by Maura Healey, Attorney General of Massachusetts*
To pay for the hallmarks of a decent middle-class life, American families have found it increasingly necessary to borrow money. We tell our children that a college degree is essential for their success in the modern economy, but few students can afford the ever-increasing costs of higher education without incurring student loans. (1) We extoll the virtues and benefits of homeownership, but the high cost of housing requires most homeowners to have a mortgage loan. (2) As middle-class wages have remained stagnant, consumers have looked to credit to pay for essential expenses like transportation, medical bills, and childcare. As a result, many American households find themselves deeply in debt.
Too often, these debts have proven to be disastrous. Countless students sought to learn essential job skills and borrowed heavily to do so, but instead became the victims of high-cost, fraudulent, for-profit schools that offered no meaningful vocational training. (3) Homeowners across the country are still grappling with the consequences of the predatory subprime mortgage loans that caused the financial crisis of 2008. (4) While debt may allow some families to succeed, debt cripples the aspirations and ambitions of many others— approximately seventy-seven million Americans have at least one delinquent debt on their credit report. (5)
Given the challenges that consumer debt poses to the economic security of so many people, I applaud the Harvard Law & Policy Review for devoting this issue to discussing the rights and obligations of creditors and debtors and to the appropriate policy responses to America’s ongoing struggles with debt.
This issue features contributors from a variety of backgrounds, including consumer advocates, scholars, and researchers. Lisa Stifler of the Center for Responsible Lending summarizes developments in the debt collection industry and surveys potential policy solutions at the state and federal level. Professor Dalié Jiménez and Alexei Alexandrov, both formerly of the Consumer Financial Protection Bureau (CFPB) investigate whether the elimination of consumer bankruptcy protections for private student loans has lessened the cost of those loans. Professors Atif Mian and Amir Sufi also address topics of debt discharge and forgiveness and argue that prudent government policy should encourage and facilitate the reduction of household debt burdens during economic downturns. Departing from the topic of consumer debt, Harry Stein of the Center for American Progress addresses the political debate over the national debt and argues that misunderstandings concerning the fiscal health of the nation have unnecessarily discouraged federal policymakers from making important investments in infrastructure and safety net programs. Finally, Professor Andrew Dawson re-examines the respective roles of the state and federal governments in municipal bankruptcies and advocates for cooperation between state and federal authorities.
As the contributors to this issue argue, legislation at the state and federal levels could certainly lessen many challenges faced by families across the nation as a result of consumer debt. In this introduction, however, I focus on the particular concerns of government agencies that are charged with enforcing consumer protection law. State attorneys general, specifically, are typically responsible for enforcing state laws that prohibit consumer-oriented businesses from engaging in unfair and deceptive acts and practices (UDAP). In most states, UDAP laws apply to individuals and companies engaged in the collection of debts, and require such debt collectors to conduct their businesses in a fair and honest manner. (6)
Through its enforcement of Massachusetts consumer protection law, my office is committed to ensuring that creditors do not abuse the considerable power they wield over debtors who cannot afford to repay their debts. The Massachusetts UDAP statute gives the Attorney General the authority to make rules that define unfair and deceptive practices, (7) and we have used this authority to prohibit debt collectors from harassing and abusing debtors. (8) We have enforced these rules against a variety of businesses, from mortgage companies (9) to student loan servicers. (10)
While we will continue the work of protecting struggling families from abusive debt collectors, the integrity of state courts in the debt collection process is also a special concern for state law enforcement. Debts are fundamentally a product of state law and all efforts to collect debts ultimately rely on the power of state courts. Debt collectors can ask a state court to enter judgment against the debtor, order the debtor’s employer to garnish the debtor’s wages, and authorize a sheriff to seize the debtor’s property. All debt collection relies on a common background assumption: that the state will ultimately intervene on the collector’s behalf to enforce the collector’s rights. Debt collectors are even the beneficiaries of expedited judicial process in the form of small claims courts, where debtors typically have limited access to discovery and other due process protections. (11)
State law enforcement officers have a special responsibility to ensure that debt collectors conduct themselves in a fair and honest fashion when they seek judicial intervention. We must not permit debt collectors to abuse their easy access to the courts. Debt collectors must not use the civil justice system as a tool to pursue baseless claims, or as a means to harass or abuse vulnerable debtors. Civil law enforcement has the authority, means, and experience to identify when debt collectors are abusing their power and are unfairly compelling consumers to pay debts they do not owe or should not have to pay.
