QUALIFIED FEDERAL CONSUMER LOAN PROGRAM PROPOSAL
(CLP) 1-50K
Premiss. In today’s economic reality debt is an admissable “sin,” that is not only permitted, rather it is encouraged on the whole by church and state, so simply we are told to spend, buy, and consume... and this we do.
Debt is a modern reality for every individual, family, and even local government!
As such, we must see that an eighteen year old today looking to become a “college educated,” independent person must then be admittting to entree of no less than $50,000.00 of debt ceiling in a very humble estimate of “standard,” education.
If we are expected to have an “average” college level of training, and earn a “reasonable” salary, then we should pretty much be planning with debt as a reality, not an “escape, or emergency.”
By dealing with debtor’s thinking only in crisis type situation we create and engage in unrealistic, non-methodological, and, often, rash decisions and decision making processes.
This applies to the emblematic purchases, such as mementos, and translates all the way through to extraordinary purchases (home, auto, business, etc.).
So, even college educated, especially the most recently graduated, speaking as the last ‘wave’ (or two) of persons graduated in a similarly desperate Employment Situation, I was similarly disappointed for many reasons (1995, not being the best day to enter into the “economy,” laden with debt loads that at this vantage seem simple and easy) after graduating college. See Affordability.
Imagining a Consumer Loan Program. The image of a pup-tent... Four tent-pegs and a tent post (or two):
Peg One. Using “Sallie Mae-style Rules,” herein referred to as the 1-50K (that’s one dash fifty kay), would require the first fifty thousand in debt of any individual American Consumer to be treated with the forbearance, interest rate restrictions, and fair regulation and rules treatment, similar to if it was a student loan.
The proposal here may potentially include minor Consumer Loan Protection adjustments and improvements to the Sallie Mae Rules, but it does not and should not affect the actual Sallie Mae Program.
A new entity, or possibly branch or division of the Consumer Financial Protection Bureau, is proposed to be sponsored by the government for these purposes, as it relates to individual debt;
(A) Government Guarantee to it’s citizens (for that first $50,000)
(B) Regulate the micro-loan ($1 to $50,000 dollars US) markets, and to a lesser extent simplify the small business lending process ($50,001 to $250,000 dollars US) for micro (under $250,000) business loans
(C) Work with existing regulatory and oversight bodies to ensure consumer protections
(D) Independent oversight to expand recommendations for counsel with various regulatory and economic agencies
Government backing will create a secondary market to resell pools of bonds like Sallie, Freddy and Fannie. In this recommendation, we strongly urge the oversight of regulations and the simplicity and transparency of rules, and suggest this could become a means for clarifying, and making positive change in the bond and securities markets, extant.
Micro-loans, those under fifty-thousand dollars, to individuals, as secured by real property, tangible property, or without security are all considered equivalent in this regard, and refer to those US citizens to whom there is such indebtedness, often above and beyond just this loan amount.
I imagine that if this program and set of reforms were so implemented, by having no required loan minimums, we may expect this provision would create a swarm of micro credit availability and lending programs.
Working in concert with existing laws agencies and institutions, new modified and streamlined rules would allow for a massive wave of refinancing of consumer debt.
In some cases, individual credit may be extended.
This proposal amounts to a non-bankruptcy proposal to the American citizen, and an admission by it’s leaders’ that the economic policies for the last decades have not (i) improved affordability, (ii) fully redressed income or prosperity gaps, nor (iii) have fully redressed income discrimination or dispairities.
Debt is unfortunately inevitable, and we (apparently continue to) follow the example of our leaders.
Peg Two. Consumer Rights, Responsibilities, and Limitations
(A) Interest. Your interest rate may not be usurious. Rates are here proposed to have a regulated minimum of 2.5% and a maximum of 7.5%.
