Virtual Conference on Income Share Agreements

As many of you know, I direct the Student Loan Law Initiative at UCI Law, a partnership with the the Student Borrower Protection Center (SBPC). We recently announced a series of grants supporting empirical work on student loan law, including Slipster Adam Levitin!

Our partner, SPBC has also been very busy. As income share agreements have become a growing fixture in the student loan law marketplace, SBPC has put on a virtual conference series taking a deep dive into the legal underpinnings of ISAs and arguing that the the existing consumer protection framework already applies to these financial products. Each week has had a 90-min panel and a paper. The final panel in the series, on ISAs and State Law, is happening today at 2pm ET/11am PT (join live by clicking on "register" at the top right).

The first panel focused on the definition of credit and tackled the question of how to classify ISAs under federal consumer financial law. Oregon Attorney General Ellen Rosenblum delivered the keynote. The paper was written by Joanna Peart and Brian Shearer. Joanna was the former Enforcement Chief of Staff and Acting Principal Deputy Enforcement Director for the Consumer Financial Protection Bureau. Brian is the Legal Director of Justice Catalyst.

The second panel focused on the fair lending risks inherent in ISAs. FTC Commissioner Rohit Chopra was the keynote for the day’s event and the paper was written by Stephen Hayes and Alexa Milton. Stephen Hayes is a partner and Alexa Milton is an associate at Relman Colfax.

Today's final panel focuses on the application of state consumer lending and consumer finance laws to ISAs. The accompanying paper was written by Ben Roesch, an attorney at Jensen Morse Baker. Today's panel will be moderated by Jillian Berman from Marketwatch and also include panelists from the Oregon Department of Justice and National Consumer Law Center, among others.

Even if you cannot make this week’s panel live, all the expert panel discussion and papers will be available on the conference website: emergingrisks.org. And if you're interested in more student loan law research, join our mailing list.

CARES Act "Rebates" and Bankruptcy

Related to Pamela's last post and our article regarding garnishments and the CARES Act "rebates," the US Trustee issued a notice to Chapter 7 and Chapter 13 trustees giving them guidance on what to do about them in a bankruptcy case.

The top line: these payments should not be included in the statutory definitions of "current monthly income" or "disposable income" per the CARES Act itself. But the Act failed to discuss whether these payments are property of the estate, which typically would mean that they are. I know bankruptcy lawyers have been dealing with this already and many feared that some trustees would try to obtain these mounts. I was therefore very pleased to read this in the US Trustee notice, in particular the part in bold:

Regardless of whether the rebate is property of the estate, the United States Trustee expects that it is highly unlikely that the trustee would administer the payment after consideration of all relevant circumstances ... Trustees are directed to notify the United States Trustee prior to taking any action to recover recovery rebates or objecting to a chapter 13 plan based on the treatment of recovery rebates.

Help End the Student Debt Crisis (with Research)

America has a student debt problem. At over $1.6 trillion, outstanding student loan debt is the second-largest category of consumer debt after mortgages. Yet we still know relatively little about the effect of student loans on individuals, communities, states, and our country as a whole. For instance: What were the effects of income-driven repayment (IDR) plans on student borrowers’ financial health and spending habits? What credit usage behaviors predict student loan distress or defaults? Given the disparate impact of student debt on communities of color, what is the effect of this debt on their overall financial health and economic opportunity? 

The lack of answers to these questions motivated me and my UCI Law colleague Jonathan Glater to create the Student Loan Law Initiative (SLLI), a partnership with the Student Borrower Protection Center (SBPC). Our goal is to foster research that can arm policymakers, legislators, and advocates with the best information possible to find solutions to the student debt crisis. It's been a busy 9 months. I have three highlights to share: 

