April 9, 2019 • 45 mins
The government protects us from some dangerous products, but not from others that, over time, ruin countless lives.
Michael has started a Go Fund Me campaign to help Katie finally be free of her student loan burden. If you would like to contribute, visit Katie's Go Fund Me.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:15):
Pushkin. I live in Berkeley, California. It's a peaceful place
for an American city. In twenty years, I've never so
much as noticed the police station. Never occurred to me
that I even needed to know where it was. So
it's Joe, yes, Zoe. But now here I am inside
(00:38):
the place, surrounded by cinder block walls and pictures of
legendary police officers, and across the table from me there's
a living legend officer, Joe LaDou. So I'm going to
tell you what happened to me and why I'm here.
So beginning of last year, we started to get calls
at eight in the morning from City Group Big Bank,
(01:02):
and he's like, I was getting the kids out of
the door of a breakfast and the phone to ring.
And this happened not ten times, at twenty times, thirty times,
but fifty time. I mean it was just like harassment.
And they said I owed the money. And it was
absolutely bizarre because I didn't never an never any business
with City Group, I mean, no credit cards, know nothing,
but they said we had like fifteen thousand dollars of
outstanding and loans. I just want to say that again
(01:23):
so you hear it. City Group said I owed them
fifteen thousand dollars, and so finally I said, look quick
calling us, you're just driving us crazy in the mornings.
And for whatever reason, they just stopped calling. Okay. The
next thing it happens is I get a note from
American Express saying my credit score has collapsed because I
have welshed on a debt to City Group. So American
(01:46):
Express called me and says we're gonna put a limit
on your account because your FICO score has declined. And
I called them and said, well, how's this happen? How
do you even know this? Oh? Well, a credit aggregator
name Experience has sent us a report saying you've got
some bad debts. I didn't even know what Experience was
or what it did. As it turns out, there are
(02:07):
a bunch of companies that make their money by gathering
up whatever any one bank or credit card company has
to say about you, and then spreading the word to
the others, so that if one bank thinks you owe
them money, all the others see you as a problem.
Experience is one of those companies, and I'd become one
of those problems. Someone claiming to be me opening a
(02:30):
credit card account with City Bank in Sioux Fall, South Dakota,
and he gave as his address a street in Miami,
but it's a street that doesn't even exist. A credit
limit was fifteen thousand. Somehow he managed to borrow sixteen thousand,
four hundred and six dollars and repay none of it
(02:53):
four hundred and six dollars. When I called Experience to
say how come you have this on my credit report,
they said, well, we can't do anything about it's a
city group, said you o them this money. So I
call City Group and City Group said they didn't know
who I was, and add no record of my Social
Security number. I mean, it was just a mass. I
was stuck in on hold for hours and they gave
(03:14):
me no joy, I mean no joy at all. Finally,
Experience tells me that I need to file an identity
theft complaint with the ftc IS at the Federal Trade Commission,
which I did, and they said I had to go
come to the police station and file a report for
them to take seriously my claim that my identity had
(03:35):
been stolen. So to summarize myself, just there a big
New York bank hands fifteen sixteen grand to someone pretending
to be me, Michael Lewis. Then some credit agency broadcasts
a total eye about my behavior, and now I need
to drive down to my local police station and bother
a local cop. So that's why I'm here. I want
(03:56):
to file a police report for identity theft, and I
want to ask you a couple questions about it before
I do it. And the first is how often do
you all have people filing identity theft reports with the police?
Very frequently, so it's this is not weird, it's not
completely uncommon. No, no, but that isn't the question I
most wanted an answer to. I've been stewing on another
question for so long it's almost hard to put it
(04:19):
into words. I mean, just as a law enforcement officer,
does it not strike you as strange that I've never
had anything to do with either one of these parties
and they wrote me into this and it's my problem.
All of a sudden, it seems to me that city
group should be filing some sort of complaint with the police,
not me, and that I shouldn't have to deal with
(04:39):
this at all. It's very odd that it's framed this way.
The whole notion of identity stuff. No one. I'm still
met for the first time. Officer lad is looking at
me a little dubiously like I'm crossing some line, like
I'm going to start asking him for his opinions about
animal rights or about the local Native American burial ground
that somehow wound up under the parking lot of a
(05:00):
fish restaurant. Cops don't control the rules of the game.
They just enforce them. The very idea that I should
have to spend a minute having to deal with this
seems just a little odd. I mean, if you take
it out of the financial sector and you say I
managed to persuade Zoe that I am Audrey and I
get her to lend me ten grand Audrey's my producer
(05:23):
on this episode, and Zoe is my associate producer. They're
here at the station with me recording, just standing there
in their headphones, expressionless, dead eyed. It's alway's not going
to have any ability to disrupt my life or get
me invite I mean, it's an odd thing that the
financial system has now put this sort of strain on
(05:43):
police resources, it seems to me. So let me put
it in as a question. If people are coming in
and filings reports, is taking your time and all the rest.
Has it ever struck you that it seems a little
crazy to have the police in the middle of this
To answer, it's it's interesting in the fact that it's
a different type of victimization, right. I don't want to
think of myself as a victim, but if you want
me to be one, But it turns out I have
(06:06):
to be the victim at least if I want him
to file a report. If I'm not a victim, that
I'm to blame for whatever a fake Michael Lewis has
been doing at his fake address. He is the funny thing,
I feel victimized not by whoever that guy dude was
in Miami, but by city group. Like they present themselves
as someone who has been victimized by essentially my inability
(06:26):
to prevent anybody from stealing my identity. But really, if
they'd never not done the dopey thing in the first place,
we wouldn't even be here. And that's the thing that
kind of gets under my skin, is that the financial
sector has figured out a way to shift the burden
of this problem onto people who have nothing to do
with the problem. Let me get youse, right, dispatch one thirty.
(06:46):
I've never had a case number. Can you put me
on the board and generate numbers for a by thirty
point five to nineteen? You know what all those numbers mean?
Oh yeah, I'm talking through it. It's just like another language.
Six zero one six. Definitely, thank you. I feel like
I because this again. So I'm going to give you
(07:07):
a business card with the case number, and I'm also
going to give you a victim of identity the pamphlet.
I already said this, but I'm the real Michael Lewis,
and this is against the rules. A show about the
decline of the human referee in American life and what
that's doing to our idea of fairness. Here are the
(07:29):
two most dangerous words in the English language consumer finance.
The phrase now gets tossed around as if it's a
natural part of human existence, like it's been around forever.
But the first national credit cards didn't exist until Bank
of America created them in the late nineteen sixties, and
it wasn't until the mid nineteen seventies that City Group
(07:50):
figured away around the usury laws. Laws that have existed
since the first Babylonian dynasty that put limits on how
much interest a lender could charge a borrower. In the
mid seventies, the Supreme Court ruled that the laws that
applied to lenders were the state laws where the lender
was based, as opposed to where the loan occurred. In
(08:11):
a desperate move to revive its economy, South Dakota got
rid of the usury laws in nineteen seventy nine, which
is why the City Group credit card I never applied
for was issued from Sioux Falls, South Dakota. The original
city Group credit card agreement back in the nineteen seventies
ran a page and a half. The one I never
(08:31):
signed was more than thirty pages of tiny print, And
as you no doubt already know, it's a mine field
of complicated fees and penalties. But it's not just credit
cards now. It's all the Wall Street banks, the payday lenders,
the subprime mortgage lenders, the car loan originators, the student
loan services, and the vast shadowy network of companies supposedly
(08:53):
keeping track of the credit worthiness of ordinary Americans. This
is where trust and institutions has taken the biggest hit.
When money people figured out how to inflict pain and
suffering even on middle class white people without any consequence
for themselves. How do they do this? That's easy. Consumer
(09:15):
finance has had an incredible gift for remaining unrefereed, and
the absence of a ref is what's allowed them to
screw up the lives of millions and millions of ordinary
people look super emotional today. So if I cry meet
Katie Highland of New Rochelle, New York, public school teacher,
(09:35):
mother of two small children, it's related to this too,
which is interesting. This to which she refers is consumer finance.
Some old student loans. Student loans started flowering in the
nineteen eighties after the boom and credit cards and the
effective death of usury laws. Just now, about forty four
(09:55):
million Americans owe a total of one point five trillion
dollars in student debt. More than four million of those Americans,
most of them young people, are already in default. Some
large number of the rest are heading towards it. And
if you think they're just a bunch of deadbeats, we'll
just hold that thought. Why do you want to introduce yourself?
(10:15):
That's Audrey, my producer, act like a big girl. My
name is Riley, And what's your name, Jackson? What do
you usually do when you come home? Um, just go
on a couch. But if I feel very sleep y'all,
just follow asleep. But if we do falls you really
like you'll so fast? Oh yeap is we can't follow
(10:39):
asleep into and mommy can't start to work at night
into like nine o'clock. What did she do at night?
What type of work? Um? She just goes on a
computer and maybe like sends emails and and actually sends,
um what she does to work on her computer to
school so her school can be running very good. That's Jackson,
(11:04):
Katie's son. Katie teaches reading and writing to eighth graders
in the Bronx and works with kids who struggle in school.
