A1 6 eZ re the washington post.saturday, april 4 , 2020
the coronavirus pandemic
BY DANIELLE
DOUGLAS-GABRIELJustin Snyder was trying to
settle into the new normal of
working from home, keeping at
bay fears of being furloughed and
falling behind on bills, when the
letter arrived last week.
A law firm was threatening to
sue him over a 20-year-old debt he
thought was discharged in bank-
ruptcy a decade ago. The attor-
neys, who represented Iowa Stu-
dent Loan Liquidity, c laimed Sny-
der was in default and owed the
nonprofit lender $18,400, more
than twice what he borrowed to
attend Central College in Iowa.
Synder was given 30 days to
arrange payment or face legal
action t hat could lead to his wages
being garnished, compounding
the financial instability brought
on by the coronavirus outbreak.
“I absolutely cannot fathom
how a company claiming to be
nonprofit... would stoop so low
as to try to threaten a lawsuit for
debt that is literally 20 years old
when there is a federally declared
financial and medical crisis,” s aid
Snyder, 39, a city planner in Burl-
ington, N.C.
As the coronavirus pandemic
wreaks havoc on the economy,
putting millions out of work and
pummeling global markets, the
federal government has moved to
help Americans t ry to survive the
economic unknown. Among the
most attention-getting moves: a
six-month moratorium on the col-
lection of defaulted student loans
by the federal government.
Even as Congress and the
Trump administration acted, it
was, and in some cases still is,
business as usual in the private
sector, with private education
lenders and creditors filing a flur-
ry of lawsuits throughout March
to recover past-due debts, accord-
ing to advocates and court re-
cords.
“It is appalling,” s aid Seth Frot-
man, executive director of the
Student Borrower Protection
Center, an advocacy group, “that
the private student loan industry
continued to threaten litigation
and file lawsuits against dis-
tressed borrowers in the midst of
a pandemic.”
Private lenders hold roughly
8 percent of the nearly $1.6 tril-
lion in outstanding student loan
debt, according to MeasureOne, a
firm that tracks the market. Those
loans are excluded from the relief
offered by the federal bailout bill,
including payment postpone-
ment and the suspension of col-
lections.
Unlike the federal government,
private companies don’t have the
power to seize tax refunds, wages
and Social Security benefits to
repay defaulted debt. They have
to file a lawsuit and get a court
judgment. If they’re successful,
lenders and creditors can garnish
a person’s wages or seize their
assets.
National Collegiate Student
Loan Trusts, one of the nation’s
largest holders of private educa-
tion debt, employs an army of
lawyers to aggressively recoup
past-due student loans. Through-
out March, a s covid- 19 ground the
national economy to a halt and as
advocates pressured lenders to
stand down, the group’s lawyers
filed dozens of cases against bor-
rowers in California, Maryland,
Illinois and New York.
After The Washington Post in-
quired about National C ollegiate’s
continued legal action, Trans -
world Systems, which oversees
debt collection for the trusts, said
that no new lawsuits will be filed
for at least two months. The com-
pany said it is pulling lawsuits in
the pipeline and will stop enter-
ing default judgments against
borrowers during that time.
Navient was taking legal action
against private student loan bor-
rowers in early March but has
since suspended all new lawsuits,
default judgments and wage gar-
nishment proceedings, a spokes-
man said. The company has yet to
determine an end date for the
suspensions.
Other companies contacted forAs Americans faced
layoffs, student loan
collectors kept going
this story also said they will stop
filing lawsuits during the pan-
demic. Overall, the pace of filings
has slowed this week, though
that’s in part because some courts
are restricting access.
Debt collectors have also faced
pressure from lawmakers and le-
gal-aid groups to cease court ac-
tion during the pandemic. The
industry has resisted. After Sen.
Sherrod Brown (D-Ohio) intro-
duced legislation to restrict col-
lection practices during the pan-
demic, debt collection trade
group ACA International railed
against the bill.
