Consumer Law & Policy Blog

CNN.Com Piece: Let States Set Consumer Protections

Here.  The essay opposes attempts to amend the Consumer Financial Protection Bureau bill now on the Senate floor to preempt state consumer protection laws and enforcement actions

Restoring State Law

by Jeff Sovern

Cross-posted with the New Deal 2.0 Blog

When our founding fathers fought the Revolution, one of the things they fought for was the right to have a say in the laws that governed them. And they achieved much of what they wanted: Californians can vote on California’s law, New Yorkers can vote on their representatives, and so on.

But one exception is consumer loans, including credit cards. Chances are you have no voice on some of the laws applying to the loans you’ve taken out, such as the laws governing the interest rates you pay. Your credit card is almost certainly governed by the laws of South Dakota or Delaware, states that — unless you live there — you have no power in.

That’s because of a little-known Supreme Court decision interpreting an even more obscure 1864 law that allows lenders to decide which state’s law applies to the loans they make. And it leads to bizarre results. For example, when the Wiseman family of Arkansas wanted to buy a car from an Arkansas auto dealer, the dealer referred them to an Oklahoma lender owned by another Arkansas company. The lender wanted to charge an interest rate that would have been illegal under Arkansas law, but while that’s where the car was bought, sold, and, for all practical purposes, financed, the lender was able to have the higher Oklahoma limits apply — even though the car might never be driven in Oklahoma.

Why should you care? When lenders can pick the rules that apply to their loans, they choose the state laws which are most favorable to them, and least favorable to consumers. So credit card issuers base their operation in states like South Dakota and Delaware, which permit them to charge interest rates to citizens of New York, say, that New Yorkers consider excessive — but the lenders don’t have to care because New York can’t apply its own laws to its own citizens.

Meanwhile, states that want the jobs credit card issuers bring have an incentive to allow lenders to charge high rates to attract those jobs. And if the credit card issuers charge high rates to the citizens of other states, well, why should South Dakota’s officials care? The citizens of those other states don’t vote in South Dakota’s elections. But the bank employees living in South Dakota do.

The 1864 law that led to this was never intended to permit South Dakota to rule credit card lending throughout the country. Indeed, credit cards were still a century in the future. And so Senator Whitehouse, in Washington, has proposed to change this archaic law to permit states to apply their own usury laws to their own citizens.

Nothing in Senator Whitehouse’s amendment would prevent lenders from lobbying for high usury limits. States may in fact be persuaded by those arguments. But it would prevent South Dakota from applying its usury laws to people who may never set foot in South Dakota.

Our founding fathers fought — and some died — so our citizens could have a voice in their laws. It’s time for voters to get that voice on loan terms.

The Failure of HAMP - Update

By Alan White

Treasury released the April report on the HAMP mortgage modification program today.  The tally for April is 68,000 permanent modifications, still well short of what the industry was doing without HAMP subsidies a year ago.  According to HOPE NOW's latest report, during the first three months of 2010 two-thirds of mortgage modifications were done by servicers outside the HAMP program, without the HAMP subsidy.  We already know from the OCC/OTS mortgage metrics reports that non-HAMP mods are more likely to reduce principal than HAMP mods.  In short, twice as many workouts are happening without taxpayer subsidy, and for some reason servicers can find something better to offer homeowners in two out of three cases.  If the HOPE NOW numbers are correct, there are actually more modifications being done now than foreclosure starts, so perhaps in the months to come we will actually see the foreclosure inventory come down.

Also worth noting is that almost as many temporary modification plans resulted in cancellation as in conversion to permanent modifications.  My public radio station WBEZ had a story this morning about a homeowner who was in a temporary mod from last July until April, when he got word that he would not qualify for a permanent modification, and by the way now owes thousands more despite making all his payments.  If the nonconversion rate continues at 50% or more, HAMP can ultimately reach fewer than 800,000 homeowners, and obviously not all of them will save their homes.  A far cry from the Administration's initial promises to help 3 million or more.

On the foreclosure front, there should be first quarter numbers out from OCC/OTS and the Mortgage Bankers delinquency survey this week or next.  The news will probably be mixed - the number of foreclosure starts has been declining for the last two quarters, but the number of foreclosure sales is on the rise, and the total inventory of mortgages in default or foreclosure stubbornly refused to come down from peak crisis levels. 

New NCLC Practice Tools

This update lists free webinars, new publications and other new NCLC practice tools: 

 

1.  Two Upcoming  Webinars on Auto Issues:  Collision or Intersection? Car Ownership and Energy and Environmental Concerns on May 20th and Transportation and an Aging America on June 9th.  Contact jhiemenz@nclc.org for these and future webinars.  Go to www.consumerlaw.org/issues/seniors_initiative/webinar.shtml for the 2010 schedule and  FREE downloads of  PAST webinars

 

 2 .  Two NCLC REPORTS March/April issues in the mail are unusually newsworthy: 

Deceptive Practices & Warranties Ed.: Sup. Ct. muddies the waters on class arbitration; Sup. Ct. holds fed. ct. class actions available despite state law limits; Sup. Ct. clarifies lodestar enhancements for attorney fee awards; IRS letter ruling helps legal services, pro bono clients

 

Debt Collection & Repo Ed.: Sup. Ct.: FDCPA bona fide error defense not applicable to legal error; Treasury issues ground-breaking rule on garnishment of exempt funds in bank accounts; 10 ways to overcome a client's failure to respond to requests for admissions

 

 3 . Save the Date:  The 19th annual Consumer Rights Litigation Conference ,  Nov. 11-14, 2010, at the Park Plaza Hotel,  Boston, with over 50 breakout sessions, a Consumer Class Action Symposium, and Intensives on mortgage litigation, debt collection defense, and bankruptcy protection for homeowners.  Join over 700 colleagues and fabulous speakers.  CLE credit.   Later this summer, look for the conference brochure in the mail and at www.nclc.org (with on-line registration).

