Showing posts with label Educational Credit Management Corporation. Show all posts
Showing posts with label Educational Credit Management Corporation. Show all posts

Friday, April 21, 2017

Recent Navient and National Collegiate Student Loan Bankruptcy Rulings – March 2017: A Must-Read Article by Steve Rhode

If you are overwhelmed by your student loans and thinking about filing for bankruptcy, you should read this essay by Steve Rhode. Mr. Rhode examined recent bankruptcy court adversary proceedings in which student borrowers brought complaints against Navient or National Collegiate Student Loan Trust. As Mr. Rhode relates, debtors often won significant relief in these lawsuits--sometimes through settlement agreements.

Why is Mr. Rhode's article important to you?

First, his article contains links to adversary complaints that were drafted by attorneys. If you file your own adversary complaint against your student-loan creditor, you can use these complaints as templates to file your own complaint.

Second, the proceedings Mr. Rhode examined show various theories under which debtors sought to have their loans discharged. Some of those theories might work for you.

I am frankly surprised that debtors were so successful in the cases Mr. Rhode analyzed. I wonder whether Navient and National Collegiate Student Loan Trust are more amenable to settlement than Educational Credit Management Corporation and the U.S. Department of Education. ECMC and the Department of Education have opposed bankruptcy relief in a multitude of cases, even in cases where it was clear the debtor was desperate. (See for example, Roth v. ECMC and Abney v. U.S. Department of Education.)

Mr. Rhode has presented us with a very useful analysis of recent adversary proceedings against Navient and National Collegiate Student Loan Trust. A trend may be developing toward better bankruptcy outcomes for distressed student-loan debtors. Wouldn't that be a terrific development?




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Out of curiosity I decided to take a look at recent bankruptcy Adversary Proceedings that had closed against Navient and National Collegiate Student Loan Trust. I looked at a number of cases and it appears people who filed their own Adversary Proceeding against their student loan holders had a less favorable outcome. Those people represented by an attorney, fair better.

At the very least, while the debt may not have been completely eliminated there were certainly some very deep discounts in the amount owed. Also the outcomes in all cases is not always apparent.

For example in Medina v. National Collegiate Student Loan Trust there was an apparent settlement agreement that contained a “release of liability. The Adversary Proceeding was then dismissed. – Source

Medina had asserted in his lawyer prepared complaint that his student loans should be discharged because his flight school was a “sham,” the loans were not used for a qualified educational purpose, and the school was not properly certified. These are issues raised over in this article. – Source

In the case Ard-Kelly v Sallie Mae the debtor owed $913,997 in loans. Of those loans all but $250,595 could be included in a $0 monthly Income Contingent Repayment plan. – Source

It appears all but $219,070 was found to be dischargeable in bankruptcy. While $219,070 is still a lot of money, it’s only 24% of the original balance stated. – Source

In Cotter v. Navient, the debtor had filed a Chapter 13 bankruptcy but was said to have still owed about $29,000 in student loan debt. Cotter stated, “Plaintiff incurred this student loan attending a school named ComputerTraining.com. The campus was located at 550 Polaris Parkway Westerville Ohio 43082. The Plaintiff started classes at said school on November 16, 2007 and was able to finish however the education he received was substandard, outdated and useless to him. Furthermore the school promised lifetime job placement assistance along with assistance with interviewing and resumes. The school he attended closed soon after he finished. The school in question is currently part of a class action lawsuit for fraud.” – Source

Following the court action regarding this debt the $29,000 balance was reduced to $2,500 with payments of $35.79 per month at 1% interest. This is about a 92% reduction in the amount owed. The debt will be fully repaid in 72 months. – Source

In Proctor v. Navient the debtor had co-signed for student loans for someone who was not a relative or dependent and said to not be qualified student loans protected in bankruptcy. – Source

The $188,787 balance was reduced to $15,535 at 3% interest and payments of $107.28 per month for 180 months. This is about a 92% reduction in the amount owed. – Source

So as you can see, recent closed bankruptcy Adversary Proceeding cases do result generally in some significant reductions in debt owed.

Steve Rhode
Get Out of Debt Guy
Twitter, G+, Facebook

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

Income-Driven Repayment Plans for Managing Crushing Levels of Student-Loan Debt: Financial Suicide

By the end of his first term in office, President Obama knew the federal student loan program was out of control. Default rates were up and millions of student borrowers had put their loans into forbearance or deferment because they were unable to make their monthly payments. Then in 2013, early in Obama's second term, The Consumer Financial Protection Bureau issued a comprehensive report titled A Closer Look at the Trillion that sketched out the magnitude of the crisis.

What to do? President Obama chose to promote income-driven repayment plans (IDRs) to give borrowers short-term relief from oppressive monthly loan payments. Obama's Department of Education rolled out two generous income-driven repayment plans:  the PAYE program, which was announced in 2012;  and REPAYE, introduced in 2016.

PAYE and REPAYE both require borrowers to make monthly payments equal to 10 percent of their adjusted gross income for 20 years: 240 payments in all.  Borrowers who make regular payments but do not pay off their loans by the end of the repayment period will have their loans forgiven, but the cancelled debt is taxable to them as income.

The higher education industry loves PAYE and REPAYE, and what's not to like? Neither plan requires colleges and universities to keep their costs in line or operate more efficiently. Students will continue borrowing more and more money  to pay exorbitant tuition prices, but  monthly payments will be manageable because they will be spread out over 20 years rather than ten.

But most people enrolling in PAYE or REPAYE are signing their own financial death warrants. By shifting to long-term, income-driven repayment plans, they become indentured servants to the government, paying a percentage of their income for the majority of their working lives.

And, as illustrated in an ongoing bankruptcy action, a lot of people who sign up for IDRs will be stone broke on the date they make their final payment.

In Murray v. Educational Credit Management Corporation, a Kansas bankruptcy judge granted a partial discharge of student-loan debt to Alan and Catherine Murray.  The Murrays borrowed $77,000 to get bachelor's and master's degrees, and paid back 70 percent of what they borrowed.

Unfortunately, the Murrays were unable to make their monthly payments for a time, and they put their loans into deferment.  Interest accrued over the years, and by the time they filed for bankruptcy, their student-loan indebtedness had grown to $311,000--four times what they borrowed.

A bankruptcy judge concluded that the Murrays had handled their loans in good faith but would never pay back their enormous debt--debt which was growing at the rate of $2,000 a month due to accruing interest.  Thus, the judge discharged the interest on their debt, requiring them only to pay back the original amount they borrowed.

Educational Credit Management Corporation, the Murrays' student-loan creditor, argued unsuccessfully that the Murrays should be place in a 20- or 25-year income-driven repayment plan. The bankruptcy judge rejected ECMC's demand, pointing out that the Murrays would never pay back the amount they owed and would be faced with a huge tax bill 20 years from now when their loan balance would be forgiven.

ECMC appealed, arguing that the bankruptcy judge erred when he took tax consequences into account when he granted the Murrays a partial discharge of their student loans. Tax consequences are speculative, ECMC insisted; and in event, the Murrays would almost certainly be insolvent at the end of the 20-year repayment term, and therefore they would not have to pay taxes on the forgiven loan balance.

What an astonishing admission! ECMC basically conceded that the Murrays would be broke at the end of a 20-year repayment plan, when they would be in their late sixties.

So if you are a struggling student-loan borrower who is considering an IDR, the Murray case is a cautionary tale. If you elect this option, you almost certainly will never pay off your student loans because your monthly payments won't cover accumulating interest.

