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Will My Social Security Be Garnished for My Student Loans?

August 18th, 2014

Huffington Post Reader Question

Dear Steve,

After graduating from college with approximately $150,000 in student loan debt I worked in my field for 9 years all the while faithfully paying about 50% of my income to repay my student loan debt.

After 9 years I found myself unemployed and then underemployed. I am currently repaying on an income-based plan. This monthly payment does not even cover the interest much less any of the principal. I am currently 48 years old. I know this is a debt I have to repay but I just dont realistically see a way that I will ever be able to do that. I am not financially able to settle but I cringe at the thought of carrying this debt for the rest of my life.

My question is, will this debt follow me to my death whether it be 50 or 100 years old? Is there a set amount of time that this type of debt can be collected on? Can Social Security benefits and retirement income be garnished?

Ruth

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Dear Ruth,

It is not clear from your question if these are federal or private student loan debt. Your statement about an income based plan not making a dent sounds suspiciously like a private loan interest only approach.

If these are private student loans then your Social Security cant be garnished. If they are federal student loans and you go into default then your Social Security can be garnished.

But if these are federal student loans youve got some good options for getting these loans under control and depending on your income in retirement your loan payment could be as little as $0 per month in the future. You should click here to learn about your federal student loan options.

As far as a set amount of time a private student loan would be subject to the statute of limitations in the state you live in. You would need to meet with an attorney who is licensed in your state to discuss specifics. There is no limitation with a federal student loan.

Steve

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Is It True My Student Loans Will Be Forgiven When I Hit 50?

August 18th, 2014

Huffington Post Reader Question

Dear Steve,

I finished university in 1993 Having secured a student loan for the three-year period. When I graduated I never really had a job that paid a high enough salary to make any repayments on the loan.

Now some 20 years later I have been contacted by a debt company requesting payment of the loan! I am 57 years of age and Im sure I read somewhere that before 1998 if you reached the age of 50 this debt was no longer payable?

Do I have to repay this loan?

Roger

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Dear Roger,

Well theres a new one for me.

Hopefully this was a private student loan. If so then the statute of limitations has sailed on the debt and it could be discharged in a consumer bankruptcy. Federal student loans are not subject to the statute of limitations.

I have never heard about a free pass on loans at 50. If that was the case youd have loads of people jumping on that bandwagon.

However, it is getting more common to see very elderly people with student loan debt they took our decades before or cosigned for. Age alone is not a reason for forgiveness. Even people on Social Security can have their payments garnished for past due federal student loans.

More information would need to be known for a more specific answer. But for now, if this is a private student loan click here. And if this was a federal student loan, click here.

Steve

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Abil: no holiday for borrowers

August 17th, 2014

There is no payment holiday for you if you owe money on a loan from African Bank, and nor are you off the hook if you owe to Wetherlys, Dial-a-Bed, Geen amp; Richards, Furniture City, Beares or Ellerines. The furniture stores are companies that fall under Ellerine Holdings Limited or the EHL group which, like African Bank, is a wholly owned subsidiary of African Bank Investments Limited (Abil). African Bank, not Abil, was placed under curatorship on Sunday, although the trade of Abil’s shares was suspended on Monday.

African Bank operates mostly in unsecured lending, servicing about 3.2 million of the country’s low-income earners. The bank offers personal loans of between R500 and R130 000 and repayment terms of between three and 60 months, as well as consolidation loans and credit cards.

In November 2012, the bank started offering investment accounts, and it holds R101 million in retail deposits.

If you have deposited money in African Bank, you have full access to your money in the ordinary course of business and you should have no fear of losing it, Gill Marcus, the governor of the South African Reserve Bank (SARB), says.

Retail depositors represent less than one percent of African Bank’s creditors. We are therefore able to make an unequivocal commitment to all existing retail depositors that their money is safe, and that they can continue with African Bank as their bank without fear that their deposits will be frozen or lost, Marcus said on Sunday when announcing that the bank was being placed under curatorship.

