Consumer Law & Policy Blog

House Passes Creditcard Holders' Bill of Rights

Over at the U.S. PIRG Consumer Blog (one of my favorite blogs), Ed Mierzwinski is reporting that the House has passes the Creditcard Holders' Bill of Rights bill.

House Financial Services Committee Passes Mortgage Reform and Anti-Predatory Lending Billl

Here's the Committee's statement:

The House Financial Services Committee today approved H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act of 2009,aimed at curbing abusive and predatory lending – a major factor in the nation’s highest home foreclosure rate in 25 years. The bill would outlaw many of the egregious industry practices that marked the subprime lending boom, and it would prevent borrowers from deliberately misstating their income to qualify for a loan.

The legislation, sponsored by Reps. Brad Miller (D-NC), Mel Watt (D-NC), and Barney Frank (D-MA), was approved by a vote of 49- 21. The House of Representatives is expected to consider H.R. 1728 as soon as next week.

“Probably ten million American families will lose their home to foreclosure in the next four years, many of them falling out of the middle class and into poverty,” said Rep. Miller. “It is shameful that the mortgages that lead to the foreclosure crisis were ever made. We certainly can’t let it happen again.”

“I’m excited that we are moving forward to try to stop the kinds of predatory and irresponsible mortgage loan practices that led to the credit and economic meltdown we are now experiencing,” said Rep. Watt. “If we had passed this law years ago when Brad Miller and I started introducing this legislation, perhaps we wouldn't be in the mess we're in today. But it's better late than never.”

The bill would ensure that mortgage lenders make loans that benefit the consumer and prohibit them from steering borrowers into higher cost loans. It would establish a simple standard for all home loans: institutions must ensure that borrowers can repay the loans they are sold. For mortgage refinancings, the bill requires that all loans provide a net tangible benefit to the consumer. Also, for the first time ever, it would make the secondary mortgage market responsible for complying with these standards when they buy loans and turn them into securities.

Under the measure, lenders and the secondary mortgage market who don’t comply with these standards would be held accountable by consumers for rescission of the loan and the consumer’s costs for rescission, including attorney’s fees. They would also have the option to rework a loan to conform to the bill’s standards within 90 days of receiving notice from the consumer.

In addition, the bill encourages the market to move back toward making fixed-rate, fully documented loans. During the housing boom, mortgage lenders moved away from commonsense underwriting practices, giving rise to risky, exotic mortgages and practices such as “no doc” lending and allowing loans with “negative amortization” features.

The legislation would also:

Prevent Predatory and Abusive Lending Practices: Statistics show that many homeowners in the current mortgage crisis received more expensive loans than they qualified for. This is often the result of a predatory practice known as “steering,” in which a broker or bank loan officer is compensated for directing applicants toward more costly mortgages. H.R. 1728 would ban yield spread premiums and other abusive compensation structures that create conflicts of interest or reward originators that “steer” borrowers. The bill would also require originators to disclose to consumers the compensation they receive from the transaction. 

Hold Creditors Responsible for the Loans they Originate: The bill would require new federal rules to be written to require creditors to retain an economic interest in a material portion (at least 5 percent) of the credit risk of each loan that the creditor transfers, sells, or conveys to a third party. Federal banking agencies would have the authority to make exceptions to the bill’s risk retention provisions, including form and amount.

Protect Tenants who Rent Homes that go into Foreclosure: Renters can also be affected if the homes that they rent go into foreclosure. This legislation will provide protections for renters so that they receive proper notification and are given time to relocate before the home they rent is foreclosed.

AOL Posts "Debt Collection Horror Stories"

AOL has posted a collection of what they call "Debt Collection Horror Stories" which they describe as true stories involving AOL users.  (Hat tip: Arlene Levitin). 

Poll: Voters Oppose Forced Arbitration

Americans widely oppose corporations using mandatory binding arbitration clauses in the fine print of consumer and employment contracts, according to national polling of likely voters conducted by Lake Research Partners and released today.

The poll shows that:

• 6 in 10 likely voters support the Arbitration Fairness Act - including majorities of Democrats, Republicans and Independents;
• 59 percent of likely voters oppose the use of mandatory binding arbitration clauses in employment and consumer contracts;
• Two-thirds of respondents cannot remember ever reading about a forced arbitration provision buried in the fine print of employment terms or agreement for goods and services; and,
• More than 70 percent of respondents believe they could take their employer or a corporation to court in the event of a dispute, unaware they could be subjected to mandatory binding arbitration.

The survey reached 800 adults nationwide, 18 years or older, who are likely to vote in the 2010 elections. The overall margin of error is +/-3.5%. The poll was commissioned by The Employee Rights Advocacy Institute For Law & Policy and Public Citizen, and funded by The Public Welfare Foundation. You can view a detailed slide show of the results here, and a memo summarizing the research here.

Today Is Arbitration Fairness Day!

As we previously reported, the Fair Arbitration Now coalition is holding a press conference and lobby day in Washington, D.C. today.

At the press conference (at noon today at the Senate Dirksen Office Building, Room 608), the coalition will release the results of a major national poll conducted by Lake Research Partners detailing how likely voters view mandatory binding arbitration and revealing support for the passage of the Arbitration Fairness Act.  (We'll post the poll on the blog later today.)

Lawmakers, consumers and employees will outline the consequences of forced arbitration clauses, which are hidden in the fine print of employment, cell phone, credit card, retirement account, home building and nursing home contracts, to name a few. Just by taking a job or buying a product or service, individuals are forced to give up their right to go to court if they are harmed by a company. Because the private system of forced arbitration benefits companies and disadvantages consumers and employees, more and more industries are using forced arbitration to evade accountability. 

