A Few Comments on the Fed's Interim Final Rule on Credit Cards

by Jeff Sovern

Or is it the Final Interim Rule?

Yesterday I linked to the Fed's new Interim Final Rule, amending Reg Z to implement provisions of the Credit CARD Act that take effect in August.  The new Rule itself takes effect August 20, which meant there was too little time to go through the normal comment process; hence the use of the word "interim," which seemingly is meant to imply that after the Fed receives comments on the Rule, it may change it.  The Rule displaces some provisions from the rules that the Fed adopted last winter, which would have taken effect next summer, though other provisions dating from last winter should still take effect next summer, unless they are superseded by amendments yet to be announced.  Easy to follow, isn't it?

Yesterday's amendments mostly deal with changes in terms notices, governed by § 226.9 of Regulation Z.  They identify which term changes require 45 days notice to cardholders: changes in the APR, annual fees, transaction charges, grace periods, balance computation methods, cash advance fees, and late payment fees, among others, all made the list.  But here's what I wonder: will consumers read the change-in-terms notices?  They have to be clear and conspicuous, under § 226.5(a)(1), but that doesn't mean they will be noticeable.  The rules that would have taken effect in July 2010 would have required information to appear in a table and the changes could have appeared either on the periodic statement or on the front page of the notice of changes or on a separate page.  Those requirements seem to be gone for now, though the Fed's statement suggests that it may resurrect them in later rulemakings. I hope they do; they are apparently the product of consumer testing to identify the circumstances under which consumers read such notices, see Macro International Inc., Design and Testing of Effective Truth in Lending Disclosures (2008), and obviously it is preferable to have changes-in-terms provisions that consumers read.  But the Fed seemingly did not want provisions that were not to take effect until next summer to take effect this August when the Credit CARD Act did not mandate such a result.  So for a while (until next summer?) credit card issuers may give notices of term changes that consumers throw away without reading 45 days in advance, instead of throwing them away later, but we would have had unread notices until next summer even if the Credit CARD Act hadn't been passed.  (How come consumer law, which more than any other subject should be comprehensible without hiring a lawyer, is always so difficult?) But here's some good news: for those of you who want an up-to-date compilation of consumer laws, it looks like we will be able to get the Interim Final Rule into the new edition of Selected Consumer Statutes, which is expected to be out in time for fall classes. 

California Sues Loan Modification Companies

by Brian Wolfman

I blogged here on Monday about the National Consumer Law Center's recent report on the growing loan modification scam industry. Yesterday, the California Attorney General sued 21 individuals and 14 loan modification companies, alleging that they take desperate homeowners' money but provide them no mortgage relief. Here's the beginning of the AG's press release:

As part of a massive federal-state crackdown on loan modification scams, Attorney General Edmund G. Brown Jr. at a press conference today announced the filing of legal action against 21 individuals and 14 companies who ripped off thousands of homeowners desperately seeking mortgage relief. Brown is demanding millions in civil penalties, restitution for victims and permanent injunctions to keep the companies and defendants from offering mortgage-relief services. "The loan modification industry is teeming with confidence men and charlatans, who rip off desperate homeowners facing foreclosure," Brown said. "Despite firm promises and money-back guarantees, these scam artists pocketed thousands of dollars from each victim and didn't provide an ounce of relief."

Read the entire press release here. Thanks to California consumer advocate Ted Mermin for bringing this to my attention.

