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Eliminate the "legal" loansharking

Printed From: CanadaStudentDebt.ca
Category: What Needs to Change?
Forum Name: Suggestions for Improvements for Student Loan Programs
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URL: https://www.canadastudentdebt.ca/forum_posts.asp?TID=4545
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Topic: Eliminate the "legal" loansharking
Posted By: Inexplicable
Subject: Eliminate the "legal" loansharking
Date Posted: 02/November/2007 at 3:17pm
Here's something that I haven't seen addressed on the posts that I have read, that is the premise that the government is offsetting losses in other departments (i.e. Via Rail) by loansharking on the CSL.
 
Take my situation as an example. When I graduated in 1991, I had about $11,000 in debt owed under the CSL program. Today, that debt is just shy of $26,000 despite the fact that I have made (albiet "involuntary) payments via garnished income tax refunds of almost $9,000 since then.
 
What many people may not realize is that while the loan was in default since early 1992, and a judgement was issued around 1995, interest continued to accrue at 12% annually on the outstanding debt.
 
If I went to a bank today, got a loan for $11,000, and later defaulted on the loan, interest would stop accruing at that point. If not, I would have the remedy of employing a credit counselling service who would be able to get a stop on interest accumulation.
 
Further, if I had defaulted, and was unable to pay, I would have the further remedy of bankruptcy to eliminate the debt. But the government has the right to continue to accrue interest AND pursue collection of the debt in perpetuity, even after my death, attaching the debt to my estate.
 
What other financial institution has this power? What a money-making scheme, eh? If I began making payments now, at say $300 per month, and they continue to garnish my tax returns, it will take almost ten years to pay off this debt, and in that time I will have paid about $80,000 for an $11,000 loan.
 
Is it just me, or is there something morally reprehensible with this picture?
 
M



Replies:
Posted By: Bateman
Date Posted: 09/November/2007 at 6:26am
The difference is if I went to a bank for a loan they would have the right to refuse me the loan. Student loans are pretty much guaranteed so I see nothing wrong with them having different conditions that make default harder.
 


Posted By: Ottawa Gal
Date Posted: 10/November/2007 at 7:15am
ui do not believe the government can collect once you are dead......in fact i read that in one of the enabling bits of legislation........but they can collect if you get money from other estates - that was my reading of it anyways

 bateman........have you checked into this? 


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Ottawa Gal!


Posted By: Bateman
Date Posted: 10/November/2007 at 7:45am

These type of topics would normally not come up in law school.

Off the top of my head I do believe they could make a claim on your estate but then your estate would claim an absolute defence of statue barred. Assuming you did not die 6 years since last acknowledging the debt. If the estate did not file the defence then a judgement would be files against your estate and they would get their money.
 
If someone lives in a province that has no SOL then that part of the loan would have a claim against your estate.
 
But that is off the top of my head. This is not an area of law I feel comfortable speaking on. If I knew all the answers I wouldn't have come on this site looking for some clarifications.


Posted By: SolveStudentDebt
Date Posted: 10/November/2007 at 7:49am
As far as the Canada Student Loans Program goes - they do not collect form the deceased.

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Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

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Posted By: Ferren
Date Posted: 10/November/2007 at 11:49am
That's likely just an oversight on their part.


Posted By: Ferren
Date Posted: 10/November/2007 at 12:21pm
Actually, interest does not stop accruing on a loan from a bank after default. If you stop paying or refuse to pay it usually goes to a collection agency where interest continues to compound. Why should a bank waive the repayment of the interest?
 
I also haven't heard that Canadian Student loans were being charged interest rates that were much higher than other unsecured retail loans. It was my understanding that the maximum interest rates that can be charged on a CSL is P+5% fixed or P+2.5% floating. 


Posted By: SolveStudentDebt
Date Posted: 10/November/2007 at 12:55pm
Does not compound on student loans. Collectors tell people it compounds as a tactic to create that urgency. Collectors use interest acrual as a collection tool. For government loans and associated directives, this is a breech and will be punishd if caught doing it.
 
Johnny


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Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

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Posted By: Inexplicable
Date Posted: 11/November/2007 at 4:13pm
Well, I suppose a lot has changed in 16 years. When I negotiated my CSL in 1988, that (or something close to it) was the posted rate for the loan. I suppose at that time, 12% would have been p+5.
 
Also, I suppose the banks have tightened up also, as I recall when I worked as a loans officer for one of the big 3 in the 1990's, that is how the loans in default operated, at least from the banks point of view. Perhaps the collection agencies continue to accrue interest on the loan to increase their potential payout.
 