• Tomorrow, we're hosting a symposium titled, Consumer Protection in the Age of the Student Debt Crisis. The day will bring together academics and student loan law practitioners from across the country to discuss where we are and to set the agenda for where to go from here. The event is free and open to the public and will be webcast live tomorrow (2/21) between 9:30 a.m.- 4:30 p.m. PST. Papers will be published in the UC Irvine Law Review later this year. Follow the events on twitter with #SLLI.
• We've acquired two important datasets (including a credit panel with anonymized quarterly tradeline data on over 43 million consumers from 2004-19) that will help researchers answer some of these questions.
• We've launched a new grants program to support researchers of student loan law. The program will offer grants of up to $15,000 to support research on the effects of student debt on consumers’ financial lives and their communities. We'll prioritize applicants who propose to work with one of the datasets we've acquired but are seeking applicants from all fields: law, higher education, economics, and sociology. We're accepting rolling applications through April 1, 2020.

Graphic credit: Blob defeats the student loan monster. Cartoon from the Financial Distress Research Project self-help materials.

Call for Papers: The Consumer Financial Protection Bureau

On Friday, January 4 from 10:30-12:15 pm, the section on Commercial & Related Consumer Law and the section on Creditors’ and Debtors’ Rights are hosting a joint panel at the 2019 AALS Annual Meeting in New Orleans. We are also issuing a call for papers. 

The topic of the panel is: The Consumer Financial Protection Bureau: Past, Present, and Future. 

The Consumer Financial Protection Bureau was created following the 2008 financial crisis with the intended goal of making markets for consumer financial products and services work for all Americans. Congress granted the Bureau broad powers to enforce and regulate consumer financial protection laws and entrusted it with a number of consumer-facing responsibilities. This program will examine the tumultuous history of the CFPB, from its creation as part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, its actions over Director Richard Cordray’s tenure, the legal fight over who currently leads the Bureau, and the actions of the interim director named by President Trump. Panelists will also discuss the possible future of the CFPB and the “lessons learned” from its history and what they tell us about future fights to ensure consumers are protected in the financial products marketplace.

Confirmed speakers include:

• Patricia McCoy, Liberty Mutual Insurance Professor of Law at Boston College Law and first Assistant Director for Mortgage Markets at the CFPB.
• Kathleen Engel, Research Professor of Law, Suffolk University School of Law, member of Consumer Financial Protection Bureau Board.
• Deepak Gupta, founding principal of Gupta Wessler PLLC and a former Senior Litigation Counsel and Senior Counsel for Enforcement Strategy at the CFPB. Gupta also represents Leandra English in English v. Trump.

Proposed abstract or draft papers are due by August 15, 2018 and should be submitted using this form to ensure blind review. Members of both sections’ executive committees will review and select papers for the program. The author(s) of the selected paper will be notified by September 28, 2018.

For more information, see the full description of the a call for papers here.

Please direct any questions about this Call to Professors Dalié Jiménez and Lea Krivinskas Shepard.

John Oliver and Consumer Law YouTube Videos

I'm trying something new this year. My consumer bankruptcy policy seminar students will read many great articles by many wonderful academics on this blog, as well as others, but this year, their "reading" will also include a great deal of YouTube.

90% of the videos are John Oliver segments from his excellent show on HBO, Last Week Tonight. They cover particular "products" (student loans, credit reports, debt buying, payday loans, auto loans, retirement plans and financial advisors) and middle class issues (minimum wage, wage gap, wealth gap, paid family leave).

I thought Credit Slips readers might enjoy seeing them all in one place. Here they are in no particular order. Let me know if I've missed any!

Clawing Back Tuition Payments

Are tuition payments for an adult child's education, while the parents are insolvent, constructively fraudulent? As the WSJ reported this week, Bankruptcy Judge Hoffman (D. Mass.) recently held that they are not. But other courts have disagreed. In fact, there seem to be courts on both sides of this (although apparently, no circuit decisions yet).

