Milberg Firm Files Class Action Against NAF

The claims include UDAP and FDCPA violations, as well as breach of contract.  Milberg's statement is here while the complaint is here (hat tip to Ray Warner).

Company hawking “free” credit scores goes after blogger who calls this a bait and switch

Adaptive Marketing, which ran into controversy a few months ago for using former New York Times columnist Ben Stein in its TV ads for “free credit scores,” has brought a pre-litigation discovery proceeding against a blogger using the pseudonym “flaneur de fraude.”   Flaneur’s crime?  She agreed with a Reuters blogger who had the audacity to refer to its advertising as a “predatory bait and switch.”    Perhaps the blogger drew Adaptive’s especial ire for digging out a long line of instances in which Vertrue, Adaptive’s parent company, has been brought to justice for a variety of schemes to place recurring charges on consumers’ credit cards, and for linking a Better Business Bureau report giving Vertrue a grade of “F.” When even the Better Business Bureau disses a company, you know there must be a big problem.

Citing the long line of cases that entitled bloggers to remain anonymous absent evidence that they have done anything wrong, Public Citizen has entered the case to block discovery directed to Yahoo! because the blogger has a yahoo.com email address.   Although the burden on a defamation plaintiff would be to prove falsity, in this case, of course, it is hard to believe that what the blogger said isn’t true.   Instead of just getting a credit score, consumers are entitled to obtain their entire credit report free of charge at the government-mandated web site annualcreditreport.com.    And the ads in question solicit telephone calls in which the service of credit monitoring is at best hawked, and at worst, as many consumers have complained, slipped in — it remains to be seen which is true.  Such services “are often overrated, oversold, and overpriced.”   But regardless of whether the services are worthwhile, and whether they are charged to consumers' credit cards after a genuine consent, “bait and switch” seems to be a fair characterization of what Adaptive is doing. 

Adaptive and Vertrue have been similarly criticized in the Wall Street Journal, Washington Post and New York Times, but it doesn't claim defamation by companies that can afford to defend themselves.  So Adaptive’s suit seems to be just the latest in a long line of cases in which companies that don’t want to be criticized seek to cleanse their reputations through subpoenas sent as a means of intimidation to those who may not be able to defend themselves.  It remains to be seen whether the Streisand effect gives them second thoughts

"How to Beat the Bank," a Mini-Documentary on Overdraft Fees

Filmmaker Karney Hatch, annoyed with overdraft charges on his bank statements, took Wells Fargo to small claims court and got the charges reversed. In an interview for Hatch's film, Ralph Nader speculates that if a million consumers did what Hatch did, the banks would fold. Watch the video here.

Foreclosure Update

By Alan White

Two years into the foreclosure crisis, the problem is still getting worse.  July saw a new record high in foreclosure starts of 280,000 for the month, according to HOPE NOW.  Mortgages are entering the foreclosure pipeline at a rate in excess of 3 million annually, more than quadruple the pre-crisis rate of about 700,000 annually, or 60,000 per month (in the first quarter of 2006.)  Delinquencies also continue to rise, according to most reports.  Monthly foreclosure sales are also rising, although they remain at only about one-third of new foreclosure starts.  As a result, millions of homeowners have foreclosures hanging over their heads, but are muddling along in bankruptcy, payment plans, modifications or servicer neglect. 

Meanwhile, modifications are down.  Well, permanent modifications are down.  If we add the roughly 360,000 temporary Home Affordable plan modifications reported by the Treasury Department (May through August) to the permanent modifications reported by HOPE NOW, there is some cause for optimism.   The combined total would translate to roughly 180,000 monthly modifications, a 50% increase from the first quarter of 2009.  The problem is that we don't know how many temporary modifications will successfully convert to permanent ones, so it is too soon to judge the success or failure of the Administration's plan.  The acid test, of course, will be whether the foreclosure filings start to decline.  That may require some stronger medicine, including extended unemployment benefits, tackling the principal reduction issue, and other measures to address the multiple causes of the foreclosure crisis.

