Consumer Law & Policy Blog

Times Editorial on Student Lending

by Jeff Sovern

Yesterday the Times published an editorial, Full Disclosure for Student Borrowers, which concluded:

A bill pending in the Senate would require both colleges and lenders to educate students about the differences between federal loans and riskier, more expensive private loans — and their borrowing options. Congress should also require schools to provide in-depth, annual loan counseling to students and set criteria for the information that must be provided. All schools should be required to disclose annually the average debt load of their graduates.

Before students borrow to pay for their education, they need to understand the obligations they are taking on, and how long it will take to pay them off.

Two thoughts: first, if students should receive loan counseling (which I agree with), shouldn't those applying for mortgages also receive such counseling when there is reason to believe they don't fully understand what they are committing to?  Mortgages are typically for larger amounts than student loans and we have ample reason to believe many mortgage borrowers didn't understand their obligations (as I have argued elsewhere), which of course contributed to the Great Recession.   Second, do we really want the colleges to provide the loan counseling?  Colleges have a stake in students taking out the loans, because if the students don't, they may not be able to attend the college, thus reducing the school's revenue.  In a way, that's like asking mortgage brokers whose income depends on consumers taking out loans, to provide mortgage counseling--and we all know how the advice given by mortgage brokers turned out.  Wouldn't it be better if students received counseling from disinterested entities that would have no reason to advise students to take out large loans unless that is in the students' best interest?

What Happens When A Lender Promises Not to Foreclose But Forecloses Anyway?

According to Brisbin v. Aurora Loan Services, No. 11-1218 (8th Cir. May 21, 2012), decided Monday by the Eighth Circuit, under Minnesota law, the homeowner is out of luck because a homeowner can only sue on promises made in written agreements. This is true even under a promissory estoppel theory -- that is, even if, as alleged in Brisbin, the homeowner relied to her deteriment on the promise to forbear. As the homeowner's lawyer put it in an article on the case, the Eighth Circuit's decision "solidifies the ability of the mortgage company in this case to explicitly lie to the customers it's serving and not be held accountable when an individual is relying on representations being made." I wonder whether this would be the law in any, many, or most other states.

Public Citizen petitions Third Circuit to prevent low-income homeowner from being priced out of court in suit against Goldman and Wells Fargo

After Pittsburgh-area homeowner Mary Glover was subjected to a series of overcharges on her mortgage and misallocation of her payments by Goldman Sachs and Wells Fargo, she filed a putative class action under state contract law, the FDCPA, and state consumer protection laws. When the financial institutions stonewalled during discovery, the magistrate judge -- instead of simply adjudicating Ms. Glover's motions to compel -- told the parties they ought to work out their disputes and if they couldn't, he'd appoint a special master. They couldn't, and he made good on his threat, ordering that the master's fees be split equally between the large institutional defendants and Ms. Glover, whose only income is less than $10,000 in Social Security disability benefits.

Today Public Citizen filed a mandamus petition in the Third Circuit to overturn the appointment of the special master. The issues we raise are whether a special master's costs can be allocated in such a way as to price a low-income litigant out of court, and whether a special master could be appointed in the first place for the purpose of coercing parties into settling their discovery disputes. (Obviously we believe the answer to both questions is "no.")

Our petition, filed in cooperation with Michael P. Malakoff who brought the case originally, is here.

Supreme Court Unanimously Rejects Suit Over Bogus Loan Discount Fees

by Deepak Gupta

The Supreme Court this morning released its opinion in Freeman v. Quicken Loans, which presented the question whether consumers can sue under section 8(b) of the Real Estate Settlement Procedures Act for unearned fees associated with real-estate settlement services, or whether consumers may only sue if the fee is divided between two or more persons. The statute prohibits giving and accepting “any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service . . . other than for services actually performed.” The case involved a "loan discount" fee for a discount that was never provided, and the crux of the case concerns whether RESPA reaches such unearned fees or whether it is limited to charges that are split, in the nature of a kickback.

In a unanimous opinion by Justice Scalia, today's decision rejects the plaintiffs' position and holds that a plaintiff must demonstrate that a charge for settlement services was divided between two or more persons. The opinion relies on a pretty straightforward interpretation of the statute's structure and the phrase "portion, split, or percentage" that is unlikely to do much harm beyond this fairly narrow context.

I worked on the Freeman case when I was at the CFPB General Counsel's office -- here's the Brief for the United States -- and I attended the oral arguments. Based on the questioning, today's decision is a disappointment but not a surprise. The Court was pretty hard on the plaintiffs' lawyer, Kevin Russell, and Ann O'Connell, who argued for the Solicitor General's office. Both advocates did an excellent job, as did respondents' counsel Tom Hefferon, but this result seemed to be in the cards.

