Consumer Law & Policy Blog

Mortgage Modifications not Happening

By Alan White

Consumer advocates, state and federal regulators and politicians are calling on subprime mortgage servicers to modify loan terms to stem the rising tide of home foreclosures. Lenders are promising hotlines but what happens when homeowners call servicers? Are the servicers modifying loan terms? Unfortunately servicers are not making this information public, at least in an accessible way. Monthly reports to investors, however, do include some data on loan modifications. I decided to try tabulating numbers from some of the November monthly remittance reports to see what the servicers are doing. These reports cover only the loans in a particular pool, usually two to ten thousand mortgages from a single month or quarter. It seemed logical to start with groups of mortgages originated in the last two years, since most subprime mortgages (60% to 80%) are 2/28 ARM’s, with big payment increases after two years. I gathered the November remittance reports for five leading servicers to see what they were doing. The results are discouraging.

A Self-Inflicted "Crisis"

by Barry Boughton, Public Citizen 

When NY’s Superintendent of Insurance announced a 14 percent across-the-board rate hike for medical liability insurance on July 1, 2007, doctors raised a hue and cry that the increase threatened a crisis in access to care because doctors could no longer afford to practice in New York and would be leaving the state or otherwise restricting their medical practices. As in the past, doctors again blamed the premium increases on skyrocketing claims and lottery awards and demanded tort reforms that would cripple meritorious malpractice claims by the victims of medical negligence.

Today Public Citizen released a report that exposes these claims of the doctors as full blown, deliberate and obvious exaggeration: A Self-Inflicted “Crisis:” New York’s Medical Malpractice Troubles Caused by Flawed State Rate Setting and Raid on Rainy Day Fund. These same claims have been made by doctors during each of the three cycles of rising premiums that have occurred over the past thirty-plus years. Our report shows that rising malpractice premiums are not the result of any escalation in the frequency or severity in malpractice payments. The increase has nothing to do with patients, lawyers, judges, or our courts. It reflects an insurance problem.

Public Citizen’s analysis of the best available New York data demonstrates that the number of malpractice payments made on behalf of doctors in 2006 was at its lowest point since 1991. The total amount of malpractice payments for doctors, adjusted for inflation, was near or below fifteen year average in three of the past five years.

Court Holds Resales Are Not Infringement

In Matrix Essentials v. Quality King Distributors, the Eastern District of New York recognized that trademark law is designed to protect consumers from confusion, not to preserve corporate distribution schemes and minimum prices. 

L'Oreal sued a competitor (and tried to interest the U.S. Attorney in starting a criminal prosecution) for "diverting" (i.e., reselling) L'Oreal's hair care products outside of L'Oreal's authorized distribution system. Although L'Oreal characterized the shampoo as "counterfeit," the court didn't buy it:

Under the "first sale" doctrine, long a basic premise of trademark law, a trademark owner cannot control distribution of a trademarked item beyond its first sale. The re-sale of such genuine goods does not create consumer confusion and supports neither a claim of infringement nor unfair competition.

Far from protecting consumers, penalizing resellers for selling authentic products raises prices by halting legitimate competition. Nevertheless, some courts have bought into the argument that resellers are liable for selling less expensive products without permission of the manufacturer. This court, at least, appears to have gotten it right.

via Likelihood of Confusion

Cy pres: Boon or Benefit?

by Stephen Gardner

As foretold by Deepak Gupta’s 11/27 post, here is a brief response to the November 26 New York Times article that discussed charitable payments of leftover class action settlement funds (known in the class action biz as “cy pres,” mostly because Law French always sounds fancier than English).

In short, the article does a great job of articulating the problems a few folks see with cy pres distributions, but not so much in reflecting the many positives about cy pres.

(Disclosure time: My organization, the Center for Science in the Public Interest, has received a few cy pres awards, and I have as a class action lawyer given many hundreds of thousands of dollars to suitable charities. My long-held professional bias is strongly in favor of cy pres payments, and my more recent institutional bias complements that bias. I was also a primary author of the Class Action Guidelines issued by the National Association of Consumer Advocates, one chapter of which addresses and supports cy pres distributions.

(Thus, my long-held professional bias is strongly in favor of cy pres payments, and my more recent institutional self-interest complements that bias.

(But I’m right, regardless.)

First, a quick summary of cy pres, just in case you don’t want to read the Times article (which you really ought to do, as it is a very well-written summary of cy pres concepts, better than I am likely to achieve.

CL&P Roundup

by Deepak Gupta

Another Class Action Ban Bites the Dust: Yesterday, a Florida appeals court struck down a class action ban in an auto lease agreement. Among other things, the ruling was based on the fact that attorneys' fees under the state's trade practices statute are limited based on the damages awarded: "Precluding class representation for holders of small claims whose attorney’s fees are limited by the amount of their individual damages," the court observed, would "dramatically undermine" the statute's "private enforcement mechanisms."  Relatedly, a detailed new article in Lawyers USA surveys the ongoing battle over class action bans. The piece quotes not one, not two, but three of this blog's contributors--Paul Bland, Ira Rheingold, and Jon Sheldon.

