Photo of David M. Gettings

Dave Gettings is an attorney in the Financial Services Litigation practice, representing national and multinational clients in both federal and state court.

The Third Circuit recently applied the D.C. Circuit’s decision in ACA International v. FCC and granted summary judgment in favor of the defendant in a Telephone Consumer Protection Act claim.  The Court held in Dominguez v. Yahoo, Inc. that Yahoo’s Email SMS Service was not an automatic telephone dialing system (or “ATDS”) because it did not have the “present capacity to function as an autodialer.”

Plaintiff Bill Dominguez filed suit against Yahoo alleging that it violated the TCPA by sending thousands of text messages to his cellular phone without his prior express consent.  Specifically, Dominguez received a text message from Yahoo each time the prior owner of the number received an email sent to his Yahoo email account.  Plaintiff alleged that Yahoo’s Email SMS Service was an ATDS as defined by the TCPA.

In 2014, the Eastern District of Pennsylvania found the Email SMS Service was not an ATDS because it “did not have the capacity to store or produce telephone numbers using a random or sequential number generator.”  On appeal of that decision, the FCC issued its 2015 Declaratory Ruling interpreting “capacity” to “include any latent or potential capacity.”  As a result of the 2015 Declaratory Ruling, the appellate court vacated the district court’s decision and remanded the case to the district court.  Thereafter, Yahoo again moved for summary judgment, which was again granted in its favor.  The district court’s second decision resulted in another appeal to the Third Circuit.  While the appeal was pending, the D.C. Circuit issued its opinion in ACA International v. FCC.

In light of the decision in ACA International, the Third Circuit held that it would “interpret the statutory definition of an autodialer as [it] did prior to the issuance of 2015 Declaratory Ruling.”  The question the Third Circuit focused on is “whether [Dominguez] provided evidence to show that the Email SMS Service had the present capacity to function as an autodialer.”  After reviewing multiple expert reports on Yahoo’s Email SMS Service, the Third Circuit held that Dominguez could “not point to any evidence that create[d] a genuine dispute of fact as to whether the Email SMS Service had the present capacity to function as an autodialer by generating random or sequential telephone numbers and dialing those numbers.”  The Court further noted that the evidence showed that the Email SMS Service only sent messages to numbers that were “individually and manually inputted into its system by a user.”  As such, the system at issue was not an ATDS and summary judgment was granted in favor of Yahoo.

The decision in Dominguez indicates that courts, post-ACA, will likely be focusing on the narrowed definition of what constitutes an ATDS.  Because courts no longer have to analyze “potential capacity,” we may see a shift in focus to a telephone system’s “present capacity to function as an autodialer by generating random or sequential telephone numbers and dialing those numbers.”

Many employers use background checks when evaluating potential candidates for hire.  They do this for a variety of reasons, from basic due diligence to a desire to avoid negligent hiring claims in the future.  If an employer intends to use this employment background check – often referred to as a consumer report – to take adverse action against the candidate, it must generally comply with the Fair Credit Reporting Act (“FCRA”) when doing so.   

Specifically, when “using a consumer report for employment purposes, before taking any adverse action based in whole or in part on the report, the person intending to take such adverse action shall” provide the candidate with a copy of the report and a summary of rights.  Courts typically regard this disclosure requirement as the employer’s obligation, not the obligation of the consumer reporting agency providing the report.  Surprisingly, in Doe v. Trinity Logistics, the District Court for the District of Delaware reached a conflicting conclusion – at least at the pleadings stage. 

In Doe, the plaintiff applied for a job at Trinity Logistics in August 2016.  She claims that Trinity ordered a consumer report from Pinkerton Consulting and Investigations as part of the hiring process, which Pinkerton “flagged” as having adverse information before providing it to its client.  When Pinkerton failed to provide the plaintiff with a copy of her consumer report and summary of rights before Trinity took adverse action, the plaintiff claimed that Pinkerton violated the FCRA’s pre-adverse action obligations.  Pinkerton disagreed, arguing that the plaintiff’s position was contrary to the FCRA, which requires the person “using” the consumer report to provide the disclosures. 

