Consumer Law & Policy Blog

Settlement opens access to multiple listings service

For years, the National Association of Realtors (NAR) blocked access to its multiple listing service, preventing online real estate agents from access to home listings. No longer. The Department of Justice's Antitrust Division settled today a 2005 lawsuit claiming that the NAR's practice was anticompetitive. DOJ says the settlement will lead to more competition and lower commissions. NAR admits no liability and calls the settlement a "win-win."

As a side note, NAR claims a trademark in the word "Realtor," so online competitors will still have to call themselves something else.

[via New York Times]

Why the NAF Wants Courts to Lower the Burden of Proof on Debt Collectors

by Paul Bland

  Several of the principals of the for-profit National Arbitration Forum, a Minnesota-based company that aggressively advertises offers a more corporate-friendly system of private judging than other private arbitration firms, have been writing and publishing articles arguing in essence that courts should not ask any questions – and particularly not demand any evidence or proof – in cases where debt collectors are trying to turn arbitration awards against consumers into court judgments. For example, see Susan Wiens & Roger Haydock, Confirming Arbitration Awards: Taking the Mystery out of a Summary Proceeding, 33 Wm. Mitchell L. Rev. 1293 (2007). Similar articles by NAF authors have also appeared in several state bar journals and the like. Where is this push coming from? Have courts been unreasonably refusing to turn arbitrators’ awards into judgments, or is something else afoot. The answer, which is obvious to any consumer lawyer, is the latter.

The NAF’s interest in making it easier for debt collectors to make money in arbitration is pretty easy to figure out. Last fall, Public Citizen issued a statistical analysis of EVERY SINGLE consumer case that the NAF has decided in California in the last several years. (California is the only state in the country to require arbitration companies to disclose information about the consumer arbitration cases it handles.) It turns out that out of about 34,000 consumer cases decided by the NAF in California, only 118 were brought by consumers. The other 99.6% of the cases handled by NAF were debt collection cases brought by creditors against consumers. In other words, NAF’s financial success depends overwhelmingly on debt collection. Put another way, the NAF’s financial success depends upon whether it can make debt collectors choose the NAF’s system over either the court system or other arbitration companies.

A surprisingly large number of debt collectors have a problem, though: they cannot even prove that a given consumer owes them any money (much less the often-padded sums that the debt collectors claim that they are owed). Sometimes this problem arises because the consumer actually does not owe the debt collector anything (the number of identity theft victims in the United States is high and rising rapidly), and sometimes it arises because of lousy record-keeping by credit card companies. In literally hundreds of thousands of cases, however, the debt collector cannot prove its case because it does not have (and never has had) any evidence.

Supreme Court Refuses to Hear Class-Action Ban Issue

by Deepak Gupta

  A cutting-edge issue in the world of consumer law--and one that this blog has discussed many times before (see, e.g., here, here, and here)--is the extent to which corporations can enforce class-action bans placed in consumer adhesion contracts. Class-action bans are clauses that purport to strip consumers of the right to seek any classwide relief, whether through class-action litigation or classwide arbitration. 

The question matters because class actions are often the only thing stopping companies like cell phone or cable providers from getting away with practices that cheat large numbers of consumers out of small amounts of money. As Judge Posner has put it, "[t]he realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30." 

This morning, the U.S. Supreme Court rebuffed an attempt by one of corporate America's leading Supreme Court litigators, Carter Phillips, to get the Court to weigh in on the battle over class-action bans. Public Citizen filed the brief in opposition, and we're thrilled at the result.  The Court's decision not to hear the issue is a good sign that, at least as far as class-action bans are concerned, the Supreme Court is going to allow the law to continue to develop in a way that vindicates the rights of consumers and employees to access the courts.  (You can read an Associated Press story about the case here.)

Survey on Content of Consumer Law Classes

Last Friday, at Richard Alderman's excellent Teaching Consumer Law Conference, under the auspices of the University of Houston Law Center--the conference where, two years ago, this Blog was born--I distributed a survey inquiring about what topics professors teach in their consumer law classes.  I announced some of the results at the conference and I have since received other survey responses.  The responses are interesting and potentially useful to at least those teaching the subject, but they would be even more useful if we had more of them.  Accordingly, before I post anything about the results, I wanted to urge anyone who has not already given me their response and who teaches consumer law to email me their survey response, at sovernj@stjohns.edu.  The survey is pasted in below.  If you like, you can copy and paste it into an email, indicating your responses.  It takes only a moment to complete.

Customer Disservice

Sick of having to push 10 phone buttons to get to the customer service representative -- you know, the person who can't really help you anyway? Check out this article from Saturday's New York Times about the decline in customer service. One thing I did not know is that there are two websites dedicated to evading the companies' automated phone trees and getting you to a live person as quickly as possible.  And, here's another interesting tidbit: only about 10% of all call centers are located outside the U.S.

Countrywide weary of homeowner pleas for help

Angelo Mozilo, CEO of Countrywide, inadvertently replied to a homeowner's email requesting foreclosure prevention help by saying he found these requests disgusting and unbelievable (because the homeowner used a template from a website to write his hardship letter.) Apparently, the homeowner in question has now settled his dispute with Countrywide, subject, however, to some sort of confidentiality agreement. Perhaps this explains why Countrywide seems to offer fewer loan modifications than other subprime servicers.

50% for Housing?

