Josh Frank Study Finds the Credit CARD Act Worked

Joshua M. Frank

 of the Center for Responsible Lending has written Credit Card Clarity: CARD Act Reform Works.  Here's the abstract:

This research studies the effect of the Credit CARD Act of 2009 on pricing, transparency, and credit availability.This report’s findings refute negative claims by the credit card industry that new credit card rules have restricted access to consumer credit and raised its cost.These claims rely on limited data that do not accurately capture the cost or availability of credit extended to consumers.

This study uses multiple data sets and methods and consistently finds that the CARD Act has not caused prices to rise or credit to constrict. The difference between the stated rate on credit card solicitations and the rate consumers actually paid widened to unprecedented levels by 2004 and stayed at those levels through 2008. This difference narrowed markedly in the wake of reform, with stated prices on solicitations moving much closer to actual prices.

This study also finds that, in the year since the CARD Act’s implementation, actual prices have remained stable and available credit has not tightened beyond what would be expected from the economic downturn. Because price transparency fosters competition, the long-term effect of the CARD Act is likely to be lower costs for consumers.

 

James Nehf on the FTC's Proposed Framework for Online Privacy Protection

James P. Nehf  of Indiana, who has made significant contributions to the privacy literature in the past, has written The FTC's Proposed Framework for Privacy Protection Online: A Move Toward Substantive Controls or Just More Notice and Choice?, 31 William Mitchell Law Review 1727 (2011).  Here's the abstract:

The FTC released a "proposed framework" for privacy protection late in 2010. While the new framework made headlines by calling for a "do not track" list that consumers could use to avoid being tracked online, most of the framework continues to rely heavily on a notice and choice regime whereby consumers will be expected to make privacy decisions in market transactions (e.g., notice and opt-out opportunities). This paper explains why this approach is not likely to lead to enhance privacy protection in Internet transactions in the years to come.

CFPB Proposes Oversight of Larger Credit Reporting Agencies and Debt Collectors

by Jeff Sovern

The proposal is to cover debt collectors with receipts exceeding $10 million and credit bureaus with receipts over $7 million.  As for the credit bureau piece of the proposal, here's an excerpt from an article in the Washington Post:

[L]ittle attention has been paid to the so-called “Fourth Bureau” firms that target the 30 million consumers outside the mainstream financial system. Often they are students, immigrants or low-income consumers who do not qualify for traditional loans or choose not to use them. Instead, they rely on a makeshift system of payday lenders, check cashers and prepaid cards — none of which show up in the Big Three. Without a paper trail of credit, these consumers are virtually shut out of the traditional banking system.

As a result, fourth bureau firms are increasingly using non-traditional and, at times, unreliable data, including auto warranties, cellphone bills and magazine subscriptions to come up with credit scores.

* * * [The proposal would cover] not only the three major credit bureaus but also roughly 30 smaller firms in the Fourth Bureau. The rule would give the CFPB authority over about 94 percent of the industry by receipts.

But the debt collection industry would receive less attention under the proposal.  The Bureau explains: "the proposed threshold would likely bring within the Bureau’s scope of supervision approximately 175 entities out of approximately 4,500 firms engaged in debt collection . . . . Thus, approximately 4 percent of all collection firms would be covered by the proposed threshold." Put another way, 96% of debt collector firms will not be subject to the Bureau's supervision.  Will that drive unscrupulous individual collectors to work for the 96% to evade the Bureau's oversight?  If so, is that a good thing?

Comments on the proposal will be due within 60 days of publication of the notice in the Federal Register; instructions for commenting can be found here and should refer to Docket No. CFPB-2012-0005.

 

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How Widespread Are Foreclosure Flaws?

From today's Times: "An audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation, according to a report released Wednesday." 

More on President Obama's Recess Appointments

Primarily because the new director of the Consumer Financial Protection Board, Richard Cordray, was a recess appointee, we have been covering the politics and legality of President Obama's recent recess appointments (here, here, here, here, and here). I am using the word "recess" just to identify the appointments. The question whether the Senate was actually in recess is the principal issue in contention. Yesterday, the House Judiciary Committee held a hearing on the legality of the appointments. The National Law Journal reports here on the hearing. My favorite quote is from Congressman Jerrold Nadler: "I'm not sure of the purpose of this hearing. No one has said the House of Representatives can do anything about this except make statements." Said by a tried and true member of the minority.

