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Conservative U.S. Supreme Court justices yesterday signaled skepticism over the legality of President Joe Biden's plan to cancel $430 billion in student debt for about 40 million borrowers, Reuters reported. The nine justices heard arguments in appeals by Biden's administration of two lower court rulings blocking the policy that he unveiled last August in legal challenges by six conservative-leaning states and two individual student loan borrowers opposed to the plan's eligibility requirements. Under the plan, the U.S. government would forgive up to $10,000 in federal student debt for Americans making under $125,000 who obtained loans to pay for college and other post-secondary education and $20,000 for recipients of Pell grants to students from lower-income families. U.S. Solicitor General Elizabeth Prelogar, arguing for Biden's administration, sparred with conservative justices including John Roberts, Samuel Alito, Clarence Thomas and Brett Kavanaugh over the policy's legal underpinning and fairness. Roberts, the chief justice, questioned whether the scale of the relief was a mere modification of an existing student loan program, as allowed under the law the administration cited as authorizing it. "We're talking about half a trillion dollars and 43 million Americans. How does that fit under the normal understanding of 'modify'?" Roberts asked. The policy, intended to ease financial burdens on debt-saddled borrowers, faced scrutiny by the court under the so-called major questions doctrine, a muscular judicial approach used by the conservative justices to invalidate major Biden policies deemed lacking clear congressional authorization. Read more.

In related news, tens of millions of borrowers face months of uncertainty as the Supreme Court decides the fate of President Biden’s student loan forgiveness program, the Wall Street Journal reported. During oral arguments on Tuesday, the court’s conservative majority expressed skepticism that the Biden administration had the legal authority to wipe away debt for the majority of the 43 million Americans with federal student loans. The court will likely not deliver its decision in the case until late June, leaving borrowers to wonder whether their loan balances will be slashed by as much as $20,000. No matter what the court does, its decision will mark the end of a roughly three-year pause on federal student loan payments, which was put in place by former President Donald Trump at the start of the COVID-19 pandemic and was extended twice under Mr. Trump and six times under Mr. Biden. Payments are scheduled to resume 60 days after litigation over the loan-forgiveness program is resolved or the program is implemented. Read more. (Subscription required.)

The Supreme Court will hear arguments today over the legality of one of the most ambitious and expensive executive actions in the nation’s history: the Biden administration’s plan to wipe out more than $400 billion in student debt because of the coronavirus pandemic, the New York Times reported. The administration faces a conservative court that has been hostile to other programs justified by the pandemic and insistent that government initiatives with major political and economic consequences be clearly authorized by Congress. The law the administration relies on, the Higher Education Relief Opportunities for Students Act of 2003, usually called the HEROES Act, gives the secretary of education the power to “waive or modify any statutory or regulatory provision” to protect borrowers affected by “a war or other military operation or national emergency.” In March 2020, President Donald J. Trump declared that the coronavirus pandemic was a national emergency, and his administration invoked the HEROES Act to pause student loan repayment requirements and to suspend the accrual of interest. The Biden administration followed suit. As of April, the payment pause has cost the government more than $100 billion, according to the Government Accountability Office. In August, the administration said it planned to switch gears, ending the repayment pause but forgiving $10,000 in debt for individuals earning less than $125,000 per year, or $250,000 per household, and $20,000 for those who received Pell grants for low-income families. The nonpartisan Congressional Budget Office has estimated the plan’s price tag at $400 billion. In separate cases, six Republican-led states — Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina — and two individuals sued to stop the new plan.

