Consumer Law & Policy Blog

Are the New Mortgage Foreclosure Settlements a Bad Deal for Consumers?

By now, you have probably heard of the two new mortgage foreclosure settlements with federal regulators, one in which 10 banks have settled for $8.5 billion. (In the other settlement, mega-lender Bank of America will pay Fannie Mae almost $10.4 billion. mostly to buy back bad mortgages it had earlier sold to Fannie.)

$3.3 billion of the $8.5 billion settlement is earmarked for direct distribution to consumers whose mortgages went underwater or who lost their homes in the financial meltdown. Are the settlements fair? David Lazarus says "no" in this column, where he notes that "[t]he average compensation for each homeowner who faced foreclosure in 2009 and 2010 will run about $2,000. That's a couple thousand bucks for having been deceived and pushed around — and possibly thrown out onto the street — by a bank that was knowingly breaking regulatory procedures in handling distressed properties."

In a statement released by several consumer advocacy groups, Alys Cohen of the National Consumer Law Center called  the cash payments for consumers "wholly inadequate in light of the scale of the harm."

Compared to 2012, the Just-Enacted Tax Bill Hikes Taxes for Nearly Every U.S. Worker

by Brian Wolfman

The President campaigned emphatically on a tax plan that would raise taxes for people making more than $250,000. He was equally emphatic that he would not abide a tax bill that would raise taxes on middle-income working families. He said this many times. Democrats made the same point: We can't let the beleagured middle class pay more to Uncle Sam. And Republicans said the same thing -- they just didn't want rich people to pay a penny more either. In fact, many Republicans supported the recent tax bill not because they favored it but because, they said, they could not live with themselves if their inaction allowed a tax increase for the non-rich (which would have been the effect of allowing the 2001 Bush-era income tax cuts to expire).

But a tax increase for middle-class working class families is exactly what the new tax legislation -- The American Taxpayer Relief Act (ATRA) -- effectively imposes, compared to what those families had been paying. And the President, the Democrats, and the Republicans knew this when they supported ATRA.

Why are workers' taxes going up? Because ATRA allowed the 2011 and 2012 payroll tax "holiday" to expire, meaning that, as of January 1, 2013, payroll taxes on wage income increased from 4.2% to 6.2%. But not on all wage income. The payroll tax is doubly regressive: Everyone pays the same rate, regardless of income, and only the first $113,700 in wage income is taxed. (The 2012 limit was $110,100, but ATRA raised the limit to $113,700 for 2013. For more information on payroll taxes, go here.)

The increase in payroll taxes has been discussed in the press since ATRA's enactment. But I did not realize until recently just how significant the increase is. According to the Tax Policy Center, a single worker with about $38,000 in wage income will pay nearly $700 more to Uncle Sam than she did last year. A childless couple with $58,000 in wage income will have to fork out over $1,000 more than last year. Even a single person making only $6,500 in 2013 will have to pay more in taxes. Check out the Tax Policy Center's analysis at various income levels. Better yet, check out the Center's tax calculator, which allows you to plug in income levels, family composition, and other variables and then compare tax outcomes under various tax laws, including the law pre- and post-ATRA.

Under ATRA, very high-income people will pay considerably more income tax. But the law's income tax hikes generally don't kick in until an individual's annual  income hits $400,000 ($450,000 for joint filers). Moreover, because payroll taxes only apply to the first $113,700 in wage income, people with, say, $200,000 in wage income will get hit with the same tax increase in actual dollars as someone with  $113,700 in wage income. Does that make sense?

Is U.S. Government Debt Different?

That's the name of this brand-new 344-page ebook on public debt in the United States edited by Franklin Allen, Anna Gelpern, Charles Mooney, and David Skeel. The book contains 15 articles on the public debt, including one called "Origins of the Fiscal Constitution" by Michael McConnell, a couple articles on the U.S. government's capacity to raise revenue, and a couple on the debt ceiling.

2012 Was a Very Safe Year for Aviation

In fact, there were fewer airline crashes involving passengers -- 11 -- than in any year since 1945. Read about it here.

