Consumer Law & Policy Blog

State & Local Reforms Urgently Needed for Tax Lien Laws

The National Consumer Law Center has a new report: The Other Foreclosure Crisis: Property Tax Lien Sales by NCLC attorney John Rao.

Advocates are urged to work with state and local governments to reform property tax lien laws to safeguard homeowners while still bringing in needed tax revenue to address this growing problem.

A tax lien sale may be started over nonpayment of a tax bill of only a few hundred dollars. A $200,000 home may be sold at a tax lien sale for $1,200 and then quickly resold for a huge profit. Homeowners may lose not only a homestead but also hundreds of thousands of dollars in equity, representing their sole savings and security for retirement.

• Populations most at risk: Low-income older and disabled homeowners who have fallen into default because they are incapable of managing their financial affairs, such as individuals suffering from Alzheimer's, dementia, or other cognitive disorders.
•  Most states and local governments need improvement but those known to be at high risk: States: Florida, Illinois, Iowa, Mississippi, New Jersey, New York, and Texas
  Cities: Baltimore, MD; Louisville, KY; and Washington, DC

Key State Recommendations

1. Make redemption costs affordable by keeping investor profits reasonable. State laws should be reformed to limit the maximum interest or penalty rate on redemption amounts to reflect current economic conditions. The interest rate should seek to discourage speculation and promote redemption.
2. Place reasonable limitations on additional fees and costs. States should not permit investors to pad their profits by charging homeowners unreasonable fees to redeem after the foreclosure process has been initiated. State law should establish a maximum fee schedule based on reasonable, market rates for title searches, attorneys' fees, and other fees.
3. Establish a tax sale procedure, with court supervision. States should limit the initial tax sale to the sale of a tax lien certificate, rather than granting an entire interest in the property to a purchaser. If a homeowner fails to redeem the property, state law should require the purchaser to seek a court order authorizing final sale of the property. The court should confirm the final sale results and ensure that the sale price is fair and that any surplus funds are promptly paid to the homeowner.

Key Local Recommendations

1. Implement redemption payment programs. Local tax offices should collect redemption payments to eliminate the possibility that an unscrupulous purchaser may thwart the owner's attempt to redeem. The local tax office should accept partial and installment payments.
2. Adequate notice should be given at every stage of the tax sale process. Notifications should be used as a tool to avoid loss of homeownership Comprehensive notices should use plain language; include information about tax exemptions, abatements, and repayment plans; and note the consequences of each stage of the tax sale process.
3. Provide detailed notice of redemption rights. The notice should give all of the essential details on how the redemption right can be exercised, including the name and address to which the homeowner can remit payment; itemized costs; and the deadline for the redemption payment.

All state and local recommendations may be found in the full report.

The CFPB's First Public Enforcement Action: A $210 Million Settlement with Capital One

Just in time for the agency's one-year anniversary this week, the CFPB today announced its first public enforcement action -- a major settlement with Capital One over charges of deceptive marketing of credit card "add-on" products, such as payment protection and credit monitoring.  Under the settlement, Capitol One will provide between $140 million and $150 million in restitution to 2 million customers and pay an additional $60 million in penalties -- $25 million to the the CFPB and $35 million to the OCC.

One interesting aspect of today's settlement is that it is the result of close cooperation between the CFPB and the OCC, two agencies that many observers presume to have diamtrically opposed philosophies on consumer financial regulation. Today's news demostrates that the reality is different and more complex. Given the banking agencies' experience with credit-card investigations and the CFPB's enhanced statutory enforcement authority, we can expect to see more interagency activity in this area.  Readers should also keep in mind that public enforcement actions like today's settlement are only the tip of the iceberg when it comes to enforcement activity--the culmination of investigations and negotiations behind closed doors.

“Today’s action puts $140 million back in the pockets of two million Capital One customers who were pressured or misled into buying credit card products they didn’t understand, didn’t want, or in some cases, couldn’t even use,” said CFPB Director Richard Cordray. “We are putting companies on notice that these deceptive practices are against the law and will not be tolerated.”

The agency's press release indicates that CFPB examiners discovered that Capital One’s call-center vendors engaged in deceptive tactics to sell the company’s credit card add-on products, including payment protection and credit monitoring services.  Consumers with low credit scores or low credit limits were offered these products by Capital One’s call-center vendors when they called to have their new credit cards activated. 

To ensure that all affected consumers are repaid and that consumers are no longer subject to these misleading and high-pressure tactics, Capital One has agreed to:

• End deceptive marketing: Capital One has ceased all marketing of these products, and will not resume doing so until Capital One submits a compliance plan, acceptable to the Bureau, which helps ensure these unlawful acts do not occur in the future.