 

4.  Small Dollar Loan Scorecard is a 50 state survey of maximum allowed APRs for payday, auto title, and small installment loans. 

The scorecard is found at http://www.nclc.org/reports/content/cu-small-dollar-scorecard-2010.pdf  

Detailed information on each state 's interest caps is found at http://www.nclc.org/reports/content/cu-small-dollar-scorecard-backup-2010.pdf  

 

President Obama Continues to Push Hard for Financial Reform

President Obama is making financial reform legislation a large priority. As you'll see below, he made it the topic of today's weekly radio address. He did the same on March 20.

Battle Over D.C. Soda Tax Heats Up

A couple weeks ago I blogged about a far-reaching school nutrition proposal expected to pass the District of Columbia Council and a controversial plan to pay for its implementation with a 1-cent-per-ounce tax on soda.  (The tax would be imposed on soda that contains sugar; diet soda would be exempt.)  Well ... the nutrition proposal has passed, but the soda industry is, as explained in today's Washington Post, mounting an expensive lobbying and media campaign against the soda tax.  The sponsor of the tax, D.C. Council Member Mary Cheh, worries that her colleagues will be intimidated: "It is hard to fight against a multimillion dollar PR effort from big soda. If people are not fully attuned and fully aware, they can get scared easily. I am worried my colleagues are not going to go beneath the surface."  According to the Post, Ellen Valentino, the executive vice president of the the Maryland-D.C.-Delaware Beverage Association, "denied Cheh's assertion that her organization is spending millions on the campaign. But Valentino added that the group plans to spend 'whatever it takes to get the message out.'" Mike Jacobson, head of the D.C.-based Center for Science in the Public Interest, supports the tax, noting that "[s]oda consumption in the District is fueling an expensive epidemic of diet-related diseases. A modest tax on this nutritionally worthless, disease-promoting product would give our seniors and children greater access to fresh fruits, vegetables and other health-promoting foods."

Media Coverage of the Battle Between Auto Dealers and the Military Over the CFPA

The Times story is here and the Washington Post's coverage here.

Senate Passes Amendment to Financial Reform Legislation to Require Audit of Federal Reserve

Yesterday, the Senate passed 96 to zip an amendment written by Independent Senator Bernie Sanders of Vermont (pictured to the right) to require an audit of the Federal Reserve.  Senator Sanders's website describes the amendment and its passage as follows:

In a major victory for transparency at the Federal Reserve, the Senate Tuesday passed an amendment by Sen. Bernie Sanders to audit the Fed and make the central bank reveal which banks received more than $2 trillion in emergency aid during the financial crisis. “The Fed can no longer operate in virtual secrecy,” said Sanders. Under his amendment, the Government Accountability Office would conduct a top-to-bottom audit of all emergency actions by the Fed since the start of the financial crisis in 2007. The non-partisan research arm of Congress specifically would be directed to investigate apparent conflicts of interest involving the Fed and CEOs of the largest financial institutions in the country. In addition to the audit, the Fed for the first time would have to reveal by Dec. 1, 2010, the identities of banks and other financial institutions that took more than $2 trillion in nearly zero-interest loans.

The text of the amendment is here.

Taxes Are High and Getting Higher, Right? Nope. Just the Opposite.

Tax policy generally affects consumers a lot, yet this blog has paid little attention to it. A USA Today analysis has found that the combined federal, state, and local tax bite recently hit its lowest point since the Truman Administration. Maybe that's because our leaders preferred to fund a large war without the citizens' consent or because we have neglected public investment in transportation, communications, and education. Here's an excerpt of the relevant USA article:

Federal, state and local taxes — including income, property, sales and other taxes — consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century. The overall tax burden hit bottom in December at 8.8.% of income before rising slightly in the first three months of 2010.

Houlihan Smith’s Phony Invocation of Trademark Law Fails to Keep Criticism off the Web

by Paul Alan Levy

It’s an old story, sad to say.  Bank waltzes into court, represented by a big firm, decrying damage to its interests and demanding immediate relief, but giving no notice to the other side, and walks out with TRO issued by a credulous local judge, no questions asked.  Happily, a recent case involving an investment bank that got a TRO against a message board host, in violation of section 230 immunity, has a happier ending, because the bank ended up before a federal judge who understood the technical details better than the bank’s own lawyers.

Houlihan Smith Faces Online Criticism

This case involves Houlihan Smith & Co., a Chicago-based investment bank that apparently drums up new business by cold-calling companies to offer its services.  As a telemarketer, it has earned its share of criticisms on 800Notes and Whocallsme, a pair of message boards that present themselves as reverse look-up telephone directories whose contents are supplied by its users.  According to the run of comments on 800Notes and whocallsme, Houlihan’s telemarketing calls are taken by the executive secretaries or administrative assistants of the target companies who screen calls for the chief executives, and the callers manage to offend a goodly number of them.  Some of the comments go beyond a discussion of the callers’ manners and discuss Houlihan’s business model, including such hyperbolic terms as “scam,” “lying,” and “ripping off.”   A few posters have even asserted that some Houlihan staff have criminal records.   Houlihan Smith itself, as well as Duane Morris, one of its law firms, have participated in the debate on the message board.   One Houlihan poster used the pseudonym “Gordon Gecko, Investment Banker” in criticizing the critics.