Consumer Law & Policy Blog

While the CFPB Made it Easier to Complain to Credit Bureaus, the House Attacked the CFPB

by Jeff Sovern

The CFPB announced yesterday that the big three credit bureaus have added a function to their web sites to enable consumers to upload documents supporting claims of errors--police reports, copies of correspondence, etc--in credit reports.  That shouldn't be a big deal in 2014, but in the world of credit bureaus, where the incentive is to accommodate the creditors who provide the bulk of both the information the credit bureaus sell and the revenue they receive (see here), everything that aids consumers is a step forward. Until last year, as noted in the NCLC report Automated Injustice: How a Mechanized Dispute System Frustrates Consumers Seeking to Fix Errors in Their Credit Reports (2009), consumer complaints to credit reports were typically reduced to codes, often of only two digits, and forwarded to creditors without any supporting documents.  Now the credit bureaus will be able to forward those documents more readily and consumers will have an easier time supplying them to credit bureaus.  As NCLC's Chi Chi Wu was quoted in the Times:

“The Consumer Financial Protection Bureau was able to get the bureaus to do something that years of advocacy and litigation had been unable to achieve,” said Chi Chi Wu, a lawyer at the National Consumer Law Center. “Step by step, they are trying to fix this terribly broken system and they are making decent progress considering how old they are.”

These seemingly small steps, which for affected consumers may turn out to be big steps, are just another reason why we need an effective CFPB so much.  Which is in turn another reason yesterday's vote in the House to undermine the Bureau is so disappointing (see the Washington Post story here). (HT: Ed Mierzwinski)

PIRG Report: Mistaken Identity Tops Debt Collection Complaints

Here.  Excerpts from PIRG's news release:

Debt collectors trying to collect debt from the wrong person were the top source of complaints to the Consumer Financial Protection Bureau (CFPB), according to a report released today by the U.S. PIRG Education Fund. The report also found that debt collection, the newest category in the database, is already a top source of complaints to the CFPB, outpacing common consumer products such as credit cards and bank accounts.

* * *

Some key findings:

• The CFPB has helped enable more than 2,700 consumers – 22 percent of complainants - to receive relief as a result of their debt collection complaints. The majority of these consumers received non-monetary relief, such as halting harassing phone calls.
• The most common problem was debt collectors trying to collect debt from the wrong person (25 percent), followed by repeated phone calls (13 percent). State and federal laws protect consumers from harassing phone calls from debt collectors.
• Encore Capital Group received the most complaints nationwide.
• The District of Columbia ranks #1 in complaints per 100,000 residents, followed by Nevada, Florida, and Delaware.
• About 16 percent of responses received from debt collectors to complaints filed with the CFPB were deemed unsatisfactory by consumers and were subjected to further dispute.
• Companies varied widely in how frequently they offered relief to complainants. Allied Interstate LLC granted relief to over 97 percent of complainants, while several companies never provided relief.

FTC Announces Top Consumer Complaints for 2013; ID Theft Still Leads the List

Here.  The top 10 complaint categories include:

Category	Number of Complaints	Percentages
Identity Theft	290,056	14%
Debt Collection	204,644	10%
Banks and Lenders	152,707	7%
Imposter Scams	121,720	6%
Telephone and Mobile Services	116,261	6%
Prizes, Sweepstakes, and Lotteries	89,944	4%
Auto Related Complaints	82,701	4%
Shop-at-Home and Catalog Sales	66,024	3%
Television and Electronic Media	53,087	3%
Advance Payment for Credit Services	50,422	2%

Arizona Gov. Brewer vetoes bill permitting businesses to deny service to LGBT customers

Despite her history of backing measures on the leading edge of the conservative agenda (such as the controversial immigration law S.B. 1070, later invalidated in part by the Supreme Court), Arizona's Republican Governor Jan Brewer yesterday vetoed a bill that would have permitted discrimination against LGBT customers by business owners who cited religious reasons for doing so. As the Washington Post explains, despite the bill's appeal to the conservative base, it drew opposition from business groups within the state, and Arizona's two Republican senators urged the governor to veto it.

