Consumer Law & Policy Blog

Another Times Editorial on the Mortgage Meltdown Legislation

by Jeff Sovern

Today's Times has an editorial on the mortgage legislation that is scheduled for a vote today on the House floor. The editorial observes that "Industry has already scored some regrettable victories. It persuaded the bill’s backers to include a provision that would prevent borrowers from suing Wall Street firms in state court — where consumer protections are often stronger — for common abusive loan practices."  The Times supports Barney Frank's amendment to "ensure that states are allowed to pursue cases against fraud, misrepresentation, deception, false advertising and civil rights violations."  It also describes as a "must-pass amendment" the proposal "that lenders must verify a borrower’s ability to repay."  Finally, the piece calls for giving "borrowers the right to modify an illegal loan, before they’re forced into foreclosure."

Putting a "Freeze" on Your Credit Report

by Brian Wolfman

The Washington Post's Michelle Singletary has this interesting article in today's paper on the three national credit bureaus' new policy of allowing consumers to "freeze" access to their credit reports so that identity thieves cannot use the reports to obtain credit under the victims' names.  The article explains that obtaining a freeze with the credit bureaus will cost $10 per company or $30 overall, except in states that have credit freeze laws on the books.  If you live in one of those states, the cost is much less.  For a ton of information on state freeze laws and efforts to get national legislation, go to this website created by Consumers Union.  Definitely worth reading.

Editorial Cartoon on the Consumer Product Safety Commission

A look at the lighter side of the problems with the Consumer Product Safety Commission (if there is such a lighter side):

Sierra Club Cartoon Video -- Happy HoLEADays!

Check out this video produced by the Sierra Club on lead in toys.  As Spacey the Lead Elf says: "Happy HoLEADays!"  Thanks to U.S. PIRG's Consumer Blog for the tip.

Introducing the Appellate Assistance Project for Consumer Attorneys

by Daniel Mosteller

For lawyers who didn't make it to the NCLC conference last week or who didn't see the fliers at the conference, I wanted to let you know about a new initiative to assist consumer lawyers with appeals related to all areas of consumer law: The Appellate Assistance Project for Consumer Attorneys.

Five consumer organization -- AARP Foundation, the Center for Responsible Lending, the National Association of Consumer Advocates, the National Consumer Law Center, and Public Citizen -- have teamed up to marshal their wide-ranging consumer law expertise to offer free nationwide assistance with appeals related to all areas of consumer law.  We are eager to work with consumer attorneys to assist with any aspect of the appellate process in any court -- from determining whether to take an appeal, to writing an effective brief, to preparing for oral arguments.  We aim to tailor our assistance to the needs and desires of the lawyers who work with us, whether they are veterans of the appellate process who just need some help arranging a moot or they are facing their first appeal of a consumer law case and want more substantial assistance.  In other words, no request is too small or too big for to be considered.

Lawyers interested in taking advantage of our assistance can submit a request on our website at http://www.responsiblelending.org/caap/.  And those with further questions can contact me at 202-349-1863 or daniel.mosteller@responsiblelending.org.

Flawed Predatory Lending Bill, with Preemption Provision, Nears House Floor

by Deepak Gupta

As law professor and guest-blogger Alan White explained in a post here last week, Barney Frank's new predatory lending bill -- H.R. 3915, known as the "Mortgage Reform and Anti-Predatory Lending Act of 2007" -- is not nearly as pro-consumer as its title suggests.  In fact, the bill contains a terrible provision that would preempt state-law liability and, as currently drafted, would immunize most subprime mortgage assignees from any liability at all.

The latest word is that Rep. Frank is working on a new version of the bill and other members have until 10:00 am EST tomorrow (Wednesday) to submit amendments.  The bill will go to the full House of Representatives on Thursday.  The consumer groups following the bill remain concerned that it is weak and may actually do more harm than good for consumers. The mortgage industry is lobbying very heavily to weaken the good parts of the bill and make the preemption more devastating.   Those who are concerned and want to express their views can call Congress at (202) 224-3121 or go to House.gov for the email or direct phone number of their representative.

An up-to-date analysis of the bill by Alys Cohen and Margot Saunders of the National Consumer Law Center is attached.  Here's an excerpt:

What if all trade associations told the truth?

"The Predatory Lending Association (PLA) is dedicated to extracting maximum profit from the working poor by increasing payday loan fees and debt traps. The working poor is an exciting, fast growing demographic that includes: military personnel, most minorities, and a growing percentage of the middle class."  Check out their website here!

