Consumer Law & Policy Blog

Fed to Announce Mortgage Rule Monday

The Federal Reserve will announce its final unfair mortgage practices rule at an unusual public meeting on July 14. The proposed rule would regulate subprime mortgages by requiring reasonable income verification and prohibiting a pattern and practice of making loans without regard to repayment ability, mandating escrows for tax and insurance payments, and placing very modest restrictions on prepayment penalties.

There has been growing concern among consumer advocates that the Fed will yield to pressure from the industry to water down the rule, particularly by weakening the repayment ability requirements and by carving out parts of the subprime market from the rule's coverage.

For the Fed to consider substantive regulation of unfair and deceptive practices represents a dramatic change in the culture of deregulation and cheerleading for the "democratization of credit", albeit a change prompted by a credit crisis of historical proportions. It remains to be seen whether the Fed will have the courage of its (new) convictions.

[oops - missed seeing Jeff's earlier post on this]

Fed to Issue New Mortgage Lending Regulations Next Week

During a speech yesterday, Fed Chair Ben S. Bernanke made the following statements about the long-awaited mortgage lending regulations:

Next week, the Federal Reserve Board will issue new rules on mortgage lending, using its authorities under the Home Ownership and Equity Protection Act. These new rules, which will apply to all lenders and not just banks, will address some of the problems that have surfaced in recent years in mortgage lending, especially high-cost mortgage lending. We received many helpful comments on our proposal and we incorporated a number of them into the final rules.

Media reports have indicated the new regulations will be issued Monday. 

Obama on Bankruptcy

Yesterday, at Credit Slips, Elizabeth Warren posted this interesting piece on Obama's views on bankruptcy policy and his view that the law needs to be substantially revised. She explains why she thinks Obama has taken on the bankruptcy issue even though that may not be politically expedient.

NHTSA Vehicle Safety Recalls for June 2008

Go here to view the vehicle and related equipment recalls announced by the National Highway Traffic Safety Administration in June 2008.

Mark D. Shroder Study of RESPA

Mark D. Shroder evaluates RESPA in "The Value of the Sunshine Cure: The Efficacy of the Real Estate Settlement Procedures Act Disclosure Strategy," 9 Cityscape No. 1 (2007).  Here's the abstract:

This article examines the efficacy of the disclosure strategy of the Real Estate Settlement Procedures Act (RESPA). Four questions are critical in evaluating the efficiency of federally mandated disclosure by itself as a regulatory strategy: whether lending and title fees are large enough to be worth regulating; whether the Good Faith Estimate mandated by RESPA is an unbiased and consistent estimator of lending and title fees; whether state law has a negligible effect on fees (and therefore only national regulation is pertinent to the problem RESPA addresses); and whether RESPA achieves fairness, in the sense that disclosure so strengthens the negotiating position of buyers and sellers relative to service providers that the principals' personal characteristics do not influence the fees they pay. This article presents preliminary tests on these issues from a small and somewhat unrepresentative sample of FHA-insured loans.

CL&P Roundup

by Deepak Gupta

• Michigan Supreme Court Holds Foreclosure Unconstitutional: I've written here before about the issue of foreclosure notice procedures -- whether homeowners are getting constitutionally sufficient notice of tax or mortgage foreclosures.  In March, I argued a case raising that issue in the Michigan Supreme Court and last week, I'm thrilled to report, the Court issued a unanimous opinion overturning the tax foreclosure of our client's house for lack of proper notice; the government had the owner's address in its records, but failed to send notice there even after the notice mailed the wrong address was returned unclaimed.

• Ninth Circuit Rejects Debt Collector's Reliance-on-Creditor Defense: Yesterday, the Ninth Circuit issued a precedential opinion rejecting a debt collector's defense that it was not responsible for attempting to collect illegal charges because it had "reasonably relied" on its creditor-client.  As the court put it, "A debt collector is not entitled under the FDCPA to sit back and wait until a creditor makes a mistake and then institute procedures to prevent a recurrence," but must affirmatively maintain preventive procedures and demonstrate the maintenance of those procedures in a non-conclusory way.  This, too, was one of our cases. So far, July has been a great month for Public Citizen's Consumer Justice Project!

• Class-Action Bans and Dodo Birds:  We've already blogged about the New Mexico Supreme Court's terrific opinion striking down yet another class-action ban, and the U.S. Supreme Court's recent refusal to weigh in on the issue. In the Wall Street Journal, reporter Nathan Koppell had a story discussing how the New Mexico decision fits into a strong trend in the state and federal courts.  This leads the Journal's law blog to ask, "Are Class-Action Bans Going the Way of the Dodo?"

• Fresh Air on Credit Report Errors: In the post below, Brian mentioned Elizabeth Warren's interview on NPR last week. Professor Warren has also written this blog post with some further reflections on the interview, including Gross's personal story about the ordeal that she and her husband went through to remove major errors found in her husband's credit report. 

