Consumer Law & Policy Blog

Is Wells Fargo Ignoring the Electronic Funds Transfer Act?

Jeff Gelles has the story here.  The EFTA limits customer losses to $500 under some circumstances, but the bank is charging a customer $4,500.

Foreclosure Mill Law Firm Shutting Its Doors

You'll recall that we blogged about a foreclosure-mill law firm in upstate New York whose Halloween party made fun of people who were losing their homes in foreclosure. Now that firm -- Stephen J. Baum, P.C. -- is closing. The firm blames bad (and, it claims, unfair) publicity.

More on Income and Wealth Inequality: Capital Gains

We hear alot about wealth and income disparities between the "top 1%" and the rest of the country. As this Forbes.com article explains, the top .1% of the Nation's earners make half of all the capital gains. The highest marginal tax rate for ordinary income -- such as wages -- is currently at 35%, lower than it has been in many other eras. But the capital gains tax rate is much lower -- only 15%.

Times Roundup

Today's Sunday Times Magazine has an article about Elizabeth Warren that explains how the Consumer Financial Protection Bureau ended up with the power to enforce the Fair Credit Reporting Act:

Warren described her motivation to enter politics by recalling the time Barney Frank called her to the Capitol during the first days of writing the latest financial-regulation bill. Warren didn’t understand much about the process but observed as representatives argued about individual issues until Frank asked, “Can everybody live with that?” When he was met with nods, he said, “Done!” and aides wrote down the agreed-upon language. Warren watched the process several times before Frank asked if anyone had anything else to add.

“I said, ‘What about credit-reporting agencies?’ ” Warren said, noting that the bill should include monitoring to make sure those companies engaged in fair practices. “Barney looks around the room and says, ‘Anybody got a problem with that?’ And they say, ‘No,’ and he says ‘Done!’ and everybody writes it down. I thought, Whooaah.” Credit-reporting jurisdiction was added to the bill. “That was the first time,” she said, “that I understood — and real well — what it means to be in the room.”

Today's Times also has an editorial titled A Push for Online Privacy and an interesting column by Chicago's Richard Thaler, When Business Can’t Foresee Outrage, discussing Bank of America's since-rescinded decision to charge consumers for debit cards.

Robo-signing and Debt Collection

The problem of robo-signing mortgage related documents has received a great deal of attention in both the courts and the press. A similar problem, possibly affecting many more individuals, may exist in the debt collection industry. Peter Holland of University of Maryland Francis King Carey School of Law has written, “The One Hundred Billion Dollar Problem in Small Claims Court: Robo-Signing and Lack of Proof in Debt Buyer Cases,” published in 6 J. Bus. & Tech. L. 259 (2011)

Here is the abstract:

 Recent years have seen the rise of a new industry which has clogged the dockets of small claims courts throughout the country. It is known as the "debt buyer" industry. Members of this $100 billion per year industry exist for no reason other than to purchase consumer debt that others have already deemed uncollectable, and then try to succeed in collecting where others have failed. Debt buyers pay pennies on the dollar for this charged off debt, and then seek to collect, through hundreds of thousands of lawsuits, the full face value of the debt. The emergence and vitality of this industry presents several legal, ethical and economic issues which merit exploration, study and scholarly debate.

 This article focuses on the problem of robo-signing and the lack of proof in debt buyer cases. Although this problem has received limited attention from the media and from regulators, there is a paucity of legal scholarship about debt buyers in general, and this problem in particular. This article demonstrates that robo-signing and fraud are rampant in this industry, and that the debt buyers who pursue these claims often lack proof necessary to show that they own the debt, and often lack proof even that a debt was ever owed in the first place. The fact that this lack of proof has led to consumers being sued twice on the same debt demonstrates the due process concerns which are implicated when courts enter judgments against consumers based on robo-signing and insufficient proof.

This article calls on courts to hold plaintiffs in debt buyer cases to the same standards required of other litigants. Courts must require a demonstration of personal knowledge of the matter at issue before any affidavit is accepted, before any person testifies, and before any documents are admitted into evidence.

