Consumer Law & Policy Blog

Halloween Costumes, Foreclosure, and Making Fun of People Who Have Lost Their Homes

UPDATED WITH EXPANDED PHOTO (ORIGINALLY POSTED ON 10/29/2011)

In this New York Times op-ed entitled "What the Costumes Reveal," Joe Nocera describes the conduct of employees of the New York law firm Steven J. Baum, P.C., at last year's firm Halloween bash. To be blunt, the conduct described is disgusting. Nocera writes that Baum employees wore costumes making fun of people who have lost their homes to foreclosure. In the image below, for instance, a dirty "foreclosure victim" is holding a wine bottle wrapped in a brown paper bag, while another, dressed in rags and with her belongings in a shopping cart, displays a "Will Worke for Food" sign.

Here's an excerpt from the op-ed:

On Friday, the law firm of Steven J. Baum threw a Halloween party. The firm ... is what is commonly referred to as a “foreclosure mill” firm, meaning it represents banks and mortgage servicers as they attempt to foreclose on homeowners and evict them from their homes. ...[A] former employee of Steven J. Baum recently sent me snapshots of last year’s party. In an e-mail, she said that she wanted me to see them because they showed an appalling lack of compassion toward the homeowners — invariably poor and down on their luck — that the Baum firm had brought foreclosure proceedings against. When we spoke later, she added that the snapshots are an accurate representation of the firm’s mind-set. “There is this really cavalier attitude,” she said. “It doesn’t matter that people are going to lose their homes.” Nor does the firm try to help people get mortgage modifications; the pressure, always, is to foreclose.  * * * These pictures are hardly the first piece of evidence that the Baum firm treats homeowners shabbily — or that it uses dubious legal practices to do so. It is under investigation by the New York attorney general, Eric Schneiderman. It recently agreed to pay $2 million to resolve an investigation by the Department of Justice into whether the firm had “filed misleading pleadings, affidavits, and mortgage assignments in the state and federal courts in New York.” (In the press release announcing the settlement, Baum acknowledged only that “it occasionally made inadvertent errors.”)

In response to an inquiry from Nocera about the photographs, Nocera says that a Baum firm spokesperson asserted: “It has been suggested that some employees dress in ... attire that mocks or attempts to belittle the plight of those who have lost their homes. Nothing could be further from the truth.” Huh? Was the Baum spokesperson looking at photos other than the ones that accompany Nocera's piece?

Baum's employees have the right to wear these costumes at their firm's Halloween party or most anywhere else. But I wonder: How many of Baum's employees have read paragraphs 6 and 7 of the preamble to the Model Rules of Professonal Conduct?

HT to Tom McSorley.

Did You Hear the One About the Bankers?

Thomas Friedman's editorial in the Sunday N.Y. Times, discusses a recent $285 million fine imposed on Citigroup, and the relationship between the financial services industry and Congress. He concludes with some free advice for the industry, "Stick to being bulls. Stop being pigs." Here is an excerpt:

Our financial industry has grown so large and rich it has corrupted our real institutions through political donations. As Senator Richard Durbin, an Illinois Democrat, bluntly said in a 2009 radio interview, despite having caused this crisis, these same financial firms “are still the most powerful lobby on Capitol Hill. And they, frankly, own the place.”

Our Congress today is a forum for legalized bribery. One consumer group using information from Opensecrets.org calculates that the financial services industry, including real estate, spent $2.3 billion on federal campaign contributions from 1990 to 2010, which was more than the health care, energy, defense, agriculture and transportation industries combined. Why are there 61 members on the House Committee on Financial Services? So many congressmen want to be in a position to sell votes to Wall Street.

We can’t afford this any longer. We need to focus on four reforms that don’t require new bureaucracies to implement. 1) If a bank is too big to fail, it is too big and needs to be broken up. We can’t risk another trillion-dollar bailout. 2) If your bank’s deposits are federally insured by U.S. taxpayers, you can’t do any proprietary trading with those deposits — period. 3) Derivatives have to be traded on transparent exchanges where we can see if another A.I.G. is building up enormous risk. 4) Finally, an idea from the blogosphere: U.S. congressmen should have to dress like Nascar drivers and wear the logos of all the banks, investment banks, insurance companies and real estate firms that they’re taking money from. The public needs to know.

 

Nice article about Elizabeth Warren

In case you missed it, as I did, here is a recent article about Elizabeth Warren's "unorthodox career" from the Boston Globe.

