Consumer Law & Policy Blog

Senators Blast Education Department Inaction on Loan Forgiveness

Senators Elizabeth Warren and Dick Durbin today issued a report giving Betsy DeVos and the Department of Education a failing grade on their handling of claims for loan forgiveness from students defrauded by for-profit colleges and trade schools. Fourteen other Democratic Senators joined Warren and Durbin in a letter calling on the Department to take action to respond to the report's devastating findings: Despite legal requirements that defrauded students receive discharges of their federal student loans, Secretary DeVos's Education Department has not forgiven a single student loan since Trump took office and is sitting on a backlog of 87,000 claims for relief from students. The Department has even failed to discharge loans of almost 2,000 students who were notified by the Obama Education Department that their applications for loan forgiveness had been approved.

Proprietary schools rely on federal student aid programs, especially loan programs, as their lifeblood, and often employ boiler-room tactics to sign students up for programs of dubious or no value to get access to those federal funds. When schools go under from the weight of their own fraud and mismanagement, or when students discover that the degrees they've obtained or the classes they've attended are of little or no value on the job market, it is students who are left holding the bag of unsustainable student loan debt owed to the federal government.

To address this problem, the Higher Education Act has provided for many years that students have a defense to repayment if a school defrauded them or wronged them legally in other ways, and Department regulations provide a process for students to obtain cancellation of their loans, and reimbursement of previous loan repayments, when they are victims of predatory schools. With the wave of disclosures in recent years of fraud and abuse by proprietary schools such as Corinthian Colleges and ITT Technical Institute, requests for loan forgiveness have mounted, and the Obama Administration approved over 30,000 of those requests. Obama's Education Department also promulgated new rules to improve the process and increase protections for students against predatory schools.

"Wall Street Fines Fall During First Year of Trump Administration"

The Wall Street Journal reports: "Penalties levied by the Securities and Exchange Commission dropped to a four-year low during the latest fiscal year, showing how a more friendly tone from regulators and the transition of political power can yield relief for Wall Street. Total penalties ordered through SEC enforcement actions fell 15.5% last year to about $3.5 billion, the lowest total since 2013, according to figures prepared by Georgetown University law professor Urska Velikonja. The total number of cases declined 17%, and was the lowest since at least 2013, according to Ms. Velikonja’s research. The reduction shows how a change at the top of Wall Street’s top regulator can affect the volume of prodigious enforcement settlements."

The full article (behind a paywall) is here.

Dep't of Education begins to walk back rules protecting students from fraud

As The Washington Post reports:

The Education Department officials opened formal negotiations on Monday to rewrite federal rules meant to protect students from fraud by colleges and universities.

The talks with university representative and student advocates are taking place as the department faces criticism for delaying consideration of tens of thousands of loan forgiveness claims from students who say they were defrauded by for-profit colleges.

The 1994 rule, known as borrower defense, allowed loan forgiveness if it was determined that the college had deceived them. But the rule was rarely used until the demise of Corinthian and ITT Tech for-profit chains several years ago, when thousands of students flooded the department with requests to cancel their loans. In 2016, the Obama administration passed revisions to the rule, which clarified the process and added protections for students. DeVos froze those revisions until new rules can be written.

Our lawsuit challenging the delay of the protections adopted in 2016, which we blogged about here, and the similar one filed by state attorneys general are still pending. Briefing on motions for summary judgment is set to conclude by the end of the year.

Arbitration Opt-Outs Hit a New Low: Now They Are Undeliverable

by Jeff Sovern

Some arbitration clauses permit consumers to opt out of arbitration and class action waivers provided the consumer acts within a stated period. For example, Asana provides in § 13.8 of its Terms of Service for a 30-day opt-out. Those wishing to opt out are instructed to send "written notice of your decision to opt out to dispute-notice@asana.com with the subject line, 'ARBITRATION AND CLASS ACTION WAIVER OPT-OUT.'" But there's only one problem, as Gregory Gauthier discovered. Emails sent to that address are returned as undeliverable. Apparently Asana has listed that email address since at least its April 27, 2015 Terms of Service  (though the arbitration clause in those terms did not include an opt-out).  But maybe it doesn't matter because (1) few consumers read such terms of service; (2) few consumers understand arbitration clauses; (3) few consumers opt out, probably because of (1) and (2); if few consumers opt out, there won't be enough consumers to participate in a class action anyway. Companies undoubtedly adopted opt-outs to help them argue that arbitration clauses are not unconscionable without actually exposing the companies to class actions. Apparently Asana has taken things even further. 

DC Superior Court Ruling on the Facebook Search Warrant: The Good, the Bad, and the Ugly

by Paul Alan Levy

D.C. Superior Court Chief Judge Robert Morin has issued his ruling on the pending objections to search warrants served on Facebook by Federal prosecutors seeking the entire contents of the Facebook accounts for the DisruptJ20 Facebook page as well as the personal accounts of two individuals, Lacey MacAuley and Legba Carrefour, who served as press contacts for the DisruptJ20 organizing effort. His decision represents something of a mixture of good and bad. The judge insisted on strong protections for the identities of the anonymous third-parties who communicated with the page and the accounts, the client group whom I have been representing  as a Public Citizen litigator, and good protections for the owner of the DisruptJ20 page. But he accorded fewer protections to the individual account holders – ironically, the very people who are likely to be the most in need of privacy protections. And the judge closed with a disappointing ruling on intervention, one which could make it harder for future litigants to achieve even the degree of free speech protections that we secured in this case.

Kate Berry Asks Did CFPB's Cordray fake out Trump and GOP?

