Consumer Law & Policy Blog

IMF Researchers on the Impact of Foreclosure Laws on the Supply of Credit

Jihad Dagher and Yangfan Sun, both of the International Monetary Fund, have written Borrower Protection and the Supply of Credit: Evidence from Foreclosure Laws.  Here's the abstract:

Laws governing the foreclosure process, which vary across jurisdictions, have direct consequences on creditors’ losses from borrower default, and thus, could potentially affect lending decisions. Our empirical strategy exploits a quasi-experimental setting using loan-level data to examine the impact of these laws on banks’ propensity to reject a loan application. Our analysis takes into consideration the variation in the banking landscape across state borders, present even within contiguous counties, an aspect that has been overlooked in the extant literature. We find that judicial foreclosure and the prohibition of recourse reduce the supply of credit mainly for jumbo (non-conforming) loans, i.e., loans that are ineligible to be guaranteed by the GSEs. These results are robust to a battery of robustness tests. Our findings illustrate the consequences of foreclosure laws, and more generally borrower protection laws, on credit supply. They also shed light on an indirect subsidy by the GSEs to borrower-friendly states.

Victory for patients in Michigan Supreme Court

More than one third of the states have removed criminal penalties for the use of medical marijuana, which be can a uniquely effective treatment for a number of serious medical conditions. (For one powerful example, see this story about a cancer patient who is a former client of mine.)

Of course, because of the federal prohibition on marijuana, the drug exists in a legal grey area -- allowed under state law but prohibited under federal law, meaning that federal authorities can arrest medical marijuana patients but state authorities in the states that have decriminalized cannot. The removal of state criminal penalties is significant, however, because most drug-law enforcement is carried out by state authorities; the feds simply don't have the resources to go after every drug user, and -- DOJ has indicated -- don't necessarily want to.

One legal question that has repeatedly arisen is whether state laws decriminalizing the drug are preempted by the federal laws banning it. Joining that debate today on the side of patients, the Supreme Court of Michigan (one of the states that has decriminalized medical marijuana) held that the federal ban does not preempt state decriminalization. This is an important victory for patients who rely on the drug for treatment, and -- in the long run -- for science. Permitting the states to continue their experiment with allowing medical marijuana will increase pressure on the federal government to reverse its longstanding, severe restrictions on research into the medical properties of marijuana, and we can move toward informed, science-based national policy about the drug and away from a blanket federal ban on medical uses -- a ban based on fear rather than data.

Teaching Consumer Law Conference

More on data breaches from U.S. PIRG's Ed Mierzwinski

by Ed Mierzwinski (guest post)

I testified Monday at a Senate Banking hearing on the Target breach. The chair of the subcommittee, Mark Warner, indicated support for the longtime consumer-group position that consumer debit-card liability should be made equal to the far more more consumer-friendly credit-card liability. My own blog post has more. My testimony also discusses important breach notification and preemption issues. To watch the entire hearing, go here.

 

  

Fed Staff Article on Payment Fraud Liability

Sandeep Dhameja, Katy R. Jacob and Richard D. Porter, all of the Federal Reserve Bank of Chicago, have written Clarifying Liability for Twenty-First-Century Payment Fraud, 37 Economic Perspectives (2013).  Here's the abstract:

This article examines the governance structure of retail payments in the United States, provides an overview of payment fraud, and discusses in depth the liability frameworks for fraud involving specific payment methods. It also presents a series of recommendations that describe how the public sector might work together with the private sector to reduce fraud risks by clarifying liability for fraud.

Enforcing the Home Affordable Modification Program (HAMP)

That's the name of this article by law professor Jonathan Marcantel. Here's the abstract:

In 2009, the Secretary of the Treasury (“the Secretary”) implemented the Home Affordable Modification Program (“HAMP”), a program designed to minimize foreclosures by providing incentives to loan servicers who modify eligible mortgages. Notwithstanding both its design and goal, HAMP has largely failed to achieve its projected impact, due, at least in part, to servicer non-compliance with HAMP’s mandates. Nevertheless, mortgagors who are injured by servicer non-compliance lack legal remedies to force servicer compliance, as neither HAMP nor its implementing legislation provide a private right of action. Furthermore, and notwithstanding an array of governmental reports specifically finding systemic servicer non-compliance, the Secretary has not exercised any available enforcement mechanisms. As a result, unnecessary foreclosures have continued to occur and have continued to occur at a rate inconsistent with HAMP’s projections. As a remedy for both servicer non-compliance and the resulting, negative effect of unnecessary foreclosures, this Article argues that Congress should enact legislation that provides for a private right of action for violations of HAMP.

TV News Confronts Scam Debt Collector

Here.  Lots of FDCPA violations.

Judge O'Scannlain: violation of a congressionally-created right is a injury sufficient for standing

Back in the Supreme Court's 2011 Term, a case that got a fair bit of attention was First American v. Edwards, which raised the question whether a plaintiff whose only injury was the violation of a congressionally-created right had standing to sue in federal court. The Court dismissed the case as improvidently granted (i.e., without ruling on it), thus leaving in place a Ninth Circuit decision holding that a plaintiff in such a circumstance does have standing.

Yesterday, a Ninth Circuit matter-of-factly applied that rule to hold that the plaintiff's allegation of a violation of his rights under the Fair Credit Reporting Act was enough to support standing, regardless of whether he had suffered further harm. It is not terribly remarkable that the Ninth Circuit followed its own precedent. What is worthy of note is the author of the opinion -- Judge Diarmuid O'Scannlain, widely considered a strong conservative (see, for instance, here and here) and therefore particularly likely to be skeptical of standing. Even if he felt bound by prior Ninth Circuit law, Judge O'Scannlain could have noted he was following circuit law reluctantly despite his disagreement with it or that he had some doubts about the circuit's jurisprudence (for examples of such opinions, see the majority opinion here and Judge Wallace's opinion "writing separately" here). But Judge O'Scannlain seemed to have no trouble with the point. Perhaps that bodes well for how other conservatives will view this issue.

Drug store giant CVS quits smoking

CVS stops selling tobacco (on October 1, 2014) because it's "the right thing to do." Wow.

Payday loan market shrinking?

As this National Consumer Law Center press release explains, seven major banks last month left the payday loan business in response to regulatory pressure and outcry from advocacy organizations. What effects that has on the payday loan market and consumers who particiapte in it remains to be seen. Here's a brief excerpt from NCLC's release:

The seven banks that have exited the payday loan business this month have  an opportunity to show leadership in developing affordable small dollar credit options for consumers with less than pristine credit, according to advocates at the National Consumer Law Center (NCLC). “Banks have thankfully exited the payday loan business,” said Lauren Saunders, managing attorney of the National Consumer Law Center in Washington. “I am confident that banks that were making 300% so-called deposit advance products can develop better small dollar credit options and non-credit options, even for consumers who do not qualify for prime lines of credit.” In the past week, in response to regulatory pressure and public outrage, Wells Fargo, U.S. Bank, Fifth Third Bank, Regions Bank, Bank of Oklahoma and its affiliates, and Guaranty Bank all announced that they were halting their deposit advance programs that made short term loans at rates near or above 300% APR. Many of the banks said they are working on other products.