Consumer Law & Policy Blog

New Duke resource on the mortgage lending that led to the Great Recession

Guest Post from Edward Balleisen:

Readers of this blog may be interested in a new website, American Predatory Lending (APL), which explores the state-level dynamics of mortgage lending in the run-up to 2008, with an initial focus on North Carolina.  Law professors who teach about consumer law and/or banking law will find a range of resources that introduce the complicated issues around residential mortgages to students.  The site includes a series of oral history interviews with former state legislators and regulators, representatives of the banking industry, and leaders of NGOs related to mortgage lending.  One key topic concerns the passage and later enforcement of the 1999 North Carolina Predatory Lending Law, which became a model for several other states that wanted to crack down on abuses in the residential mortgage market.  Interviewees also reflect on the evolution of the mortgage market since the 1970s, the shifting regulatory contexts over that time span, and their views about what caused the 2008 financial crisis.

 

Data visualizations of statistics about the North Carolina mortgage market and consumer protection enforcement complement the oral histories, as do a set of policy timelines and memos about state- and national-level regulation of mortgage lending.  Our key findings suggest that more stringent oversight of aggressive mortgage practices moderated the housing boom in North Carolina, and so partially insulated the state from the broad collapse in housing values across the country.

 

The CL&P Blog audience may also find our mode of organizing research of interest.  We are part of Bass Connections, a Duke University program that supports interdisciplinary research teams comprised of faculty, graduate and professional students, undergraduates, and often community organizations.  These teams spend a year or more addressing some pressing societal issue or challenge.  For faculty, the teams often serve as a seed grant; most students receive academic credit.  (As a matter of disclosure – in my capacity as Vice Provost for Interdisciplinary Studies, I’m responsible for overseeing the program).

 

The American Predatory Lending team includes four leads – me, a Professor of History and Public Policy who specializes in the history of American law, business, and regulation, as well as Vice Provost; Lee Reiners, Executive Director of Duke Law School’s Global Financial Markets Center; Joseph Smith, former North Carolina Commission of Banks; and Debbie Goldstein, Director of Duke’s North Carolina Leadership Forum. 

 

But the bulk of our research (the conducting of our interviews, the development of our data and policy analysis, and the construction of our website) was carried out by a team of seventeen students -- fifteen from Duke and two from UNC-Chapel Hill.  They included graduate students in law, business, public policy, and data science, and undergraduates majoring in history, sociology, economics, public policy, statistics, computer science, philosophy, and engineering.  We divided this group into overlapping sub-teams – oral history, data, policy, IT/website development, and marketing – each with one or two student leads.  One graduate student also served as overall project manager.

 

We will be continuing our research over the summer and next year, drawing on the talents of a few continuing students and an even larger new cohort.  In addition to engaging in county level analysis of North Carolina mortgage markets and delving more deeply into consumer protection efforts across the state, the team will be extending its geographic focus to additional states that either had comparatively tough or permissive consumer protection regimes during the 2000s.

 

The Bass Connections model may be of interest to law professors interested in building courses or research leading to law review notes around larger-scale collaborative inquiry.  The program’s robust website includes several hundred team profiles, an archive of student reflections, and extensive resources for planning, organizing, and leading interdisciplinary research teams, as well as building those endeavors into curricular structures.

Brian Galle: Well-heeled universities could prevent harm to workers and students in the current crisis if they spent some of their massive endowments, rather than establishing austerity plans

Law prof Brian Galle has written If Not Now, When: Why Won’t Universities Spend Their Money?  In it, he explains why well-heeled universities should not curtail spending during economic downturns. Rather, he says, it makes sense for those schools to spend their money now, protecting the schools' workers and students in the process.

Da Lin and Daniel Schwarcz call for car insurance rate cuts while driving is down so much

Da Lin and Daniel Schwarcz have written an op-ed, States Must Act To Cut Auto Insurance Rates During COVID-19 for Law360 (free access during the pandemic). They explain "Auto insurers are experiencing a massive windfall as a result of the coronavirus, but they are not returning a fair portion of those gains to consumers. And if they continue to do business as usual, they will disproportionately harm those who can afford it the least. State insurance regulators must use their authority to right these wrongs." 