The problems that have beset the bank are, in the regulator’s view, largely specific to its current business model, which does not include a diversified set of products and income streams, nor does it offer transactional banking services, Marcus said. This has made African Bank and the Abil group uniquely vulnerable to a changing or challenging business environment, such as currently prevails.

You should not have any worries if you bank elsewhere. Tracy Brodziak, the head of research and a portfolio manager at Old Mutual Equities, says the big four banks (Absa, First National Bank, Nedbank and Standard Bank) are strong and well capitalised.

We are entering a rising bad debt cycle, but they are different [from African Bank] they’ve made provision for bad debt, and year-on-year have been pulling back from unsecured lending, so they will be fine, she says.

Reaction to African Bank’s curatorship has been mostly favourable; however, suggestions that the bank engaged in reckless lending are widespread.

Stephen Logan, an attorney who specialises in credit law, says the bank’s huge number of bad debts points to the likelihood of reckless lending. It is highly likely that African Bank either did not do adequate affordability assessments or lent to people despite their impaired credit records, Logan says.

He says that since the SARB has bought the bank’s bad debt, the question is whether the National Credit Regulator (NCR) will now do a thorough job of auditing African Bank to determine which loans are possibly reckless and, if it finds such cases, then launch an application to the National Consumer Tribunal (NCT) to have those loans declared reckless.

Lesiba Mashapa, the company secretary at the NCR, says the regulator cannot comment on the possibility of an audit, since it has yet to meet with the curator. Reckless lending is a complex concept, he says.

If a credit provider fails to do an affordability assessment before advancing credit to you, the credit provider could be guilty of reckless lending. But if you were not entirely truthful when applying for credit, you have no grounds to bring a charge of reckless lending against the credit provider.

Only a court can declare a credit agreement reckless. But if the recently published draft National Credit Regulations come into effect, the regulator will be empowered to apply to the NCT to have a loan declared reckless, to revoke a credit provider’s licence and to issue fines.

Andrew Canter, the chief investment officer at FutureGrowth Asset Management, says there’s a distinction between reckless lending and irresponsible lending.

Reckless is a legal question ‘irresponsible’ is a value judgment, and based on what we were seeing in the unsecured lending market anecdotal stuff, macro data plus Abil’s opacity on how money was being used by consumers, we were happy to say what was happening was irresponsible, Canter says.

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Will My Parents Have to Repay My Student Loans?

August 15th, 2014

Huffington Post Reader Question

Dear Steve,

Hi, I have some student loan debt (a total of $82,000) and I was wondering if something should happen to me, would my parents need to pay it off? I have always wondered this, because well frankly stuff happens and we dont always know what might happen tomorrow. I am including a copy of the types of loans those are.

Please look at my attachment. I went to a website called National Student Loan Data System for Students to get this loan summary.

Thanks again!!!! I really admire your desire to give FREE advice!!!

You are a wonderfully great person.

Roger

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Dear Roger,

First off, thank you for the kind words.

If the student loans are in your name alone and your parents did not co-sign for the loans then they are your loans, not theirs. They would not repay them.

I could not help but notice that you have quite a few individual loans. It might be worth considering consolidating them into one loan. According to the US Department of Education the loan consolidation would offer you the following benefits.

Loan consolidation can greatly simplify loan repayment by centralizing your loans to one bill and can lower monthly payments by giving you up to 30 years to repay your loans. You might also have access to alternative repayment plans you would not have had before, and youll be able to switch your variable interest rate loans to a fixed interest rate.

You also should consider the impact of losing any borrower benefits offered with the original loans. Borrower benefits from your original loan, which may include interest rate discounts, principal rebates, or some loan cancellation benefits, can significantly reduce the cost of repaying your loans. You might lose those benefits if you consolidate. – Source

For more information on consolidating your loans, click here. There is no charge to consolidate.

For more information on how to deal with problem student loans, click here.

Steve

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Studentloanconsolidationreviews.org Reveals Top Two Student Debt Relief …

August 14th, 2014

Studentloanconsolidationreviews.org reviews and shares the top two student debt relief options for Iowa residents.

