Consumer Law & Policy Blog

Avoiding Foreclosure

   

Today's Washington Post has this lengthy article on strategies for mortgage lenders and borrowers to avoid foreclosure.  One premise of the article is that lenders are willing to work with borrowers because a restructured loan that the borrower can realistically afford is often a better financial deal for lenders than is foreclosure.

Seventh Circuit: Under FCRA, A Credit Report Must Be Both Accurate And Clear, And Accuracy Doesn't Necessarily Equal Clarity

By Brian Wolfman

[Introductory Note: This post was updated on May 6, 2007, to eliminate potential ambiguity pointed out by a careful reader.  Nothing of substance has changed from the original post on May 5, 2007.]

The Seventh Circuit just issued a short, powerful decision concerning the Fair Credit Reporting Act's fundamental requirement that “[e]very consumer reporting agency shall, upon request . . . clearly and accurately disclose to the consumer [a]ll information in the consumer’s file at the time of the request.” 15 U.S.C. § 1681g(a)(1).  In Gillespie v. Equifax Information Services, L.L.P., No. 06-1952 (May 3, 2007), the court reminded the world that a technically accurate disclosure is not necessarily a clear disclosure -- and both accuracy and clarity are required to meet the Act's requirements.  In Gillespie, the plaintiffs requested their credit reports, which, among other things, listed the "date of last activity" on certain collection accounts.  Depending on what event triggered the listing in this category, the report could lack clarity as to when delinquency had occurred.  Having clarity on this point could be important to the consumer because, under FCRA, a consumer report may not include “accounts placed for collection or charged to profit and loss which antedate the report by more than seven years.” 15 U.S.C. § 1681c(a)(4).  Here's the Seventh Circuit's key holding:

We conclude that the consumer reporting agency must do more than simply make an accurate disclosure of the information in the consumer’s credit file. The disclosure must be made in a manner sufficient to allow the consumer to compare the disclosed information from the credit file against the consumer’s personal information in order to allow the consumer to determine the accuracy of the information set forth in her credit file. In writing § 1681g(a)(1), Congress requires disclosure that is both “clearly and accurately” made. An accurate disclosure of unclear information defeats the consumer’s ability to review the credit file, eliminating a consumer protection procedure established by Congress under the FCRA.

Disappointing Draft Military Lending Regs: Comments Sought

by Lauren Saunders

[Ed Note:  Last month, we blogged about the DOD's proposed regs and request for comments on predatory lending limits and the reaction of consumer groups.  In this post, Lauren Saunders of NCLC provides further details on the regs and how to comment.]

Last fall, the Talent/Nelson Military Lending Act (MLA) imposed a 36% interest rate cap, banned mandatory arbitration, and imposed other restrictions on credit offered to active duty military service members and their dependents.  DOD published draft regulations to implement the Act last month, and they are very disappointing.  They limit the law only to payday, auto title and refund anticipation loans, and offer plentiful opportunities for evasion even within those categories.

Comments on the draft regulations must be received by DOD no later than June 11, 2007. Ironically, DOD is asking for comments on whether it should go further in exempting banks, fees or credit products, but does not ask whether the regulations will stop the abusive high-cost lending to military borrowers that it believes is impairing military readiness.

Imperfect Competition in Auto Lending: Subjective Markup, Racial Disparity, and Class Action Litigation

Mark Cohen of Vanderbilt's working paper with the above title is available online at SSRN. The abstract is as follows:

While the market for auto lending at first appears to be highly competitive, many consumers lack the ability to obtain accurate information about price. In many markets, uninformed consumers can free ride off the knowledge of informed consumers. However, the market for auto lending differs from traditional markets because price ultimately depends upon both the credit worthiness of the individual borrower and the details of the auto loan (e.g. term length, payment-to-income ratio, etc.). Auto dealers in this market act as agents of both consumers (identifying suitable auto lenders for them) and auto lenders (identifying prospective borrowers).

Given the asymmetric information about prices facing consumers, this market has been characterized by a wide disparity in the prices paid by consumers. This disparity comes about through a mechanism whereby auto dealers are quoted a risk-based interest rate from the lender and are then authorized to subjectively mark up this rate and charge what the market will bear. While the majority of auto loans are written without any markup, some consumers are charged thousands of dollars in addition to the risk-based interest rate.  While charging different prices to different consumers is not illegal, one of the apparent consequences in auto lending is that minority consumers - African-Americans and Hispanics in particular - have systematically been charged a higher markup on auto loans than White borrowers. It is this fact - coupled with federal laws outlawing discrimination in credit markets - that led to a series of lawsuits against auto lending institutions.  This paper reviews the theory and evidence of subjective markups on auto loans and examines how class action litigation has changed the auto lending market.

FTC Wants Comments on Collection of Consumer Debts

by Deepak Gupta

  The Federal Trade Commission is going to be holding a workshop this fall, on October 10-11, entitled Collecting Consumer Debts: The Challenges of Change.  As the title suggests, the FTC is mostly interested in learning about how changes in technology and society have affected debt collection.  They're looking for comments and papers on a list of topics, including legislative proposals.

Here's a link to a description of the workshop and a list of the specific questions on which the FTC is seeking comments.  They're looking for empirical data; I'm skeptical about how much of this information is really available.  There's very little published research using empirical data on the collection of consumer debts and although the industry presumably has a lot of data, their perspective isn't exactly neutral.  In any event, here are the general areas on which they're seeking comment:

• Demographic and industry information
• Industry information
• Debt collection practices and techniques
• Industry compliance with applicable federal and state laws
• Consumers' behavior and knowledge of their rights
• Legislative issues

Comments are due by June 6 and can be filed in paper form or online via this link. 

Call for Papers

We've received the following call for papers:

This concerns professors, researchers, students, lawyers, jurists, heads of consumer associations, administrators of public bodies in charge of consumer protection, and policymakers in regional and international institutions.

The Groupe de Recherche en Droit International et Comparé de la Consommation (Gredicc or Research Group in International and Comparative Consumer Law), from the Law Departement of the Université du Québec à Montréal (UQAM) and the Euro-american Research Chair on Consumer Protection created by the University of Cantabria (Santander, Spain) are planning an international conference on the following topic: The status of consumer protection policy in regional economically integrated systems in the Americas and Europe.

Fifth Circuit Issues Decision On CAFA's "Local Controversy" Provision

By Brian Wolfman

   

Last week, in Preston v. Tenet Healthsystem Memorial Medical Center, Inc., No. 07-30132, 07-30160 (Apr. 25, 2007), the Fifth Circuit issued a decision concerning the “local controversy” provision of the Class Action Fairness Act, 28 U.S.C. 1332(d)(4).  CAFA devotees ought to look at this one.  It’s actually readable: only 17 pages and in plain English.

    In the original class action complaint filed in Louisiana state court, the plaintiffs alleged injuries and deaths caused by unreasonably dangerous conditions at defendants’ medical facilities during Hurricane Katrina.  The defendants removed under CAFA, but the district court remanded under the local controversy provision.  The Fifth Circuit reversed, holding that the plaintiffs had failed to show that at least two-thirds of the proposed class members were domiciled in Louisiana when the class action was filed.  Under the local controversy provision, the district court “shall decline to exercise jurisdiction” if “greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed” and several other facts are present.