“We are deeply alarmed that
such an action would disrupt the
credit ecosystem and cause fur-
ther harm to consumers, lenders,
medical providers and other busi-
nesses” that rely on debt collec-
tors, Mark Neeb, chief executive
of ACA International, wrote to
Brown i n March.
In an interview, Neeb said his
industry already has programs in
place to help those who need it,
making legislation unnecessary.
Collectors work on behalf of cred-itors, who are willing to work with
customers during this time, he
said.
“The unemployment rate
might be around 7 or 8 percent
now, so that means 90 percent
aren’t unemployed,” Neeb said.
“To make a wave-of-the-hand
statement that an industry should
be shut d own because 8 percent of
the population would perhaps
have a difficult time meeting obli-
gations right now seems like too
much of an attempt to make a
wave-of-the-hand statement that
everybody is in dire financial
straights. Everybody is not in dire
financial straights.”
Last m onth, G reater Boston Le-
gal Services sent a letter to several
industry groups requesting a
moratorium on involuntary col-
lection and lawsuits. One trade
group, Receivables Management
Association International, issued
guidance to its members encour-
aging them to consider suspend-
ing interest or reducing the bal-
ance of debt for people facing
hardships. Another trade group,
National Creditors Bar Associa-tion, promised to raise the issue
with their board.
“Even as courts close, debt col-
lectors continue t o call vulnerable
community members and pres-
sure them to make payments on
debts of as little as $200,” said
Matthew Brooks, an attorney at
Greater Boston Legal Services.
Some cities and states have also
intervened to spare residents
from collection. New York state is
halting the collection of state-is-
sued student and medical debt,
and is no longer accepting court
filings that are not considered
essential, including student debt
cases.
For Justin Snyder, getting a
break took both advocates and the
government. Last week, the advo-
cacy group Student B orrower Pro-
tection Center raised concerns
about Iowa Student Loan, Sny-
der’s lender, which has filed at
least 18 lawsuits in the state since
the government there declared a
national emergency. The Iowa At-
torney General’s Office then con-
tacted the nonprofit lender. On
Wednesday, the lender said it will“cease filing new lawsuits” and
“retroactively dismiss any suits
filed after the declaration was
issued.”
That includes Snyder’s case.
While he is thankful for the re-
prieve, he said, it doesn’t lift the
burden of the debt.
He said he and his wife, a
physical therapist, are being c are-
ful with their spending in the
event they lose their jobs. A job
loss in 2009, followed by a diffi-
cult divorce and foreclosure, led
him to file bankruptcy.
He thought his private student
loans were discharged during
those proceedings and said they
no longer show up on his credit
report. Snyder said he is not con-
vinced the loans are still valid and
will fight a lawsuit, whenever the
nonprofit decides to sue again.
“My suspicion is that they will
come at borrowers more aggres-
sively once the pandemic clears,”
he said. “I hope they take the high
road and simply drop all cases,
but I am fearful this won’t be the
case.”
[email protected]Kevin Lamarque/reuters
Georgetown University, like most universities in the country, sits mostly empty during the coronavirus pandemic. Although the federal
government has issued a six-month moratorium on the collection of defaulted student loans, many private agencies continued filing suits.BY AARON GREGG
AND RENAE MERLEThe launch of a $349 billion
loan program that is key to the
government’s hopes of helping
the nation’s small businesses sur-
vive the economic downturn got
off to a rocky start Friday as the
big banks in charge of doling out
the money said they weren’t pre-
pared or were limiting applicants
to their closest customers.
Wells Fargo, Citigroup and
PNC said they were still review-
ing the program’s rules, which
were released by the Tr easury
Department and Small Business
Administration just hours before
the program’s launch. JPMorgan
Chase, the country’s largest bank,
didn’t begin accepting applica-
tions until 1 p.m., after initially
saying it wouldn’t be ready at all
Friday.
