Bank Ignores Bankruptcy Judge; Fails to Appear at Contempt Hearing

An Oregon consumer has asked a federal judge to hold one of the country’s largest banks in contempt of court. For a second time.

According to court documents filed by the consumer’s attorney, U.S. Bank N.A. violated the bankruptcy discharge last February by seizing wages from a checking account without notice.

After the bank refused to return the wages, a Eugene bankruptcy judge ordered it to appear and explain why it shouldn’t be held in contempt of court.

When the contempt hearing was called on May 8, only the judge and the consumer’s attorney were present.

For reasons unknown, the bank failed to appear.

U.S. Bank N.A. now faces another motion seeking a second contempt order, this time based on its failure to timely turn over documents in the case.

A motion filed by the consumer’s attorney on May 12 indicates the bank has received over a dozen notices of the contempt matter; several by certified mail.

In April, Wells Fargo Bank, N.A. settled similar charges that it had illegally seized $197 from one of its customer’s accounts during bankruptcy. The bank paid the customer $35,000 to settle without having to admit liability.

U.S. Bank N.A. is the deposit-products arm of U.S. Bancorp, the country’s fifth largest bank by assets.

[Case Number 13-62766-tmr7, Eugene, Oregon Bankruptcy Court]

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Private Student Loans Going Into Default When Co-Signer Dies or Files Bankruptcy

The New York Times reports that many private student loans contain provisions that allow the lender to declare the entire balance due and payable after a co-signer dies or files bankruptcy, even when the borrower is current on loan payments.

The Consumer Financial Protection Bureau (CFPB) published an advisory regarding this practice on April 22, 2014. The government agency has received an increasing amount of consumer complaints regarding the practice. While the CFPB does not state that the practice is illegal, it sternly warns private student loan borrowers about the real consequences when a co-signer dies or files bankruptcy.

The CFPB recommends that borrowers contact their private student loan servicer and request a "co-signer release", which can help both the borrower and the co-signer. Often, the lender will require a credit check and a history of timely payments before awarding a co-signer release. Sample request letters can be found on the CFPB's Website.

Sources

Perez-Pena, Richard, Student Loans Can Suddenly Come Due When Co-Signers Die, A Report Finds, The New York Times, April 22, 2014. http://www.nytimes.com/2014/04/22/us/student-loans-can-suddenly-come-due-when-co-signers-die-a-report-finds.html?_r=0.

Chopra, Rohit, Consumer advisory: Co-signers can cause surprise defaults on your private student loans, Consumer Financial Protection Bureau, April 22, 2014, http://www.consumerfinance.gov/blog/consumer-advisory-co-signers-can-cause-surprise-defaults-on-your-private-student-loans/.

Insurers Beware: When the Duty to Defend Against FCRA and TCPA Claims Arises

In her recent publication, Viruses, Trojans and Spyware, Oh My! The Yellow Brick Road to Coverage in the Land of Internet Oz - Part II, Roberta D. Anderson of The National Underwriter Company discussed the duty of insurers to defend their insured against Fair Credit Reporting Act (FCRA)  and Telephone Consumer Protection Act (TCPA) claims under commercial general liability (CGL) policies that cover "advertising injuries." Anderson cited recent case law, including Pietras v. Sentry Insurance Co. 2007 WL 715759 (N.D. Ill. Mar. 6, 2007) (construing Illinois law), which construed terms in CGL policies to extend to FCRA claims, holding that publication of private information to a single individual was enough to constitute an advertising injury, thus triggering a duty to defend. Becuase there was an invasion of a right of privacy (personal information access without permissible purpose) and publication (disseminated to at least one person), there was both a violation of FCRA and coverage of the claim under the advertising injury provision.

Anderson also pointed to Zurich American Ins. Co. v. Feldstone Mortgage Co. 2007 WL 3268460 (D. Md. Oct. 26, 2007) (construing Maryland law), where the plaintiff sued the insured under FCRA for improperly accessing his credit information without his authorization and without a permissible purpose (no firm offer of credit). There, the court rejected the insurer's argument that FCRA does not establish a right of privacy and held that "publication" need not be made to a third party to trigger the duty to defend under the CGL policy. It was enough that the insured accessed credit information in violation of FCRA.