Fed Issues Interim Final Rule Implementing Credit CARD Act

by Jeff Sovern

The Fed announced today that it is issuing an Interim Final Rule implementing provisions of the Credit CARD Act that take effect in August.  The announcement states that the provisions "primarily pertain to advance notices of rate increases and changes in terms and the time consumers are given to make their payments."  Though the Rule will take effect August 20, comments (identified by Docket No. R-1364) may be submitted at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.  After noting that additional rulemakings are required to implement the Credit CARD Act, the Board said this about its plans for the regs adopted last winter:

To the extent appropriate, the Board intends to use its January 2009 rules and the underlying rationale as the basis for its rulemakings under the Credit Card Act. The Board also intends to retain those portions of its January 2009 Regulation Z Rule that are unaffected by the Credit Card Act. The Board is not withdrawing any provisions of the January 2009 Regulation Z Rule or its January 2009 FTC Act Rule at this time. The Board anticipates that in connection with finalizing rules for those provisions of the Credit Card Act that are effective February 22, 2010, it will amend or withdraw those portions of the January 2009 rules that are inconsistent with the requirements of the Credit Card Act. In particular, the Board anticipates that all of the requirements in its January 2009 FTC Act Rule will be withdrawn from Regulation AA and moved into Regulation Z, consistent with Congress’s approach of amending the Truth in Lending Act.  Finally, except as otherwise noted, the Board intends to consider comments received on the proposed clarifications and technical amendments that were published on May 5, 2009 and to incorporate final clarifications and amendments, to the extent appropriate, when it promulgates final rules in the second stage of its rulemaking.

 

Wal-Mart Says It Plans to Rate Products' Environmental Impact

by Brian Wolfman

Read this New York Times article about Wal-Mart's plans to rate the environmental impact -- that is, the "greenness" -- of consumer products and business methods. Is this for real? It's a huge job and wildly complex. Here's more detail from business reporter Marc Gunther. Gunther explains the breadth of the project:

Wal-Mart intends to announce the sustainability index at a meeting on Thursday, July 16, at its corporate headquarters in Bentonville, Ark., to which hundreds of suppliers, academics, environmentalists, and government officials have been invited. There, the company will unveil a sustainability consortium led by the University of Arkansas and Arizona State University that will provide scientific research to support the effort. Faculty at Duke, Harvard, Stanford, the University of California at Berkeley, and the University of Michigan have been involved in planning the index, but they haven't yet agreed to join the consortium, in part because some college administrators are skittish about working with Wal-Mart. Consumer-goods companies Procter & Gamble (PG), General Mills (GIS), Tyson (TSN), and Unilever (UN), among others, are partners in the consortium. And competing retailers including Costco (COST), Target (TGT), and Kroger (KR) have been invited to join. This is, in other words, a very big deal.

Lifestyle Lift Slammed for Phony Fan Sites Purporting to Be From Satisfied Consumers

by Paul Alan Levy

Last December, I blogged about deceptive practices used by Lifestyle Lift to mislead consumers using Google’s search to come to supposed complaint sites that were actually its own sites praising its services, and to create sites that were supposedly independent praise from consumers but actually seemed to be authored by Lifestyle Lift and its publicists. 

Turns out that the examples I cited just scratched the surface of Lifestyle Lifts's abuses.  Jennifer Peltz reports today on a settlement announed by New York Attorney General Andrew Cuomo of his own investigation into these practices, which included both having employees posed as satisfied consumers, and efforts to bully legitimate message board posters who criticized Lifestyle Lift and trying to get those posts removed from message board.  The release features such juicy quotes from Lifestyle’s internal communications as “One e-mail to employees said: ‘Friday is going to be a slow day - I need you to devote the day to doing more postings on the web as a satisfied client.’ Another internal email directed a Lifestyle Lift employee to ‘Put your wig and skirt on and tell them about the great experience you had.’”

My recently former colleague Brian Wolfman recently blogged here about an FTC enforcement initiative on the related issue of bloggers who promote products without revealing a sponsorship relationship.

Minnesota Attorney General Sues National Arbitration Forum

by Deepak Gupta

The Minnesota Attorney General today filed a major lawsuit against the Minnesota-based National Arbitration Forum (NAF), one of the nation's largest and most controversial arbitral forums.  NAF is already defending itself against another lawsuit by the City of San Francisco. Its anti-consumer bias is a subject  we've blogged about before, and in 2007, Public Citizen produced an influential report documenting NAF's bias in credit-card cases.

