For those of you writing on student loans, you may be interested in a new call for papers for a conference I am working to organize. On November 30, 2018, the Rappaport Center for Law and Public Policy, Boston College Law School, and the National Consumer Law Center will hold a daylong symposium on Post-Secondary Education Non-completion and Student Loan Debt on the Law School campus. Our call for papers is out and we are accepting submissions through midnight on Sunday, June 17, 2018. We are especially interested in proposals that examine some aspect of the interaction among student debt, college completion, and/or resulting socioeconomic outcomes. Do consider submitting.
Category: Credit Policy & Regulation
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How to Tie CFPB Enforcement Up in Knots
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While Acting Director Mick Mulvaney is apparently on a tear to defang the Consumer Financial Protection Bureau, some of his actions have flown under the radar. In this and future guest blog posts, I will shine light on one key initiative that largely has gone unnoticed: namely, the twelve Requests for Information that Mr. Mulvaney launched on January 26. These notices, dubbed "RFIs," seek public comment on scaling back every core function of the CFPB, from enforcement and supervision to rulemaking and consumer complaints.
Although the RFIs provide the veneer of public participation, in reality they are slanted toward industry. Many are couched in such vague language that consumers and consumer advocates cannot tell which rollbacks are gaining traction behind closed doors. Just last week, Mr. Mulvaney raised new concerns that the RFI process is infected with bias when he personally pressed bankers attending a meeting of the National Association of Realtors to file responses to the RFIs.
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Call for Papers: The Consumer Financial Protection Bureau
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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.
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Trump’s Bank Regulators
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ProPublica’s new web site “Trump Town” tracks political appointees across federal agencies. In light of the president’s promises to “drain the swamp”, it is interesting to peruse some of the Treasury Department appointees responsible for bank regulation. I previously wrote about Secretary Mnuchin and Comptroller Joseph Otting and their connections to subprime mortgage foreclosure profiteers. Lower-level political appointees at Treasury seem to come mostly from one of three backgrounds – lawyers and lobbyists for banks, real estate investors (and sometimes Trump campaign officials), or former staffers for Republican members of Congress. Here are some examples:
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Fed chair Powell to Congress – make student loans dischargeable in bankruptcy
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Coverage of Federal Reserve Chairman Jerome Powell's Congressional testimony highlighted his optimism about economic growth and its implications for future interest rate hikes. Less widely covered were his brief remarks on the student loan debt crisis. Citing the macroeconomic drag of a trillion-and-a-half dollar student loan debt, chairman Powell testified that he "would be at a loss to explain" why student loans cannot be discharged in bankruptcy. According to Fed research, Powell noted, nondischargeable student loan debt has long-term negative effects on the path of borrowers' economic life.
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Preempting the states: US Ed to shield debt collectors from consumer protection
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As if the power to garnish wages without going to court, seize federal income tax refunds and charge 25% collection fees weren't enough, debt collectors have now persuaded the Education Department to free them from state consumer protection laws when they collect defaulted student loans. Bloomberg News reports that a draft US Ed federal register notice announces the Department's new view that federal law preempts state debt collection laws and state enforcement against student loan collectors. This move is a reversal of prior US Ed policy promoting student loan borrower's rights and pledging to "work with federal and state law enforcement agencies and regulators" to that end, as reflected in the 2016 Mitchell memo and the Department's collaboration with the CFPB.
Customer service and consumer protection will now take a back seat to crony profiteering by US Ed contractors. This news item has prompted a twitter moment.
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The Student Loan Sweatbox
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Student loan debt is growing more rapidly than borrower income. The similarity to the trend in home loan debt leading to the subprime mortgage bubble has been widely noted. Student loan debt in 1990 represented about 30% of a college graduate’s annual earnings; student debt will surpass 100% of a graduate’s annual earnings by 2023. Total student loan debt also reflects more students going to college, which is a good thing, but the per-borrower debt is on an unsustainable path. Unlike the subprime mortgage bubble, the student loan bubble will not explode and drag down the bond market, banks and other financial institutions. This is because 1) a 100% taxpayer bailout is built into the student loan funding system and 2) defaults do not lead to massive losses. Instead, this generation of students will pay a steadily increasing tax on their incomes, putting a permanent drag on home and car buying and economic growth generally. Student loan defaults do not result in home foreclosures and distressed asset sales. They result in wage garnishments, tax refund intercepts and refinancing via consolidation loans, and mounting federal budget outlays. In many cases, borrowers in default repay the original debt, interest at above-market rates, and 25% collection fees. In other words, defaulting student loan borrowers will remain in a sweatbox for most of their working lives. Proposals to cut back on income-driven repayment options will only aggravate the burden, further shifting responsibility for funding education from taxpayers to a generation of students.