The Supreme Court tomorrow will hear arguments about President Biden’s plan to eliminate up to $20,000 in federal student loan debt for most borrowers, at an estimated cost of $400 billion, the New York Times reported. Biden’s plan, announced in August, has been blocked by legal challenges, preventing the government from canceling any debt for the 26 million borrowers who have applied for relief. The White House insists its approach — which bypassed Congress and relies on a 2003 law, the HEROES Act, that allows the education secretary to grant relief in times of national emergency — is legally sound. The actions that Biden has directed Education Secretary Miguel Cardona to take “fall comfortably within the plain text of the act,” the administration argued in a legal filing to the court. Challengers, including six Republican-led states, call it an abuse of executive authority that seeks “breathtaking and transformative power” by relying on “a tenuous and pretextual connection to a national emergency,” according to their legal brief. Caught in limbo are millions of borrowers who have swung between hope and despair as Biden’s relief plan was started and then halted. Biden’s plan would cancel $20,000 in debt for those, like her, who received Pell grants, which aid students from low-income families. Biden has cast his debt relief plan as an essential step in restarting a student-loan collection system that has been frozen for nearly three years. The hiatus began as a two-month pause initiated by President Donald J. Trump’s administration when the pandemic was ravaging the economy. Congress and Mr. Trump extended the hiatus three times, and Mr. Biden six more times, most recently in November. The president announced then that borrowers’ bills would resume 60 days after the court challenges to his relief plan were resolved or Sept. 1, whichever came sooner.

U.S. consumer spending rebounded sharply in January amid strong income growth, while inflation accelerated, which could add to financial markets fears that the Federal Reserve could continue raising interest rates through summer, Reuters reported. The personal consumption expenditures (PCE) price index, tracked by the Federal Reserve for monetary policy, shot up 0.6% last month after gaining 0.2% in December. In the 12 months through January, the PCE price index accelerated 5.4% after rising 5.3% in December. Excluding the volatile food and energy components, the PCE price index increased 0.6% after climbing 0.4% in December. The so-called core PCE price index increased 4.7% on a year-on-year basis in January after advancing 4.6% in December.

American Car Center told employees the business was closing its doors, a day after it pulled a $222 million bond sale from the market, Bloomberg News reported. The used car retailer, which tends to target consumers regardless of their credit history, said in an email to employees on Friday the firm was ceasing all operations, closing its headquarters in Memphis, Tennessee, and that all employees would be terminated by the end of the business day, the people said. The headquarters has about 288 people. The closure email came a day after the company sent another message to staff saying management and advisors had been working with lenders to improve liquidity and continue operations. American Car Center, which has more than 40 dealerships across 10 states, is owned by York Capital Management LLC. The shutdown comes as more Americans are starting to fall behind on their car payments, and the distress cycle is rapidly accelerating. Before the announcement, American Car Center had shelved a bond deal backed by subprime loans citing market conditions despite investors placing orders for the debt. The firm had not borrowed in the asset backed securities market for a whole year, with its first sale in 2018.

The Consumer Financial Protection Bureau (CFPB) yesterday took action against a web of corporate entities operating under TMX Finance, broadly known as TitleMax, for violating the financial rights of military families and other consumers in providing auto title loans, according to a CFPB press release. The CFPB found that TitleMax violated the Military Lending Act by extending prohibited title loans to military families and, oftentimes, by charging nearly three times over the 36% annual interest rate cap. TitleMax tried to hide their unlawful activities by, among other things, altering the personal information of military borrowers to circumvent their protected status. The CFPB also found that TitleMax increased loan payments for borrowers by charging unlawful fees. The CFPB’s order ends TitleMax’s illegal activities, and requires the company to pay more than $5 million in consumer relief and a $10 million civil money penalty. TitleMax is a repeat offender, according to the press release. TitleMax has been under a CFPB Order since September 26, 2016, for its lending and debt-collection practices. In the 2016 Order, the CFPB found that store employees, as part of their sales pitch for the company’s 30-day loans, offered consumers a “monthly option” for making loan payments and misrepresented the true cost of its loans if the consumers renewed them multiple times. The CFPB also found that the company engaged in illegal high pressure debt collection practices.

Based on the “natural breadth of the passive voice” used in Section 523(a)(2)(A), the Supreme Court held yesterday in a unanimous opinion by Justice Amy Coney Barrett that a partner who herself was innocent of fraud is nonetheless saddled with a nondischargeable debt resulting from the fraud of her partner. The opinion is a reaffirmation of the Court’s holding in Strang v. Bradner, 114 U.S. 555 (1885). In a concurring opinion, Justices Sonia Sotomayor and Ketanji Brown Jackson endeavored to limit the scope of the holding by saying that they understood the outcome to be based on the existence of a partnership under state law. Read the full column.