She then went on to describe how the "right of privacy" and "publication" elements of an advertising injury are embodied in underlying claims alleging Telephone Consumer Protection Act (TCPA) violations as well. She pointed to a case involving unsolicited fax advertisements.  The insurer argued that while there was a publication of some information (ads), that no right of privacy was infringed by the advertisements (no personal information_. However, the court there (Tenth Circuit) held that it was enough that the unwanted faxes infringed on the recipient's right to be left alone. See Park University Enterprises, Inc. v. American Cas. Co. of Reading, PA 442 F.3d 1239 (10th Cir. 2006) (interpreting Kansas law).

The lesson learned in the article is the importance of the role of general liability insurance policies for companies that market to consumers on the web or otherwise. It is also a warning. Insurers may face liability under their CGL policies for failing to defend their insureds against consumer FCRA and TCPA claims. This is because "advertising injury" has been construed broadly to encompass nearly any act of publication of private information which violates either statute.

Source: Andersen, Robert D., Viruses, Trojans and Spyware, Oh My! The Yellow Brick Road to Coverage in the Land of Internet Oz - Part II, The National Underwriter Corporation, 2014. http://www.klgates.com/files/Publication/787006d0-b42d-4994-a51d-20a3e3af52d4/Presentation/PublicationAttachment/8eae73c8-4f47-4c14-a032-0723002f5d9d/Viruses_Trojans_and_Spyware_Oh_My.pdf

CFPB Advance Notice of Rulemaking: Debt Collection Concerns

The Consumer Financial Protection Bureau (CFPB) recently released a 114-page Advance Notice of Rulemaking seeking comment, data, and information about debt collection practices affecting consumers. The notice discusses the federal Fair Debt Collection Practices Act (FDCPA), a law which governs the collection of consumer debts by third parties. The Bureau expects to "address concerns relate to debt collection using its authority under the Dodd-Frank Act to issue regulations concerning unfair, deceptive, and abusive acts or practices and to establish disclosures to assist consumers in understanding the cost, benefits, and risks associated with consumer financial products and services."

The Bureau is now seeking answers to the 162 questions posed in the Advance Notice. The questions tend to suggest that upcoming new requirements will be imposed on consumer debt collectors, including original creditors collecting their own delinquent debts.

Source: Sherman & Howard, LLC, JD SUPRA BUSINESS ADVISOR: CONSUMER DEBT COLLECTION (December 12, 2013),http://www.jdsupra.com/legalnews/consumer-debt-collection-58060/.

Happy Thanksgiving? Nationwide Food Stamp Cuts

According to the Huffington Post, due to $5 million in cuts to the Supplemental Nutrition Assistance Plan, known as the food stamp program, Thanksgiving dinner could be substantially smaller for the 42 million Americans that rely on the program.

Since 2007 the number of individuals dependent on food stamps increased by 70 percent, according to the Sunlight Foundation Reporting Group. With cuts to the federal plan, food pantries and food banks nationwide are expected to see more visitors this holiday season.

Source: Emmile Buchanan-Whitelock (compiler), DESERET NEWS NATIONAL (November 25, 2013), http://national.deseretnews.com/article/659/Food-stamp-cuts-leave-many-Thanksgiving-dinners-feeling-thin.html.

Prices Rising: New California Home Buyers Shut Out of Silicon Valley

According to the San Jose Mercury News, local MLS (multiple listing service) reports show a rise in single-family home sales in Silicon Valley. However, rising home prices and interest rates have made home ownership less affordable in California, particularly in Silicon Valley. Compared to October 2012, median prices in San Benito, Santa Clara, and Santa Cruz counties have all risen between 12 and 45 percent.

The Mercury reports that home buyers need to earn a minimum annual income of $165,420 to qualify to purchase an $805,000 median-priced, single-family home. Carolyn Miller, President of the Silicon Valley Association of Realtors, states that "with Silicon Valley's economic recovery, there is no doubt that it has become more difficult for home buyers, especially first-time home buyers, to purchase a home in the region."

