Consumer Law & Policy Blog

New Report from the Center for Responsible Lending on Credit Card Industry Practices

We've blogged many times, including here, about how the new Credit CARD Act -- which instituted a number of changes, such as restrictions on overlimit fees and on marketing to students -- may not be helping consumers' bottom lines. That's because (as would be expected) the credit card companies are finding other ways to make money -- such as rate increases. The Center for Responsible Lending has issued a new report on the topic called "Dodging Reform: As Some Credit Card Abuses Are Outlawed, New Ones Proliferate."  It details the credit card companies' new money-making techniques and claims that legislation establishing "The Consumer Financial Protection Agency would address the ongoing problem of issuers’ always-changing industry strategies." Legislation that would establish the Consumer Financial Protection Agency passed the House of Representatives on December 11 and is pending in the Senate.

Sprague & Ciocchetti Paper on Protecting Personal Identifying Information

Robert Sprague and Corey Ciocchetti have written Preserving Identities: Protecting Personal Identifying Information through Enhanced Privacy Policies and Laws, 19 Albany Law Journal of Science & Technology.  Here's the abstract:

This article explores the developing phenomenon of the ongoing collection and dissemination of personal identifying information (PII): first, explaining the nature and form of PII, including the consequences of its collection; second, exploring one of the greatest threats associated with data collection - unauthorized disclosure due to data breaches, including an overview of state and federal legislative reactions to the threats of data breaches and identity theft; third, discussing common law and constitutional privacy protections regarding the collection of personal information, revealing that United States privacy laws provide very little protection to individuals; and fourth, examining current practices by online commercial enterprises regarding privacy policy disclosure and conduct. This section reveals that there is almost no legal regulation of online privacy policies. This paper concludes that new, stronger laws are required to protect individuals regarding the collection and dissemination of their PII. A model law is therefore proposed to address those areas where PII protection is lacking.

Legal Services Lawyers May Once Again Seek Attorney Fee Awards on Behalf of Their Programs

In 1996, President Clinton signed a bill that, among other anti-legal services provisions, barred legal services programs funded through the federal Legal Services Corporation from seeking statutory attorney fees in cases that they won or settled on behalf of their impoverished clients. This provision hurt already cash-strapped poverty law programs around the nation.

As you may know, Congress has just passed, and President Obama is expected to sign, a massive appropriations bill. Among the bill's many provisions is one that provides a small increase for legal services funding and repeals the no-attorney-fee provision enacted in 1996.

Go here to read more about it.

Another "Why We Need Health Care Reform" Story

by Brian Wolfman

A newspaper reporter works for the Miami Herald for a quarter century. During that time, he has excellent health insurance, which, according to the reporter, is the major reason his Type 1 diabetes has been kept in check and he's in excellent health. He parts ways with the Herald last year during a company "downsizing." He's been unable to find work since, and his COBRA coverage is about to run out. And now, despite his great health and terrific self-management of his diabetes, he cannot get health care coverage because . . . well, because he needs it. (That damn pre-existing condition.)  Read the reporter's powerful column published last week in the St. Petersburg (Fla.) Times. 

Are state consumer protection laws working?

A comprehensive new study of state consumer protection statutes was just published. The background for the study is described as follows:

 

During the 1960s there appeared to be increasing demand from the American public and elected officials for consumer protection laws. State legislatures responded by enacting a diverse collection of legislation commonly called Consumer Protection Acts (CPAs). Most CPAs were originally designed to supplement the Federal Trade Commission’s (FTC’s) role in protecting consumers from “unfair or deceptive acts or practices.” Yet there is growing concern that CPA enforcement and litigation are qualitatively different than FTC enforcement and potentially counterproductive for consumers. Critics argue that CPAs generate a set of incentives that encourages plaintiffs and their attorneys to file claims of dubious merit. Proponents counter that CPAs are necessary to supplement FTC enforcement and provide incentives for individuals to bring suit to deter harmful conduct. While both critics and proponents of CPA enforcement make claims about the nature and quality of state consumer protection litigation, the academic and policy debates surrounding CPAs suffer from a remarkable void of empirical data.

 

The Searle Civil Justice Institute study attempts to provide this empirical data, but also makes several conclusions based on the data, which it asserts suggest that state consumer protection statutes are not working as they should. In my opinion, the data may also be viewed as supporting the conclusion that the Federal Trade Commission is not charged with protecting individual consumers, and state statutes are successfully meeting their goal of providing protection for individual consumers.

 

Here are the Key Findings of the study:

 

1.      Litigation under CPAs has increased dramatically since 2000. Between 2000 and 2007 the number of CPA decisions reported in federal district and state appellate courts increased by 119%. This large increase in CPA litigation far exceeds increases in tort litigation as well as overall litigation during the same period.

2.      Vague statutory definitions of prohibited conduct are a major driver of CPA litigation. Whether a CPA statute has vague language prohibiting some general type of conduct rather than a specific list of illegal actions is an important potential contributor to the level of CPA litigation in the state. States with vague definitions of prohibited conduct have more CPA litigation.