CL&P Blog is at genius level

by Richard Alderman

I am not sure what it means, but the readability of our blog has been rated as "genius." I have never found the language used in the posts on this blog to be difficult to follow, and that is a comment on the blog, not my intelligence. Of course, readability does not relate to content, which we already knews was at the genius level. For the rating of several other sites, click here. To visit the site that does the ranking, and input any other blog, click here.

Third Circuit Issues CAFA Decision

Yesterday, the Third Circuit issued a decision concerning the Class Action Fairness Act in Frederico v. Home Depot, No. 06-2266, __ F.3d __, 2007 WL 3310553 (Nov. 9, 2007). In Frederico, the plaintiff argued that certain fees imposed by Home Depot for the alleged late return of its rental trucks violated New Jersey law. The CAFA questions were whether the putative plaintiff class sought more than $5 million - - the amount necessary under 28 U.S.C. 1332(d)(2) to establish federal jurisdiction - - and what the standard is for proving the jurisdictional amount when, as in Frederico, the complaint does not explicitly limit the amount being sought to $5 million or less.

On the latter question, to make a long story short, here's what the court held: "[W]here the plaintiff has not specifically averred in the complaint that the amount in controversy is less than the jurisdictional minimum[,] the case must be remanded [only] if it appears to a legal certainty that the plaintiff cannot recover the jurisdictional amount."  Slip op. 18. The court distinguished its ruling from its prior decision in Morgan v. Gay, 471 F.3d 469 (3d Cir. 2006), where the complaint had expressly limited the value of the claim to $5 million. There, "the proponent of the federal subject matter jurisdiction [generally, in CAFA cases, the removing defendant] is held to a higher burden; that is, the proponent of jurisdiction must show, to a legal certainty, that the amount in controversy exceeds the statutory threshold."  Slip op. 15.  [We have previously blogged about that ruling in Morgan v. Gay here, and another ruling in Morgan v. Gay, concerning CAFA's appeal filing deadline, here.]

For what it's worth, the court then found that there was way more than $5 million in controversy, id. at 18-24, and affirmed dismissal on the merits, holding that the plaintiff had not stated a claim under New Jersey law. Id. 25-38. It appears that the class was never certified and that therefore only the named plaintiff and not the (putative) class is bound by the court's ruling on the merits.

Looking Into the Foreclosure Process

by Deepak Gupta

The media and policymakers have been paying lots of attention lately to the plight of homeowners facing foreclosure. Most of that attention has been on preventing foreclosures from being initiated in the first place, and rightly so.  But it's also worth considering what happens in the foreclosure process itself: What kinds of notice and opportunity to contest the proceedings do homeowners get, what kinds of fees are they being charged, and how accurate are the claimed debts?

Fees and Overstated Claims:  A front-page article in the New York Times earlier this week reported on new research by University of Iowa law professor Katie Porter concerning exorbitant collection fees and overstated claims in mortgage foreclosure cases. The various fees charged to consumers facing foreclosure (late fees, "demand" fees, overnight delivery fees, fax fees, payoff statement charges, etc.) represent a substantial and growing percentage of the profits reaped by loan servicers. Porter's research--which is based on an examination of the actual behavior of mortgage companies in a set of 1,700 consumer bankruptcy cases--will be published in a forthcoming law review article entitled Misbehavior and Mistake in Bankruptcy Mortgage Claims (SSRN).

Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.  Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question. . . . .

In an analysis of foreclosures in Chapter 13 bankruptcy, the program intended to help troubled borrowers save their homes, Ms. Porter found that questionable fees had been added to almost half of the loans she examined, and many of the charges were identified only vaguely. Most of the fees were less than $200 each, but collectively they could raise millions of dollars for loan servicers at a time when the other side of the business, mortgage origination, has faltered.

Notice Procedures:  Next, consider the adequacy of foreclosure notice procedures--an issue that Public Citizen is currently litigating in the Maryland Court of Appeals (Griffin v. Bierman) and the Michigan Supreme Court (Sidun v. Wayne Co.), building on a due process challenge we won in the U.S. Supreme Court last year (Jones v. Flowers). 

If you owe me a small amount of money and I want to sue you to get a judgment and collect on the debt, I've got to make sure you learn about the lawsuit.  I've got to get a process server to track you down and give you notice.  But if I'm a mortgage lender and I want to foreclose on your home--a case in which the stakes are obviously much higher--in some states I'm entitled to give you as little as ten days notice by mail, after which I can sell your house at auction without you even knowing about it.  That's what happened to Maryland resident Joyce Griffin. She lost her house in a foreclosure sale because she never received notice until it was too late for her to save her home.