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[DRAFT] Borrower Protection Act

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Montrandec
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Founded: Jul 22, 2019
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[DRAFT] Borrower Protection Act

Postby Montrandec » Fri Apr 05, 2024 8:18 pm

General Assembly Proposal: Borrower Protection Act
Category: Regulation/Consumer Protection

Saw a similar concept in the ideas thread and thought I could write up something! Thank you very much to Tinhampton for the rewrite, and The Ice States for their help!
The General Assembly,

Recognising that people may take out loans with the intention of financing academic ventures, professional certifications, or expensive personal items such as cars or houses, but

Realising that the terms of loans can be biased, ambiguous, or otherwise unfair, creating an undue advantage for lenders over borrowers,
Hereby:

  1. defines, for the purposes of this resolution:
    1. a "loan" as any type of liquid asset taken out by a person with the intention that it be paid out to the person who loaned it to them,
    2. a "borrower" as a person who takes out a loan, and
    3. a "lender" as a person who provides a loan to a borrower,
  2. requires all lenders to make the full terms of any loan agreement they propose (including any future amendments to the agreement that may be made as of the time they are proposed) available to the borrower in a format which they can understand,
  3. forbids lenders from pressuring their borrowers into making early repayments for their loans either by imposition of liens, threat of legal action, or otherwise placing undue stress on the borrower
  4. requires that lenders who make loans to borrowers for the purposes of pursuing an academic qualification only require them to repay that loan when they have actually achieved that qualification or it is apparent that they have no desire to pursue it,
  5. If a loan is unfavourable to the borrower so as to be in violation of the law, the borrower may not enforce any lien with regards to that loan or otherwise take action to enforce the loan.


CHANGELOG
Draft 2 - Tweaked language in provisions 2 and for to avoid unintended consequences or misinterpretation. Added coverage of withdrawals without an award, as tinhampton suggested
Draft 2.1 - Added list bbcode and updated lender definition
Draft 3 - (All courtesy of The Ice States) Tweaked provision 4, specified how lenders may not pressure borrowers, modified provision 5

The General Assembly,

Recognising that people may take out loans with the intention of financing academic ventures, professional certifications, or expensive personal items such as cars or houses, but

Realising that the terms of loans can be vaguely worded, and thus easily interpreted in the lender's favour,

Hereby:

  1. defines, for the purposes of this resolution:
    1. a "loan" as any type of liquid asset taken out by a person with the intention that it be paid out to the person who loaned it to them,
    2. a "borrower" as a person who takes out a loan, and
    3. a "lender" as a person who provides a loan to a borrower,
  2. requires all lenders to make the full terms of any loan agreement they propose (including any future amendments to the agreement that may be made as of the time they are proposed) available to the borrower in a format which they can understand,
  3. forbids lenders from pressuring their borrowers into making early repayments for their loans,
  4. requires that lenders who make loans to borrowers for the purposes of pursuing an academic qualification only require them to repay that loan when they have actually achieved that qualification or it is apparent that they have no desire to pursue it,
  5. requires that all loan agreements whose objectives are corrupted in order to favour the lender over the borrower, or which otherwise violate the law to any degree, are to be nullified; and that no borrower who takes out a nullified loan shall be obliged to repay any part of it.

The General Assembly,

Recognising that people may take out loans with the intention of financing academic ventures, professional certifications, or expensive personal items such as cars or houses, but

Realising that the terms of loans can be vaguely worded, and thus easily interpreted in the lender's favour,

Hereby:

1: defines, for the purposes of this resolution:
a: a "loan" as any type of liquid asset taken out by a person with the intention that it be paid out to the person who loaned it to them,
b: a "borrower" as a person who takes out a loan, and
c: a "lender" as a person who makes a loan to a borrower,

2: requires all lenders to make the full terms of any loan agreement they propose (including any future amendments to the agreement that may be made) available to the borrower in a format which they can understand,

3: forbids lenders from pressuring their borrowers into making early repayments for their loans,

4: forbids lenders who make loans to borrowers for the purposes of achieving an academic qualification from requiring them to repay that loan until they have actually achieved that qualification,

5: requires that all loan agreements whose objectives are corrupted in order to favour the lender over the borrower, or which otherwise violate the law to any degree, are to be nullified; and that no borrower who takes out a nullified loan shall be obliged to repay any part of it.
Last edited by Montrandec on Sat Apr 06, 2024 7:23 pm, edited 6 times in total.

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Imperium Anglorum
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Postby Imperium Anglorum » Fri Apr 05, 2024 8:38 pm

The definition here for "loan" seems at odds with the standard definition. Serious loan agreements are generally not modified; those for retail customers such as revolving credit lines are modified at times and such modifications are disclosed. The idea of requiring the set of all possible modifications to be disclosed seems rather inutile: that set is so large that everyone would be buried in paperwork that most borrowers already do not read. (OOC. Just check, for example, CFPB complaints https://www.consumerfinance.gov/data-re ... omplaints/. Many of them are by people who lack sufficient financial sophistication to understand what they are even complaining about.)