BusinessWeek, which has run several excellent investigative stories on NAF, has this detailed report on today's lawsuit. The St. Paul Ledger also picked up the story, as did the Minneapolis Star-Tribune.

In a nutshell, the suit alleges violations of Minnesota's consumer-fraud, deceptive-trade-practices, and false-advertising statutes based on NAF's concealment of its ties to creditors, its active solicitation of creditors based on promises of providing "leverage" over consumers, and its direct financial affiliation with one of the country's largest debt collectors through a New York hedge fund group.

You can read the read the full complaint at this link. Here's the introduction, which summarizes the main allegations:

INTRODUCTION

1. Just about every American has a credit card. The credit card companies often require—deep in the fine print of the consumer agreement—that the consumer forfeit his or her right to have any dispute resolved by a judge or jury. Instead, the agreements often require that any disputes be resolved exclusively through a private system of binding arbitration—and frequently through the National Arbitration Forum. The Forum represents to the public, the courts, and consumers that it is independent, operates like an impartial court system, and is not affiliated with any party. The consumer does not know that the Forum works alongside creditors behind the scenes—against the interests of consumers—to convince creditors to place mandatory pre-dispute arbitration clauses in their customer agreements and to appoint the Forum as the arbitrator of any disputes that may arise in the future. The Forum does this so that creditors will file arbitration claims against consumers in the Forum, thereby generating revenue for it.

Bob Herbert on the Proposed Consumer Financial Product Agency

Bob Herbert in the Times has an interesting take on the proposed Consumer Financial Product Agency in his column in today's Times, Chutzpah on Steroids.   The whole column is worth reading, but here's a sample:

There is nothing free or fair about a market in which one side uses double talk and mumbo jumbo to obscure important information and deliberately dupe the other side into making decisions against its own interests.

When I think of the banking industry fighting to kill this proposed agency, it brings to mind the decades in which tobacco companies insisted that cigarettes were safe, and those days long ago when the auto companies fought against seat belts, and all the dopey arguments that were made against protecting the public from unsafe drugs and kitchen appliances that might burst into flames, and so on.

Live Webcast of Sotomayor Senate Confirmation Hearing

In less than a half hour, the Senate Judiciary Committee will begin its live webcast of the confirmation hearings for Judge Sotomayor. The same webpage provides the witness list. The majority and minority will be calling roughly the same number of witnesses.

NCLC Issues Report on Loan Modification Scams

by Brian Wolfman

On Friday, the National Consumer Law Center issued this report on loan modification scams. The beginning of the report's executive summary describes the problem:

As the number of foreclosures continues to grow, a new “industry” has emerged seeking to profit from desperate homeowners who are trying to save their homes. For-profit loan modification services claim to help homeowners obtain changes in the terms of their mortgage loans that will make the loan more affordable and, thereby, help the homeowner save their home from foreclosure. Unlike older foreclosure rescue scams that seek to bilk homeowners of their equity, loan modification scams are more interested in homeowners’ spare cash. They make extravagant and unverifiable claims regarding their ability to help but too often the homeowner gets nothing after paying thousands in fees they can ill afford to spare.

The report proposes a number of legislative and regulatory solutions including a proposal that the Federal Trade Commission prohibit the industry from charging any up-front fees and instead requiring that the fees be tied to benefits actually provided to the homeowners -- that is, "prohibiting fees until the homeowner obtains an affordable, sustainable loan modification."

Check out NCLC's press release as well.

Bloggers and Product Endorsement

by Brian Wolfman

Check out this article in yesterday's New York Times about bloggers who receive free products from companies and then blog about them if (they say) they like the products but are silent about them if they don't like the products. As the article explains, the Federal Trade Commission is considering whether to regulate these practices. Those proposed amendments to the "FTC Guides Concerning the Use of Endorsements and Testimonials in Advertising" can be found here (note in particular the material at pages 69-70 and 84-85 of the proposal).