• Complete repayment, plus interest, to two million consumers: Capital One will pay approximately $140 million to all of the estimated two million consumers who either initially enrolled in a product on or after August 1, 2010, or who tried to cancel a product on or after August 1, 2010, but were persuaded to keep the product after speaking with a call center representative. In addition to the amount paid for the product, cardmembers will receive a refund of the associated finance charges, any over-the-limit fees resulting from the charge for the product, and interest.

• Pay claims denied based on ineligibility at enrollment: For any of these eligible consumers whose payment protection claims were previously denied because their loss occurred prior to enrollment (because of unemployment, disability, etc.), Capital One will pay their claims as if they had been eligible, if that amount is greater than the refund for that consumer.

• Convenient repayment for consumers: If the consumers are still Capital One customers, they will receive a credit to their accounts. If they are no longer a Capital One credit card holder, they will receive a check in the mail. Consumers are not required to take any action to receive their credit or check.

• Independent audit: Compliance with the terms of the agreement will be assured through the work of an independent auditor, who will determine if Capital One has complied with the CFPB’s Consent Order.

• $25 million penalty: Capital One will make a $25 million penalty payment to the CFPB’s Civil Penalty Fund.

To further protect consumers, the Bureau is issuing a compliance bulletin that puts other institutions on notice that the CFPB will not tolerate deceptive marketing practices, and institutions will be held responsible for the actions of their third-party vendors. 

Consumer Federation of America Says That Purchasing Fuel Efficient Cars is Cost Effective

Department of Transportation regulations to be finalized soon will require average passenger vehicle fuel economy to reach 54.5 miles per gallon by 2025.  A new study by the Consumer Federation of America shows that consumers support the new rules and are willing to pay higher car prices for more fuel efficient cars. Moreover, CFA found that savings in fuel costs outweigh the increased costs of purchasing a fuel efficient car. The key excerpt on this topic from CFA's detailed press release appears after the jump.

The CFPB's Influence One Year Out

Kathleen Pender of the San Francisco Chronicle has written this story about what the Consumer Financial Protection Bureau has been up to during its first year, including a survey of reactions from the business and consumer advocacy communities. It ends with a short list of key CFPB accomplishments:

-- Adopted a final rule that provides consumer protections on international electronic money transfers (sfg.ly/NmQZLT)

-- Started taking complaints and inquiries about credit cards, mortgages, bank accounts, private student loans, auto and other consumer loans (consumerfinance.gov/complaint or (855) 411-2372)

-- Posted a sortable database of credit card complaints (consumerfinance.gov/complaintdatabase)

-- Released a student debt repayment assistant tool (consumerfinance.gov/students/repay)

-- Posted answers to about 500 questions (consumerfinance.gov/askcfpb)

-- Proposed rules for simplifying mortgage disclosures

-- With other law enforcement agencies, launched a central database (not available to the public) to track companies that rip off military personnel

Elizabeth Renuart on Non-Judicial Foreclosures

 

Elizabeth Renuart

 of Albany has written Towrd a More Equitable Balance: Homeowner and Purchaser Tensions in Non-Judicial Foreclosure States, 24 Loyola Consumer Law Journal 562 (2012).  Here's the abstract: 

We are now facing the fifth year of the fallout from the subprime mortgage meltdown. The economic crisis gripping the United States began when large numbers of homeowners defaulted on poorly underwritten subprime mortgage loans. Through securitization, the process of utilizing mortgage loans to back investment instruments, Wall Street funded subprime originations in excess of $480 billion in each of the peak years—2005 and 2006, thereby fueling the potential hazards should the underlying loans tank.

There is growing evidence that the parties to securitization deals handle and transfer the legally important documents that secure the resulting investments—the loan notes and mortgages—in a careless and, at times, fraudulent manner. Consequently, the foreclosing parties frequently do not possess the right to foreclose and the resulting sales may be unlawful. Defective sales harm homeowners when they lose their homes to the wrong party. Moreover, they could use the extra time afforded by a delayed or jettisoned foreclosure to find another solution, such as a loan modification or short sale. Wrongful foreclosures affect another important group, the purchasers. If title to the property is flawed as a result, those parties potentially buy nothing and can transfer nothing. Clear title to real property in the United States may be in jeopardy. The problem is most acute in non-judicial foreclosure states because doctrines of finality do not apply and state law may permit post-sale challenges.

In another article, Property Title Trouble in Non-Judicial Foreclosure States: The Ibanez Time Bomb?, 4 Wm. & Mary Bus. L. Rev. ___(2013) (forthcoming), I analyzed recent decisions from the Massachusetts Supreme Judicial Court in which the court voided sales where the foreclosing party did not possess a valid assignment of the mortgage. I summarized the foreclosure law of Massachusetts and compared it to the law in four other non-judicial foreclosure states to assess whether these opinions might be persuasive to courts in those states. I then drew conclusions as to the probability of post-sale title defects and challenges to title that purchasers could face.