In this latest case, In re Palladino, the debtors made tuition payments for their adult daughter's college education. There was no question that the debtors were insolvent when they made payments or that they did so within the last two years. The only question was whether the debtors received "reasonably equivalent value" (REV) under section 548 of the Bankruptcy Code (and Massachusett's UFTA). That section defines value as "property, or satisfaction or securing of a present or antecedent debt of the debtor, but does not include an unperformed promise to furnish support to the debtor or to a relative of the debtor." 548 (a)(2)(A). Courts have interpreted REV as requiring an economic benefit, which could be indirect, but has to be "concrete" and "quantifiable."

Here, the court explained that

[The Palladinos] believed that a financially self-sufficient daughter offered them an economic benefit and that a college degree would directly contribute to financial self-sufficiency. I find that motivation to be concrete and quantifiable enough ... A parent can reasonably assume that paying for a child to obtain an undergraduate degree will enhance the financial well-being of the child which in turn will confer an economic benefit on the parent. This, it seems to me, constitutes a quid pro quo that is reasonable and reasonable equivalence is all that is required.

Opn. at 8 (emphasis mine).

Can a Nonprofit Startup Fix the Pro Se Problem in Bankruptcy?

For the past four years, Jim Greiner, Lois Lupica, and I have been working on the Financial Distress Research Project (FDRP)*, a large randomized control trial trying to find out what works to help individuals in financial distress. As part of the project, a large number (70+ at last count) of student volunteers have created self-help materials aimed at these individuals, using the latest learnings in adult education, psychology, public health, and more. Part of our work has focused on creating a set of materials to help pro se filers through a no asset Chapter 7 bankruptcy (I blogged about the student loan AP materials here).

Attorney Market for Discharging Student Loans

On Friday, Tara Siegel Bernard reported in the New York Times that some bankruptcy judges think that the onerous Brunner standard for discharging student loans should change. Commenting on the article, reader "alma" writes:

As someone who recently filed for bankruptcy and has more than $100,000 in student loan debt, I can tell you why I did not try to get relief from student loans: I did not know it was an option. My lawyer simply told me that it was not possible to have student loans discharged. This article is the first I have even heard there was any method to do so ....

From the rest of the comments, this poster is not alone. Some of this may be explained by clients misunderstanding what's said (where the attorney means they don't think that this particular client will succeed in obtaining a discharge). But especially pre-2005 when the law was murkier, I do wonder about the level of advice given to filers.

Attempting to discharge student loans costs extra money, something bankruptcy clients are unlikely to have. Given the low numbers of attempts, it's unlikely any given bankruptcy attorney has any experience filing such a case. Doing it is no simple matter either; it's literally a federal case. I've only found one book out there detailing how to file an adversary proceeding to discharge student loans in bankruptcy. 

My own limited experience is that this is (unsurprisingly) quite hard. As part of a larger study, Jim Greiner, Lois Lupica, a couple of dozen students, and I have been working to create a DIY guide to a no-asset Chapter 7 bankruptcy guide, complete with a module on representing yourself through an adversary proceeding to discharge student loans. We just posted a paper on the philosophy behind our materials (and why we include cartoons like the one above). If we succeed, we hope that the materials we create will be useful to attorneys as well as pro se individuals. But there has to be a market before attorneys will use them.

What say you, Credit Slips readers, are bankruptcy attorneys offering student loan discharge services? Do clients want them? Can they afford them?

The cartoon credit goes to Hallie Pope. Hallie is the creator of "Blob" and other cartoons featured in the self-help materials in the Financial Distress Research Study.

Big Win for CFPB on Debt Collection

Yesterday, Judge Amy Totenberg of the Northern District of Georgia issued a very cogent 70-page opinion in the case of the CFPB v. Frederick Hanna & Associates, a large collection law firm with offices in Georgia, Florida, and South Carolina. The opinion denies Hanna's motion to dismiss in its entirety, and almost completely agrees with the CFPB's legal theory. In doing so, the opinion deals a serious blow to the collection law firm business model.