Bank of America w as one of the
few big banks that began taking
applications Friday morning,
earning the praise of President
Trump. “Great job being done by
@BankofAmerica and many
community banks throughout
the country. Small businesses ap-
preciate your work!,” Trump said
on Twitter.
But the Charlotte-based bank
faced backlash from some cus-
tomers for initially limiting its
application pool to businesses
with which it already had a lend-
ing relationship. “I have worked
hard not to have a lot of debt. I
feel like I am getting penalized,”
said Don Allensworth, whose
company, the NewGround
Group, has fewer than five em-
ployees. “We’re on the border
right now; there is no way to
know what the next 90 days will
hold, for my clients and for my
income.”
The emergency lending fund,
known as the Paycheck Protec-
tion Program, is a cornerstone of
the $2.2 trillion economic rescue
package Congress passed last
week. The Trump administration
rushed the program’s develop-
ment, promising small business-
es would receive loans the same
day they made their applications,
an unprecedentedly quick turn-
around for a government-backed
lending program. But the guide-
lines for the program were not
finalized until late Thursday
night.
The new loans “will bring im-
mediate economic relief and fi-
nancial certainty to millions of
small businesses & their employ-
ees,” SBA administrator Jovita
Carranza said via Twitter on Fri-
day afternoon.
Carranza and Treasury Secre-
tary Steven Mnuchin reported
nearly 13,00 0 applications had
been processed, adding up to
more than $2 billion in loans, by
Friday afternoon. The SBA did
not answers questions about how
much money had been disbursed.
“The system is up and run-
ning,” Mnuchin said in a tweet,
crediting community banks with
pushing hundreds of loans.
“Great work!!”
Paycheck Protection Program
loans are designed to be particu-
larly favorable to borrowers, with
ultralow interest rates, no pay-
ments for the first six months and
the opportunity to have the loan
completely forgiven if employees
can be kept on the payroll
throughout the crisis. And the
loans will apply to a broad swath
of the U.S. business community,
including sole proprietors and
independent contractors.
Reports that the program was
getting off to a rocky start frus-
trated some lawmakers.
Sen. Marco Rubio (R-Fla.) saidin a video posted on Twitter that
some big banks were putting
“crazy restrictions” on who could
apply for a loan.
“Please don’t be a bunch of
jerks. When you needed the coun-
try to help you they did,” he said,
referring the 2008 global finan-
cial crisis when banks took bil-
lions in taxpayer bailouts. “Now
the country needs you to help
them and we’re paying you to do
it, and it’s the government’s mon-
ey, it’s the taxpayers’ money.”
Banking industry officials
have warned that the abbreviated
review process the Trump admin-
istration set which allows bor-
rowers to attest to their own
eligibility without government
verification will make the pro-
gram a magnet for fraud. Al-
though the SBA will be able to
audit lenders and borrowers lat-
er, it will fall primarily to private
bankers to make decisions about
who should receive the taxpayer-
backed loans.
“This is an unprecedented ex-
pansion of SBA lending that will
take some time before it’s fully
functioning,” said Rob Nichols,
president of the American Bank-
ers Association.
The government is guarantee-
ing 100 percent of the loan’s
value, meaning banks are repaidby taxpayers if the business fails
to repay the loan. But community
banks are also concerned about
the loans’ low interest rate, which
was increased from 0.5 percent to
1 percent following complaints
from banking associations. The
law allows for a maximum inter-
est rate of 4 percent.
In a mark of the frenetic pace
with which federal agencies are
trying to get money out the door,
final regulations for the program
were not released until just hours
before the program was sched-
uled to begin.
The federal guidance release
addressed many of the industry’s
concerns. Banks aren’t required
to verify the accuracy of the
documents a borrower submits
with their application, removing
the risk that the lender could be
held legally liable for fraudulent
behavior.
Still, the industry warned it
would take time to fully imple-
ment.
