Consumer Law & Policy Blog

On Credit Reporting

by Jeff Sovern

From time to time we blog about credit reporting issues. But it is worth noting that when it operates properly, the credit reporting system is a huge boon to lenders and consumers, because it enables lenders to determine which consumers are most likely to repay a loan, which in turn enables lenders to make loans at lower risk and hence lower cost to consumers.  This is pointed up by a story in today's Times, Credit Score, by Multiple Choice, about the workarounds employed in other countries which lack our type of credit reporting system.  Our credit reporting system is a long way from perfect and needs fixing--something the Consumer Financial Protection Bureau seems to be working on and I wish Congress would also attend to--but an accurate credit reporting system provides enormous benefits to a lot of people.

Response to petition for rehearing filed in Third Circuit Carrera class certification appeal

As we've explained in a series of posts, in Carrera v. Bayer, the Third Circuit reversed a grant of class certification on the ground that the class wasn't "ascertainable." Among other things, the panel said that the class of purchasers of an over-the-counter weight-loss product had not shown that it would be able to screen out "fraudulent or inaccurate claims"--claims that would not have been made until after judgment or settlement. Until the Carrera decision, plainitiffs have not been required to make that kind of showing at the class-certification stage.

We told you about the plaintiff's petition for en banc hearing and Public Citizen's amicus brief in support of rehearing as well as three other amicus briefs from a group of law professors, Public Justice, and Angeion Group. The latter brief was particularly interesting. Angeion Group is a class-action administration company, and its brief said that the panel's decision misunderstood the ability of courts and claims administrators to root out fraud and inacurracy in class actions.

On November 26, Third Circuit ordered the defendants to respond to the rehearing request. Here's the defendants' response, which was filed a few minutes ago.

CFPB Finds Amex Engaged in Illegal Credit Card Practices, Orders $59.5 Million Refund

The CFPB statement is here; Times coverage here. From the Bureau's statement:

Some consumers were led to believe that if they bought the Account Protector product, their minimum monthly payment would be cancelled if they experienced a qualifying life event. In reality, the benefit payment would be limited to 2.5 percent of the consumer’s outstanding balance, up to $500. In many cases, that amount was less than the minimum payment due.

* * *

 Consumers were charged fees as soon as they enrolled in identity protection add-on products, even when American Express or its vendors had not yet obtained the authorization necessary to begin monitoring the consumers’ credit information. American Express did not inform consumers that they needed to complete a second step in the enrollment process to obtain all of the advertised benefits. Approximately 85 percent of consumers who enrolled in the identity protection products paid the full product fee without receiving all of the advertised benefits. In some cases, consumers paid for these services for several years without receiving all of the promised benefits.

* * * The unfair monthly fees that customers were charged sometimes resulted in customers exceeding their credit card account limits. This then led to additional fees for the customers. Some consumers also paid interest charges on the fees for services that were never received.

How much do credit-card companies pay colleges and their affiliates to faciliate marketing to students?

Sometimes a good bit, according to this annual CFPB report issued recently. Chris Morran over at the Consumerist has this analysis of the report, and he lists the 10 biggest payouts to colleges and alumni associations in 2012:

1. Penn State Alumni Association: $2,742,743 from FIA Card Services, N.A.
2. Alumni Association of the University of Michigan: $1,800,000 from FIA Card Services, N.A.
3. University of Southern California: $1,505,550 from FIA Card Services, N.A.
4. University of Tennessee: $1,428,571 from Chase Bank USA, N.A.
5. California Alumni Association (Berkeley): $1,353,450 from FIA Card Services, N.A.
6. General Alumni Association of the University of North Carolina at Chapel Hill: $1,250,000 from FIA Card Services, N.A.
7. Association of Former Students of Texas A&M University: $1,209,702 from FIA Card Services, N.A.
8. The University of Georgia Foundation: $1,157,737 from FIA Card Services, N.A.
9. Yale University: $1,140,000 from Chase Bank USA, N.A.
10. Boston College: $1,100,000 from GE Capital Retail Bank

USA Today investigation of tainted dietary supplements

We've been covering the serious health hazards associated with dietary supplements (for instance, here, here, and here). We've noted that although dietary supplements have drug-like effects and supplement makers market their products by trumpeting those effects, the products are not regulated like drugs by the FDA. In fact, unlike drugs, they are marketed without governmental pre-approval. With that in mind, read this USA Today investigative report by Alison Young about tainted dietary supplements and some of the people who run the industry.