James Nehf on the Failed Promise of Information Privacy

James P. Nehf of Indiana University has written Open Book: The Failed Promise of Information Privacy in America.  Here's the abstract:

With financial and other personal information about us in countless databases, and with companies such as Facebook and Google collecting data about their users to drive profits and satisfy expectations of shareholders, there is a pervasive concern that we have little control over access to potentially harmful uses of that information. Moreover, many consumers believe that little can be done to address the problem except to give out as little information as possible and try our best to monitor our credit reports and financial accounts in an effort to detect unexpected activity if it occurs. By not enacting strong information privacy laws in the non-governmental sector, the U.S. Congress and the fifty states have effectively defaulted to a market-based model of privacy protection that relies heavily on individual self-policing and market incentives as the primary means of information control. A self-policing privacy protection model could be effective if a market for information privacy were possible — if well informed individuals could shop their privacy preferences effectively. This book-length paper examines the reasons why this is highly unlikely and why privacy laws in the United States (or the lack thereof) will not protect legitimate consumer interests in the years to come. Part 1 shows why information privacy is a social or societal value and not just an individual concern. Part 2 examines in more detail why individualist, market approaches to privacy protection are destined to fail. Part 3 continues this theme and examines research in behavioral sciences about how consumers make decisions in market transactions. Part 4 concludes by critiquing the “new” privacy framework released by the Federal Trade Commission. While the framework contains hopeful rhetoric calling for greater emphasis on societal solutions to privacy concerns, most of the framework continues to rely heavily on individual notice and choice in transactions that involve exchanges of personal information.  

 

 

FDA Proposes Food Safety Rules to Implement 2011 Food Safety Modernization Act, With More Rules to Come

by Brian Wolfman

The FDA has issued two proposed rules to implement the Food Saftey Modernization Act enacted in 2011. Check out the FDA's home page for the new rules. The law seeks to do more to prevent food borne illness.

The first new rule concerns controls for human food and is aimed at the 166,000 or so registered domestic food facilities, including manufacturers, processors, warehouses, storage tanks, and grain elevators. Under the proposed rule, these facilities must devise a plan that

• evaluates hazards that are reasonably likely to occur in food, such as pathogens (disease-causing organisms) and allergens.
• specifies the steps that will be put in place to minimize or prevent those hazards.
• specifies how these controls will be monitored.
• maintains routine records of the monitoring.
• specifies what actions will be taken to correct problems that arise.

The second, more specific, rule proposes new standards for produce safety because produce is often a conduit for food borne illness. The proposal imposes standards for

• use of Irrigation and other agricultural water
• farm worker hygiene
• use of manure and other additions to the soil
• Intrusion of animals in the growing fields.
• sanitation conditions affecting buildings, equipment and tools

The devil will be in the details, and if you want to read a detailed overview of the proposed rule (with links to various parts of the proposal), go here. The full 680-page proposal is here. The Washington Post has this article explaining the proposed rules. Go here for an AP story.

Three more rules to implement the 2011 Act are yet to come. They concern

• Foreign Supplier Verification for Importers: This program will require importers to verify that foreign suppliers are following procedures that provide the same level of health protection as that required of domestic food producers. About 15 percent of the food consumed in the U.S. is imported, including about 49 percent of fresh fruit and 21 percent of vegetables.
• Accredited Third Party Certification: The accreditation of third-party auditors would help ensure that food producers in other countries comply with U.S. food safety laws.
• Preventive Controls for Animal Food: This is the implementation of preventive controls at animal food facilities that are similar to those proposed for human food.

 

 

Military consumers get a federal private right of action

by Maura Dundon, Senior Policy Counsel, Center for Responsible Lending

Military consumers get a federal private right of action

Recent amendments to the Military Lending Act (aka the Talent Amendment to the National Defense Authorization Act) provide a rare, new private right of action for military consumers—but the effectiveness of the potentially broad-sweeping Act still remains largely in the hands of the Department of Defense.   

First passed in 2006, the Military Lending Act provided significant consumer protections for service members, but failed to include strong private or federal administrative enforcement mechanisms. The recent MLA amendments greatly strengthen enforcement through a private right of action and new financial agency jurisdiction.  The private right of action includes a full menu of remedies—actual, statutory and punitive damages; equitable relief; and attorneys’ fees.  It includes a limited bona fide error defense that expressly excludes legal errors, similar to other federal consumer laws.  On the administrative side, the Consumer Financial Protection Bureau, the Federal Trade Commission, and the banking agencies can now enforce MLA violations under their Truth in Lending Act authority.   