Years ago, Katie got a bachelor's degree in English and
then a master's in secondary education. So the loans I
took out since day one. I graduated high school in
two thousand and one, and I had to take loans
out immediately. My mom raised three kids by herself, so
(11:26):
we didn't have anything. So it was always understood that
I was going to have student loans and I was
going to have to pay them back, and so from
day one that's what I did. Do you remember if
you could take yourself back to that time, like, how
did you think it was gonna go? Yeah, to play
out like in the like being there and then thinking
about the future. Yeah, I just thought, like, these are
(11:47):
all adults, they have my best interested at a heart,
and the people that are doing these things, who are
associated with colleges and financial institutions, like They're going to
tell me the thing that I'm supposed to do, and
then when it comes time to pay it back, I'm
going to have a job and I'm gonna have plenty
of money and it's going to be easy. And you know,
it was just something like, oh, yeah, everyone's student loans.
(12:07):
It's annoying, but it's dual sort of thing. She doesn't
recall anyone ever trying to explain to her how her
loans worked. She just remembers the financial advisor at her
college giving her some papers to sign and that was that.
In the end, to pay for college and grad school,
she took out several loans totaling seventy seven thousand dollars.
(12:27):
The loans came from the US Department of Education, but
the government farmed out the management of its student loans
to the private sector. The consumer finance industry. The company
advising her is called Naviant. When Katie has problems or questions,
she needs to call Naviant. I realized that the amount
(12:48):
of money that they expected me to pay every month
wasn't going to be possible. That was when I first
started like calling them and saying, listen, how do I
get my payments lower? What do I do? You know,
I'm a teacher. I only make such a such an
amount of money, and you know, I don't really know
how you guys expect me to pay this back with
what I'm making. Every time I called it was a
(13:11):
Fourbearian swords deferment or you know, oh, this is great,
like you don't have to make payments for this amount
of time, and sort of kept guiding me in that direction.
In two thousand and seven, the United States Congress created
the Public Service Loan Forgiveness Program for people who wanted
to go into public service so they could afford to
(13:31):
do it. Police officers, firefighters, soldiers, teachers. People who did
those sort of jobs for ten years and made one
hundred and twenty student loan payments on time could walk
away from the rest of what they borrowed. It was
just the sort of thing that a company like Naviant
might alert borrowers too, but they didn't tell Katie. Katie
heard about it on our own in two and fourteen
(13:53):
from a fellow teacher. I kind of felt relief when
I first found out about this one particular program because
I was a great like I am a big believer
of like the hard stuff will pass, and so for
me that's what this was. It was like, Okay, this
is gonna suck, Like you're not going to be able
to go why you're not going to be able to
have birthday parties for your kids or do this or
(14:15):
do that. But in ten years, if you're in this plan,
like it'll be worth it at the end because it'll
be gone and then you can just like really put
your time and your money into, you know, the things
that you want to do for your family and your kids.
And so she called Navigant again. That's where the trouble
really began, when she called the company that was paid
to help her understand her situation to ask them for help.
(14:39):
I was getting all the paperwork filled out for the
public service loan forgiveness, and I remember, like I have
going back and forth, like faxing and they'd be like,
oh no, the data is wrong and you have to
fill it out again, and I would fax it again
and oh no, this was in a different format. You
have to fax it again. It was the same way
I felt when I was trying to get Experience or
city group or whoever to explain what they've done to
my credit, the whole music, the phony, thank you for
(15:02):
your patience, the deep mystery of the exact location of
the person who finally comes on the other end of
the line, the total inability of anyone to solve anything.
And they said that I you know, no one was
eligible until two thousand and seventeen, because at that point
it would have been ten years from the when the
program started. By twenty seventeen, she'd have spent ten years
(15:24):
as a teacher and made one hundred and twenty on
time payments. What remained of her loans would then be
entirely forgiven. And I said, to my mom's say, this
is going to be amazing. What a relief like if
this happens, like I'll be able to save and maybe
one day by a house or whatever. And I remember
calling back in the end of two thousand and sixteen
to make sure that things were ready for the beginning
(15:46):
of two thousand and seventeen and them telling me that no,
you're not eligible. You were never eligible and basically, if
you want to become eligible, you have to consolidate your
loans and you have to start from scratch, starting now
at ten years. And I was like, well, wait a minute.
(16:06):
Katie Hyland asked Navigant to go back and listen into
phone records of all her previous calls, all those conversations
about faxing and paperwork and waiting until twenty seventeen. They
said that they did, and they and then they called
me back and said, we never heard any instances on
the phone records of you asking anything about public service
(16:27):
loan forgiveness. And I was like, well, that's an outright lie.
Oh that familiar feeling. If you want to track Katie
Highland's misery to its source, you need to travel to
(16:48):
Wilkes Barry, Pennsylvania, or at least call someone who knows
the place. It's the type of place that you grow
up in and your whole family is there, and chances
are you settled down and you stay there for the
rest of your life. Lynn Sabolski grew up in Wilkes Barry.
For employment, it is an economically depressed area and so
(17:10):
employers like Navy and major employers or the area are
really important in terms of upholding the local economy. Lynn's
been in the student loan industry for fifteen years. Until
last year. She worked in the Naviant call center in
Wilkes Barry, the place Katie Hiland called for help to
take advantage of the program Congress had created for people
(17:31):
like her, the program to make the student debt of
public servants bearable. Your team is handling calls that are
coming in from people who have student loans that they're
dealing with correct and so what were the pressures on
you that bothered you. The biggest pressure that was on
me was the seven minute rule, and that was representatives
(17:52):
were told to keep their phone calls to no more
than seven minutes. Also within those requirements were that you
validate the caller's identity, that you validate their contact information,
that you read a script to proving use of their
telephone and their text messaging. And so by the time
(18:12):
you know you had to mention autodebit, you had to
mention the company website and all of this eats away
at the seven minutes that you're given, yes call, running
out the clock that the basketball it used to be
known as the four Corners office, right right before they
put it, before they put in the shot clock. So
so what what and if you win over seven minutes?
(18:34):
What would happen here? I should say for the record
that a Naviant representative wrote to us. The company said
that quote, while Naviant, like other customer service oriented companies,
measures call times, we do not set any time limits
for calls. Lynn Sabolski got a different message at her
call center. The reps were put in a position where
(18:55):
they couldn't give the barrowers the information that really needed
to be quick given. And so what some of the
representatives started doing. We're looking for ways to you know,
get their calls under of the representatives would pretend that
the call had disconnected. They would, you know, accidentally on purpose,
hang up on a barrower because that barrower needed to
(19:18):
talk about an income based repayment option and it's a
long application in the barrowe has too many questions and
somebody's looking at their watch going, hey, I got to
keep this under seven minutes, or you know, the kids
aren't going to have dinner. Lind Sabolski was never on
the phone with Katie Hiland, at least not that we
know of, but she knows pretty well what happened to her.
Naviant was meant to be advising people with student loans
(19:40):
on behalf of the Department of Education, but the Department
of Education pays Naviant a fee for every account they manage.
The less time they spend on each account, the less
it costs them to manage that account. The seven minute
rule is there just to maximize profit per customer. We
could see throughout the day how far we were out
(20:00):
of standard is what it would be called. So for example,
I had a display on my computer that would show
me at any given moment if I was red, yellow,
or green in terms of, you know, how my numbers
were holding up. And then if you kept your phone
calls to seven minutes or under, you got a bonus.
And that could be a few hundred dollars in an
(20:20):
economically depressed area. That's the difference between you know, paying
your groceries or your car payment or not. You got
that right. The customer service reps for student loans have
their own consumer financial problems which they can only solve
if they ignore yours. You know, there's this thing called empathy.
You know, if you're calling me because you're in distress,
(20:41):
because your finances are a mess and you need help,
and you're talking to somebody who is dependent on making
this call a seven minute thing because their finances are
not that great and they're not in a position, you know,
to get something better than you know, it feels doubly
deceptive because you know that you're kind of in the
same shoes. Here's the reality of consumer finance. A town
(21:09):
of people highly dependent on a student loan servicing firm
is being put to work finding ways to screw the
equally desperate people who've taken out the loans, to do
things like make it extremely difficult for a teacher to
opt into the program Congress had created specifically to reward
people like her. But if Naviant allowed Katie Highland to
(21:30):
enter the program, her account would be taken away from
Naviant and Naviant would lose revenue. Katie Highland wasn't Naviant's client,
she was its crop. The CEO of Naviant is named
Jack Ramondi. In twenty seventeen, he was paid six and
a half million dollars. We asked to interview him or
(21:52):
some spokesperson in Navian, but they didn't want to talk.
But let's leave that to one side for a moment.
Let's consider this business of student loans, servicing, the behavior
it encourages, the spirit in which it operates. Naviant isn't
some little pissant fly by night. It's listed on the
Nasdaq Stock Exchange as a market cap of nearly three
(22:14):
billion dollars. It services three hundred billion dollars in student loans.
