. If you file a Chapter 7 bankruptcy, how much equity you can protect with an exemption will be one of the determining factors in whether you will be able to keep your home. In a Chapter 13 bankruptcy, you won't lose your home, but you'll have to pay creditors an amount equal to the value of the property you can't protect with an exemption, or your disposable income, whichever is more.

Electric Fund Transfer Act (1978)

limits a bank customer's liability if a debit or ATM card is lost or stolen. -The loss is limited to $50 if the bank is notified within 2 business days -loss is limited to $500 if notified within 3- 59 days. -A customer is liable for unlimited losses if the lost card is not reported within 60 days.

Consumer vs. Customer in GLB act

o A consumer is an individual who has purchased a product or service from a financial company for their personal, family or household use. An example is someone who cashes a check with a check-cashing company. o A customer is an individual who establishes an on-going relationship with a financial company, who may also buy financial products or services as part of that relationship. An example is someone who is a client of a wealth management firm. -It is important to recognize who is a consumer and who is a customer, since only customers of financial institutions will receive privacy notices initially and annually. Consumers only receive privacy notices when the financial institution intends to disclose their non-public personal financial information to nonaffiliated third parties. Privacy notices must be written in a format that the individual can easily retain for their records. Notices may be hand delivered, sent by mail, or sent by email if the customer is afforded a way to acknowledge receipt of the notice.

Bankruptcy Closure

o Bankruptcy officially ends when assets are distributed to creditors under Chapter 7, and creditors are paid in full under Chapter 13. The debtor must also complete a personal financial management course from an approved credit counseling agency prior to receiving a discharge of his bankruptcy case. After that, the court closes the case and sends the debtor a copy of the order. -Credit reports will carry the bankruptcy information for up to 10 years.

Filing Requirements for Chapter 13 Bankruptcy

o Because there's no income limit, anyone who is able to pay down debt can file for a Chapter 13 bankruptcy. It doesn't matter where your income comes from, it could be from a pension, Social Security, or unemployment. You must disclose your income sources and submit it to the court within 14 days of filing for bankruptcy. You also need to show proof that you filed your state and federal taxes for the past four years otherwise your case can be delayed or even dismissed. o Debtors are eligible to file for Chapter 13 if their secured debt- mortgage or car loans, is less than $1,257,850 and their unsecured debt- credit card debt, is less than $419,275 for 2020. These amounts are adjusted for inflation every three years to reflect changes in the Consumer Price Index.

Non-exempt property interests that typically must be given up when filing for bankruptcy include:

o Cash, bank accounts, stocks, bonds and other investment property o Second homes or vacation homes o Second cars or trucks o Stamps, coins or other collections o Family heirlooms

Filing Requirements for Chapter 7 Bankruptcy

o Individuals who file for Chapter 7 must have their finances examined to determine if they are capable of repaying their creditors. The first step is to measure their current monthly income against their state's median income amounts. Current monthly income is averaged over the six month period prior to filing for bankruptcy. If income is less or equal to the state's median income limits, which can be found at: Bankruptcy Means Test Median Income by State - After November 1, 2019, then a person can file for Chapter 7. If income exceeds the median, then a "means test" must be applied. o The purpose of the means test is to determine whether there is enough disposable income available to repay at least a portion of unsecured debts over a five-year repayment period. Disposable income is determined by subtracting certain allowed expenses and required debt payments from current income. The higher the disposable income, the more likely that Chapter 7 will not apply, and debtors would need to file for Chapter 13 bankruptcy protection instead. o Most debts are discharged after 115 days from the date of filing for Chapter 7, but certain obligations must still be repaid. These include outstanding payments for child support, alimony, income taxes less than three years past due, student loans and secured debt. Debt that is secured by collateral such as home mortgages and car loans are expected to be repaid, and creditors can repossess the collateral property if necessary.

3 Major Privacy Requirements of GLB Act

o The Financial Privacy Rule - regulates how financial institutions may gather and subsequently disclose personal financial information to others. This rule also places restrictions on the use of information that companies receive from third parties, whether these companies are financial institutions or not. o The Safeguards Rule - requires financial institutions to create and implement procedures to protect the personal financial information they obtain from customers. This rule also applies to companies, such as credit bureaus, who receive this information directly from other financial institutions. o The Pretexting Provisions - protect individuals whose personal financial information has been obtained by others under false pretenses.

Consider filing for bankruptcy when:

o Total debt, not including home or car loans, exceed what could be repaid over five years or more. o Wages have been garnished or a bank account has been attached by creditors. o High medical bills are not covered by insurance. o Bill payments are more than 30 days behind on several outstanding bills. o Property has been repossessed. o Creditors have filed lawsuits. o Income taxes are owed. o Assets owned are not substantial.

Financial planners can give their clients sound advice on ways to protect their assets from potential creditor claims or exclude them from bankruptcy. They can recommend:

o obtaining umbrella policies and other insurance protection o maximizing retirement accounts o funding education accounts o re-titling personal and business property o transferring assets early on to avoid fraudulent transfers

Equal Credit Opportunity Act (1975)

prohibits credit discrimination by banks and credit card companies on the basis of sex and marital status. =It also requires lenders to provide a written statement explaining any adverse action taken. -amended in 1977. The amendment prohibits credit discrimination based on race, national origin, religion, age, or receipt of public assistance.