Many Big Banks Reject Monthly Debit Card Fees, Refuse to Follow Bank of America

We have blogged here, here, and here about Bank of America's decision to impose a $5-per-month fee on its debit card users. Now, the Wall Street Journal reports that some of the country's biggest banks, including Citigroup and J.P. Morgan Chase, are not going to follow suit. Other banks, however, including Suntrust and Regions Financial, have plans to impose monthly fees on at least some of their card users. And Wells Fargo is "testing" a $3-per-month fee in five states.

J.P. Morgan Chase says that its decision not to impose a monthly fee came after "eight months of consumer testing." As one would expect, the bank did not attribute its decision to the negative publicity surrounding the Bank of America fee.

But of course monthly debit-card fees are not the only fees that a bank can impose. The WSJ article notes that

Banks are loading fees onto customer accounts in an attempt to recover billions of dollars in revenue that will be lost from new restrictions on debit cards, credit cards and overdrafts. Most big banks have already eliminated free checking for customers who don't meet certain criteria on their accounts, such as minimum balances or a certain number of direct deposit transactions.

New Student Loan Reforms and Law School Debt

This past Wednesday President Obama announced reforms to federal student loan programs. According to the President's website, the program's two main features are

• Effective this January [January 2012], if you’re someone who has different kinds of loans—guaranteed and direct—you’ll be able to roll them both into one direct loan and bring down your interest rate. You’ll only have to write one check a month—and you’ll see a discount. This switch saves money for taxpayers across the board. ...

• You might remember that, as part of last year’s student loan reform, borrowers’ loan payments could be no higher than 10 percent of their disposable income. This is a big deal—but it wasn’t going to go into effect until 2014. Today, the President announced that he’s speeding up this program so it will affect students next year—two years early. This will have huge consequences for people struggling to make their student loan payments.

According to Karen Jarvis at the National Law Journal, the changes will provide little or no benefit to current law students or recent law graduates with student loan debt.

Student Loans and the CFPB: Know Before You Owe

Americans now owe more in student loans than in credit cards. While consumer advocates were pushing for credit card reform, lenders managed to get hefty subsidies and guarantees, made student loans non-dischargeable in bankruptcy, and started handing out piles of cash to anyone with a high school diploma.

This played an important part in the inflation of the cost of education because, hey, you can pay for it with those piles of cash. But how much good is an educated workforce that is saddled with mountains of debt and that can't work because there aren't any jobs?

Today in Minneapolis, the Consumer Financial Protection Bureau's Raj Date launched the CFPB's "Know Before You Owe" for student loans and outlined how the CFPB will take on student loans. First, the CFPB has published a model student loan disclosure sheet (PDF) for colleges to use. Current students can also visit the CFPB's website to find out more about student loan repayment options. Date said the CFPB would also work to bring transparency to the student loan sector.

To what end? Is the goal to deter people from getting higher education? Because disclosures are as likely to deter students from taking out loans as the threat of prison time is likely to deter a thief from robbing a bank. Neither expects to get caught—the student by unemployment (or underemployment), and the thief by the police.

That is probably a good thing. We want an educated citizenry. We just can't afford one at current prices.

The real issue lying at the heart of the student loan problem is this: Americans have been overpaying for higher education. There's plenty more to education than job training, but it's also true that if we can't pay back our student loans, our education isn't worth what it cost.

The CFPB doesn't have the authority to regulate schools (nor should it, really), so the best it can do is try to make sure students know what they are getting into when they finance an education. But that won't strike anywhere near the heart of the problem.

Congressional Budget Office Weighs in on Income Inequality

We have been discussing rapidly increasing income inequality in the United States, including in this recent post (which, in turn, links to earlier posts). The Congressional Budget Office has just weighed in with this comprehensive study entitled "Trends in the Distribution of Household Income Between 1997 and 2007." The CBO study found that income increased in the 20-year period studied . . .

• 275 percent for the top 1 percent of households,
• 65 percent for the next 19 percent,
• Just under 40 percent for the next 60 percent, and
• 18 percent for the bottom 20 percent.

The CBO also found that "the share of income going to higher-income households rose, while the share going to lower-income households fell." Specifically,

• The top fifth of the population saw a 10-percentage-point increase in their share of after-tax income.
• Most of that growth went to the top 1 percent of the population.
• All other groups saw their shares decline by 2 to 3 percentage points.

Go to the study's home page and/or read a five-page summary of the study. The New York Times reported on the study here.

Creating Jobs in a Bad Economy

Michael Hiltzik at the LA Times compares President Obama's job creation plan with the legislation offered by Republicans in Congress. The Republican plan is called the Jobs Through Growth Act, whose key provisions include a Balanced Budget constitutional amendment, reductions in corporate taxes, repeal of the health care reform legislation (which the Congressional Budget Office says will reduce the deficit), and drastic limits on recoveries in state medical malpractice lawsuits. (The Republicans have been trying to decimate the state tort system, including medical malpractice, for two decades or more, but tying medical malpractice "deform" to job creation is new to me!)