Des Moines, IA (PRWEB) August 14, 2014

How much does student debt matter? The short answer to this is a lot – for people who are having a hard time repaying their student loans. For one thing, defaulting on student loans has a significant impact on credit scores just as does defaulting on an auto loan or a credit card debt. What makes this issue even more significant is the fact that Iowa students graduate owing an average student debt of $29,456, ranking it sixth worst in the nation. In addition, 71% of Iowa students are required to borrow money to finance their educations, which makes the state third worst in this category. On a brighter note, unemployment in Iowa as of June of this year was a healthy 4.4%.

The company Studentloanconsolidationreviews.org recently did a study of companies available to help Iowa students achieve student loan debt relief. What it found was that the top two are National Debt Relief and SoFi (Social Finance Inc.).

The analysis done by Studentloanconsolidationreviews.org focused on three factors. First, the companys business model, second its corporate history and third the form or forms of relief offered.

National Debt Relief was ranked best on all three of these criteria. For example, its business model is performance driven. It charges no upfront or maintenance fees. If it is unable to find a customer a repayment program with lower payments and a better term than what he or she currently has, the company charges nothing.

Second, National Debt Relief has been in business since 2007 during which time it has helped more than 100,000 individuals and families achieve debt relief.

Third, Studentloanconsolidationreviews.org gave National Debt Relief top marks because of the way it can help student debt strapped Iowans. “We liked the fact that the company offers a number of options for student loan repayment from the Department of Education,” said Studentloanconsolidationreviews.org spokesman Michael Smith. “This enables National Debt Relief to provide its clients with the one thats best suited to him or her given their financial circumstances. For example, one of the options available through National Debt Relief is Pay As You Earn repayment, which caps a persons monthly payments at 10% of his or her disposable income. And as you may have read, Pres. Obama recently signed an executive order that makes many more people eligible for this repayment program.”

Studentloanconsolidationreviews.org also ranked National Debt Relief number one as it has continuously maintained an A rating with the Better Business Bureau and that its a member of the American Fair Credit Council. Plus, its customer service can be reached by telephone (1-888-323-9006) at any time of the day of the week. National Debt Relief will even prepare all the paperwork required to get its customers into a new repayment program with lower monthly payments and better terms than what they currently have. While people can prepare the paperwork themselves for free many choose to let the professionals at National Debt Relief do this for them.

Studentloanconsolidationreviews.org’s analysis of debt relief companies available to Iowans ranked SoFi second as its business model offers less flexibility than that of National Debt Relief. This is because SoFi offers only debt restructuring and debt consolidation loans. Once a person signs for a loan from SoFi, its monthly payments, term and repayment options are fixed. In addition, SoFi uses peer-to-peer lending, which means the money comes not from a financial institution but from a person or group of people. In the case of SoFi, the lenders are alumni of the school that the borrower is either attending or attended. While there are 550 schools in the SoFi network, there are many that arent. If you attended one of those schools, you would be ineligible for either a loan or debt restructuring from SoFi.

For residents of Iowa having problems repaying your student loans should definitely go to http://www.Studentloanconsolidationreviews.org. to learn more about both National Debt Relief and SoFi.

Fitch Rates Navient Student Loan Trusts: 2014-2, 2014-3, 2014-4, 2014-5, 2014 …

August 14th, 2014

NEW YORK Fitch Ratings has assigned ratings to Navient Student Loan Trust 2014-2 through 2014-7 as follows:

Navient Student Loan Trust 2014-2

–$256,000,000 class A notes AAAsf; Outlook Stable;

–$7,000,000 class B notes AAsf; Outlook Stable.

Navient Student Loan Trust 2014-3

–$256,000,000 class A notes AAAsf; Outlook Stable;

–$7,000,000 class B notes AAsf; Outlook Stable.

Navient Student Loan Trust 2014-4

–$256,400,000 class A notes AAAsf; Outlook Stable;

–$7,000,000 class B notes AAsf; Outlook Stable.

Navient Student Loan Trust 2014-5

–$154,100,000 class A notes AAAsf; Outlook Stable;

–$4,200,000 class B notes AAsf; Outlook Stable.