A brief recap of the case if you haven't been following. A year ago, the CFPB filed suit against the Hanna law firm essentially attacking the big collection law firm business model. Among other things, the CFPB alleged that the firm operated "less like a law firm than a factory" and that attorneys were not "meaningfully involved" in the collection lawsuits they filed. As an example, the CFPB alleged that one attorney in the Hanna firm signed about 138,000 lawsuits between 2009-10. That's 189 lawsuits per day, 7 days a week, 52 weeks a year.

The second CFPB claim was that in filing most of its lawsuits on behalf of debt buyers, the law firm "knew or should have known that many of the[] affidavits [they filed] were executed by persons who lacked personal knowledge of the facts." The Bureau sued under both the Fair Debt Collection Practices Act (FDCPA) and the Consumer Financial Protection Act (CFPA) for what it alleges were false or misleading and unfair acts and practices.

The opinion allows the Bureau to proceed on all of these claims. Specifically, Judge Totenberg (who incidentally, is Nina Totenberg's sister) found that the Bureau could regulate collection attorneys under the CFPA (the first time any court considered this issue), that the "meaningful involvement doctrine" extends to activities in litigation, and that the Hanna firm might be liable for filing affidavits given to it by its clients if the CFPB can prove its allegations.

The last two points are huge because it means that collection attorneys will have to spend some time reviewing the collection cases they file. (How much time and what constitutes enough "involvement" is up in the air). Nonetheless, this completely up-ends the business model of at least some collection law firms. As Joann Needleman has pointed out at InsideARM, an interlocutory appeal is unlikely to succeed here, so look for the CFPB to file more cases (or enter into consent decrees) with more law firms.

Stale Debts in Bankruptcy

Should liability under the Fair Debt Collection Practices Act (FDCPA) lie against a creditor who submits a proof of claim past the statute of limitations in a consumer bankruptcy case?

That is the question the Supreme Court declined to review recently in LVNV Funding, LLC v. Crawford. In Crawford, the Eleventh Circuit applied the "least sophisticated consumer" standard to find liability for the debt buyer when it submitted a proof of claim in 2008 for a debt that was out of statute as of 2004. Other courts have held differently. In fact, just last month, district courts in Indiana and Pennsylvania dismissed FDCPA suits against debt buyers under essentially the same facts as Crawford. Other courts, including the Second Circuit, have seemingly held that FDCPA liability can never lie in a bankruptcy case.

Putting the merits of applying the FDCPA in a bankruptcy case aside, it seems to me that in this specific instance potential liability under the Act could serve very useful functions: namely efficiency and cost savings.

Are Some Banks Using Credit Reports to Help Collect Discharged Debts?

Last week, Adam pointed us to a NYT's story on "zombie debt" after bankruptcy. I did a bit more research into the story because I had a hard time understanding the problem from the article.

There are a few lawsuits that have been filed about this (I found ones against GE Capital/Synchrony, Bank of America/FIA Card Svcs, Citigroup, and Chase). The GE complaint alleges that the banks have a systematic practice of "selling and attempting to collect discharged debts and ... failing to update and correct credit information to credit reporting agencies to show that such debts are no longer due and owing because they have been discharged in bankruptcy." You can download the complaint in the GE case here.

More specifically, the allegations are that after a discharge, some creditors do not update their tradelines to a status of "in bankruptcy" and instead leave them as "charged-off." The credit report of a person in this situation would then say they have filed bankruptcy and obtained a discharge but you could not tell whether any individual debt has been discharged in that bankruptcy. The (non-binding) credit bureau reporting guidelines (METRO 2) specify that creditors should report accounts as "included in bankruptcy" once they receive a notice of discharge.

The complaint characterizes GE's argument as being that the FCRA does not require it to make this change, perhaps especially in particular after a debt has been sold and they no longer have an interest in it. (GE has not filed an answer yet, but it seems like this is one argument they might make from reading their other filings). That seems to me to be a wrong interpretation of the FCRA and the FTC's Furnisher Rule. It should also be a violation of the discharge injunction. As Judge Drain put it in an opinion denying a motion to compel arbitration:

One could argue that the reporting of a discharged debt as still outstanding when the credit report also shows that the debtor has been in bankruptcy is even a worse result, indicating to those who are considering providing credit in the future that the debtor has fallen into the category of the dishonest debtor who did not receive a discharge.