• The Credit Crunch:  Also on NPR last week, All Things Considered aired this story featuring Robert Manning, author of Credit Card Nation: America’s Dangerous Addiction to Credit and director of the Center for Consumer Financial Services, discussing the effect of the credit crunch on consumers and credit card firms.

• Newsweek on Predatory Lending: Newsweek has a new article on the rise in predatory lending practices that target consumers with shaky credit.

Elizabeth Warren on NPR's "Fresh Air" Discussing the Credit Reporting Industry

Go here to listen to Professor Elizabeth Warren on Terry Gross's "Fresh Air" last Tuesday discussing the error-prone credit reporting industry.

Consumer Product Safety Commission Recalls for June 2008

Check out the Consumer Product Safety Commission product safety recalls for June 2008.

Times Articles on Credit Card Law Reform, Online Privacy, and New York's Foreclosure Legislation

The weekend's consumer law harvest from the Times:

The Times reported on Saturday that Credit Card Overhauls Seem Likely.  The entire article is worth reading, but here's an excerpt:

Working with the Office of Thrift Supervision and the National Credit Union Administration, the Federal Reserve introduced its proposals in early May. It has asked for comments and expects to formalize proposals by the end of the year.

At the same time, the legislation most likely to succeed in both the House and Senate sets similar rules on consumers’ behalf. Representative Carolyn B. Maloney, the Democrat of New York who wrote the House bill, and Senator Christopher J. Dodd, the Democrat of Connecticut behind the Senate measure, said they planned to bring their measures to the floor for votes before Congress adjourns in September.

The House and Senate bills as well as the Federal Reserve require that lenders apply payments to the debt with the highest interest rate. All would ban “double cycle” billing, in which interest is charged on some already repaid debt, and all would extend the time required, currently 14 days, between a statement mailing and payment due date.

All the measures would, under various conditions, prohibit lenders from raising interest rates on existing debt. The central bank proposes that except for increases caused by changes in stated variable and introductory offers, lenders may increase interest rates only if minimum payments are more than 30 days late.

Only the Dodd bill prohibits charges for paying by mail, phone or online, and restricts marketing and offers of credit to consumers under 21.

Friday's edition included Google Told to Turn Over User Data of YouTube, about a decision that has privacy advocates concerned.  An excerpt:

For every video on YouTube, the judge required Google to turn over to Viacom the login name of every user who had watched it, and the address of their computer, known as an I.P. or Internet protocol address.

Both companies have argued that I.P. addresses alone cannot be used to unmask the identities of individuals with certainty. But in many cases, technology experts and others have been able to link I.P. addresses to individuals using other records of their online activities.

The amount of data covered by the order is staggering, as it includes every video watched on YouTube since its founding in 2005. In April alone, 82 million people in the United States watched 4.1 billion clips there, according to comScore. Some experts say virtually every Internet user has visited YouTube.

And on Sunday Bob Tedeschi had a column, Mortgage Brokers as Naysayers, about the new New York foreclosure legislation, passed by the legislature, but not signed by the Governor, at least as of the time Tedeschi's piece went to press--though the article states that the Governor is expected to sign it into law [I should note that last week I posted that the bill had been enacted by the legislature, which was premature].  More excerpts:

* * * [The bill provides] that brokers have a “duty of care” to offer appropriate loans to subprime borrowers — those with poor credit.

Brokers are asking, however, what constitutes an appropriate loan, and what happens if a borrower disagrees with a broker’s recommendation.

* * *

* * * Mr. Tricozzi[, president of the New York Association of Mortgage Brokers] said, the legislation requires brokers to weigh a borrower’s future earnings in selecting appropriate loans. For some borrowers, like pregnant women or workers nearing retirement, such prognostications might be unreliable. Yet refusal to offer loans to such borrowers could be construed as age or gender discrimination, he said.

* * *

* * * some advocates want to hold mortgage brokers to the same legal standard as stockbrokers and other financial advisers, who carry a fiduciary duty to act in their clients’ best interests and offer only “suitable” financial products. New York’s proposed law specifically stops short of the suitability standard, said Richard H. Neiman, New York’s banking superintendent.

Breach of implied warranty of merchantability or fitness may be a tort

by Richard Alderman

In JCW Electronics v. Garza, the Texas Supreme Court considered whether to apply the state’s proportionate-responsibility statute to a claim based on a UCC implied warranty.  Despite the fact that a prior version of the state expressly included UCC claims -- an inclusion that the legislature removed and replaced with language stating it applied to “to any cause of action based on tort” -- the court held that the statute applied.  The court found that “a party who seeks damages for death or personal injury under a breach-of-implied-warranty claim seeks damages in tort.”  Interestingly, it appears that if the same cause of action were brought for property damage, the claim would not sound in tort, but would be a breach of contract.  In other words, at least in Texas, a UCC implied-warranty claim might be tort or contract depending on the nature of the damages. One wonders what the result would be if the claim involved property damage and personal injury.