Thus at the end of your repayment period--20 or 25 years from now--one of two things will happen. Either you will be faced with a huge tax bill because the amount of your forgiven loan is considered income by the IRS; or--as ECMC disarmingly admitted in the Murray case--you will be broke.


References

Rohit Chopra. A closer look at the trillion. Consumer Financial Protection Bureau, August 5, 2013.

Murray v. Educational Credit Management Corporation, Case No. 14-22253, ADV. No. 15-6099, 2016 Bankr. LEXIS 4229 (Bankr. D. Kansas, December 8, 2016).

Monday, April 10, 2017

ECMC and the Department of Education are a couple of bullies: The Scott Farkus affair that never ends

Fortunately, we only see Scott Farkus once a year. He comes around every Christmas eve, when TBS runs The Christmas Story for 24 hours. Farkus, you remember, is the yellow-eyed bully that picks on Ralphie Parker and his little brother Randy. Farkus is always accompanied by his pint-sized sidekick, Grover Dill.

ECMC & DOE are real-life bullies for student debtors.

Scott Farkus, of course, is a fictional bully, but destitute student borrower are tormented by a real-life bully--Educational Credit Management Corporation. ECMC,a so-called fiduciary of the U.S Department of Education, gets well paid to hound student-loan debtors who naively try to shed their student loans in bankruptcy to get a fresh start.

Would you like some examples of ECMC's bullying behavior? Here are a few:
  • ECMC opposed bankruptcy relief for Janet Roth, a woman in her 60s with chronic health problems, who was living on Social Security income of $774 a month. 
  • ECMC successfully blocked Janice Stephenson, a woman in her fifties, from discharging her student loans in bankruptcy--loans that were almost 25 years old. At the time Stephenson filed for bankruptcy, she was living on about $1,000 a month and had a history of homelessness.
  • Last year, a bankruptcy judge slapped ECMC with punitive damages for repeatedly garnishing the wages of Kristin Bruner-Haltemann, a bankrupt student debtor who worked at Starbucks. ECMC violated the automatic stay provision more than 30 times, the bankruptcy court ruled. And how much money was at stake? Ms. Bruner-Haltemann only owed about $5,000.
So Scott Farkus, in a corporate form, is alive and well in American bankruptcy courts.

And Grover Dill, Farkus's little toadie, is also alive and well. The Department of Education itself bullies student borrowers in bankruptcy, almost as cruelly as ECMC.  And here are a few examples:
  • In Myhre v. Department of Education, DOE fought Bradley Myhre, an insolvent quadriplegic who tried to discharge a modest student loan in bankruptcy. DOE lost that one. The court commended Mhyre for his courage: he was working full time but he had to employ a caregiver to feed and dress him and drive him to work. 
  • DOE tried unsuccessfully to persuade a Missouri  bankruptcy court to deny bankruptcy relief to Michael Abney, a single father in his 40s who was living on $1,300 a month and was so poor he rode a bicycle to work because couldn't afford a car. 
  • Just a few months ago, the Eighth Circuit Bankruptcy Appellate Panel ruled against DOE, which had tried to keep Sara Fern from discharging her student debt in bankruptcy. Fern is a single mother of three children who takes home $1,500 a month from her job and supplements her income with food stamps and public rent assistance.
Have I described bullying behavior by ECMC and DOE? Of course I have. Every single time DOE or ECMC shows up in bankruptcy court, the argument is the same: "This deadbeat doesn't deserve bankruptcy relief, your honor. Put the worthless son of a b-tch in a 20- or 25-year income-based repayment plan."

In the past, bankruptcy courts were persuaded by these callous arguments, but judges are beginning to return to their duty. I predict the day is soon coming when a federal appellate court will overrule the precedents that have favored ECMC and DOE--most notably the harsh Brunner ruling that most federal circuits have adopted.

But for now, the bullying goes on.  Just like Scott Farkus and Grover Dill, ECMC and DOE lie in wait for hapless debtors who stagger into bankruptcy court. ECMC has accumulated $1 billion in unrestricted assets while engaging in this shameful behavior, and the federal government pays ECMC's legal fees. 

References

Abney v. U.S. Department of Education, 540 B.R. 681 (W.D. Mo. 2015).



Bruner-Halteman v. Educational Credit Management Corporation, Case No. 12-324-HDH-13, ADV. No. 14-03041 (Bankr. N.D. Tex. 2016).

Fern v. FedLoan Servicing, 563 B.R. 1 (8th Cir. BAP 2017).


Myhre v. U.S. Department of Education, 503 B.R. 698 (W.D. Wis. 2013).


Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. Accessible at https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/


Roth v. ECMC, 490 B.R. 908 (9th Cir. BAP 2013).


Stevenson v. ECMC, Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011). aff'd, 475 B.R. 286 (D. Mass. 2012).













Saturday, April 1, 2017

Higher Education as a criminal enterprise: The U.S. Department of Education (or its agents) is trying to collect on a student loan debt 37 years old!

In Clusterfuck Nation, James Howard Kunstler has argued that many sectors of our economy have descended into criminal enterprises: banking, medicine and higher education in particular. And by God, he has convinced me.

Kunstler concluded his latest essay with these words: "It is getting to the point where we have to ask ourselves if we are even capable of being a serious people anymore." I am beginning to think the answer is no.

A few days ago a retired man in California contacted me through my blog site and asked for help with a student-loan problem. As I understand it, he took out a small student loan back in the 1970s and allowed it to go into default.

In 1980, the federal government or one of its agents obtained a default judgment against the guy, and he paid the judgment in full sometime thereafter.

Now, 37 years later, a government debt collector is trying to collect on the loan. You may think the debt is uncollectable.  All states have statutes of limitations for lawsuits to collect a debt. Generally, the statute of limitations on a promissory note is six years. So the guy has nothing to worry about, right?

Wrong. Congress passed the Higher Education Technical Amendments of 1991, which abolished all statutes of limitations on student loans, and some courts have ruled that the law applies retroactively. Thus, even if the statute of limitations on my correspondent's debt expired before the federal law was passed in 1991 (and I think it did), the government can still collect on it--at least according to some courts' interpretation.

Now that is fundamentally wrong and violates an ancient principle of equity known as laches. As explained in Black's Law Dictionary, "The doctrine of laches is based on the maxim that "equity aids the vigilant and not those who slumber on their rights." Thus, as a matter of fundamental fairness, claimants must pursue their remedies within a reasonable time. After all, it is unfair to start collection activities on a debt long after most reasonable people would have discarded documents that would prove the debt had been paid.

In fact, I'm sure millions of student debtors who paid of their students loans do not now have documents to prove their loans were paid.  In fact, in a lawsuit decided a few years ago, a woman obtained a court order finding she had paid off her student loans, and Educational Credit Management Corporation continued its collection efforts against her in spite of that fact.

As I write this, the U.S. Department of Education's debt collectors are pursuing desperate student-loan borrowers into the bankruptcy courts and arguing to federal judges that these hapless debtors should be put in 25-year repayment plans. These people are as heartless as the mob characters in the movie Godfather II.

So yes, higher education has become a criminal enterprise, and the Department of Education is basically a racketeer, which Congress and the courts show no inclination toward trying to control.   As Mr. Kunstler put it, "It is getting to the point where we have to ask ourselves if we are even capable of being a serious people anymore."

There may be an argument that the Higher Education Technical Amendments of 1991 is unconstitutional when applied against people long after they can reasonably defend themselves. Perhaps some starving law graduate, also burdened by student loans, could do some research on the constitutionality of this pernicious law.

It's not personal. It's only business.