It's the heart of consumer finance. So a manager came
over me while I was on the phone discussing an
income based repayment plan with a barrower, and they said,
don't give anybody time frames. Try to avoid discussing that.
(22:34):
But if anybody asks you outright, tell them it's two
weeks you It obviously bothered you, and you're an empathetic individual.
Was there anybody? Were there any people you were working
with who sort of embraced the Navigant way and we're
like seeing if they could break speed records with their calls. Yes,
there's always that person. If I assumed and it was there,
(22:54):
like I imagine, like a young guy, I literally sat
next to that guy, and you know the problem was,
you know, the lower though his calls became, he was
getting training opportunities, he was being promoted. So basically the
worst perform in terms of getting the barrowers the information
they need, those are the people who then move up
the ladder. He is a superstar man. He's destined for
(23:16):
the CEO suite. I was being told to like talk
to him and try and pick up some tips. Did
you ever try to listen to what he was doing
to figure out how on earth he was doing that? Oh? Yeah,
The easiest way to get somebody off the phone is
to give them a temporary solution and send them paperwork
(23:36):
to look out later. So you know. So one of
the issues around forbearance is that, you know, interest continues
to collect on balances and it's not always a good
financial decision for barrowers to put their loans in, but
it's one of the only options that can be processed
right over the phone. That's exactly what Navian did with
(23:57):
Katie Hyland. They encourage her to accept forbearance for years.
The words sounds so reassuring, almost like forgiveness. Actually all
it did was compound the Amouncia for a loan that
was originally seventy seven thousand dollars, she'd wind up repaying
more than one hundred and twenty thousand dollars, and in
the bargain, they totally screwed up her ability to get
(24:19):
out from under her loan altogether. Like I said, I
can usually put in the blood, sweat and the tears
if I know the thing is temporary and then it's
leading to something that is going to be better. That
was when it became like really glaringly real, and then
sort of panicking because there was nothing I could do.
(24:40):
It's amazing how much pain you can create inside of
seven minutes. I don't think people have any real idea
how dangerous it would bet a shop for ordinary consumer
goods if there weren't a referee between you and the
people who sell you things. But there is a referee,
at least in the United States. It's called the Consumer
(25:02):
Products Safety Commission. Check out its website. You'll find hundreds
of products that it's ordered pulled off the shelves before
they kill or maimed consumers. Just recently, they forced the
recall of thirty two thousand high chairs prone to detaching
from their bases and launching the babies inside. They also
saved you from wireless speakers that catch fire, flashlights that explode,
(25:25):
shower doors that fall in on you when you're buck
naked and blinded by soap, and stare masters whose steps
accelerate incredibly quickly, all by themselves. As I speak, the
Commission has just removed from the market fifteen hundred cracker
barrel old country store decorative pineapples lasceration risk. You probably
(25:46):
didn't know that, but now that you do, it's highly
unlikely that you think, why is the government acting as
this referee to protect me from being impaled by a fruit?
More likely you're thinking, thank god they recall the decorative
pineapples before I bought mine. When you take out a
student loan, or any kind of loan, buying a product
(26:10):
a curious sort of product, this product is far more
likely to kill you than any exploding flashlight. If you
doubt that, just spend some time in the many student
loan chat rooms devoted to suicide. Most consumer financial products
are more complicated than high chairs or decorative pineapples, much
more likely to have fatal flaws that no one but
(26:32):
an expert can spot. Plus they come with a servicer.
You know nothing about the human beings who will handle
your loan until you pay it off. That guy who
gets promoted for getting you off the phone inside of
seven minutes without helping you. He's part of the product
you bought and tied yourself to for years, and he
too presents a laceration risk. So why wouldn't there be
(26:55):
a referee for all this, a neutral party whose job
it is to spot dangerous financial products and pull them
from the market before they do more harm. Oh wait,
that's not an original thought. Someone's already had it. I'm
Elizabeth Warren. I am the senior Senator from the Commonwealth
of Massachusetts. Before she was Elizabeth Warren, she was Professor
(27:19):
Elizabeth Warren at Harvard, specializing in bankruptcy law and why
middle class people go broke. And so it's the early
two thousands and I'm trying to figure out how do
you fix this problem? You're going to laugh. I'm thinking
about toasters. You can't buy a toaster anywhere in America
(27:42):
that has a one in five chance of bursting into
flames and burning down your house. We have a Consumer
Product Safety Commission that just says, nope, sorry, you don't
get to put those things on the market. Actually, toasters
do burst into flames. Back in two eleven, Hamilton Beach
was forced to recall three hundred thousand of its classic
(28:02):
chrome too slicer because breakfast can kill you. We do
not require people to have engineering degrees to buy toasters.
They don't have to look at wiring diagrams and know
what weight wiring you used and whether it has appropriate insulation.
We don't ask any of those questions. We just say,
you know, there's like some minimum safety here. Somebody buys
(28:23):
a toaster, it better be able to toast and it
can't burst into flames. And I thought about it in
terms of, wait a minute, why is that so on
toasters and it's not so on mortgages, And so, at
what moment do you become so alive do these problems
that all of a sudden, the world's getting very complicated
(28:43):
for the financial consumer at his expense, that you become
so alive to this that you're moved to write about it.
So you've got to watch. What's happening is more lenders
now are starting to move into this space of and
here's the key building a profit model based on tricking people,
on cheating people, so that becomes the business model. The
(29:07):
business model is taser rates with subprime mortgages, double cycle
billing with credit cards, interest rates that leap from thirty
to two percent on payday loans if you're late with
a single payment. Again, if you're an American adult or
maybe even a child, you know what I'm talking about.
Elizabeth Warren wanted to create a government agency to referee
(29:28):
all that. When you first float this idea, how is
it greeted? Okay, so when I first float this, let
me come on, this is the early two thousands, and
I'm talking about a new government agency. Oh, just what
everybody's looking for? Right? Does anybody take an interest in it?
A healthy sort of constructive interest in it? Or people
(29:50):
think you're a crackpot? Well, I hope nobody thought I
was a crack pot. I look far too serious for that,
and I you know, I wear glasses. I mean, come on,
I could be a crackpot. Elizabeth Warren then does whatevery
crackpot professor does. She writes an obscure article. It's published
the summer of two thousand and seven in the journal
democracy title unsafe at any rate you propose creating this
(30:15):
new umpire. Everybody kind of thinks that that will never happen,
And then all of a sudden, the world shapes itself
in a way that it sees, oh my god, we
need this umpire, right. The world gets on board, then
gets on board for a short trip anyway. The two
thousand and eight financial crisis has its roots and consumer finance.
The entire nation got so pissed off at Wall Street
(30:37):
that Wall Street lost control of the political process. In
two and ten, Congress created the Consumer Financial Protection Bureau.
They designed the agency so that Congress wouldn't have direct
control of its budget, because everyone suspected that the finance
industry might one day try to kill the new referee.
(30:58):
In two and thirteen, Elizabeth Warren became a United States Senator,
but that wasn't enough to stop what eventually happened. When
you hear the phrase government agency, what do you think?
What picture forms in your mind? Probably of some nondescript
(31:22):
concrete building with small windows and gray men and women
walking in just after nine and walking out just before five,
doing as little as possible, and that unwillingly vast sums
of money have been spent to keep that picture in
your mind, A lot of it by companies engaged in
consumer finance. My name is Seth Frontman. I used to
(31:44):
work at the Consumer Financial Protection Bureau. Seth Frontman got
to know the consumer finance industrial complex in the early
two thousands when he went to work for a former
Marine who had been elected to Congress. He was instantly
inundated with stories of American soldiers being deceived and abused
by financial firms. There were literally service members who were
(32:08):
flying back from Iraq and Afghanistan because their banks were
illegally foreclosing on their houses while they were deployed. And
they would spend like every waking moment when they weren't
down raged with their troops battling with Wells Fargo or
Bank of America or one of these other companies. And literally,
(32:29):
while they were getting shot at in Iraq and Afghanistan,
their spouses and kids were at home dealing with kind
of foreclosure notices and banks. It turns out that the
banks weren't just being odious, they were breaking the law.
So there's actually a statute called the Service Member Civil
Relief Act, which has been in place in some form
(32:50):
or another. I believe since like the Civil War and
it has like a host of different protections, but one
of those essentially dramatically limited the way in which a
service member who was on active duty could get their
house foreclosed on the banks. Just hope the soldiers didn't
know about the statute and made it hard for them
to take advantage of it. Sound familiar. There was really
(33:13):
nowhere these soldiers could turn for help except to individual
members of Congress until the Consumer Financial Protection Bureau gets started.
Seth Frautman joins up right away, specifically to help members
of the military. In its first five years, the bureau
handed back nearly twelve billion dollars to people who've been
ripped off by consumer finance companies. It created a new
(33:37):
disincentive for companies that made money by ripping people off,
because it sued the asses off those companies. A couple
of years in, Seth moved from working with veterans to
working with students, where you shocked when you collided with
the student loan situation just how bad it was. Yes, literally,
one of the hardest parts about the job was convincing
(34:02):
people it was actually as bad as it is Without
seeming like a crazy person with their hair on fire
all the time, right, which I'm probably not good at.