The Court disagreed with Pinkerton at the pleadings stage.  According to the Court, the plaintiff adequately pled that Pinkerton and Trinity had “shared decision-making responsibility,” which could impart pre-adverse action obligations on Pinkerton.  As a result, it declined to dismiss the pre-adverse action claim against Pinkerton. 

The Court’s decision in Doe is contrary to the generally accepted principle that a consumer reporting agency does not become a “user” of a consumer report by simply providing the report to its customer.  The decision bears watching, though, as allegations of “joint use” could catch on if the Doe decision gains traction with other courts.

The District of Nevada recently applied the D.C. Circuit’s decision in ACA International v. FCC and granted summary judgment in favor of the defendant on plaintiff’s Telephone Consumer Protection Act claim.  Specifically, the Court held in Marshall v. The CBE Group, Inc. that CBE’s phone system does not qualify as an automatic telephone dialing system, commonly referred to as an “ATDS.”

Plaintiff Gretta Marshall filed suit against CBE, a third-party debt collector, alleging that it violated the TCPA and the Fair Debt Collection Practices Act through its collection efforts related to her outstanding bill.  Marshall alleged that CBE’s agents used an ATDS to contact her in violation of the TCPA.  CBE places calls using a Manual Clicker Application (“MCA”), requiring the call agent to click a bullseye on a computer screen to place a call.  When a CBE agent clicks the bullseye, a call is sent through a cloud-based connectivity pass-through, LiveVox, and then the CBE agent is connected with the person to whom the call is placed.

In analyzing CBE’s “communication infrastructure,” the Court stated that in light of the ACA v. FCC decision, it would apply the statutory language defining an ATDS, resulting in a focus on whether CBE’s phone equipment has the capacity to produce or store phone numbers to be called using a random or sequential number generator.  The Court noted that the overwhelming authority held that “point and click” dialing systems, used in unison with cloud-based pass-through services, did not qualify as ATDSs due to the human intervention required to place the call.  Applying this rationale, the Court found that CBE agents who were required to click the bullseye were “integral to initiating outbound calls.”  This finding weighed in favor of finding that the MCA, used with LiveVox, was not an ATDS.

Further, the Court dismissed Marshall’s allegations that LiveVox, the cloud-based pass-through, placed the calls and qualified as an ATDS.  Marshall argued that because LiveVox could perform call progress analysis (such as maintaining call logs), it actually initiated the call, not CBE.  Ultimately, the Court found that Marshall had not presented any evidence or legal authority sufficient to create a genuine dispute of material fact as to LiveVox’s alleged qualification as an ATDS.  Specifically, Marshall did not show that LiveVox’s ability to track calling information meant that LiveVox has the capacity to produce or store telephone numbers to be called, using a random or sequential number generator, and to dial the numbers.

Given the human intervention necessary to place calls using MCA and Marshall’s failure to create a genuine dispute of material fact regarding LiveVox’s role, the Court held that CBE did not use an ATDS to place calls to Marshall.

The District of Nevada is one of the first courts to apply the decision from ACA International v. FCC when interpreting the definition of an ATDS.  The decision in Marshall v. CBE indicates that courts will be able to simplify their analysis of whether a telephone system qualifies as an ATDS under the TCPA by eliminating the need to determine “potential functionalities” of a calling system and instead focusing on the calling systems’ “capacity to store or produce telephone numbers to be called, using a random or sequential number generator.”

Please join us on Tuesday, April 17th from 2:00 – 3:00 PM ET for a complimentary webinar with speakers Chad Fuller, David Gettings, Alan Wingfield and Virginia Bell Flynn.

So often the defense of consumer class actions focuses on the substance of the law. Was my consumer report accurate? Was my collection letter misleading or deceptive? Did I have consent to place a call using an ATDS?