(B) Credit. Your “credit rating” can be calculated by a monkey. Five percentage points between 2.5 and 7.5 percent, create five categories of credit-worthiness:
a. Real Estate Attached and Full Documentation (Only)
b. Tangible Property Attached and Full Documentation
c. Tangible Property Attached and Low Documentation
d. Signature Only and Full Documentation
e. Signature Only and Low Documentation
(C) Limits. Your Loan Limit will be one factor where affordability and litmus tests can come into play. (It’s a government-backed loan, not a guarantee that someone will lend.)
(D) Tax Deduction. Any Interest paid on these loans is a write-off, so long as the item purchased isn’t also being depreciated in the tax year interest is written off.
(E) Business. Aside from a shot in the arm with refreshed credit sources, and credit availability, (S, SE, Sole Proprietorship, and 1099) small businesses and contractors will get an additional allowance of benefit in their own category, and these three elements of credit availability and liquidity combined should act as a serious stimulus for Main Street.
(F) Families. Any individual who claims any (one or more) dependant will automatically qualify for an additional $5000.00 credit limit.
(G) Responsibility. Although any Individual or business may refinance the first amount of debt ant any time, without pre-payment penalties, the debt may only be paid-off, and cannot be discharged through Bankruptcy.
Central Tent Pole. Insurance.
In a counter-balance to the risk of “no BK,” or ‘bankruptcies,’ to the consumer there is, aside from the potential for a secondary market in the government backed securities, another mitigating factor to the macro investors, as well as the creditors themselves.
There needs to be a tent pole in place that assures there is a sound investment proposal, otherwise this becomes a government-propped scheme, as opposed to a government operated trust on behalf of the Consumer.
Although no “insurance requirement” is here recommended to be used as a factor for making any one loan, an “insurance component,” that would be available to be opted in to any loan at any time, and in accordance with Federal and State rules, that allows for the expense of servicing to cover the costs of an insurance premium that benefits the Debt-Holder.
These policies do not have to be that simple, but they should follow some rules of the road, and is here recommended can not add to the expense of having taken the loan.
First off, according to this recommendation, like the loans have no pre-payment penalties, these insurance policies can be bought back by the consumer. After a debt is satisfied, the Debt Holder, must offer the consumer a fair right to redeem the Policy being held on his or her life.
Further, that right (1. to satisfy the debt, and 2. to retain the benefit of policy) is best if it also transfers to one’s legatees, heirs, and/or estate tax free, and no undue delay may be created by the Debt Holder.
Finally, a Debt Holder will be required to follow certain time periods that describe normal and requisite response times from Consumer to retrieve such a benefit.
However, in the event of a default, or the death of any consumer, after following procedure in concert with appropriate notification, waiting and response times, the Debt Holder may be considered in first position to discharge all costs against the benefits of any policy so entrusted, before transferring any fully accounted and audited remainder to the Consumer’s legatees, heirs, and/or estate tax free.
By including this insurance component with the government backed facility, (A) we have a secondary guarantee to have any consumer debt satisfied, (B) we have mitigated risk, so justifying the limits on interest rates and fees.
As Mortgage Insurance does for FHA Loans, so for the Debentures and Debts this private Life insurance market will act to mitigate risks posed by individual Consumers acting as borrowers, and secondarily will have the collective benefit of mitigating risks of recoupment of principle. Overall, this should be very attractive to investors, particularly if these debentures remain dollar denominated.
Peg Three. Resultant Savings.
If any of this remains unclear, for whatever reason, just do some basic research and consumer financial education and find out the difference between a typical credit card loan = a negatively amortized revolving loan with fees and rates between 6.99 and 29.99%, and the proposal here to make a flat rate of forbearable interest, fee restrictions, and a rate range from 2.50 and 7.50%-- this will save the average American family $1152 per year!