One of the things that lit his hair on fire
was the behavior of student loan servicers the Naviance of
the world. Seth's student loan unit looked into a bunch
of complaints. It found that loan servicers were preventing school teachers, cops,
(34:26):
and firefighters from getting into the loan forgiveness program the
one Congress had created for them back in two thousand
and seven. Seth found out about the seven minute rule.
They have essentially every incentive under the book to ensure
that the people on their phones are not doing as
good of a job as possible, but getting off the
(34:47):
phone as quick as possible. Seth went to his boss,
Richard Cordray, who was head of the bureau. Together they
decided to file a massive lawsuit against Navian, which of
course alarmed the entire consumer financi industry. I mean, if
this new agency was actually going to stop consumers from
being ripped off, where would it leave the companies that
made money from it? So then what happens then, Essentially,
(35:11):
with a flip of a switch, Director Cordrey leaves the bureau,
the Bureau is given an acting director who also has
a full time job as the head of the Office
of Management and Budget. Right, So, mulvany, mcmulvaaney, the structure
of the CFPB is just fundamentally flawed. On one hand,
(35:35):
people call it independent, but the real bottom line is
it's simply unaccountable and that's wrong. That's mcmulvaney talking to
Fox News as lou Dabbs. At the end of November
twenty and seventeen, we were slated to put out our
annual report documenting how college debit cards had a particular
risk for consumers despite protections that should be in place. Essentially,
(35:57):
when the new leadership of the bureau came in, we
were told that we would put that report in in
a drawer that was no longer our job. Did you
did you have the option of us ignoring that? No?
What would happen if you did? I assume I would
end up where I am here, just a lot earlier
in the process, in the processes where Seth is, as
(36:18):
you're probably guessing, is out of a job. He left
Donald Trump's CFPB. Maybe I shouldn't ask him to speculate
about what's going on now with his former employer. But
I can't help myself what's going through the mind of
mc mulvaney when he says, you'd ask you to put
that report in the drawer. So I don't know. I
don't want to give any legitimacy to the argument because
(36:39):
it doesn't fucking matter, right, Like, the only thing that
matters is there's someone on a college campus right now
who has debit card that a bank has negotiated with
his school. He thought it gave that some legitimacy. He
took out that card, and he now has hundreds of
dollars of overdraft fees. And though he's pretty much screwed
(37:04):
for a remainder of his life because of the work
that we were allowed to do. That was not an
attempt to like make me or us seem grandiose. That's
just that's just how it works, all right. So I'm
(37:25):
standing in front of a building that used to have
a big sign on it, and the sign said Consumer
Financial Protection Bureau. One of the first things mc mulvaney
did as acting head of the CFPB was to change
the acronym to BCFP, so to put the word bureau
first instead of consumer of nineteen seventies brutalist architecture. It
(37:49):
looks like it was designed to maximize the number of
ledges people would jump off after they had a financial reversal. Anyway,
they used to be a sign here until just a
couple of weeks ago, and it was very proudly saying
what it was. Well, two weeks ago they took down
the sign. I'm staring right here at what is I mean,
it's just that cinder block wall Banks found out about
(38:13):
the name change from CFPB to BCFP. Just that could
cost them up to three hundred million dollars to update
all their databases and forums. The agency itself was spending
millions to change its signage and branding, all just to
make the name sound less inviting to the consumers. It's
meant to serve the streets. You know, I speak into
(38:35):
my iPhone and poured that that would be against the law. Well, um,
I don't know that. I can't say that exactly. I
don't think this is the law. I think we're allowed
to suppere and do whatever we're going to do or
out here. Well you know, um I don't. I just
(38:58):
you you can go in the street. But you know,
I don't think you can do that here. The new
director of the CFPV or whatever you call it, finally
gave up trying to brand the place. Still, this is
the way referee dies, not with a bang, but a distraction.
This massive explosion in the public square gets muffled. A
(39:19):
million tragedies silently unfold in the lives of ordinary people
who thought they were the customers and found out they
were just the crop. Yeah, I have so here. My
original loan amount was seventy seven thousand, five hundred and
forty I have forty six thousand, five hundred and sixty
(39:40):
one left to pay off. I've paid back fifty three thousand,
eight hundred and ninety That's a lot on money. Katie
Highland still waiting. She also joined other teachers in a
lawsuit against Navian. There was a US government audit of
loan services like Navian. It found that thirty thousand qualified
(40:02):
people teachers, firefighters, soldiers, had applied to the loan forgiveness program.
Only ninety si got their loans forgiven ninety six. The
student loan servicers found tricks to deny all the rest.
And that doesn't even count the greater number of people
like Katie Highland who never got to submit an application
(40:24):
in the first place. Like literally, I don't know if
you want to put it, but like my teeth, like
from grinding and anxiety, I've had one, two, three, four,
five teeth had to come out, which is what I'm
dealing with like currently at the moment, which is like
making me very upset. I can't smile anymore and stuff,
and dental insurance doesn't cover implants and so like I
(40:44):
have lost like all these teeth and I'm thirty five,
and it's like it's like crazy, but it's like the
stress is constant. If a toaster had blown up and
maimed a mother of two, you'd say, God, that's awful,
get that toaster off the market and get her some compensation.
But a consumer finance company steals the happiness from her life,
(41:07):
and we're all half inclined to think, Oh, it's her problem.
She borrowed the money, dug her own grave. Why is
that I don't see any payoff? And it just keeps
getting harder and harder, And that's soul crushing, and it's
it's hard also with like little kids to be happy
(41:28):
and everything's okay, and you know, and you know, to
encourage them to do things and follow their dreams. And
my mom got mad at me the other day because
my daughter, who you met, should I want to be
a teacher? And I was like, no, you don't, you
never ever want to be a teacher. My mom was like, Katie,
she's four, it's pretty much where I am. Well, I
(41:49):
won't make you look at these anymore. It might be
absolutely kind of painful for her, because all of this
counts with a bill and getting something changed to another
thing that's the same, but changing to it. I love you,
(42:09):
I feel well, it does feel kind of painful, right mommy. Yeah,
A lot of the papers, Yeah there, it's a lot
of paperwork. It's a lot of and a lot of pain.
Yea for doing it. Yeah, So while we actually while
we move on, and that's pretty much what I did.
(42:31):
Just just move on. You're very thoughtful. Well, it is
very good to be thoughtful for everybody. But the person
who's the most best person on earth is this lady
right there, Jackson. I'm so in love with you. So
(42:55):
much of life is just dumb luck. Consumer finance companies
got lucky if the student loan servicing industry had somehow
been invented in the early nineteenth century, in the late
nineteenth century or even the mid twentieth some ref would
have probably been put in place. But right now refs
are hard to create, and so the head of Navigant
(43:17):
makes six million dollars a year while Katie Highland's teeth
fall out one by one. I've never had a consumer loan.
I've always paid my AMX bill on time and always
paid cash for everything else, which is to say I've
(43:40):
never been at the mercy of the consumer finance industry.
The next aspect is to go back and resolve the
issue that's on your credit report, which is more time
to all three credit bureaus. Yes, and yet there I
was not quite able to get away from it, because
even when you think you're free and clear of consumer finance,
it can pull you into its fucked up little world
(44:00):
in which they create problems and then make them your problems.
You and Officer Joe ledou Berkeley Police, well, we want
you to focus on now, certainly going forward is some
of the crime prevention techniques, which is this right here
has got your soul security number on it. So when
you're dealing with. It should be shredded, not just tossing
the trash. Because when we have people going through the
trash and they see this and they go, oh, who's
going through my trash? Yeah, people do it? Do they absolutely?
(44:23):
I've never seen any of my garbage kins outside my house.
I stare at it all the time, the way it
blows out of the trash truck and somebody's walking down
the street and they go, oh, here we go. We
got Michael and Lewis and we got your soul Security number,
and sorry, we have taken so much of your time.
This is great. I gather up the mess of papers,
the letters from MX saying my credit rating is shot,
(44:44):
the credit reports from experience, the FTC pamphlet on all
the things I need to do to fix this problem
that a Wall Street bank created all by itself. So
I'm gonna give you that if you want to make copies.
A single envelope falls out of the pile. So this
is I brought this in and I haven't opened it.
It's from City Group, City Group, to whom I apparently
still o sixteen thousand dollars in their minds, and I
(45:06):
didn't I had opened it because yeah, no, it's it's
an offer for a credit card. Yep, you're you're great, right,
do you want to City group credit carding? I'm good,
I appreciate it. Lend to anybody. I'm Michael Lewis, Thanks
again for listening to Against the Rules. Against the Rules
(45:27):
is brought to you by Pushkin Industries. The show is
produced by Audrey Dilling and Katherine Girdo, with research assistance
from Zoe Oliver Gray and Beth Johnson. Our editor is
Julia Barton. Mia Lowe Bell is our executive producer. Our
theme was composed by Nick Brittell, with additional scoring by
(45:49):
Seth Samuel, mastering by Jason Gambrel. Our show was recorded
at Northgate Studios in Berkeley by TOFA Ruth Special thanks
to our founders Jacob Weisberg and Malcolm Gladwell
Pushkin. I live in Berkeley, California. It's a peaceful place
for an American city. In twenty years, I've never so
much as noticed the police station. Never occurred to me
that I even needed to know where it was. So
it's Joe, yes, Zoe. But now here I am inside
(00:38):
the place, surrounded by cinder block walls and pictures of
legendary police officers, and across the table from me there's
a living legend officer, Joe LaDou. So I'm going to
tell you what happened to me and why I'm here.
