New Report: Rhode Island Gets C for Debt Protection
Friday, October 11, 2013
Looking at such criteria as protection of wages, automobile, home, home goods, and bank accounts, the NCLC gave Rhode Island "A" grades for laws in place for two of the five categories, a C for one -- and failing marks for two.
BELOW: See How Rhode Island and New England States Ranked for Debt Protection Laws
"More personal debt means less spending today and less spending means fewer jobs. Our middle-class is disappearing. High personal debt and bankruptcy, even with protecting some debtor's assets, are not the right paths for an economy that needs to grow and create jobs," said Dr. Edward Mazze, Distinguished Professor of Business at URI.
According to the report, not one state met the criteria for all five "basic standards", which the NCLC states as preventing debt collectors from seizing so much of the debtor’s wages that the debtor is pushed below a living wage; allowing the debtor to keep a used car of at least average value; preserving the family’s home—at least a median-value home; preventing seizure and sale of the debtor’s necessary household goods; and preserving at least $1200 in a bank account so that the debtor has minimal funds to pay such essential costs as rent, utilities, and commuting expenses.
Personal Debt in Rhode Island
He continued, "Many Rhode Islanders have seen the value of their homes decrease and their mortgage is more than the value of the home. Add to this the fact that there have been relatively small wage increases since 2007 and more recently public employees have lost their COLA's. And, Rhode Islanders face high property taxes."
In its report, the NCLC notes that "exemption laws deter predatory lending. Creditors are less likely to make unaffordable loans if they know they will have to rely on the debtor's ability to repay the debt, not on seizure of the debtor's essential property."
Dr. John Chung, Professor of Law at Roger Williams University, said that while he did not believe debt collection causes poverty, nor was debt collection is "what makes people poor," he believes that "federal and state governments need to do a better job of enforcing debt collections laws against debt collectors who violate those laws. Some debt collectors resort to unlawful conduct to harass debtors. That kind of activity should be stopped."
Chung, whose career in law has included a position with the United Nations Compensation Commission which was formed to compensate claims arising out of Iraq's invasion of Kuwait, saw debt as an issue that needed to be addressed.
"The problem of debt is tied to the general state of the economy. In a healthy, vibrant economy, there are more jobs and more better-paying jobs. It's in everyone's interest to create an environment that fosters economic health and growth."
Addressing the Issue
"One of the biggest problems is that we are the only New England state that allows payday lenders to charge more than 36% APR," said Posner. "In fact, in RI they can charge up to 260% APR thanks to a special carve out in the general laws. These loans target the poor and trap them in a cycle of debt that leads to tremendous stress and a significant drain on their finances."
He continued, "Another place where Rhode Island can improve is in how it handles debts that accrue while someone is incarcerated. Often, after someone has done his or her time, they return to their lives and are faced with a mountain of debt--it may be child support (and not paying child support can lead to incarceration, by the way), unpaid parking tickets (which prevent them from getting a car) or unpaid local or state taxes.
"Allowing the re-entry population to suspend interest accrual while in prison or jail, and giving them flexible payment plan options for when they get out of prison, would tremendously smooth out the re-entry process and reduce poverty and recidivism rates," said Posner.
Posner also touched upon on other another legal facet of debt facing Rhode Islanders.
"In Rhode Island there is no statute of limitations on unpaid state back taxes and the interest rate is considerably higher than that of the IRS. The IRS has a statute of limitations -- and a lower interest rate," said.
However, Posner pointed out ways Rhode Islanders -- and the state itself -- could best tackle debt problems.
"Financial Coaching programs, like the ones we offer, as well as the Financial Opportunity Centers throughout the state, provide the critical service of helping people create a debt management plan, build a budget, increase savings, and so on," said Posner.
"Lastly, the best way to help people get out of debt is to have a strong economy so that people have the income to a) not need to take on debt and b) pay off their existing debt!"
New England States’ Grades for Debt Protection
A new report by the National Consumer Law Center shows how states rank for debt protection laws for consumers, to preserve basic items of property from seizure by creditors -- and Rhode Island received a "C" grade overall, which the NCLC qualifies has having "many gaps and weaknesses."
Car Protection - NE
Protection of the Family Car
"Protects an average compact car from seizure"
Vermont, New Hampshire: B
"Provides at least $9000 in combined exemption for car and household goods"
"Protects a car worth $5000 to $6999"
"Protects a car worth $1500 to $4999"
Home Protection - NE
Protection of the Family Home
"Protects the family home regardless of value, or that protect a median priced home ($211,312)"
Vermont, New Hampshire: B
"Protects a home worth $100,000 to $211,311"
Maine, Connecticut: C
"Protects a home between $50,000 and $99,000 in value"
Bank Accounts - NE
Protection of Family Bank Accounts
Vermont, New Hampshire: B
"States that protect at least $700 in bank account, plus car and household goods worth at least $9,000, or that explicitly exempt deposited wages"
"States that protect at least $700 in bank account, plus car and household goods worth total of $7,000"
"States that protect car and household goods worth at least $4,000 to $6,999, plus at least $300 in bank account"
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