Could a Consumer Financial Protection Agency Have Prevented the Economic Crisis?

That's the title of my op-ed at FinReg21.  Here are the first two paragraphs:

The economic crisis was caused in part by millions of borrowers taking out loans on which they later defaulted. Perhaps if the Obama administration’s proposed Consumer Financial Protection Agency (“CFPA”) had existed in time, things would have been different. The administration’s proposal would give the CFPA the power to ban unfair, deceptive, and abusive lending practices, as opposed to the laws in place at the time of the borrowing binge, which required lenders to disclose loan terms to borrowers and assumed—incorrectly, as it turned out—that that was all borrowers needed to make good decisions.

We are still studying why disclosures failed to warn borrowers off of the doomed loans. Until recently, mortgage originators were not obliged to show many borrowers their final loan terms until the closing. My research assistant, Sabihul Alam, and I recently conducted a survey of more than a hundred mortgage brokers in 26 states to discover how borrowers use those disclosures. The brokers, who collectively participated in over fifty thousand loan closings, were nearly unanimous in saying that borrowers never withdrew from a loan after reading the final disclosures at the closing, and never used those disclosures for their stated purpose of comparison shopping for loans. Our survey also indicates that many consumers spend a minute or less with the disclosures—even though a mortgage may be the largest, longest-term, and most complex obligation a consumer ever assumes. In other words, we cannot depend on these disclosures to keep consumers from entering into loans with toxic terms.

David Reiss on Regulation of Subprime and Predatory Lending

David J. Reiss of Brooklyn has written an entry for the International Encyclopedia of Housing and Home on Regulation of Subprime and Predatory Lending.  Here's the abstract:

This is an entry on the Regulation of Subprime and Predatory Lending for THE INTERNATIONAL ENCYCLOPEDIA OF HOUSING AND HOME (Elsevier Ltd, 2010). This entry provides a brief introduction to the explosive development of the subprime mortgage market. It then enumerates the abusive practices that were found in that market until it was effectively shut down at the outset of the ongoing credit crisis. It then reviews the limited federal and state legislative and regulatory responses to various abusive practices. It concludes that abusive practices will likely resurface once underwriting standards loosen, as they inevitably will.

Times on Prepaid Debit Card Fees and Blogger Disclosure Rules

by Jeff Sovern

Today's Times includes two interesting consumer law pieces.  First, Prepaid, but Not Prepared for Debit Card Fees lists some of the amazing fees charged for prepaid debit cards, including application fees (up to $99), activation fees ($9.95), ATM withdrawal fees, balance inquiry fees, fees for using the card for a purchase, monthly maintenance fees (what's that? do they clean the card for you?), a fee for inactivity (so you pay a fee for using the card and for not using the card), customer service fees, a "shortage fee" in case you use more money than you've loaded onto the card, and others.  This sounds like an area ripe for regulation.  I predict something like this: the industry resists regulation, but as regulation becomes inevitable, calls for disclosures.  Disclosing all these fees proves useless to consumers--too much information--and so consumers continue to incur the fees.

The second article reports on the FTC's new Guides requiring that bloggers disclose whether they were paid by advertisers or received free products.  The Guides also address testimonials and endorsements generally.

NHTSA Recalls for September 2009

Go here for the September 2009 National Highway Traffic Safety Administration vehicle safety recalls.

Adaptive Marketing Backs Off Suit to Identify Blogger -- but Claims Victory

Adaptive Marketing, whose advertisements for “free credit scores” featuring Ben Stein were criticized by the anonymous blogger “Flaneur de Fraude,” has given up its quest to identify the anonymous blogger.   Unfortunately, rather than admitting that it had no basis for seeking the discovery, Adaptive sought to save face by claiming that its request for discovery is “moot”  because it claims that it has identified the blogger.  According to its court filing, the villain whom they want to sue for defamation is Franklin Seegers, who allegedly lives in Washington, DC.

A few minutes research online would have told them how wrong that is. According to the Washington Post, in 2006 DC resident Franklin Seegers was sentenced to 40 years for his role in a violent drug gang known as Murder Inc.  Federal Bureau of Prisons records show that Seegers can now be found at the Butner Federal Correctional Complex in North Carolina.  These are the brilliant sleuths who charge $29.95 per month for protection against identity theft for Internet users who call to get their “free” credit score?

