Consumer Law & Policy Blog

For Banks, Bigger is not Better

A new Moody's report finds that for all mortgage modifications since the crisis began, the redefault rate is nearly 50%.  On the other hand, they also find that homeowners with more recent modifications, and modifications that actually provide payment relief, do much better.  None of this is news, but Moody's also provides redefault rates broken down by servicer.  The rate of modification failure is directly related to the size of the bank servicing the mortgage:

• Bank of America – 33%
• Wells Fargo – 29%
• American Home Mortgage – 26%
• Ocwen – 24%
• GMAC Mortgage – 23%
• JPMorgan Chase – 22%
• CitiMortgage – 20%
• Litton Loan Servicing – 20%

Another bit of evidence suggesting that BofA should be relieved of the onerous job of servicing defaulted mortgages.

 

Red-Light Cameras: A Regulatory Success Story?

Three of the four members of my family have gotten tickets for running just-turned-red lights at intersections with red-light cameras. In each case, the cameras were accurate. In each case, we were pissed when the ticket arrived in the mail. In each case, though, we paid the fine without a challenge. And, most important, each of us altered his or her dangerous conduct after getting the ticket. I came to love the red-light cameras. They struck me as no real invasion of privacy -- a picture of our car (but not its driver) as it goes through an intersection is hardly private. It seemed logical to me that a camera's presence would encourage safer driving. And, so, I didn't care whether the real motivation of the District of Columbia or Montgomery County, Maryland -- the two jurisdcitions that caught us -- was to raise a little revenue for their cash-starved coffers. (If the devices actually encouraged drivers to stop running red lights, they wouldn't raise any revenue, unless the devices were faulty.)

Now, we have some hard data. The Washington Post reported on Wednesday that after the District of Columbia installed red-light cameras at its deadliest intersections, traffic fatalities went down at those intersections -- way down. And not just in D.C. As the Post explained yesterday in a follow-up editorial:

A definitive new study by the Insurance Institute for Highway Safety shows that in 14 big cities where the cameras were in use, including the District, the rate of fatalities stemming from red-light crashes fell three times faster than in 48 cities that did not install the cameras. What's more, the institute, a nonprofit group funded by the insurance industry, found that the cameras saved 159 lives in the 14 cities over five years starting in 2004. If the cameras had been in use in every big American city, 815 lives would have been saved during the same span, the researchers concluded.

Perhaps this study isn't perfect. There had been earlier stories suggesting that red-light cameras don't change behavior. Maybe more research is needed. But, for now, it sounds like a regulatory success story.

 

Harkness Paper on the Credit CARD Act and Seniors

Donna S. Harkness of Memphis has written The Credit Card Act of 2009: Welcome Relief or Too Little, Too Late for Vulnerable Seniors? 29 Banking and Financial Services Policy Report, No. 9, at 12. Here's the abstract:

As a group, the elderly have found themselves increasingly strapped for cash during the current economic downturn. While credit card debt grew 53% across all demographic groups during the 1990s, for senior citizens, aged 65 to 69, the growth was truly astronomical, representing a 200% increase. The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, which amended the federal Truth in Lending Act, has been described as a “sweeping law” that is “designed to permanently alter the relationship between consumers and their credit cards.” While the CARD Act did add a number of specific consumer protection provisions providing for enhanced consumer disclosures, creating specific protections for young consumers, addressing gift cards and other miscellaneous issues, none of the statute’s provisions are directly aimed at the elderly. This article examines the statute’s consumer protection and enhanced disclosure provisions that are relevant for purposes of protecting vulnerable senior citizens, and considers the extent to which the law will help older consumers to recognize and avoid credit use behaviors that are not in their best interests. In the final analysis, this article argues that while the CARD Act is a harbinger of a more consumer oriented direction for the credit card industry, its protections may come too late, and provide too little protection for the many senior citizens that have already fallen victim to excessive credit card fees and finance charges.

The Health Care Debate: Yes, Congress Can Make You Buy Vegetables!

Some folks claiming that Congress's passage of the health insurance mandate in the Affordable Care Act exceeded Congress's Commerce Clause powers have argued that if Congress can make you buy insurance (or pay a tax or fine) as part of health care reform, it can also make you buy veggies (or pay a tax or fine) as part of national nutritional reform.

So what, says former Reagan Administration Solicitor General Charles Fried. Fried thinks that it's complete nonsense that Congress lacked authority to pass the insurance mandate, and he's got a view on forced vegetable puchases as well. Testifying before Congress on Wednesday, Fried said:

As for the veggies, I suppose ... forced feeding would indeed be an invasion of personal liberty, but making you pay for them would not, just as making you pay for a gym membership which you can afford but do not use would not.