Please join Troutman lawyers for a discussion of some recent developments in procedure that could be game-changers. These are legal developments that do not turn on the substance of the claim, but could raise effective defenses if used appropriately. We will discuss the impact the Bristol-Myers Squibb decision has had on personal jurisdiction in nationwide class actions, the tolling effect of pending class actions on future lawsuits, and the impact of Spokeo arguments in practice. For good measure, we will also discuss the impact that the D.C. Circuit’s landmark ruling in ACA v. FCC has had on Telephone Consumer Protection Act individual lawsuits and class actions in the first month since the decision.

Click here to register.

Under the Fair Credit Reporting Act, when a potential employer is considering using a background check to deny an applicant employment, the employer must follow a prescribed adverse action process. For qualifying transportation employers, this means the employer must provide the applicant with a notice of adverse action within three days of the final adverse decision. The District Court for the Northern District of Illinois, however, recently confirmed that even if an employer fails to follow the proper procedure, an applicant may not have standing to bring an adverse action claim if the background check at issue is accurate. This could be a significant decision for employers facing adverse action claims from applicants who indisputably have a disqualifying conviction in their background.

Specifically, in Ratliff v. A&R Logistics, Inc., plaintiff Jerome Ratliff, Jr. claimed that A&R Logistics declined to hire him based on his background check without following a proper adverse action process. In response, A&R Logistics moved to dismiss the complaint on the ground that Ratliff had not suffered any injury-in-fact stemming from the alleged violation and, therefore, had no standing. According to A&R Logistics, Ratliff could not show any injury-in-fact because the background check at issue was accurate.

The Court conducted its standing analysis in two parts. It first considered whether Ratliff had suffered an “informational injury” that could satisfy the injury-in-fact requirement for standing. The Court found that a plaintiff could show “informational injury” if a third party was disseminating inaccurate information about him or her that could cause concrete harm. However, because Ratliff failed to allege that the background check on him contained any inaccuracies, he could not show any “informational injury.” Effectively, Ratliff could not show that he suffered any appreciable “real life” injury by not receiving a copy of his accurate background check.

The Court also considered whether the failure to provide Ratliff with a background check constituted an “invasion of privacy” sufficient to demonstrate injury-in-fact. The Court quickly disposed of that argument. In the Court’s view, the FCRA’s adverse action provision is not designed to protect consumer privacy. As a result, Ratliff could not show that the statutory violation at issue constituted a privacy invasion sufficient to support an injury-in-fact.

Ultimately, the Court’s decision in Ratliff follows a reasonable approach to injury-in-fact analysis that is rooted in the Supreme Court’s Spokeo decision. Simply stated, the violation of a statute alone does not constitute an injury-in-fact for standing purposes without an accompanying real-world injury.

 

Psychologists say that adolescents and young adults take more risks than any other age group. Perhaps this is why about one in five (21.2%) college students receiving financial aid to pay for their education have invested these loans in a cryptocurrency, according to a recent survey by The Student Loan Report, a website for student loan information.

Some Basics Facts About Today’s Popular Cryptocurrencies

According to numerous financial metrics, cryptocurrencies constituted one of the hottest investments of 2017, especially for young Americans. In the summer of 2017, these digital assets reached a combined market capitalization of $100 billion, split among bitcoin ($45 billion, or 40.1%), ethereum ($31 billion, or 28.3%), ripple ($12 billion, or 11.04%), litecoin ($2 billion, or 2.2%), ethereum classic ($2 billion, or 1.71%), nem ($1.7 billion, or 1.5), Dash ($1.3 billion, or 1.2%), and over 800 other currencies with market caps ranging from $1,000 to $800,000. Created in 2009, bitcoin was the first decentralized cryptocurrency and remains the most well-known. As these numbers reveal, however, countless variants, frequently called “altcoins,” (short for “alternative coins”), now exist.

“Cryptocurrencies represent an entirely new asset class and financial sector,” opined Ashe Whitener, a cryptocurrency enthusiast who formerly worked in business development for Euro Pacific Bank. Drew Cloud, Student Loan Report’s founder, told The Boston Globe: “Younger Americans are certainly the most enthusiastic about cryptocurrency; they are the most active investors and want to get involved in the space in any way possible.” Colleges today offer courses on these digital tokens, while a company called Campus Coin is attempting to establish cryptocurrencies as a medium of exchange at colleges throughout the country. At the same time, others have called the enthusiasm around cryptocurrencies “speculative mania.

