House Republicans Wasting More Time Trying to Weaken the CFPB

by Jeff Sovern

The Wall Street Journal has the story here. The bill would allow other federal agencies to veto Bureau rules more easily.  It is hard to imagine the bill passing the Senate or being signed into law by the president. Meanwhile, the article points out, the clock is ticking on the debt ceiling.

Non-profit group sues to stop Department of Justice's $13 billion deal with JP Morgan Chase

by Brian Wolfman

Remember JP Morgan Chase's agreement with the federal government to pay $13 billion to settle claims that it knowingly sold faulty mortgage securities that contributed to the financial crisis? For a refresher, go here and here.

Now, the non-profit group Better Markets -- whose tagline says it is a "nonprofit, nonpartisan organization that promotes the public interest in financial reform in the domestic and global capital and commodity markets" -- has filed this complaint seeking to scuttle the deal. The complaint starts boldly:

This is an action under the Constitution of the United States, the Administrative Procedure Act (“APA”), and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), against the United States Department of Justice and the Attorney General of the United States, Eric H. Holder, Jr. (together, “DOJ”), challenging the validity of the historic and unprecedented $13 billion contractual agreement between the DOJ and JPMorgan Chase & Co. (“JP Morgan Chase”) that was announced on November 19, 2013 but never reviewed or approved by any court (“$13 Billion Agreement”).

The 130-paragraph complaint includes a request that DOJ be permanently enjoined "from enforcing the $13 Billion Agreement unless and until the DOJ submits the $13 Billion Agreement to a court so that such court may review all the facts and circumstances, enlarge the record supporting the $13 Billion Agreement as it deems necessary, and determine whether the $13 Billion Agreement meets the applicable legal standard of review."

A key allegation in the suit is that a settlement of the size and importance of the deal with JP Morgan Chase may not lawfully be finalized without public scrutiny and judicial approval. As the complaint puts it:

While such actions, agreements, and settlements might be permissible under other circumstances, the DOJ does not have the unilateral authority to, by contract and without any judicial review or approval, (a) finalize what it admitted is “the largest settlement with a single entity in American history,” with the largest bank in the U.S., regarding an historic financial crash that has inflicted widespread economic wreckage across the U.S.; (b) obtain an unprecedented $13 billion monetary payment, including an historic $2 billion penalty; (c) tell the American public almost nothing about what was involved; (d) provide blanket immunity to the bank; and then, (e) as the DOJ has stated, use it as a template for future contractual settlements with the other largest too-big-to-fail Wall Street institutions for their role in causing or contributing to the Financial Crisis. The DOJ and the Attorney General have used the settlement amount of $13 billion as a sword and a shield to deflect questions and blind people to the utter lack of meaningful information about their unilateral action and JP Morgan Chase’s illegal conduct. However, a record-breaking settlement amount does not make an agreement right, adequate, or legal. A dollar amount, no matter how large, cannot substitute for transparency, accountability, oversight, or a government that operates in the open, not behind closed doors. Such actions, however well-meaning or motivated they might be, will erode public confidence in government officials and, indeed, government itself. Thus, even an unprecedented settlement amount cannot blind justice or immunize the DOJ from having to obtain independent judicial review of its otherwise unilateral, secret actions regarding such historic events.

DOJ will no doubt claim that Better Markets lacks Article III standing. Here's what the complaint has to say about that:

As set forth in detail below, the DOJ’s failure to obtain the required judicial review of the $13 Billion Agreement has injured and continues to injure Plaintiff Better Markets, Inc. (“Better Markets”) by undermining its mission objectives; by interfering with its ability to pursue its advocacy activities; by forcing it to devote resources to identifying and counteracting the harmful effects of the DOJ’s unlawful settlement process; by depriving Better Markets of the information to which it would have been entitled had the DOJ sought judicial review and approval of the $13 Billion Agreement; and by depriving Better Markets of a judicial forum in which it could seek to participate to influence the settlement process before the agreement becomes effective.

For more information, read Better Markets' press release and fact sheet about the case.

 

 

 

CFPB considering mortgage financing disclosures

On this blog and elsewhere, some posters have questioned the effectiveness of disclosure as a form of consumer protection. But disclosure remains an important feature of consumer financial protection statutes (RESPA and TILA are good examples), and many regulators think it is an important, if not the only, part of an overall regulatory strategy. With that viewpoint in mind, on Friday, the Consumer Financial Protction Bureau issued this fact sheet noting that it

is taking steps to improve information reported about the residential mortgage market to help the public and financial regulators better understand borrowers’ access to credit. As a first step in the rulemaking process, the CFPB is convening a panel of small businesses to seek feedback on potential changes to mortgage information reported under the Home Mortgage Disclosure Act (HMDA). The CFPB is seeking to improve the quality of the information submitted by lenders, while streamlining the reporting process to reduce the burden on lenders.

Some the agency's research is demanded by the Dodd-Frank fanancial reform legislation. As the CFPB epxlained:

The Dodd-Frank Act specifically directed the CFPB to expand HMDA to include additional information. The CFPB will ask for small business feedback on these new requirements, including:

• Total points and fees, and rate spreads for all loans: For most consumers, a home is the biggest purchase they will ever make. It is critical that regulators understand how much borrowers are paying for their loans in the form of the total points and fees and the rate spread. These data points will significantly enhance financial regulators’ understanding of pricing outcomes and risk factors for borrowers.

• Riskier loan features including teaser rates, prepayment penalties, and non-amortizing features: Particularly in the years leading up to the mortgage crisis, certain types of loan features have been problematic for consumers. Including this information in HMDA will give financial regulators a better view of the effect of riskier loan features.

• Lender information, including a unique identifier for the loan officer and the loan: Including information such as an identifier for the loan officer who works with the borrower, a unique identifier for the loan, and information about whether the applicant or borrower works with a mortgage broker, would help regulators keep track of lenders’ business practices.

• Property value and improved property location information: The value of a property is an important part of a lender’s decision whether to make a loan and what rate to charge. Property value information will help regulators better understand lenders’ acceptances and denials, and the rates and fees they charge borrowers. Improved location information will help with analyses of local mortgage markets.

• Age and credit score: Unscrupulous lenders may target the elderly for unsuitable and costly loans – having applicant age will help regulators identify and potentially take action to discourage these schemes. Credit score will make it easier to understand why some borrowers are denied and why some borrowers pay higher rates than others. Credit score will also help regulators identify lenders who may warrant closer review.

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.