“If someone makes you a loan that’s illegal, either because they don’t have a license or they violate usury laws, you’re not under any obligation to pay it back,” said Norman Googel, an assistant attorney general in West Virginia.

In trouble from an online payday loan? You might not have to repay it.

Illegal Online Payday Loans May Not Have to Be Repaid is a post from Caveat Emptor

Guest post by Frank Pipitone.

Unless you have been hiding under a rock, you have heard or read about the looming student loan economic crisis. The National Association of Consumer Bankruptcy Attorneys (NACBA) refers to this coming crisis as the student loan “debt bomb.”  A brief look at the NACBA report and the startling statistics explains why they coined this explosive title.

Over 37 million Americans are currently saddled with student loan debt with the total amount owed in excess of 1 trillion dollars. While these numbers are frightening, some of the trends outlined in the report are more concerning:

• Of the Class of 2005 borrowers who began repayments the year they graduated, one analysis found 25 percent became delinquent at some point and 15 percent defaulted.
• Loans to parents for the college education of children have jumped 75 percent since the 2005-2006 academic year;
• Borrowing has grown far more quickly for those in the 35-49 age group, with school debt burden increasing by a staggering 47 percent;
• College seniors who graduated with loans in 2010 owed an average of $25,250, up 5 percent from the previous year.

In a recent study conducted by youth advocacy group, Young Invincibles, 65% of those surveyed responded that they were surprised by some aspect of their loans. The same percentage said they were not aware of the difference between Federal loans and private loans.

The survey provides more harrowing statistics, but what is clear is that a vast majority of students are uneducated and/or uninformed when it comes to student loan borrowing. They lack the financial acumen to commit to such restrictive financial contracts with no recourse should they have trouble meeting their obligation.

Where is the Financial Education in this Country?

I like to think that I am a highly educated individual having completed multiple levels of university education, culminating in my law school degree. At no point in my educational journey was I presented with the opportunity to take a personal finance course. I have never come across anyone who was offered such a course by an educational institution.

I can make the argument that a strong understanding of personal finance is more important than History, Geography or some of the more esoteric courses offered in our universities. I completed a course entitled, “Recreational Drugs and their Dependency” my first year in college. If only they had offered, “Saving and Investing: A Primer on Personal Finance and Your Future.”

With the primary consumer of these loans 18 year old freshman, a first year college course may be too late. While helpful, students and parents do not have the luxury of waiting for Congress to implement changes. It is the responsibility of us, the parents, the educators and society, to take the initiative and start giving our youth the tools they need to understand exactly what they are agreeing to when they sign on the dotted line.

It Starts at Home … Maybe

From the time a child is born, parents are faced with the responsibility of educating that child. Ultimately, certain responsibilities (history, geography, etc.) are inherited by schools when children start their educational journey. Some responsibilities remain almost exclusively with the parents, such as diet and nutrition. Parents, for the most part, control the food and drink their children consume on a daily basis and it is their responsibility to educate on the benefits of a healthy diet and the consequences of consuming junk.

Similarly, financial education should start at home and it should start early. A piggy bank is perhaps the single greatest tool a parent can use to teach a child the value of money, the importance of saving and the great reward it could bring. The problem is, that like nutrition, many parents have less sense than their children when it comes to personal finance. At least junior may drop a dime in the piggybank from time to time.

Regardless of the home environment, personal finance education should be implemented as a part of the educational curriculum and it should start well before children reach the age of financial independence.

Secondary School or Before

At a minimum, children should be exposed to financial course work in secondary school and arguably before. It seems that some states are already taking the initiative. There is absolutely no reason not to expose our youth to financial principles at an early age and it does not have to take away from the traditional course work. In fact, according to the 2011 Teens and Money Survey conducted by Charles Schwab, 86% of those surveyed said they would rather learn about money management in a class before making mistakes in the real world. 77% of the teens surveyed said they considered themselves “super savers” as opposed to 23% who considered themselves “big spenders.”  While these statistics are promising, some of the more troubling statistics include:

• 31% did not know how credit card interest and fees work;
• 22% did not know how income taxes work; and
• 17% did not know what a 4019(k) plan is.

Early exposure to the basics of banking, credit, interest and investing could go a long way in creating fiscally responsible adults.  Those newly minted adults will then pass on the principles they learned to their children and we will certainly have cemented the foundation for avoidance of future economic crisis.

As a bankruptcy lawyer, there is nothing sadder than a young adult, in their twenties on the verge of filing bankruptcy. Fresh out of college, with their entire lives ahead of them, the future should be filled with hope and optimism. It is disheartening to know that with the rising cost of college tuition, most students are forced to bind themselves to this burdensome debt in order to fund their educations.

Student loans, when used responsibly, can open up educational and earning opportunities to individuals who otherwise would not be able to afford college.  I just think we need to do more to ensure that these young individuals are embarking on an educational journey to secure their financial future, rather than destroy it.

Frank Pipitone is a Long Island Bankruptcy Lawyer and the managing attorney at Pipitone Law, located in Garden City, New York.

Where is the Financial Education? is a post from Caveat Emptor

Wells Fargo got in major trouble for applying payments first to fees, then to the principal of a mortgage. And because it pissed off a New Orleans bankruptcy judge by fighting the case for five years while the homeowner’s lawyers worked without pay. (From Bloomberg Law)

Wells Fargo Fined $3.2 Million by New Orleans Bankruptcy Judge is a post from Caveat Emptor

Today, the Consumer Financial Protection Bureau made the following announcement:

When we build our own software or contract with a third party to build it for us, we will share the code with the public at no charge. Exceptions will be made when source code exposes sensitive details that would put the Bureau at risk for security breaches; but we believe that, in general, hiding source code does not make the software safer.

Bravo!

The CFPB Embraces Open Source Software is a post from Caveat Emptor

NPR’s Planet Money put together a series of minimalist economic posters. Here’s one, but you should check out the rest.

Posters for the Economic Recession is a post from Caveat Emptor