This objection is not an idle one, as dramatic and inexplicable swings regularly wrack this market. For example, on January 1, 2017, a single bitcoin held a value of only $968; in December 2017, it was worth $19,783. By January 2018, bitcoin posted its worst monthly performance in three years: slipping below $6,000, it lost 70% of its value. Although it jumped to approximately $10,000 by February 15, 2018, it plummeted by 23.11% to $7,688.68 on March 14, 2018, with the announcement of a partial ban on online cryptocurrency advertising. Bitcoin slightly recovered to $8,600 by March 22 and fell to $8,490 by March 23.

Subject to a similar rollercoaster ride, Ethereum, the market’s second most-valuable cryptocurrency, was valued at over $1,400 in January 2017 but has since slumped to $520.

Less popular and smaller digital coins have proven even more volatile. Tron (TRX), for instance, reached a high of 30 cents on January 4, 2018, before nosediving to 4 cents within thirty days.

The dangers of investing in cryptocurrencies thus replicate the perils of investing in very small capital stocks. As one expert put it, “You can see big swings in a short period of time. There’s still a lot of price discovery going on.”

Financial and Legal Risks of Investing Student Loan Funds in Cryptocurrencies

Because investing in cryptocurrencies carries risk – and because student loans are intended for use in funding higher education, not speculating on the cryptocurrency market – student loan experts have been surprised by borrowers’ willingness to invest nearly non-dischargeable sums in this newest market.

“Investing from a . . . [student] loan is a terrible idea as these assets are extremely risky and volatile,” pointed out Christian Catalini, an assistant professor at the Massachusetts Institute of Technology who researches blockchain technology and cryptocurrencies. Others agree. “If you invest the student loans in cryptocurrency and lose money, you will still owe the student loans,” observed Mark Kantrowitz, a student loan expert. “And, where will you get the money to pay for college costs?”

For its part, the United States Department of Education has warned, “Federal student aid funds are to be used only to help meet the costs of attending an eligible institution of higher education. Investing is not considered an appropriate use of federal student aid funds.”

Trend Worth Watching 

For the sake of their bottom line, every participant in the student loan market, including loan providers and servicers, would be wise to monitor student borrowers’ investment of loan proceeds, particularly in innovative but volatile financial instruments.

As newspaper articles, academic studies, and politicians’ speeches have repeated, statistics suggest that a student loan crisis may be building. The share of students graduating with more than $50,000 in student loan debt has more than tripled since 2000, increasing from 5% in 2000 to 17% in 2014. As a result, this group of “large-balance borrowers” now holds the majority (58%) of the outstanding student debt owed to the federal government, approximately $790 billion of the $1.4 trillion accumulated by December 31, 2017. 

In recent days, the idea of “risk-sharing plans,commonly referred to as “RSPs,” has gathered momentum. In general, these arrangements compel educational institutions to repay taxpayers for some of the loans taken out by their defaulting graduates. One iteration, created by Tiffany Chou from the Office of Economic Policy at the Department of Treasury, Adam Looney from the Brookings Institution, and Tara Watson of Williams College and endorsed by Brookings itself, uses a purportedly hard-to-manipulate repayment rate—the amount each institution’s students have repaid after five years—to set minimum thresholds below which institutions would have to contribute. These scholars currently propose a rate of 20%. Thus, if the repayment rate falls below 20%, the college would be required to pay part of the difference to the federal government, with differing obligations as the rate decreases. According to its defenders, such an RSP would correct for the distortion in the student loan market created by federal guarantees of student loans. 