Source: Rose Meily, High home prices shut out buyers, SAN JOSE MERCURY NEWS (November 18, 2013) http://www.mercurynews.com/news/ci_24550995/high-home-prices-shut-out-buyers.

Dear Class of 2013, Your Loans Are Due

Dear law school friends from the class of 2013,

This is a short article that I think you should read.

Since the spring of 2013, the federal government added new income-based repayment plans to help new borrowers (like you) pay less per month on their student loans. These plans also allow borrowers to obtain loan forgiveness after 10, 20, or 25 years of payments (depending on the plan). These plans include the new Pay As You Earn (PAYE) repayment plan, Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR).

You should know that all borrowers are automatically enrolled in the Standard 10-year repayment plan when they leave school. They must take action to opt into and apply for any of the others, provided they meet the eligibility criteria. The borrower can do this by logging into their account at studentloan.gov and applying for income-based repayment. This can be done in a matter of minutes through the website's new electronic application system. Borrowers can opt into any plan for which they are eligible at any point during repayment and generally can change options during repayment.

As you will see below, in order to maximize student loan forgiveness you will generally want to enter into these plans as soon as possible. However, based on your income and the amount of your debt, you may decide that an income-based repayment plan is not a good idea (you will pay more interest compared to Standard repayment, for example). Thus, for small loans, you may prefer to stay with Standard repayment (but what kind of law student owes only $5,000 in student loans?). So before you start on Standard repayment and risk defaulting or losing precious months towards your forgiveness period during your first year of payments, consider the following payment plans.
 
Income-Based Repayment (IBR) and Pay As You Earn (PAYE) allows borrowers to make monthly payments based on their income if they meet a debt-to-income test. Borrowers may opt into IBR or PAYE if their payments under that plan would be lower than payments under the Standard (10-year) repayment plan. Let's be honest. Unless you are making a very substantial salary your first year out of law school or college, your IBR or PAYE payment is going to calculate to be lower than what you would normally pay under Standard repayment. This is because those payments only require that you pay 15% and 10% of your discretionary income per year towards the plan, respectively. Generally, your discretionary income is based on your most recent tax return.

New and recent student loan borrowers qualify for the coveted PAYE plan. For those who qualify, they need only pay 10% of their discretionary income after a base $17,235 exemption. Also, borrowers who make 20 years of qualifying payments receive a complete forgiveness of their federal student loans.  It is an amazing plan. 

Who qualifies? To qualify, the borrower must have been a new borrower as of October 1, 2007 and must have received a disbursement of a Direct Loan on or after October 1, 2011. What does that mean? It means that, for example, if you were like me and started undergrad in 2006 and took out a student loan for that year, you do not qualify for PAYE. However, for those who began on or after the 2007-2008 school year with no prior federal loans, you will qualify for PAYE. Congratulations.

For those who do not qualify, you may still apply for IBR. Under IBR, you will pay 15% of your discretionary income per year. Also, borrowers who make at least 25 years of qualifying payments will receive complete forgiveness of their federal student loans. As you can see, for long-term borrowers, IBR is not as favorable as PAYE. However, it is still preferable to Standard repayment if it helps the borrower avoid a default and be able to pay their monthly bills.

Income-Contingent Repayment: Not everyone qualifies for IBR or PAYE. If your income is too high to qualify for either of these programs, you may qualify for Income-Contingent Repayment (ICR). Under ICR, you will pay the lesser of the amount you would pay if you repaid your entire loan in 12 years multiplied by an income percentage factor that changes with your annual income or 20% of your monthly discretionary income.

For non-profit and public employees: If you work for a non-profit or work in a public job for an average of 30 hours or more per week, you may qualify for 10-year student loan forgiveness. How do you take advantage of the 10-year forgiveness? Apply for IBR or PAYE as soon as possible and being making your 120 qualifying payments. While IBR and PAYE may not be good idea for everyone, it is nearly always a good idea for non-profit and public employees to enroll if they have a substantial amount of student loan debt.

In short, consider your options. If you owe a large amount of student loans and you want to enter into income-based repayment, you should act as soon as possible before your first loan payment is due. If you would like more information about student loan repayment plans, go to http://studentaid.ed.gov/repay-loans/understand/plans.

Sincerely,

Austin Houvener