Not Everyone is Happy that the New CFPB Bill Will Give Denied Credit Applicants a Right to See Their Credit Score

by Jeff Sovern

Berin Michael Szoka of The Progress & Freedom Foundation has written The Dangerous Implications of a 'Right' to Free Credit Scores .  Here's the abstract:

Under the Fair Credit Reporting Act of 2003, every American has a right to a free credit report once a year from each of the three major credit bureaus - Experian, TransUnion, and Equifax. A search on any major search engine for "credit report" will lead the user (via the top search result) to AnnualCreditReport.com, which guides the user through getting these free reports after verifying their identity - a process that takes about 15 minutes. Having these reports empowers us all to take responsibility for verifying the accuracy of the borrowing history used to make assessments about our credit-worthiness, and also to detect fraud or identity theft. But for some lawmakers, this freebie isn't enough.

I was a little perplexed that the abstract doesn't provide any reason why free credit scores are a bad idea, so I had a quick look at the paper.  Szoka is concerned about something called "information socialism," which is the name Szoka gives to the idea that someone can create a score or algorithm or some such thing and the government can force them to turn it over to others without charge, thereby reducing the incentive to create new similar inventions that depend on information.  Szoka fears that this provision is the slippery slope bringing us closer to such a state generally.  Personally, I'm not persuaded that free credit scores will have the effects Szoka fears.  Even assuming that information socialism is a problem, the information here has already been paid for by the creditor who purchased it and used it to turn down the consumer's application. I would have been more worried that making credit scores available would facilitate gaming them to produce higher scores that don't actually reflect that someone is more creditworthy--except that since you've been able to buy your credit score for years from Fair Isaac, that bird has flown. 

Interim Health Care Reform Regulations and Transition

With big changes in the law, transition is often a big issue. Often, you don't want to just "grandfather" forever all the old products or services already on the market or you haven't achieved real reform. And, besides, sometimes "grandfathering" can provide a large and unfair competitive advantage to the old sellers (because only new market entrants must comply with the new law).

Transition is a major issue in implementing the new health care reform law, the Affordable Care Act. The Act does (or will do) many things to change the U.S. health care system, such as prohibiting exclusions for pre-existing conditions and eliminating lifetime cost limits. But, remember, one of the benefits of the new law was that folks would be able to keep their old insurance. So, perhaps the aim should be to have new rules that allow existing insurance plans to keep many of their existing attributes but require them to incorporate the Act's key reforms either immediately or soon.

Doing this is not easy. In interim final regulations issued jointly by the Departments of Health and Human Services, Treasury, and Labor on June 14, 2010, the Obama Administration has taken its best shot. (Though the rules are "final," they are also "interim," and so the three departments are taking comments due on or before August 16.)  The rules are very complex. For a well-written synopsis, see this advisory issued by the Arnold & Porter law firm.

And, by the way, HHS has established this webpage, which brings together all of the agency's efforts to implement the Affordable Care Act.

The Cost of Accessing Academic Research

In the legal world, we've become accustomed to getting most law review articles for free on SSRN. It doesn't seem that easy in the world of science. The publisher of the prestigious scientific journal Nature wants to up its on-line access fees for its publications to the University of California to more than $1 million a year. As you might imagine, there's been a reaction from scientists: Isn't it a little nuts to pay through the nose for our own research? So, among other things, scientists are trying to make use of a free on-line research database and are considering a boycott of Nature. Read about it in this LA Times article.

Brent White Paper on Underwater Mortgages

Brent T. White of the University of Arizona - James E. Rogers College of Law has written Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.  With more than 12,000 downloads, it's the most downloaded paper to appear in the SSRN LSN Consumer Law Abstracts ejournal thus far.  Here's the abstract:

Despite reports that homeowners are increasingly “walking away” from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations - and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision. Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse.

Building a New Consumer Protection Agency

Will Liz Warren or someone else be tapped to run the new consumer financial protection agency? What will the agency look like, what will its priorities be, and how will it manage the transition?  In today's Wall Street Journal, Sudeep Reddy takes a look at these and other questions surrounding the new agency.  An excerpt:

The president's choice of a director, subject to Senate confirmation, is almost certain to be controversial, given the power of the position and the fight over whether to create the agency in the first place.

Like Joseph Kennedy Sr., the first chairman of the Securities and Exchange Commission, the new director will shape the powerful agency's public image, initial priorities and starting lineup.

Democratic leaders in Congress say their top pick for the post is Elizabeth Warren, the high-profile Harvard law professor and an outspoken critic of what she sees as a too-cozy relationship between government and bankers.

