More on over-draft fees

Over-draft fees are big business everywhere. In Australia, the fees account for over $1 billion in revenue. This is all, however, about to change. Banks in Australia are eliminating over-draft fees, after a proposed law limiting the charge to a “reasonable fee.” Similar to the US, Australian banks had been charging $30-35, for a service estimated to cost $1 or less. In light of the proposed new law, it seems most banks are simply dropping the fee, rather than risk lawsuits. While I am sure the banks will find another way to earn money, perhaps a charge to every customer for monthly maintenance, eliminating a large fee generally paid by lowest income customers is still a good result.

HAMP Update

By Alan White

Trial mortgage modifications under the Home Affordable mortgage program (HAMP) have reached about the same levels that servicers were achieving voluntarily in the first quarter of 2009.  Treasury's unhelpful data presentation in its second monthly report on mortgage modifications posted today touts 360,000 temporary mortgage modifications, but that is for the life of the program, i.e. since April.  By comparing this report to the first one issued last month, we can infer that about 125,000 new trial modifications were concluded in August, a number about equal to the permanent modifications servicers reported each month in January, February and March. 

To be fair, there were probably some voluntary permanent modifications done outside the HAMP program as well, although my data on securitized mortgages indicate a big decline in permanent modifications in the last two months.  The Treasury report does not tally any permanent modifications under the program, or report the number of foreclosure sales, foreclosure starts, or delinquent mortgages, as the HOPE NOW reports do.  It thus fails to provide meaningful yardsticks to evaluate the success or failure of the program.

While it is still early, the HAMP program to date has not made any significant impact on the number of foreclosures, and modifications are still well behind new foreclosure filings.

New York Times Story on Debit Card Overdraft Fees

by Brian Wolfman

The front page of the New York Times has this excellent piece on overdraft fees imposed on debit card holders. As the beginning of the article explains, debit card holders are not told at the point of purchase that they have exhausted their funds; rather, they learn only later, after they are hit with fees:

When Peter Means returned to graduate school after a career as a civil servant, he turned to a debit card to help him spend his money more carefully. So he was stunned when his bank charged him seven $34 fees to cover seven purchases when there was not enough cash in his account, notifying him only afterward. He paid $4.14 for a coffee at Starbucks — and a $34 fee. He got the $6.50 student discount at the movie theater — but no discount on the $34 fee. He paid $6.76 at Lowe’s for screws — and yet another $34 fee. All told, he owed $238 in extra charges for just a day’s worth of activity.

The in-depth article discusses possible legislative and regulatory responses, including not allowing consumers to overdraw or giving consumers a point-of-purchase option not to buy or to buy and incur a fee. The banking industry has a number of replies, including that it is "merely charging a fee for a convenience that protects consumers from embarrassment, like having a debit card rejected on a dinner date. Ultimately, the the add, consumers have responsibility for their own finances."

Consumer Credit DVD Available to Consumers

The Center for Consumer Law at the University of Houston has produced an educational DVD entitled "Money, Credit and the Law--Know Your Rights." Funded in part by grants from the Texas Bar Foundation and Money Management International, the video shows consumers how the law protects them from abusive practices. It also explains how knowing your legal rights can resolve some credit problems, and let you work out a reasonable payment plan. The DVD is available to be viewed online at www.peopleslawyer.net, or, will be sent free to anyone who requests one from me, alderman@uh.edu

More on Credit Card Marketing to People Under 21

by Brian Wolfman

U.S. PIRG's Consumer Blog has this nice post concerning a series of related articles on credit card marketing on college campuses and student debt more generally. The new Credit CARD Act, which takes effect next February, limits credit card companies rights to market to these young adults. I blogged last May about Congress's unusual decision to treat this group of adults (18 to 21 year olds) differently from all other adults.  

NHTSA Recalls for August 2009

Here are the vehicle (and related) recalls issued by the National Highway Traffic Safety Administration for August 2009.

Froot Loops a Smart Choice?

by Jeff Sovern

Friday's Times brought For Your Health, Froot Loops about an industry-backed labeling campaign called "Smart Choices" that's “designed to help shoppers easily identify smarter food and beverage choices.” Designed to sell food might be closer to the truth, as the list of approved foods includes Cocoa Krispies and Froot Loops.  An excerpt: 

Froot Loops qualifies for the label because it meets standards set by the Smart Choices Program for fiber and Vitamins A and C, and because it does not exceed limits on fat, sodium and sugar. It contains the maximum amount of sugar allowed under the program for cereals, 12 grams per serving, which in the case of Froot Loops is 41 percent of the product, measured by weight. That is more sugar than in many popular brands of cookies.

“Froot Loops is an excellent source of many essential vitamins and minerals and it is also a good source of fiber with only 12 grams of sugar,” said Celeste A. Clark, senior vice president of global nutrition for Kellogg’s, which makes Froot Loops. “You cannot judge the nutritional merits of a food product based on one ingredient.”

On that theory, manufacturers should be able to stuff foods with fiber, vitamins, and cyanide and call it a smart choice. 