Significantly, this idea received a boost from favorable mention in a white paper released on February 1 by the staff of the Senate’s Committee on Health, Education, Labor and Pensions (or “HELP Committee), the very committee presently considering various reforms of the federal government’s student loan system. It even earned a reference on page 41 of the President’s Fiscal Year 2019 budget proposal. As of March 26, whether the HELP Committee will include such a program in a future bill and what form it would take remain unknown.

 

On June 9, 2017, under the leadership of its former director, the Consumer Financial Protection Bureau issued a modified civil investigative demand, or “CID,” containing the following Notification of Purpose: 

The purpose of this investigation is to determine whether a [sic] student-loan servicers or other persons, in connection with servicing of student loans, including processing payments, charging fees, transferring loans, maintaining accounts, and credit reporting, have engaged in unfair, deceptive or abusive acts or practices in violation of §§ 1031 and 1036 of the Consumer Financial Protection Act of 2010, 12 U.S.C. §§ 5531, 5536; or have engaged in conduct that violates the Fair Credit Reporting Act, 15 U.SC. §§ 1681, et seq., and its implementing Regulation V, 12 C.F.R. Part 1022. The purpose of this investigation is also to determine whether Bureau action to obtain legal or equitable relief would be in the public interest. 

The recipient of this CID was Heartland Campus Solutions ECSI, a division of Heartland Campus Solutions and a large servicer of student loans. Within twenty-one days, Heartland filed a petition to set aside or modify this request in the United States District Court for the Western District of Pennsylvania. The District Court rejected the petition. 

Background 

Statutory Framework  

Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)—the Consumer Financial Protection Act (CFPA)—established the CFPB to “regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws” and “to implement and . . . enforce Federal consumer financial law.” One of the CFPB’s “primary functions” is to “supervis[e] covered persons for compliance with Federal consumer financial law, and tak[e] appropriate enforcement action to address violations of Federal consumer financial law[.]” For years, the CFPB has investigated for-profit colleges for allegedly deceptive practices in connection with their student-lending activities. 

Pursuant to its investigative authority, the CFPB may issue CIDs so as to investigate and collect information “before the institution of any proceeding.” These demands may require the production of documents and oral testimony from “any person” that it believes may be in possession of “any documentary material or tangible things, or may have any information, relevant to a violation” of the sundry laws over which it enjoys jurisdiction. Statutorily, each CID must “state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation.” As CIDs are not self-enforcing, a recipient’s refusal compels the CFPB to file a petition in federal court to secure compliance.  

D.C. Circuit’s Test 

In Consumer Financial Protection Bureau v. Accrediting Council for Independent Colleges and Schools, 854 F.3d 683 (D.C. Cir. 2017) (ACICS), the D.C. Circuit formulated the test now used for analyzing the enforceability of a CID. In that case, the CID’s Notification of Purpose declared:  

The purpose of this investigation is to determine whether any entity or person has engaged or is engaging in unlawful acts and practices in connection with accrediting for-profit colleges, in violation of sections 1031 and 1036 of the Consumer Financial Protection Act of 2010, 12 U.S.C. §§ 5531, 5536, or any other Federal consumer financial protection law. The purpose of this investigation is also to determine whether Bureau action to obtain legal or equitable relief would be in the public interest. 

Affirming the district court’s decision that this CID was unenforceableother than noting that an agency may define the scope of its investigation in general terms, the Bureau wholly fails to address the perfunctory nature of its Notification of Purpose”the D.C. Circuit summarized its guiding principles. “[R]eal limits on any agency’s subpoena power” exist, it warned, and “the deference courts afford agencies does not ‘eviscerate the independent role which the federal courts play in subpoena enforcement proceeding.’” Instead, “[t]he statutory power to enforce CIDs in the district courts . . . [implicitly] entrusts courts with the authority and duty not to rubber-stamp the . . . [CFPB’s] CIDs, but to adjudge their legitimacy.” Simply put, “[a]gencies are also not afforded ‘unfettered authority to cast about for potential wrongdoing.’” Therefore, “[b]ecause the validity of a CID is measured by the purposes stated in the notification of purpose,” courts must carefully assess “the adequacy of the notification of purpose,” a critically “important statutory requirement.” In general, no court should “enforce a CID when the investigation’s subject matter is outside the agency’s jurisdiction” or honor a demand “where there is too much indefiniteness or breadth in the items requested.” 

