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Saturday, September 23, 2017



Another issue worth pondering is the effect of government enforcement actions on "private attorney general" enforcement or whatever it may be called in a particular jurisdiction.

Case in point is the CFPB-mandated audit of NCSLT/TSI student loan collection cases to weed out the defaulted loans with time-bar defects (assuming the auditors can even work out which SOL applies).

The unintended effect will be to reduce incentives for retail-level (non class-action) attorneys willing to represent debtors (generally not very lucrative clients) to take collection cases en masse because the caseload being litigated will contain fewer opportunities to file counter-claims or separate claims for violations of the FDCPA or state-side counterpart (such as Texas Debt Collection Act).

While the defense of debt collection cases (even successful defense for those attorneys basing their fee on outcome at least in part) is not a highly profitable endeavor, the fair debt collection claims have at least a settlement value of a few thousand dollars per case.

While the issue of making money off the debt collector's violations may appear to be solely a bread-and-butter issue for consumer defense attorneys, it nevertheless will hurt consumers/debtors across the board (as an un-certified class, as it were) because greater quality control further up in the pipeline (such as is now being imposed on National Collegiate private student loan collection cases) reduces the ability of private attorneys to be compensated (through attorney's fees) for enforcing the FDCPA through private actions.

It may very well further reduce the supply of attorneys willing to take on the defense of collection cases, and will reduce revenues of those now laboring in these trenches.

So, in that respect, the private case-specific enforcement of FDCPA liability for violations would be beneficial, and would arguably be preferable over both class-actions and government regulatory actions.

It might even give legal aid organizations a source of much needed revenue. See, for example, Serna v Samara Portfolio (awarding $72,133.50 in attorney's fees for service provided by legal aid attorney in FDCPA case that was appealed to the Fifth Circuit and resulted in a precedent-setting decision).

On the other hand, some types of questionable practices and even clear violations of law do not provide a private remedy, so the same legal services market dynamics would not apply.

Case in point would be the Trusts' filing of collection suits without proof of assignment, which does not appear to be actionable as an unfair debt collection practice, though it may be grounds to get the lawsuit dismissed. Mere lack of evidence (such as proof of assignment) is not the same as non-existence of the evidence. And in the case of NCSLT-securitized loans, the Pool Supplements and Deposit and Sale Agreements that evidence the student loan portfolio transfers at the pool level are readily available on the SEC's Edgar web site. Courts may even be willing to take judicial notice of them. So the question of enforceability will likely vary depending on how judges and appellate panels resolve the issue of how much loan-level proof of assignment is needed to prove that a particular loan in a lawsuit was part of the transaction at the "pool" level. How can the auditors to be put in charge of perusing the entire population of loans that make up the collateral for the SLABS make that determination when the courts and trial-level judges even within the same jurisdiction are unpredictable in that regard?

The already-conducted audit of PHEAA/AES commissioned by the successor to the trust owners revealed that loan-level assignment proof is lacking in 100% of the sample.

Which is, of course, hardly surprising, given that there the "notes" were non-negotiable and given that they were mostly originated over the internet and via fax (meaning that the "notes" were images of the signature page) and that the whole system was designed to effect the transfer for securitization in bulk, rather than through transfer of actual "paperwork".

Ted F

I was responding to a specific claim by Paul Bland in the WSJ criticizing my op ed because invalidating the CFPB rule would create "immunity" for Wells Fargo. That was an entirely bogus argument, and I note you don't even begin to defend it.

If we think regulators and criminal prosecutors and market discipline cannot provide sufficient protection, there are surely better answers than depriving consumers of the choice not to have a giant wealth transfer from their pockets to wealthy trial lawyers. But I see no evidence that the punishment Wells Fargo and its executives have already received and have yet to face will not be sufficient deterrence.

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