In the wake of the 2008 global recession, a number of large American mortgage service companies entered into settlement agreements to resolve claims regarding the servicing practices widely believed to have contributed to the crisis. These settlements offered opportunities for states to invest in programs that were situated to assist consumers who were affected by the crisis.[i]
Arkansas is one such state, and it has done so through a Housing and Consumer Protection grant managed by the Arkansas Access to Justice Foundation, which also administers the Arkansas IOLTA Program. So far, the Foundation has made Housing and Consumer Protection Program grants of more than $1 million to the state’s two civil legal aid programs—the Center for Arkansas Legal Services and Legal Aid of Arkansas—creating unique opportunities for both legal aid programs to expand the reach and depth of their advocacy. This article will discuss the grant program and highlight some of Legal Aid of Arkansas’s most notable accomplishments to date.
Housing and Consumer Protection Program Grants
The Housing and Consumer Protection Program was launched in late 2012, following a $2,000,000 distribution via the Arkansas Attorney General’s Office to the Arkansas Access to Justice Foundation, in connection with a multi-state settlement agreement with the nation’s five largest banks over allegations of fraud and abuse within the mortgage service industry. The purpose of the funds was “to provide equal access to justice to Arkansas residents affected by the mortgage and foreclosure crisis.” All earnings, plus 100% of the settlement principal, are being distributed to the Center for Arkansas Legal Services and Legal Aid of Arkansas.[ii]
Distributions from the Housing and Consumer Protection Program grant are used for the following purposes:
- To assure that the borrower clients are receiving the benefits of the mandates created by the Settlement Agreement, federal law, and state law, including bankruptcy services where appropriate;
- To assist clients in accessing and maintaining residence in affordable housing through legal advocacy, including foreclosure defense, eviction defense, housing discrimination, title issues, and other matters related to safe and affordable housing;
- To work with clients to prevent foreclosure, including community partners in the process when appropriate;
- To assist clients with matters involving financial fraud, such as unfair or deceptive trade practices, housing-related predatory lending, and truth-in-lending violations; and
- To develop training and educational materials on foreclosure, housing rights, and financial fraud for the legal advocates who will serve eligible clients, as well as materials for members of the public.
Positive Impacts of Funding
Even though legal aid programs have always handled housing and consumer-oriented cases for low-income Arkansans, these matters have, in past years, represented a smaller proportion of the overall legal aid caseload. In addition, resource limitations have historically necessitated that legal aid limit eligible clients to those whose household income fell within 125% of the federal-poverty-level threshold, meaning that homeowners—whose income often exceeds that threshold—could not be served. The Arkansas settlement funds have given legal aid the flexibility to handle cases for Arkansans up to 200% of the poverty threshold and to allow for a more holistic approach to handling matters presented by clients eligible for services under settlement grant funds, as they are often facing multiple issues.
The return on investment has been significant. Cases handled in matters funded through the settlement have resulted in recoveries and have prevented financial liabilities for clients to the tune of an estimated total of more than $3 million. A 2014 economic benefit study completed by the Arkansas Access to Justice Commission in partnership with the Clinton School of Public Service suggests that the benefits to clients and to the Arkansas economy extend far beyond these immediate recoveries to include protecting real estate values of homes and neighborhoods, boosting individual consumer spending, and preventing costs to taxpayers that would be occasioned by homelessness.
The Settlement Funds in Action: Legal Aid of Arkansas’s High Impact Advocacy
Legal Aid of Arkansas (LAA), which has represented low-income Arkansans since its 1970 inception, serves 31 counties in northern and eastern Arkansas. With a staff of 25 attorneys, LAA handles an average of 6,000 cases each year. It carries out its work through four substantive workgroups: Consumer, Domestic Violence, Economic Justice, and Housing. Attorneys in the Housing and Economic Justice workgroups have handled most of the cases funded through the settlement-funded grant, scoring major victories in landlord-tenant, fair housing, and foreclosure cases.
Arkansas has received national attention for having laws that offer few—if any—protections for tenants. It is the only state where a tenant can be prosecuted and jailed for failing to pay rent—or at least it was until Legal Aid of Arkansas attorneys, working in coordination with attorneys from the Center for Arkansas Legal Services, succeeded in having the state’s so-called “criminal eviction” statute struck down in three of the four major judicial districts that were prosecuting these cases. As a result, renters in 14 counties—among them, the most populous county in the state—no longer face arrest or criminal penalties for failure to pay rent.
Two days before Thanksgiving of 2013, Legal Aid of Arkansas received a call from a group of trailer parks stating that electricity and water services to an entire trailer park in West Memphis, Arkansas had been terminated because the owner of the park was $40,000 behind in payments to the city’s utility commission. Although each tenant was current on rent, the power and water simply went off without warning. Arkansas was in the midst of a cold snap, and freezing temperatures made conditions at the park dangerous. Legal Aid sued the City of West Memphis and the Utility Commission, and obtained an injunction to keep the lights and water on for an additional month. During that time, Legal Aid helped provide relocation assistance to the tenants. The city filed a motion to dismiss, and the United States District Court held that the tenants could proceed to trial on their theory that Arkansas law confers a protectable interest in utility services even to a non-customer, which is sufficient to trigger due process protections prior to utility termination. Arkansas’ municipal utilities previously assumed that only paying customers are entitled to notice prior to utility termination. The new interpretation of Arkansas law will likely mean expanded notice requirements for the state’s municipal utilities regarding non-customer utility users.
These are but two examples of the kind of impact that bank settlement funds can make when they are used to support the delivery of civil legal aid. IOLTA programs have strong ties to legal aid and decades of experience in grant-making. As a result, they are uniquely situated to facilitate investments in programs like Legal Aid of Arkansas, which has stretched the dollars it has received to yield positive results for legal aid clients and other Arkansans in a position to benefit from the litigation outcomes that have been achieved.
[ii] The Arkansas Access to Justice Foundation will use the funds received from the Bank of America settlement this year to fund the Housing and Consumer Protection Program through the third quarter of 2017.