How student-loan debt got so big and some possible ways out

Law prof Ted Afield has written Compromising Student Loans, which explains why, in Afield's view, our student-loan programs do not properly assess a borrower's ability to pay back the loan. He also proposes a repayment program that he thinks would help borrowers who presently are unable to pay. Here is the abstract:

Access to higher education is on the road to becoming a public crisis as it increasingly becomes unaffordable. Given the decline in public funding for universities, other forms of public investment designed to make higher education more affordable, such as income based repayment programs, are becoming increasingly important. The income based repayment programs currently in place do not properly allocate benefits, however, and they also produce unnecessary economic distortions because these programs do not consider all of the relevant variables that establish a borrower’s true ability to repay the loan. 

Specifically, current income based repayment programs produce the following distortions and unanticipated inequitable outcomes: (1) institutions of higher education are insulated from market pressure; (2) an inefficient preference is provided for government and nonprofit work over private sector employment that is not justifiable; (3) certain married couples are disadvantaged by being forced to file as married filing separately, which causes them to forgo valuable tax benefits; and (4) borrowers are able to plan for the possible tax consequences far enough in advance to allow them potentially to obtain excess free funding from the government without having to repay it. Restructuring these programs so that relief is tied to a borrower’s overall ability to pay rather to his or her income would minimize these distortions. 

CFPB Announces Intention to Engage in a Rulemaking Procedure That "May Reconsider" Payday Rule

by Jeff Sovern

Here.  It seems unlikely that the Bureau would go to the trouble of a rulemaking only to ratify the rule. The Bureau had previously stated that it intended to amend the prepay card rule. 

Robocallers Overwhelming FTC and Do-Not-Call List

WaPo has a report, headlined How robo-callers outwitted the government and completely wrecked the Do Not Call list, reporting that the FTC receives 19,000 complaints per day from people on the Do-Not-Call list about robocallers. The FTC not only does not have the resources to do much about it, but when it tries, its efforts are blocked by spoofing technology. A depressing excerpt:

In the age of live telemarketing, the mere threat of prosecution or penalty was enough to deter companies with shareholders and reputations to protect. In the robo-calling epoch, dialers couldn’t care less. One, nobody knows who they are or where they’re calling from, because they all spoof their numbers. Two, more of them are doing it every year, since it’s cheap and easy to blast out automated calls from anywhere in the world. All this makes it nearly impossible to identify robo-callers, let alone penalize them. At a hearing on robo-calls in October, Sen. Susan Collins (R-Maine) said she was getting so many of them, she’d disconnected her home phone. “The list,” she said, “doesn’t work.”

* * * With an annual budget of $300 million — by contrast, the FBI’s is $9 billion — the FTC is a relatively puny federal agency. There are only 43 employees in the Division of Marketing Practices, which oversees unwanted calls. None of them . . . work full time on the issue. Ami Dziekan, who works in a different department, is the lone steward of the Do Not Call Registry. Since the robo-call ban went into effect in 2009, the FTC has brought just 33 cases against robo-callers. In those cases, defendants have been ordered to pay nearly $300 million in relief to victims, and nearly $30 million in civil penalties to the government. But even then, the FTC can’t force perpetrators to pay the fine if they argue they’re broke. Which robo-callers often seem to be. So the FTC has only collected on a fraction of those sums: $18 million in relief and less than $1 million in penalties.

Consumer complaints about Equifax

Equifax was the subject of more complaints to the Consumer Financial Protection Bureau than any other financial services company in all but one state in 2017, according to an analysis of agency data published Thursday. In every state but North Dakota, more residents complained to the CFPB about the credit reporting company than any other firm.

The Hill reports on the analysis here. The LendEDU analysis is here.

H&R Block Offering Update for its Tax Software at $24.95 But Others Get the Same Software for $9.95

by Jeff Sovern

A friend forwarded me the two images below.  My friend, a prior H&R Block customer, received the 2017 software update for $24.95 while his son, who has not used the software in the past, was offered the identical

software for $9.95. This type of price discrimination always makes me wonder about whether there is disparate impact discrimination going on; here, for example, the older customer pays more than twice what the younger consumer does.  

Trump Administration Seems Likely to Weaken CRA Rules

by Jeff Sovern

The WSJ has an interesting story out, Trump Administration Seeks to Change Rules on Bank Lending to the Poor, that reports:

Community groups say the law should be expanded in order to bring opportunity to more low-income areas, while banks say they would do a better job of helping these people if the law became more flexible and less bureaucratic.

“Community groups don’t like the way CRA is today, the banks don’t like the way CRA is today, and regulators don’t like it,” said Comptroller of the Currency Joseph Otting, whose agency is also planning changes to the way it regulates banks’ compliance with the law. “I have a very strong viewpoint of how to fix this.”