Other potential candidates include Michael Barr, a Treasury assistant secretary and University of Michigan law professor with a longstanding interest in consumer finance; Democratic state attorneys general Martha Coakley of Massachusetts, Lisa Madigan of Illinois and Lori Swanson of Minnesota; Susan Wachter of the University of Pennsylvania's Wharton School, who served in the Clinton Department of Housing and Urban Development; and Nicolas Retsinas of Harvard's Joint Center for Housing studies, a former bank regulator and a low-income housing specialist.

Are Overdraft Fees a Things of the Past? Not by a Longshot.

Last week, new rules went into effect barring overdraft fees on ATM withdrawals and one-time debit card charges, unless the consumer opts in. We've discussed the issue extensively in the past.

David Lazarus in today's LA Times explains that the new rules don't cover many kinds of charges, and some banks are trying to convince consumers to opt in to "overdraft protection." Here's a brief excerpt:

[T]he [new] rules apply exclusively to ATM withdrawals and one-time-only debit card purchases, as opposed to recurring payments such as monthly deductions for a newspaper subscription or utility bill. Banks also remain free to enroll customers without permission in overdraft programs covering other transactions, such as payments with checks. And some are working hard to persuade customers to sign up again for full "protection," which can include fees as high as $39 for customers who didn't know that, say, a $2 cup of coffee surpassed available funds.

"Paperless" Ticketing for Concerts, Ballgames, Etc.

Read here about how concerts and ball games may move toward so-called paperless ticketing. You'd have to buy the ticket by credit card or ID card, and then the only way to get into the event would be to swipe that card at the event, which would then generate a receipt telling the consumer what seat he or she had a right to occupy. Sorta like getting on an airplane these days. So, you couldn't sell or even give the ticket to a friend or even Uncle Bennie, unless the friend or Uncle Bennie had the card or ID with which you bought the ticket.

So . . .  the people who are pushing this idea -- behemoths like Ticketmaster and Live Nation, who, by the way, recently completed a merger -- say that paperless ticketing will help consumers because it will prevent scalpers from scarfing up hundreds or thousands of tickets and reselling them way above face value. That may be. But the real reason they like this idea is because it will eliminate a secondary market over which they have no control, such as the ones that take place on StubHub (which is owned by ebay) and Craig's List, and the even more informal secondary markets that take place every day on the Internet or at the office or on the street. Why do Ticketmaster and Live Nation care if other folks resell their tickets? You guessed it: They run their own secondary market -- for which they generally take a 20% cut on every transaction -- and they'd just love to have exclusive control of all sales and resales.

Henry Sommer on Mortgage Overcharges and the Need for Reform

If you do bankruptcy work or help people deal with predatory mortgage lending, you should read bankruptcy law expert and consumer advocate Henry Sommer's post over at Credit Slips on unlawful mortgage overcharges. He explains that the overcharges themselves can be so large as to throw people into foreclosure. He also discusses the recent Federal Trade Commission settlement with Bank of America on overcharges for mortgages formerly serviced by Countrywide Financial and asks a series of questions about that settlement in an attempt to discern whether it will get at the problem.

The problem he described struck me as serious, so I wrote to Henry asking for more detail on exactly the kind of overcharges he was referring to (his blog entry mentioned charges for trumped up or unnecessary property inspections, but I wanted to know what else he meant), the magnitude of the charges, and the specific reforms he proposed.

Here's Henry's terrific answer (given within a few minutes of having received my question):

Should Parents Be Punished For Smoking While Their Kids Are In The Car?

The New York Times reports today that

Under a City Council proposal, New York City would prohibit smoking in cars where children are riding, joining the ranks of Arkansas, Louisiana, Puerto Rico, Bangor, Me., and Rockland County, N.Y., where similar legislation has been passed. The proposal, which Councilman James F. Gennaro, a Queens Democrat, plans to formally announce on Thursday, would prohibit smoking in cars where a child under 18 is present. Fines would range from $200 to $2,000, depending on the number of violations. Mayor Michael R. Bloomberg, who pushed through a ban on indoor smoking in 2003, and his administration have not said whether they will support the proposal.

And the Consumerist notes that the New York legislature will be considering similar legislation:

I've never smoked a cigarette in my life, but I sure inhaled my fair share of my mom's, dad's and stepfather's tobacco when I was a child. Surely one of my earliest developed motor skills was learning how to roll down the window in our Chevy Nova. Now a bill under consideration by the New York State Assembly seeks to put an end to such behavior by fining adults who light up with a child in the vehicle.

CPSC Recalls for June 2010

Just to add to your product recall fatigue, here are the Consumer Product Safety Commission recalls for June 2010.