Guided by these precepts, ACICS gave content to CIDs’ minimal “adequacy” requirement. “A notification of purpose may use broad terms to articulate an investigation’s purpose.” However, to satisfy the statute, that notice must still provide a recipient “with sufficient notice as to the nature of the conduct and the alleged violation under investigation.” 

The D.C. Circuit applied this standard—and found the CFPB’s CID to be inadequate. While the Notification of Purpose defined “the relevant conduct as ‘unlawful acts and practices in connection with accrediting for-profit colleges,’” it “never explain[ed] what the broad and non-specific term ‘unlawful acts and practices’ means in this investigation.” Reasonably read, the CFPB’s explanation of its investigative purpose provided “no description whatsoever of the conduct the CFPB is interested in investigating” or “sa[id] nothing” at all about any potential link between the relevant conduct and the alleged violation. The D.C. Circuit concluded, “[W]ere we to hold that the unspecific language of this CID is sufficient to comply with the statute, we would effectively write out of the statute all of the notice requirements that Congress put in.” 

Case at Hand

Application of ACICS’ Standard 

Heartland “relie[d] almost exclusively” upon the test fashioned and utilized in ACICS. Although the District Court agreed that ACICS sets forth the correct legal test for analyzing the enforceability of a CID, it rejected Heartland’s central argument: that the CID issued to it by the CFPB was just as vague because it “merely categorize[s] all aspects of a student loan servicing operation.” 

Instead, the District Court saw two pivotal distinctions between the two notices. First, “the CFPB has broad statutory authority to investigate student lending practices,” unlike the its questionable prerogative to investigate college accreditation in ACICS. Second, the CID issued to Heartland lacked any “catch-all” provision for “any other” consumer financial law violations, again distinguishing it from the capacious and virtually unlimited CID in ACICS. Indeed, the CID in Heartland referred to two violations—engaging in Unfair, Deceptive or Abusive Acts or Practices (UDAAP) and violation of the Fair Credit Reporting Act (FCRA)—that the CFBP is statutorily obliged to enforce. 

As to Heartland’s alternative argument—that the CID was improper because it covered all the operations of a student loan servicer’s business—the District Court deemed it a “red herring.” Heartland itself, it noted, had acknowledged the CFPB’s broad authority to investigate violations of consumer financial laws. Per Dodd-Frank, as long as oversight of each operation lies within the CFPB’s purview, a CID may reasonably cover a company’s every endeavor. As the District Court observed, Heartland had cited “no authority . . . holding that the CFPB is barred from investigating the totality of a company’s business operations, rather than a mere subset of its operations, when it has a legitimate reason to believe that violations have occurred.” For its part, the District Court could find not a shred of legal support for this assertion. 

Accordingly, as Heartland had “not argue[d] that the information requested in . . .  [the] CID is unreasonably broad or burdensome, only that the Notification of Purpose is inadequate,” the District Court deemed “the Notification of Purpose set out in the June 9 CID . . . [to be] sufficient to provide Respondent with fair notice of the CFPB’s investigation” under the ACICS standard. 

Two Take-Aways: Two Ways to Defeat CIDs and CFPB’s Unchanged Character   

Heartland holds several lessons for lenders, servicers, and their counsel. First, these opinions, if only because of the scarcity of any others, will likely set the rules for the cases to follow. Under ACICS and Heartland, firms and individuals receiving CIDs can object to them on two bases: (1) that the CID is beyond the scope of the CFPB’s authority to investigate, and (2) that the CID is not specific enough to put the recipient on notice of the alleged illegal conduct. Whether or not the CFPB responds with more thorough descriptions, both ACICS and Heartland point to two promising avenues for beating back an unduly capacious CID. 