Navient Student Loan Trust 2014-6

–$153,800,000 class A notes AAAsf; Outlook Stable;

–$4,200,000 class B notes AAsf; Outlook Stable.

Navient Student Loan Trust 2014-7

–$153,800,000 class A notes AAAsf; Outlook Stable;

–$4,200,000 class B notes AAsf; Outlook Stable.

Key Rating Drivers

High Collateral Quality: Each trusts collateral consists of 100% Federal Family Education Loan Program (FFELP) consolidation loans, approximately 15% of which are rehabilitated loans. The credit quality of the trusts collateral is high as the trust student loans are guaranteed for at least 97% principal and accrued interest by the US Department of Education (ED). Fitch currently rates the US at AAA/Stable Outlook.

Sufficient Credit Enhancement: The cash flow results for the class A and B notes in each trust were satisfactory under Fitch AAAsf and AAsf stresses, respectively. Total credit enhancement (CE) for each trust is provided by initial overcollateralization (OC) of approximately 2.3% of trust collateral balance, excess spread and, in the case of the class A notes, approximately 2.7% of subordination provided by the class B notes. A target OC amount equal to the greater of 4.50% of the adjusted pool balance and $2.75 million must be met before excess cash can be released.

Adequate Liquidity Support: Liquidity support is provided by a reserve account sized at 2.25% of initial student loan balance and funded at closing. The required reserve account balance for any distribution dates prior to Aug. 25, 2019 (the step-down date) is 2.25% of the current student loan balance; on and after the step-down date, the balance is the greater of 0.25% of the current student loan balance and 0.10% of the initial student loan balance.

Acceptable Servicing Capabilities: Navient Solutions, Inc. (formerly known as Sallie Mae, Inc.) will service approximately 79% of each trusts student loan pool; Xerox Education Services, LLC (Xerox-ES) will service 13% of 2014-2 and 21% of each of 2014-3 through 2014-7 pools; Great Lakes Education Loan Services, Inc. (Great Lakes) will service 8% of 2014-2. In Fitchs opinion, all of the servicers are acceptable servicers of FFELP student loans.

RATING SENSITIVITY

Since FFELP student loan ABS rely on the US government to reimburse defaults, AAAsf FFELP ABS ratings will likely move in tandem with the AAA US sovereign rating. Aside from the US sovereign rating, defaults and basis risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults and basis shock beyond Fitchs published stresses could result in future downgrades. Likewise, a buildup of CE driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.

Key Rating Drivers and Rating Sensitivities are further described in the pre-sale report titled Navient Student Loan Trusts: 2014-2, 2014-3, 2014-4, 2014-5, 2014-6 and 2014-7, dated Aug. 5, 2014, available on www.fitchratings.com, or by clicking on the link.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:

–Global Structured Finance Rating Criteria (May 20, 2014);

–Rating US Federal Family Education Loan Program Student Loan ABS Criteria (June 23, 2014).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

Rating US Federal Family Education Loan Program Student Loan ABS Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708795

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=851614

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCYS PUBLIC WEBSITE WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCHS CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Studentloanconsolidationreviews.org Reveals Top Two Student Debt Relief …

August 14th, 2014

Des Moines, IA (PRWEB) August 14, 2014

How much does student debt matter? The short answer to this is a lot – for people who are having a hard time repaying their student loans. For one thing, defaulting on student loans has a significant impact on credit scores just as does defaulting on an auto loan or a credit card debt. What makes this issue even more significant is the fact that Iowa students graduate owing an average student debt of $29,456, ranking it sixth worst in the nation. In addition, 71% of Iowa students are required to borrow money to finance their educations, which makes the state third worst in this category. On a brighter note, unemployment in Iowa as of June of this year was a healthy 4.4%.

The company Studentloanconsolidationreviews.org recently did a study of companies available to help Iowa students achieve student loan debt relief. What it found was that the top two are National Debt Relief and SoFi (Social Finance Inc.).