Although enforcement authority now lies with a full roster of federal agencies, the DoD, which issued MLA rules in 2007, is still in charge of MLA rulemaking. The MLA’s key substantive provisions remain mostly unchanged after the recent amendments:  interest rates for “consumer credit” capped at 36%, and arbitration clauses prohibited. Despite this broad language, the DoD rule implementing the MLA back in 2007 gave a limited definition of “consumer credit”, covering only tax refund anticipation loans, payday loans, and car title loans. The rule also gave lenders the opportunity to evade regulation by making technical changes to take them out of the product definitionsdefinitions—for example, by lengthening the term of a payday loan. 

The MLA amendments don’t directly fix the DoD rules. Instead, the conference report directs the DoD to undertake a study of predatory lending and the effectiveness of the MLA regulations and report back to the Armed Services Committees. We’re hopeful that DoD will take steps to broaden the rule and continue cracking down on predatory lenders.

The amendments are sections 661-663 of the National Defense Authorization Act and will be codified at 10 U.S.C. § 987. You can find them here.

 

David Lazarus on Sending Corporate Criminals to Jail

The LA Times's David Lazurus says in this article that the large-sounding corporate criminal penalties -- like recent ones against Glaxo for off-label drug promotion and against BP for conduct that led to the Gulf oil spill -- aren't enough to deter and that some corporate criminals should spend time behind bars. Here's an excerpt:

If you're concerned about corporate crime, 2012 looked like a pretty successful year for the good guys.The Thousand Oaks biotech giant Amgen paid  $762 million in fines and penalties and pleaded guilty to a federal charge related to illegal marketing of its anemia drug Aranesp. Britain's GlaxoSmithKline and Illinois-based Abbott Laboratories paid $3 billion and $1.5 billion in government penalties, respectively, in connection with their off-label promotions of blockbuster drugs. Glaxo's was the biggest drug company settlement in history. * * * To the companies, however, these big numbers are just chump change. Typically they don't even represent repayment of ill-gotten gains — more often merely the cost of doing business. And to the public, they're insults piled atop the injuries caused by the firms' wrongdoing. "These fines are a carny act to keep the rubes happy," according to William K. Black, who was a thrift regulator during the savings and loan crisis of the 1980s. "It's cynical — the art is to make the amount sound large but make sure that it has no material effect." What might really get the attention of the CEOs and other top executives of lawbreaking companies would be some time in the hoosegow. Does that sound quaint? If so, it's because not a single high-ranking executive of any of the companies mentioned above faced indictment or was even forced to step down.

OCC lowers JP Morgan Chase's CRA Grade to Satisfactory

by Jeff Sovern

The Wall Street Journal has the story here.  Previously the grade had been outstanding.  The other three giant US banks retain ratings of outstanding.  Two thoughts: If JP Morgan Chase undertakes new lending to improve its rating, that will say something about the importance of the Community Reinvestment Act in spurring banks to act.  And second, this may be more evidence that the Office of the Comptroller of the Currency (now led by Thomas Curry) under the Obama administration is more protective of consumers than under earlier administrations. 

Mortgage Crisis in a Nutshell Video

John E. Campbell of Denver has created a video on the mortgage crisis. Here's the abstract (yes, there's an abstract):

Before becoming a law professor, much of my work was as a litigator and appellate attorney. I became increasingly passionate about the problems that exist in the mortgage industry. I also became increasingly aware that most people, even very educated people, including lawyers, do not have a working knowledge of the big picture with regards to the mortgage crisis. Although people have often heard of “subprime loans,” or “robo-signing” or “securitization,” they are often unaware of how these buzz words fit into the full scheme.

As a result, with the help of a colleague named Erich Vieth, we put together a 52 minute video that covers the mortgage crisis in a nutshell. It is complete with some simple graphics and plain-spoken explanation. I chose to put my scholarship in a video so that 1) it could reach a wider audience, and 2) because the topic lends itself to clear, oral explanation.

I am providing the link to the video, which is publicly available. I have received comments from legislators, the media and other interested parties relating to the video. The video also appears on the National Consumer Law Center’s website. Although it is meant to simplify the mortgage crisis, it represents thousands of hours of reading and learning.