We allow some seller's puff in our system, but this sounds like it's on the deceptive side of the line.  To make matters worse, the article explains that manufacturers pay the program for the right to have their products labeled as Smart Choices, with the fee determined by the number of labeled products sold.  So just as the bond-rating agencies had an incentive to water down their standards for mortgage-backed securities so they could increase their revenue, this program has an incentive to have loose standards so more foods can be identified as Smart Choices, thereby increasing sales of foods so labeled, and the program can generate more revenue.

Court to Greenmailers: Drop Dead

by Stephen Gardner

A bane of honest class action lawyers (and there are plenty of them, the vast majority) is the creature that I call a greenmailer -- a lawyer who objects to a good class action settlement only in hopes of getting some fees out of it, without a care for improving the settlement itself. (Some call these weasels "professional objectors," but I don't like that term because it suggests that outfits such as Public Citizen are "unprofessional" objectors. Quite the opposite, in fact.)

Today we see a federal court opinion that warms our hearts and brings goofy grins to our faces.

U.S. District Judge James M. Rosenbaum issued an order denying objectors' request for fees. In addition to being a substantively excellent decision, it is also one of the most entertaining and readable opinions to emit from the judiciary in some time.

You know it's not going to go well for objectors when the opinion starts out, "The remoras are loose again."

And it gets worse from there. (A personal note: While on a fishing boat, I saw a pelican that had lit on the transom of the boat in search of nibble -- because pelicans will eat damn near anything -- grab a remora that the captain had tossed to it, but immediately spit it out. Now, I'm not saying that a pelican would spit out these lawyers as well, although it's worth noting that it's possible.)

The Judge, in an "egregious paraphrase of Winston S. Churchill," noted that, "Seldom in the field of securities litigation was so little owed by so many to so few."

He goes on. Noting that the objector-remoras' request for fees was "a pleading which may charitably be described as disingenuous," the Judge found it "preposterous that any legitimate lawyer would charge $74,500 to prepare an eight-page submission, and submit it tardy to boot."

As the Judge also noted, "Objectors' request and their motion ill-befit attorneys admitted to the bar."

It ended no better for the objector-remoras than it began, with the Judge concluding that they "are entitled to an award equal to their contribution . . . nothing."

May it displease the Court, huh?

More On Increasing Credit Card Fees

by Brian Wolfman

Last month, I blogged here about large increases in credit card rates and fees that may be tied to recently enacted federal credit card reform legislation (which mainly goes into effect next February). Consumers Union has posted this informative piece on the same topic, which includes a chart indicating the rate increases for both purchases and cash advances on credit cards issued by many of the largest banks.

Even Consumer Law Professors Have Consumer Law Problems

by Jeff Sovern

 Last winter, I bought a computer for my daughter.  The computer came with a free sample of Norton's security program already installed (It's likely that Norton paid the manufacturer to have that program installed as a marketing measure).  When the free trial period ended, we paid to have the Norton program continue running on the program--something that many consumers probably do, as the path of least resistance, and of course that is the reason Norton is willing to pay for having its software loaded on the machine. 

The software worked fine until earlier this week, when the computer began frequently displaying popups urging purchase of a spyware program, which presumably would prevent the popups it was causing.  (Anti-spyware sellers have been known to use spyware to advertise their products in the past.  See FTC v. Seismic Entertainment Productions, Inc., 2004 WL 2403124 (U.S. Dist. Ct. D. N.H. 2004))  Yet according to the Norton product, the computer was clean.  My daughter turned to Norton, which generously offered to cure the problem--for a fee of $99.99.  The cure carried a guarantee for seven days (that's the shortest warranty I can ever remember hearing about; Norton obviously has confidence in their service).  When my daughter asked why we had to pay the additional charge since we had purchased the Norton product to prevent just this sort of problem, the technician explained:

When you purchase the product, the cost of the product is for software, updates to the software and for virus definitions. There is an additional charge for value added services. Manually removing threats from our customers' computers is a complex and often time-consuming process, which requires special expertise. Norton's Spyware & Virus Removal Service is handled by highly trained expert technicians who will work as long as it takes to locate and neutralize all known threats on a user's computer. We stand by the quality of our service and are proud to offer a seven-day, infection-free warranty period.

We declined to pay, and an IT person I know kindly fixed the problem for us without charge.  So the problem is no longer with us, but I wonder how many people pay the extra $100.  This system gives Norton at least a short-term incentive to allow some infections through their protections so that they can make the extra $100 by cleaning up the computers (over the longer term, the incentive goes in the other direction because dissatisfied consumers might not re-enlist when their current protection expires, and word of mouth may be damaging, but one thing the subprime fiasco demonstrated is that sometimes businesses put short-term interests ahead of long-term interests). 

I haven't reviewed the End User License Agreement to see if Norton had any obligation to fix the problem without charge.  I'm assuming that Norton's lawyers wrote the agreement so that Norton could engage in this practice, and that few consumers choose not to use the Norton product because of the relevant contract clause, because after all, few consumers will read the contract.  But whatever the contract says, my reaction is that this is a deceptive trade practice.  Consumers are likely to be deceived by the fact that they are purchasing computer protection software into thinking that they will not be charged extra when their computers become infected.  It also seems like an unfair trade practice.  Class action lawyers, take note!