References

Hann v. Educational Credit Management Corporation, 711 F.3d 235 (1st Cir. 2013).

James Howard Kunstler. Racket of Rackets. Clusterfuck Nation, March 31, 2017.

United States v. Hodges, 999 F.2d 341 (8th Cir. 1993).

Friday, March 31, 2017

Student Debtors in the Bankruptcy Courts and the Battle of Britain: "Never have the few come from the ranks of so many"

The Battle of Britain was perhaps the most thrilling episode of the Second World War. During the summer and autumn of 1940, Hitler sent the Luftwaffe to bomb London, hoping to pummel the British into submission.

But Hitler failed. A handful of young pilots in the Royal Air Force clawed their way into the skies day after day and inflicted unacceptable casualties on the German Air Force. Before the year was out, Hitler gave up, and the Battle of Britain was won.

You may think it inappropriate to attach a military analogy to the ongoing battle between oppressed student borrowers and the federal government's debt collectors that is taking place now in the bankruptcy courts. But the comparison is apt.

Eight million people have defaulted on their student loans and at least 15 million more aren't paying them back.  If these people were indebted for any other reason than college loans, they would get relief from their debt in the bankruptcy courts.

But most oppressed debtors don't even try. Jason Iuliano reported that almost a quarter of a million people with student loans filed for bankruptcy in 2007, but only a few hundred even attempted to discharge their student loans.

But a few brave souls have filed adversary proceedings, where they've fought the U.S. Department of Education and its loan collectors--notably Educational Credit Management Corporation. Incredibly, some of them have been successful, and important appeals are now in the federal appellate courts.

Alexandra Acosta Conniff, an Alabama school teacher, acting without an attorney, defeated ECMC in 2015. ECMC appealed, but Alexandra is now represented by an eminent attorney, retired bankruptcy judge Eugene Wedoff.  I believe Alexandra will ultimately prevail.

Alan and Catherine Murray, a Kansas couple in their late 40s, beat ECMC last year, winning a partial discharge of their student loans, which had ballooned to almost a third of a million dollars. They were ably represented by George Thomas, a Kansas lawyer and ex-Marine.  Again, ECMC appealed, but I am confident Mr. Thomas and the Murrays will win through.

Overburdened student-loan debtors have been hounded and harassed by the U.S. government and its predatory agents for years, but some are now fighting back and they are beginning to find sympathetic bankruptcy judges.

Winston Church, in one of the immortal sentences in the English language, paid this tribute to the pilots of the RAF. "Never was so much owed by so many to so few."

And Boris Johnson, author of The Churchill Factor, pointed out that most of the RAF pilots came from the English working and middle classes. Few Oxford men climbed into those Hurricane fighter planes during the summer of 1940. And so Johnson added this fitting epitaph to Churchill's tribute: "Never have the few come from the ranks of so many."

So here is a message for the millions of oppressed student-loan debtors: Hang on! A few courageous individuals, aided by sturdy lawyers, are fighting for you in the federal courts. And they will ultimately win. The bankruptcy laws are going to change and become more compassionate toward honest but unfortunate individuals who were victimized by our corrupt and unjust student loan program.


"Never have the few come from the ranks of so many."


References



Acosta-Conniff v. Educational Credit Management Corporation, No. 12-31-448-WRS, 2015 Bankr. LEXIS 937 (M.D. Ala. March 25, 2015).

Cloud, R. C. & Fossey, R. (2014). Facing the student debt crisis: Restoring the integrity of the federal student loan program. Journal of College and University Law, 40, 101-32.

In re Roth, 490 B.R. 908 (9th Cir. BAP 2013).

Iuliano, J. (2012). An Empirical Assessment of Student Loan Discharges and the Undue Hardship Standard. American Bankruptcy Law Journal, 86, 495-525.

Murray v. Educational Credit Management Corporation, Case No. 14-22253, ADV. No. 15-6099, 2016 Bankr. LEXIS 4229 (Bankr. D. Kansas, December 8, 2016).




Wednesday, March 29, 2017

Bank of America hit with $45 million punitive damages award for violating automatic stay provision of Bankruptcy Code: ECMC take notice!

A few days ago, Judge Christopher Klein, a California bankruptcy judge, struck a breathtaking blow for justice when he assessed $45 million in punitive damages against Bank of America for violating the automatic-stay provision of the Bankruptcy Code. You may recall that a Texas bankruptcy judge hit Educational Credit Management Corporation with a $74,000 punitive damages award for the same offense.

Here are the opening words of Judge Klein's Bank of America decision:

Frank Kafka lives. This automatic stay violation case reveals that he works at Bank of America. 
The mirage of promised mortgage modification lured [Erick and Renee Sundquist] into a kafkaesque nightmare of stay-violating foreclosure and unlawful detainer, tardy foreclosure rescission kept secret for months, home looted while the debtors were dispossessed, emotional distress, lost income, apparent heart attack, suicide attempt, and post-traumatic stress disorder for all of which Bank of America disclaims responsibility. 

Judge Klein then detailed Bank of America's offenses in detail--his opinion is 107 pages long! And at the end, Judge Klein spelled out how the punitive damages award should be apportioned:

The actual . . . damages are $1,074,581.50. The appropriate . . . punitive damages are $45,000,000.00.
The Sundquists are enjoined to deliver $40,000,000 (minus applicable taxes) to public service entities that are important in education in consumer law and deliver of legal services to consumers: National Consumer Law Center ($10,000,000.00), National Consumer Bankruptcy Rights Center ($10,000,000.00), and the five public law schools of the University of California System ($4,000,000.00).

Of course, Bank of America will appeal Judge Klein's punitive damages award, and who knows how that will go. But regardless of what happens on appeal, Judge Klein has turned a glaring spotlight on Bank of America's outrageous behavior.

And if the damages award is upheld, money will flow to entities that can help distressed debtors fight the predatory tactics of the banks.  That would be a great blessing for American society.

And this brings me to Educational Credit Management Corporation, the predatory student-loan debt collector that violated the automatic stay provision of the Bankruptcy Code more than 30 times by repeatedly garnishing the wages of Kristin Bruner-Halteman, a student-loan debtor who worked for Starbucks.  In a 2016 decision, Judge Harlin DeWayne Hale, a Texas bankruptcy judge, awarded Bruner-Halteman $74,000 in punitive damages for ECMC's misbehavior.

But $74,000 is a pittance for ECMC; it probably has that much cash in loose change that slipped under its couch cushions.  According to a report by the Century Foundation, ECMC has $1 billion in unrestricted assets. That's billion with a B.

So--listen up distressed student-loan debtors. If you file for bankruptcy in  a case opposed by ECMC and ECMC violates the Bankruptcy Code's automatic stay provision as it did in the Bruner-Halteman case, you need to ask for several million dollars in punitive damages. How about $10 million--that's only one percent of ECMC's assets.

References

Bruner-Halteman v. Educational Credit Management Corporation, Case No. 12-324-HDH-13, ADV. No. 14-03041 (Bankr. N.D. Tex. 2016).

Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. Accessible at https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/

Sundquist v. Bank of America,  Adv. Pro. No. 204-0228, Case No. 10-35624-B-13J (Bankr. E.D. Calif. March 23, 2017).




Tuesday, March 14, 2017

Student Loan Debt Collector accused of violating the Fair Debt Collection Practices Act; Brandon v. Eaton Group Attorneys

Unscrupulous debt collection practices: Economic exploitation of struggling student-loan debtors

Susan Browmmiller, in her classic book on rape, observed that rape victims are often assaulted twice. First, they are physically raped by their attacker; and then they are psychologically raped by the justice system when they testify against the rapist in a brutal and humiliating criminal trial.

