Monthly Archive for June, 2007

Law Schools Paid Off to Steer Law Student Loans to Citibank

Published
by
Michael Law
on June 28, 2007
in Law School and Law Students
. 0 Comments

From Build a Solo Practice: 

(UPDATE: April 19 - U.S. News World Report compilation of all articles referencing Student Loan Scandal

(UPDATE: April 19) Department of Education contaminated with the Bush Virus.

“The Bush administration rewarded lenders with prominent positions throughout the department.”

(UPDATE: Wednesday, April 11 U.S. News & World Reports: Sallie Mae kicking in $2 million to settle claims they steered business their way.

(UPDATE: Monday, April 9 CIT Chief Executive Officer and others on leave pending investigation.)

(UPDATE: Saturday, April 7 Washington Post. The termites have infested the wooden structure of higher education’s student financial aid. Calling in congressional pest control.)

(UPDATE: Friday April 6, 2007. This story is getting worse. NY Times today Federal Official caught up in scandal surrounding students loans. One person in charge of overseeing the lenders was a shareholder in the lending companies the student loan officers were steering students to borrow from!)

(UPDATE: The plot thickens. Student Loan Officers holding shares in the lending companies they are steering their students to borrow from? Columbia, University of Texas and University of Southern California. This abstract from an article published in October 2006:

Private student loans have become big and increasingly competitive business; with rising tuition and lagging government aid, students took out nearly $13.8 billion in private loans in 2004-5, more than 10 times amount borrowed decade ago; key to this business is university financial aid offices, which compile lists of ‘preferred’ lenders; students rarely comparison shop and rely on those lists; financial aid administrators claim they pick lenders with most competitive terms, but some question whether students are getting best deals; note incentives and giveaways offered to college and university officials by private loan companies; cite possible conflict of interest; it is hard to determine how widespread incentives are, because neither universities nor lenders dislcose arrangements; law making it illegal for lenders to use inducements to get applicants for federally backed students loans does not apply to private loans.)

Why doesn’t this surprise me? Disgust me, yes. Well, then you have one of this country’s largest lenders involved in yet more raping and pillaging of the masses. Why? It’s good business for them. Student loans cannot be discharged in bankruptcy. Schools benefit because they can guarantee their students will get student loans and eventually Citibank is pulling the strings. (But apparently there are many others.)

But now universities such as University of Pennsylvania, St. Johns, Syracuse are complicit? Mind you, they have admitted to no wrongdoing. And will give back the money the banks paid them as well as the students. In their world, I guess this makes it OK. Got caught with their hand in the piggy bank of struggling middle class families. In my world, it is just another mob-style loan sharking activity.

“Citibank, which provides loans at more than 3,000 colleges nationwide, agreed to pay $2 million into a fund to educate students and parents about the student loan industry. New York University, Syracuse, St. John’s, Fordham and the University of Pennsylvania will together repay more than $3.2 million to students who borrowed from companies that paid the academic institutions to steer students their way.

The universities also agreed to adopt a code of conduct governing their relations with student-loan providers. Neither the universities nor the bank admitted any wrongdoing.”

“With one agreement, millions of dollars will be returned to thousands of students,” Mr. Cuomo said at a news conference today in Manhattan.

The deal follows an investigation of the relationships, often undisclosed, between universities and the student loan companies that help students raise the money to pay for college.

In some instances, loan companies made payments to the institutions linked to the number of students who borrowed. One lender invited university officials to an all-expenses-paid Caribbean retreat. At several institutions, students’ questions about financial aid were fielded by call centers that, unknown to the students, were set up and operated by loan companies. Each arrangement, critics say, embodies a conflict of interest.

Lawyers in Mr. Cuomo’s office are in various stages of negotiations with scores more colleges and universities, and with other lenders, seeking compensation to students and signatures on the code of conduct, according to officials in Mr. Cuomo’s office.

Under today’s agreement, N.Y.U. will distribute to students nearly $1.4 million that it received from Citibank over five years. The University of Pennsylvania will distribute $1.6 million that it received over two years. The amounts for the other three universities are much smaller: $164,084 over two years at Syracuse, $80,553 over one year at St. John’s University, and $13,840 at Fordham.

Three more universities have agreed to adopt the code of conduct, but are not making any payments under the agreement: the State University of New York system, St. Lawrence University and Long Island University.