I am told that NPR's On Point will be doing a segment on this on Thursday at 10AM EST with one of the attorneys filing these cases. You can listen to the podcast here.

Note: post has been edited to correct the timing of the NPR program and to add the link to the podcast.

Bad Paper: Chasing Debt from Wall Street to the Underworld

That's the name of a new book by Jake Halpern coming out in October. The New York Times has an excerpt on their site. If the excerpt is anything like the book, it's going to be gripping.

What's even cooler is that someone actually created a video game based on the book. Or at least on the debt collector business part of the book. You can play as a debtor or a debt collector and see the story through. It's web-based image-and-text but really well done (just some minor innacuracies).

 

CFPB: Let Consumers Make Their Complaints Public; All Rejoice

This week the CFPB announced it's seeking public comments on a proposed policy that would allow consumers who file a complaint with the agency to share all of the (non-personally identifying) details of that complaint with the public as part of its Consumer Complaint Database. (Right now the database only identifies the financial product complained about, name of the company, and a category identifying the topic of the complaint).

As a researcher, I am beyond thrilled at the possibility of being able to drill down into the details of complaints. This might allow us to go even further than the CFPB or Ian Ayres and others did last year in analyzing the complaint database. 

Good players in the consumer finance space should be thrilled too: more data will allow us to really separate those who are doing right by consumers from those who aren't. It would allow the public or researchers to decide for themselves whether someone was making a mountain out of a molehill or if was identifying a real problem in their complaint. The fact that we currently don't have transparecy into complaints is a common (and justified) complaint by the debt collection industry. The CFPB is also proposing to make public the institution's response to the complaint (at their option). Anyone could then evaluate whether they think particular industries/institutions are responding appropriately to complaints. 

General Mills: About-Face

General Mills decided to reverse direction on its recent change to its terms of service purporting to mandate arbitration and ban class actions for anyone who 'liked' them (among other things). Perhaps they were threatened by Adam Levitin's counter-proposal, or maybe it was the widespread outraged reaction on Twitter and all manner of social media. 

Hurray for consumer advocates! They not only got a complete pivot, but they also got an apology (of sorts: "We're sorry we even started down this path"). The way the company characterizes what happens though, is telling:

We’ll just add that we never imagined this reaction. Similar terms are common in all sorts of consumer contracts, and arbitration clauses don’t cause anyone to waive a valid legal claim. They only specify a cost-effective means of resolving such matters. At no time was anyone ever precluded from suing us by purchasing one of our products at a store or liking one of our Facebook pages. That was either a mischaracterization – or just very misunderstood.  

As others have pointed out, whether or not the language of the previous agreement would've been enforceable, it did purport to do what the media reported. But the more interesting recharacterization in their post is this notion that "arbitration clauses don't cause anyone to waive a valid legal claim" which they also mentioned in their previous blog post explaining the changes.

The General is being quite disengenous by claiming that waiving the right to file a class action does not mean consumers would've given up valid legal claims. The curious part is that there's no mention of the class action waiver in either of its blog posts about the terms or even in the New York Times article breaking the story (HT to Daniel Fisher over at Forbes for pointing this out).

But that's where the meat of the story is. And it's the most important victory for consumers to come out of all of this outrage. Now if we could get some more outrage for financial products class action waivers ... 

Suffolk/NCLC Student Loans Symposium

I had the pleasure of participating in this weekend's very successful Research Symposium on Student Loans organized by Kathleen Engel of Suffolk Law School and Deanne Loonin of the National Consumer Law Center (NCLC) (NCLC, by the way, is looking to hire three attorneys!). In this post I want to mention some of the highlights.

