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Consumer Rights to Know Regarding Adverse Action

posted by Adam Levitin

Four core federal consumer financial laws—the Truth in Lending Act (and Reg Z), the Electronic Fund Transfer Act (and Reg E), the Real Estate Settlement Procedures Act (and Reg X) and the Equal Credit Opportunity Act (and Reg B)—all have a mechanism whereby a consumer has a right to know why a financial institution denied a claim of an error or a credit application.  I've often puzzled over how much work these provisions really do--TILA and EFTA and RESPA are attempts at informal dispute resolution, while ECOA is a way of policing discriminatory lending (if the creditor cannot come up with a plausible reason for the denial, there's a problem).  But at the end of the day, there's no guaranty of any relief for consumers from these provisions.  

Today, however, I started to understand these provisions better because of the mess that's going on with student loan forgiveness.  The federal government has a major loan forgiveness program for those who work 10 years in public service or at non-profits. Apparently some applications for loan forgiveness eligibility have been denied without any explanation. That really puts borrowers at a loss--they can't tell if the problem is simply a missing form or incorrect paperwork or that they truly aren't eligible or that's the government's loan servicing agent has made a mistake.  That's a pretty awful situation because without more information, a consumer cannot figure out if there's a simple, low-cost way to resolve the issue, if the only solution is through litigation, or if the consumer is truly in the wrong.  

On a related note, the potential revocability of the loan forgiveness eligibility letters strikes me as teeing up the mother of all promissory estoppel cases. 

Comments

This really is a bad situation, since a cost versus benefit analysis as to whether to sue or not can't even be done.

At the very least, do these consumer finance laws allow for recovery of attorney's fees and costs? Also, do they have provisions for "bad faith" denials, like with insurance companies?

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