The analysis done by Studentloanconsolidationreviews.org focused on three factors. First, the companys business model, second its corporate history and third the form or forms of relief offered.

National Debt Relief was ranked best on all three of these criteria. For example, its business model is performance driven. It charges no upfront or maintenance fees. If it is unable to find a customer a repayment program with lower payments and a better term than what he or she currently has, the company charges nothing.

Second, National Debt Relief has been in business since 2007 during which time it has helped more than 100,000 individuals and families achieve debt relief.

Third, Studentloanconsolidationreviews.org gave National Debt Relief top marks because of the way it can help student debt strapped Iowans. “We liked the fact that the company offers a number of options for student loan repayment from the Department of Education,” said Studentloanconsolidationreviews.org spokesman Michael Smith. “This enables National Debt Relief to provide its clients with the one thats best suited to him or her given their financial circumstances. For example, one of the options available through National Debt Relief is Pay As You Earn repayment, which caps a persons monthly payments at 10% of his or her disposable income. And as you may have read, Pres. Obama recently signed an executive order that makes many more people eligible for this repayment program.”

Studentloanconsolidationreviews.org also ranked National Debt Relief number one as it has continuously maintained an A rating with the Better Business Bureau and that its a member of the American Fair Credit Council. Plus, its customer service can be reached by telephone (1-888-323-9006) at any time of the day of the week. National Debt Relief will even prepare all the paperwork required to get its customers into a new repayment program with lower monthly payments and better terms than what they currently have. While people can prepare the paperwork themselves for free many choose to let the professionals at National Debt Relief do this for them.

Studentloanconsolidationreviews.org’s analysis of debt relief companies available to Iowans ranked SoFi second as its business model offers less flexibility than that of National Debt Relief. This is because SoFi offers only debt restructuring and debt consolidation loans. Once a person signs for a loan from SoFi, its monthly payments, term and repayment options are fixed. In addition, SoFi uses peer-to-peer lending, which means the money comes not from a financial institution but from a person or group of people. In the case of SoFi, the lenders are alumni of the school that the borrower is either attending or attended. While there are 550 schools in the SoFi network, there are many that arent. If you attended one of those schools, you would be ineligible for either a loan or debt restructuring from SoFi.

For residents of Iowa having problems repaying your student loans should definitely go to http://www.Studentloanconsolidationreviews.org. to learn more about both National Debt Relief and SoFi.

Studentloanconsolidationreviews.org Reveals Top Two Student Debt Relief …

August 14th, 2014

>PRWEB.COM Newswire

Des Moines, IA (PRWEB) August 14, 2014

How much does student debt matter? The short answer to this is a lot for people who are having a hard time repaying their student loans. For one thing, defaulting on student loans has a significant impact on credit scores just as does defaulting on an auto loan or a credit card debt. What makes this issue even more significant is the fact that Iowa students graduate owing an average student debt of $29,456, ranking it sixth worst in the nation. In addition, 71% of Iowa students are required to borrow money to finance their educations, which makes the state third worst in this category. On a brighter note, unemployment in Iowa as of June of this year was a healthy 4.4%.

The company Studentloanconsolidationreviews.org recently did a study of companies available to help Iowa students achieve student loan debt relief. What it found was that the top two are National Debt Relief and SoFi (Social Finance Inc.).

The analysis done by Studentloanconsolidationreviews.org focused on three factors. First, the companys business model, second its corporate history and third the form or forms of relief offered.

National Debt Relief was ranked best on all three of these criteria. For example, its business model is performance driven. It charges no upfront or maintenance fees. If it is unable to find a customer a repayment program with lower payments and a better term than what he or she currently has, the company charges nothing.

Second, National Debt Relief has been in business since 2007 during which time it has helped more than 100,000 individuals and families achieve debt relief.