The story is in the American Banker. The theory is that by refusing to rule out a run for the governorship of Ohio, Cordray led Trump to believe that he could avoid the political heat he would take by firing Cordray because Cordray would quit anyway.  Indeed, firing Cordray might even make him a political martyr and help him win the governorship of a state that is likely to be key to Trump's hopes for reelection.  The piece also speculates on what will happen when Cordray leaves, and discusses the possibility that if Trump names Treasury Secretary Mnuchin to head the CFPB temporarily, Mnuchin could then delegate the actual running of the Bureau to a Treasury staffer. It concludes:

The names being floated to run the CFPB on an interim basis include Craig Phillips, a counselor to the Treasury secretary, who had been a managing director and member of the operating committee at the asset manager BlackRock; and Jared Sawyer, a deputy assistant secretary of financial institutions policy at Treasury, who had been a special counsel to Senate Banking Committee Chairman Mike Crapo, R-Idaho.

 

Senate Expected to Vote Soon on Confirmation of Otting, Former Banker, to Regulate Banks as Comptroller

by Jeff Sovern

Bloomberg is reporting in a story headlined Senate Clears Way for Ex-Mnuchin Deputy to Lead Bank Regulator, that:

Senate Majority Leader Mitch McConnell has filed a motion to kick off debate and an eventual vote to appoint Otting as head of the Office of the Comptroller of the Currency. It will likely take several days before lawmakers consider Otting’s nomination and they will have to spend 30 hours of floor time debating the selection before a vote.

* * *

Otting is a former banker, having led OneWest as chief executive officer when Mnuchin was chairman. Democrats including Senator Elizabeth Warren, one of Wall Street’s loudest critics in Congress, have questioned OneWest’s home foreclosure practices when Otting and Mnuchin were running the lender. * * * 

Regular readers of the blog will recall that when states passed laws to prevent predatory lending, the Bush-era OCC declared the laws inapplicable to national banks.  The OCC also dropped the ball on the Wells Fargo unauthorized account scandal: despite receiving hundreds of whistleblower complaints by 2010, all it did was raise the issue with Wells--after which the OCC dropped it, while Wells employees continued opening unauthorized accounts. This nomination does not bode well for consumer protection.

Law Profs Sought to Judge ABA Law Student Consumer Law Writing Competition

The ABA Antitrust Consumer Protection Committee is seeking law professors to judge a law student writing competition on he Tension Between Truth in Advertising Restrictions and  First Amendment Free Speech Rights. Submissions are to be due by  April 1, 2018 and the award is to be decided by July, 2018. If you are interested, please email Harvey Saferstein at harvey@headwear.com.

 

Most student-loan fraud claims involve for-profits colleges

A new report by The Century Foundation based on analysis of data from the Department of Education shows that students who attended for-profit colleges filed more than 98 percent of the requests for student loan forgiveness alleging fraud by their schools.The study is based on nearly 100,000 applications for loan forgiveness based on "borrower defense" -- that is, claims that the students have been defrauded or misled by federally approved colleges and universities -- received by the Department over the past two decades.

The Century Foundation received the data through a Freedom of Information Act request.

The Foundation summarized the key finding:

• Out of the total of 98,868 complaints reviewed by TCF, for-profit colleges generated more than 98.6 percent of them (97,506 complaints).  Of these complaints nonprofit colleges generated 0.79 percent (789 complaints) and public colleges generated 0.57 percent (559 complaints).
• Approximately three-fourths of all claims (76.2 percent) were against schools owned by one for-profit entity, the now-closed Corinthian Colleges (75,343 claims). Removing Corinthian from the analysis, the vast majority of claims, over 94 percent, were still against for-profit colleges (22,160 of the 23,525 non-Corinthian claims).
• Claims are concentrated around fifty-two entities—forty-seven for-profit companies and five nonprofit institutions—that have each generated twenty or more borrower defense claims. Of these five nonprofits, three converted from for-profit ownership.
• The backlog of fraud complaints—currently numbering 87,000 not yet reviewed—is increasing, with the number of new claims submitted per month averaging approximately 8,000 since mid-August.

Notably, although for-profit colleges generate 99 of every 100 complaints of student fraud, these schools number far fewer, and enroll far fewer students, than nonprofit and public schools do. 

The Century Foundation's report is available here.

American Banker: Dems' brighter 2018 chances could upend bank priorities

by Jeff Sovern

Here (the content appears to be free). Excerpt:

After the GOP captured the U.S. House majority in 2010, Republicans quickly went to work trying to * * * undercut the Dodd-Frank Act and the Consumer Financial Protection Bureau, among other things.

A Democratic victory in 2018 would likely have a reverse effect, with Congress pushing for more restrictions. The deregulatory push by the current GOP leadership and the Trump administration would hit an obvious hurdle. The administration is likely at some point to choose its own CFPB director, but that person’s initiatives would likely face fierce pushback by Democratic committee chairs, just as current Director Richard Cordray has encountered.

But perhaps the biggest effect is divided power in Washington. * * *  If each chamber is held by a different party, that further reduces the likelihood that lawmakers can agree on legislation, including any comprehensive regulatory relief package (if that has not passed already by next year).

The article points out some Democratic positions that banks prefer to Republican ones, such as preserving Dodd-Frank's orderly liquidation authority, but I found it difficult to read the article without drawing a conclusion about which party is closer to the banks, as the headline implies. A House Financial Services Committee chaired by Maxine Waters would be very different from one chaired by Jeb Hensarling. Even if the committee could not get its legislation enacted, investigation and oversight priorities would surely be different and more friendly towards consumers than banks.