Why would the banks forfeit interest? It's simple economics: if you default, there is a good chance that not only are they not going to get their interest, but they are not going to get all of the principal. Aslo, loaning money is simply a business transaction to the bank. They do it to make money. If the loan becomes untenable, if it is no longer profitable, they want to divest it and move on. This is not life and death to them, it is just a business transaction. If the cost of collecting the debt exceeds what they are likely to get, they write it off and move on. At least they can expense it against other revenues.
 
M


Posted By: Inexplicable
Date Posted: 11/November/2007 at 4:17pm

Johnny,

 

I'm not sure if I misunderstood your reply there, but based on my understanding, I beg to differ on your comment about it not compounding. As I stated earlier, and in my email to you last week, my original loan was about $11,000. I receive monthly statements from the government showing what I owe. The amount is currently just shy of $26,000 despite about $9,000 in payments.

Explain to me how it got there without compounding? Could simple interest have caused it to get that big that quickly?

M



Posted By: Bateman
Date Posted: 12/November/2007 at 12:31am

For a loan $11,000 loan at 12% to go to $26,000 in 10 years despite $9,000 in payments requires compounded interest.

Even with compound interest the numbers don't make sense. Had you made no payments the amount owing would be $34,150. Subtract the $9000 you paid and the amount outstanding is $25,150.
 
Now knowing when the $9000 was paid makes it impossible to come up with an exact number. If it was paid yesterday then the $25k is correct. If it was paid in 1999 then the outstanding balance would be closer to $7k. If the $9k was paid any any significant time in the past then the $26k outstanding balance is too high even with compound interest.
 
You might want to confirm that all payments were actually credited to your account.


Posted By: Bateman
Date Posted: 12/November/2007 at 12:32am
Now = Not


Posted By: SolveStudentDebt
Date Posted: 12/November/2007 at 2:45am
Contact the Canada Student Loans Program and read the CSLFA. It is all written up in there ragarding the manner in which interest is accrued.
 
Johnny


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Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

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Posted By: Ottawa Gal
Date Posted: 12/November/2007 at 9:21am
i bet even a regular accountant wouldn't be able to figure out how the interest is calculated unless s/he made it his/her life's passion (or got paid serious dollars to get motivated)




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Ottawa Gal!


Posted By: SolveStudentDebt
Date Posted: 12/November/2007 at 1:02pm
I have business relationships with three accountants who are very able to understand this sort of arithmetic. Two of them are basic and one is a forensic.

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Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

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Posted By: Bateman
Date Posted: 12/November/2007 at 10:23pm
Please ignore my previous post. I was under the impression that Inexplicable had defaulted in 1998. I now re-read his post and realized it was in 1988.
 
Over 20 years (not the 10 as I previously though) an $11,000 loan would easily add up to $37k-9K=$28k with no compounding. In fact if it had been compounding the loan would now have a balance over $100k
 
Quote   bet even a regular accountant wouldn't be able to figure out how the interest is calculated unless s/he made it his/her life's passion (or got paid serious dollars to get motivated)
 
I'm pretty sure anyone with a simple calculator and high school math could figure it out. Especially now that it is clear the interest is not compounded.
 
The only reason I was confused before was because the loans are so old. I never even registered the 88 but just read 98. The only reason I even noticed was that he said 16 years. I thought it was baffling that I have loans from 10 years ago but to have loans from almost 20 years is even more unbelievable.




Posted By: SolveStudentDebt
Date Posted: 13/November/2007 at 7:28am
It is important to remember that collectors tell people the darndest things. They say things that tweak a certain stimuli in order to get that motivated and fearful response. Interest accrual, legal action, and exposure are the three top "psycho-tenderizing"  tools they use. Collectors will say that interest compaounds but it doesn't - and a lot of borrowers do not really know for sure. Collectors will also threaten exposure, such as calling and disclosing to employers, family, friends, and creditors. These thing cause panic in the minds and hearts of student loan borrowers.
 
 


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Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

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Posted By: SolveStudentDebt
Date Posted: 13/November/2007 at 7:32am
The threat of legal action is more saleable because thatis something that carries the element of truth and real consequence in the event they are able to do it. It is also important to remember that collectors have to sell out to their clients to get that mighty permission to sue, and in many cases, collectors lie to their clients by making the debtor out to be "combative" and unwilling to repay", regardless of the fact that the debtors are offering payments - and the collectors are simply refusing. Collectors have WAY TOO MUCH power, which can easily be abused. Here is where some of the legal energies should be aimed at. From a cultural perspective, the third-party debt collection industry is in most part biased and stereotypical towards people who owe money. From a behavioral analysis perspective, the debt collection industry behaves in most part like hyperactive children with little to no patience - and nothing seems to pacify them.
 