Relationships between loan companies and universities are under increasing scrutiny. Lawmakers in Washington have asked for information from loan companies about their ties to academic institutions. Lori Swanson, the Minnesota attorney general, has sought similar information and has called on colleges and universities to disclose payments or other benefits received from student loan companies.

Mr. Cuomo has announced his intention to file a civil lawsuit against one loan company, Education Finance Partners of San Francisco, for paying institutions a fraction of the amount borrowed by students.

The federal Education Department is weighing new regulations that would govern how colleges assemble and present their lists of recommended, or “preferred,” lenders. College students usually rely on the lists, rather than shopping around more widely; the payments and other benefits that lenders provide to universities are in exchange for inclusion on the lists.

You can read the rest of this New York Times article here.

I remember when I attended University of Bridgeport (eventually Quinnipiac University School of Law) one semester my financial aid officer told me they needed to be paid by a certain date. I knew my Stafford Loans would not come in until about two weeks after the due date. She told me then I would have to get private loans or I would have to withdraw from the semester. Well if you haven’t figured out my personality by now….I told her very politely, “you will either wait an additional two weeks for your money coming from the lender of my choice or I will withdraw myself right now.” They relented and I got to borrow my financial aid and incur debt on my terms. I refused to be pushed into private loans.

Financial aid officers are there to protect the school’s interest as a creditor. You are a debtor. This relationship has a natural tension. Financial Aid Officers can be very informative, helpful and nice. But they work for and are loyal to the creditor and it would serve you well to never forget this.

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SEC Suspends 35 Stocks That Were Mentioned in Spam

Published
by
Michael Law
on June 27, 2007
in Business Law
. 0 Comments

From May It Please the Court:

You and the Securities and Exchange Commission, that is.  The SEC is shocked that spammers promote stock through email - so shocked that it suspended trading in 35 stocks that were promoted by spam.  So shocked that the stocks were suspended for a whopping 10 days.

That’ll teach those spammers.

Stock spam amounts to 30% of the spam that’s out there - nearly 100 million stock spam emails a week.  The other 70% must be spam ads for Viagra, if my inbox is any indication.

Former California Congressman (now SEC Chair) Chris Cox, had this to say in a press release, “When spam clogs our mailboxes, it’s annoying.  When it rips off investors, it’s illegal and destructive.  Today’s trading suspensions, and actions that will follow, should send a clear message to spammers:  the S.E.C. will hold you accountable.”

Well, maybe not the spammers, but the companies, who the SEC believes are complicit in the spam campaigns.  The way the scam works (you knew it was a scam, right?) is that a spammer picks a stock with a limited number of publicly available shares, then buys most of the shares.  Next comes the spam email “tipping” you and me off to a great buy.  We rush in, our demand drives up the value of the remaining stock, and the spammer then dumps his/her shares at these peak values, driving the price through the floor just hours after fools rushed in to buy.

The stock then never regains its glory high.

Punishing the company by suspending it however, may be like killing the messenger without solid proof of the company’s complicity.  Punishing the stock purchaser before the run-up would perhaps be a more effective tactic.

But I’m just a country lawyer in backwater Newport Beach.  And I don’t buy stock based on email tips.

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Are Mediators in the Legal System Hindering a Civil Right to Counsel?

Published
by
Michael Law
on June 14, 2007
in Law Jobs
. 0 Comments

From Online Guide to Mediation: 

It behooves all of us who serve in a profession to pay attention to the way our work is perceived or our profession characterized. In particular we should heed the criticisms, whether just or not, that are raised about our work, so we can learn from or counter them.

Mediators may then wish to know how we are viewed by one scholar in a movement afoot here in the U.S. This movement would expand the right to counsel in criminal cases to civil litigation. It comes in response to a challenge that many in the legal community recognize but do not always agree how best to address: the rising number of pro se litigants in civil and family court cases.

This civil right to counsel is known as “Civil Gideon”, after the landmark U.S. Supreme Court decision, Gideon v. Wainwright, which affirmed the right of an indigent person to have the assistance of counsel in a criminal trial. (Retired mediator and attorney David Giacalone introduced me and other readers of the blog shlep to this movement.)

