STUDENT DEBT PROGRAM: Where’s the Relief?

STUDENT DEBT PROGRAM: Where’s the Relief?

​On August 24, 2022, President Joe Biden announced a proposed plan, through the Department of Education, to forgive a portion of student loan debt owed by millions of Americans. The plan proposed to allow cancellation of up to $10,000 for certain loan recipients, and up to $20,000 for Pell Grant recipients. This forgiveness would be given only to holders of federal loans, and would not guarantee full cancellation of all debt owed by every borrower, such as those who owe more than $20,000 in Pell grants. The program also does not apply to those whose loans come from private lenders, such as Sallie Mae.  
As of this writing, over 26 million borrowers have applied for relief, and the Biden Administration has approved certain applicants for relief. But no loan relief has been granted.
No relief has been granted because several Republican Attorneys General, from Nebraska, Missouri, Kansas, Iowa, Arkansas, and South Carolina, sued to stop the program (Eastern District of Missouri, Case No. 4:22CV1040, filed 9/29/2022). Briefly, the States claimed that the loan relief would harm them financially, based on lost loan repayments (the States apparently did not discuss how they might benefit from increased tax payments if the borrowers were not tied to low-wage jobs to make their current payments; nor did the States discuss how much more money they would receive through the federal infrastructure bill).
Eastern District of Missouri Judge Autrey threw the case out, based on lack of “standing” (i.e., lack of an actual harm that the States had suffered), but the 8th Circuit Court of Appeals, which oversees several Midwestern states, placed this loan relief program on hold, pursuant to an injunction. State of Missouri, et al. v. Joseph R. Biden, etc., et al., Case No. 22-3179, published 11/14/22
Unfortunately, the 8th Circuit’s logic, particularly on the issue of immediate, actual harm (“standing”) appears disingenuous, and suggests a political motive behind the decision. For example, the 8th Circuit ruled that the state of Missouri has standing, because a loan fund created by the state of Missouri would potentially lose money if some of the loans granted through that fund were reduced or forgiven. That no relief has yet been granted means that no funds have yet been lost. And thus the state of Missouri has no standing. Lujan v. Defenders of Wildlife (1992) 504 US 555, 575-578 [opinion of Scalia, J].
Even more worrisome is the court’s assertion that because a federal decision causes a state to lose money, the state can sue to stop that program. Taken to its logical extreme, if the federal government decides from year to year to spend less money on highway repair for roads in Ohio than in Kansas, Ohio can sue and stop the program. Or if, year to year, the federal government decides to grant more funds for cancer research to universities in Minnesota than in California, California can sue to stop the program. This is the sort of chaos that Scalia warned against; the courts would assume day to day authority over the acts of a co-equal branch of government. Lujan v. Defenders of Wildlife (1992) 504 US at 577.
In other words, the 8th Circuit Court’s reasoning leads to chaos, and no federal spending program could ever be approved, because by definition, some agency, state, or individual will receive less money than another.
Additionally, how these States might benefit eventually from the improved financial health of borrowers apparently played no role in the 8th Circuit’s decision.
The Biden Administration has asked the US Supreme Court to intervene and overturn the 8th Circuit. (SCOTUS Blog, 11/18/2022) However, given the Court’s extreme conservative nature, as well as its willingness to disregard long-established precedent, a favorable ruling is not assured.

FAIR LENDING FIGHT: Battling Redlining

FAIR LENDING FIGHT: Battling Redlining

  During the years of the Financial Crash (2007-2012), one could read in the press about something called “predatory lending,” or “lending discrimination,” or “disparate treatment,” or “disparate impact.” These concepts and legal doctrines were important because they spoke to the fact that persons of color were treated deceptively or unfairly, or tended to receive subprime loans, or loans that they could not repay, or were preyed upon by certain lenders. The end result was that minority borrowers were much more likely to have their homes foreclosed upon than were Caucasian borrowers.

   Central to the effects of the Financial Crash upon minority borrowers, in particular, was the belief among certain lenders that they could do whatever they wanted with regard to minority borrowers.

   A recent ruling from Pennsylvania points to the continued need for vigilance with regard to lending discrimination. The US Department of Justice and the Consumer Financial Protection Bureau sued Trident Mortgage for redlining practices against borrowers of color in the Philadelphia area. Consumer Financial Protection Bureau v. Trident Mortgage Company LP, Case No. 2:22-cv-02936, U.S. District Court for the Eastern District of Pennsylvania.

   In its press release of July 27, 2022, announcing the settlement with Trident Mortgage, the Department of Justice stated that:

“Redlining is an illegal practice in which lenders avoid providing credit services to individuals living in communities of color because of the race, color, or national origin of residents of those communities. The complaint in federal court today alleges that from at least 2015 to 2019, Trident failed to provide mortgage lending services to neighborhoods of color in the Philadelphia Metropolitan area, that its offices were concentrated in majority-white neighborhoods, and that its loan officers did not serve the credit needs of neighborhoods of color. The complaint also alleges that loan officers and other employees sent and received work e-mails containing racial slurs and referring to communities of color as ‘ghetto.’ ”

   The director of the Consumer Financial Protection Bureau, Rohit Chopra, stated the importance of fighting discrimination, when he said, in connection with the Trident settlement, “With housing costs so high, it is critical that illegal discrimination does not put homeownership even further out of reach.”