The symposium was not your typical academic conference. Although almost 20 papers were presented during the two days, a number of participants were from industry and nonprofits. Participants also heard from an NCLC client who had actually dealt with student loan issues and come out the other side. This was, as one speaker mentioned, the conference some of us had been waiting for. 

The speakers also included former Slips regular and now senior Massachusetts Senator Elizabeth Warren (pictured at the event). The Senator focused her remarks on her proposal to allow refinancing of student loans (federal and private) at the interest rates Congress approved last summer (3.86% for undergraduate loans and 5.41% for grad unsubsidized loans). She noted that this is just a small step on the road to fixing the problems with the student loan system but since Congress not too long voted to lower future students' interest rates agreeing that they were too high she is hoping this proposal might actually have some political legs.  

Debt Collection Complaints and Regulation: Last Chance to Comment on ANPR

Today is your last chance to comment on the CFPB's Advanced Notice of Proposed Rulemaking on Regulation F, regarding debt collection.  I had the pleasure of working with Pat McCoy on a joint comment to the ANPR.  Our comment addresses documentation and information requirements for collectors, chain of title issues, and debt repositories.

After reading two reports released yesterday I'm even more convinced that these are among the most critical issues.  The FTC announced their top 2013 complaints (debt collection still the top industry complained about) and US PIRG released a report on the more than 11,000 complaints the CFPB received on debt collection over a six month period.  The PIRG report in particular highlights just how important the integrity of the information and documentation passed from collector to collector is (and how badly this is working right now).  Most consumers were complaining that the debt was not theirs (25%), they were not given enough information to verify the debt (13%), or that the debt had already been paid (11%).  

This is exactly the underlying issue that we address in our ANPR comment: something is very wrong when a debt buyer only gets a spreadsheet with some information about the debt, gets no documents in connection with the debt, signs a contract where the seller doesn't stand behind the information sold (and sometimes specifically says amounts or interest may be wrong), and then attempts to collect on that debt. I've argued that this violates the FDCPA.  In our comment we try to propose some ways to fix this problem going forward.

I urge Credit Slips readers to send in your comments before the 11:59pm deadline.

CapitalOne Contract Not Just Creepy But Illegal?

CapOne's taken a lot of flack today over its apparent desire to check what's in your wallet by visiting you at home and at work.  The LA Times story got even bigger when it made it to Twitter and  great (and lots of bad, see previous sentence) puns started rolling in.

The company answer seems to be that language from a security agreement for snowmobiles got "mixed in" with the credit card language (and no one over there is reading their 6-page contracts). They are now "considering creating two separate agreements given this language doesn’t apply to our general cardholder base."  

I wonder if that means that they'll also revisit the part of the credit card agreements that takes a security interest in anything you buy from Best Buy, Big Lots, Jordan's Furniture, Neiman Marcus/Bergdorf Goodman, or Saks?  (I should note, your clothes are only in danger if you have a Saks "retail" card; if your card is a Platinum or World card not only is your interest rate likely lower but it seems your stuff is also safe).

Debt Collection Industry Poised for Changes

Like Pamela, I’m very delighted to join Credit Slips. As Bob mentioned in his kind introduction, I spent a year as a policy fellow at the Consumer Financial Protection Bureau. One of the most things I got to work on while I was there were the rules defining "large market participants" in the debt collection and credit reporting markets. After issuing final rules, the CFPB began to supervise these non-bank entities; marking the first time any federal regulator had the authority to do so. 

Recently, the Bureau published an Advanced Notice of Proposed Rulemaking on debt collection (comments are due by February 28). The ANPR marks the first time that a regulator will interpret the Fair Debt Collection Practices Act, a statute that has barely changed since its enactment in 1977. What's more, because of its UDAAP authority; the CFPB will be able to write rules defining unfair, deceptive, and abusive practices that apply to both collectors and creditors. I've written elsewhere about how the systemic problems in the collections ecosystem begin at the creditor, so this is exciting news. What might be surprising though is that the collections industry seems to share in this excitement.