Second, the Heartland case suggests a nuanced approach to the CFPB, even under its more pro-business director. Apparently, the CFPB is still willing to continue with its investigations and enforcement activity in the studentfinancing field. In addition, it appears prepared to pursue ongoing enforcement investigations and to sue to enforce CIDs where the activities implicated fall readily within its jurisdiction. 

How other courts make use of ACICS and Heartland in the years ahead is a story worth following.

While Washington debates various reforms to the federal government’s student loan framework, and other states adopt borrowers’ bills of rights to the consternation of the United States Department of Education, other proposals for dealing with the student debt crisis have cropped up in legislatures across the country. In recent weeks, two such efforts made headlines. 

Iowa 

In Iowa, graduates from the state’s three public universities—the University of Iowa, Iowa State University, and the University of Northern Iowa—left school with average student loan debt that ranged from $24,325 to $28,617 in 2017. Sixty-eight percent of Iowa college graduates in 2013-14 had an average student debt load of $29,732; for the class of 2015-16, the overall average stood at $29,801, the 19th highest in the nation. In 2015-16, the default rate surpassed 12.5%. On March 7, in an attempt to alleviate this problem, Iowa’s Senate resoundingly passed a three-part bill, setting it up for consideration by the Iowa House of Representatives. If passed by the latter and signed by the governor, this legislation would (1) require all students at Iowa’s three universities to take a financial literacy course; (2) compel regents to provide information to graduates about employment rates, likely starting pay, and the typical graduate’s average debt in their field of study; and (3) mandate that these same regents provide students with information on how to graduate in less than four years, particularly those students who arrive on campus with college credits. 

“I hear from a lot of parents about their concerns about their children’s student loan debt,” Iowa Senate Majority Leader Jack Whitver said. “They are looking to the Legislature for solutions … .” As to the bill’s first provision, Rachel Boon, the chief academic officer for Iowa State’s regent, opined: “Helping students find ways to better manage their living expenses can also help them keep down their debt loads.” In defense of the bill’s second provision, Whitver added, “We’re just trying to get parents and kids information so that they know if they choose a certain major, what the job options are and what they can expect to make.” As to the third, he continued, “We’re not saying they have to have every major graduated in three years but there’s a lot of majors they could do.” 

Maine 

Further north, Maine confronted the same problem. Sixty-eight percent of post-secondary education students graduated with student loan debt, and the average debt sat at $30,908 for borrowers who entered repayment in 2014. For 2015, the state’s default rate stood at 11%, fractionally less than the national average of 11.5%. At the same time, Maine faces an impending “demographic winter” as more of its workforce approaches retirement-age. “Our businesses need young people here to fill the jobs that will be coming available when people retire,” Governor Paul LePage warned members of the Legislature’s Appropriations and Financial Affairs Committee. “We need young people to settle here and have families. We need them to buy houses from those who retire and downsize, to keep our communities going. The longer we can have a young person here after graduation, the more likely they will make a long-term commitment to the state.” 

In response to these problems, on March 27, the legislature’s Taxation Committee commenced its consideration of a proposal, backed by LePage, intended to attract young people to the nation’s state with the oldest population by affording some student loan debt relief. In particular, the bill would create uniform rules for qualifying for the existing Educational Opportunity Tax Credit, denounced by critics as too complicated and underused by Maine employers. At present, the eligibility for this particular credit varies widely depending on an individual’s graduation year. In contrast, the expanded credit would apply to all eligible graduates with a degree from any accredited college or university after 2007 and would range from $1,000 for individuals with an associate degree to $3,000 for those with a graduate degree.  

In addition to this bill, LePage has urged lawmakers to approve $50 million in bonds to provide zero-interest student loans to Mainers attending school in-state while allowing others to refinance if they stay in Maine after college. As currently envisioned, this second bill would allow students with existing debt to consolidate loans or refinance to a lower interest rate if they agree to reside and work in Maine for at least five years. This bill represents LePage’s second such attempt: a similar bill, albeit one funded to the tune of $100 million in bonds, stalled last year largely because of Republican opposition. 

Bond measures must receive two-thirds support in Maine’s House of Representatives and Senate before they can be placed on the statewide ballot for voter consideration.

