Consumer Law & Policy Blog

Geithner's Head in the Sand Over LIBOR -- or Worse?

Adam Levitin at Credit Slips has posted this essay about why Treasury Secretary Timothy Geithner did not go to the Department of Justice when he (Geithner) learned of the LIBOR fraud. Here's the beginning of Levitin's piece:

If I rob a federally insured bank and make off with $20,000, I'm facing years of federal prison time. If I defraud federal insurance programs, be they FHA or Medicaid, I'm also facing years of prison. If I engage in insider trading, I could also be looking at prison time (although that's pretty rare). But if I rig the most widely used interest rate index in the world, a leading bank regulator doesn't think that the Department of Justice needs to be notified because they're not part of the regulatory working group focused on LIBOR. That was Timothy Geithner's explanation today as to why he didn't notify the DOJ when he learned of Barclay's LIBOR fraud. For real? What's next?  The dog ate my homework? It all leaves me scratching my head. The harm from the LIBOR rigging is massively greater than any of the other financial crimes for which we send people to prison. Why wouldn't the then head of the NY Federal Reserve Bank think that this was potentially a criminal matter? The "not part of the working group" is just about the lamest excuse I can think of. I don't normally talk to the police, but I call them if I think there's a crime in progress.

For a timeline on the LIBOR scandal, go to this BBC report. For an explanation of the scandal, go here, here, and here.

The Hill: GOP mocks agency's 1,000-page plan to simplify loan forms

by Jeff Sovern

Here. Oh my goodness. That's their complaint--that the rule is long.  Is a thousand pages too much for members of Congress to read?  How do they feel about the subprime borrowing that brought the economy down?  Is that worth a thousand pages to avoid?  It's like the scene in Amadeas when the Emperor complains that Mozart's composition contains "too many notes."

The critics complain that compliance officers will have to read it too, though much of the rule is taken up with things that have nothing to do with compliance, like cost-benefit analysis and, ironically, a Paperwork Reduction Analysis, as required by law.

American Bar Association Slaps U. of Illinois Law School with $250,000 Fine for Misrepresting Applicants' Credentials

Karen Sloan explains here that the American Bar Association has hit the University of Illinois College of Law with a $250,000 fine for deliberately inflating the academic credentials of its incoming students -- that is, for trying to mislead its current and future consumers about the value of its legal education product (whether those consumers be students or applicants or employers hiring the schools' graduates). Sloane notes the ABA's claim that Illinois's "deception was born of a 2006 strategic plan intended to move the school back into the top 20 law schools, as ranked by U.S. News. That goal required improved undergraduate GPA and LSAT scores, putting greater pressure on the admissions office to bring in high-scoring students."

Read the censure itself. Here's an excerpt:

No matter what the competitive pressures, law schools must not cheat. The Colllege of Law cheated. The [ABA] Council agrees with the Accreditation Committee's conclusion, which bears quoting here:

[T]he conduct of the University of Illinois College of Law in connection with the intentional reporting of inaccurate admissions data to the ABA and the public was reprehensible and misleading to law school applicants, law students, and law schools, and damaging to the reputation of the legal profession. The conduct of the Collge of Law undermined and continues to undermine confidence in the accreditation process.

CBO: Supreme Court's ACA Ruling to Leave More People Uninsured, But Cost Less Money

If you are not living in a cave, you know that in late June the Supreme Court generally upheld the Affordable Care Act, but gave states the right to opt out of the ACA's Medicaid expansion. As explained in this Washington Post article, the Congressional Budget Office has now estimated that, in light of the Court's Medicaid ruling, about 3 million more people will remain uninsured in 2022, but that the federal budget will shrink by about $84 billion from now through 2022. (Of course, these estimates are based on predictions on which states will opt out of the Medicaid  expansion and which states, if any, will delay their acceptance of the new Medicaid funds.)