Third, Studentloanconsolidationreviews.org gave National Debt Relief top marks because of the way it can help student debt strapped Iowans. We liked the fact that the company offers a number of options for student loan repayment from the Department of Education, said Studentloanconsolidationreviews.org spokesman Michael Smith. This enables National Debt Relief to provide its clients with the one thats best suited to him or her given their financial circumstances. For example, one of the options available through National Debt Relief is Pay As You Earn repayment, which caps a persons monthly payments at 10% of his or her disposable income. And as you may have read, Pres. Obama recently signed an executive order that makes many more people eligible for this repayment program.

Studentloanconsolidationreviews.org also ranked National Debt Relief number one as it has continuously maintained an A rating with the Better Business Bureau and that its a member of the American Fair Credit Council. Plus, its customer service can be reached by telephone (1-888-323-9006) at any time of the day of the week. National Debt Relief will even prepare all the paperwork required to get its customers into a new repayment program with lower monthly payments and better terms than what they currently have. While people can prepare the paperwork themselves for free many choose to let the professionals at National Debt Relief do this for them.

Studentloanconsolidationreviews.orgs analysis of debt relief companies available to Iowans ranked SoFi second as its business model offers less flexibility than that of National Debt Relief. This is because SoFi offers only debt restructuring and debt consolidation loans. Once a person signs for a loan from SoFi, its monthly payments, term and repayment options are fixed. In addition, SoFi uses peer-to-peer lending, which means the money comes not from a financial institution but from a person or group of people. In the case of SoFi, the lenders are alumni of the school that the borrower is either attending or attended. While there are 550 schools in the SoFi network, there are many that arent. If you attended one of those schools, you would be ineligible for either a loan or debt restructuring from SoFi.

For residents of Iowa having problems repaying your student loans should definitely go to http://www.Studentloanconsolidationreviews.org. to learn more about both National Debt Relief and SoFi.

Read the full story at http://www.prweb.com/releases/student_loan_debt_relief/in_Iowa/prweb12085207.htm

Mortgage company closes doors in Wesley Chapel

August 13th, 2014

A corporate decision to leave the mortgage services business has put 10 people out of a job in Wesley Chapel.

Springleaf Financial has filed a Worker Adjustment and Retraining Notification, or WARN, with the Florida Department of Economic Opportunity, saying it plans to cut those jobs beginning in October. The office, according to the notice, is located at 2533 Windguard Circle, Unit 101, in Wesley Chapel, just across from Florida Hospital Wesley Chapel off Bruce B. Downs Boulevard.

Springleaf has decided to sell its mortgage services business, the Indiana-based company told The Laker/Lutz News, in a release. In conjunction with the sale, the company plans to close its facility in Wesley Chapel. This was a difficult decision, and where possible, we are working to place affected staff in new positions within the company.

The sale of the mortgage service division was part of nearly $7.2 billion worth of divisions Springleaf recently decided to part ways with.

These transactions represent a major milestone for Springleaf, bringing us to the point where we have effectively eliminated our exposure to mortgages, Springleaf president and chief executive Jay Levine said in a release earlier this month. These sales gives us tremendous flexibility to grow our business through organic and inorganic means.

Springleaf provides loans and other credit-related products to more than a half million families in 26 states, as well as Puerto Rico and the Virgin Islands, according to the companys website. It also provides bill consolidation loans, personal loans, home improvement loans, and loans for unexpected expenses and vacations.

The company went public in 2013.

Innovation and Industries: Financial Services

August 13th, 2014

This article originally appeared in Motley Fool Rule Breakers.

Banking, borrowing, and buying: From bartering sticks to digital transactions, the flow of money has come a long way, and todays improvements in technology are turning the most established of conventions upside down.

Here, well take a closer look at innovations in the financial services industry — online banking, payment processing, and crowdfunding — and talk about the companies tapping into them.

Banking
The Opportunity

The Economist recently compared finance to an economic time machine — helping savers transport todays surplus income into the future and giving borrowers access to future earnings now. If finance is the time machine, banks have long been the fuel — matching savers with borrowers and collecting interest spreads in the interim.

Banks have traditionally benefited from enormous switching costs. Switching banks is a pain, and a recent Accenture study found that 40% of US customers have been with their current bank for more than a decade. Relationships were important, and banks built out thousands of branches and a buffet of financial products to attract and maintain their customers.