OT: Could Law School Applicants Hit a 20-Year Low?

by Jeff Sovern

Last month the ABA Journal reported that as of January 13, the total number of applicants at ABA-approved law schools stood at 31,815. . . ."  Last year, about 48% of applicants had applied by that date.  If that trend holds, the total number of applicants for the year will be about 66,281.  Going back to the 1990-91 application cycle, the smallest number of applicants was 71,500, in 1998-99 (the high was 100,600 in 2004-05). 

Back in the 1998-99 year, the number of law students who actually enrolled was 42,804.  By contrast, in the last five years, the smallest number of law students who enrolled was 48,937. 

We may see a late surge in applications.  Law school applications tend to rise when unemployment is high, as it obviously continues to be; perhaps some college students will discover they can't find jobs and apply later in the cycle. But if the current trend holds, we may see law schools competing more fiercely than usual to fill their classes.  Because there are more law schools than there were back in 1999, with more seats to fill, law schools may admit more applicants with weak credentials.  Alternatively, law schools may shrink their classes. Probably we will see both reductions in class sizes and law schools going more deeply into the applicant pool.

Looking to Hire Law Students for Consumer Law Work?

If so, please email or call Helena Rojas (rojash@stjohns.edu; 718-990-6614), St. John's Associate Director of Employer Relations.  Because St. John's offers more courses in consumer law than perhaps any other law school in the country, including a basic survey course, two clinics, and a consumer bankruptcy course, St. John's students are well-equipped to hit the ground running on consumer law issues. 

 

Is There A Gaping Hole in the Mortgage Fraud Deal?

A couple days ago we told you about criticism of the mortgage fraud settlement between the states and five large banks that was brokered by the Obama Administration. Now, Michael Hiltzik of the LA Times tells us about what he calls a "gaping hole" in the deal. Here's the beginning of Hilzik's piece:

You can love or you can hate the recent $25-billion federal-state mortgage foreclosure settlement, but there's no getting around one simple fact: There's a huge, gaping hole right in the middle of it. The hole is that if your home loan has been bought from your lender by Fannie Mae or Freddie Mac, you're not eligible for the mortgage relief encompassed by the deal. Since Fannie and Freddie control well more than half of all outstanding mortgages, this shortcoming looks to be what engineers would call "non-trivial."

Politico Articles and the CFPB

In Wall Street turns wrath — and cash — on Obama, Ben White reports that the financial industry is making enormous donations against President Obama.  In explaining which firms are making the contributions, and why, White notes: "Many smaller and midsize banks also recoiled over the creation of a powerful regulator in the Consumer Financial Protection Bureau, which they claim has far too much unchecked power and will drive up their compliance costs."  Meanwhile, CFPB head Richard Cordray published an op-ed, which, among other things, describes some of the Bureau's upcoming initiatives:

In the future, we will also issue new consumer protections around “force-placed insurance” — a term referring to hazard insurance that mortgage servicers secure at the borrower’s expense, typically at a very high cost, when they believe (even erroneously) that a borrower’s previous hazard insurance has lapsed.

Under the new law, we will write a rule to prevent servicers of most mortgages from charging for this insurance unless there is a reasonable basis to believe that borrowers have failed to maintain their own insurance. It will require servicers to provide consumers an opportunity to obtain their own insurance, which is generally less expensive than force-placed insurance obtained by the servicer.

We will also issue new disclosures for hybrid adjustable-rate mortgages — complicated loans that usually start with a “teaser” interest rate before resetting to a much higher rate. Consumers will be notified months ahead of their first interest rate adjustment and will receive a good-faith estimate of their new monthly payment, along with a list of alternatives they may pursue to head off the higher rate, including refinancing and renegotiation of loan terms

Debate Over the Mortgage Fraud Settlement

Michael Hiltzik explains why he thinks the mortgage fraud settlement is great -- for politicians and banks, that is. And, in a long, detailed post at Credit Slips, Georgetown Law prof Adam Levitin says that the score is "Banks 1, Public 0." On the other hand, the National Consumer Law Center's reaction is largely favorable.

UPDATE: Consumers Union says that "[t]he settlement represents an important step in the effort to help homeowners harmed by the foreclosure crisis and will require the participating banks to implement reforms to prevent certain foreclosure abuses in the future. But more is needed to hold financial institutions accountable for their role in precipitating the nation’s economic crisis[.]"