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Racial Wealth Gap Leaves Black Families with Less Savings, Higher Risk of Being Sued and Jailed

The difference in net worth between the typical white family and black family is $131,000, ProPublica's Paul Kiel reports. As a consequence of that racial wealth gap, black families have smaller financial reserves to fall back on and more likely to be sued over a debt or land in jail because of unpaid tickets and court fines.

Kiel and a reporting partner found that debt-collection lawsuits in three U.S. cities were twice as high in mostly black communities than they were in mostly white communities. 

He suggests reform to debt collection laws, such as reducing the amount of income subject to garnishment or setting a small sum in bank accounts as off limit to collectors.

Judge Orders Lawyer to Pay $236,000 Law School Debt

Submitted by Amaris Elliott-Engel on Tue, 06/16/2015 - 17:54

Here's a piece I wrote for the Connecticut Law Tribune about a lawyer's law school debt:

Law school students learn how to argue over contracts. But that doesn't necessarily mean they can litigate their way out of a contract to pay their law school loans. One Branford-based attorney is facing this reality after a federal judge ruled that, more than two decades after receiving his law degree, he owes the federal government more than $236,000 for his legal education.

Gregory P. Cohan went to the University of Bridgeport Law School—now the Quinnipiac School of Law—and got his Connecticut bar license in 1993. But he hasn't made a payment on his law school loans since 2001. A few years before that, he consolidated his federal law school loans under the William D. Ford Federal Direct Loan Program, which ties monthly repayment amounts to an individual's income. After 25 years, any balance left on loans is forgiven.

According to Cohan's calculations, his payment should have been about $100 a month. But the government puts the number at $300.

Cohan argued in court papers that because the federal Department of Education incorrectly calculated his monthly repayment, the government materially breached his student-loan agreement, made it impossible for him to pay back his loans and thus discharged his duty to perform under the contract.

"The defendant, the non-breaching party, is entitled to the benefit of the bargain," Cohan wrote. "The plaintiff agreed to reasonable, affordable payments for [a] period of 25 years, then forgiveness of any unpaid balance. The parties agreed that defendant would not be charged more than he could afford to pay, and that he would not have an unmanageable debt hanging over his head for the rest of his life."

The disagreement stems from how Cohan's income was calculated. Cohan reported that his 2001 income was $14,605. But Assistant U.S. Attorney Christine Sciarrino, who handled the case for the federal government, took issue with Cohan's calculations. Because income tax filings actually reflect the previous year's income, Sciarrino said Cohan couldn't officially compute his 2001 salary in December of that year. She said he should have used his adjusted gross income from 2000, which was $26,960. That would have put his loan repayment burden at $310.17 per month, she said.

U.S. District Judge Jeffrey A. Meyer acknowledged that it was within the government's discretion to use the alternative documentation Cohan submitted for his annual income instead of his actual tax returns. But there isn't any evidence in the record, Meyer said, that Cohan even tried to pay the $100 a month that he believed he actually owed beginning in 2002.

"Defendant has presented no evidence to support his statement at oral argument that the government 'made it impossible for [him] to make the payments' or that he was unable to calculate his payments because he lacked access to the Federal Register," Meyer said. "Defendant is and was a practicing attorney. In fact, this debt arises directly as a result of his legal training. … He has provided no reason why he could not have done his research and mailed payments many years ago."

When Cohan consolidated his loans in August 1999, he owed $97,658.55. Now he has been ordered to pay $236,535. That's because while the case has been pending, the unpaid principal balance has been accruing at 8.25 percent every year.

The federal government declared that Cohan was in default on Sept. 17, 2002, and his entire loan balance became due 270 days after payment was due at the end of 2001. The government did not file to collect on Cohan's loans until May 2011.

Sciarrino noted that Cohan was required to pay under the income contingent repayment plan because direct consolidation loans must be repaid that way if a borrower has defaulted on the underlying loans. Cohan defaulted on his underlying loans in the 1990s, according to the opinion.

Cohan did not respond to a request for comment. The U.S. Attorney's Office declined to comment.

Lingering Foreclosures Could Be Time-Barred

Banks may be running out of time to get their money back in New York foreclosure cases because some cases could become time-barred by a six-year statute of limitations, The New York Law Journal's Andrew Keshner reports. One Long Island judge ruled that the statute of limitations starts when the entire mortgage balance was declared due in full but a bank failed to file its second mortgage complaint within six years.