But perhaps the buck stops here. The same study found that the younger generation isnt quite as interested in those physical branches:

  • 40% of 18-to-34-year-olds said they would gladly switch to a bank that was online only and had no physical branches.
  • 94% of 18-to-30-year-olds are already active users of online banking.
  • 71% of all respondents (any age) consider the relationship with their bank as transactional rather than relationship-driven

It seems the massive network of branches built by the largest of banks has shifted from being an asset to an enormous liability. Online-only banks dont have to pay the costs of running bricks-and-mortar locations, which is a savings they can pass along to customers in the form of more attractive interest rates. Theyre also able to avoid many of the hassles that have aggravated traditional banking customers for years: ATM fees, account statement fees, and the like.   

The Companies

When looking at any bank, there are a few metrics we must keep in mind — three of which are the efficiency ratio, the net interest spread, and the growth rate of both loans and deposits.

Rule Breakers discovered Bank of Internet (NASDAQ: BOFI) as a well-run, online-only bank that was hitting all of these metrics. In 2013, BofI enjoyed an efficiency ratio of only 41%, compared with traditional retail banks in the 50% to 60% range (note that lower is better here). The bank saw loans and deposits grow more than 30% last year, and the net interest margin was a healthy 3.8%.

We recommended BofI in November 2012 and again in May 2013. Even though our original recommendation has nearly tripled in less than two years (up 182%, beating the Samp;P by an incredible 140%), we still think there is plenty of upside from here. BofI is sitting on roughly $3 billion of deposits, which is roughly 1/380 of the $1.1 trillion that Bank of America holds, according to Capital IQ.

There are several other online-only banks emerging — some publicly traded — that offer various terms for their services.  When considering any of these as investments (or as a banking partner), think not only about the metrics described above but also managements track record and the quality of the loan portfolio. Online banking is an exciting field thats growing quickly, and the past five years have been a phenomenal time to make loans. But fundamentals such as risk management and conservative underwriting are still incredibly important, so management tenure should also be considered.

Payment Processing
The Opportunity

Human beings made $15 trillion of retail transactions last year. Thats a lot of money trading hands, and behind the scenes is a massive and profitable industry of payment processing.

Every time a credit or debit card gets swiped, retailers pay a 1% to 3% fee for payment processing.  This fee gets split up a few ways — an interchange fee goes to the bank that issued the card, and a bit goes to the retailers bank for clearing the transaction. But there are also virtual toll-booth collectors, such as Visa (NYSE: V) and Mastercard (NYSE: MA) , that take a cut of every transaction just for managing the information highway that the transaction was processed on.

Visa and Mastercard are juggernauts. They both have enormous market caps, enjoy greater than 40% net profit margins, and have provided phenomenal returns for investors.  Strong network effects further solidify their oligarchic position; consumers want to use credit cards that are accepted everywhere, and retailers want to accept credits cards used by the most consumers. Combined, Visa and Mastercard accounted for 87% of all global card transactions in 2013.

But even with such a strong competition position, the credit card companies show signs of being vulnerable. Security issues plagued Target (NYSE: TGT) over the 2013 holiday season, when it reported that it lost personal data on 40 million shoppers because of a security breach in its credit card machines. Whats more, technology is accelerating a broader shift in consumer preferences — from paying with credit cards to paying with mobile devices. Mobile opens the industrys doors to disruption. Research firm Gartner estimates that mobile payments have increased from $49 billion in 2010 to $235 billion in 2013, and theyre expected to reach $720 billion in 2017. Any industry that grows 15-fold, to nearly $1 trillion in less than a decade, is worth some Rule Breaking attention!

The Companies

So which companies should you consider? Several businesses and technologies are fighting for a piece of the mobile payments pie, but we should keep in mind that change isnt as easy as it seems. Retailers must first accept the terms (and fees) of the new mobile payment processor. Smartphones must have the appropriate middleware installed, to access and transact with their customers bank accounts. Telecom operators must have wireless networks that can securely handle the payments. And then theres the deal of privacy: How much of our purchasing and personal information are we comfortable being captured and shared for marketers to analyze?

