Consumer Law & Policy Blog

Key test in Fourth Circuit for sovereign immunity of state-affiliated loan entities

Today, Public Citizen filed the opening brief in Pele v. Pennsylvania Higher Education Assistance Agency, a Fourth Circuit appeal testing whether and in what circumstances state-affiliated loan entities can qualify as "arms of the state" and so partake of a state's sovereign immunity from suit.

The appeal arises out of the case of Lee Pele, a Fairfax County, Va., resident who sued PHEAA under the federal Fair Credit Reporting Act, alleging that PHEAA had failed to correct inaccurate reports stating that Pele had defaulted on tens of thousands of dollars in student loans – loans that were not, in fact, his. PHEAA sent those erroneous reports to credit agencies, threatening to hamper Pele’s plans to finish graduate school. Pele was denied a home loan and had his credit damaged for approximately two years.

PHEAA, one of the largest student-loan servicers in the nation, sought and won summary judgment against Pele on based on sovereign immunity. Representing Pele, Public Citizen is now appealing that ruling, pointing out that:

• PHEAA’s operations are financially independent of state funding;

• The state is not legally or functionally liable for a judgment against PHEAA;

• More than two-thirds of PHEAA’s loan guarantee and loan servicing businesses (which together account for more than 90 percent of PHEAA’s business) consist of non-Pennsylvania loans;

• PHEAA’s own legal filings in 2010 and 2011 identified it as a “citizen of Pennsylvania,” a status that is legally incompatible with being an arm of the state;

• The Fourth Circuit in United States ex. rel. Oberg v. PHEAA held earlier this year that PHEAA was not an arm of the state.

The outcome of the case could affect the legal remedies available to thousands of student borrowers and their families, and in fact any individual wronged by state-affiliated loan servicing entities like PHEAA. Little case law exists addressing the question of whether most state loan guarantee agencies have sovereign immunity. Meanwhile, in addition to Pele’s lawsuit, PHEAA is defending a separate case claiming that it defrauded the federal government and another case claiming that it violated its employees’ rights under federal and state wage-and-hour laws. In each of these cases, PHEAA has asserted that sovereign immunity requires dismissal or judgment in its favor.

PHEAA was created in 1963 by the Pennsylvania Legislature. In 2008, it stopped lending directly to students; now it primarily services and guarantees loans for students nationwide. It also operates under the names American Education Services and FedLoan Servicing, and in fiscal year 2013 its portfolio of loans it held, guaranteed or serviced was worth more than $100 billion.

You can read our press release here, and our opening brief here.

NYT article about partnerships between AGs and plaintiff-side lawyers

A recent New York Times story about the relationships between consumer-friendly state attorneys general and plaintiffs' lawyers that serve as outside counsel on enforcement cases that the outside lawyers themselves have recommended is worth a read -- and a big caveat.

The article is informative about how state AGs often need to turn to outside counsel for help enforcing consumer protection laws, and the piece rightly notes the potential conflict of interest present when outside counsel who have contributed to officials' campaigns also recommend enforcement actions and stand to benefit financially from being engaged as outside counsel to bring the actions. But the article, ominously entitled "Lawyers Create Big Paydays by Coaxing Attorneys General to Sue" and focusing an unexplained amount of attention on the details of how outside attorneys contact attorneys general (as if these were nefarious secret meetings), insinuates that these arrangements are mainly inside dealing while downplaying the important public purpose served by contingency arrangements with outside counsel to bring enforcement actions on behalf of the state.

Here is how the Times summarizes the practice:

The lawsuits follow a pattern: Private lawyers, who scour the news media and public records looking for potential cases in which a state or its consumers have been harmed, approach attorneys general. The attorneys general hire the private firms to do the necessary work, with the understanding that the firms will front most of the cost of the investigation and the litigation. The firms take a fee, typically 20 percent, and the state takes the rest of any money won from the defendants.

Well, what's wrong with that? Hiring outside counsel to do consumer protection work that many AG offices are understaffed to handle expands the enforcement power of those offices. The state can better enforce its laws, protect its citizens, and potentially reap financial benefits by recovering money it wouldn't have otherwise. And the contingent nature of the fees for the outside counsel ensure that (a) the state is not out any money if the suits are unsuccessful, and (b) the outside counsel have a strong incentive to find and bring meritorious cases, an incentive that decreases the chance that the AGs are lending the state's name to unjustified suits.

To be fair to the Times, the story does note (eventually) that AGs' offices often don't have the capacity to handle these suits. And the conflict-of-interest point is one worth taking into account. But ultimately, the arrangements do not seem to be an example of big money or personal relationships corrupting the system but rather instances of private ambition being put to work for public gain. (More Madison than McCutcheon.)