Something similar can be said about student-loan debtors. Millions of unsophisticated young people have been enticed to take out student loans to enroll in academic programs that don't lead to good jobs. That's rape number 1.

Then when these duped individuals are unable to pay back their student loans, they fall into the hands of the unscrupulous debt collectors. That's rape number 2.

Brandon v. Eaton Group Attorneys: Law firm accused of violating Fair Debt Collection Practices Act

Last January, a federal judge in Louisiana ruled in a case brought by Cassandra Brandon against Eaton Group Attorneys (Eaton), a law firm representing National Collegiate Student Loan Trust (NCSLT), a student-loan debt collector. Eaton had sued Brandon on NCSLT's behalf, alleging that Brandon had defaulted on her student loans and owed NCSLT about $46,000.

After the lawsuit was filed, an agent for Eaton sent Brandon a letter, which was described as a "REQUEST FOR PAYMENT ARRANGEMENTS." And this is what the letter said:
Dear CASSANDRA PLUMMER [Plummer is Brandon's maiden name]: 
If you would like to explore a voluntary repayment plan, then please provide the requested information. The debt will need to be acknowledged through the attached consent judgment. Please return these forms as soon as possible. This is a communication from a debt collector. This is an attempt to collect a debt. Any information will be used for that purpose.
Accompanying the letter was a partially completed consent judgment, which stated:
IT IS ORDERED, ADJUDGED, AND DECREED that judgment be rendered in favor of Plaintiff, NATIONAL COLLEGIATE LOAN TRUST 2007-1, and against the defendant, CASSANDRA PLUMMER . . ., in the full sum of $41,115.13, together with accrued interest of $4,998.37, and additional interest of 4% from date of judgment, and for all costs of these proceedings, subject to a credit of $0.00.
Brandon then sued Eaton Group Attorneys in federal court, charging the law firm with violating the Fair Debt Collection Practices Act (FDCPA).  Basically, Brandon accused the law firm of sending her a deceptive debt-collection letter in violation of the FDCPA.

Eaton moved for summary judgment on Brandon's claim, arguing that its letter was "non-deceitful as a matter of law." But Judge Sarah Vance denied the law firm's motion and allowed Brandon to proceed with her suit.

Judge Vance began her analysis by summarizing the purpose of the FDCPA, which is to eliminate "abusive, deceptive, and unfair debt collection practices . . ." The law prohibits debt collectors from using any "false, deceptive, or misleading representation or means in connection with the collection of any debt," and it bars debt collectors from using "unfair or unconscionable means" to collect on a debt.

In the court's view;
[The] letter [Brandon] received was misleading because an unsuspecting debtor, seeking only to 'explore a voluntary repayment plan,' could be fooled into executing the consent judgment without knowledge of the consequences. Specifically, an unsophisticated debtor may not know that the consent judgment will serve to waive potentially valid defenses and may facilitate a wage garnishment order" [Emphasis supplied]
By telling Brandon she must formally acknowledge her debt before she could even "explore" voluntary repayment plan, the Eaton Group Attorneys was basically inviting her to "inadvertently dig herself into a deeper hole." (Internal citation omitted).

Congress needs to clean up the student-loan debt collection industry

Laws are already on the books that ban unfair debt collection activities. Brandon sued Eaton Group Attorneys under the FDCPA; and Navient Solutions and Student Assistance Corporation had a judgment assessed against them last spring for violating the Telephone Consumer Protection Act.


But more needs to be done.

Specifically, Congress needs to hold hearings on the activities of the student loan guaranty agencies--and Educational Credit Management Corporation in particular. A Texas bankruptcy judge slapped ECMC with punitive damages last year for repeatedly violating the automatic stay provision of the Bankruptcy Code, but the penalty was entirely too light for such a wealthy corporation.

And Congress needs to eliminate the excessive penalties--25 percent or more--that debt collectors assess on student-loan debtors in default.  After all, it is the penalties and accrued interest that are driving millions of struggling student-loan debtors into 20- and 25-year income driven repayment plans.

Republicans and Democrats could bring relief to millions of overwhelmed student-loan debtors if they just joined together to pass meaningful reform legislation.  If our nation's politicians can't cooperate in a bipartisan effort to clean up the student loan program, then shame on all of them.

References

Brandon v. Eaton Group Attorneys, CA No. 16-13747 (E.D. La. Jan. 24, 2017).

Bruner-Halteman v. Educational Credit Management Corporation, Case No. 12-324-HDH-13, ADV. No. 14-03041 (Bankr. N.D. Tex. 2016).

McCaskill v. Navient Solutions, Inc., No. 8:15-cv-1559-T-33TBM (M.D. Fla. April 6, 2016).

Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. Accessible at https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/

Monday, March 13, 2017

Student Debtors and the Consumer Financial Protection Bureau: Trump needs to strengthen the CFPB, not weaken it

Last January, the Consumer Financial Protection Bureau sued Navient Corporation, a student-loan debt collector, accusing the company of "systematically and illegally failing borrowers at every stage of repayment."

According to CFPB Director Richard Cordray, Navient cheated student borrowers by making it more difficult for them to pay back their college loans. "At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs," Cordray charged. "Too many borrowers paid more for their loans because Navient illegally cheated them , , , "

Specifically, the CFPB accused Navient of these illegal practices:
  • Failing to correctly apply and allocate borrowers' payments to their student-loan accounts. "Navient repeatedly misapplies and misallocates payments--often making the same error multiple times,"  the CFPB alleged. And all too often, Navient would not correct its errors unless a borrower discovered the problem and brought it to Navient's attention.
  • Giving struggling borrowers bad advice about student-loan repayment options.  The CFPB also accused Navient of steering student debtors toward costly forbearance options when they were having trouble making their monthly loan payments. These options give borrowers a break from making their payments, but the interest continues to accrue during forbearance. CFPB believes Navient should have helped borrowers get into income-driven repayment plans (IDRs) that would lower their monthly payments instead of encouraging them to apply for forbearances.
  • "Obscur[ing] information" borrowers needed to remain in income-driven repayment plans. The CFPB also said Navient failed to adequately inform borrowers about what they need to do to maintain their eligibility for income-driven repayment plans. Once borrowers enter those plans, their monthly payments are determined by their annual income; but to remain eligible, borrowers must recertify their income every calendar year. Apparently, a lot of borrowers in IDRs do not know they are required to recertify their income on an annual basis.
As the New York Times said in an editorial, CFPB's charges against Navient "have the ring of truth." Without question, student borrowers who opt to skip loan payments temporarily under  a government-approved forbearance plan see their loan balances grow dramatically due to accruing interest, which accelerates their descent into default. And it seems evident that people in income-driven repayment plans don't understand what they need to do to maintain their eligibility; half the people who enroll in IDRs get kicked out of them for failing to recertify their income on an annual basis.

The student-loan debt collectors are hoping President Trump will dismantle or cripple the CFPB, which would prevent the agency from bringing lawsuits like the one it brought against Navient. And perhaps he will.

But I am hoping the Trump administration  surprises the corporate fat cats and throws its full support behind CFPB's lawsuit against Navient.  Indeed, the CFPB needs to become a lot more aggressive.

In my view, the CFPB should investigate the student loan guaranty agencies that are making a fortune in the student-loan collection business. As the Century Foundation reported last year, four of these agencies have amassed $ 1 billion apiece through servicing and collecting student loans.