Elizabeth Lynch, supervising attorney for MFY Legal Services' foreclosure project, told Keshner that it is rare that homeowners have not made some post-acceleration mortgage payments, which can start the statute of limitations clock again.

There are approximately 92,000 foreclosure cases pending in New York.

Borrowers Bouncing Back From Foreclosures

Homeowners who lost their properties to foreclosures are starting to bounce back and are qualifying for new mortgages, The Wall Street Journal's Annamaria Andriotis, Laura Kusisto and Joe Light report. More than 5 million families lost their homes to foreclosure between 2007 and 2014, but foreclosures and other negative credit events come off credit reports after about seven years. “'The dark shadow of the foreclosure crisis is finally beginning to fade,”' Mark Zandi, chief economist at Moody’s Analytics, a unit of Moody’s Corp, told the WSJ. '“That should be a positive for single-family housing and, by extension, for the broader economy.”'

Role of Law Firms Under NYC's Debt Collection Law On Appeal

New York Law Journal's Mark Hamblett reports that the New York Court of Appeals is going to answer a question posed to it by the Second Circuit: does New York City's law governing debt collection apply to law firms? A federal district court judge held "in 2013 the law does not apply to plaintiff law firms that attempt to collect debts, and violates a provision of the New York City Charter because it purports to grant New York City the authority to grant or withhold licenses to practice law," Hamblett reports.

States Curtailing Interest-Rate Laws Protecting Poor Borrowers

The New York Times' Michael Corkery reports that legislators in at least eight states have "voted to increase the fees or the interest rates that lenders can charge on certain personal loans used by millions of borrowers with subpar credit." There has been a lobbying push by the consumer loan industry, which argues that caps on interest rates have not kept pace with the costs of doing business. Efforts in North Carolina initially failed because of opposition from military leaders, but the industry was able to get the law amended when the commanding officers changed at some of the state's military bases and did not feel as strongly about the issue. The law changed from allowing lenders to charge 30 percent interest on loans up to $1,000 and 18 percent on a remaining balance of $6,500 to charging up to 30 percent on loans up to $4,000 and 24 percent on a remaining balance of $4,000.

Debt Collection Law 'Out of Date and Overly Harsh'

ProPublica and NPR published a joint report earlier this month on the problems with a 1968 federal law that allows debt collectors to take 25 percent of debtors' paychecks and every penny in their bank accounts to repay consumer debts, leaving "millions of workers" facing the struggle of how to live when a large part of their pay is diverted to pay a consumer debt. For example, "time has eroded what even then were modest protections [in the Credit Consumer Protection Act]. The law barred creditors from taking any wages from the very poorest of workers, but used a calculation based on the minimum wage to identify them. Since the federal minimum wage hasn't kept pace with inflation, today, only workers earning about $11,000 annually or less— a wage below the poverty line— are protected." The National Consumer Law Center argues that the cap should be reduced to 10 percent to ensure that low-income debtors still earn a living wage.

Consumer Financial Protection Bureau Sides With State Regulator Against American Indian Lending

The Consumer Financial Protection  Bureau has filed a brief in a federal court siding with  "Benjamin Lawsky, New York’s top financial regulator, against a lawsuit from two western Native American tribes," The Daily Caller reported. The tribes sued over cease-and-desist letters sent by Lawsky over the online payday loan businesses. Lawsky contend that the interest rates charged by the businesses for their loans are too high, while the tribes argue that they are sovereign entities and they follow federal law, The Daily Caller further reported.

One Consumer Financial Regulation That Worked

The New York Times commentator Floyd Norris reports on a study that found that a federal law called the 2009 Credit Card Accountability Responsibility and Disclosure Act--which requires more transparency on the fees credit card companies collect from their customers--actually worked. The researchers expected to find that, if credit card companies couldn't charge those fees anymore, they would start charging customers more interest  or  reduce consumers' access to credit. But what the study found: "It cut down the costs of credit cards, particularly for borrowers with poor credit."

Case Sets Up Conflict Between American Indian Sovereignty and Fair Lending

A federal judge in New York has ruled the state's banking regulator can control the lending done to New York consumers by online lenders associated with sovereign American Indian tribes, the Washington Post reports. Loans are made by the lenders that violate state law, including on maximum interest rates. "Once states began introducing interest rate caps, some ... lenders began forging relationships with Native American groups to take advantage of their sovereign-nation status," the Post reports. The tribal plaintiffs argued the ruling undermines their sovereignty and their ability to be economically self-sufficient, the Post also reports.

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