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Relief programs created during the COVID-19 pandemic provided many Americans with pauses on their largest debts, particularly mortgages and student loans. Other people came to agreements with auto loan and credit card lenders about payment. This relief helped many people survive, freeing up money to pay for necessities. But forbearance does not equal forgiveness, according to a commentary in The Hill written by Profs. Pamela Foohey of the Benjamin N. Cardozo School of Law, Dalié Jiménez of the University of California, Irvine School of Law and Christopher K. Odinet of the University of Iowa College of Law. People will have to face the debt obligations that come with mortgages, auto loans, credit cards and student loans. Yet in the interim, people have faced persistent unemployment and depleted what little savings they may have had. Many will likely be unable to resume all of their regular debt payments. And people who did not need forbearance during the pandemic may find themselves in danger of defaulting on their debts, according to the commentary. The pandemic disproportionately harmed communities of color, particularly Black women. Given these households’ pre-existing wealth disparities, Black Americans and other minorities are likely to bear the brunt of the economic fallout of the pandemic, according to the commentary. Part of this fallout will be a need to ask their lenders for loan modifications. The professors are calling on the Consumer Financial Protection Bureau (CFPB) to use its authority to prevent what we term modification failures. This is when a borrower’s ability to repay is intentionally, negligently, or merely inattentively not taken into account during loan modification discussions. The CFPB has the authority to identify abusive acts or practices by a wide-range of financial institutions, including issuers and servicers of certain auto loans, credit cards and other installment or revolving loans. It can issue a compliance and enforcement bulletin directing loan servicers to make a reasonable determination that a borrower has the ability to make all required, scheduled payments in connection with any modification. Read more.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

The Supreme Court yesterday denied Thelma McCoy's petition for certiorari that sought review of a U.S. Court of Appeals for the Fifth Circuit ruling that she did not satisfy the test under Brunner v. New York Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987), for discharging her student loan debt as an "undue hardship," Reuters reported. McCoy contended that the courts of appeal when faced with defining undue hardship are "deeply divided" between the rigid Brunner test used in most circuits, and the "holistic, equitable approach" of the totality-of-the-circumstances test applied by the 8th U.S. Circuit Court of Appeals and within other circuits. The two approaches "diverge sharply in both application and outcome," and the Supreme Court's "intervention is necessary to bring uniformity to this important and recurring question," she said in her petition, filed in January. Further, she argued that her case presented "an ideal vehicle" to resolve the circuit conflict, because if her case had been filed in a non-Brunner jurisdiction, that court would have exercised its discretion to consider "all facts relevant to undue hardship." McCoy had entered college in her 40s, first obtaining a bachelor's degree, followed by a master's in 2006 and a Ph.D. in 2014, borrowing $175,000 to fund her education, according to court filings. While pursuing her Ph.D., McCoy suffered significant injuries, and had difficulty finding work after graduation due to what she said are continuing disabilities. McCoy filed for chapter 7 relief in 2016 in the U.S. Bankruptcy Court for the Southern District of Texas, and initiated an adversary proceeding against the U.S. Department of Education seeking to discharge her student loan debt, which had ballooned to $350,000.