Educational Credit Management Corporation, which holds a billion dollars in unrestricted assets, is particularly ruthless. Just last year, a federal bankruptcy judge assessed punitive damages against ECMC for repeatedly violating the automatic stay provision of the Bankruptcy Code by garnishing the wages of a Starbucks employee more than 30 times after she filed for bankruptcy in an effort to collect on a defaulted student loan.

In short, there is a lot for the CFPB to do, and the Navient lawsuit is only a small step in the right direction. It would be a tragedy if the corporate interests defanged the CFPB, which is only now getting serious about protecting student-loan debtors from abuse.

Richard Cordray, CFPB Director
photo credit: Getty Images

References

Bruner-Halteman v. Educational Credit Management Corporation, Case No. 12-324-HDH-13, ADV. No. 14-03041 (Bankr. N.D. Tex. 2016).

Consumer Financial Protection Bureau. CFPB Sues Nation's Largest Student Loan Company Navient for Failing Borrowers at Every Stage of Repayment. Consumer Financial Protection Bureau Press Release, January 18, 2017.

Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. Accessible at https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/

Bob Sullivan. Will a Trump presidency lead to more predatory lending? Market Watch, January 18, 2017.

Unfairly Squeezing Student BorrowersNew York Times, February 4, 2017.

Thursday, March 9, 2017

Dear Secretary Betsy DeVos: Please do the right thing and allow distressed debtors to discharge their student loans in bankruptcy

Dear Secretary DeVos:

You have been Secretary of Education for about  a month, so you know the federal student loan program is in shambles.

Eight million borrowers are in default, millions more aren't making payments while interest accrues on their debt, 5.6 million people have signed up for income-driven repayment plans and are making payments so small that their debt is negatively amortizing even though they are faithfully making regular payments.

Obviously, there are dozens of things the Department of Education can do to address this crisis, but you can easily do one thing to help alleviate mass suffering and it is this: Please direct DOE and all its student-loan debt collectors to stop opposing bankruptcy relief for distressed student-loan borrowers.

In 2015, Deputy Secretary Lynn Mahaffie issued a letter stating DOE and its debt collectors would not oppose bankruptcy relief for student-loan debtors if it made no economic sense to do so. But in fact, both the Department and its agents oppose bankruptcy relief in almost every case.

And here are just a few examples:
  • In Myhre v. U.S. Department of Education, the Department opposed bankruptcy relief for a quadriplegic who worked full time but could not make student-loan payments and still pay the full-time caregiver he needed to dress him, feed him, and drive him to work.
  • In Abney v. U.S. Department of Education,  DOE urged a bankruptcy court to put a destitute student borrower into a long term payment plan even though the debtor was living on $1200 a month and was so poor he could not afford to drive a car and was riding a bicycle to work.
  • In Roth v. Educational Credit Management, ECMC fought an elderly woman's efforts to shed her student loans even though the woman had a monthly income of less than $800 a month and suffered from several chronic health problems.
  • In Edwards v. Educational Credit Management Corporation, ECMC argued to an Arizona bankruptcy judge that a 56-year-old counselor who owed $245,000 in student loans should be put in a 25-year repayment plan whereby she would make token payments until she was 81 years old!
Some of these cases were decided before Mahaffie's 2015 letter and some were decided after, but the dates are immaterial. DOE and its agents almost always oppose bankruptcy relief for student-loan debtors, no matter how desperate their circumstances.

In fact, DOE's position is essentially this: NO STUDENT DEBTOR IS ENTITLED TO BANKRUPTCY RELIEF. Instead, everyone should be placed in income-driven repayment plan  (IDR) that can last for 20 or even 25 years.

But you could change DOE's position simply by signing your name to a single letter. That letter should say that DOE and its debt collectors will no longer oppose bankruptcy relief for student debtors who cannot pay back their college loans and still maintain a minimal standard of living. And DOE will no longer argue that IDRs are a reasonable alternative to bankruptcy relief.

If you did that, hundreds of thousands of insolvent college-loan borrowers could discharge their student debt in bankruptcy and get a fresh start--a fresh start the bankruptcy courts were established to provide.

Your advisers may argue that the IDR program offers college borrowers a reasonable way to ultimately pay off their student loans, but that's not true. Do you think Rita Edwards would have ever paid back the $245,000 she owed the government by making payments of $81 a month in an IDR as ECMC proposed in her bankruptcy case? Of course not.

Do you think Janet Roth would have ever paid back her student-loan debt of $90,000 if she had been put in an IDR that would have set her monthly payments at zero due to her low income? No, and it was absurd for ECMC to have made that argument in Roth's bankruptcy case.

The stark reality is this. Millions of student borrowers have seen their loan balances double, triple and even quadruple due default fees and accruing interest. Putting these people into 20 and 25-year repayment plans that only require them to make token payments is insane.

Secretary DeVos, you could eliminate so much suffering if you would simply write a letter stating that DOE will no longer oppose bankruptcy relief for people like Myhre, Edwards, Roth, Abney and millions of other people in similar circumstances who will never pay back their student loans.

Please do the right thing.

References

Abney v. U.S. Department of Education, 540 B.R. 681 (Bankr. W.D. Mo. 2015).

Annual Report of the CFPB Student Loan Ombudsman. Consumer Financial Protection Bureau, September 2016.

Ann Carrns. How to Dig Out of Student Loan Default. New York Times, October 21, 2016.

Rohit Chopra. A closer look at the trillion. Consumer Financial Protection Bureau, August 5, 2013.

Edwards v. Educational Credit Management Corporation, Adversary No.. 3:15-ap-26-PS, 2016 WL 1317421 (Bankr. D. Ariz. March 31, 2016).

Lynn Mahaffie, Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings. CL ID: GEN 15-13, July 7, 2015.

Myhe v. U.S. Department of Education, 503 B.R. 698 (Bankr. W.D. Wis. 2013).

Roth v. Educational Credit Management Corporation490 B.R. 908 (9th Cir. BAP 2013). Available at http://cdn.ca9.uscourts.gov/datastore/bap/2013/04/16/RothV%20ECMC%20opinion-FINAL%20AZ-11-1233.pdf

Matt Sessa. Federal Student Aid Posts Updated Reports to FSA Data Center. U.S. Department of Education Office of Student Aid, December 20, 2016.

Wednesday, February 8, 2017

Congressional Democrats should pressure DeVos to clean up the student-loan collection business

Democrats are critical of Betsy DeVos, President Trump's new Secretary of Education, but one concern is particularly valid, which is this: DeVos has business ties with a student-loan debt collector.

Those ties, which were explained in a Washington Post article are complicated. Here is what the Post said:
Education Secretary nominee Betsy DeVos and her husband have extensive financial holdings through their private investment and management firm, RDV Corporation. . . .

RDV is affiliated with LMF Portfolio, a limited liability corporation listed in regulatory filings as one of several firms involved in a $147 million loan to Performant Financial Corp., a debt collection agency in business with the Education Department.

Twenty-three percent of Performant's revenue is directly tied to its dealings with the Education Department, which had 14 contracts worth more than $20 million with the company in fiscal 2016.
According to the Post, Performant lost a recent contract bid with the Department of Education and is protesting DOE's decision with the Government Accountability Office.

DeVos's complicated ties with a student-loan debt college company is a legitimate worry to Democrats because as Secretary of Education, "DeVos would be in a position to influence the award of debt collection, servicing and recovery contracts, in addition to the oversight and monitoring of the contracts." In addition, the Post article points out, DeVos will also "have the authority to revise payments and fees to contractors for rehabilitating past-due debt--all of which has Senate Democrats concerned."

