Watson Paper on History of and Problems with Federal Student Loans

Camilla E. Watson of Georgia has written Federal Financing of Higher Education at a Crossroads: The Evolution of the Student Loan Debt Crisis and the Reauthorization of the Higher Education Act of 1965. Here is the abstract:

Currently, there are 44.2 million Americans holding student loan debt collectively totaling $1.5 trillion. This massive debt has a profound effect, not only on the lives of the debtors, but also on the national economy because it prevents the debtors from buying homes and cars and creating new businesses. This debt is also speculated to be a likely trigger for the next housing bubble because student loans, like the subprime mortgage loans underlying the 2008 financial crisis, are securitized and sold to investors. But many of those with student loans struggle to find jobs that will enable them to pay off their debt. In some cases, they leave school before graduating because they perceive their debt as too overwhelming. When that happens, their lack of a degree exacerbates their struggle to find decent jobs. Moreover, fear of undertaking substantial debt leads some individuals to forego higher education altogether, thereby often condemning them to a lifetime of low-paying jobs. This article traces the development of federal student loans and examines the numerous problems comprising the student loan debt crisis, among them the high cost of postsecondary education, the crisis-level amount of debt undertaken by students, the difficulties of repayment, and the fraud and abuse perpetrated by proprietary institutions and predatory lenders. It attributes these problems to Congress, which it argues has both acted, and failed to act, due to misjudgments, as well as, at least sometimes an indifference, sometimes bordering on an animus, to students in need. This article also critiques proposed legislation to reform federal funding of higher education and questions whether the mistakes of the past will soon be repeated in the pending reauthorization of the Higher Education Act of 1965.

ND Cal issues procedural guidance for class-action settlements

The U.S. District Court for the Northern District of California has issued "Procedural Guidance for Class Action Settlements."

The guidance addresses items to include in a motion for preliminary approval, suggestions for class notice, and attorney fees. Among other things, the guidelines instruct lawyers to file an accounting of the distribution to the class and attorneys.

In light of the pending Supreme Court case Frank v. Gaos, which challenges the notion of cy pres awards, it is interesting to see this guidance, which reflects a common-sense approach to cy pres:

If the settlement contemplates a cy pres award, the parties should identify their chosen cy pres recipients, if any, and how those recipients are related to the subject matter of the lawsuit and the class members. The parties should also identify any relationship they or their counsel have with the proposed cy pres recipients. In general, unused funds allocated to attorneys’ fees, incentive awards, settlement administration fees and payments to class members should be distributed to the class pro rata or awarded to cy pres recipients.

The Guidance is here.

Many class actions are filed in ND Cal. It will be interesting to see whether other courts follow suit in issuing guidance.

"Trump Administration Spares Corporate Wrongdoers Billions in Penalties"

The New York Times reports:

Across the corporate landscape, the Trump administration has presided over a sharp decline in financial penalties against banks and big companies accused of malfeasance, according to analyses of government data and interviews with more than 60 former and current federal officials. The approach mirrors the administration’s aggressive deregulatory agenda throughout the federal government.

The New York Times and outside experts tallied enforcement activity at the S.E.C. and the Justice Department, the two most powerful agencies policing the corporate and financial sectors. Comparing cases filed during the first 20 months of the Trump presidency with the final 20 months of the Obama administration, the review found:

• A 62 percent drop in penalties imposed and illicit profits ordered returned by the S.E.C., to $1.9 billion under the Trump administration from $5 billion under the Obama administration;

• A 72 percent decline in corporate penalties from the Justice Department’s criminal prosecutions, to $3.93 billion from $14.15 billion, and a similar percent drop in civil penalties against financial institutions, to $7.4 billion;

• A lighter touch toward the banking industry, with the S.E.C. ordering banks to pay $1.7 billion during the Obama period, nearly four times as much as in the Trump era, and Mr. Trump’s Justice Department bringing 17 such cases, compared with 71.

The full article is here.

Is there a duty to reconsider a report after its subject claims it is false?

by Paul Alan Levy

A recent trial court decision from New York addresses a question about which I have long held a tentative opinion, albeit without having known of any direct precedent to back up my view: When speaker states facts in an online publication that are not subject to defamation liability when made (because the speaker lacked sufficient reason to suspect falsity to meet standards of negligence or actual malice), but after publication the person criticized tells the speaker that the accusations are false, can the speaker be held liable for failure to remove or retract the critical speech? It has long been my assumption that such a duty to retract is fundamentally at odds with the single publication rule, under which the act of defamation is complete at the time of first publication, and with the rule that the speaker’s mens rea is judged at that time of first publication (so, for example, evidence of truth that is obtained after publication cannot be used to support summary judgment on lack of actual malice).