 
 


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Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

http://www.solvestudentdebt.com" rel="nofollow - solvestudentdebt.com


Posted By: Bateman
Date Posted: 13/November/2007 at 8:00am
My understanding is that in the States it is possible to extract money out of collection agencies for engaging in this type of behaviour. Is there anything similar for Canadians?
 
I had someone staying with me a while back who was in heavy debt. Collectors eventually found him and somehow got my number. Despite making it clear I was not the person they were looking for they revealed information to me that I felt was of a private nature. 
 
They also told me to tell him that they had confirmed his employment which was an obvious bluff as he had been unemployed for the last 4 years. There has to be some protection against this kind of behaviour.


Posted By: SolveStudentDebt
Date Posted: 13/November/2007 at 8:15am
In the states the FDCPA is rather strict, but many of the day to day breeches often go unaddressed from what I am told. Serious complaints are the ones that are treated and enforced upon. A collector having a bad day is not really addressed as agressively. In Canada, you have collection agencies' acts, which are provincially fueled and driven. The USA has a Federal statute, which certainly has much sharper teeth.
 
Here is something that you might want to look at:
 
http://www.cbc.ca/canada/british-columbia/story/2007/04/24/bc-debt.html - http://www.cbc.ca/canada/british-columbia/story/2007/04/24/bc-debt.html


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Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

http://www.solvestudentdebt.com" rel="nofollow - solvestudentdebt.com


Posted By: SolveStudentDebt
Date Posted: 13/November/2007 at 8:22am
Here is something to think about:
 
If it is against the rules to place excessive and unnecessary pressure on a debtor, how is it that legal action is allowed? If a financially enabled person is flatly refusing to pay a debt, and is frustrating the system, then the action would be reasonable, yes? However, people are being sued who "appear or are made to appear" financially able when they are really not. as a result, the collection agencies will sue because they know that people FEAR LEGAL ACTION, and the associated consequences and encumberances.
 
So, who should be held accountable for something like this? The collection agency, their client, or both?
 
 
 
  


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Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

http://www.solvestudentdebt.com" rel="nofollow - solvestudentdebt.com


Posted By: Bateman
Date Posted: 13/November/2007 at 9:25am
Quote So, who should be held accountable for something like this? The collection agency, their client, or both?
 
It depends on the nature of the collection agency's relationship with the client.
 
If collection agencies accept delinquent accounts on contingency and collect a commission fee for each loan collected then it would be both.
 
If delinquent accounts are sold to collection agencies at a discount and then they get to keep everything they collect then it would be just the agency.
 
Quote If it is against the rules to place excessive and unnecessary pressure on a debtor, how is it that legal action is allowed?
 
Because no court is ever going to find that legal action is unnecessary pressure. If something is specifically allowed by legislation then the judiciary is not going to over rule that.
 
Quote If a financially enabled person is flatly refusing to pay a debt, and is frustrating the system, then the action would be reasonable, yes?
 
Given my current situation I'm going to pass on this one.
 
Quote However, people are being sued who "appear or are made to appear" financially able when they are really not. as a result, the collection agencies will sue because they know that people FEAR LEGAL ACTION, and the associated consequences and encumberances.
 
I know collection agencies threaten legal action a lot but do they actually follow though on the threat? I was under the impression most of the time it was a bluff.
 
Taking legal action against someone who really can't pay is fairly counterproductive.  Getting a judgement is one thing but when it comes to the enforcement of that judgement if there is nothing there then they get anything.
 
I'm trying to figure out what the motivations would be to take this route. Maybe they think if they scare people enough they will do something desperate to get the funds. But they would only need to put on a convincing bluff for that to work. I guess if the collection agency wanted to be purely punitive then that would make sense but that is the only reason I can think of. That is kind of disturbing.


Posted By: SolveStudentDebt
Date Posted: 13/November/2007 at 10:40am
The motivations are described up in my previous post. Collection agencies threaten legal action, and there are certain agencies that I am aware of that follow through with it more than their competition does. Bottom line, people are being sued by collection agencies for the purpose of commission earning rather than serving the best interest of their client. Fact.
 


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Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

http://www.solvestudentdebt.com" rel="nofollow - solvestudentdebt.com


Posted By: Bateman
Date Posted: 13/November/2007 at 11:04am
So if I'm understanding you correctly a collection agency gets paid a commission on a judgement even if the judgement is never enforceable?
 
That is an awful policy. The only party who benefits is the collection agency. Both the lender and the borrower end up worse off.
 
My hope would be that these collection agencies would lose clients over time since they clearly are not acting in the client's best interest.


Posted By: SolveStudentDebt
Date Posted: 13/November/2007 at 12:32pm
They earn a commission on anything they have carriage of. Collection agencies are protected, Bateman. They are also embedded within the system.