New Paper Debunks Industry Arguments that CFPA Should Preempt State Law

NCLC has just released a white paper Preemption and Regulatory Reform: Restore The States’ Traditional Role As ‘First Responder,’that has particular relevance to bank lobbyists' attempts to expand bank immunity from state law in the proposed Consumer Financial Protection Agency.  The paper rebuts claims that allowing states to protect consumers will lead to an untenable regulatory burden.  The paper describes the historic role state consumer protection laws have played in the banking world and why the federal banking agencies’ actions in the last several years to preempt state law were a major factor in the mortgage crisis and other credit abuses. 

 

“Banks like to blame the mortgage crisis on nonbank lenders, but in the peak year of 2006, 32% of subprime loans, 40% of alt-A loans, and 51% of the toxic payment-option and option ARM loans were made by national banks, federal thrifts, or their subsidiaries who were immune from state laws,” said Lauren Saunders, the paper’s author and the Managing Attorney of NCLC’s Washington, DC office.  “Overall, $700 billion of the riskiest loans in 2006 were made by banks who could ignore state law.  Federal law also prevented states from addressing the most dangerous terms of mortgages offered by nonbank lenders.  Credit card and overdraft fee abuses can also be traced to preemption.”

 

President Obama’s plan to establish a new Consumer Financial Protection agency calls for leveling the playing field so that all lenders will have to comply with the same rules.  The plan has run into heavy opposition from bank lobbyists working to expand the immunity of banks from state law.   

 “In 2005, it was estimated that the cost of complying with state predatory lending laws was only $1/mortgage,” Saunders said. “Banks offer numerous niche products for many segments of consumers and are certainly capable of accommodating variations in state laws.  The costs to consumers, the financial industry, and the economy would have been far less if states had not been hindered in protecting consumers.

The paper is available here.  For more information, contact Lauren Saunders, managing attorney of NCLC's DC office, lsaunders@nclcdc.org, 202-452-6252 x 105.

A New Piece in the "MERS" Puzzle

I’ve spent more time than I care to admit lately puzzling out what I believe is the most peculiar company in American consumer finance. Mortgage Electronic Registration Systems, Inc.—more commonly known as “MERS”— maintains a national database tracking ownership and servicing rights of residential mortgages.  While that innovation strikes me as a useful and important step beyond the old county recording office paper land title systems, MERS has attempted to take on a different, more aggressive, legal role. When closing on home mortgages, mortgage lenders now typically list MERS as the “mortgagee of record” on the paper mortgage—rather than the lender that is the actual mortgagee. The mortgage is then recorded with the county property recorder’s office under MERS, Inc.’s name, rather than the lender’s name—even though MERS does not solicit, fund, service, or ever actually own any mortgage loans. MERS then purports to remain the mortgagee for the life of the loan even after the original lender or a subsequent assignee securitizes the loan. This strategy allows the servicers and investors to avoid paying the taxes (usually about $50 or so per loan) to county governments for recording assignments. Although MERS is a young company, over 60 million mortgage loans are registered on its system. Indeed, today MERS is legally involved in the origination of approximately 60% of all mortgage loans in the United States. In past generations, employees of county recording offices kept records of each individual company that recorded mortgage loans and mortgage loan assignments. But today, increasingly recording officials carry on something of a bizarre puppet show, dutifully filing away records of the name of one company repeated over, and over again: MERS. And that is not the strangest part. In most states MERS also pursues foreclosures against homeowners even though it has no financial interest in the proceeds of the foreclosure sale and is not considered a servicer of mortgages registered on its system. MERS executives have explained that they hope to “capture” every home mortgage in the country, making the business a national foreclosure plaintiff.

I recently posted some thoughts on these developments in a draft article now available on SSRN. In short, it is not clear to me that MERS should have standing to bring foreclosure actions, MERS probably should be considered a debt collector under the federal Fair Debt Collection Practices Act, and I have serious concerns about whether mortgages recorded under MERS name should be considered sufficient to protect investors in a variety of collateral competitions, including as against bankruptcy trustees. It also seems to me that the MERS model may be one additional contributing factor that facilitated the pump-and-dump mortgage origination practices of the past ten years. By creating an ubiquitous proxy in public mortgage records, does MERS represent an effort to privatize mortgage recording and consolidate mortgage foreclosure without Congressional or legislative authorization?

Op-ed in Support of Consumer Financial Protection Agency

Check out this Detroit Free Press op-ed by U. Mich. law professor John Pottow in support of a Consumer Financial Protection Agency. Thanks to U.S. PIRG's consumer blog for pointing it out.

