Consumer Law & Policy Blog

Times Reports on Mortgages, Regulation of the Toy Industry, Junk Mail, and More

Another weekend, another collection of articles on consumer law issues from the Times.  Today's issue contains the "About New York" column by Jim Dwyer, headlined "Fighting an Outbreak of Mortgages Too Good to Be True," about the Foreclosure Prevention Project at South Brooklyn Legal Services.  The column reports on an offer one client, Tilton Jack, received for a one percent mortgage.  An excerpt:

In fact, the rate was 1 percent — but for one day. On the second day, it increased to 8.13 percent. Now, it is 8.77 percent. But those jumps are not what is sending his mortgage into a financial death spiral.

Under the terms, Mr. Jack’s monthly payment is set as if the mortgage cost just 1 percent, even though it is much more. So the seemingly low rate is a trap: every month, the unpaid interest is being piled onto his principal. When it reaches 110 percent of the original loan, the payments will be adjusted to the full 8.77 percent — on the principal that has been swollen by the unpaid interest.

“The principal has been increasing ever since he got the loan, and his payments will go from $1,100 a month to over $3,000,” said Navid Vazire, a lawyer with the Foreclosure Prevention Project who is representing Mr. Jack.

If only lenders used their imaginations for something more constructive than end-runs around the TILA disclosure rules.

Yesterday's issue contained an article titled "Toy Makers Seek Standards for U.S. Safety" about calls by toy manufacturers for federal regulation.  The stated goal is to reassure consumers about safety.  This contrasts with an editorial in Thursday's paper titled "Consumers Left in the Cold" which criticized Mattel for thinking "that the nation’s threadbare consumer protections are still too stringent and should best be ignored."  The editorial noted that Mattel has been fined by the Consumer Product Safety Commission for failing to report hazards timely.  The editorial also castigated the Bush administration's treatment of the CPSC. 

Thursday's paper contained several interesting articles on consumer issues, including one titled, ""Democrats Prepare Bills to Tighten Loan Rules."  Among the proposals:  barring mortgage brokers from steering borrowers who could qualify for prime loans to more expensive subprime loan and bans on hidden brokerage fees (a.k.a. yield-spread premiums) and prepayment penalties.  Another article, headlined, "Panel Questions Financial Advisers for the Elderly,"  reported on a congressional hearing.  Finally, "For-Profit Crusade Against Junk Mail" describes organizations trying to cut down on junk mail, including efforts to create a "do not mail" list similar to the "do not call" list. 

CL&P Roundup

• The Defense Perspective on the Rise in Class Arbitration:  An interesting new article by two big-firm defense lawyers in Metropolitan Corporate Counsel warns that the drafters of mandatory binding arbitration clauses should be careful what they wish for: "The pervasiveness of arbitration agreements that are silent on the issue of class proceedings . . . ensures that class arbitrations will occur with increased frequency, possibly resulting in large monetary awards or coerced settlement, and with little or no opportunities to obtain meaningful judicial or appellate review.  The widespread availability of class arbitration proceedings has eroded many of the traditional benefits of arbitration, making it a potentially time-consuming, expensive, and unpredictable process, and placing the continued popularity of arbitration as the 'preferred' method of dispute resolution at a critical and decisive point." 

• Two New Decisions Striking Class Arb Waivers.  Adding itself to the growing list of federal circuits, and distinguishing its own prior precedent, this week the Eleventh Circuit issued a great decision striking down a class action waiver in a case in which the plaintiff could not recover attorney's fees.  And the California Supreme Court, extending its landmark Discover Bank ruling considerably, issued a 4-3 ruling last week holding that class action bans may be unenforceable in the context of wage-and-hour claims and that a clause may be procedurally unconscionable even when the contract includes a 30-day "opt-out" provision.  The Eleventh Circuit decision is discussed in depth by Scott Nelson in the post below.

• Judge Young Speaks Out on the Value of Jury Trials:   Federal district judge William Young of Boston recently delivered a spirited speech to the Florida Bar on the role of the jury in American democracy.   Judge Young explains that the American jury system is "dying" because of a combination of, among other things, extravagant federal preemption defenses, mandatory binding arbitration, an increase in the use of summary judgment to prevent cases from going to trial.  No news there, perhaps, but it's rare to hear a sitting federal judge speak the truth about these things, and as candidly as Judge Young does.  It's worth a read.

Eleventh Circuit Strikes Down Arbitration Clause Containing Class-Action Waiver

by Scott L. Nelson

The United States Court of Appeals for the Eleventh Circuit has become the latest court to hold that an arbitration clause that contains a waiver of a consumer's right to bring a class action may be unconscionable if its application would effectively prevent consumers from vindicating their rights.  The opinion, issued this Tuesday, September 4, in the case of Dale v. Comcast Corp., can be found here.

Dale involved a suit against Comcast by cable subscribers claiming that Comcast improperly collected excessive franchise fees from them.  The amounts that were alleged to have been improperly collected within the limitations period added up to less than $11 for each subscriber, making an individual action obviously impractical.  Comcast sought to derail the litigation by invoking a provision in its subscriber agreement providing for mandatory arbitration of all claims at the election of either party and prohibiting arbitration or litigation of any claims on a class basis.

