My Op-Ed in the Pittsburgh Post-Gazette: Don't Defund Consumer Financial Protection Bureau

Here.

Study Finds Securitized Loans Less Likely to Get Modifications

Yan Zhang of the Office of the Comptroller of the Currency, Compliance Risk Analysis Division, has written Does Loan Renegotiation Differ by Securitization Status? An Empirical Study.  Here's the abstract: 

This paper investigates whether mortgage loan servicers renegotiate a distressed loan differently depending on whether the loan is held on their own books or by private investors. Using the proprietary mortgage metrics database that has servicer-provided loan renegotiation details, we conduct a comprehensive empirical evaluation of the securitization impact on loan renegotiation. We focus on loan outcome, loan renegotiation frequency, and loan renegotiation effectiveness in influencing outcomes.

We find that non-renegotiated securitized loans have a significantly higher foreclosure rate than similarly situated portfolio loans. We show that servicers actually conduct fewer loan renegotiations for securitized loans. By studying multi-stage transition probabilities, we discover that the self-cure rate and re-default rate are different between securitized loans and portfolio loans. Overall this paper reveals that loan renegotiations, in particular loan outcome, loan renegotiation frequency and effectiveness, do differ by securitization status.

Lessons from Dan Snyder’s Libel Suit

by Paul Alan Levy

Sports bloggers and others, especially in Washington and New York, have been abuzz over the libel suit  filed last month by Washington Redskins owner Dan Snyder over an unflattering article published in the Washington City Paper.

Not content to sue Creative Loafing, the small company that owns the Washington City Paper and free weeklies in a few other cities, Snyder also sued Atalaya Capital Management, a New York-based hedge fund that acquired the chain following bankruptcy proceedings.  Snyder’s demand letter to Atalaya  (written on Redskins stationery) warned that defense of a libel suit “would not be a rational strategy for an investment fund such as yours” because “the cost of litigation would presumably outstrip the asset value of the Washington City Paper.” 

Lawsuits like this one are called SLAPP’s – Strategic Lawsuits Against Public Participation.  The suits are not brought to be won on merit, but rather to make the cost of defending speech so high that the speaker has to beg to be released from the suit. At the same time, other would-be critics learn the lesson that criticizing this plaintiff is just too expensive to be worthwhile. The lawsuit itself thus has a “chilling effect” on speech.  Snyder’s case is a reminder of why we need a federal anti-SLAPP law.

Massachusetts Attorney General Files Amicus Brief in Support of Federal Health Care Reform Legislation

Massachusetts was the first state in the nation to enact comprehensive health care reform that included an individual mandate -- that is, a requirement that some citizens of Massachusetts either purchase health care insurance or pay a tax (or fine) to support the Commonwealth's program. This legislation is now sometimes referred to as "Romney Care," after Mitt Romney, the governor of Massachusetts at the time the Massachusetts legislation was enacted. Romney supported and signed much of the legislation, including the individual mandate. (He vetoed a handful of sections, but none bear on the mandate.) Romney now professes vehement opposition to the federal legislation.

No doubt you have heard much about states suing the federal government over the constitutionality of the federal health care legislation, patterned in part on the Massachusetts legislation. One of those suits is now pending in the U.S. Court of Appeals for the Fourth Circuit. The challengers claim that the federal legislation's individual mandate is unconstitutional because Congress lacked the Commerce power to pass it. Massachusetts, through its Attorney General Martha Coakley, has just filed this amicus brief in the Fourth Circuit, explaining the Commonwealth's experience with the individual mandate and why, in the Commonwealth's view, an individual mandate on the federal level is constitutional. Read Coakley's press release as well.

Ninth Circuit Decision Protects Keyword Advertising Against Trademark Claim

by Paul Alan Levy

We have often discussed on this blog the misuse of trademark law to suppress online speech that protects and benefits consumers, including both consumer commentary and comparative advertising.  A Ninth Circuit decision yesterday should make it harder to pursue such claims.

Yesterday’s decision, Network Automation v. Advanced Systems Concepts, will be of particular interest in litigation over keyword advertising using trademarks, which we have defended as an important means for comparative advertising that provides useful information to consumers.  The decision strongly implies that neither the purchase nor the sale of keyword ads using trademarks is inherently infringing.  But the ruling also walks the Ninth Circuit away from several past rulings that are often cited by trademark holders to attack consumer criticism as well (although, to be fair, the Ninth Circuit itself has never applied its precedents that way).  The opinion holds out hope for a more sensitive treatment of claims about online trademark infringement.

Are Law Students the Victims of Their Schools Deceptive Advertising?

Law students are consumers of legal education, which students hope will enable them to get jobs. The economic bust has focused attention on law schools that, their critics' claim, exaggerate the employment rates and salaries of their recent graduates. Bill Chamberlain of Northwestern Law School has written this piece calling for greater law school transparency regarding the labor market. Here's an excerpt:

Critics suggest that law schools are luring unsuspecting would-be students with false promises of a six-figure job and that, instead of acting as a guarantor of the students' future financial success, we are abandoning them loaded with debt while we gleefully run to the bank with their tuition dollars. At the core of these assertions lies the issue of transparency and the way law schools report their graduates' employment results. Like the first wave of criticism which targeted the [law] firms, the discussion over transparency contains equal amounts of cold hard fact and sensationalism. Law schools should not sugarcoat the fact that there are way too many newly-minted attorneys hitting a much-reduced job market. For example, when advertising their graduates' starting salaries, law schools should go beyond just the reporting of average salaries. They should provide more robust salary distributions and include the percentage of students who responded when reporting these figures. After all, it is the students who are making the most money and enjoying the most success who tend to be the most inclined to provide the information in the first place. Law schools also need to produce more detailed statistics about how many of their students are working in full-time legal jobs and how many are working in part-time or temporary legal and non-legal jobs, even if the ABA and US News don't require it. * * * Economic pressures may result in the closure of some law schools and more transparent reporting on our websites (particularly if the ABA begins to require it). The reality is that there probably are too many law schools and too many students in many of our law schools. As a result, we are churning out many more graduates than today's and, most likely, tomorrow's compressed market can absorb.

