Consumer Law & Policy Blog

CRA and Affordable Housing Goals Didn't Cause Crisis

I wrote about this some time ago here.  Fed economists Robert Avery & Kenneth Brevort have a new paper out using a sophisticated empirical analysis to compare very similar mortgages that did or did not qualify for Community Reinvestment Act or GSE affordable housing goals credit.   Consistent with prior studies, they find that CRA/GSE loans performed better, i.e. were less likely to contribute to the foreclosure crisis, than similar non-CRA/GSE loans.

The ideological battle over the story of the crisis, and the relative roles of regulation and deregulation, is fought as much with slogans and beliefs as with facts, but for those who think facts matter, this study is worth reading.

Does Credit Scoring Produce a Disparate Impact?

That's the title of a paper by Robert B. Avery, Kenneth P. Brevoort , and Glenn B. Canner, all of the Fed. They answer the question in the negative as to race.  Here's the abstract:

The widespread use of credit scoring in the underwriting and pricing of mortgage and consumer credit has raised concerns that the use of these scores may unfairly disadvantage minority populations. A specific concern has been that the independent variables that comprise these models may have a disparate impact on these demographic groups. By "disparate impact" we mean that a variable's predictive power might arise not from its ability to predict future performance within any demographic group, but rather from acting as a surrogate for group membership. Using a unique source of data that combines a nationally representative sample of credit bureau records with demographic information from the Social Security Administration and a demographic information company, we examine the extent to which credit history scores may have such a disparate impact. Our examination yields no evidence of disparate impact by race (or ethnicity) or gender. However, we do find evidence of limited disparate impact by age, in which the use of variables related to an individual's credit history appear to lower the credit scores of older individuals and increase them for the young.

But does everyone in the government agree?  The EEOC recently sued Kaplan, the test prep service, for using credit reports in hiring, which, the EEOC claims, produces a disparate impact on African-Americans.  True, credit scores and credit histories are different, but the scores are based at least in part on the histories.

Ray Brescia Paper on the Robo-Sign Scandal and UDAP Statutes

Raymond H. Brescia of Albany has written Leverage: State Enforcement Actions in the Wake of the Robo-Sign Scandal.  Here's the abstract:

In the fall of 2010, in one of the largest scandals to ever hit the American court system, information gathered from lawsuits across the country revealed that tens of thousands of foreclosure filings were likely fraudulent - if not outright criminal. These revelations sparked a nation-wide investigation by all 50 state attorneys general to assess not only the extent of the scandal and its potential impacts but also potential legal and policy responses to such behavior. One of the tools at the state attorneys general’s disposal that might rein in this behavior includes each state's Unfair and Deceptive Acts and Practices (UDAP) laws. Such laws typically prohibit "unfair" and "deceptive" practices and often give consumers, as well as state attorneys general, the ability to bring affirmative litigation to rein in practices that violate their terms. UDAP laws serve a critical consumer protection function by filling in gaps in the law where other, more targeted statutes might not cover practices that have a harmful impact on consumers. Since their inception, UDAP laws have been used to rein in abusive practices in such areas as used car sales, telemarketing and even the sale of tobacco products. This paper explores the availability of UDAP laws and the remedies they provide to rein in the range of practices revealed in the so-called "robo-sign scandal." It concludes that such practices - the false affidavits, reckless claims and improper notarizations - all violate the essence of most state UDAP laws; accordingly, the remedies available under such laws may be wielded by state attorneys general to halt abusive foreclosure practices throughout the nation. Such remedies include civil penalties, actual and punitive damages, attorney's fees and injunctions. What's more, UDAP actions in light of robo-sign abuses could help chart a path towards a more robust mortgage modification regime, one that would result in principal reduction, which is the clearest path out of the current crisis.

Holly Petraeus: Elizabeth Warren's Pick to Head Up Effort to Protect Military Families from Predatory Lending

Read about it here.

Outgoing Ohio Attorney General to Head Up Enforcement Arm of Consumer Financial Protection Bureau

I missed this two-week-old news that outgoing Ohio AG Richard Cordray is going to head-up the CFPB's enforcement division, and perhaps you did too. Read about it here and here as well. 

New Health Care Provisions Go Into Effect Today

New health care rules go into effect today, as required by the health care overall signed into law by President Obama last March. These rules include requirements on the percentage of premium-based revenue insurers must spend on payouts to consumers and on other consumer benefits; a partial closing of the infamous "doughnut hole" (which requires that some prescription drug costs be borne 100% by medicare recipients); and free preventative services screenings for seniors. One wonders whether, as the new health care law continues to be rolled out, the law will prove popular and thus put political pressure on Congress to maintain comprehensive health care legislation even if the Supreme Court holds unconstitutional the insurance mandate scheduled to take effect in 2014.

Is Skype Dead in China?

According to the Washington Post, "China has moved to ban all VoIP services except two state-owned networks, China Unicom and China Telecom, likely making Internet telephony services such as Skype illegal to use." If that's true, and if the ban works, that would be a major impediment to free discussion with people in China, although email would still be available of course. Last April, I used Skype from various locations in China for audio communications to contacts in many U.S. locations. Access was easy and 1.5 cents per minute -- that is, nearly free for a middle-class U.S. user like myself. The Post quotes a university professor in Beijing, who noted a political problem in making Skype illegal in China:

Skype is the market leader, but there is also MSN and Gmail Talk. The children of Chinese government officials, who are studying abroad, use these services to call home, so I do not think anyone is going to cut the lines.