Tire Pressure Monitors Save Lives

A post today on this blog expressing grave reservations over the proposed bail out of the auto industry referenced the importance of tire pressure monitors in saving fuel. Tire pressure monitors also save lives. And, importantly, Federal Motor Vehicle Safety Standard No.138 now requires tire pressure monitors in all new passenger cars and small trucks and buses. For a discussion of the safety benefits of tire pressure monitors, see the Second Circuit's 2003 decision in Public Citizen v. Mineta, No. 02-4237.

Bail out Detroit? Not without some conditions.

While I did not like the idea of bailing out Wall Street, I really do not like the idea of bailing out Detroit. Yes, the auto industry is a cornerstone of the American economy. Yes, the collapse of GM, Ford, and Chrysler will deal a powerful blow to an already-reeling market. Yes, this will suck.

But if subprime lending got way out of control, at least lenders were selling products people--and Congress--wanted. Detroit has not built cars people want to drive in decades. I am not alone in thinking that Detroit carmakers are prime examples of businesses that are failing because they ought to: they make bad products that nobody wants to buy.

Sure, there are exceptions, but, by and large, American cars are pretty awful. The best GM models barely accomplish average reliability according to Consumer Reports. Many GM models are "well below average in reliability." Chrysler is even worse. Only Ford is getting better; Consumer Reports says that, excluding some trucks, "Ford's reliability is now on par with good Japanese automakers."

Consumers agree. Ford has not made a profit since 2005, which has nothing to do with the present economic meltdown. GM lost $269 million during 2007, and Chrysler lost a whopping $1.6 billion last year.

If this really is a case of "too big to fail," then Congress must impose some strict conditions on the auto industry, including higher fuel economy and emissions standards, limits on large trucks and SUVs, and maybe tire pressure monitors as standard equipment, since properly-inflated tires could save an awful lot of fuel. Maybe some quality control targets, as well. After all, cars that break frequently result in wasted spare parts and extra transportation costs to move all those spare parts around.

In short, Congress will need to do more than just keep the Big Three on life support. It will need to force Detroit to start innovating once again, and return to the novel idea of selling products consumers want.

Credit Cards -- Less Purchasing Power

In response to current market conditions, the credit card companies are greatly reducing credit limits and increasing fees.  Check out this comprehensive article in today's Washington Post.

Arkansas Supreme Court Strikes Down Payday Loan Law

The Arkansas Supreme Court last week struck down the state's Check-Cashers Act, which authorizes and regulates payday lending in the state, as a violation of the state's constitutional ban on usury. The state's constitution prohibits any loan with an interest rate above 17%. Various payday loan contracts authorized by the statute, however, had rates between 168% and 559%, which the Court held to be "clearly and unmistakably usurious" in violation of the state constitution.

Lobbyists Descend on the Treasury Department Seeking a Piece of the Bailout

Yo! Read this front page article in today's New York Times entitled "Lobbyists Swarm the Treasury for a Helping of the Bailout Pie." A few tidbits: (1) The article suggests that much of the bailout's first installment ($350 billion) may be spoken for by entities other than the banks at whom the bailout was supposedly aimed. (2) At least five international law firms have set up "financial rescue shops" to provide advice and to lobby for clients who may want a piece of the pie. (3) American Express has obtained approval to reinvent itself -- it will become a bank holding company -- "making the giant marketer of credit cards eligible for an infusion" of bailout money. Really worth reading.

Today's Fannie/Freddie Relief Plan

By Alan White
The plan to modify loans controlled by Fannie Mae and Freddie Mac announced today, while a step forward, suffers from two major drawbacks.  First, Fannie and Freddie do not hold most of the delinquent subprime and alt-A mortgages, so the plan will affect only about 10% of delinquent homeowners.  Second, as an extension of the FDIC model for modifying IndyMac mortgages, the plan calls only for monthly payment reductions, not for principal reductions.  While it is a good thing to streamline the process, and set an ambitious target of reducing payments to 38% of income (compared with the 55% standard that prevailed in the subprime market), Fannie and Freddie, like the FDIC, are still proposing to defer mortgage debt that far exceeds home prices, rather than writing it off, i.e. kick the can down the road.  We still need to deal with the servicers and investors who control most of the problem mortgages, and we still need to attack the $10 trillion problem of the overleveraged homeowner.

Obama and Antitrust Policy

Check out this interesting article in today's New York Times concerning antitrust policy. In it, lawyer David Boies explains why, in light of the economic crisis, Obama may not follow his ordinary policy preference for tough antitrust enforcement.

New York Appellate Division Says Class Action Incentive Awards Are Not Permitted

By Brian Wolfman

Here's a surprising class action developement: In Flemming v. Barnwell Nursing Home and Health Facilities, Inc., No. 504328 (Oct. 16, 2008), one of New York's intermediate appellate courts has held that New York law prohibits incentive awards for named plaintiffs in class actions. Incentive awards, particularly lavish ones, have been controversial, but federal judges approve them all the time, as do state court judges. The court in Flemming indicated that federal courts approve incentive awards only in "special circumstances," but that is not accurate. As noted, many federal judges approve them routinely. Question: Are there any other appellate courts that have banned them?

