As tens of thousands of Mainers face lays offs and unemployment, two things will happen: With no earnings coming in, they will default on their loans and they will turn to short-term, high-interest loans to bridge their income gap. Undoubtedly, this will put many Mainers at the mercy of unscrupulous lenders and debt collectors.
Protecting Mainers from predatory lenders and debt collectors is paramount for both the state and federal governments. We need to assure that out-of-work families can cover food, shelter, and other necessities and not be forced to pay back exorbitant interest rate loans and hardship-inducing debt.
We know that the most effective and least costly relief is that which comes before financial crises —defaults, evictions, spiraling late fees — set in. The lessons of the Great Recession make plain the need to get out ahead of financial disruptions to avoid an even steeper economic downturn.
Here are policy prescriptions that state and federal lawmakers can enact right now:
Cancel student debt. The federal government has reduced interest rates on federally owned student debt to 0 percent for the duration of the public health emergency and has made all borrowers of said debt eligible for six months of forbearance. While this action will provide short-term relief, particularly for low-income borrowers whose income is most likely to be affected by the crisis, bolder action will lead to greater, longer-term benefits.
Research proves that debt cancellation would be a powerful and effective economic stimulus. Cancelling federal student debt would provide the same short-term benefit as forbearance but would also empower millions of Americans to more quickly recover from the recession triggered by the Coronavirus.
Even a plan to cancel a minimum amount of federally held debt for all borrowers, such as the plan to cancel up to $50,000 of debt proposed by US Senator Elizabeth Warren, would have a big effect. MECEP’s analysis indicates that borrowers with the smallest overall debt totals are most likely to default of suffer other consequences as a result of their debt. So a minimum forgiveness program would go far for those who need help the most.
Given the urgent need to protect Americans’ income during this time of public health and economic uncertainty, the U.S. Department of Education should also act quickly to halt wage garnishment for federal student loans.
Stop payday lenders from exploiting desperate families and small businesses. Policymakers can cap all payday loans interest rates nationwide and implementing stronger protections from predatory lending. With more individuals, families, and small businesses under pressure from sickness and economic stress, some predatory lenders will take the opportunity to profiteer off exploitative high-cost loans. This must not be permitted.
The Consumer Finance Protection Bureau should move to immediately implement restrictions on predatory payday lenders. Congress should move ahead quickly to enact HR5050 to enact a permanent cap on interest rates for payday loans.
Halt all debt collection efforts. Families and small businesses struggling to make ends meet should not be pushed deeper into crisis from collection on defaulted loans, especially from scam collectors. Debt collectors garnish wages and courts can freeze bank accounts over debt, taking the few dollars that that economically vulnerable families have to meet basic needs.
Debt collectors are already eager to take advantage of families receiving the CARES Act stimulus payments. But Maine’s top legal officials — the governor, attorney general, and chief justice of the Supreme Judicial Court — can stop this. The Law Court can halt issuance and enforcement of debt collection garnishment orders. Or the governor can issue an executive order to prevent federal stimulus checks to Mainers from being garnished by debt collectors.
This pandemic will cause labor shocks like our country has never experienced. Government must intervene to soften the blow of the coming recession and ensure Maine families and small businesses survive.