So beginning of last year, we started to get calls
at eight in the morning from City Group Big Bank,
(01:02):
and he's like, I was getting the kids out of
the door of a breakfast and the phone to ring.
And this happened not ten times, at twenty times, thirty times,
but fifty time. I mean it was just like harassment.
And they said I owed the money. And it was
absolutely bizarre because I didn't never an never any business
with City Group, I mean, no credit cards, know nothing,
but they said we had like fifteen thousand dollars of
outstanding and loans. I just want to say that again
(01:23):
so you hear it. City Group said I owed them
fifteen thousand dollars, and so finally I said, look quick
calling us, you're just driving us crazy in the mornings.
And for whatever reason, they just stopped calling. Okay. The
next thing it happens is I get a note from
American Express saying my credit score has collapsed because I
have welshed on a debt to City Group. So American
(01:46):
Express called me and says we're gonna put a limit
on your account because your FICO score has declined. And
I called them and said, well, how's this happen? How
do you even know this? Oh? Well, a credit aggregator
name Experience has sent us a report saying you've got
some bad debts. I didn't even know what Experience was
or what it did. As it turns out, there are
(02:07):
a bunch of companies that make their money by gathering
up whatever any one bank or credit card company has
to say about you, and then spreading the word to
the others, so that if one bank thinks you owe
them money, all the others see you as a problem.
Experience is one of those companies, and I'd become one
of those problems. Someone claiming to be me opening a
(02:30):
credit card account with City Bank in Sioux Fall, South Dakota,
and he gave as his address a street in Miami,
but it's a street that doesn't even exist. A credit
limit was fifteen thousand. Somehow he managed to borrow sixteen thousand,
four hundred and six dollars and repay none of it
(02:53):
four hundred and six dollars. When I called Experience to
say how come you have this on my credit report,
they said, well, we can't do anything about it's a
city group, said you o them this money. So I
call City Group and City Group said they didn't know
who I was, and add no record of my Social
Security number. I mean, it was just a mass. I
was stuck in on hold for hours and they gave
(03:14):
me no joy, I mean no joy at all. Finally,
Experience tells me that I need to file an identity
theft complaint with the ftc IS at the Federal Trade Commission,
which I did, and they said I had to go
come to the police station and file a report for
them to take seriously my claim that my identity had
(03:35):
been stolen. So to summarize myself, just there a big
New York bank hands fifteen sixteen grand to someone pretending
to be me, Michael Lewis. Then some credit agency broadcasts
a total eye about my behavior, and now I need
to drive down to my local police station and bother
a local cop. So that's why I'm here. I want
(03:56):
to file a police report for identity theft, and I
want to ask you a couple questions about it before
I do it. And the first is how often do
you all have people filing identity theft reports with the police?
Very frequently, so it's this is not weird, it's not
completely uncommon. No, no, but that isn't the question I
most wanted an answer to. I've been stewing on another
question for so long it's almost hard to put it
(04:19):
into words. I mean, just as a law enforcement officer,
does it not strike you as strange that I've never
had anything to do with either one of these parties
and they wrote me into this and it's my problem.
All of a sudden, it seems to me that city
group should be filing some sort of complaint with the police,
not me, and that I shouldn't have to deal with
(04:39):
this at all. It's very odd that it's framed this way.
The whole notion of identity stuff. No one. I'm still
met for the first time. Officer lad is looking at
me a little dubiously like I'm crossing some line, like
I'm going to start asking him for his opinions about
animal rights or about the local Native American burial ground
that somehow wound up under the parking lot of a
(05:00):
fish restaurant. Cops don't control the rules of the game.
They just enforce them. The very idea that I should
have to spend a minute having to deal with this
seems just a little odd. I mean, if you take
it out of the financial sector and you say I
managed to persuade Zoe that I am Audrey and I
get her to lend me ten grand Audrey's my producer
(05:23):
on this episode, and Zoe is my associate producer. They're
here at the station with me recording, just standing there
in their headphones, expressionless, dead eyed. It's alway's not going
to have any ability to disrupt my life or get
me invite I mean, it's an odd thing that the
financial system has now put this sort of strain on
(05:43):
police resources, it seems to me. So let me put
it in as a question. If people are coming in
and filings reports, is taking your time and all the rest.
Has it ever struck you that it seems a little
crazy to have the police in the middle of this
To answer, it's it's interesting in the fact that it's
a different type of victimization, right. I don't want to
think of myself as a victim, but if you want
me to be one, But it turns out I have
(06:06):
to be the victim at least if I want him
to file a report. If I'm not a victim, that
I'm to blame for whatever a fake Michael Lewis has
been doing at his fake address. He is the funny thing,
I feel victimized not by whoever that guy dude was
in Miami, but by city group. Like they present themselves
as someone who has been victimized by essentially my inability
(06:26):
to prevent anybody from stealing my identity. But really, if
they'd never not done the dopey thing in the first place,
we wouldn't even be here. And that's the thing that
kind of gets under my skin, is that the financial
sector has figured out a way to shift the burden
of this problem onto people who have nothing to do
with the problem. Let me get youse, right, dispatch one thirty.
(06:46):
I've never had a case number. Can you put me
on the board and generate numbers for a by thirty
point five to nineteen? You know what all those numbers mean?
Oh yeah, I'm talking through it. It's just like another language.
Six zero one six. Definitely, thank you. I feel like
I because this again. So I'm going to give you
(07:07):
a business card with the case number, and I'm also
going to give you a victim of identity the pamphlet.
I already said this, but I'm the real Michael Lewis,
and this is against the rules. A show about the
decline of the human referee in American life and what
that's doing to our idea of fairness. Here are the
(07:29):
two most dangerous words in the English language consumer finance.
The phrase now gets tossed around as if it's a
natural part of human existence, like it's been around forever.
But the first national credit cards didn't exist until Bank
of America created them in the late nineteen sixties, and
it wasn't until the mid nineteen seventies that City Group
(07:50):
figured away around the usury laws. Laws that have existed
since the first Babylonian dynasty that put limits on how
much interest a lender could charge a borrower. In the
mid seventies, the Supreme Court ruled that the laws that
applied to lenders were the state laws where the lender
was based, as opposed to where the loan occurred. In
(08:11):
a desperate move to revive its economy, South Dakota got
rid of the usury laws in nineteen seventy nine, which
is why the City Group credit card I never applied
for was issued from Sioux Falls, South Dakota. The original
city Group credit card agreement back in the nineteen seventies
ran a page and a half. The one I never
(08:31):
signed was more than thirty pages of tiny print, And
as you no doubt already know, it's a mine field
of complicated fees and penalties. But it's not just credit
cards now. It's all the Wall Street banks, the payday lenders,
the subprime mortgage lenders, the car loan originators, the student
loan services, and the vast shadowy network of companies supposedly
(08:53):
keeping track of the credit worthiness of ordinary Americans. This
is where trust and institutions has taken the biggest hit.
When money people figured out how to inflict pain and
suffering even on middle class white people without any consequence
for themselves. How do they do this? That's easy. Consumer
(09:15):
finance has had an incredible gift for remaining unrefereed, and
the absence of a ref is what's allowed them to
screw up the lives of millions and millions of ordinary
people look super emotional today. So if I cry meet
Katie Highland of New Rochelle, New York, public school teacher,
(09:35):
mother of two small children, it's related to this too,
which is interesting. This to which she refers is consumer finance.
Some old student loans. Student loans started flowering in the
nineteen eighties after the boom and credit cards and the
effective death of usury laws. Just now, about forty four
(09:55):
million Americans owe a total of one point five trillion
dollars in student debt. More than four million of those Americans,
most of them young people, are already in default. Some
large number of the rest are heading towards it. And
if you think they're just a bunch of deadbeats, we'll
just hold that thought. Why do you want to introduce yourself?
(10:15):
That's Audrey, my producer, act like a big girl. My
name is Riley, And what's your name, Jackson? What do
you usually do when you come home? Um, just go
on a couch. But if I feel very sleep y'all,
just follow asleep. But if we do falls you really
like you'll so fast? Oh yeap is we can't follow
(10:39):
asleep into and mommy can't start to work at night
into like nine o'clock. What did she do at night?
What type of work? Um? She just goes on a
computer and maybe like sends emails and and actually sends,
um what she does to work on her computer to
school so her school can be running very good. That's Jackson,
(11:04):
Katie's son. Katie teaches reading and writing to eighth graders
in the Bronx and works with kids who struggle in school.
