In recent blogs, I discussed two cases in which Educational Credit Management Corporation, the Department of Education’s most ruthless student-loan debt collector, was sanctioned by a court for misbehavior. In the Bruner-Halteman case, a Texas bankruptcy judge assessed punitive damages against ECMC for garnishing the wages of a bankrupt Starbucks employee in violation of the Bankruptcy Code’s automatic stay provision. The judge awarded Ms. Bruner-Halteman $74,000 in punitive damages–$2,000 for each of the 37 times ECMC wrongly garnished her wages.
In the Hann case, the First Circuit Court of Appeals upheld sanctions against ECMC for trying to collect on a student loan debt in spite of the fact that a federal bankruptcy judge had ruled that the debt had been paid.
Are these isolated cases of misbehavior? No they are not. In 2014, Rafael Pardo published an article in the University of Florida Law Review that documents how often ECMC’s attorneys engage in “pollutive litigation” in cases against hapless bankrupt student-loan debtors.
Pardo’s article is long (77 pages) and a bit dense and technical (477 footnotes). I will limit my discussion of his impressive essay to a few of the highlights:
Failure to file corporate ownership statement
The Federal Rules of Bankruptcy Procedure require corporate parties in adversary proceedings to file a “corporate ownership statement” that identifies any corporate party that directly or indirectly owns 10 percent or more of the corporate party’s equity interests. According to Pardo’s analysis of a random sample of cases, ECMC failed to file its corporate ownership statement 81 percent of the time during 2011 and 2012.
What is the significance of ECMC’s noncompliance This is what Pardo said:
The significance of such procedural noncompliance is that, in the overwhelming majority of these adversary proceedings, ECMC has failed to provide the presiding judge with the information necessary to determine whether [the judge] has a financial interest in ECMC that would warrant self-disqualification. Even assuming that ECMC would not have had to report any entity in the corporate ownership statement if ECMC had been procedurally compliant, the failure to file the statement casts a cloud on the legitimacy of the outcomes of proceedings that ended favorably for ECMC. (p. 2149)
Pardo also documented incidents when ECMC failed to abide by the Federal Rules of Civil Procedure in its motion practice. First, in some adversary proceedings a student-loan debtor fails to name ECMC as a defendant, probably because the debtor did not know the name of the correct party to sue. In such cases, ECMC is required to state with particularity that the debtor’s student-loan debt has been assigned to ECMC and that it is the proper party to litigate whether the debt is dischargeable.
Pardo found that ECMC often asserted itself as the proper party in an adversary proceeding without filing the appropriate representations about its interests. First, Pardo found that in 9.2 percent of a random sample of cases, ECMC didn’t file any motion to become a named party; it simply entered into the litigation as if it had been named in the student-debtor’s complaint. (p. 2153)
Furthermore, when ECMC did file a motion to join the litigation, the motion contained a substantive deficiency 80 percent of the time (in the cases Pardo examined). Deficiencies included failing to allege assignment of the loan, failure to provide documentation of a loan’s assignment, and failure to indicate which of the Federal Rules entitled it to be granted relief.
One might respond to Pardo’s findings with a yawning so-what, but as Pardo pointed out, “Such procedural noncompliance is significant because it calls into question the legitimacy of a court’s decision to allow a movant who may not have a valid basis to join the litigation” (p. 2153). Moreover, the fact that bankruptcy courts have allowed ECMC to get away with these procedural violations suggests that the courts aren’t looking closely enough to determine whether ECMC has the right to insert itself into a student-debtor’s adversary proceeding.
Pardo’s research found that student debtors named ECMC as a named defendant about 24 percent of the time. In such cases, ECMC filed an improper response in about one case out of four. (p. 256)
In the majority of the cases Pardo examined, the debtor did not name ECMC as a defendant. In those cases, ECMC was required to file a motion to intervene on the grounds that it was the proper named party. In the cases Pardo reviewed, ECMC filed an improper response 89 percent of the time. For example, ECMC would sometimes answer a student debtor’s complaint before it had served its motion to intervene.
How these irregularities affects a student-debtor’s interest is a bit complicated, and I invite you to read Pardo’s discussion on that issue. But it is remarkable, in my view, that ECMC, a sophisticated debt collector, fails to abide by the Federal Rules of Procedure on so many occasions.
Pardo also found significant rules violation in ECMC’s discovery practices. In particular, Pardo found a case in which ECMC moved for summary judgment based on a student debtor’s deemed admissions even though ECMC had wrongly asked the debtor to admit to a conclusion of law.
In my mind, ECMC engages in serious misconduct when it formally asks a bankrupt student-loan debtor to admit to conclusions of law–especially an unsophisticated debtors who is not represented by an attorney. Not only are such requests impermissible under the Federal Rules, but student debtors may not know that; and they may also not know that an unanswered Request for Admission is deemed to be admitted.
Conclusion: ECMC engages in “pollutive litigation” and it uses taxpayer’s money to do so
Pardo characterized ECMC’s bankruptcy-case behavior as “pollutive litigation,” and that’s putting the matter mildly. ECMC gets reimbursed by the federal government for its attorney fees–fees that are often spent harassing unsophisticated debtors who do not even have lawyers.
Moreover, ECMC frequently wears student debtors down just by prolonging the litigation. Janet Roth, for example, an elderly woman living on Social Security income of less than $800 a month, filed for bankruptcy in January 2009. Her case was not concluded until April 2013, more than four years later.
There are a lot of things Congress can do to clean up the student-loan mess and bring relief to millions of suffering student debtors. But shutting down ECMC would be a big step in the right direction.
Bruner-Halteman v. Educational Credit Management Corporation, Case No. 12-324-HDH-13, ADV. No. 14-03041 (Bankr. N.D. Tex. 2016).
Hann v. Educational Credit Management Corporation, 711 F.3d 235 (1st Cir. 2013).
John Hechinger. Taxpayers Fund $454,000 Pay for Collector Chasing Student Loans. Bloomberg.com, May 15, 2013.
Natalie Kitroeff. Loan Monitor is Accused of Ruthless Tactics on Student Debt. New York Times, January 1, 2014.
Rafael Pardo. The Undue Hardship Thicket: On Access to Justice, Procedural Noncompliance and Pollutive Litigation in Bankruptcy. 66 Florida Law Review 2101-2178.
Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013).
Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016.