In a separate report, the CBO reiterated its earlier finding that, overall, the Affordable Care Act reduces the deficit. As the Post puts it: "[T]he CBO said the Affordable Care Act would retain its powers of deficit reduction, a critical goal of the legislation during a time of record budget deficits. A Republican plan to repeal the initiative — which includes hundreds of billions of dollars in tax increases as well as cuts to Medicare and other health programs — would increase deficits by $109 billion during the next decade."

Read the CBO's full report projecting health insurance coverage and federal expenditures in light of the Supreme Court's decision. Go here to read all of the CBO's data on that topic. Go here to read about the CBO's budget estimates if the ACA is repealed along the lines proposed by Republicans.

Debt Collection Attorney Listing: Attorney Who Can Sign Name is Good Enough

From Craig's List.  The third paragraph is particularly interesting.

We are a collection agency/debt buyer. What we are looking for is a part time attorney to work for us as our corporate counsel, on our payroll, about 5 to 6 hours a week. This is a short term employment arrangement, no longer than 90 to 120 days.

Your job will be to sign pleadings, praecipe for entry of appearances, praecipe for writ of execution, and garnishment orders. Our paralegal will prepare all paperwork for your signature. This is very standard stuff for us.

If you are an attorney looking for challenging legal work, this is not for you. WE DO NOT NEED F LEE BAILEY- we are fee shopping. If you passed your boards with a D+, and you can sign your name, you possess all the credentials required for this job. If this opportunity interests you, please feel free to reply to this email with a brief description of who you are, when you got your law license, and what you will be needing from us in the way of compensation.

I hope that any attorney who works for them will tell them that an attorney who does no more than sign his or her name to documents someone else prepared would violate the federal Fair Debt Collection Practices Act.  That statute, as interpreted by numerous cases, requires attorneys to engage in a "meaningful review" of the file before signing documents in a debt collection matter.  Meaningful review entails exercising independent professional judgment.  Sounds like if the employer doesn't hire a competent attorney, it will soon need an attorney to defend a law suit. (HT: Gina Calabrese)

UPDATE: A commenter raises the question of whether the listing might be for a job outside the US, meaning that the FDCPA would not apply.  In fact, the listing states the location to be "Pittsburgh west."

The Triumph of Auto Safety Regulation

A couple years ago, we told you that on-the-road fatalities had dropped to a 60-year low (despite the huge increase in the number of miles driven and the number of drivers on the road during that period). In April of this year, we told you about a new report demonstrating that tens of thousands of lives are saved by auto safety regulations. (The report showed, for instance, that, in 2010 alone, seat belt use saved over 12,500 lives, frontal airbags saved more than 2300 lives, child car seats saved the lives of 300 children, and motorcyle helmets saved more than 1550 lives.) Now, the National HIghway Traffic Safety Administration has released this study showing that in 2009, for the first time since the data was first available (in 1981), vehicle crashes were not among the 10 leading causes of death in the United States. Why? Mainly because crash-related fatalities have dropped by about 25% since 2005.

The Decline of the Middle Class in the U.S.

In the first of a series of articles in the New York Times, David Leonhardt explains that "[s]ince median inflation-adjusted family income peaked in 2000 at $64,232, it has fallen roughly 6 percent. You won’t find another 12-year period with an income decline since the aftermath of the Depression." The American ideal that each successive generation will be better off economically than the last is at risk (obviously).

More on the Macey WSJ Op-Ed on the CFPB's Proposed Mortgage Rules

by Jeff Sovern

Brian blogged earlier about Yale professor Jonathan Macey's op-ed in the Wall Street Journal last week on the CFPB's proposed mortgage rules.  I wanted to add my own comments (my take on the new forms can be found in the New York Times).

The Bureau actually proposed two rules at the same time.  One proposal would change the mortgage disclosure forms. The other proposal is largely confined to high-cost mortgage loans.  Part of the Macey op-ed failed to distinguish between these two different proposals.  That could well be a function of the severe space constraints op-eds are subject to; it's very hard to include everything you want to say within those constraints, and nuance often gets lost.  Still, it may confuse people into thinking the high cost rules apply to all mortgages.