So you might think that Otting's fix will involve both something for community groups and something for banks. Well, maybe, maybe not. The article also explains the changes "could make it easier for banks to meet certain lending requirements and lower penalties for compliance problems." We don't know what the changes will be, but already some alterations have been made. As an example, the article notes:

During the Obama administration, officials penalized banks’ CRA grades for a wide range of alleged misconduct, including issues with overdraft charges and allegedly discriminatory auto loans made by car dealers.

* * *

In October, Mr. Otting’s predecessor Keith Noreika, a Trump administration appointee, changed OCC policies to make it much harder for banks to be downgraded for these reasons not directly tied to CRA lending.

It would be great if the changes provided greater consumer protection, but I will believe it when I see it. The article also discusses the possibility of including as "community development" loans transactions that don't solely help the poor and are for small businesses.

Consumer Advocates Charge Mulvaney's Freeze on Data Collection is a Ploy to Cripple the CFPB

by jeff Sovern

The American Banker has the story, in a report headlined Is CFPB’s data freeze about security or a political ploy? The article quotes Minnesota's Prentiss Cox, as saying "This is a very thinly veiled attempt to shut down fraud enforcement, which is consistent with the not-even-veiled priority agenda item of the congressional Republicans to eviscerate the CFPB." Senator Elizabeth Warren wrote to Mulvaney to protest the freeze last week, saying:

CFPB cannot fulfill its core functions without collecting personally identifiable information. * * *  CFPB bank examiners and enforcement lawyers regularly use account level data provided by regulated institutions to detect improper and unlawful activity. Likewise, the Office of Fair Lending collects and analyzes data to bring lawsuits against financial institutions that discriminate against their customers.

The American Banker article also states:

In his directive, Mulvaney cited concerns about data security laid out in a May 2017 report by the Office of the Inspector General, which found that confidential and sensitive enforcement information was accessible by a wider circle of CFPB employees than was necessary and prudent. Mulvaney said that staff instead could access aggregate data.

* * * 

One unresolved question is why Mulvaney would take so drastic a step in response to a months-old Inspector General's report. Bank regulators - not to mention other government agencies like the Social Security Administration and Internal Revenue Service - deal extensively in highly sensitive personal information and have never been subject to such a drastic directive. Both the Office of Personnel Management and State Department were the subject of extensive security breaches in 2015 and neither were instructed to not collect personal data. 

Do consumer-law violations (or "inefficiencies") account for 10% or more of what consumers spend?

And would correcting these inefficiencies reduce income and wealth inequality? Read Consumer Law As Tax Alternative by Rory Van Loo to try to find out. Here's the abstract:

The law and economics paradigm has traditionally emphasized tax and transfer as the best way to achieve distributional goals. This Article explores an alternative. Well-designed consumer laws—defined as the set of consumer protection, antitrust, and entry barrier laws that govern consumer transactions—can make markets more efficient and lessen inequality. Policymakers and scholars have traditionally ignored consumer laws in redistribution conversations in part because consumer laws examine narrow and siloed contexts—deceptive fees by Visa or a proposed merger between Comcast and Time Warner Cable. Those are different microeconomic fields, whereas redistribution is dominated by macroeconomics. Even millions of dollars in reduced credit card fees seem trivial compared to the trillion-dollar growth in income inequality that has sparked concern in recent decades. This Article synthesizes the fragmented empirical literature quantifying inefficiently higher prices across diverse markets—called overcharge. To my knowledge, it is the first to conclude that consumer law-related inefficiencies plausibly overcharge more than a trillion dollars, or over ten percent of all that consumers spend. It also analyzes which households pay and earn income from that overcharge. Consumers outside the top one percent likely pay significantly more of their expenditures toward overcharge. A static simulation also indicates that removing consumer overcharge could bring the share of income earned by top one percent of households from twenty percent of all income today, possibly even bringing it to about ten percent, where it was in 1980, before the dramatic shifts that has caused so much concern. Moreover, this massive redistribution would be driven by laws making markets more competitive, rather than tax increases that distort markets. If the empirical literature currently available is right, consumer law merits serious consideration as an alternative to tax. 

District Court Rules for Mulvaney, Against English on PI Motion in CFPB Acting Director Case

The opinion is here.

Interim Bank Regulator Norieka: A Swamp Case Study

by Jeff Sovern

Last May, President Trump appointed bank lawyer Keith Norieka as interim head of the Office of the Comptroller of the Currency. Now that the full-time Comptroller has taken office, Norieka is returning to his firm "where he’ll consult large domestic and international banks on precisely the issues handled by the agency he recently led," according to David Dayen writing for The Intercept. Norieka may be best known to readers of this blog as a forceful opponent of the CFPB's arbitration rule. His knowledge about arbitration may come in part from having represented Wells Fargo in an arbitration case. Here's an excerpt from Dayen's story:

Banks were very happy with Noreika’s performance as OCC chair, he informed the Wall Street Journal. “I haven’t really even heard a negative word.”