The bill to ban forced arbitration is supported by a coalition of dozens of organizations ranging from Public Citizen, the National Association of Consumer Advocates, the National Employment Lawyers Association and the American Association for Justice to the National Consumer Voice for Long-Term Care, Home Owners Against Deficient Dwellings and the Leadership Conference on Civil Rights. 

Senator Russ Feingold (D-Wis.) and Representative Hank Johnson (D-Ga.) will be present today, as will consumers and employees from Alabama, California, Georgia, Iowa, Louisiana, Maryland, Michigan, Minnesota, New Hampshire, Ohio, Pennsylvania, Tennessee, Texas and Virginia, who will discuss their battles with forced arbitration. In particular, reporters will hear from Jamie Leigh Jones, of Houston, Texas, who was raped by co-workers while working for a Halliburton subsidiary in Iraq. Her company said she couldn’t go to court because the employment agreement she signed required her claims to be settled through arbitration. They will also hear from David Kurth, of Burlington, Wis., whose father died as a result of poor care he received in a nursing home. When the family tried to sue, the nursing home claimed the paperwork a family member had signed when the father was admitted required the matter to go to binding arbitration. 

After the press conference, they will visit their lawmakers to urge passage of the Arbitration Fairness Act (H.R. 1020), which would make arbitration voluntary instead of forced.

Supreme Court Hears "Enforcement Preemption" Case

The Supreme Court heard oral arguments this morning in an important preemption case, Cuomo v. The Clearinghouse Association, which we've discussed here before.  The question in the case is the extent to which the Office of the Comptroller of the Currency can prevent the states from enforcing their own non-preempted state consumer protection and anti-discrimination laws against banks.  The OCC acknowledges that the state law in question is not preempted as a substantive matter, and even that the state law applies and may be enforced by private parties, but relies on a novel theory of "enforcement preemption" over state enforcement authority that is said to flow from the federal government's "visitorial powers" under the National Bank Act.

The transcript of the oral arguments has just been released and is available here.  Barbara Underwood, Solicitor General of New York, argued the anti-preemption position, joined by all 49 other states as amici. The pro-preemption provision was argued by Malcolm Stewart for the federal government and Seth Waxman for the banks. You can finding all of the briefing in the case here and SCOTUSBlog's detailed argument preview here.

ACORN Report Urges Other Communities to Adopt Philadelphia Approach to Reducing Foreclosures

ACORN has released a report, Road to Rescue: How the Philadelphia Model Can Reduce Foreclosures Across the Country.  Here's an excerpt from the Executive Summary:

Philadelphia has pioneered an innovative and remarkably effective foreclosure prevention program that requires lenders to sit down with borrowers and negotiate a mutually agreeable solution whenever possible. Approaching the one-year mark of the program’s initiation, more than three out of four homeowners who  have entered the program remain in their homes today, where in other jurisdictions they would have lost their homes. The Philadelphia program is so effective because it is mandatory, uses very effective community outreach, is easy for homeowners to participate in, and utilizes the expertise of housing counselors. Other mediation programs we investigated are less effective for lacking some of these characteristics.

Our review of monthly foreclosure statistics in 30 counties across the country and all 50 states shows that the foreclosure crisis continues to pose a serious threat to homeowners, communities, and the economy. Implementation of a mandatory mediation program as effective as Philadelphia’s will save these communities untold tragedies and significant economic losses. The federal government should invest in these successful local programs to complement the Administration’s efforts. This report examines the dire necessity for ongoing innovation, vigilance, and resource allocation to foreclosure prevention, and examines the benefits of widespread mediation in restoring our housing market and broader economy to health.

Former FDA Commissioner David Kessler is a Dumpster Diver!

Check out this great Washington Post article explaining why former FDA commissioner David Kessler hangs around dumpsters at fast-food joints. Kessler was trying to figure out why many of us are junk-food addicts. Here's a teaser:

The high-octane career path of David A. Kessler, the Harvard-trained doctor, lawyer, medical school dean and former commissioner of the Food and Drug Administration had come to this: nocturnal dumpster diving. Sometimes, he would just reach in. Other times, he would climb in.

It took many of these forays until Kessler emerged with his prize: ingredient labels affixed to empty cardboard boxes that spelled out the fats, salt and sugar used to make the Southwestern Eggrolls, Boneless Shanghai Wings and other dishes served by the nation's second-largest restaurant chain.

Outrage in Ohio: An Unfair Decision on Arbitration

by Paul Bland and Tami Alpert (Power-Cotchett Felow, Public Justice)

Something really crazy has happened in Ohio. Last summer an Ohio State Court of Appeals held that, under Ohio law, if a company claims there is an agreement to arbitrate, then the plaintiffs can be automatically kicked out of the courtroom without being given a chance to respond.  The decision is Garber v. Buckeye Chrysler-Jeep-Dodge of Shelby, 2008 WL 2789074, No. 2007-CA-0121 (Ohio. App. 5 Dist. 2008). We urged the Ohio Supreme Court to review and overturn this decision, but several months ago it refused to hear the case.  For now, at least, this decision is the law in one part, and possibly all, of Ohio.  Under the Garber rule, a plaintiff can be forced go before a private arbitrator picked by the company they are suing, without ever being given an opportunity to respond.

This new decision in Ohio is a complete aberration – court cases are normally like a game of chess in the sense that parties are given a chance to respond whenever the other side makes a move.  But now, in Ohio, if a corporation simply claims that there’s an agreement to arbitrate, the corporation gets to have the legal equivalent of a checkmate on the first move.  Under the Garber ruling, the consumer immediately loses and is kicked out of court.  Under this decision, no matter how unfair a given arbitration clause may be, the consumer has no meaningful chance to appeal.

Credit Card Holders Bill of Rights

Read the New York Times endorsement of the legislation.