3.      CPAs are becoming more favorable and generous to consumer litigants. Between 1995 and 2007, the expected value of recovery for potential plaintiffs increased dramatically as measured by CPA requirements to bring a cause of action and available remedies. In 2004, the state CPAs that were the most favorable to plaintiffs were New Hampshire, Massachusetts, and Connecticut. The states with CPAs that were the least favorable to plaintiffs were Colorado, Maryland, and Georgia.

4.      States with CPAs that are more favorable to consumers have more CPA litigation. The expected value of recovery under a given state’s CPA appears to contribute to the amount of litigation that makes use of the act. States that allow more generous remedies and make it easier for consumers to win in court see more CPA litigation.

5.      Most CPA claims would not constitute illegal conduct under FTC consumer protection standards. The Searle Shadow FTC found that 78% of a sample of CPA claims would not constitute legally unfair or deceptive conduct under FTC policy statements. While relatively few CPA claims would constitute illegal conduct under the FTC standard (22%), even fewer (12%) would result in FTC enforcement.

6.      Almost 40% of CPA claims where the consumer plaintiff prevailed at trial would not constitute illegal conduct under FTC consumer protection standards.

7.      In a sample of CPA claims where the consumer plaintiff prevailed in court, the Searle Shadow FTC found that 38% of these successful claims would not constitute illegal conduct under the FTC standard. Although most of these successful cases would meet the FTC illegality standards, only 23% would likely be enforced by the FTC.

Honda Civic Hybrid Coupon Settlement Opposed

Three consumers have opposed a settlement of a class action filed against Honda. The class action alleged that Honda misrepresented the fuel efficiency of its Honda Civic Hybrid. The settlement provides a combination of DVDs that purportedly would provide owners with tips about increasing their cars' fuel efficiency and coupon-type benefits for the purchase of other Honda vehicles. The objectors rely on the declaration of Clarence Ditlow (pictured to the right), the long-time director of the Center for Auto Safety, a national consumer protection organization. The objections can be found here. A New York Times article on the settlement and the objections is here.

UPDATE:

I should have mentioned that 26 Attorneys Generals, led by California A.G. Jerry Brown (pictured to the left), also have opposed the settlement. The AG's brief is here.

Jeff Gelles Column on Confusing Contract Terms . . .

. . . in DirecTV contracts.  Another story of how consumers who don't read contracts get taken advantage of in a world in which everyone knows consumers don't read contracts.

House Passes Consumer Financial Protection Agency Bill

Times coverage here.  Ed Mierzwinski has more of the details leading up to passage on his blog.

HAMP homeowners stuck in limbo

By Alan White

More than 700,000 homeowners are in three-month "temporary" trial loan modification plans, but mortgage servicers have managed to convert only 31,382 to permanent  modifications, according to the Treasury Department's November report released today.   

Given that the industry voluntarily modified, permanently, more than 100,000 mortgages per month just before HAMP was announced, these results are abysmal.  Testimony before a Congressional hearing Tuesday on HAMP confirmed that 70% or more of homeowners on temporary modification plans are making payments, so the problem is largely in getting the paperwork for permanent HAMP modifications done.  

Once again the report also highlights huge disparities in performance among different mortgage servicers.  The chart at right compares cumulative temporary modifications reported in the August report with permanent modifications reported through November.  The four big banks, BankofAmerica, Chase, Citi and Wells Fargo, converted fewer than 1%, fewer than 1%, 4% and 11% of their temporary mods, respectively.  Ocwen, meanwhile, has converted 89% of borrowers who were on temporary modifications in August to permanent mods by November.  Although scale is clearly a problem, Aurora, servicer of a large portfolio, managed to convert 23% of its modified loans to permanent modifications. 

Homeowners on trial modifications continue to be reported as delinquent to their credit bureaus, continue to accumulate unpaid interest, and face continuing threats of foreclosure.  Given the very large subsidies HAMP will pay the mortgage servicers if they can do this right, and the fact that the four biggest servicers were bailed out by the taxpayers in numerous other ways, we ought reasonably to expect better performance than this.   

Although Treasury officials had promised to report some information on performance of modified loans, none was included in the December report.  The fiasco in the making that this report reveals, and the fact that HAMP still does not deal effectively with the huge negative equity problem, compel the conclusion that we need a new plan to tackle the foreclosure crisis.

Congressional Oversight Panel Finds That TARP Was Effective In Stopping Economic Panic

This article in this morning's New York Times discusses the year-end audit of the TARP bailout program conducted by the Congressional Oversight Panel headed by consumer advocate and law professor Elizabeth Warren. Although the Panel has been critical of the bailout in the past, the year-end audit credits TARP with preventing economic disaster. Here's the beginning of the article:

The independent panel that oversees the government’s financial bailout program concluded in a year-end review that, despite flaws and lingering problems, the program “can be credited with stopping an economic panic.”

The Congressional Oversight Panel, which issued the report, was created in October 2008 by the same law that established the $700 billion Troubled Asset Relief Program. The panel has often been critical of the Treasury Department’s management of the bailout operation, especially at its start in the Bush administration but also under the Obama administration.