More on Binding Mandatory Arbitration:  Reporter Stephanie Mencimer has a terrific new story in Mother Jones on the evils of mandatory binding arbitration clauses, with a focus on used car sales; she recounts her own family's unsuccesful attempt to buy a used car without submitting to BMA and discusses the legislation pending in Congress.  In a related blog post, she discusses how arbitration has hit one member of the military deployed to Iraq.  In the field of arbitration fora stacked in favor of big business, the National Arbitration Forum is the worst of the worst; on Sunday, one NAF arbitrator posted a comment on this blog (scroll down) responding to a year-old post by Paul Bland discussing NAF bias. Judge for yourself.

"It might just be a good Christmas for books or movies": So says Senator Durbin, in response to questions about shopping for toys this season in the wake of scandals over toy recalls and lax Consumer Product Safety Commission enforcement.  A broad consensus is emerging that something needs to be done about the CPSC. [via US PIRG and Consumerist]

A critical view of cy pres: In yesterday's Times, legal reporter Adam Liptak ran a column with a negative angle on the distribution of cy pres funds to charities.  The column, which leans heavily on the views of NYU prof Sam Issacharoff, discusses these two opinions by Judge Harold Baer of the Southern District of New York--issued before and after reversal by the Second Circuit, respectively.  The question before Judge Baer: When very few class members claim benefits, do you give those class members a share larger than their damages, or do you distribute the funds to related charities?  Liptak is a good reporter, but this column may paint a somewhat unrepresentative picture of the use of cy pres in consumer class actions; look for a response here soon.

Attack on Ebay's Business Model: Tiffany v. Ebay

Tiffany & Co., the famous jewelry company, sued Ebay a while back seeking an injunction requiring Ebay to police all auctions of "Tiffany" products to assure that they are not fakes.  Ebay claims it has no duty to police sales of products that never come into its corporate hands.  A week-long federal bench trial ended last Tuesday, and the judge says he'll issue a decision soon.  Ebay says that the Tiffany suit is an attack on the on-line auction house's business model because the cost of policing each sale for authenticity is prohibitive.  A New York Times article on the case notes that about 102 million items are on sale on Ebay as I write this post.

More on Gift Cards

A little while ago, I blogged about a Consumers Union report on gifts cards. The report showed that a large percentage of gift cards don't get used. Can I get some of that action?  I'm looking for a business in which I am paid for goods or services without actually having to part with any goods or services.

Now, U.S. PIRG's Consumer Blog has this informative post on gift cards. PIRG points out that the Office of the Comptroller of the Currency (OCC), the U.S.'s national bank regulator, (1) maintains that state regulators are preempted from trying to curb sharp practices of national banks that issue gift cards, but (2) has done virtually nothing itself to regulate the cards. Now, OCC has issued a press release "remind[ing] consumers to read gift cards' fine print."  That's nice: federal regulation by preemption and press release.

U.S. PIRG's 22nd Annual "Trouble in Toyland" Report

Just in time for the nation's annual gift-buying orgy, U.S. PIRG has issued its 22nd annual "Trouble in Toyland" Report.  It's a guide to help consumers avoid buying toys that contain lead, have small parts on which kids can choke, or are otherwise unsafe.  Here's the first two paragraphs of the Executive Summary:

For several years, we have reported that toys are safer than ever before, thanks to decades of work by product safety advocates and parents and the leadership of Congress, state legislatures and the Consumer Product Safety Commission (CPSC). Yet, as many have noted, 2007 has been described as the “year of the recall.” Millions of toys, including famous playthings like Thomas the Tank Engine and Barbie, have been recalled in 2007. Many of these toys have been from leading manufacturers like Mattel, and most were imported from China. Most of the recalls have been for hazards previously identified in this report—excessive levels of toxic lead, dangerous small magnets, and choking dangers.

These troubling events have reminded Americans that no government agency tests toys before they are put on the shelves. These events provide a warning that as parents and other toygivers venture into crowded malls this holiday season, they should remain vigilant about often hidden hazards posed by toys on store shelves.

PIRG's press release summarizes the report.

Food frauds--Thanksgiving Special

by Stephen Gardner

So it's Thanksgiving time, when the entire country comes together in a frenzy of eating. At the Center for Science in the Public Interest, we pay attention to deceptive claims, and sometimes outright lies, about food (yes, I'm from an NGO and I'm here to help you).

In honor of this holiday, let's explore various ways food companies are out to rip you off.

So you get up Thanksgiving morning, and want to hold off on serious eating until dinner. Just a glass of juice, then. Here's Ocean Spray's No Sugar Added 100% Juice Cranberry. Drink up, then check out the label--golly, it's mostly grape juice, not cranberry! Back to the front of the label--nothing about grape juice there. Oh, look, there at the bottom in tiny mice type, it says CRANBERRY FLAVORED JUICE NATURALLY SWEETENED WITH ANOTHER JUICE FROM CONCENTRATE WITH ADDED VITAMIN C. ”Another juice,“ huh, but then check back to the product name--not “100% Cranberry Juice,” but “100% Juice Cranberry.“ Although I see that on its website, Ocean Spray chucks caution to the wind and flatout says it's “100% Cranberry Juice.”

Help for Student Loan Borrowers

The National Consumer Law Center and the Project on Student Debt have launched a joint project to help borrowers who get behind on their student loans.  The focus of the project is Student Loan Borrower Assistance, a comprehensive web-based resource that includes information on repayment options, avoiding and getting out of default, dealing with collections agencies, and lots more. A press release describes the project in more detail.