CFPB and 49 states require mortgage loan servicer to pay $2 billion for systemic misconduct in mortgage servicing

The CFPB, 49 states, and the District of Columbia have entered into an agreement with Ocwen Financial Corp. the largest nonbank mortgage servicer in the country, that requires Ocwen to provide more than $2 billion in relief to homeowners. The relief will be in the form of principal reduction and refunds to customers whose homes were foreclosed. "Since 2009, Ocwen has been taking advantage of homeowners with shortcuts and unauthorized fees and deceiving consumers about loan modifications," according to the CFPB.

Ocwen specializes in handling subprime or delinquent loans. Because Ocwen services loans but does not hold loans, it cannot directly reduce the amount of principal. But Ocwen has agreed to offer and facilitate loan modifications for borrowers facing foreclosure. The CFPB explains some of the details here. The 173-page order is accessible through a pdf linked at the top of that page. The CFPB's press release is posted here.

Time to pass a "bill of non-attainder" for Edward Snowden

by Paul Alan Levy    

Whatever happens as a result of Judge Leon's decision this week and whatever comes of today's recommendations from the intelligence review panel, we cannot forget who it was who helped our country get to the stage of having this debate, not to speak of the personal price he has had to pay as a whistleblower -- turning to foreign dictatorships for refuge.  We should be treating him as a hero for what he did, and Congress can do something about it.

The constitution bars a bill of attainder -- a law declaring that a particular individual is guilty of a crime. But there is no reason why Congress cannot enact a bill of non-attainder: a statute declaring retroactively that Edward Snowden is not guilty of any crime for what he has done to date, and forbidding the government from prosecuting him for past conduct.  Surely we owe him that much for what he has done for us.

Another Legal Front for AirBnB

The blogosphere has been humming with concern about a subpoena from the Attorney General of New York seeking to identify AirBnB users who are likely renting out their apartments in violation of local law.  It appears, however, that the AG isn't the only one concerned -- note this letter from a co-op board warning its shareholders against short-term rentals that apparently violate the proprietary lease, and, at least in the view of this co-op, raise safety issues. 

Utah couple sues online retailer for wrecking customer's credit score in response to online criticism

You may recall the story of John Palmer of Utah, from whom online retailer KlearGear.com demanded $3500 after John’s wife Jen posted an online review discussing the couple's bad experience with KlearGear’s customer service. When John refused to pay the outrageous demand, KlearGear reported the $3500 alleged “debt” to the credit reporting agencies and wrecked John’s credit.

According to KlearGear, John owed the money because when Jen posted her review, John violated a “non-disparagement clause” in the site’s Terms of Sale and Use that prohibited users from taking any action that negatively impacts KlearGear.com or its reputation, on pain of a $3500 fine. But this prohibition didn’t appear in the Terms when John Palmer used KlearGear's website back in 2008 (in fact, the Internet Archive reveals that it didn’t show up until more than three years later!), and even if it had, businesses aren’t allowed to enforce outlandish terms like this one in their fine print.

Three weeks ago, Public Citizen sent KlearGear a demand letter on behalf of the Palmers, asking the company to clear up John’s credit, to compensate the Palmers for their ordeal -- which included a car loan delayed, a credit card denied, and three weeks this fall that the Palmers and their three-year-old son spent without heat in their home because their furnace broke and they couldn’t get a loan to pay for new one -- and to stop using the “non-disparagement clause” on their customers.

KlearGear never responded.

So today, Public Citizen filed suit on behalf of the Palmers, seeking a judicial declaration that the $3500 so-called “debt” is invalid and seeking economic, emotional, consequential, and punitive damages for KlearGear’s abusive practices, which have drawn attention nationally (for instance, ABC and CNN) and even internationally (see this coverage from the UK, Israel, and France). 

Today’s case was filed in federal court in Utah. The complaint also names as a defendant debt collector Fidelity Information Corp., for the purpose of the declaratory judgment that John doesn't owe any money (John’s credit report reflects that Fidelity now owns the supposed “debt”). In addition to declaratory relief, the claims against KlearGear include violations of the federal Fair Credit Reporting Act, defamation, intentional interference with economic relations, and intentional infliction of emotional distress. You can read the full complaint here.

The state of the U.S. auto industry

The auto industry was dying. The 2008-2009 crash was not the cause but would accelerate it. And perhaps the government-funded bailout was a waste. But, wait .... Listen to this IPR report on the U.S. auto industry rebound, which says not only that sales are up 50% from its 2009 low point, but that the domestic care market is in good shape for a generation to come.