Freeman Paper on Race and Credit Card Debt

Andrea Freeman of California Western has written Credit Card Ills: Reducing Racial Disparities in Debt.  Here's the abstract:

Credit card debt, particularly in conjunction with the subprime lending crisis and severe economic recession, jeopardizes the ability of many African American and Latino households to maintain financial viability. The credit card industry’s business model relies on the payment of fees and high interest rates by the poorest consumers to generate profits and subsidize credit card use by the richest. Documented racial disparities in credit card debt represent and perpetuate structural inequities that require regulatory intervention. Both increased consumer protection and structural reform are necessary to reduce credit card debt disparities arising from present and past discrimination and subordination.

The evolution of credit cards into the primary conduit of consumer debt has dramatically reshaped the relationship between banks and consumers, creating the potential for large-scale exploitation along race and class lines by major financial institutions. This Article builds on legal scholarship on racial disparities by analyzing the problem in the context of credit card debt, explains why both law and economics and behavioral economics fail to account for these disparities, and applies a critical race and class analysis to develop proposals that would alleviate in part the structural inequities that lie at the core of the problem. The Article identifies two types of credit card consumers who carry balances, ‘subsistence users,’ who rely on credit to provide for their basic needs, and ‘lifestyle users,’ who maintain a lifestyle above their income through credit. To create transparency that will facilitate regulatory intervention, it calls for full disclosure of industry practices, including targeted marketing and solicitation, and racial discrimination. It then explores two regulatory options for ameliorating the conditions and changing the practices that lead to racial debt disparities: ‘subsistence amnesty,’ in the form of the temporary elimination of fees and interest rates on the subsistence purchases of consumers living under the poverty line, and the addition of substantive requirements to the Community Reinvestment Act that would compel credit card companies to help equalize the financial status of low-income communities of color through individual savings accounts, domestic micro-lending, and community-based financial counseling. This Article seeks primarily to contribute to a dialogue about racial debt disparities, in numbers and treatment, among politicians, activists, and economics theorists that will lead to creative strategies to reduce or eliminate these disparities.

HAMP Update

ProPublica has posted a lengthy and detailed report on the Home Affordable Modification Program.  They also provide homeowner complaint statistics obtained from Treasury, which confirm the poor performance of the banks servicing most mortgages.  Through last November, there were almost 100,000 complaints logged among the 1.7 million calls to the HOPE hotline.  The most common?  Servicer lost my paperwork:  11,109.  Servicer incorrectly denied HAMP application or conversion to permanent modification:  31,321.  Servicer doesn't respond at all:  21,467.  Servicer says homeowner must be delinquent to get help (this has never been true):  8,871. On the other hand, 407 out of 97,400 borrowers reported having a good experience with their servicer.

Indications from the Attorneys General and federal agency negotiations with the banks suggest that those regulators may do what Treasury has not done, i.e. put some muscle into enforcing the banks' obligations to service mortgages and administer the HAMP program.  It would be none too soon. 

Grimmelmann Paper on Hoofnagle and Moringiello on ID Theft & Data Security

James Grimmelmann of New York Law School has written Known and Unknown, Property and Contract: Comments on Hoofnagle and Moringiello, 5 Brooklyn Journal of Corporate, Financial, and Commercial Law 85 (2011).  Here's the abstract:

In addition to gerund-noun-noun titles and a concern with the misaligned incentives of businesses that handle consumers' financial data, Chris Hoofnagle's Internalizing Identity Theft and Juliet Moringiello's Warranting Data Security share something else: hidden themes. Hoofnagle's paper is officially about an empirical study of identity theft, but behind the scenes it's also an exploration of where we draw the line between public information shared freely and secret information used to authenticate individuals. Moringiello's paper is officially a proposal for a new warranty of secure handling of payment information, but under the surface, it invites us to think about the relationship between property and contract in the payment system. Parts I and II, respectively, of this brief essay will explore these hidden themes in Hoofnagle's and Moringiello's articles. I hope the exercise will tell us something interesting about these two papers, and also about the problems of privacy and security in the payment system. A brief conclusion will add a personal note to the mix.

Usha Rajagopal’s traveling SLAPP suit shows need for a federal anti-SLAPP statute

by Paul Alan Levy

Usha Rajagopal, a San Francisco cosmetic surgeon, has tried to use cosmetic surgery of a legal sort to improve the appearance of her online reviews.  She is under discipline by the California Medical Board because of the sloppy administration of anesthesia that put one of her patients in a vegetative state.   She was also the subject of a devastating article in the San Francisco Weekly which explained that glowing reviews that helped give Rajagopal a favorable ranking on Google search for plastic surgeons in San Francisco, with five stars suggesting that her patients love her, are the product of her having hired a firm that wrote phony reviews.  

Not satisfied by adding favorable reviews, Dr. Rajagopal is apparently intent on extirpating negative reviews as well. After several members of the public placed comments on Google maps about her situation, Rajagopal sued the commenters as Doe defendants, alleging defamation, in an apparent effort to remove the negative comments from her public profile.