Senator Elizabeth Warren criticized DeVos because DeVos has no experience in higher education. "As Education Secretary," Warren charged, "Betsy DeVos would be in charge of running a $1 trillion student loan bank. She has no experience doing that." In fact, Warren correctly observed, "Betsy DeVos has no experience with student loans, Pell Grants, or public education at all."

Like Senator Warren, most Senate Democrats senators opposed DeVos to be Secretary of Education primarily on the ground that she has no experience in higher education, which is true. But I think a bigger concern is the fear that DeVos won't regulate the for-profit college industry aggressively and that she won't monitor the government's debt collectors, including the student loan guaranty agencies, which have a ruthless record of collection activities against distressed student loan debtors.

I confess I did not take DeVos's ties with a debt collection agency into consideration during the nomination process. I thought, perhaps naively, that DeVos's lack of experience in higher education might be a plus, since she could look at the student loan program with fresh eyes.

And perhaps she will. But the Democrats can smoke her out by moving aggressively for transparency and an accounting in the student-loan collection business and calling for a reduction in the collection fees and penalties the debt collectors are slapping on defaulted student loans.

Senator Warren could lead the charge by holding hearings on the activities of the student loan guaranty agencies: Educational Credit Management Corporation and the others. The Century Foundation reported that four of these agencies, which are nonprofit organizations, each hold $1 billion in assets.

If Secretary DeVos does not move aggressively to rein in the for-profits and clean up the debt collection business, then the Democrats will have a legitimate charge against her. The best way to see how DeVos will handle her new responsibilities is to hold hearings and introduce legislation to clean up the student loan industry.

If DeVos opposes legitimate calls for reforming the federal student loan program, then the Democrats are right about her.

References

Danielle Douglas-Gabriel. Dems raise concern about links between DeVos and debt collection agency. Washington Post, January 17, 2017. 

Eugene Scott. Warren grills DeVos: 'I don't see how she can be the Secretary of Education.' CNN, January 18, 2017.

Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. Accessible at https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/

Sunday, February 5, 2017

Educational Credit Management Corporation is a bad actor: Rafael Pardo's article about ECMC's litigation misbehavior

In recent blogs, I discussed two cases in which Educational Credit Management Corporation, the Department of Education's most ruthless student-loan debt collector, was sanctioned by a court for misbehavior. In the Bruner-Halteman case, a Texas bankruptcy judge assessed punitive damages against ECMC for garnishing the wages of a bankrupt Starbucks employee in violation of the Bankruptcy Code's automatic stay provision. The judge awarded Ms. Bruner-Halteman $74,000 in punitive damages--$2,000 for each of the 37 times ECMC wrongly garnished her wages.

In the Hann case, the First Circuit Court of Appeals upheld sanctions against ECMC for trying to collect on a student loan debt in spite of the fact that a federal bankruptcy judge had ruled that the debt had been paid.

Are these isolated cases of misbehavior? No they are not. In 2014, Rafael Pardo published an article in the University of Florida Law Review that documents how often ECMC's attorneys engage in "pollutive litigation" in cases against hapless bankrupt student-loan debtors.

Pardo's article is long (77 pages) and a bit dense and technical (477 footnotes).  I will limit my discussion of his impressive essay to a few of the highlights:

Failure to file corporate ownership statement

The Federal Rules of Bankruptcy Procedure require corporate parties in adversary proceedings to file a "corporate ownership statement" that identifies any corporate party that directly or indirectly owns 10 percent or more of the corporate party's equity interests. According to Pardo's analysis of a random sample of cases, ECMC failed to file its corporate ownership statement 81 percent of the time during 2011 and 2012.

What is the significance of ECMC's noncompliance This is what Pardo said:
The significance of such procedural noncompliance is that, in the overwhelming majority of these adversary proceedings, ECMC has failed to provide the presiding judge with the information necessary to determine whether [the judge] has a financial interest in ECMC that would warrant self-disqualification. Even assuming that ECMC would not have had to report any entity in the corporate ownership statement if ECMC had been procedurally compliant, the failure to file the statement casts a cloud on the legitimacy of the outcomes of proceedings that ended favorably for ECMC. (p. 2149)
Motion Practice 

Pardo also documented incidents when ECMC failed to abide by the Federal Rules of Civil Procedure in its motion practice.  First, in some adversary proceedings a student-loan debtor fails to name ECMC as a defendant, probably because the debtor did not know the name of the correct party to sue. In such cases, ECMC is required to state with particularity that the debtor's student-loan debt has been assigned to ECMC and that it is the proper party to litigate whether the debt is dischargeable.

Pardo found that ECMC often asserted itself as the proper party in an adversary proceeding without filing the appropriate representations about its interests. First, Pardo found that in 9.2 percent of a random sample of cases, ECMC didn't file any motion to become a named party; it simply entered into the litigation as if it had been named in the student-debtor's complaint. (p. 2153)

Furthermore, when ECMC did file a motion to join the litigation, the motion contained a substantive deficiency 80 percent of the time (in the cases Pardo examined).  Deficiencies included failing to allege assignment of the loan, failure to provide documentation of a loan's assignment, and failure to indicate which of the Federal Rules entitled it to be granted relief.

One might respond to Pardo's findings with a yawning so-what, but as Pardo pointed out, "Such procedural noncompliance is significant because it calls into question the legitimacy of a court's decision to allow a movant who may not have a valid basis to join the litigation" (p. 2153). Moreover, the fact that bankruptcy courts have allowed ECMC to get away with these procedural violations suggests that the courts aren't looking closely enough to determine whether ECMC has the right to insert itself into a student-debtor's adversary proceeding.

Responsive-Pleading Practice

Pardo's research found that student debtors named ECMC as a named defendant about 24 percent of the time. In such cases, ECMC filed an improper response in about one case out of four. (p. 256)

In the majority of the cases Pardo examined, the debtor did not name ECMC as a defendant. In those cases, ECMC was required to file a motion to intervene on the grounds that it was the proper named party. In the cases Pardo reviewed, ECMC filed an improper response 89 percent of the time. For example, ECMC would sometimes answer a student debtor's complaint before it had served its motion to intervene.

How these irregularities affects a student-debtor's interest is a bit complicated, and I invite you to read Pardo's discussion on that issue. But it is remarkable, in my view, that ECMC, a sophisticated debt collector, fails to abide by the Federal Rules of Procedure on so many occasions.

Discovery Practice

Pardo also found significant rules violation in ECMC's discovery practices. In particular, Pardo found a case in which ECMC moved for summary judgment based on a student debtor's deemed admissions even though ECMC had wrongly asked the debtor to admit to a conclusion of law.

In my mind, ECMC engages in serious misconduct when it formally asks a bankrupt student-loan debtor to admit to conclusions of law--especially an unsophisticated debtors who is not represented by an attorney.  Not only are such requests impermissible under the Federal Rules, but student debtors may not know that; and they may also not know that an unanswered Request for Admission is deemed to be admitted.

Conclusion: ECMC engages in "pollutive litigation" and it uses taxpayer's money to do so

Pardo characterized ECMC's bankruptcy-case behavior as "pollutive litigation," and that's putting the matter mildly. ECMC gets reimbursed by the federal government for its attorney fees--fees that are often spent harassing unsophisticated debtors who do not even have lawyers.

Moreover, ECMC frequently wears student debtors down just by prolonging the litigation. Janet Roth, for example, an elderly woman living on Social Security income of less than $800 a month, filed for bankruptcy in January 2009. Her case was not concluded until April 2013, more than four years later.