The real problem, which the article notes briefly at the end (without apparently seeing it as a problem), is that the large corporations are seizing on relationships between attorneys general and plaintiff-side outside counsel and using them as campaign fodder against officials engaging in a practice that seems mostly to benefit the public. The business community has also successfully pushed legislation in a number of states to restrict the practice. This Times article is likely to aid those anti-consumer efforts, unfortunately, by fueling the perception that attorneys general should not be working with the plaintiffs' bar to help expand their capacity to enforce the law.

You can read the article here.

NPR on aggressive hospital collection practices

The title of this piece, "When Nonprofit Hospitals Sue Their Poorest Patients," sums it up. The story raises important questions about nonprofit hospitals' social responsibility to low-income patients and highlights the harsh practices of one Missouri hospital that seizes more money from its patients than any other hospital in the state. The results are lawsuits, wage garnishments and unbreakable cycles of debt.

Listen to the story (a collaboration between NPR and ProPublica) here.

Department of Justice looking for lawyers to enforce U.S. consumer laws

The Department of Justice's Consumer Protection Branch is looking to hire lawyers to enforce the Nation's consumer laws. And because enforcement of those laws is a frequent topic of this blog, it seemed sensible to post the announcements here. The deadline to apply for these jobs is January 2, 2015.

One job announcement is for experienced litigators. The other is for for a newly created position heading up a consumer policy department. The first appears immediately below; the latter appears after the jump.

Civil Division (CIV)

Consumer Protection Branch

Attorney

Washington, DC 20530

United States

 

About the Office: The Consumer Protection Branch is responsible for protecting the health, safety, and economic security of the American consumer.  The Consumer Protection Branch leads the Justice Department's efforts to enforce federal consumer protection statutes throughout the United States. The Branch's affirmative litigation  - criminal and civil  - includes enforcement actions involving adulterated and misbranded food, drugs, and devices; hazardous and unsafe consumer products; unfair and deceptive advertising and franchising practices; unfair consumer credit and debt collection practices; deceptive and fraudulent internet and mail order sales; all types of financial  fraud; and unlawful practices that target vulnerable consumer populations.  This litigation typically involves consumer protection matters of national significance.  The Branch's defensive litigation  includes actions challenging federal policies, initiatives, and regulatory actions relating to foods, drugs, devices, and other consumer products.  Much of the litigation handled by the Branch brings Congressional and media interest and scrutiny.  The Branch works closely with the Food and Drug Administration, the Federal Trade Commission, the Consumer Product Safety Commission, and the National Highway Traffic Safety Administration.

 

Job Description: The Consumer Protection Branch is seeking experienced attorneys to represent the United States in a broad range of civil and criminal litigation. More than one position may be filled from this announcement.

 

Qualifications: Applicants must possess a J.D. degree, be duly licensed and authorized to practice as an attorney under the laws of any State, territory of the United States, or the District of Columbia, and be an active member of the bar in good standing. Applicants must have at least two years of post J.D. experience to qualify at the GS-13 level; at least three years of post J.D. experience to qualify at the GS-14 level; and at least four years of post-J.D. experience to qualify at the GS-15 level.

Applicants must have excellent writing, negotiation, and interpersonal skills, exhibit good judgment, and have experience in trial work. Judicial clerkship experience is desirable.

Salary: The salary for these positions will be at the GS-13 to GS-15 level ($89,924.00 to $157,100.00 per year). Salary level will be determined by a candidate's qualifications and experience.

 

Travel: Occasional travel.

 

Application Process: Applicants must submit a resume or current OF-612 (Optional Application for Federal Employment), a cover letter (highlighting relevant experience), and a writing sample (not more than 15 pages in length) to: Consumer.Protection@usdoj.gov

Email links icon

Please specify in the subject line of the e-mail that the application is for a " CPB Trial Attorney" position. No telephone calls, please. Application materials must be received by January 2, 2015.

Application Deadline: Friday, January 2, 2015

Relocation Expenses: Not authorized.

Number of Positions: FEW

 

Non-disparagement clause hall of shame -- businesses behaving badly

In a must-read for consumers who value their right to criticize companies they do business with, Techdirt has compiled this list of businesses that employ contract language to try to silence criticism from customers. These companies threaten fines from $2,500 up to a mindboggling $100,000 for customer criticism.

Earlier this year, as we've discussed, a Utah couple won a judgment of more than $300,000 against online retailer KlearGear.com for this nefarious practice and the company's ensuing revenge on the couple via a bogus credit report, and California banned the use of non-disparagement clauses.

Kudos to Techdirt for this valuable research.

Citing new study, New York bans fracking statewide

In a victory for consumers and the environment, the administration of New York Gov. Andrew Cuomo will impose a statewide ban on the controversial technique known as hydraulic fracturing or "fracking" for gas.

Reuters quotes state health commissioner Howard Zucker: "The potential risks are too great, in fact not even fully known, and relying on the limited data presently available would be negligent on my part."

New York will become the second state to ban fracking, joining Vermont.