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Letting the Money Changers Back in the Temple
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Golden Valley Lending, Inc. is a payday lender that charges 900% interest on consumer loans sold over the internet. Golden Valley relies on the dubious legal dodge of setting up shop on an Indian reservation and electing tribal law in its contracts to evade state usury laws. In April 2017 the Consumer Financial Protection Bureau filed an enforcement action asserting that Golden Valley and three other lenders were engaged in unfair debt collection practices because they violated state usury laws, and also failed to disclose the effective interest rates, violating the federal Truth in Lending law (enacted in 1969).
Mick Mulvaney, President Trump’s interim appointee to direct the CFPB, has now undone years of enforcement staff work by ordering that the enforcement action be dropped. The advocacy group Allied Progress offers a summary of Mulvaney’s special interest in protecting payday lenders, in South Carolina and in Congress, and the campaign contributions with which the payday lenders have rewarded him.
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Student loans – the debt collector contracts
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Twelve senators have just written
to Education Secretary Betsy DeVos questioning why the Education Department continues to award lucrative contracts to debt collection firms, and criticizing the seriously misaligned incentives embedded in those contracts.
While most federal student loan borrowers deal with loan servicing companies like PHEAA, Navient and Nelnet, defaulting borrowers in an unlucky but sizeable minority (roughly 6.5 million) have their loans assigned to debt collectors like Collecto, Inc., Pioneer Credit Recovery, and Immediate Credit Recovery Inc. Borrowers assigned to collection firms immediately face collection fees of 25% added on to their outstanding debt. The collection firms harvest hundreds of millions of dollars in fees, mostly from federal wage garnishments, tax refund intercepts, and new consolidation loans borrowers take out to pay off old defaulted loans. Wage garnishments and tax refund intercepts are simply involuntary forms of income-based repayment, programs that could be administered by servicers without adding massive collection fees to student debt. Similarly, guiding defaulted borrowers to consolidation loans, and putting them into income-driven repayment plans, are services that servicing contractors can and do provide, at much lower cost. In short, the debt collector contracts are bad deals for student loan borrowers and bad deals for taxpayers.
According to a Washington Post story, one of the collection firms to be awarded a contract this year had financial ties to Secretary DeVos, although she has since divested those ties. In other news, the current administration apparently reinstated two collection firms fired under the prior administration for misinforming borrowers about their rights. More in-depth analysis of the collection agency contract issue by Center for American Progress here.
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The Bootstrap Trap
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I just had the pleasure of reading Duke Law Professor Sara Sternberg Greene's paper The Bootstrap Trap. I highly recommend it for anyone who is interested in the intersection of consumer credit and poverty law. The paper is chok full of good insights about the problems that arise when low-income households strive for the goal of self-sufficiency, which results in the replacement of a public welfare safety net with what Professor Sternberg Green describes as a private one of credit reporting and scoring systems. The paper shows off Professor Sternberg Greene's training in sociology with some amazing interviews, particularly about the perceived importance of credit scores in low-income consumers' lives.
Other respondents referred to their credit reports or scores as “the most important thing in my life, right now, well besides my babies,” as “that darned thing that is destroying my life,” and as “my ticket to good neighborhoods and good schools for my kids.” Many respondents believed that a “good” credit score was the key to financial stability.
One respondent, Maria, told a story about a friend who was able to improve his score. She said, “He figured out some way to get it up. Way up. I wish I knew what he did there, because I would do it. Because after that, everything was easy as pie for him. Got himself a better job, a better place to live, everything better.” Maria went to great lengths to try to improve her score so that she, too, could live a life where everything was “easy as pie.”
Credit scores have become a metric of self worth and the perceived key to success.