16 Aug Banks complain about consumer protection
Banks needs to quit crying. The latest is the news that JP Morgan Chase and Bank of America, together with two private equity firms, have struck a deal to buy the largest student loan corporation, SLM Corp., commonly known as Sallie Mae. However, the parties warn that the buyout is in jeopardy because of pending federal legislation.
At issue are House and Senate bills passed last month which seek to level the playing field between lenders and borrowers of education loans. Student loans are already afforded more protection in bankruptcy court than any other debt except unpaid child support. Even federal income taxes are dischargeable after three years, but student loans always survive bankruptcy, absent a showing that the loan is unduly burdensome.
There is really no good reason why student loan companies get the ultimate treatment in bankruptcy court, as they have for years been engaged in fraudulent practices. Florida’s Attorney General, along with 30 other Attorney Generals, have been investigating illegal student loan kickbacks to universities’ final aid officers for steering students into certain loans. Sallie Mae has already agreed to a $3 million fine to resolve claims leveled by New York’s AG.
The new federal legislation will partly offset the undue advantage afforded to these lenders by reducing the government subsidies to private lenders, slashing interest rates on government-backed student loans and capping repayment of student loans at a percentage of a student’s income. Both bills now move to conference for reconciliation, and our pro-business president is even expected to sign it.
The truth of the matter is that, with the collapse of these absurd securities which pooled together risky subprime mortgages to attract Wall Street investors, fund managers are clamoring to find safe places to put their clients’ money. Considering student loans are afforded non-dischargable status in bankruptcy court, this latest buyout will happen despite the legislation meant to protect America’s working class. So the banks, having created their own mess of late, need to quit crying.
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