Years ago, Katie got a bachelor's degree in English and
then a master's in secondary education. So the loans I
took out since day one. I graduated high school in
two thousand and one, and I had to take loans
out immediately. My mom raised three kids by herself, so
(11:26):
we didn't have anything. So it was always understood that
I was going to have student loans and I was
going to have to pay them back, and so from
day one that's what I did. Do you remember if
you could take yourself back to that time, like, how
did you think it was gonna go? Yeah, to play
out like in the like being there and then thinking
about the future. Yeah, I just thought, like, these are
(11:47):
all adults, they have my best interested at a heart,
and the people that are doing these things, who are
associated with colleges and financial institutions, like They're going to
tell me the thing that I'm supposed to do, and
then when it comes time to pay it back, I'm
going to have a job and I'm gonna have plenty
of money and it's going to be easy. And you know,
it was just something like, oh, yeah, everyone's student loans.
(12:07):
It's annoying, but it's dual sort of thing. She doesn't
recall anyone ever trying to explain to her how her
loans worked. She just remembers the financial advisor at her
college giving her some papers to sign and that was that.
In the end, to pay for college and grad school,
she took out several loans totaling seventy seven thousand dollars.
(12:27):
The loans came from the US Department of Education, but
the government farmed out the management of its student loans
to the private sector. The consumer finance industry. The company
advising her is called Naviant. When Katie has problems or questions,
she needs to call Naviant. I realized that the amount
(12:48):
of money that they expected me to pay every month
wasn't going to be possible. That was when I first
started like calling them and saying, listen, how do I
get my payments lower? What do I do? You know,
I'm a teacher. I only make such a such an
amount of money, and you know, I don't really know
how you guys expect me to pay this back with
what I'm making. Every time I called it was a
(13:11):
Fourbearian swords deferment or you know, oh, this is great,
like you don't have to make payments for this amount
of time, and sort of kept guiding me in that direction.
In two thousand and seven, the United States Congress created
the Public Service Loan Forgiveness Program for people who wanted
to go into public service so they could afford to
(13:31):
do it. Police officers, firefighters, soldiers, teachers. People who did
those sort of jobs for ten years and made one
hundred and twenty student loan payments on time could walk
away from the rest of what they borrowed. It was
just the sort of thing that a company like Naviant
might alert borrowers too, but they didn't tell Katie. Katie
heard about it on our own in two and fourteen
(13:53):
from a fellow teacher. I kind of felt relief when
I first found out about this one particular program because
I was a great like I am a big believer
of like the hard stuff will pass, and so for
me that's what this was. It was like, Okay, this
is gonna suck, Like you're not going to be able
to go why you're not going to be able to
have birthday parties for your kids or do this or
(14:15):
do that. But in ten years, if you're in this plan,
like it'll be worth it at the end because it'll
be gone and then you can just like really put
your time and your money into, you know, the things
that you want to do for your family and your kids.
And so she called Navigant again. That's where the trouble
really began, when she called the company that was paid
to help her understand her situation to ask them for help.
(14:39):
I was getting all the paperwork filled out for the
public service loan forgiveness, and I remember, like I have
going back and forth, like faxing and they'd be like,
oh no, the data is wrong and you have to
fill it out again, and I would fax it again
and oh no, this was in a different format. You
have to fax it again. It was the same way
I felt when I was trying to get Experience or
city group or whoever to explain what they've done to
my credit, the whole music, the phony, thank you for
(15:02):
your patience, the deep mystery of the exact location of
the person who finally comes on the other end of
the line, the total inability of anyone to solve anything.
And they said that I you know, no one was
eligible until two thousand and seventeen, because at that point
it would have been ten years from the when the
program started. By twenty seventeen, she'd have spent ten years
(15:24):
as a teacher and made one hundred and twenty on
time payments. What remained of her loans would then be
entirely forgiven. And I said, to my mom's say, this
is going to be amazing. What a relief like if
this happens, like I'll be able to save and maybe
one day by a house or whatever. And I remember
calling back in the end of two thousand and sixteen
to make sure that things were ready for the beginning
(15:46):
of two thousand and seventeen and them telling me that no,
you're not eligible. You were never eligible and basically, if
you want to become eligible, you have to consolidate your
loans and you have to start from scratch, starting now
at ten years. And I was like, well, wait a minute.
(16:06):
Katie Hyland asked Navigant to go back and listen into
phone records of all her previous calls, all those conversations
about faxing and paperwork and waiting until twenty seventeen. They
said that they did, and they and then they called
me back and said, we never heard any instances on
the phone records of you asking anything about public service
(16:27):
loan forgiveness. And I was like, well, that's an outright lie.
Oh that familiar feeling. If you want to track Katie
Highland's misery to its source, you need to travel to
(16:48):
Wilkes Barry, Pennsylvania, or at least call someone who knows
the place. It's the type of place that you grow
up in and your whole family is there, and chances
are you settled down and you stay there for the
rest of your life. Lynn Sabolski grew up in Wilkes Barry.
For employment, it is an economically depressed area and so
(17:10):
employers like Navy and major employers or the area are
really important in terms of upholding the local economy. Lynn's
been in the student loan industry for fifteen years. Until
last year. She worked in the Naviant call center in
Wilkes Barry, the place Katie Hiland called for help to
take advantage of the program Congress had created for people
(17:31):
like her, the program to make the student debt of
public servants bearable. Your team is handling calls that are
coming in from people who have student loans that they're
dealing with correct and so what were the pressures on
you that bothered you. The biggest pressure that was on
me was the seven minute rule, and that was representatives
(17:52):
were told to keep their phone calls to no more
than seven minutes. Also within those requirements were that you
validate the caller's identity, that you validate their contact information,
that you read a script to proving use of their
telephone and their text messaging. And so by the time
(18:12):
you know you had to mention autodebit, you had to
mention the company website and all of this eats away
at the seven minutes that you're given, yes call, running
out the clock that the basketball it used to be
known as the four Corners office, right right before they
put it, before they put in the shot clock. So
so what what and if you win over seven minutes?
(18:34):
What would happen here? I should say for the record
that a Naviant representative wrote to us. The company said
that quote, while Naviant, like other customer service oriented companies,
measures call times, we do not set any time limits
for calls. Lynn Sabolski got a different message at her
call center. The reps were put in a position where
(18:55):
they couldn't give the barrowers the information that really needed
to be quick given. And so what some of the
representatives started doing. We're looking for ways to you know,
get their calls under of the representatives would pretend that
the call had disconnected. They would, you know, accidentally on purpose,
hang up on a barrower because that barrower needed to
(19:18):
talk about an income based repayment option and it's a
long application in the barrowe has too many questions and
somebody's looking at their watch going, hey, I got to
keep this under seven minutes, or you know, the kids
aren't going to have dinner. Lind Sabolski was never on
the phone with Katie Hiland, at least not that we
know of, but she knows pretty well what happened to her.
Naviant was meant to be advising people with student loans
(19:40):
on behalf of the Department of Education, but the Department
of Education pays Naviant a fee for every account they manage.
The less time they spend on each account, the less
it costs them to manage that account. The seven minute
rule is there just to maximize profit per customer. We
could see throughout the day how far we were out
(20:00):
of standard is what it would be called. So for example,
I had a display on my computer that would show
me at any given moment if I was red, yellow,
or green in terms of, you know, how my numbers
were holding up. And then if you kept your phone
calls to seven minutes or under, you got a bonus.
And that could be a few hundred dollars in an
(20:20):
economically depressed area. That's the difference between you know, paying
your groceries or your car payment or not. You got
that right. The customer service reps for student loans have
their own consumer financial problems which they can only solve
if they ignore yours. You know, there's this thing called empathy.
You know, if you're calling me because you're in distress,
(20:41):
because your finances are a mess and you need help,
and you're talking to somebody who is dependent on making
this call a seven minute thing because their finances are
not that great and they're not in a position, you know,
to get something better than you know, it feels doubly
deceptive because you know that you're kind of in the
same shoes. Here's the reality of consumer finance. A town
(21:09):
of people highly dependent on a student loan servicing firm
is being put to work finding ways to screw the
equally desperate people who've taken out the loans, to do
things like make it extremely difficult for a teacher to
opt into the program Congress had created specifically to reward
people like her. But if Naviant allowed Katie Highland to
(21:30):
enter the program, her account would be taken away from
Naviant and Naviant would lose revenue. Katie Highland wasn't Naviant's client,
she was its crop. The CEO of Naviant is named
Jack Ramondi. In twenty seventeen, he was paid six and
a half million dollars. We asked to interview him or
(21:52):
some spokesperson in Navian, but they didn't want to talk.
But let's leave that to one side for a moment.
Let's consider this business of student loans, servicing, the behavior
it encourages, the spirit in which it operates. Naviant isn't
some little pissant fly by night. It's listed on the
Nasdaq Stock Exchange as a market cap of nearly three
(22:14):
billion dollars. It services three hundred billion dollars in student loans.
It's the heart of consumer finance. So a manager came
over me while I was on the phone discussing an
income based repayment plan with a barrower, and they said,
don't give anybody time frames. Try to avoid discussing that.
