Consumer Law & Policy Blog

Will New US-EU "Trade" Negotiations Be Abused to Break Down Consumer Protection Standards on Both Sides of the Atlantic?

The Trans-Atlantic Consumer Dialogue ("TACD") a coalition of consumer organizations in both Europe and North America, has fired a shot across the bow of both the Obama Administration and the leadership of the EU, warning that "improving trade" through the proposed Transatlantic Trade and Investment Partnership ("TTIP") should not be a smokescreen for watering down important consumer protections on both sides of the Atlantic to meet the least common denominator in each country.  A copy of the TACD letter is here.

Illegal foreclosures against service members

That's the topic of this Dealbook article, which explains that banks have foreclosed on members of the military in violation of the Servicemembers Civil Relief Act. Here's an excerpt:

The nation’s biggest banks wrongfully foreclosed on more than 700 military members during the housing crisis and seized homes from roughly two dozen other borrowers who were current on their mortgage payments, findings that eclipse earlier estimates of the improper evictions. ... When regulators forced the [banks] to take a close look at their loans, JPMorgan, Wells Fargo and Bank of America, the largest loan servicers, each discovered about 200 military members whose homes were wrongfully foreclosed on in 2009 and 2010, according to the people with direct knowledge of the findings. Citigroup had at least 100 such foreclosures. The foreclosures violate the Servicemembers Civil Relief Act, a federal law requiring banks to obtain court orders before foreclosing on active-duty members. “It’s absolutely devastating to be 7,000 miles from your home fighting for this country and get a message that your family is being evicted,” said Col. John S. Odom Jr., a retired Air Force lawyer in Shreveport, La., who represents military members in foreclosure cases. “We have been sounding the alarms that the banks are illegally evicting the very men and women who are out there fighting for this country. This is a devastating confirmation of that.”

Read GAO study on compliance with the Servicemembers Civil Relief Act generally.

Ray Brescia Paper Calls for Strengthening the CRA

Raymond H. Brescia of Albany has written The Community Reinvestment Act: Guilty, but Not as Charged.  Here's the abstract:

Since its passage in 1977, the Community Reinvestment Act (CRA) has charged federal bank regulators with "encourag[ing]" certain financial institutions "to help meet the credit needs of the local communities in which they are chartered consistent with [] safe and sound” banking practices. Even before the CRA became law — and ever since — it has become a flashpoint. Depending on your perspective, this simple and somewhat soft directive has led some to charge that it imposes unfair burdens on financial institutions and helped to fuel the subprime mortgage crisis of 2007 and the financial crisis that followed. According to this argument, the CRA forced banks to make risky loans to less-than creditworthy borrowers. Others defend the CRA, arguing that it had little to do with the riskiest subprime lending at the heart of the crisis.

Research into the relationship between the mortgage crisis and the CRA generally vindicates those in the camp that believe the CRA had little to do with the risky lending that fueled these crises. At the same time, recent research by the National Bureau of Economic Research attempts to show that the CRA led to riskier lending, particularly in the period 2004-2006, when the mortgage market was overheated.

This paper reviews this and other existing research on the subject of the impact of the CRA on subprime lending to assess the role the CRA played in the mortgage crisis of 2007 and the financial crisis that followed. This paper also takes the analysis a step further, and asks what role the CRA played in failing to prevent these crises, particularly their impact on low- and moderate-income communities: i.e., the very communities the law was designed to protect. Based on a review of the best existing evidence, the initial verdict of not guilty — that the CRA did not cause the financial crisis, as some argue — still holds up on appeal. At the same time, as more fully described in this piece, an appreciation for the weaknesses inherent in the law’s structure, when combined with an understanding of the manner in which it was enforced by regulators, lead one to a different conclusion; although the CRA did not cause the crisis, it failed to prevent the very harms it was designed to prevent from befalling the very communities it is supposed to protect.

The defects in the CRA that emerge from this review, in total, suggest not that the CRA was too strong, but, rather, too weak. They also point to important reforms that should be put in place to strengthen and fine-tune the CRA to ensure that it can meet its important goal: ensuring that financial institutions meet the needs of low- and moderate-income communities, communities for which access to capital and banking services on fair terms is a necessary condition for economic development, let alone economic survival.

 

 

Online Payday Lenders In the Media

Today's Times has an editorial, Bleeding the Borrowers Dry.  Here is the final paragraph:

A bill pending in the Senate, known as the Safe Lending Act, would require all online lenders to comply with state laws that provide stronger consumer protections than the federal statutes. It would establish once and for all that payday loan borrowers have the right to stop lenders from raiding their bank accounts. State and federal regulators also need to prohibit banks from giving payday lenders access to the automatic payment system in states where predatory, high-interest loans are illegal.

Meanwhile, the American Banker ran Payday Lenders Assail Online Competitors. Brick-and-mortar payday lenders are arguing that states, like New York, which ban payday lending are not going to stop it--because consumers will just go online to get the loans--and are losing out on the jobs and taxes payday lending generates. Consumer advocates respond by citing a Pew Study finding that states with legalized payday lending have only slightly more online payday borrowing as states that bar it--but that states where it is legalized have much more storefront payday lending.