Acceptance for the notion of a civil right to counsel will come about only through cultural change in the halls of justice and among the players there, according to one of its proponents, Russell Engler, a Professor at New England School of Law. In his 2006 article, “Shaping a Context-Based Civil Gideon from the Dynamics of Social Change” (downloadable in PDF from SSRN), Professor Engler describes the actions of those standing in the way of progress thus:

In the courtroom, court personnel, including the judges, will likely encourage the unrepresented litigant to settle the case. That, in turn, may require the litigant to go to the hallway to negotiate with the lawyer, or to resort to some form of court-based mediation. The hallway negotiations are rife with instances of overreaching and unethical behavior by lawyers, unmonitored and unpunished by a legal system that depends on a high settlement rate. Where the litigants resist settlement, strong words from the judges, mediators or lawyers eventually induce litigants to settle. Few civil cases are tried, and most settlements involving the unrepresented poor occur with a minimum of judicial involvement. [Id. at 2.]

Even acknowledging variations in behavior and changes over time, it is difficult to overstate the extent to which judges, court-connected mediators, clerks, court administrators, and the bar’s rank and file are hindering the expansion of a right to counsel in transacting their daily business. While many in those ranks are focused on the “problem” of unrepresented litigants, it would be a mistake to assume that those players are natural allies in Civil Gideon initiatives. [Id. at 3.]

(Emphasis mine.)

My first reaction was to feel outraged by this portrayal of our profession as intentional actors in an assault on justice. In my view such sweeping generalizations smear those whose support is most needed and ignore the efforts that many in our profession make to advance justice. (And never mind the insult to the many judges, clerk magistrates, and lawyers I have seen over the years who bend over backward to accommodate pro se litigants and treat them with fairness and respect.)

This is particularly true when so many mediators, particularly those in the nonprofit community mediation programs serving courts where the indigent pro se seem so overrepresented, know all too well the dangers such litigants face. Many mediators care passionately about justice and take such concerns seriously. Here in Massachusetts, our Supreme Judicial Court promulgated rules that prohibit exactly the sort of conduct on the part of mediators that Engler criticizes–rules which mediators helped create incidentally. The Uniform Rules of Dispute Resolution, Rule 9(c)(iii), provides:

Where a party is unrepresented by counsel and where the neutral believes that independent legal counsel and/or independent expert information or advice is needed to reach an informed agreement or to protect the rights of one or more of the parties, the neutral shall so inform the party or parties.

Other sections of Rule 9(c) emphasize the voluntary nature of mediation and prohibit coercion by the mediator:

(v) The neutral shall inform the parties of their right to withdraw from the process at any time and for any reason, except as is provided by law or court rule.

(vi) In mediation, case evaluation, and other processes whose outcome depends upon the agreement of the parties, the neutral shall not coerce the parties in any manner to reach agreement.

Similar safeguards exist in other states as well.

As I said, though, that was my first reaction. My second reaction was different.

I thought to myself, Engler has a point.

You and I both know that not every mediator heeds these ethical rules. I have known of mediators (yes, community mediators among them) who routinely browbeat pro se parties into settling. I have met mediators who care more about settlement rates than trivialities like informed consent or the satisfaction of the parties in the outcome. And in a recent conversation with another mediator about informed consent, I was surprised to hear that mediator express horror at the thought of encouraging a party confused by a legal issue to seek advice from a lawyer. (Encouraging them to go to an accountant for advice on a tax issue would be okay, however.) “It’s against the spirit of mediation to involve lawyers!” they argued. This view incidentally is not an uncommon one.

I am not arguing here in favor of Civil Gideon. I don’t know yet whether I support it or not. I am concerned that it focuses only on the indigent, when so many of the middle class cannot afford legal services either. I also don’t think that being represented by counsel is any guarantee that you’ll negotiate more effectively at the mediation table or even fare better in court–I have seen my share of unrepresented people outbargain a supposedly more sophisticated opponent with counsel, as well as people whose best interests were ignored by their lawyers. And the problem may also not be that pro se litigants are pressured to accept settlements they should not. On the contrary, I have seen pro se litigants walk away from fair settlements to defeat in court later, simply because they lacked legal advice to recognize that settlement as a fair one. And I personally would rather see this energy channeled against tort reform, before the case for a civil right to counsel becomes moot. But these are concerns well beyond the scope of this post.

I share Engler’s viewpoint with you, my colleagues, to invite us all to reflect on our role at the table. He raises questions we should stop and face.

Is our goal to settle cases? Or is it to advance justice? Perhaps we can achieve both.

But let us be careful–very careful–not to mistake the first for the second.

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