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Sitting in the Back Row

posted by Bob Lawless

This semester, I am teaching a required first-year course that teaches principles of statutory interpretation within a specific topic, and for my topic I am teaching the consumer credit statutes. As I have posted about previously, I structured my course as a mini-legislature. Students elected a speaker and adopted their own set of procedures to vote on amendments to the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), or the Illinois Payday Loan Reform Act (ILPRA).

Recently, we had our committee hearings, which consisted of students presenting their proposed legislation to the class. I just sat in the back row and listened. This is depressing for several reasons. First, the more I stay out of their way, the more they apparently learn. I watched presentation after presentation where students had studied each of these statutes, researched the academic literature and public-interest reports about problems with the statutes, and proposed changes to the statutes to make them work better. The other thing one learns sitting in the back row is that are more students than you would hope reading e-mail or surfing the Net instead of listening to their colleagues' presentations (note well if you are one of my students!).

I have been very impressed by the proposals that my students have made, and I thought I would share a few of them here. To catalog all of them would take too many pages, and this post will be long enough as it is.

The FDCPA has received the lion's share of the class's attention. Probably the most popular change is increasing the statutory penalties for violations of the FDCPA. As it currently stands, the statutory penalty for FDCPA violations is capped at $1,000. A consumer can collect their actual damages for violations of the FDCPA, but very few consumers have out-of-pocket, actual damages for FDCPA violations. Class action recoveries are capped at the lesser of $500,000 or one percent of the debt collector's net worth. The students have proposed elimination of the cap on class action damages and raising of the statutory penalty up to an amount of $50,000.

One particular proposal got at the troubling question of what do with thinly capitalized debt collector affiliates of large corporate groups. An FDCPA claim against the thinly capitalized affiliate may be worth very little if the affiliate has no assets with which to pay the claim. The proposal would prohibit evasion of FDCPA liability by "corporate or technological circumvention," a term that would include a corporate reorganizations or restructurings as well as any other "business practice."

For the ILPRA, the proposals deal with a variety of subjects, but they all tend to address the loophole the state payday lending law left open. Under the ILPRA, short-term lenders can avoid statutory regulation simply by offering loan products with a term of more than 120 days in which case the loan does not meet the definition of a "payday loan." Closing the loophole is more difficult than identifying. One proposal took the approach of simply defining a payday loan in terms of an interest rate. Under this proposal, if the loan carried more than a 36% interest rate, it would be subject to the statute. The proposal specifically excepts traditional lending products subject to other regulatory schemes like home mortgages and credit cards.

FCRA received less attention from the students. I am not sure why that is, but I have a guess as to some reasons. Congress made substantial amendments to FCRA in 2003; the statute is lengthier and more technical, and for those reasons, it presents less obvious opportunities for improvement. It's not that FCRA is a perfect statute. Rather, there is some information in the fact that, when presented with an assignment to recommend amendments to these three statutes, students gravitated toward the FDCPA and the IPLRA. One of the proposals to tackle FCRA proposed the creation of a Nonprofit Reinvestigation Agency. These nonprofits would play the role of intermediary between credit reporting agencies and consumers in trying to settle disputed information on credit reports. Of course, the difficulty there is to find the funding. The proposal would have the funding come from fees the nonprofit intermediaries would collect from the credit reporting firms after resolving a dispute.


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