Fried pointed to a 1905 case, Jacobson v. Massachusetts, where the Supreme Court upheld a Massachusetts law requiring citizens to get a smallpox vaccine or pay a $5 fine. Watch Fried's testimony here:

 

Fried's full written testimony is here.

Consumer Financial Protection Bureau launches website and social networking presence

The Consumer Financial Protection Bureau has launched its spiffy new website -- located at  http://www.consumerfinance.gov/ and already equipped to receive suggestions and consumer complaints.  The site's design immediately sends the message that the CFPB, as the first major federal agency created in the 21st century, will be more responsive and less, well, bureaucratic. The use of the prominent badge logo visually conveys the concept that there's a new cop on the beat, a new sheriff in town. Highlighting the agency's commitment to transparency, the website posts Elizabeth Warren's complete calendar of meetings.

The site the contains the following animated video, explaining the agency's genesis and mission in a simple, accessible way:

And here's Warren's welcome video:

Below is a letter from Warren, announcing the website's launch and providing links to the Bureau's presence on Twitter and Facebook.  She invites consumers to post their YouTube videos in response to the welcome video, "Like" the agency or post on its wall on Facebook, or tweet suggestions.

The message: There's a new sheriff in town. We're open to suggestions. This is not your grandfather's federal agency.

HAMP Paperwork Blizzard

by Alan White

Those of us in the upper Midwest have blizzards on the brain.  On Monday the Treasury Department released its loan-level data files on the more than 2.5 million mortgage borrowers who have sought help from the Home Affordable Modification program.  Not surprisingly, the data confirm that homeowners are being done in by paperwork.  For example, of the 1.2 million homeowners who were non-accepted (Treasuryspeak for rejected), only 6% were turned down because they failed the net present value test, i.e. because a modification wouldn't make economic sense for the investor.  Much more common were denials because the homeowner was not considered to be payment-stressed (20%), not in imminent danger of default (11%), couldn't meet paperwork requirements (21%) or had the misfortune to have an ineligible mortgage (18%).  Many of those identified as having withdrawn applications (8%) could also have fallen victim to the paperwork shuffle.

As for the 600,000 who were approved for trial modifications, but then were denied conversion to permanent modifications, only about 25%, i.e. about 13% of all trial modifications, failed to make payments.  The dreaded "incomplete request", "request withdrawn" and income-too-high categories account for more than half of the trial modification fallouts.  Particularly unjustifiable are the tens of thousands whose permanent modifications were denied based on eligibility or NPV determinations that should have been made before they started a trial modification.

The failure of HAMP is not inevitable.  While it may have resulted in fewer than a half a million successful permanent modifications, two and a half million homeowners have sought help.  Most of those who fail initially or at the conversion stage are not failing because their cases are hopeless.  On the contrary, many are rejected for reasons that suggest workouts are possible (such as those whose debt ratio is not high enough for HAMP.)  The program suffers seriously from lack of enforcement, from needlessly detailed and prescriptive rules, and from the Administration's unwillingness to confront the principal reduction issue.

Lessons from the Texas Downloading Dismissal - Why Due Process Matters

by Paul Alan Levy

Apparently out of the blue, a copyright lawsuit filed in federal court in Dallas by a German pornographer against 670 anonymous Internet users, who were charged with infringing the copyright in the film by making it available for download, has been dismissed.  The back story holds lessons for judges confronted with demands to discover the identify of anonymous Internet users.

Evan Stone, the lawyer for plaintiff Mick Haig Productions, has built a legal practice around representing the makers of pornographic movies – many of them, apparently, based abroad with no evident connection to Dallas other than that he is their lawyer – in mass copyright lawsuits against anonymous Internet users whom he accuses of using BitTorrent software to obtain and distribute his clients’ wares.  His hiring pitch — that under Fifth Circuit law, unlike many other circuits, the plaintiff may sue after filing an application to register its copyright, without having actually received action on the application. Armed with the strong statutory remedies, including statutory damages and attorney fees, that are available against those who commit infringement after a work is registered, Stone uses early discovery to obtain the names of the Doe defendants, and then threatens to throw the book at them unless they quickly pay $1500 or $2500 in settlements, amounts that are deliberately set so low that it is rarely cost-effective to hire an attorney to fight him.  And he takes advantage of their anxiety not to be publicly identified as having been involved with his clients’ products.

This case turned out a bit differently. 

Another Federal District Court Holds That Congress Lacked Authority to Pass the Health Care Mandate

Read about it here and here. The 78-page opinion is the second federal district court ruling finding that Congress lacked constitutional authority to pass the Affordable Care Act's insurance mandate. Unlike the first ruling from Virginia, yesterday's decision, issued by Judge Roger Vinson of Florida, invalidated not only the insurance mandate but the entire Act. Two district courts have upheld the mandate, and many other challenges are pending.