Is Bankruptcy Law Too Tough on Student Loan Debtors?

by Brian Wolfman

Over the past several decades, federal law has become increasingly tough on student loan debtors. Statutes of limitations have been eliminated, and the bankruptcy law makes it very difficult to discharge student loan debt in both chapter 7 and chapter 13 cases. Under 11 U.S.C. 523(a)(8), a student loan debtor must show "undue hardship" to obtain a bankruptcy discharge, and the courts generally have interpreted that provision narrowly.

National Consumer Law Center student loan expert Deanne Loonin has just co-authored congressional testimony explaining why the  bankruptcy law ought to be more forgiving. Written in conjunction with a recent House Judiciary subcommittee hearing, Deanne's testimony discusses why treating student loan debt more like most other unsecured debt would be good for debtors, creditors, and taxpayers. Worth reading.

CPSI Sues Drug Maker Bayer Over Selenium Claims

by Brian Wolfman

Here is one of many news accounts about the Center for Science in the Public Interest's new suit against Bayer for allegedly deceiving consumers that the mineral selenium, contained in Bayer's One-a-Day Multivitamins for men, helps "support prostate health" and "reduce[s] the risk of prostate cancer." CSPI's suit says that Bayer's claims are just plain false. The news stories quote CSPI's litigation director (and CL&P blogger) Steve Gardner as saying

that "[g]iven Bayer's long history of wrongdoing in other cases, CSPI is acting to ensure that Bayer is permanently stopped from deceiving consumers about selenium." Striking a similar theme, CSPI's Executive Director Mike Jacobson noted what he called "Bayer's long history of flouting the law." Here's the complaint in the case, which was filed on September 30 in state court in San Francisco.

Consumer Product Safety Commission Recalls for September 2009

Read the Consumer Product Safety Commission recalls for September 2009.

Good news on Foreclosures?

HOPE NOW released its numbers for August today, and while one month is not a trend, there are positive signs.  Foreclosure starts were down about 10% from the levels of the past six months, foreclosure sales were down, and modification activity, combined with temporary HAMP mods, seems to be up. 

Treasury reported that there were about 120,000 temporary modifications under HAMP in August, and HOPE NOW now reports that there were 86,000 permanent mods for the month.  The total of more than 200,000 is a large increase from the roughly 120,000 mortgage modifications per month that were done in the first half of the year, before HAMP.  On the other hand, a temporary HAMP mod is not the same thing as a permanent modification.  Until we know that servicers are successfully transitioning temporary agreements to permanent modifications, we will have to reserve judgment on HAMP.  Early indications on the "fallout", i.e. temporary mods that do not become permanent, are discouraging.

The totals to date are also a grim reminder of the toll the foreclosure crisis has taken:  1.8 million completed foreclosure sales since HOPE NOW started counting in July 2007, more than 5 million foreclosures started in that period, and 2 million new foreclosures started just since January 2009. 

Meanwhile, my own survey of investor reports for September suggests that the permanent HAMP modifications are still not happening.

Fed Proposes New Amendments to Reg Z to Implement Credit CARD Act

An excerpt from the press release:

Among other things, the proposed rule would:

• Protect consumers from unexpected increases in credit card interest rates by generally prohibiting increases in a rate during the first year after an account is opened and increases in a rate that applies to an existing credit card balance.
• Prohibit creditors from issuing a credit card to a consumer who is under the age of 21 unless the consumer has the ability to make the required payments or obtains the signature of a parent or other cosigner with the ability to do so.
• Require creditors to obtain a consumer's consent before charging fees for transactions that exceed the credit limit.
• Limit the high fees associated with subprime credit cards.
• Ban creditors from using the "two-cycle" billing method to impose interest charges.
• Prohibit creditors from allocating payments in ways that maximize interest charges.

Comments will be due within 30 days after publication of the proposal in the Federal Register.  The Fed expects to propose additional amendments to implement the Credit CARD Act as well.