The issue comes up for lawyers who represent or advise consumers who criticize businesses or political figures but then face a demand for removal, when the consumer receives an ultimatum saying that the alternative to removal is a motion for a preliminary injunction compelling removal. Should the client be advised to take down the allegedly defamatory matter while counsel evaluates the case (my general inclination is to say no, and that’s what I advise in my CLE course about online free speech litigation). But an 2011 blog post by Eugene Volokh  takes the position, based on an excerpt from the Restatement of Torts as well as a handful of decisions, that such a duty exists. I have been dubious, but Professor Volokh has a habit of being right in this area of the law.

Arbel Paper on Reputation and Markets

Yonathan A. Arbel of Alabama has written Reputation Failure: Market Discipline and Its Limits. Here is the abstract:

Free-market advocates seek to repeal broad swaths of tort, contract, and consumer law, trusting reputation to provide effective market-discipline. Their core belief is that reputation assures honest dealings because a seller reputed to sell inferior goods will lose business. Realizing that, the rational seller will behave honestly in order to maximize profits, thus obviating the need for costly, coercive, and uncertain legal interventions.

Despite their focus on rationality, these common accounts have glossed over a profound puzzle. Reputational information is a public good par-excellence, comprising myriad disparate decisions to gossip, share word-of-mouth, write online reviews, and rate products. Why, then, is it rational to produce reputational information? Who does it? To what effect?

This Article’s primary contribution is the introduction of the concept of a reputation failure, the systematic distortion of reputational information that jeopardizes the ability of reputation to discipline markets. Like the more familiar concept of market failure, reputation failure offers a new justification for legal interventions in markets. Moreover, fixing reputation failure offers a new program of regulation, one that would appeal to many free-market advocates.

Wells Fargo will not finish repaying customers until 2020

"Wells Fargo & Co will not finish paying back the estimated 600,000 customers it wrongly charged for auto insurance until at least 2020, the bank said in a letter to U.S. lawmakers. ... U.S. regulators slapped Wells Fargo with a $1 billion penalty in April when it admitted to wrongly forcing drivers into auto insurance policies. That agreement envisioned the customer payouts would finish within months."

The New York Times has the story, here.

Online student-loan refinance company settles FTC charges

Online student loan refinancer SoFi has agreed to stop misrepresenting how much money student loan borrowers have saved or will save from refinancing their loans with the company, in order to settle Federal Trade Commission charges that it deceptively advertised inflated figures for more than two years.

In a complaint against Social Finance, Inc. and subsidiary SoFi Lending Corp., the FTC alleged that since at least April 2016, they made prominent false statements about loan refinancing savings in television, print, and Internet advertisements.

The FTC alleges that the average savings SoFi touted in its ads inflated the actual average savings – sometimes even doubling it – by excluding large categories of consumers.

The FTC's press release, with links to the complaint and consent order, are here.

Sant'Ambrogio: Federal government filed only eight consumer protection cases in federal court in a recent year

by Jeff Sovern

According to Private Enforcement in Administrative Courts, 72 Vanderbilt Law Review,  (Forthcoming), by Michael Sant'Ambrogio of Michigan State, in the year ending March 31, 2017, the government filed only eight consumer protection cases in federal court, which contrasts with the 9,706 cases filed by private plaintiffs. Sometimes we see the argument that we don't need private enforcement of consumer laws because public enforcement is sufficient.  If the numbers Sant'Ambrogio reports are accurate, they make that claim harder to make; indeed, they make it ludicrous. To be sure, many government cases are resolved short of filing in federal court, some government cases are resolved in internal administrative proceedings, and state agencies--especially AG's offices--also file consumer protection cases, but those categories are unlikely to come close to solving underenforcement problems. 

CFPB issues statement regarding payday rule

The Consumer Financial Protection Bureau today issued a statement about its plans for its payday-loan regulation:

The Bureau expects to issue proposed rules in January 2019 that will reconsider the Bureau's rule regarding Payday, Vehicle Title, and Certain High-Cost Installment Loans and address the rule's compliance date. The Bureau will make final decisions regarding the scope of the proposal closer to the issuance of the proposed rules. However, the Bureau is currently planning to propose revisiting only the ability-to-repay provisions and not the payments provisions, in significant part because the ability-to-repay provisions have much greater consequences for both consumers and industry than the payment provisions. The proposals will be published as quickly as practicable consistent with the Administrative Procedure Act and other applicable law.

The statement is presumably intended to give payday lenders, some of whom have sued the CFPB to challenge the rule, see here, an indication of what's in store.

Update on NFL concussion class-action settlement

We've posted many times on the NFL concussion class-action settlement. Go here, for instance. Now there's this story in USA Today saying that some injured former players who qualify for payments under the settlement are getting little or nothing after the lawyers, health-care providers, and other (purported?) lien holders take what they say is theirs (and for other reasons).