There are a lot of things Congress can do to clean up the student-loan mess and bring relief to millions of suffering student debtors. But shutting down ECMC would be a big step in the right direction.

The Department of Education Should Shut This Bad Boy Down.


References

Bruner-Halteman v. Educational Credit Management Corporation, Case No. 12-324-HDH-13, ADV. No. 14-03041 (Bankr. N.D. Tex. 2016).

Hann v. Educational Credit Management Corporation, 711 F.3d 235 (1st Cir. 2013).

John Hechinger. Taxpayers Fund $454,000 Pay for Collector Chasing Student Loans. Bloomberg.com, May 15, 2013. Accessible at: http://www.bloomberg.com/news/2012-05-15/taxpayers-fund-454-000-pay-for-collector-chasing-student-loans.html

Natalie Kitroeff. Loan Monitor is Accused of Ruthless Tactics on Student Debt. New York Times, January 1, 2014. Acccessible at http://www.nytimes.com/2014/01/02/us/loan-monitor-is-accused-of-ruthless-tactics-on-student-debt.html?_r=0

Rafael Pardo. The Undue Hardship Thicket: On Access to Justice, Procedural Noncompliance and Pollutive Litigation in Bankruptcy66 Florida Law Review 2101-2178.

Roth v. Educational Credit Management Corporation490 B.R. 908 (9th Cir. BAP 2013). 

Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. Accessible at https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/


Thursday, January 26, 2017

A Texas bankruptcy court slaps ECMC with punitive damages for repeatedly garnishing a Starbucks employee's paychecks in violation of the automatic stay provision: "The Ragged Edge"

Anyone who has dealt with Educational Credit Management Corporation as a debtor knows that it is a ruthless and heartless organization. As one of the federal government's student-loan debt collectors, it has harassed hapless creditors thousands of time. It was ECMC that opposed bankruptcy relief for Janet Roth, an elderly woman with chronic health problems who was living on less than $800 a month.

But the Roth case does not fully display ECMC's callousness.  A better illustration of its merciless behavior is found in Bruner-Halteman v. ECMC, decided by a Texas bankruptcy court last April.

Bruner-Halteman was a single mother who worked at Starbucks, living, as the bankruptcy court observed, "on the ragged edge where any adversity can be catastrophic." She owed about $5,000 on a student loan issued by Sallie Mae, and she was in default.

In 2012, ECMC garnished Bruner-Halteman's  Starbucks wages, and she filed for bankruptcy, which, under federal law, triggers an automatic stay of all garnishment activities. ECMC received notice of the bankruptcy filing, and even participated as a creditor in Bruner-Halteman's bankruptcy proceedings. But it continued to garnish Bruner-Halteman's wages for almost two years.

In fact, ECMC garnished Bruner-Halteman's wages 37 times AFTER she filed for bankruptcy--a clear violation of the law. Moreover, ECMC had no reasonable excuse for its misbehavior. In fact, ECMC refunded the wages it garnished on 17 occasions but kept on garnishing this poor woman's wages. Indeed, the garnishments did not stop until Bruner-Halteman  filed a lawsuit for damages in the bankruptcy court.

The bankruptcy court held a three-day trial on Bruner-Haltman's claims and heard plenty of evidence about the stress Bruner-Halteman experienced due to ECMC's illegal garnishments.  On April 8, 2016, the court awarded her actual damages of  about $8,000, attorney fees, and $74,000 in punitive damages.

Here is how the bankruptcy judge summarized ECMC's conduct:
ECMC's systematic, knowing, and willful disregard of the automatic stay and the protections afforded a debtor by the bankruptcy system was particularly egregious and offends the integrity of the the bankruptcy process. . . The indifference shown by ECMC to the Plaintiff and the bankruptcy process is gravely disturbing.
The court was particularly offended by the fact that ECMC repeatedly refunded the amounts it garnished but did not stop the garnishment process. "The callousness of the refund process is particularly rattling," the court wrote.

"In order to process a refund," the court noted, "an ECMC employee had to make the determination that the debtor had an active bankruptcy case, but that did nothing to convince ECMC that it should be cancelling the wage garnishments . . ." Instead, ECMC processed the refunds "at whatever pace it chose" while Bruner-Halteman "was doing everything she could to make ends meet."

At the conclusion of its opinion, the court summarized ECMC's behavior as follows:
A sophisticated creditor, ECMC, active in many cases in this district and across the country, decided that it could continue to garnish a debtor's wages with full knowledge that she was in a pending bankruptcy case. The Plaintiff, a woman who suffers from a severe medical condition, was hurt in the process. She was deprived of the full use of her paycheck. She incurred significant attorneys' fees in trying to fix the situation. A garnishment of a few hundred dollars may not be much to everyone, but to Kristin Bruner-Halteman, it meant a lot.
I will make just two comments about ECMC's merciless and cruel behavior in the Bruner-Halteman case. First, $74,000 might be a significant punitive-damages award for some organizations, but 74 grand is peanuts to ECMC.  After all, the Century Foundation reported recently that ECMC, a nonprofit organization, has $1 billion in cash and unrestricted assets. A punitive damages award of a million dollars would have been more appropriate.

Second, Ms. Bruner-Halteman was not awarded damages for ECMC's outlaw conduct until April 8, 2016, almost exactly four years after ECMC's first  wrongful garnishment.  Obviously, ECMC knows how to stretch out the litigatin process  to wear down its adversaries.

ECMC's name has appeared as a named party in more than 500 court decisions. A little dust-up like the one it had with Bruner-Haltemann is simply the price of doing business in the dirty commerce of harassing student-loan defaulters. And you can bet no one at ECMC missed a meal or lost any sleep because of the Bruner-Halteman case.

Perhaps Senator Elizabeth Warren, who publicly bemoans the excesses of the student loan industry, should hold Senate hearings and ask ECMC's CEO a few questions. Questions like: How much do ECMC executives pay themselves? How did ECMC accumulate $1 billion in unrestricted assets? And who is paying ECMC's attorney fees for hounding all those American student-loan borrowers--millions of whom, like Bruner-Halteman, are living "on the ragged edge"?

References

Bruner-Halteman v. Educational Credit Management Corporation, Case No. 12-324-HDH-13, ADV. No. 14-03041 (Bankr. N.D. Tex. 2016).

Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. Accessible at https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/








Wednesday, November 30, 2016

Betsy DeVos, Trump's choice for Secretary of Education, has the power to ease the suffering of student-loan debtors

Betsy DeVos, Donald Trump's choice for Secretary of Education, has no experience in higher education, and that may be a good thing for student-loan debtors.

Most commentators on the student-loan crisis are insiders who want to maintain the status quo regarding the federal student loan program. The universities depend on regular infusions of student-loan money, which enables them to raise their tuition prices year after year at twice the rate of inflation.

But DeVos has no ties to higher education at all, and thus she has the capacity to look at the student-loan catastrophe from a fresh perspective. In fact, DeVos has the power to do one simple thing that could potentially bring relief to millions of distressed student-loan debtors.

Under current bankruptcy law, debtors cannot discharge their student loans in bankruptcy unless they can show that repaying the loans will cause them "undue hardship."  In nearly every case, the Department of Education and the student-loan guaranty companies argue that student-loan debtors should be denied bankruptcy relief under the undue hardship standard.

Instead, they routinely demand that distressed college borrowers enroll in long-term income-based repayment plans that can last for 20 or even 25 years.  And DOE and its debt collectors make this demand even when debtors' income is so low that they pay nothing or next to nothing under the terms of these plans.