“Having just received guidance
outlining how to implement a
$349 billion program literally
hours before it starts, we would
ask for everyone to be patient as
banks move heaven and earth to
get a system in place and running
to help America’s small business-
es and the millions of men andwomen who work at them,” Rich-
ard Hunt, president and CEO of
the Consumer Bankers Associa-
tion, said in a statement.
The program requires small
businesses to spend 75 percent of
their loan on keeping workers
employed to have the loan forgiv-
en. If not, the borrower may be
forced to repay the loan and may
not be eligible to have it forgiven.
That may limit the program’s
appeal to some small-business
owners
Small-business owners say
they are in limbo and can’t make
critical decisions until the pro-
gram is operational. Some worry
that the fund — which officials
say is first come, first served — is
not large enough and that they
might not get approved in time to
claim their share.
Some banks’ hesitation to
jump into the program is frus-
trating, said Phil Rodocker, a real
estate agent in Seattle who is
seeking a loan.
“We gave them tons of money
to bail them out back in 2008 ,
and now they won’t help us,”
Rodocker said. “They took the
money... but now 10 years later
the government is asking them to
help and they are basically throw-
ing the finger at us.”
Bank of America, one of the
few big banks to begin offering
loans Friday morning, said it was
moving quickly to meet loan re-
quests. By the end of the day, it
had received 85,000 applications
for $22 billion in loans.
The bank has focused on its
business customers with loans
first but will be expanding access
quickly, Dean Athanasia, the
head of Bank of America’s con-
sumer business, said in a note to
employees. “We will expand our
process soon,” Athanasia said.
Bank of the West, a small
community lender in Te xas, is
juggling applications from hun-
dreds of its own customers but
also received calls from more
than 300 small businesses with
accounts a t big lenders, including
Bank of America, that aren’t yet
accepting applications, said Cyn-
thia Blankenship, corporate pres-
ident of the bank.
“They need to step up and stop
hiding behind all of these excus-
es,” she said of the big banks.
“None of us are totally prepared
for this but we’re breaking ourback to get prepared.”
Redwood Credit Union in San-
ta Rosa, Calif., conducted a “con-
trolled” test of the emergency
lending system Friday with an
application from one customer.
“We got the approval right
away and funded” t he loan, said
Brett Martinez, the credit union’s
president and chief executive. “It
was a controlled environment,
we know the member very well.”
Other applicants will have to
wait until the SBA provides final-
ized loan documents before their
loans are funded, and that is not
likely until next week, Martinez
said. “Getting dollars out early
next week, we would see that as a
win,” he said.
SBA and Treasury Department
officials say their priority is to get
cash in the hands of struggling
small businesses and avoid the
normal seven-day review pro-
cess.
“There really has never been a
product like this in our history,
with not only the streamlined
nature but the fact that there is
very little underwriting required
in terms of personal guarantees,
no collateral, no requirement for
credit elsewhere,” said Steve
Bulger, an East Coast regional
SBA administrator. “We are going
to move forward as fast as we can
because we know the need right
now is to get the money out
there.”
Even after the emergency fund
launched, there was conflicting
information about basic issues
with the program, said Brock
Blake, chief executive of the Salt
Lake City-based financial tech-
nology company Lendio. Lendio
wants to offer loans through the
program but is still reviewing the
rules, he said.
“It will be a disaster out of the
gates, but at some point we will
plug the holes, fix the problems
and overcome all of these mis-
communications because we
have to,” Blake said. “Every day
that we don’t, someone is going
out of business or laying people
off.”
[email protected]
[email protected]Have a tip or story idea about the
federal government coronavirus
rescue package known as the
c ares act? send us an email:
[email protected]On first day of small-business loan program, banks try to keep up
Bruce Bennett/agence France-Presse/getty images
Some banks said they were still reviewing the $349 billion federal bailout program’s rules, which the
Treasury Department and Small Business Administration released hours before its launch Friday.