The President's plan is called the American Jobs Act. It also includes some tax cuts and incentives for corporations (with a focus on small business), but, unlike the Republican legislation, it would provide funds for direct job creation (for instance, jobs for teachers, firefighters, and police). As you probably know, the President does not have the votes to get his comprehensive bill enacted, so now he's going to try to get parts of it passed.

Payday Lending Pieces

Nathalie Martin of the

 University of New Mexico has written two more payday lending articles. The first is Regulating Payday Loans: Why this Should Make the CFPB’s Short List, 2 Harvard Business Law Review Online 44 (2011).  Here's the abstract::

This article briefly describes the history of the Consumer Financial Protection Bureau (CFPB), describes payday and title loan products and their customers, describes the CFPB’s general powers, then discusses how and why the CFPB might use its particular powers to bring this industry into compliance with lending norms used throughout the rest of the civilized world.

The second, co-authored with

Koo Im Tong

 is Double Down-And-Out: The Connection between Payday Loans and Bankruptcy, 39 Southwestern Law Review  785.  Here's that abstract: 

This Article reviews the literature on the debate regarding the causal relationship between filing for bankruptcy and the use of payday loans but does not weigh in on the subject. Rather, it uses these studies, as well as a general discussion of bankruptcy filing and payday loans, as a backdrop for analyzing new data regarding the correlation between bankruptcy filing and the use of payday loans. This Article reports on an empirical study conducted in the state of New Mexico that measures rates of payday loan use among bankruptcy debtors from a large sample of publicly available bankruptcy data.

Part I of this Article discusses the payday loan industry, its business model, how the loans work, and who the likely payday lending customer is. Part II reviews the current literature regarding the connection between payday loans and bankruptcy, and suggests some ways in which the existing literature falls short of fully answering the question of whether payday lending causes bankruptcy filing. Part III describes the new empirical study from New Mexico. This Article describes the method used to conduct this study as well as its results. In summary, our data show that from 2007 to 2009, 18.9 percent of bankruptcy debtors in New Mexico reported using payday loans. Compared to the use of payday loans reported in other studies among the general population, as well as past studies on payday loan use among bankruptcy debtors, this rate of usage is extremely high. Moreover, the correlation between bankruptcy and payday loans seems to be getting stronger, as the use of these loan products appears to be growing. We find that almost double the percentage of bankruptcy debtors reported using payday loans from 2007 to 2009, than from 2000 to 2002.

Part IV of this Article concludes that while one cannot be certain that there is a causal connection between filing for bankruptcy and using payday or other short-term loans, there is a strong correlation between bankruptcy filing and payday loan use. If the increasing use of payday loans is seen as a problem, we conclude that the problem appears to be growing, despite efforts by states to cut down on the use of these loans and to curb the use of multiple loans at one time. In fact, the usage of multiple payday loans at one time also has increased drastically, as recent bankruptcy debtors, whether individuals or families, report using far more of these types of loans simultaneously than in the past. All of this indicates that the use of multiple loans at one time is increasing, a problem states are grappling with but apparently are not solving.  

And

Neil Bhutta

 of the Fed offers another view in The Effect of Access to Payday Loans on Consumers' Financial Health: Evidence from Consumer Credit Record Data.  Here's his abstract:

I test whether access to payday loans affects broad measures of consumers’ financial well-being by taking advantage of geographic variation in access to payday loans due to state lending laws. I draw on several sources of data including a large, nationally representative panel dataset of individual consumer credit records, as well as census data on the location of payday lending establishments at the ZIP code level. I find little evidence that access to payday loans affects consumers’ financial health. In particular, access does not affect credit scores levels, nor does it appear to either exacerbate or mitigate the probability of a major score decline over a two year period during the recent recession, nor does it appear to affect the dynamics of recovery from a low score. The estimated coefficients are generally very close to zero and precise, and robust to a within-state test similar to that of Melzer (2011). There is some evidence that access reduces the incidence of accounts going into collections – one component of credit scores – but the fact that that access nevertheless does not affect credit scores suggests that payday loans may have some small but hard-to-detect benefits.

Dodd on Dodd(-Frank)

Former Senator Chris Dodd has penned this opinion piece on "Five Myths about the Dodd-Frank. The five myths, according to Dodd, are (1) "Dodd-Frank is deepening the economic slowdown"; (2) "Dodd-Frank hurts small businesses and community banks";(3) "Dodd-Frank failed to truly reform Wall Street"; (4) "Congress didn’t fix Fannie Mae and Freddie Mac"; and (5) "It’s time to repeal Dodd-Frank."