In this article, I continue that discussion by exploring the rights and interests of homeowners and purchasers. I suggest specific legislative solutions that more evenly balance the interests of homeowners, purchasers, and the property recordation system

Jeff Gelles Column: A Mortgage Modification Case Study in Disappointment

Here.

It's a Bad New Job Market for Women

It's not news that the anemic economic recovery appears to be faltering. But it was news to me that the new jobs produced by the recovery are mainly going to men. This LA Times article explains. Here's a key excerpt:

Even as women have moved up the economic ladder and outpaced men in earnings growth over the last decade, they are lagging behind in a crucial area — getting new jobs. Since the recession ended in June 2009, men have landed 80% of the 2.6 million net jobs created, including 61% in the last year. One reason: Male-dominated manufacturing, which experienced sharp layoffs during the recession, has rebounded in recent years, while government, where women hold the majority of jobs, has continued to be hit hard. But there's something else at work. Men are grabbing a bigger share of jobs in areas, such as retail sales, that typically have been the province of women, federal data show.

Third Circuit Demands Antitrust Scrutiny of Pay-for-Delay Settlements

In a pay-for-delay settlement, a brand-name drug company pays a generic company that has challenged the brand-name company's patent to stay out of the market. Some early antitrust challenges to these settlements succeeded, but later court of appeals' rulings gave them a green light. Yesterday, however, the Third Circuit sought to apply the brakes. In In re: K-Dur Antitrust Litigation, No. 10-2077, the court rejected the idea -- accepted by other courts -- that a pay-for-delay settlement escapes antitrust scrutiny so long as the settlement falls within the scope of the patent (which the Third Circuit said was a good test for big pharma companies with fat wallets, but bad for consumers). Instead, the court demanded that the district court

apply a quick look rule of reason analysis based on the economic realities of the reverse payment settlement rather than the labels applied by the settling parties. Specifically, the finder of fact must treat any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market as prima facie evidence of an unreasonable restraint of trade, which could be rebutted by showing that the payment (1) was for a purpose other than delayed entry or (2) offers some pro-competitive benefit.

This decision is a victory for the FTC. As we have explained in earlier posts (here, here, and here), the FTC has been urging a ban or restrictions on pay-for-delay settlements in Congress and in the courts. The Supreme Court has denied review on this issue in the past, but now, with a clear split in authority, it may want to weigh in.

The Washington Post discusses the Third Circuit's decision here.

 

Government by the (less than) 1%

Lawrence Lessig has written this piece about who funds political campaigns sub-titled "Government by the 1%." But it's not really 1% of the American population that funds the big election campaigns. Lessig explains:

[W]e give the tiniest fraction of America the power to veto any meaningful policy change. Not just change on the left but also change on the right. Because of the structure of influence that we have allowed to develop, the tiniest fraction of the one percent have the effective power to block reform desired by the 99-plus percent. Yet by "the tiniest fraction of the one percent" I don't necessarily mean the rich. I mean instead the fraction of Americans who are willing to spend their money to influence congressional campaigns for their own interest. That fraction is different depending upon the reform at issue: a different group rallies to block health-care reform than rallies to block global warming legislation. But the key is that under the system we've allowed to evolve, a tiny number (with resources at least) has the power to block reform they don't like. A tiny number of Americans -- .26 percent -- give more than $200 to a congressional campaign. .05 percent give the maximum amount to any congressional candidate. .01 percent give more than $10,000 in any election cycle. And .000063 percent -- 196 Americans -- have given more than 80 percent of the super-PAC money spent in the presidential elections so far.

9th Circuit Nixes Class Settlement Because of Defective Cy Pres Component and Excessive Fees

Allison just told me about this new Ninth Circuit decision killing off a class action settlement because its cy pres component was unjustified and the lawyers' fees were too high. Here's the Court's synopsis:

After carefully reviewing the class settlement, we conclude that it must be set aside for two reasons. First, the district court did not apply the correct legal standards governing cy pres distributions and thus abused its discretion in approving the settlement. The settlement neither identifies the ultimate recipients of the cy pres awards nor sets forth any limiting restriction on those recipients, other than characterizing them as charities that feed the indigent. To the extent that we canm eaningfully review such distributions where the parties fail to identify the recipients, we hold that the cy pres portions ofthe settlement are not sufficiently related to the plaintiff class or to the class’s underlying false advertising claims. Second, even if the cy pres distributions did comply with our cy pres standards, the settlement would still fail because the negotiated attorneys’ fees are excessive. We therefore reverse the district court’s approval of the settlement, vacate the judgment, and remand for further proceedings consistent with this opinion.

So . . . another in a series of recent circuit court rulings demanding a tight nexus between the plaintiffs' interests and the work done by recipients of cy pres cash (and insisting that the plaintiffs, and not non-party charities, get the money where feasible). Go here for a discussion of the earlier decisions and links to them.