Lenders generally don't want prepayment, especially on fixed interest rate loans, since those reduce amortisation. This is a standard risk which can be insured against. Also, the idea of prohibiting interest on student loans prior to graduation seems rather ridiculous. Under the structural preconditions of having such loans – which won't be the case in all member nations, especially those which more heavily ration higher education, – one would just never get the degree and keep the money. This is especially abusable in professions with separate licensing. Such risk would necessarily drive up interest rates and reduce credit availability.

(OOC. The main reason why student loans in the US were made undischargeable in bankruptcy was because a few law students prior to the Bankruptcy Reform Act of 1978 realised that you could just borrow profligately during law school, get your degree, get admitted to the bar, and immediately declare bankruptcy to discharge all the debts. Whether proactive legislation – Congress acted prior to this becoming a real issue, a dynamism seemingly foreign to more recent Congresses, – was necessary is debatable: at this point the size of the student loan market was relatively small, the number of borrowers few, and the stigma of bankruptcy high.)

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Tinhampton
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Postby Tinhampton » Fri Apr 05, 2024 9:06 pm

Article 2 applies only to actual amendments, not to every hypothetical amendment imaginable.

Article 4 applies to repayment of loans. It does not apply to interest on loans made before they are repaid. I'd suggest that it also apply in cases where withdrawal without an award occurs, however.
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Imperium Anglorum
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Postby Imperium Anglorum » Fri Apr 05, 2024 10:37 pm

Tinhampton wrote:Article 2 applies only to actual amendments, not to every hypothetical amendment imaginable.

When the text uses expansive language like "any" and "full", the correct reading is to impart to those words the expansive reading they imply.

full terms of any loan agreement they propose (including any future amendments to the agreement that may be made)

This includes any future amendments that may be made. May is prospective. "Any future" is expansive. This is application of the general terms canon ("general terms are to be given their general meaning // generalia verba sunt generaliter intelligenda"). See eg Scalia and Garner Reading law (2012) pp 101ff.

Tinhampton wrote:Article 4 applies to repayment of loans. It does not apply to interest on loans made before they are repaid. I'd suggest that it also apply in cases where withdrawal without an award occurs, however.

The accrual of interest indefinitely that never pays out (or requires payment) necessarily has no net present value. If you require payment on withdrawal, then this first harshly punishes people who – especially if for no fault of their own – are not able to get a degree and second doesn't solve the problem if they just stay a student indefinitely.

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Montrandec
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Founded: Jul 22, 2019
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Postby Montrandec » Sat Apr 06, 2024 6:02 am

I have ammended the draft to incorporate the observations and advice. Thank you both for the advice and suggestions!
Provision 2 should no longer require ridiculous comprehensiveness on part of the lender, and 4 should now prevent staying a student for long periods of time or outright dropping out to keep the money. I'll ammend 4a soonish to account for those who are unable to finish even with an earnest attempt to do so.
Thank you.

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Montrandec
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Founded: Jul 22, 2019
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Postby Montrandec » Thu Apr 11, 2024 2:43 pm

Bumping in search for more useful advice,

Thank you all who contributed already!

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Montrandec
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Founded: Jul 22, 2019
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Postby Montrandec » Sun Apr 14, 2024 8:28 am

Bumping once again, I look forward to all your useful advice!

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Opiachus
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Postby Opiachus » Sun Apr 14, 2024 12:06 pm

Montrandec wrote:If a loan is unfavourable to the borrower so as to be in violation of the law, the borrower may not enforce any lien with regards to that loan or otherwise take action to enforce the loan.

The second occurrence of "borrower" should say "lender" instead.

Our WA office also believes there should be a related resolution on international bankruptcy and insolvency proceedings to protect international creditors' rights to orderly liquidations of debtors' international assets.

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Tigrisia
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Postby Tigrisia » Tue Apr 16, 2024 6:28 am

The delegation of the Federal Republic of Tigrisia recommends to add a clause concerning loans to minors.

We propose the following:

1) People under a certain age limit, which shall be subject to member states legislation, taking into account the capabilities of persons at that age, shall not be able to make loan agreements.

2) If a child, under a certain age limit, which may be lower than the one in (1), does take a loan in the name of a guardian (OOC: Imagine a 7-year-old buying tons of chocolate using mums Klarna account), the contract shall be null and void, if the guardian
1) is unaware of this act and
2) has taken reasonable preventive action.

For the delegation of Tigrisia
Ambassador Thomas Salazar
Head of Mission


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