This marks the latest in the string of victories for LGBT rights; in the last month and a half, federal district courts have struck down bans on same-sex marriage in Virginia, Oklahoma, and Texas. What makes yesterday's development particularly notable is that it is a political victory, not a judicial one, in a conservative state.

CFPB sues chain of for-profit colleges, accusing it of predatory lending

The Consumer Financial Protection Bureau announced yesterday that it has sued

ITT Educational Services, Inc., accusing the for-profit college chain of predatory student lending. We believe that ITT used high-pressure tactics to push many students into expensive private student loans that were likely to end in default. This is our first public enforcement action against a company in the for-profit college industry.

Read the agency's complaint filed in federal court in Indiana and the agency's press release.

House to Vote this Week to Make CFPB Less Effective

by Jeff Sovern

Housing Wire reports in Congressional Republicans mull bill to add CFPB oversight, that the House will vote this week on a bill to replace the CFPB's director with a commission and subject it to the congressional appropriation process.  The bill is not expected to receive a warm welcome in the Senate or at the White House.  Though the bill is described as increasing accountabilty for the Bureau, the effect of the changes would be to reduce the Bureau's ability to protect consumers.  For example, while the proposal to subject the Bureau to the appropriations process sounds unobjectionable, when Fannie and Freddie Mac's regulator were subject to that system, the regulator ended up toothless and unable to prevent the conduct that led to the GSEs needing gigantic bailouts.  Ultimately, the regulator was replaced, as we have previously discussed.   And commission structures, which often require that different commissioners be of different parties, frequently produce deadlocks. Would the CFPB commissioners include bank lobbyists, just as the OCC was formerly led by a bank lobbyist, who sued states to block them from stopping predatory lending (see here)? If so, how much protection would the Bureau provide consumers?

Here is how House Financial Services Chair Jeb Hensarling is quoted in the article as justifying the bill:

“These are modest, common-sense reforms that bring a modicum of accountability and transparency to the CFPB. We know that this is an agency that was designed to be unique, if not perhaps rogue; it is an agency like no other. Arguably it is the single most powerful and least accountable Federal agency in the history of our nation and thus demands rigorous oversight. The American people deserve better,” said House Financial Services Committee Chairman Jeb Hensarling, R-Texas.

“They now have witnessed a failed stimulus plan, trillions of dollars of unsustainable debt… revelations of NSA domestic data collection and a broken promise of ‘if you like your health insurance, you can keep it.’ The American people rightfully demand accountability from this administration, and H.R. 3193 is a step in the right direction,” Hensarling said.

Of course, the items he mentions in the second paragraph have nothing to do with the Bureau or financial regulation and some are inaccurate. As for the first paragraph,the Bureau has less independence than the OCC. It is interesting that Representative Hensarling fails to note that the CFPB was designed to prevent future Great Recessions. If we are worried about rogues, perhaps we should worry about those who destroyed the country's economy more than about those who are merely protecting consumers.  And speaking of rogues, I wonder how Mr. Hensarling feels about Sarah Palin, a self-described rogue.

How the subprime mortgage crisis undermined the property recording system and what to do about it

Those are the topics considered in law teacher Joseph Singer's new article Foreclosure and the Failures of Formality, or Subprime Mortgage Conundrums and How to Fix Them. Start with the abstract:

The subprime mortgage crisis was not only an economic disaster but posed challenges to traditional rules of property law. Banks helped create the crisis by marketing mortgages through unfair and deceptive practices. They induced many consumers to take out high-priced loans they could not afford and then passed the risk to investors who were fooled into thinking these were safe investments. These practices violate traditional norms underlying both consumer protection and securities regulation statutes. In addition, U.S. banks greased the wheels of the mortgage securitization process by creating a privatized mortgage registration system that has undermined the clarity and publicity of property titles. Because of securitization procedures and the lax record-keeping practices, the banks have undermined the property recording system; we no longer have clear public titles to real property in the United States. To fix the mess they left us, we must adopt norms to govern the mortgage market that will protect both homeowners and investors from predatory loans while promoting legitimate property transactions. We also need to fix the mortgage registration system so we have a legal infrastructure for property that both works well and reflects the norms of a free and democratic society.

How might the CFPB's design affect its performance?