The Case for Homeowner Debt Relief

Today's New York Times reports that nearly a quarter of Americans with mortgages owe more than their home's current value.  One example cited in the story is a homeowner with a $630,000 mortgage from 2005 on a home now worth $420,000.  His interest-only mortgage, once the initial period ends, will require monthly payments of $12,000.  On the other hand, a fixed-rate amortizing 30-year mortgage at 6% for the $420,000 actual home value would require payments of $2,500 (plus taxes and insurance.)  Dropping the rate temporarily to 3% could bring the payment down to $1,800, in the event of a bona fide hardship. 

Or, the lender could foreclose.  It would then incur additional interest advances and foreclosure costs or $20,000 to $30,000 or so while holding the property, and perhaps sell it for $350,000 to $400,000 next year, resulting in a loss to investors (that's us) of $250,000 to $310,000, not to mention a loss of all future interest.

Servicers could provide homeowners an incentive to make payments, and hedge against possible return of home price growth, by offering a principal writedown after 12 months of on-time payments, and linking it to a second mortgage for the difference between the old and the modified mortgage.  The second mortgage should be progressively reduced over five years, to provide equity build-up if home prices do not come back to 2005 levels.  Let's swap homeowner debt for equity, just as we have been doing with banks.

The AALS Annual Conference and Consumer Law

Last year's AALS Conference had a lot for people interested in consumer law, including an interesting talk by CL&P blogger Richard Alderman on arbitration and presentations by others whose scholarship is regularly mentioned on this blog.  Because this year has been an extraordinary one for consumer law--with consumer issues regularly on the front pages, the new Hope for Homeowners program, revisions to Regulation Z and others on the way, amendments to TILA, and many other events mentioned on this blog and elsewhere--it seemed reasonable to expect the Conference this year to be equally informative.  Alas. that seems not to be the case.  I've been able to find the following two panels of interest to consumer law people (and if I've omitted one, please mention it in the comments): The Section on Aging and the Law has a panel titled "Consumer Protection Law and the Elderly: What's New--What's Needed;" the speakers include consumer law scholar Kurt Eggert, Marguerite Angelari, Carolyn L. Dessin, Paul Greenwood, Shepard Lea Krivinskas, Seymour H. Moskowitz, and Marcia Spira.   On Saturday morning, the Sections on Creditors' and Debtors' Rights and Real Estate Transactions are holding a three-hour long joint program, "Real Estate Transactions in Troubled Times."  The program will include a panel on securitization, another on affordable housing, and a third on bankruptcy modifications of mortgages, and speakers include consumer law people like Kurt Eggert (again), Jean Braucher, Adam Levitin, and Tom Plank, as well as Dennis B. Arnold, A.M. Dickerson, Melissa B. Jacoby, Mark S. Scarberry, Marshall E.Tracht and Moderator Daniel B. Bogart.  A possible third program of interest is the Section on Financial Institutions and Consumer Financial Sevices'  "Does Modern Financial Institution Regulation Work? Relections on Deregulation and Internationalization of Supervisory Standards" but the description makes it sound like it is focused more on the regulatory limits to the structure of financial institutions than consumer law. Speakers include my colleague Vince DiLorenzo, Howell Jackson, Adam J. Levitin, Arthur Wilmarth, Erik Gerding, Saule T. Omarova; Heidi Schooner is the moderator (You can find out more about the Conference here).

Am I greedy to want more than that, this year of all years?  Two programs which address consumer protection from the perspective of sections that normally attend to other matters?  If so, as my co-author Dee Pridgen once pointed out to me (in kinder words), I have only myself to blame.  It's not as if I've ever tried to do anything about it.  So I've been exploring the possibility of starting an AALS Section on Consumer Law.  We would need to get people to sign a petition, but I think that's doable.  The real problem is that to the extent we overlap with other sections--such as the Section on Financial Institutions and Consumer Financial Sevices and the Section on Commercial and Related Consumer Law--we would have to get them either to yield some of their jurisdiction to us, or we would have to yield some to them.  The reason we need a section is that by carving up consumer law among various sections, we end up with years in which consumer law receives less attention than it merits.  I think it's significant that the two sections that are holding consumer protection panels this year are not sections that leap out as being consumer law sections, and that the sections that actually mention "consumer" in their name do not seem to be holding panels devoted to consumer law this year (which is not a criticism of them: their jurisdiction goes beyond consumer law and they can't be expected to ignore the other areas within their scope).  Richard Alderman's Houston Conference is fantastic--and was the birthplace of this blog--but that serves a different purpose from an AALS Section.  An AALS Section would help emphasize the importance of consumer law in legal education, give us more of a reason to attend the annual meeting, and provide a place to meet every year, instead of every other year.  I think it's worthwhile to try, but I would be curious to hear from others.