Here are some examples:
  • In the Edwards case, decided last spring, Educational Credit Management (ECMC) argued that Rita Gail Edwards, a woman in her mid-50s, should pay $56 a month for 25 years to service a debt of almost a quarter of a million dollars! 
  • In the Roth case, ECMC opposed bankruptcy relief for Janet Roth, an elderly woman with chronic health problems who was living on Social Security income of less than $800 a month. Instead, ECMC wanted Roth to enter a long-term repayment plan even though ECMC conceded that Roth's income was so low that she would pay nothing under the plan. 
  • In the Abney case, DOE wanted Abney, a 40-year-old father of two, to enter a 25-year income-based repayment plan. Abney was living on $1200 a month and was so poor he couldn't afford a car and rode a bicycle to get to his job.
In essence, DOE and the debt collectors maintain that almost no one is entitled to discharge their student loans in bankruptcy and that everyone should be placed in long-term, income based repayment plans.

What if Secretary DeVos simply decreed that DOE and the loan guaranty agencies will stop pushing long-term repayment plans in the bankruptcy courts and would consent to bankruptcy discharges for people like Roth, Edwards, and Abney? (Incidentally, in all three cases, the bankruptcy courts rejected the creditors' arguments and discharged the student loans in their entirety.)

By consenting to bankruptcy discharges for people like Abney, Edwards and Roth, the Department of Education would signal to the bankruptcy courts that it supports a less harsh interpretation of the "undue hardship" standard. That would open the door for thousands of people of distressed debtors to file bankruptcy to discharge their student loans.

Some people might argue that my proposal would unleash a flood of bankruptcy filings that would undermine the financial integrity of the federal student loan program. But let's face facts. People like Roth, Edwards and Abney would never have paid back their student loans, and placing them in 25-year repayment plans that would have obligated them to make token payments that would have done nothing more than maintain the cynical fiction that their loans weren't in default.

Wouldn't it be better for DOE to be candid about the student-loan crisis and admit that millions of people will never pay back their loans? Wouldn't it be better public policy to allow honest but unfortunate debtors to get the fresh start that the bankruptcy courts are intended to provide?

Betsy DeVos is fresh on the scene of the student-loan catastrophe. Let's hope she brings some fresh thinking to the U.S. Department of Education.


Mark http://www.nytimes.com/2016/11/23/us/politics/donald-trump-president-elect.html?action=click&contentCollection=Opinion&module=RelatedCoverage&region=EndOfArticle&pgtype=article

Friday, October 28, 2016

Educational Credit Management Corporation and the U.S. Department of Education: Are They Co-Conspirators in Accounting Fraud?

Last March, an Arizona bankruptcy court discharged $245,000 in student loan debt owed by  Rita Gail Edwards, a 56-year-old single woman earning a tenuous living as a counselor. Educational Credit Management Corporation (ECMC), her student-loan creditor, fought the discharge. ECMC wanted Edwards placed in a 25-year income-based repayment plan. Under such a plan, Edwards would only pay $84 a month on her loans for 25 years.

ECMC's position was absurd, of course. A woman in her late 50s  will never pay off a $245,000 loan by making monthly payments of $84. The only possible purpose that is served by jamming Ms. Edwards into a 25-year repayment plan is to carry her student-loan debt on the Department of Education's books as a performing loan.

In ruling for Ms. Edwards, the bankruptcy judge questioned the wisdom of a system that allowed Edwards to borrow so much money. "In hindsight, it is a shame that [Edwards] ever incurred these student loan debts," the court observed.
While her Ottawa University education may have given her the tools and credentials to work in an emotionally satisfying role [as a counselor] and may have provided a well needed skilled counselor in her rural community, the predictable economic burden was never likely to justify the massive economic burden she incurred.
The Edwards case demonstrates the insanity of the federal student-loan program. Our government allows people to borrow extravagant amounts of money for educational programs that will never pay off, and then it engages debt collectors to push borrowers into long-term income-based repayment plans that stretch out over 25 years and will almost never result in the loans being repaid.

And the Edwards case is not an anomaly. In the Roth case, ECMC opposed a bankruptcy discharge for an elderly woman with chronic health problems who was living on less than $800 a month. In fact, Roth's income was so low that ECMC acknowledged that Roth's monthly payments under an income-based repayment plan would be zero!

In the Halverson case, ECMC opposed a discharge for a man in his sixties making less than $14 an hour as a substitute teacher and who owed almost $300,000 in student loan debt. Mr. Halverson borrowed less than half the amount he owed when he filed bankruptcy and was never in default. His debt ballooned mostly due to accruing interest while his loans were in deferment.

The Department of Education itself has taken the same irrational stance regarding bankruptcy discharge for student debtors. In the Myhre case, DOE opposed a discharge for a quadriplegic, and in the Abney case, it opposed a discharge for  a single father of two children who was living on less than $1200 a month and could not even afford to own a car.

Why?

 I can think of only one reason. ECMC and DOE are engaged in a massive accounting fraud, trying to convince the public that the federal student loan program is solvent and fiscally sound. But in fact the student loan program is a disaster. Eight million people are in default and and one out of four debtors are either in default or behind on their loan payments.

ECMC benefits from the status quo--that is clear. According to a Century Foundation report, it has $1 billion in unrestricted assets, most of it obtained from its loan-collection activities. The Westlaw database shows that ECMC has  appeared as a named party in over 500 federal court rulings; it has spent literally millions of dollars in attorney fees chasing after people like Gail Edwards and Janet Roth.

And who pays those fees?  According to a law review article written by Rafael Pardo, ECMC draws money from a Federal Reserve Fund to finance its loan-collection activities and has access to "significant [federal] resources when litigating against student-loan debtors" (p. 2145).  Pardo cites a document showing that DOE allowed ECMC to keep a quarter of a billion dollars that it drew from DOE's Federal Reserve Fund to finance its activities in 2008 (p. 2145).

So you, Mr. & Ms American taxpayer, are paying ECMC to engage in unproductive litigation against impoverished debtors--litigation intended to keep the student-loan crisis under wraps.

And ECMC is a nonprofit organization--supposedly devoted to the public good.

But ECMC is not acting for the public good. On the contrary, ECMC is DOE's hit man--the entity DOE sends to beat down bankrupt student debtors and prevent them from getting the bankruptcy relief they deserve.

 ECMC's senior executives are getting well paid to be DOE's "Mac the Knife."  Its CEO makes at least a million dollars a year.

References

Annual Report of the CFPB Student Loan Ombudsman. Consumer Financial Protection Bureau, September 2016. Available at http://files.consumerfinance.gov/f/documents/102016_cfpb_Transmittal_DFA_1035_Student_Loan_Ombudsman_Report.pdf

Edwards v. Educational Credit Management Corporation, Adversary No.. 3:15-ap-26-PS, 2016 WL 1317421 (Bankr. D. Ariz. March 31, 2016). Available at http://www.azb.uscourts.gov/sites/default/files/opinions/024139558300_dmd.pdf

In re: Halverson, 401 B.R. 378 (Bankr. D. Minn. 2009).

Rafael Pardo. The Undue Hardship Thicket: On Access to Justice, Procedural Noncompliance and Pollutive Litigation in Bankruptcy. 66 Florida Law Review 2101-2178. Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2426744

Roth v. Educational Credit Management Corporation490 B.R. 908 (9th Cir. BAP 2013). Available at http://cdn.ca9.uscourts.gov/datastore/bap/2013/04/16/RothV%20ECMC%20opinion-FINAL%20AZ-11-1233.pdf