By Alan M. White

One question posed in the Federal Reserve's pending mortgage regulation is what percentage of income Americans should devote to housing. The question isn't posed in quite those terms, but those are the terms in which I think it should be asked. The subprime mortgage industry decided, sometime around 1994, that it was unreasonable to limit mortgage applicants to paying 41% of their income to their monthly mortgage payments (and all other installment debt.) Somehow the idea that 50% of gross income was a more reasonable limit gained currency, and some subprime lenders even went to 55% and 60% debt-to-income ("DTI") ratios. This was one of many ways in which mortgage underwriting standards, that previously had evolved through the long experience of the FHA program and Fannie and Freddie, were cast out the window.

It is true that the prior DTI caps, whether at 35% or 41%, excluded some consumers who could take on larger mortgages without defaulting. Even Fannie and Freddie have moved away from strict DTI caps because of their experience successfully making mortgages at higher ratios (albeit usually with other compensating factors.)

Increasing DTI ratios is a way to qualify more buyers for homes, or to qualify more existing homeowners to take out larger home equity loans. The industry (by which I mean not only mortgage lenders but also home builders and realtors) touts the loosening of underwriting standards as improving "affordability", by which they mean increasing the number of people who can buy homes. Of course, raising the DTI does not increase affordability at all, in the literal sense. It is simply a way of saying we will now devote a larger percentage of our incomes (which are not growing much) to housing. As Elizabeth Warren has pointed out, the fact that Americans are devoting a greater share of income to housing, along with the rising cost of health care, is a central feature of the declining living standard of the middle class. It is also one reason that home prices could increase faster than incomes.

The DTI ratio also does not account for taxes or any other expenses. As a result, a 50% DTI ratio is more like 70% of after-tax income for many middle income taxpayers. The industry has suggested that repayment ability should be presumed for consumers up to a 50% DTI. I have urged the Fed not to adopt any such safe harbors, on the grounds that such ratios lead to unreasonable foreclosure risk, especially for refinance mortgages to existing homeowners. I also think the housing payment ratio should be the subject of a national conversation. It is at the core of our sense that the welfare of ordinary Americans is no longer improving.

Checkmate

Checkmate is a new web video about the realities of check cashing stores and banks in poor neighborhoods. [HT Consumerist]

A court gets one (partly) right, holds truthful use of a competitor's trademarks is not infringement

by Greg Beck

Trademark law was designed to protect consumers from being fooled by products that are passed off as something they are not. Too often, however, it is invoked by companies not to protect consumers, but to interfere with lawful competition. For example, in Australian Gold, Inc. v. Hatfield, 436 F.3d 1228 (10th Cir. 2006), the court found a trademark cause of action for "initial interest confusion" where a website had honestly advertised, using search engine keywords, the fact that it sold its competitor's tanning lotion. Although the defendant had said nothing that was inaccurate or misleading, the Tenth Circuit nevertheless thought that the defendant had “used the goodwill associated with Plaintiffs’ trademarks in such a way that consumers might be lured to the lotions from Plaintiffs’ competitors.” Maybe so, but luring away a competitor's customers is the essence of capitalism. Decisions like Australian Gold turn trademark law away from its consumer-protection function and into a system of corporate welfare.

Occasionally, though, a court will be thoughtful enough to to realize that trademark law is not designed to protect companies from unwanted competition. Ron Coleman of Likelihood of Confusion covers a recent decision where the District of Arizona, in a thoughtful opinion, rejected the Tenth Circuit's Australian Gold decision. The court was not convinced by the plaintiff's argument that truthful advertising infringes its trademark rights, holding that a website could truthfully advertise its sale of the plaintiff's products on the Internet. The court wrote: "[I]f this guileless, informative use of trademarks in metatags and as search-engine keywords constitutes initial interest confusion, then trademark law would be (to the extent it is not already) in the unenviable position of stymying access to the world of goods and services lawfully available on the internet.”

Unfortunately, cases like Australian Gold give companies enough ammunition to scare off competition without even having to go to court. It is the rare defendant that is willing to finance an expensive trademark battle against an aggressive and litigious competitor. Ironically, consumers are the ones who end up paying, in the form of less competition and higher prices.

Update: As other's have mentioned (see here and here), the court allowed an equally anti-competitive copyright claim to go forward. Well, at least the court got it half right.

Foreclosure Crisis Update

By Alan M. White

Six months ago I reported that mortgage servicers were much more likely to foreclose than to offer loan modifications, based on data from monthly remittance reports to investors. Since then far more data have become available, from reports issued by the Mortgage Bankers Association, the state regulators' foreclosure prevention working group, and the HOPE NOW servicer alliance. I also retrieved some April 2008 remittance reports to update my prior investigation. Although the number of loan modifications rose rapidly in the last six months, the number of foreclosures has risen even faster. While hundreds of thousands have already lost their homes, there are millions in the foreclosure pipeline who could still be helped. What else do the numbers tell us?

First, the crisis continues to deepen. According to HOPE NOW, 547,000 foreclosures were started in the first three months of 2008, and 205,000 foreclosure sales were completed. Those numbers are 14% and 36% higher than in the fourth quarter of 2007. In all likelihood we will see more than 2.5 million foreclosures started this year and more than 1 million homes will be lost (compared with 1.5 million starts and half a million completed foreclosure sales in 2007). The completed sales do not include homeowners who are forced to sell their houses themselves or who simply walk away.