(22:34):
But if anybody asks you outright, tell them it's two
weeks you It obviously bothered you, and you're an empathetic individual.
Was there anybody? Were there any people you were working
with who sort of embraced the Navigant way and we're
like seeing if they could break speed records with their calls. Yes,
there's always that person. If I assumed and it was there,
(22:54):
like I imagine, like a young guy, I literally sat
next to that guy, and you know the problem was,
you know, the lower though his calls became, he was
getting training opportunities, he was being promoted. So basically the
worst perform in terms of getting the barrowers the information
they need, those are the people who then move up
the ladder. He is a superstar man. He's destined for
(23:16):
the CEO suite. I was being told to like talk
to him and try and pick up some tips. Did
you ever try to listen to what he was doing
to figure out how on earth he was doing that? Oh? Yeah,
The easiest way to get somebody off the phone is
to give them a temporary solution and send them paperwork
(23:36):
to look out later. So you know. So one of
the issues around forbearance is that, you know, interest continues
to collect on balances and it's not always a good
financial decision for barrowers to put their loans in, but
it's one of the only options that can be processed
right over the phone. That's exactly what Navian did with
(23:57):
Katie Hyland. They encourage her to accept forbearance for years.
The words sounds so reassuring, almost like forgiveness. Actually all
it did was compound the Amouncia for a loan that
was originally seventy seven thousand dollars, she'd wind up repaying
more than one hundred and twenty thousand dollars, and in
the bargain, they totally screwed up her ability to get
(24:19):
out from under her loan altogether. Like I said, I
can usually put in the blood, sweat and the tears
if I know the thing is temporary and then it's
leading to something that is going to be better. That
was when it became like really glaringly real, and then
sort of panicking because there was nothing I could do.
(24:40):
It's amazing how much pain you can create inside of
seven minutes. I don't think people have any real idea
how dangerous it would bet a shop for ordinary consumer
goods if there weren't a referee between you and the
people who sell you things. But there is a referee,
at least in the United States. It's called the Consumer
(25:02):
Products Safety Commission. Check out its website. You'll find hundreds
of products that it's ordered pulled off the shelves before
they kill or maimed consumers. Just recently, they forced the
recall of thirty two thousand high chairs prone to detaching
from their bases and launching the babies inside. They also
saved you from wireless speakers that catch fire, flashlights that explode,
(25:25):
shower doors that fall in on you when you're buck
naked and blinded by soap, and stare masters whose steps
accelerate incredibly quickly, all by themselves. As I speak, the
Commission has just removed from the market fifteen hundred cracker
barrel old country store decorative pineapples lasceration risk. You probably
(25:46):
didn't know that, but now that you do, it's highly
unlikely that you think, why is the government acting as
this referee to protect me from being impaled by a fruit?
More likely you're thinking, thank god they recall the decorative
pineapples before I bought mine. When you take out a
student loan, or any kind of loan, buying a product
(26:10):
a curious sort of product, this product is far more
likely to kill you than any exploding flashlight. If you
doubt that, just spend some time in the many student
loan chat rooms devoted to suicide. Most consumer financial products
are more complicated than high chairs or decorative pineapples, much
more likely to have fatal flaws that no one but
(26:32):
an expert can spot. Plus they come with a servicer.
You know nothing about the human beings who will handle
your loan until you pay it off. That guy who
gets promoted for getting you off the phone inside of
seven minutes without helping you. He's part of the product
you bought and tied yourself to for years, and he
too presents a laceration risk. So why wouldn't there be
(26:55):
a referee for all this, a neutral party whose job
it is to spot dangerous financial products and pull them
from the market before they do more harm. Oh wait,
that's not an original thought. Someone's already had it. I'm
Elizabeth Warren. I am the senior Senator from the Commonwealth
of Massachusetts. Before she was Elizabeth Warren, she was Professor
(27:19):
Elizabeth Warren at Harvard, specializing in bankruptcy law and why
middle class people go broke. And so it's the early
two thousands and I'm trying to figure out how do
you fix this problem? You're going to laugh. I'm thinking
about toasters. You can't buy a toaster anywhere in America
(27:42):
that has a one in five chance of bursting into
flames and burning down your house. We have a Consumer
Product Safety Commission that just says, nope, sorry, you don't
get to put those things on the market. Actually, toasters
do burst into flames. Back in two eleven, Hamilton Beach
was forced to recall three hundred thousand of its classic
(28:02):
chrome too slicer because breakfast can kill you. We do
not require people to have engineering degrees to buy toasters.
They don't have to look at wiring diagrams and know
what weight wiring you used and whether it has appropriate insulation.
We don't ask any of those questions. We just say,
you know, there's like some minimum safety here. Somebody buys
(28:23):
a toaster, it better be able to toast and it
can't burst into flames. And I thought about it in
terms of, wait a minute, why is that so on
toasters and it's not so on mortgages, And so, at
what moment do you become so alive do these problems
that all of a sudden, the world's getting very complicated
(28:43):
for the financial consumer at his expense, that you become
so alive to this that you're moved to write about it.
So you've got to watch. What's happening is more lenders
now are starting to move into this space of and
here's the key building a profit model based on tricking people,
on cheating people, so that becomes the business model. The
(29:07):
business model is taser rates with subprime mortgages, double cycle
billing with credit cards, interest rates that leap from thirty
to two percent on payday loans if you're late with
a single payment. Again, if you're an American adult or
maybe even a child, you know what I'm talking about.
Elizabeth Warren wanted to create a government agency to referee
(29:28):
all that. When you first float this idea, how is
it greeted? Okay, so when I first float this, let
me come on, this is the early two thousands, and
I'm talking about a new government agency. Oh, just what
everybody's looking for? Right? Does anybody take an interest in it?
A healthy sort of constructive interest in it? Or people
(29:50):
think you're a crackpot? Well, I hope nobody thought I
was a crack pot. I look far too serious for that,
and I you know, I wear glasses. I mean, come on,
I could be a crackpot. Elizabeth Warren then does whatevery
crackpot professor does. She writes an obscure article. It's published
the summer of two thousand and seven in the journal
democracy title unsafe at any rate you propose creating this
(30:15):
new umpire. Everybody kind of thinks that that will never happen,
And then all of a sudden, the world shapes itself
in a way that it sees, oh my god, we
need this umpire, right. The world gets on board, then
gets on board for a short trip anyway. The two
thousand and eight financial crisis has its roots and consumer finance.
The entire nation got so pissed off at Wall Street
(30:37):
that Wall Street lost control of the political process. In
two and ten, Congress created the Consumer Financial Protection Bureau.
They designed the agency so that Congress wouldn't have direct
control of its budget, because everyone suspected that the finance
industry might one day try to kill the new referee.
(30:58):
In two and thirteen, Elizabeth Warren became a United States Senator,
but that wasn't enough to stop what eventually happened. When
you hear the phrase government agency, what do you think?
What picture forms in your mind? Probably of some nondescript
(31:22):
concrete building with small windows and gray men and women
walking in just after nine and walking out just before five,
doing as little as possible, and that unwillingly vast sums
of money have been spent to keep that picture in
your mind, A lot of it by companies engaged in
consumer finance. My name is Seth Frontman. I used to
(31:44):
work at the Consumer Financial Protection Bureau. Seth Frontman got
to know the consumer finance industrial complex in the early
two thousands when he went to work for a former
Marine who had been elected to Congress. He was instantly
inundated with stories of American soldiers being deceived and abused
by financial firms. There were literally service members who were
(32:08):
flying back from Iraq and Afghanistan because their banks were
illegally foreclosing on their houses while they were deployed. And
they would spend like every waking moment when they weren't
down raged with their troops battling with Wells Fargo or
Bank of America or one of these other companies. And literally,
(32:29):
while they were getting shot at in Iraq and Afghanistan,
their spouses and kids were at home dealing with kind
of foreclosure notices and banks. It turns out that the
banks weren't just being odious, they were breaking the law.
So there's actually a statute called the Service Member Civil
Relief Act, which has been in place in some form
(32:50):
or another. I believe since like the Civil War and
it has like a host of different protections, but one
of those essentially dramatically limited the way in which a
service member who was on active duty could get their
house foreclosed on the banks. Just hope the soldiers didn't
know about the statute and made it hard for them
to take advantage of it. Sound familiar. There was really
(33:13):
nowhere these soldiers could turn for help except to individual
members of Congress until the Consumer Financial Protection Bureau gets started.
Seth Frautman joins up right away, specifically to help members
of the military. In its first five years, the bureau
handed back nearly twelve billion dollars to people who've been
ripped off by consumer finance companies. It created a new
(33:37):
disincentive for companies that made money by ripping people off,
because it sued the asses off those companies. A couple
of years in, Seth moved from working with veterans to
working with students, where you shocked when you collided with
the student loan situation just how bad it was. Yes, literally,
one of the hardest parts about the job was convincing
(34:02):
people it was actually as bad as it is Without
seeming like a crazy person with their hair on fire
all the time, right, which I'm probably not good at.