Applying Georgia law, the Eleventh Circuit held that the class-action prohibition was unconscionable -- that is, so one-sided that it cannot in good conscience be enforced. The court held that as applied to a claim such as the one in this case, the prohibition on class actions is unconscionable because "[w]ithout the benefit of a class action mechanism, the subscribers would effectively be precluded from suing Comcast" for the violations at issue. As the court explained, "[t]he cost of vindicating an individual subscriber’s claim, when compared to his or her potential recovery, is too great." Permitting Comcast to avoid litigation through the class-action waiver, the court held, would "allow Comcast to engage in unchecked market behavior that may be unlawful. Corporations should not be permitted to use class action waivers as a means to exculpate themselves from liability for small-value claims."  (emphasis added).

Concurring Opinions on Privacy Issues

The Concurring Opinions Blog has a couple of interesting recent posts on consumer privacy issues.  First, Frank Pasquale blogs here about what type of privacy regulation is appropriate for Google and responds to an editorial in the Economist comparing Google to financial institutions, given that both serve as repositories of information about people.  Second, Neil Richards has a posting here titled "Why There's No First Amendment Right to Sell Personal Data."  That's a subject that has drawn scholarly attention before.  See, e.g., Eugene Volokh, Freedom of Speech and Information Privacy: The Troubling Implications of a Right to Stop People From Speaking About You, 52 Stan. L. Rev. 1049 (2000); Daniel J. Solove, The Virtues of Knowing Less: Justifying Privacy Protections Against Disclosure, 53 Duke L. J. 967 (2003).

Community Revinvestment Act Conference

The Justice Action Center, the New York Law School Law Review, and the Coalition for Debtor Education are hosting a conference on the Community Reinvestment Act on October 12.   The symposium, The Community Reinvestment Act: Still Relevant at 30?, will look back at three decades of the CRA and investigate whether the CRA can address financial issues facing underserved communities, including reverse redlining, subprime and predatory lending, and international multi-service financial institutions.  Among the speakers are Richard Marsico of New York Law School, who has written extensively about the CRA, Allen Fishbein, Director of Housing and Credit Policy, Consumer Federation of America, John Taylor, President & CEO, National Community Reinvestment Coalition, Gregory D. Squires, Professor of Sociology and Public Policy and Public Administration, George Washington University, and representatives from other public interest groups and lenders.  You can read more here.

Yet Another Mattel Lead-Paint Recall: This Time It's Barbie Accessories

According to this Washington Post story, Mattel is instituting a major recall for the third time this summer, again because its toys are tainted with lead-based paint.  The recall involves more than 770,000 toys, 675,000 of which are Barbie accessories, including Barbie Dream Puppy House, in which lead paint was found on the dog.  This BBC story discusses recall of the same products in the UK.

Study Finds More Mortgage Originations When A Bank is Located in a Low- to Moderate- Income Neighborhood

O. Emre Ergungor, an economist for the Fed, reports in his paper, "Bank Branch Presence and Access to Credit in Low-to-Moderate Income Neighborhoods" on some effects of locating bank branches in low-to-moderate income neighborhood.  Here's the abstract: 

Banks specialize in lending to informationally opaque borrowers by collecting soft information about them. Some researchers claim that this process requires a physical presence in the market to lower information collection costs. I provide evidence in support of this argument in the mortgage market for low-income borrowers. Mortgage originations increase and interest spreads decline when there is a bank branch located in a low-to-moderate income neighborhood.

The paper can be downloaded at http://ssrn.com/abstract=951197.

Frightening Times Story on Consumer Product Safety Commission

The Times ran a devastating story about the Consumer Product Safety Commission in yesterday's paper. It opens with an account of how John Gibson Mullan, a former lawyer for the All Terrain Vehicle industry who was serving as the CPSC's director of compliance, argued against banning sales of adult-sized ATV's to children under the age of sixteen.  An excerpt:

Robin L. Ingle, then the agency’s hazard statistician and A.T.V. injury expert, was dumbfounded. Her months of research did not support Mr. Mullan’s analysis. Yet she would not get to offer a rebuttal.

“He had hijacked the presentation,” Ms. Ingle said in an interview. “He was distorting the numbers in order to benefit industry and defeat the petition. It was almost like he still worked for them, not us.”

* * *

Top officials at the Consumer Product Safety Commission say they have enhanced protections for the American public in recent years. But they have also blocked enforcement actions, weakened industry oversight rules and promoted voluntary compliance over safety mandates, according to interviews with current and former senior agency officials and consumer groups and a review of commission documents.

The full article, which is definitely worth reading, can be found here.

More on Dangerous Toys

This interesting post over at U.S. PIRG's consumer blog regarding dangerous imported toys concerns actions (and inactions) of European regulators to deal with the problem and Mattel's continuing efforts to place blame on others.

CPSC Recalls for August 2007

Consumer Product Safety Commission recalls and product safety news for August are posted here.  Included here are some of lead-paint toy recalls.