More Airline Fees

by Brian Wolfman

Despite the view among some consumers that the airlines are gouging consumers with fees, a recent study shows that fees are a very small part of the overall cost of flying. That may change. This article by Jim Martin explains that the airlines are introducing new fees. Here are some excerpts:

Among the fees airlines have announced in the last few weeks are a charge to zip through airport screening gates and board early, a fee to watch streaming movies and a fee to have your bags delivered in 36 cities around the country. It should be no surprise that airlines keep coming up with new fees: Combined, such charges generated an estimated $36 billion in 2012 for the world's largest airlines. ... United Airlines now allows economy passengers to board with the first group of passengers and to speed through "exclusive" security gates with shorter lines. The airline says the Premier Access fee starts at $9, but the charge for a typical flight is closer to $50 to $100. ... United has also expanded a service to deliver checked luggage to your home, office or hotel within 100 miles of the airport. The fee, starting at $29.95, has been expanded from six cities to 36, including San Francisco, San Diego and Palm Springs. Southwest Airlines now lets passengers with laptop computers or electronic tablets watch streaming movies on most of its planes for $5 per movie, per device. Southwest already charges $8 per day to connect to the onboard wireless Internet, but you don't need to pay for Wi-Fi access to watch the streaming movies.

None of these fees seems like a great imposition on consumers. They are for things that are distinct from the airlines' core job of getting you from point A to point B -- that is, different from misleading fees for the seats themselves and fees that make it difficult for consumers to comparison shop.

DOJ Responds to the D.C. Circuit's "Noel Canning" Recess-Appointment Decision

We've posted many times about the D.C. Circuit's Noel Canning decision, which held that three putative recess appointments made by President Obama to the National Labor Relations Board were not proper recess appointments. Therefore, the court ruled, the appointments were invalid because they did not go through the Constitution's normal appointments process -- presidential nomination and approval by the Senate.

The Department of Justice has now responded to the decision for the first time in a 20-page letter brief filed in the Third Circuit. Here's a pargraph from that letter summarizing the Administration's position:

The Noel Canning decision conflicts with nearly two centuries of Executive Branch practice and the decisions of three other Courts of Appeals, two of them sitting en banc. Evans v. Stephens, 387 F.3d 1220 (11th Cir. 2004) (en banc), cert. denied, 544 U.S. 942 (2005); United States v. Woodley, 751 F.2d 1008 (9th Cir. 1985) (en banc), cert. denied, 475 U.S. 1048 (1986); United States v. Allocco, 305 F.2d 704 (2d Cir. 1962), cert. denied, 371 U.S. 964 (1963). Noel Canning’s constitutional conclusions are inconsistent with the constitutional text; they conflict with historical practices and usages which the court did not address; they are at odds with the settled understandings shared by the Executive and Legislative Branches; and they threaten a serious disruption of the separation of powers.

The Blog of the Legal Times has this report.

Everything you want to know about sequestration (without having to ask)

The Center for Effective Government (formerly OMB Watch) has created Sequestration Central, a website devoted to providing comprehensive and up-to-date information on the federal government budget sequestration that went into effect today.

More on the "Big Spring" challenge to the Dodd-Frank law and the CFPB

by Brian Wolfman

The Big Spring suit filed in federal district court in D.C. challenges various provisions of the Dodd-Frank Wall St. reform law, including the legality of the Consumer Financial Protection Bureau, on separation-of-powers grounds. That suit includes a challenge to Richard Cordray's appointment as CFPB director as an impermissible (non-)recess appointment. We last posted about Big Spring when eight more states joined the case as plaintiffs.

Last Friday, the Justice Department moved to dismiss the case, arguing that the plaintiffs -- both the private plaintiffs (including Big Spring bank) and the states -- lack standing to sue. This past Wednesday, just five days later, both the private plaintiffs and the states filed their oppositions to the motion to dismiss. (I wonder whether the Supreme Court's brand-new standing ruling in the Clapper case will play a role here.)

The Blog of the Legal Times has posted this article on the standing motion and related developments in the Big Spring case. 

Federal banking regulators enter final $9.3 billion settlement with mortgage servicers; borrowers to receive cash and loan reductions

by Brian Wolfman

Last month, we posted about a likely settlement between federal regulators and 13 major mortgage servicers -- including some of the world's biggerst banks -- that would make direct cash distributions to homeowners who lost their homes or went underwater during the financial crisis, in whole or in part because of improper foreclosure and loan practices. At the time, some consumer advocates thought the deal -- then $8.5 billion -- was not big enough. For instance, Alys Cohen of the National Consumer Law Center called  the cash payments for consumers "wholly inadequate in light of the scale of the harm."

The deal -- now worth $9.3 billion -- was finalized yesterday, as explained in this article by Danielle Douglas. Douglas says that $3.6 billion will go directly to borrowers whose homes were wrongfully foreclosed in 2009 and 2010. The remaining $5.7 billion will be used to reduce mortgage payments or interest rates on existing loans. The amount and kind of relief that consumers will obtain under the settlment will depend on which of 11 types of harm a consumer suffered. Consumer advocates are concerned that, under the settlement, borrowers will have no input in deciding how their situations are categorized and no right of appeal. Douglas explains that homeowners should start recieving payments or loan reductions in the next month or so.

Go here to see each mortgage servicer's share of the settlement. (Bank of America tops the list at nearly $2.9 billion.)