A significant skirmish in the case concerned the amount of deference to give to a Policy Statement supporting the plaintiffs' interpretation that had been issued in 2001 by the U.S. Department of Housing & Urban Development, the agency that had authority over RESPA until it was transferred to the CFPB by virtue of the Dodd-Frank Act.  The Court ducked that question today:

The parties vigorously dispute whether the position set forth in HUD’s 2001 policy statement should be accorded deference under the framework announced by this Court in Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984).  We need not resolve that dispute—or address whether, if Chevron deference would otherwise apply, it is eliminated by the policy statement’s palpable overreach with regard to price controls. For we conclude that even the more limited position espoused by the policy statement and urged by petitioners “goes beyond the meaning that the statute can bear,” MCI Telecommunications Corp. v. American Telephone & Telegraph Co., 512 U. S. 218, 229 (1994).

Here's an early AP story on the case. For those who are waiting: Still no decision in First American Financial v. Edwards!

More on the CFPB's Regulation of Prepaid Cards

As we said yesterday, the Consumer Financial Protection Bureau is deciding how to regulate the growing prepaid card industry. The agency has issued an advance notice of proposed rulemaking (ANPRM) in which it has posed 10 questions on which it would like the public's input before it moves forward with proposed rules. The agency has also posted some basic information on pre-paid cards. The ten questions are listed after the jump.

Medical Device Timing

At a modern hospital, it's important that the timing components in medical devices -- which help assure, for instance, that drug dosing occurs at the right time and heart monitors work properly -- are accurate (that is, that something expected to do X at Y time actually does X at Y time). But a recent large study shows that they are often inaccurate, sometimes very inaccurate. There's a technological solution, as this article explains, but most medical devices don't have it, the FDA doesn't insist on it, and, though it's costly.

The Amazing Justice Stevens

Admittedly, this post is a bit off-topic. It's not about consumer law and policy. But I don't want our readers to miss seeing Justice John Paul Stevens's talk Monday to the American Law Institute. The topic was Bush v. Gore, not the CFPB or student loan debt. Justice Stevens didn't spend his time praising the work of the ALI (though he thanked the ALI for its work at the end of his speech), and he did not make airy comments about the need for ALI members to uphold the Rule of Law. Instead, he conducted a detailed analysis of Bush v. Gore, finding it hard to square with the Court's reticence to date to view partisan gerrymandering as justiciable:

If a mere defect in the standards governing voting recount practices can violate the state’s duty to govern impartially, surely it must follow that the intentional practice of drawing bizarre boundaries of electoral districts in order to enhance the political power of the dominant party is unconstitutional.

Justice Stevens turned 92 last month. The video of Justice Stevens's speech is here and is embedded below.

 

The Federal Spending Spree That Never Happened

Read this piece by Rex Nutting at MarketWatch. Here's an excerpt:

As would-be president Mitt Romney tells it: “I will lead us out of this debt and spending inferno.” Almost everyone believes that Obama has presided over a massive increase in federal spending, an “inferno” of spending that threatens our jobs, our businesses and our children’s future. Even Democrats seem to think it’s true. But it didn’t happen. Although there was a big stimulus bill under Obama, federal spending is rising at the slowest pace since Dwight Eisenhower brought the Korean War to an end in the 1950s.Even hapless Herbert Hoover managed to increase spending more than Obama has.

 

 

What the Heck is Private Equity?

Okay, so there's this big argument over whether private equity, or at least Mitt Romney's brand of private equity, is a good or bad thing (or something in between), or a sensible presidential election debate topic. But what the heck is private equity? Adam Levitin has this explanation, and he points to this op-ed by Steven Rattner that's useful as well.

FTC wins false advertising case against POM Wonderful

Last week, Brian blogged about the Ninth Circuit's decision in a case that POM Wonderful, makers of pomegranate juice and pomegranate pills (really), brought against Coca-Cola in which POM complained about Coke's labeling of mixed fruit juices that contain pomegranate. This week, an administrative law judge at the Federal Trade Commission ruled on the FTC's complaint against POM, in which the FTC alleged that POM's advertising of its juice and POMx supplements was false and deceptive. Specifically, the FTC argued that POM's claims that its products prevent or treat heart disease, prostate cancer, and erectile dysfunction were false and unsubstantiated.

The judge agreed. One aspect of the decision did go POM's way, however, as the judge disagreed with the FTC that the company should have to provide evidence from controlled clinical trials, such as those required to prove that a drug is safe and effective. The judge held that "competent reliable scientific evidence" would suffice to substantiate a health claim for a food. He also imposed monitoring and record-keeping requirements to ensure POM's compliance with his order. The FTC's press release provides a good summary.