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Just three ideas and a comment, from what would certainly be an eventual plethora as a result of these recommendations, of ways to improve the Consumer outcome in dealing with Affordability and Debenture, as a net benefit from these rule ideas, for this peg of the tent that may all be simultaneously executed:
(A) In Loan Work-outs, refinances, and/or other incentivized restructuring programs, a tax-free savings account (under rules similar to the HSAs [see Health Savings Account]) may be set up on behalf of the Consumer as a “Learning to Save,” qualification for any business that would so seek to be qualified. That tax free account would eventually revert to the Consumer, after all debts have been satisfied. Lawyers, insurance Agents, Brokers, as well as Credit Counselors, Not for Profit Debt Agencies, et. al. would be ideal candidates to assist in this program by becoming tested, qualified and bonded as a credentialed, licensed and recognized Trustee.
(B) In consumer credit devices, a similar tax-free savings account (under rules similar to the HSAs) may be set up as an incentive to qualify for lower interest rates (still have to be between 2.5 and 7.5% however), and may also with certain restrictions be set up as an overdraft protection mechanism.
(C) After a debt has been satisfied, any remainder due the consumer, with or without any insurance component(s), may be set into a new or existing tax-free savings account.
(D) Comment: Creditors are here recommended to be fully compliant as Trustees and meet additional requirements to participate in housing the principle sums for individual Consumers' Savings Trusteeship accounts that qualify for the FDIC sponsored savings program(s), preferable to local banks, Credit Unions, and Bonded Agents already insured by FDIC.
Peg Four. Business.
Loan Limits here proposed: for individual are $1 ~ $45,000 and then an additional $5,000 if you claim any dependant.
If you file Jointly, then as a couple your combined maximum limit for tax-deductable interest payments on qualified consumer loans is $90,000 and then an additional $5,000 for your first, and second $5,000 if you claim any dependants numbering 2 or above.
If you file as a Sole Proprietor, SE, S-Corp, or 1099, then under additional rules you may apply for “SBA Rules,” or 51-250K (that’s fifty-one dash two-hundred fifty kay [as in loan limits from $51 ~ 250 thousands]), which only should have in common with SBA Loans (1) they’re for Business Purposes, and (2) the government acts as backer of last resort.
Otherwise, only a Board of Advisors role is recommended by this proposal to be held something like at an annual meeting between this Consumer Loan Program (CLP) and the Small Business Administration to coordinate and harmonize lending rules would seem to be potentially necessary.
Same Interest Rate Limits as the first tent peg.
Same 5 credit categories as the first tent peg.
Same tax deduction, same everything, except (i.) loan limits go higher (up to $250,000), but may be slightly more restrictive, and (ii.) may potentially have pre-payment penalties, or other restrictions.
Cash flow of the business, credit worthiness, and net worth should all come into play, but ideally not be so inflexible as to stifle our nations Entrepreneurs from getting a second, third, or even fourth chance at success, the pursuit of happiness, and creation of Jobs!
Conclusion to this proposal. Imaging Purpose; The Second Tent Pole.
The government must act as debtor of last resort in order to encourage the Lending Institutions, and the Financial Industry in general, to effectuate a new game plan, which better enables and ennobles our American Citizenry—A Right to Life, Liberty, and the Pursuit of Happiness—all three things that Lending can do when capital is properly employed.
This proposal is intended to be tax neutral, and highly stimulative to the economy.
Finally, I suggest a slogan to this Agency, Consumer Loan Program, or what-have you, and it reads simply:
Indifference and Forbearance
To whit a philosophy:
This agency in its oversight shall be indifferent to the “whom,” and focus only on the ‘what and how’ in order to protect the consumer, detect fraud and abuse, and foster equal lending practices at the micro-Business and individual Consumer levels.
The objective of this agency is to promote the free flow of capital investment to the farthest reaches of our economy.
Policy and procedure are the foundation, Rule of Law the building, and the marketplace of American Citizens shall be the people whom would so enjoin to make Consumer Loans.
This agency shall preserve the mission to forbear, for the Government must lead by example, and that purpose is: (i) a tolerant and quiet strength with efficiency in motion, (ii) an unyielding belief in Americans as a group and as individuals, (iii) and straightforwardness of purpose.
To bring to bear the proper practices available to the Consumer on the economy.
And, to create opportunities for the American Citizenry in their pursuits of Life, Liberty and happiness.
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