As of March 23, at least 19 states hold or revoke the state-issued licenses of teachers and/or other professionals if the borrower is in default on their student loans. These jurisdictions span the country, both ideologically and geographically:

Some of these provisions have been in place for 20 years or longer. Many, if not all, date to an era before the federal government assumed its preeminent role in the student lending market.

The federal government originally encouraged the emergence and proliferation of these laws. In 1990, a U.S. Department of Education handbook urged states to enact legislation that would “[d]eny professional licenses to defaulters until they take steps to repayment.” This advice was followed by twenty-two states. Typically, these laws apply to any profession that requires a worker to have a license, certificate, registration, or approval to legally work in the state. Accordingly, depending on the jurisdiction, they can affect health professionals, veterinarians, attorneys, engineers, psychologists, teachers, and even barbers.

For all their similarities, these laws have different effects across these diverse states for three reasons. First, the average default rate is a study in contrasts, with a low of 6.4% in North Dakota and a high of 15.1% in Mississippi. Second, the average debt for members of the Class of 2014 likewise varies considerably, reaching as high as $31,579 in Minnesota and dipping as low as $21,382 in California. Third, variations in coverage and enforcement abound, as the following examples show:

  • Iowa, for instance, allows for the revocation of any state-issued license, including a driver’s license. In 2012, more than 900 driver’s licenses had been temporarily suspended in the Hawkeye State for failure to pay student loans. Yet, state officials denied that the law has been recently used. Indeed, the Iowa College Student Aid Commission, which once collected federal loans in the state, retreated from encouraging revocation after transferring its student loan portfolio to a private servicer. Still, efforts to date to formally abolish this statute have failed.
  • For its part, Kentucky does not track how many default notices it sends to licensing agencies. However, a review of the records of licensing boards throughout the Bluegrass State revealed that the licenses of 308 nurses and 223 teachers were revoked in recent years for student loan default.
  • In one state with an acute nursing shortage—Louisiana—the statewide nursing board notified 87 nurses that their defaulted student loans would bar renewal of their licenses in 2017. This was an increase of around 11.54% from 2016, and approximately 50% of these nurses were first-time defaulters. While 84 nurses eventually paid off their loans, the three that could not no longer work in the medical field.
  • Tennessee has proven particularly aggressive: from 2002 to 2017, officials from the Tennessee Student Assistance Corporation (“TSAC”), the state-run entity responsible for enforcing the law, reported more than 5,400 people to the state’s professional licensing agencies. In one month alone, 42 Tennessee nurses lost their licenses as a result of these state regulations. “It’s an attention getter,” TSAC’s chief aid and compliance officer stated, in discussing the effort. “[Borrowers] made a promise to the federal government that they would repay these funds. This is the last resort to get them back into payment.”
  • Per a 2015 law, South Dakota suspends driver’s, hunting, and fishing licenses, as well as camping and park permits. Through October 2017, Jeff Holden, commissioner of the South Dakota Bureau of Administration, sent over 21,162 accounts to South Dakota Game, Fish and Parks, the agency in charge of the state’s parks, fisheries, and wildlife, for this very purpose. The agency estimated that 3,000 to 4,000 people on the Obligation Recovery Center’s bad debt list held hunting or fishing licenses in 2016 alone. From October 1 through November 18, 2017, 1,550 more had their licenses blocked or nullified.

In light of the student loan crisis, and as their role as lenders has receded, some states are revisiting these statutes. In fact, until 2014, the laws of at least 22 states contained default-triggered revocation provisions. However, Montana repealed its provision in 2015; Oklahoma and New Jersey did the same in 2016; and multiple bills were introduced in both houses of Tennessee’s legislature to do so in 2017-18. Meanwhile, many states in which the laws remain on the books rarely enforce them. This is the case in Alaska, Hawaii, Massachusetts, and Washington (with Hawaii’s state licensing board never having enforced the revocation law). Finally, New Mexico’s statute is scheduled to sunset on July 1, 2020.