Even considering these hurdles, three companies are really catching our eye. The first is PayPal — which is a fully owned subsidiary of eBay (NASDAQ: EBAY) (at least for now). PayPal accounts for nearly half of eBays total revenue, and its mobile payment transactions rose from $750 million in 2010 to $27 billion in 2013. PayPal allows for credit transactions and also for them to be bypassed by directly linking bank accounts (which makes it easy to transfer money between friends). It is quickly becoming a top dog in mobile payments, being accepted at more and more merchants and building strong network effects of its own.

A second company on our watchlist (and when is it not?) is Google (NASDAQ: GOOGL) . The company is embedding a technology called host card emulation, or HCE, into its newest Android operating system (dubbed KitKat).  HCE gives merchants access to consumers mobile devices without having to first obtain permission from the mobile network operators (which was one reason that the companys first attempt at mobile, Google Wallet, fell short). KitKat is now installed in 8.5% of all Android devices, up from 2.5% just five months ago. With more than 1 billion Android phones now in peoples pockets worldwide, Google has a captive user base who would love to use a convenient app to make payments.  Expect a lot more Googling goin on.

Lastly, we should keep our eyes on the social networks. Facebook (NASDAQ: FB) allows transactions and potentially money transfers between friends. With a user base that is larger than the population of India, Facebook hosts the largest social platform in the world. This will probably attract social transactions — such as Fantasy Football league dues or birthday presents. Even so, the golden goose for Facebook isnt the transactional fees. The company is much more interested in the metadata — which is the information about the purchases its users are making. This is of prime interest to advertisers, and thats where Facebook makes most of its money.

Crowdfunding
The Opportunity

Small businesses are the lifeblood of our economy.  Although there are nearly 18,000 US companies with more than 500 employees, 28.2 million have fewer than that.

Though smaller businesses constitute 99.7% of all US companies, the odds are certainly stacked against them. The Small Business Administration reports that half of new businesses fail within the first five years, and two-thirds close their doors within a decade. The most common reasons that companies give for failing? Lack of capital and lack of expertise.

Fortunately, theres a new way for the up-and-comers to raise early capital funding and gain access to a wide base of expertise. Its called crowdfunding.

Crowdfunding was initially conceived as a way to build brand recognition: Start-ups would offer a T-shirt or access to not-yet-released products in exchange for money from early supporters. Sites such as Kickstarter attracted artists and musicians who had a creative vision, as well as business success stories, such as Oculus Rift (now a part of Facebook) or Pebble.

But the rules are changing, and crowdfunding is about to become much more mainstream.

In October 2013, the SEC allowed companies to raise up to $1 million by selling equity directly to accredited investors (determined by annual income or net worth). The SEC is expanding the scope even further today, working on letting anyone – you, me, our grandmas — directly invest in small, private start-ups. Transactions could take place either through existing brokers (Scottrade, Fidelity) or on newly formed online portals.

In the grand scheme of things, crowdfunding will make it easier for small companies to fill up their piggy bank. These companies, previously unable to raise enough money to launch a product or campaign, can now compete against their bigger rivals. This could easily have bigger implications — such as accelerating the pace of innovation and lowering the barriers of entry — which could weaken the competitive position of existing market leaders across all industries.

The Companies

With crowdfunding being such a new trend, we dont yet have any public companies on our radar. We would expect the newly formed portal operators, such as SeedInvest or Indiegogo, to scale in size — pushing down commission costs and profiting from an increase in volume. There are also other peer-to-peer lending platforms, such as Lending Club, which allow borrowers to obtain unsecured personal loans (as opposed to equity) to start up their business.  Most players are still privately traded, but this is definitely a space worth keeping an eye on.

The Foolish Bottom Line

The financial-services business is massive, but theres a clear trend that transactions are increasingly being done over the Internet rather than in person. We believe that online banking, mobile transaction processing, and crowdfunding are three areas to watch as technology continues to innovate the flow of money.