Journal of Consumer Affairs Special Issue on Privacy Literacy

Here's the table of contents from the Journal of Consumer Affairs, Fall 2009, Volume 43, Number 3 Special Issue on: Privacy Literacy -- How Consumers Understand and Protect Their Privacy:

Editorial Prelude by guest editors of special issue Jeff Langenderfer and Anthony D. Miyazaki: Privacy in the Information Economy

Determinants of Online Privacy Concern and Its Influence on Privacy Protection Behaviors among Young Adolescents by Seounmi Youn

Consumers’ Rules of Engagement in Online Information Exchanges by Amit Poddar, Jill Mosteller, and Pam Scholder Ellen

Toward an Understanding of the Online Consumers' Risky Behavior and Protection Practices by George R. Milne, Lauren I. Labrecque, and Cory Cromer

Providing Parents with Online Privacy Information: Approaches in the United States and the United Kingdom by Andrea J. S. Stanaland, May O. Lwin, and Susanna Leong

Standing in the Footprint: Including the Self in the Privacy Debate and Policy Development by Patricia A. Norberg, David A. Horne, and Daniel R. Horne

Bits, Briefs and Applications

Credit Scoring And Its Effects On The Availability And Affordability Of Credit by Robert B. Avery, Kenneth P. Brevoort and Glenn B. Canner

Responding Commentary: Unresolved Issues In The Use Of Credit Scores To Underwrite Or Price Financial Products And Services by Calvin Bradford

Editorial Postlude: Privacy Crimes, Annoyances and Self-Defeating Business Practices by Herbert Jack Rotfeld

Catholic University Program on Proposed Consumer Financial Protection Agency

Catholic University Law School is presenting what sounds like a terrific program on the proposed Consumer Financial Protection Agency on October 20, 2009 from 5:00 to 6:30 p.m.  Admission will be by reservation only.  Speakers include Michael Barr, Assistant Secretary of the Treasury for Financial Institutions and a drafter of the bill, Oliver Ireland, Partner, Morrison & Foerster, Arthur Wilmarth, Professor of Law, George Washington University, and it is to be hosted by CUA professors Heidi Schooner and Ralph J. Rohner (my co-author).  The program, titled “Inventing a New (or Reviving an Old) Regulatory Structure for the Consumer Finance Marketplace” is not yet final, but here is the tentative description: 

The global financial recession of the past year or so has drawn attention to a host of questions about whether the U.S. adequately monitors and regulates the consumer credit markets and the volatile financial products sold there.  Revelations of bad or questionable practices suggest the need for more conscience, self-discipline, and fairness from market participants.  Among the questions:  Is there too much reliance on disclosure of transaction terms, or can current disclosures be strengthened and improved?  Is there greater need for regulatory authority to proscribe unfair or deceptive practices without waiting for Congress to address them?  Should federal regulatory authority be consolidated in a new federal Consumer Financial Protection Agency (as proposed in legislation introduced by the Administration), and if so what would be the nature and range of its authority?  How much of the federal agencies’ authority would be subsumed in the new agency, and how much would survive outside it?  To what extent would federal laws and regulations preempt state law in order to encourage national markets?  How should enforcement authority be concentrated, or distributed, among the federal agencies and their state counterparts?  How would a revised consumer regulatory structure relate to other proposals for tightened controls in the larger financial markets

 

Almost forty years ago, the National Commission on Consumer Finance recommended creation of a federal “Consumer Credit Czar.”  Is the proposed CFPA anything more than a revival of that un-enacted suggestion?  Are market conditions, and politics, in 2009 and 2010 any more receptive to a regulatory and enforcement overhaul than in 1972?

 

Mr. Barr, one of the drafters of the pending bill, will sketch the case for regulatory and enforcement overhaul.

 

Mr. Ireland will address the likely impact of a new regulatory structure on bank operations, safety and soundness, and profitability.

 

Mr. Wilmarth  will speak to the federalism issues inherent in sorting out federal and state roles in consumer protection.

Chamber of Commerce Launches Anti-Consumer Financial Protection Agency Website

Yikes! Your friends at the U.S. Chamber of Commerce have created this website dedicated to defeating the proposed Consumer Financial Protection Agency. It's aptly named "Stop the CFPA."