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Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

http://www.solvestudentdebt.com" rel="nofollow - solvestudentdebt.com


Posted By: Ferren
Date Posted: 17/November/2007 at 11:09pm
Actually, compound interest is the norm in banking and financial systems. If you check out the National Student Loans Service Center (CanLearn) and test their student loan repayment calculator you will find that it is based on compound interest.  This is pretty straight forward stuff.
 
A $10,000 loan charged 12% simple interest over 5 years would have a total payback of $16,000. Very easy to calculate. Simple to calculate the payment too. Just divide by 5 for annual or 60 for monthly. This is why they call it "simple" I suppose.
 
The same loan being charged compound interest would have a total payback of $18,167 assuming no payments made over the 5 years. Not quite as easy to calculate but does explain the confusion that arises when one attempts to understand how the present balance of the loan was derived.
 
 


Posted By: SolveStudentDebt
Date Posted: 19/November/2007 at 2:33am
Interest is calculated on the principle amount  for a student loan, Ferren. Not the principle and amount of interest in arrears. If it were accruing interest on principle, and principle with interest to date, then it would be compounding. The daiy rate on a student loan of $10,000 does not suggest that it is a compounding rate.
 
 


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Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

http://www.solvestudentdebt.com" rel="nofollow - solvestudentdebt.com


Posted By: SolveStudentDebt
Date Posted: 19/November/2007 at 6:46am

FYI - When the principle descends, so does the amount of interest because the interest is calculated based on the principle outstanding. There is no compounding. What you are stating is something that can spread panic among the borrowing community, Ferren.

 



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Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

http://www.solvestudentdebt.com" rel="nofollow - solvestudentdebt.com


Posted By: administrator
Date Posted: 19/November/2007 at 6:54am
Ferren, compound interest is not the norm... perhaps if you do cash advances on credit cards... if you use the PMT function in excel and you'll see that the payments do not use compound interest. Johnny has appropriately commented on your post.

I think that even with simple interest, the 11.5 % is way too high!

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Administrator
Mark OMeara
Author of Let Go and Heal: Recovery from Emotional Pain
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Posted By: Ferren
Date Posted: 23/November/2007 at 6:39pm
Your right. I pulled out my old student loan statements and checked out the math. Interest is charged on principal only!
 
I still hold on to those statements and my settlement letter from the collection agency. It's been 5 years now and I am still affected by my experience. Even after I paid it off I had to go through a Revenue Canada reassesement of my income taxes to explain the large interest deduction I claimed. Of course it was legitimate but still rankles. It was a very long 6 year process. I emphathize with anyone who has had to endure the unpleasant experience of collection agencies, particularly with respect to student loans. I know what it's like not to be able to get a credit card, mortgage, personal loan or credit of any kind. hard to imagine in these times of easy credit. I remember the constant banter with tricky collectors using every trick up their sleeve to get an emotional response.
 
But the thing I remember the most and is always in the back of my mind when I hear similar stories, is that things will get better. That is almost a certainty if you are willing to believe it. The trick is to carry on with your life during the crises and not let it impede you as you live your life and grow as a person. If you can do that then you will be truly successful in life.


Posted By: msdieckman
Date Posted: 02/January/2008 at 2:45pm
Yes you are absolutely correct. All student loans offer to the Canadian Government a secured and steady income at the expense of the working poor. These tactics are no better than those of loan sharks. I believe that Canada has been on the road to anarchy for quite some time. I even had the department of Political Science at the University of Alberta scream and shout at me through the phone - "Where when you look out your window do you see mayhem?", he shouted. Unbeknowst to him, much of the anarchy is clandestine - taking place behind closed doors. I once worked for a Medical company. The owner took Canada's money, with the help of prominent Alberta politicians, and of course his own employees who helped with the scam, over to Japan and started a Japanese Medical Retail company. Isn't that just wonderful that Canadians paid lock stock and barrel for him to become rich in another country?


Posted By: paulaffleck
Date Posted: 06/January/2008 at 12:35pm

People have trouble paying off their student loans and this leads you to proclaim, "ANARCHY!"

 
Please. 


Posted By: Sammy44
Date Posted: 02/June/2009 at 2:07am
I can't understand why Canada does not do like some other countries, where if you are a native of that country, your post secondary training is free.  I think something like that would stimulate the economy more than putting people in debt.  You would also have more people with higher education and better jobs, which means more money, which means more spending and therefore a better overall economy.


Posted By: Madmorrigan
Date Posted: 02/June/2009 at 6:55am
Indeed, but then the citizens might be free to do what they will with their money, thereby eliminating the financial slavery that keeps the lot of us compliant with the government's ridiculous policies.

Slaves don't have the luxury of being able to question the master, lest they be beaten and starved.




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