   The Department of Justice, in commenting on the consent order, stated that the Truth in Lending Laws and other anti-discrimination laws must continue to be enforced. 15 USC §§1601, et seq (Truth in Lending Act); 15 USC §1691 (Equal Credit Opportunity Act); 15 USC §1681 et seq. (Fair Credit Reporting Act). Courts will have an important role, looking to the letter of the anti-discrimination laws, their intent, and to the reality on the ground, rather than finding excuses to look the other way, and blame the victim, simply because confronting reality may be uncomfortable or inconvenient.

Warning: These Posts Does Not Constitute Legal Advice; Please Consult An Attorney

IN TRUSTS WE TRUST: Comments Protect the Loan

IN TRUSTS WE TRUST: Comments Protect the Loan

When representing clients, attorneys rely on the words of the law (a “statute”) and ask the court to implement the plain, obvious meaning of its words.
When it comes to federal statutes, however, it is easy to overlook the “comments” by Congressional committees that draft the statutes, or the agencies which implement them. Such comments can be critical in court.
For example, a recent unanimous Court of Appeal used a statute’s agency staff comments to protect a consumer from a deceitful lender.
In Gilliam v. Levine, Case No. 18-56373 (9th Circuit, 2020), the court recounts that the borrower obtained a loan as trustee for a family trust. The purpose of the loan was to make home repairs. The home itself was the sole asset of the trust. Another family member, who occupied the home, was the trust beneficiary.
The borrower later discovered that the due date for the final loan payment was 1 year earlier than she had been led to believe. The borrower was alarmed, and sued to cancel (rescind) the loan under federal law, Truth in Lending Act (TILA), 15 U.S.C. § 1601, et seq., and the Real Estate Settlement Practices Act (RESPA), 12 U.S.C. § 2601. The borrower also asserted a claim under California’s Fair Lending Law [Rosenthal Act], 1788.1(b) of California’s Rosenthal Act, California Civil Code §§ 1788.1(b).  
The trial judge dismissed the lawsuit, because, according to that judge, the loan went to the trust, not to a person, and hence was not a consumer loan.
The 9th Circuit Court of Appeal reversed the trial court, noting the federal Consumer Financial Protection Bureau’s Official Staff Commentary to Regulation Z (mortgage loans), which states that “[c]redit extended for consumer purposes to certain trusts is considered to be credit extended to a natural person rather than credit extended to an organization.” 12 C.F.R. pt.1026, Supp. 1, § 1026.3 Comment 3(a)-10. (And under California law, the trustee, not the trust, holds title to trust property – – Author)
The “certain trusts,” which fall under the rubric of “natural persons,” included the trust in this case, which was formed for tax or estate planning purposes [which benefit people]. The trust in question was “primarily for personal, family, or household purposes.” 15 U.S.C. § 1602(i). The borrower was the aunt (as Trustee); the niece was the beneficiary; and the trust property was a private home. As a result, the loan was a “consumer credit transaction,” which was subject to the Fair Lending Laws.
And the Comment makes the point: Look to the substance of the transaction. Here it was to benefit a consumer, not a company. 12 C.F.R. pt. 1026, Supp. 1, and § 1026.3 Comment 3(a)-10.i. Because this was a consumer loan, the Trustee had the right to rescind this deceptive loan.
WARNING: THIS POST DOES NOT CONSTITUTE LEGAL ADVICE; PLEASE CONSULT AN ATTORNEY

BANKRUPTCY LAW: Where Action is Filed

BANKRUPTCY LAW: Where Action is Filed

A debtor may file a bankruptcy case where the debtor resides, is domiciled, or has its principal place of business or principal assets. But a debtor can claim exemptions only under the law of the debtor’s domiciliary state. 28 U.S.C. § 1408; In re Larsen, Case No. BAP No. NV-20-1133-FBG (Unpublished) Bankruptcy Appellate Panel, 9th Circuit, filed November 3, 2020.

BANKRUPTCY LAW: Finding of Fraud in State Court Prevented Discharge of the Associated Debt

BANKRUPTCY LAW: Finding of Fraud in State Court Prevented Discharge of the Associated Debt

Where Debtor had a judgment entered against him by California state court for fraud and elder abuse, this judgment was not discharged (cancelled) by his Chapter 7 bankruptcy discharge. Debtor’s and Debtor’s counsel’s strategic absence from court at the time of the trials did not eliminate the legal effect of the judgment. The debt was non-dischargeable, pursuant to 11 USC §523(a)(2)(A).
In re: Robert Edward Zuckerman,
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT; BAP No. CC-19-1200-TaFS
Argued and Submitted on February 27, 2020, Pasadena, California [Published Opinion]

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