That's the topic of Why Who Does What Matters: Governmental Design, Agency Performance, the CFPB and PPACA by law teachers David Hyman and William Kovacic. Here's the abstract:

How should the federal government be organized – and who (i.e., which departments, agencies, bureaus, and commissions) should do what? The issue is not new: President James Madison addressed governmental organization in his 1812 State of the Union Address, and in the last century, it is the rare President that does not propose to reorganize some part of the federal government. Indeed, on numerous occasions during the past century, virtually every part of the federal government has been repeatedly reorganized and reconfigured. In previous work, we examined the dynamics that influence the assignment of regulatory duties to an agency, how those dynamics (and the allocation of responsibilities) can change over time, and how the specific combination of regulatory functions and purposes affect agency decision-making. In this article, we focus on the Consumer Financial Protection Bureau (“CFPB”). Using the framework we developed in our previous work, we examine the costs and benefits of the design choices made by the architects of the CFPB, and make some (appropriately hedged) predictions about the future prospects of this latest addition to the federal bureaucracy. We also briefly consider the implications of our analysis for the implementation of the Patient Protection and Affordable Care Act (“PPACA”).

Elizabeth Renuart Updates Foreclosure Paper

In August we posted a link to a paper Albany's Elizabeth Renuart had written, Uneasy Intersections: The Right to Foreclose and the U.C.C., 48 Wake Forest L. Rev. 1205 (2013),    The paper has already drawn more than 500 downloads.  An updated version is now available.  Here is the revised abstract:

Historically, the practice of real property and foreclosure law was routine and noncontroversial. This legal landscape significantly altered during the spectacular growth of securitization deals involving trillions of dollars of residential mortgage loans. The National Conference of Commissioners on Uniform State Laws (NCCUSL) was a driving force behind one of these changes. It adopted amendments to Article 9 of the Uniform Commercial Code in 1998, at least in part, to facilitate securitization. These modifications included extending coverage to the sale of (not merely to a security interest in) promissory notes, declaring that the sale of the note also constitutes a sale of the mortgage without the need for a written assignment of the mortgage, and providing for automatic perfection of interests in both the note and the accompanying mortgage without the need to file.

Meanwhile, the behavior of a number of mortgage lending and securitization participants or their agents generated additional legal complications.  Examples include the mishandling of loan notes and mortgages, the forging of indorsements or the submitting of fraudulent affidavits to courts in support of their purported right to foreclose, and the pressing of foreclosures without the necessary documentation. 

Confusion about the roles of and intersections among Articles 3 and 9 of the UCC and the right to foreclose under state real property law followed in the wake of these changes. These misunderstandings spawned volumes of judicial rulings, many of which appear to be at odds with each other. In an effort to reduce the ensuing legal confusion about the intersections between the right to foreclose and the UCC, this Article provides a roadmap of the relevant rules in Articles 3 and 9 and the right to foreclose in state real property law. Further, it explores the tension developing over the last decade among Articles 3, 9, and the right-to-foreclose concept in state real property law.

This Article advances the literature concerned with the right to foreclose by categorizing recent state appellate court decisions that address this right by the type of analysis applied by those courts. The rulings from Arizona, California, and Georgia fall into one category and are the subject of special scrutiny because they dismiss the role of the UCC outright. Moreover, these three states have experienced some of the worst foreclosure rates in the nation and permit foreclosures to proceed nonjudicially. Hence, these decisions will affect a broad swath of homeowners in danger of losing their homes. The Article then applies statutory construction principles to determine whether those courts ruled out the UCC unnecessarily, proffering that foreclosure laws in those states could be harmonized with the UCC.

Finally, the Article concludes that where inconsistencies arise between the UCC and state real property law, applying statutory construction principles likely will result in creating a more uniform legal landscape throughout the nation, in protecting homeowners from unjustified foreclosures, and in reducing litigation costs and judicial resources in a distraught foreclosure system.

Radio Interview on Fine Print in Consumer Contracts

Here.  Tim Danahey interviews Theresa Amato of Fair Contracts.org and Citizen Works.  Theresa discusses how consumer contracts reduce consumers to "contract serfdom" and also explores issues governing arbitration clauses. Worth a listen, and if you are teaching consumer law this semester, this merits passing on to students as a painless way to learn about consumer protection issues.