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Consumer Credit Regulation: 6.10.2 Rebates upon Default and Acceleration of the Debt

Some state statutes require that all unearned charges, including insurance, be rebated on prepayment, and further require that acceleration be treated as prepayment.641 Review the terms of the master policy between creditor and insurer, if group insurance, or the borrower’s policy if individually insured. The insurance contract may require the rebate.

Consumer Credit Regulation: 6.10.3 Calculating the Rebate

State rules vary on the rules for how to calculate a rebate, as well as notice requirements and statutory minimums for refunds.651 State insurance departments generally prescribe the method by which a rebate must be calculated, usually authorizing the Rule of 78s formula that will be generous to the insurer. Even in states where interest rebates must be calculated by the actuarial method, the Rule of 78s may be authorized for credit insurance rebates.

Consumer Credit Regulation: 6.10.4 Consumer Remedies for Failure to Rebate Unearned Premiums

Failure to provide a rebate for unearned credit insurance is a breach of contract.654 In addition, if the lender has retained greater compensation than that to which it is entitled, the amount retained would be interest.655 Similarly, where a contract term provides that insurance premium refunds will be applied to the last maturing installments, and not to the principal remaining unpaid or to currently maturing installments, such a provision contains “the seeds of usury” and may render the trans

Student Loan Law: 6.2.1 Federal Student Loan Default

Borrowers are in default on Federal Family Education Loan (FFEL) Program loans or Direct Loan Program loans (Direct Loans) if they fail to make required payments for 270 days for loans repayable in monthly installments.4 This nine-month period is a relatively long time and advocates should take advantage of this period to help borrowers seek alternatives to default, such as more affordable repayment plans, cancellation, deferment, and/or forbearance.5

Student Loan Law: 6.2.2 Private Loan Default

Default conditions for private student loans are specified in the loan contracts. In most cases, borrowers will not have the protection of a nine-month period if they miss payments on a private student loan.

Student Loan Law: 6.4.1 Cohort Default Rates

The cohort default rate (CDR) is the most frequently cited default measure because it is the basis for sanctioning schools with persistently high default rates.34 The cohort for a particular year consists of all current and former students who, during that fiscal year, entered into repayment on a Federal Stafford Loan, a federal Supplemental Loan for Students (SLS) loan, a Direct Subsidized Loan, or a Direct Unsubsidized Loan that they received to attend the school, or on the portion of a loan made under the FFEL or Direct Consolidation Loan

Student Loan Law: 6.4.2 Problems with the Cohort Default Rate Measure

The Government Accountability Office (GAO) and the Department’s Office of the Inspector General (OIG) have released reports describing the ways in which the CDRs understate the scope of the default problem—and the ways in which schools manipulate the CDR.44 One OIG report, for example, cited a number of problems, including that the rates reflected defaults during a limited time period and not the life of the loan, that PLUS loans and certain consolidation loans are excluded, and that the rates are calculated based on the number of borrowers i

Student Loan Law: 6.4.3 Other Federal Default Measures

The Department releases three types64 of default rates—cohort default rates (CDRs), cumulative default rates, and new Direct Loans entering default.65 The cumulative default rate includes all federal loans that are more than 360 days delinquent, whereas the rate for new Direct Loans entering default measures only Direct Loans that defaulted in a given year.

Student Loan Law: 6.5.2 Default Risk Factors and Racial Disparities

Researchers have identified a number of risk factors for student loan default and there are well-documented racial disparities in default rates.80 While there is still insufficient empirical research about why borrowers default and how to best help them, a number of recent studies and reports help break down the factors that make default a continuing problem.81 Borrowers in default often did not complete

Consumer Arbitration Agreements: 8.7.3.3 Loser Pays Rule Unconscionable

Loser pays rules render arbitration clauses unconscionable in many jurisdictions, as a “reallocation of the risks of the bargain in an objectively unreasonable or unexpected manner.”235 As the Ninth Circuit has put it, these types of provisions “demand [that consumers arbitrate] at risk of incurring greater costs than they would bear if they were to litigate their claims in federal court.”236

Consumer Arbitration Agreements: 8.7.4.3 Non-Mutual Clauses That Appear to Be Mutual

A business, particularly a creditor, may draft its arbitration provisions to give the appearance of binding both sides to arbitrate, but have the practical effect of not binding the business. As a result, a consumer’s action would be forced into arbitration while a creditor can continue to use the courts to collect on its debts from the consumer.

Consumer Arbitration Agreements: 8.7.4.4 Non-Mutual Appeal Rights

Arbitration agreements may appear facially neutral in allowing both sides to appeal an arbitrator’s award, but as a practical matter they may be drafted so that only the business and not the consumer is likely to be able to appeal from an award. The most common way to do this is to allow appeal of awards only if the award is for more than a certain dollar amount.

Consumer Arbitration Agreements: 8.7.6.2.3 Multiple damages

While arbitration agreements sometimes include provisions prohibiting punitive damages, it is rarer for there to be explicit provisions limiting multiple damages. The first question is whether a limitation on punitive damages applies to treble or other multiple damages recoveries. If not, then the consumer can proceed to seek multiple damages in arbitration. If treble damages are specifically prohibited, that can be an unenforceable provision when state law provides for their recovery.291

Consumer Arbitration Agreements: 8.7.8.4 Financial Incentives and Repeat-Player Bias Lead to Potential Bias

West Virginia’s highest court declares unconscionable an arbitration clause that permitted a lender to designate the decision maker, when the arbitration provider was compensated on a case-volume fee system.369 The reason was that “the decision maker’s income as an arbitrator is dependent on continued referrals from the creditor,” and thus the arrangement “so impinges on neutrality and fundamental fairness that it is unconscionable and unenforceable under West Virginia law.”370 The court cited i

Consumer Arbitration Agreements: 8.7.10.2 Even Neutral Confidentiality Provisions Put Consumers at a Disadvantage

Secrecy disadvantages individuals bringing arbitration proceedings against corporations when that corporation was party to a prior arbitration proceeding raising similar issues. While the corporation knows the details of that prior proceeding, the individual in the subsequent proceeding does not. Facially neutral confidentiality provisions disproportionately favor repeat participants who have firsthand knowledge of how prior arbitrations against them have fared.

Consumer Arbitration Agreements: 8.7.10.5 Secrecy As Part of the Nature of Arbitration

A number of courts have concluded that confidentiality and secrecy provisions are not grounds for a finding of unconscionability.439 They often view secrecy as part of the nature of arbitration,440 and find an attack on a secrecy requirement to be just an attack on the arbitration requirement itself. Such an attack, it is argued, singles out arbitration in a way prohibited by the FAA.441

Consumer Arbitration Agreements: 8.8.1 Introduction

It is common for a corporate defendant who has drafted an unconscionable arbitration clause, and who faces court scrutiny of the clause, to ask the court to rewrite the arbitration clause so that it will be enforceable: “We will agree to jettison the most extreme elements of the arbitration clause, and we ask the court to enforce the remainder of the clause.”