One of the things that lit his hair on fire
was the behavior of student loan servicers the Naviance of
the world. Seth's student loan unit looked into a bunch
of complaints. It found that loan servicers were preventing school teachers, cops,
(34:26):
and firefighters from getting into the loan forgiveness program the
one Congress had created for them back in two thousand
and seven. Seth found out about the seven minute rule.
They have essentially every incentive under the book to ensure
that the people on their phones are not doing as
good of a job as possible, but getting off the
(34:47):
phone as quick as possible. Seth went to his boss,
Richard Cordray, who was head of the bureau. Together they
decided to file a massive lawsuit against Navian, which of
course alarmed the entire consumer financi industry. I mean, if
this new agency was actually going to stop consumers from
being ripped off, where would it leave the companies that
made money from it? So then what happens then, Essentially,
(35:11):
with a flip of a switch, Director Cordrey leaves the bureau,
the Bureau is given an acting director who also has
a full time job as the head of the Office
of Management and Budget. Right, So, mulvany, mcmulvaaney, the structure
of the CFPB is just fundamentally flawed. On one hand,
(35:35):
people call it independent, but the real bottom line is
it's simply unaccountable and that's wrong. That's mcmulvaney talking to
Fox News as lou Dabbs. At the end of November
twenty and seventeen, we were slated to put out our
annual report documenting how college debit cards had a particular
risk for consumers despite protections that should be in place. Essentially,
(35:57):
when the new leadership of the bureau came in, we
were told that we would put that report in in
a drawer that was no longer our job. Did you
did you have the option of us ignoring that? No?
What would happen if you did? I assume I would
end up where I am here, just a lot earlier
in the process, in the processes where Seth is, as
(36:18):
you're probably guessing, is out of a job. He left
Donald Trump's CFPB. Maybe I shouldn't ask him to speculate
about what's going on now with his former employer. But
I can't help myself what's going through the mind of
mc mulvaney when he says, you'd ask you to put
that report in the drawer. So I don't know. I
don't want to give any legitimacy to the argument because
(36:39):
it doesn't fucking matter, right, Like, the only thing that
matters is there's someone on a college campus right now
who has debit card that a bank has negotiated with
his school. He thought it gave that some legitimacy. He
took out that card, and he now has hundreds of
dollars of overdraft fees. And though he's pretty much screwed
(37:04):
for a remainder of his life because of the work
that we were allowed to do. That was not an
attempt to like make me or us seem grandiose. That's
just that's just how it works, all right. So I'm
(37:25):
standing in front of a building that used to have
a big sign on it, and the sign said Consumer
Financial Protection Bureau. One of the first things mc mulvaney
did as acting head of the CFPB was to change
the acronym to BCFP, so to put the word bureau
first instead of consumer of nineteen seventies brutalist architecture. It
(37:49):
looks like it was designed to maximize the number of
ledges people would jump off after they had a financial reversal. Anyway,
they used to be a sign here until just a
couple of weeks ago, and it was very proudly saying
what it was. Well, two weeks ago they took down
the sign. I'm staring right here at what is I mean,
it's just that cinder block wall Banks found out about
(38:13):
the name change from CFPB to BCFP. Just that could
cost them up to three hundred million dollars to update
all their databases and forums. The agency itself was spending
millions to change its signage and branding, all just to
make the name sound less inviting to the consumers. It's
meant to serve the streets. You know, I speak into
(38:35):
my iPhone and poured that that would be against the law. Well, um,
I don't know that. I can't say that exactly. I
don't think this is the law. I think we're allowed
to suppere and do whatever we're going to do or
out here. Well you know, um I don't. I just
(38:58):
you you can go in the street. But you know,
I don't think you can do that here. The new
director of the CFPV or whatever you call it, finally
gave up trying to brand the place. Still, this is
the way referee dies, not with a bang, but a distraction.
This massive explosion in the public square gets muffled. A
(39:19):
million tragedies silently unfold in the lives of ordinary people
who thought they were the customers and found out they
were just the crop. Yeah, I have so here. My
original loan amount was seventy seven thousand, five hundred and
forty I have forty six thousand, five hundred and sixty
(39:40):
one left to pay off. I've paid back fifty three thousand,
eight hundred and ninety That's a lot on money. Katie
Highland still waiting. She also joined other teachers in a
lawsuit against Navian. There was a US government audit of
loan services like Navian. It found that thirty thousand qualified
(40:02):
people teachers, firefighters, soldiers, had applied to the loan forgiveness program.
Only ninety si got their loans forgiven ninety six. The
student loan servicers found tricks to deny all the rest.
And that doesn't even count the greater number of people
like Katie Highland who never got to submit an application
(40:24):
in the first place. Like literally, I don't know if
you want to put it, but like my teeth, like
from grinding and anxiety, I've had one, two, three, four,
five teeth had to come out, which is what I'm
dealing with like currently at the moment, which is like
making me very upset. I can't smile anymore and stuff,
and dental insurance doesn't cover implants and so like I
(40:44):
have lost like all these teeth and I'm thirty five,
and it's like it's like crazy, but it's like the
stress is constant. If a toaster had blown up and
maimed a mother of two, you'd say, God, that's awful,
get that toaster off the market and get her some compensation.
But a consumer finance company steals the happiness from her life,
(41:07):
and we're all half inclined to think, Oh, it's her problem.
She borrowed the money, dug her own grave. Why is
that I don't see any payoff? And it just keeps
getting harder and harder, And that's soul crushing, and it's
it's hard also with like little kids to be happy
(41:28):
and everything's okay, and you know, and you know, to
encourage them to do things and follow their dreams. And
my mom got mad at me the other day because
my daughter, who you met, should I want to be
a teacher? And I was like, no, you don't, you
never ever want to be a teacher. My mom was like, Katie,
she's four, it's pretty much where I am. Well, I
(41:49):
won't make you look at these anymore. It might be
absolutely kind of painful for her, because all of this
counts with a bill and getting something changed to another
thing that's the same, but changing to it. I love you,
(42:09):
I feel well, it does feel kind of painful, right mommy. Yeah,
A lot of the papers, Yeah there, it's a lot
of paperwork. It's a lot of and a lot of pain.
Yea for doing it. Yeah, So while we actually while
we move on, and that's pretty much what I did.
(42:31):
Just just move on. You're very thoughtful. Well, it is
very good to be thoughtful for everybody. But the person
who's the most best person on earth is this lady
right there, Jackson. I'm so in love with you. So
(42:55):
much of life is just dumb luck. Consumer finance companies
got lucky if the student loan servicing industry had somehow
been invented in the early nineteenth century, in the late
nineteenth century or even the mid twentieth some ref would
have probably been put in place. But right now refs
are hard to create, and so the head of Navigant
(43:17):
makes six million dollars a year while Katie Highland's teeth
fall out one by one. I've never had a consumer loan.
I've always paid my AMX bill on time and always
paid cash for everything else, which is to say I've
(43:40):
never been at the mercy of the consumer finance industry.
The next aspect is to go back and resolve the
issue that's on your credit report, which is more time
to all three credit bureaus. Yes, and yet there I
was not quite able to get away from it, because
even when you think you're free and clear of consumer finance,
it can pull you into its fucked up little world
(44:00):
in which they create problems and then make them your problems.
You and Officer Joe ledou Berkeley Police, well, we want
you to focus on now, certainly going forward is some
of the crime prevention techniques, which is this right here
has got your soul security number on it. So when
you're dealing with. It should be shredded, not just tossing
the trash. Because when we have people going through the
trash and they see this and they go, oh, who's
going through my trash? Yeah, people do it? Do they absolutely?
(44:23):
I've never seen any of my garbage kins outside my house.
I stare at it all the time, the way it
blows out of the trash truck and somebody's walking down
the street and they go, oh, here we go. We
got Michael and Lewis and we got your soul Security number,
and sorry, we have taken so much of your time.
This is great. I gather up the mess of papers,
the letters from MX saying my credit rating is shot,
(44:44):
the credit reports from experience, the FTC pamphlet on all
the things I need to do to fix this problem
that a Wall Street bank created all by itself. So
I'm gonna give you that if you want to make copies.
A single envelope falls out of the pile. So this
is I brought this in and I haven't opened it.
It's from City Group, City Group, to whom I apparently
still o sixteen thousand dollars in their minds, and I
(45:06):
didn't I had opened it because yeah, no, it's it's
an offer for a credit card. Yep, you're you're great, right,
do you want to City group credit carding? I'm good,
I appreciate it. Lend to anybody. I'm Michael Lewis, Thanks
again for listening to Against the Rules. Against the Rules
(45:27):
is brought to you by Pushkin Industries. The show is
produced by Audrey Dilling and Katherine Girdo, with research assistance
from Zoe Oliver Gray and Beth Johnson. Our editor is
Julia Barton. Mia Lowe Bell is our executive producer. Our
theme was composed by Nick Brittell, with additional scoring by
(45:49):
Seth Samuel, mastering by Jason Gambrel. Our show was recorded
at Northgate Studios in Berkeley by TOFA Ruth Special thanks
to our founders Jacob Weisberg and Malcolm Gladwell
Host
Michael Lewis
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