Fair Debt Collection Practices (1978)

prohibits unfair, abusive, and deceptive practices by debt collectors, and establishes procedures for debt collection. Credit card, auto loans, medical bills, student loans, mortgage and other household debts are covered under this act but business debts are not. Debt collectors must send a written "validation notice" within 5 days of contacting you which says how much you owe, the name of the creditor, and what to do if you dispute the debt. -They can only discuss your debt with you or your spouse, They cannot contact you before 8am or after 9pm unless you consent, They cannot misrepresent themselves, harass you, threaten violence or harm, use obscene language, or claim you will be arrested, They cannot call you at work if they are told not to, You may send a certified letter with a return receipt asking the debt collector to stop contacting you. The collector can only confirm that he or she will stop contacting you or tell you a specific action, such as a lawsuit, will be taken., If you are represented by an attorney, the debt collector must communicate with your attorney- not you.,Complaints about debt collection practices can be reported to the Federal Trade Commission

Fair Credit and Charge Card Disclosure (1988)

requires credit card companies to disclose information about the terms, fees, and interest rates that pertain to their credit cards.

Truth in Lending Act (1968)

requires lenders to disclose the true cost of consumer credit, explaining all charges, terms and conditions involved. · Consumers must be provided with the total finance charge & (APR) on the loan. · If credit life insurance is required for a loan, the cost of the insurance must be disclosed. · A 3-day right of rescission must be included in loans if borrower uses home for collateral. · Employers cannot garnish more than 25% of an employee's take home pay to repay debts. · A cardholder's maximum liability is limited to $50.00 for each lost or stolen credit card. · Installment credit contracts must be written in plain English so that consumers can understand the terms.

Fair Credit Billing Act (1975)

sets procedures for correcting billing errors on open credit accounts. It also allows consumers to withhold payment for defective goods purchased with a credit card. In addition, it sets limits on the time some information can be kept in your credit file.

A bankruptcy estate includes

· "all legal or equitable interest of the debtor in property." Property the debtor does not own outright, or that has been transferred to a spouse without fraudulent conveyance, is not part of the bankruptcy estate. Every state has passed exemption laws that allow debtors to keep certain property interests from creditors regardless of whether creditors are paid. Examples include: o A primary residence o Clothes o Household items, furnishings and appliances o Cars of limited value o Tools used in business o Jewelry, up to $1,000 o Pensions and qualified retirement assets o IRAs up to $1,000,000 (indexed for inflation) 2020 exempted amount: $1,362,800 o Life insurance o Public benefits such as Social Security, welfare and unemployment compensation accumulated in a bank account.

Privacy Notices

· Financial institutions are required to send privacy notices to their customers. The privacy notice explains the company's privacy policy by disclosing what non-public personal information is collected, how that information is protected, what specific information is disclosed to others, and which third parties will receive it. Some examples of non-public information include: · The fact that someone is a customer of a financial institution. · The customer's personally identifiable information such as their name, address, SSN, and account number. · Information the customer provides on an application. · Information from a "cookie" obtained by using a website. Public information about individuals is not afforded the same protection under the GLB Act and disclosure is not restricted.The test for determining what information is public is if a financial institution has a reasonable basis to believe that the information is widely available to the general public, such as in a telephone directory or on a website.The company is responsible for investigating whether the information is public knowledge or not, if it is not readily apparent

GLB Opt Out Rights

· The GLB Act provides customers and consumers with the opportunity to opt-out or prohibit the financial institution from disclosing certain non-public personal financial information · However, in certain situations, individuals have no control over the release of their personal information to third parties. Examples are when disclosures are required by law, or when financial institutions share information with other companies who provide essential services for them, such as data processing services. Customer data is also permitted to be shared with firms that market the financial institution's products and services.

An involuntary petition for bankruptcy can be filed by a creditor if

· the amount a debtor owes is $10,000 more than the value of the security the creditor holds, and regular payments have not been made. If the court approves the creditor's claim, then the debtor's non-exempt personal assets are sold by a trustee and distributed to the creditor to satisfy the claim. If several creditor claims have been approved, the trustee will prioritize the claims and ensure that all creditors receive equitable treatment. Once secured creditors are paid, there are nine classes of claims that must be paid in full before unsecured creditors are paid. Certain classes are protected from involuntary bankruptcy filings such as farmers, ranchers, non-profit organizations, credit unions, savings and loan associations and banking corporations.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

· went into effect on October 17, 2005. This law changed key provisions in previous bankruptcy laws, by making it more difficult for consumers to file for bankruptcy and receive a discharge from debts. The law also limits debt relief for individuals, since more debt is expected to be repaid to creditors. In many cases, consumers must hire an attorney, pay administrative fees, and pay higher filing fees for Chapter 7 bankruptcy protection.