For example, the limit on late fees that the op-ed notes (and Brian quoted in his post) appear in the high-cost rule, not the disclosure rule, though I don't see how you could tell that from the op-ed, which does not refer to the high cost loans until two paragraphs later.  Why does that matter? Well first, that means it applies to many fewer borrowers.  Historically, very few mortgage loans have in fact met the thresholds for qualifying as high-cost mortgage loans (or HOEPA loans, as they're known, after the statute that they're reglated under)--less than 1% of the market, and sometimes much less.  HOEPA works on a trigger principle, in that its application is triggered for loans charging more than a certain interest rate or certain points and fees. Lenders don't want to be subject to HOEPA, because it imposes a lot of limits, and so they have largely avoided its application by staying under the triggers. The proposed HOEPA rule does expand the eligibility rules for HOEPA, so conceivably the HOEPA slice of the mortgage market could increase.  Still, the CFPB's HOEPA proposal, at page 12, predicts that HOEPA "will continue to constitute a small percentage of the mortgage lending market."  No doubt lenders will continue trying to avoid triggering HOEPA, but that will become more difficult under the new rule. 

But even so, Macey is concerned about restricting consumer choice, and even if the new rules restrict the choice of very few consumers, they're still restricting it.  Here's my response: HOEPA loans tend to be among the most predatory, and so we're restricting the choice of those who may not be able to make very good borrowing choices.  And yes, that's paternalistic, but it's also to protect the rest of us.  The bad loans that consumers and lenders entered into brought down the economy and millions are still unemployed or unemployed because of them.  Personally, I'm willing to support paternalistic interventions in the name of economic self-defense, especially when very few consumers have their choices restricted; Macey evidently is not.

Macey also says the problem with what he calls "dodgy mortgage practices" "was not the government's then-required disclosure forms, but the chicanery of the lenders who filled them in."  I agree that lenders engaged in chicanery, but sadly, the forms also had serious problems, as I have written about elsewhere. 

Suffolk Law Seeking Professor; Consumer Law a Possibility

I've been asked to post the following announcement:

SUFFOLK UNIVERSITY LAW SCHOOL in Boston invites applications for several tenuretrack positions starting in the 2013-2014 academic year. We seek entry-level and lateral candidates with strong academic records and a demonstrated commitment to excellence in teaching and scholarship. We have particular curricular teaching needs in first-year contracts and first-year property, together with upper-level courses with a focus on health law, business or financial services. We also have foreseeable needs in criminal law and international law. Consideration may also be given to relevant practice experience and community involvement. Suffolk University is an equal opportunity employer. We encourage applications from women, persons of color, sexual orientation minorities, and others who will contribute to the diversity of the faculty. Interested candidates should contact Professors Jessica Silbey and Robert Smith, Co-Chairs, Faculty Appointments Committee, at jsilbey@suffolk.edu and rsmith@suffolk.edu, with Suffolk a copy to jlafauci@suffolk.edu, or mail their materials to the Co-Chairs of the Appointments Committee, c/o Janine LaFauci, at Suffolk University Law School, 120 Tremont St., Boston, Massachusetts 02108-4977.

I've been assured that the reference to financial services includes consumer law.

NPR Story on the Job Market for New Lawyers and the Cost of Law School

We have posted many times on the bad job market for new lawyers, recent reductions in starting law firm salaries, the movement to obtain better data from law schools regarding their graduates' employment, and the cost of legal education. This morning, NPR reporter Wendy Kaufman filed

this story on those issues. The NPR story quotes Kyle McEntee of Law School Transparency (LST). McEntee founded LST along with Patrick Lynch in 2009. LST appears to have had a major impact on making legal hiring data more transparent.