**Read Harvard Law and Policy Review 11.1 here.
* Maura Healey serves as the Attorney General of the Commonwealth of Massachusetts and has made combatting abusive and unlawful debt collection a priority of her Consumer Protection Division. She previously served as Chief of the Civil Rights Division, and Chief of the Public Protection and Advocacy Bureau in the Massachusetts Attorney General’s Office. Special thanks to Max Weinstein, Chief of the Consumer Protection Division, for his substantial assistance in the preparation of this Foreword.
(1) See Jeffrey Sparshott, Congratulations, Class of 2015. You’re the Most Indebted Ever (For Now), WALL ST. J. (May 8, 2015), http://blogs.wsj.com/economics/2015/05/08/congratulations-class-of-2015-youre-the-most-indebted-ever-for-now/ [https://perma.cc/Z4SL-S88D].
(2) See Selected Housing Characteristics: 2011–2015 American Community Survey 5-Year Estimates, U.S. CENSUS BUREAU: AM. FACTFINDER, https://factfinder.census.gov/faces/tableser vices/jsf/pages/productview.xhtml?pid=ACS_15_5YR_DP04&src=pt [https://perma.cc/M2P N-MFM3].
(3) See, e.g., Staff of S. Comm. on Health, Educ., Labor and Pensions, 112TH CONG., FOR PROFIT HIGHER EDUCATION: THE FAILURE TO SAFEGUARD THE FEDERAL INVESTMENT AND ENSURE STUDENT SUCCESS (Comm. Print 2012).
(4) See Robert Hennelly, America’s Foreclosure Crisis Isn’t Over, CBS NEWS: MONEY WATCH (Jan. 26, 2016, 5:00 AM), http://www.cbsnews.com/news/americas-foreclosure-crisisisnt-over/ [https://perma.cc/MX4F-C6UL].
(5) Stu Kantor, 1 in 3 Americans with a Credit File Has Debt Reported in Collections, URBAN INST. (July 29, 2014), http://www.urban.org/1-3-americans-credit-file-has-debt-repor ted-collections [https://perma.cc/HHG9-APK7] (extrapolating from sample of credit reports of seven million American adults).
(6) See CAROLYN CARTER, NAT’L CONSUMER LAW CTR., CONSUMER PROTECTION IN THE STATES: A 50-STATE REPORT ON UNFAIR AND DECEPTIVE ACTS AND PRACTICES STATUTES 15 (2009), https://www.nclc.org/images/pdf/udap/report_50_states.pdf [https://perma.cc/8S5J-PN BL].
(7) MASS. GEN. LAWS ch. 93A, § 2(c) (2016).
(8) 940 MASS. CODE REGS. 7.00 (1987).
(9) See Assurance of Discontinuance, In re Ditech Financial LLC, No. 16-2437E (Mass. Super. Ct. Aug. 4, 2016).
(10) See AG Healey Secures $2.4 Million, Significant Policy Reforms in Major Settlement with Student Loan Servicer, MASS.GOV (Nov. 22, 2016), http://www.mass.gov/ago/news-andupdates/press-releases/2016/ag-healey-secures-2-4-million-student-loan-servicer.html [https:// perma.cc/CMM7-LF29].
(11) See HUMAN RIGHTS WATCH, RUBBER STAMP JUSTICE: U.S. COURTS, DEBT BUYING CORPORATIONS, AND THE POOR 50–51 (2016), https://www.hrw.org/sites/default/files/report_pdf/ us0116_web.pdf [https://perma.cc/KFW3-S4FL].