 

Chunlin Leonhard Paper on How Contract Law Enabled the Subprime Crisis

Chunlin Leonhard

of Loyola University New Orleans has written Subprime Mortgages and the Case for Broadening the Duty of Good Faith., 45 University of San Francisco Law Review 621 (2011). Here's the abstract:

In the wake of “the most virulent global financial crisis” caused by defaults in subprime mortgages and derivative financial products in 2007 and 2008, much finger pointing and soul searching have been taking place on different fronts. Scholarly attention primarily focuses on the financial industry and regulations. This article argues that US contract law played an enabling, albeit hidden, role in the subprime mortgage crisis. US contract law facilitated the subprime mortgage crisis in two First, US contract law’s laissez faire paradigm has incentivized parties to pursue their self interests while failing to provide any constraint on excessive pursuit of self interests. Second, the current contract law paradigm has also contributed to the subprime mortgage crisis by having nurtured a US business culture of everyone for him or herself. contract law’s general tolerance of parties’ single minded pursuit of self interest has led to a “moral deficit.” This article proposes that US contract law adopt a more proactive paradigm by recognizing a broader duty of good faith in economic relationships prior to the formation of a contract.

 

 

Internet Anonymity. Really?

Anonymous speech is often valued, even protected in some situations by the First Amendment. On this blog, we have posted frequently on legal efforts to assure that corporate and government critics (and others) are free to speak anonymously on the Internet. But do the legal nicities matter in reality? Andy Baio at wired.com has explained at length how the identity of a supposedly anonymous blogger who was "using all the ordinary precautions for hiding his identity" was revealed in under a minute using Google Analytics. (I don't know whether and to what extent Baio is right, but his post seemed worth a look.)

Class Action Coupon Suit With a Twist

Coupon settlements are controversial, as in "we sued for lots of money, and all we got was this worthless coupon!" In fact, the Class Action Fairness Act of 2005 devotes a section, 28 U.S.C. 1712, to trying to rein in coupon settlements by regulating attorney's fees in those cases. For perhaps the best judicial analysis of a coupon settlement, see In re General Motors, 55 F.3d 768 (3d Cir. 1995).

But here is a case where the class wants coupons. Southwest Airlines issues free-drink coupons to some of its in-flight customers. Without the coupon, the drinks cost about $5 each. The coupons have no expiration date, and do not say that they have to be used on the day of the flight. And, originally, they didn't -- that is, Southwest would honor previously issued coupons at any time. But, then, Southwest changed its mind: It would only honor coupons on the day of issuance. If you collected coupons -- the named plaintiff has 45 of them -- you are now out of luck. So, if the class settles for $1 per class member, will the objectors howl "we sued for coupons, and all we got was the worthless buck!?" 

CreditCards.Com Article on New Maryland Debt Collection Rules

Here.  The article also reports on the industry's self-regulation efforts, apparently an attempt to forestall tougher rules from the Consumer Financial Protection Bureau.

Barney on Newt

Yesterday, we told you about Newt Gingrich's claim that he knew all along about the mortgage meltdown and had advised Freddie Mac on steps it could take to avert it. (Funny, though, that Gingrich forgot to advise the American people of the coming crisis.) Gingrich also claimed that Freddie Mac had paid him $300,000 for his advice when it seems that the real amount was more than $1.5 million.

Now, Representative Barney Frank is responding. Gingrich had previously blamed Frank for the financial crisis, saying that he helped create the subprime mortgage debacle and that "[i]f you want to put people in jail ... you ought to start with Barney Frank and [former Senator] Chris Dodd.” For Frank's part, he admits that, because of idelogical preconceptions, “I was late in seeing [the financial crisis], no question.” But he has little patience for Gingrich, commenting yesterday on Gingrich's relationship with Freddie Mac:

[Gingrich is] fundamentally intellectually dishonest. He’s a man with no ethical core whatsoever. ...There are a number of conservatives whom I respect … Newt’s just never had any principles, so no I’m not surprised about this at all.