Foohey, Jiménez & Odinet Paper: The Folly of Credit As Pandemic Relief

Pamela Foohey of Indiana University Maurer School of Law, Dalié Jiménez of California, Irvine and Christopher K. Odinet of Oklahoma have written The Folly of Credit As Pandemic Relief

68 UCLA L. Rev. Disc. __ (2020 Forthcoming). Here's the abstract:

Within weeks of the coronavirus pandemic appearing in the United States, the American economy came to a grinding halt. The unprecedented modern health crisis and the collapsing economy forced Congress to make a critical choice about how to help American families survive financially. Congress had two basic options. It could enact policies that provided direct and meaningful financial support to people, without the necessity of later repayment. Or it could pursue policies that temporarily relieved people from their financial obligations, but required that they eventually pay amounts subject to payment moratoria later.

In passing the CARES Act, Congress primarily chose the second option. This option reflects a belief that offering people credit can bring them meaningful relief because it assumes that people will have the ability to pay back the loan as it becomes due. The assumption that people will be able to repay credit masquerading as “relief” in the wake of the pandemic is a serious error that will have enduring negative consequences.

In short, Congress got the balance between providing true money versus what amount to credit products to Americans fundamentally backwards. But given that, unfortunately, the effects of the pandemic likely will continue for months, if not years, it is not too late for Congress to adopt a family financial well-being approach to relief that provides meaningful, widespread, and expanded direct payments to households in distress.

Report: Debt collection suits dominate state court dockets

A new report from Pew describes how debt collection lawsuits have transformed state courts.

Among the report's findings:

• Fewer people are using the courts for civil cases.
• Debt claims grew to dominate state civil court dockets in recent decades.
• People sued for debts rarely have legal representation, but those who do tend to have better outcomes.
• Default judgments exact heavy tolls on consumers.

Pew makes three proposals:

• Track data about debt claims to better understand the extent to which these lawsuits affect parties and at which stages of civil proceedings courts can more appropriately support litigants.
• Review state policies, court rules, and common practices to identify procedures that can ensure that both sides have an opportunity to effectively present their cases.
• Modernize the relationship between courts and their users by providing relevant and timely procedural information to all parties and moving more processes online in ways that are accessible to users with or without attorneys.

The full report is here.

Shmuel Becher on design principles for effective consumer protection legislation

Shmuel I. Becher of New Zeeland's Victoria University of Wellington has written The Puzzle of Effective Consumer Protection Legislation: Challenges, Key Lessons and Design Principles, in The Law and Economics of Regulation, Mathis & Torr eds (forthcoming Springer, 2021). Here is the abstract:

Legislation, even when well-intended, sometimes fails to provide the desired results. By design, the legislative process suffers from “noise” and is typically driven by diverse motives. Inevitably, then, the legislative process generates some mistakes.

In spite of these mistakes, the legal discussion of the mechanics of the legislative process is partial and underdeveloped. Focusing on consumer protection legislation, this chapter aims to fill some of this gap. It makes two complementary arguments. Descriptively, the chapter succinctly points to some predominant weaknesses in the legislative process. It illustrates how consumer protection laws may not only fail to achieve their desired results but can also backfire and harm consumers. Normatively and prescriptively, the chapter calls for a nuanced and holistic attitude to consumer protection legislation. It argues for more cautious and tailored consumer protection legislation, which benefits from healthy skepticism.

The chapter identifies four principles for improving the process of consumer law-making. First is a more careful approach to legislation, where legislatures progress in a gradual and moderate way. The second proposed principle is to approach the legislative process from a multi-disciplinary, evidence-based, empirical perspective. The third principle suggests adopting a humble decision-making process, which employs temporary consumer protection laws. Finally, the fourth principle offers diffusing and delegating some, or perhaps more, legislative and policy responsibility to administrative agencies and consumer organisations.

The chapter draws on consumer protection examples from Europe, North America, Australia, New Zealand and Israel. However, it is largely general in nature. If proven successful, the proposed design principles may be scaled up and implemented in additional jurisdictions and other domains.

Lawsuit alleges Dep't of Education is illegally garnishing student borrowers' wages

Yesterday, on behalf of a class of student borrowers, the National Consumer Law Center and Student Defense, with the support of the Student Borrower Protection Center, filed a class action lawsuit against the Department of Education and Secretary Betsy DeVos in federal district court in DC. The suit alleges that the Department is illegally garnishing student borrowers’ wages, in violation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which prohibits the Department from garnishing wages of student borrowers through September 30, 2020. The complaint requests an immediate halt to the garnishment and refund any money taken from student loan borrowers

A copy of the class action complaint is available here.