Read the full story here.

Trade pact could jeopardize U.S. data privacy protections, net neutrality

The leaked text of a multi-national trade agreement currently under negotiation reveals some troubling implications, explains Public Citizen this week in this press statement and this report. The text at issue, from the Trade in Services Agreement (TISA), would apply in fifty nations.

As explained in the release:

With respect to privacy protections, the leaked text reveals that the U.S. negotiators are pushing for new corporate rights for unrestricted cross-border data flows and prohibitions on requirements to hold and process data locally, thus removing governments’ ability to ensure that private and sensitive personal data is stored and processed only in jurisdictions that ensure privacy.

 

The CFPB's amicus program

Three years ago, the Consumer Financial Protection Bureau started its amicus program in which it looks for opportunities to file amicus briefs (and files them) in cases presenting important issues within the agency's many areas of operation. Reproduced below in full is a letter from the agency touting this important program. (Note that, in the three years the amicus program has been around, the agency has filed 14 amicus briefs, which doesn't stike me as that many. Perhaps that's because advocates have not been bringing important opportunities to the agency's attention.)

**********

December 17, 2014

Dear Colleagues,

This month, the Bureau celebrates the three-year anniversary of the first amicus curiae brief it filed in federal court.  Amicus curiae means “friend of the court.”  Through the amicus program, the Bureau has sought to assist courts that are deciding cases that raise important and often complex legal questions under federal consumer financial law.  To date, the amicus program has filed 14 amicus briefs in the federal courts of appeals and has worked closely with the Office of Solicitor General on several amicus briefs in the U.S. Supreme Court.  We seek your recommendations for future candidates for our amicus program.

The Bureau’s amicus briefs provide the courts with the agency’s views on legal questions involving the statutes and regulations that are subject to the Bureau’s regulatory authority.  Through our amicus filings, we endeavor to aid the courts’ understanding of the consumer finance marketplace and promote consistency in judicial interpretation of federal consumer financial laws.  In this way, the amicus program advances the Bureau’s statutory mission to ensure that federal consumer financial law is implemented “consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive.” 

All of the Bureau’s amicus briefs are made publicly available on the CFPB’s amicus webpage:  http://www.consumerfinance.gov/amicus/.  The Bureau welcomes and encourages suggestions of cases as candidates for amicus curiae participation.  We seek your recommendations as important stakeholders in the area of consumer finance.  Anyone can suggest a case to us by sending an email to amicus@cfpb.gov and providing certain basic information, including the case name, docket number and court, and a description of the case and the legal issue presented.  

Sincerely,

Meredith Fuchs, Gneral Counsel, CFPB

Nandan M. Joshi, Director of Amicus Program

A big class action victory in Pennsylvania

This week, the Pennsylvania Supreme Court affirmed a jury verdict against Walmart in favor of a class of more than 180,000 workers who were not paid for missed breaks and work after their shifts ended.

The Court rejected Walmart's arguments against the form of the class proceedings. Our friends at Public Justice break down the decision in Braun v. Walmart here.

Do Mortgage Strip-Downs Affect the Supply of Mortgage Credit?

Wenli Li of the Philadelphia Fed, Ishani Tewari of the Yale School of Management, and Michelle J. White of California, San Diego's Department of Economics and the National Bureau of Economic Research have written Using Bankruptcy to Reduce Foreclosures: Does Strip-Down of Mortgages Affect the Supply of Mortgage Credit?  Here's the abstract:

We assess the credit market impact of mortgage “strip-down” — reducing the principal of underwater residential mortgages to the current market value of the property for homeowners in Chapter 7 or Chapter 13 bankruptcy. Strip-down of mortgages in bankruptcy was proposed as a means of reducing foreclosures during the recent mortgage crisis but was blocked by lenders. Our goal is to determine whether allowing bankruptcy judges to modify mortgages would have a large adverse impact on new mortgage applicants. Our identification is provided by a series of U.S. Court of Appeals decisions during the late 1980s and early 1990s that introduced mortgage strip-down under both bankruptcy chapters in parts of the U.S., followed by two Supreme Court rulings that abolished it throughout the U.S. We find that the Supreme Court decision to abolish mortgage strip-down under Chapter 13 led to a reduction of 3% in mortgage interest rates and an increase of 1% in mortgage approval rates, while the Supreme Court decision to abolish strip-down under Chapter 7 led to a reduction of 2% in approval rates and no change in interest rates. We also find that markets react less to circuit court decisions than to Supreme Court decisions. Overall, our results suggest that lenders respond to forced renegotiation of contracts in bankruptcy, but their responses are small and not always in the predicted direction. The lack of systematic patterns evident in our results suggests that introducing mortgage strip-down under either bankruptcy chapter would not have strong adverse effects on mortgage loan terms and could be a useful new policy tool to reduce foreclosures when future housing bubbles burst.