CPSC and NHTSA Recalls for January 2008

For January 2008, here are the product recalls instituted by the Consumer Product Safety Commission; and the vehicle and vehicle equipment recalls instituted by the National Highway Traffic Safety Administration.

Times Pieces on Telemarketing, the CPSC, and Credit Reports

Recent articles in the Times that bear on consumer law issues include a report in Wednesday's paper, "Papers Show Wachovia Knew of Thefts."  Some excerpts:

Last spring, Wachovia bank was accused in a lawsuit of allowing fraudulent telemarketers to use the bank’s accounts to steal millions of dollars from unsuspecting victims. When asked about the suit, bank executives said they had been unaware of the thefts.

But newly released documents from that lawsuit now show that Wachovia had long known about allegations of fraud and that the bank, in fact, solicited business from companies it knew had been accused of telemarketing crimes.

* * *

“YIKES!!!!” wrote one Wachovia executive in 2005, warning colleagues that an account used by telemarketers had drawn 4,500 complaints in just two months. “DOUBLE YIKES!!!!” she added. “There is more, but nothing more that I want to put into a note.”

However, Wachovia continued processing fraudulent transactions for that account and others, partly because the bank charged fraud artists a large fee every time a victim spotted a bogus transaction and demanded their money back. One company alone paid Wachovia about $1.5 million over 11 months, according to investigators.

“We are making a ton of money from them,” wrote Linda Pera, a Wachovia executive, in 2005 about a company that was later accused by federal prosecutors of helping steal up to $142 million.

Also on Wednesday, the Times editorialized about curing the problems with the Consumer Product Safety Commission in "The Next Step to Safety:"

Right now the commission is paralyzed because it lacks a quorum to adopt safety rules or order recalls. The White House must quickly fill at least one vacancy or Congress must quickly pass a law allowing the commission’s two members to qualify as a quorum.

There is a lot more work to be done. Congress should approve Senate legislation giving the commission the money and the authority it needs. At the very least, this would make it easier for the commission to notify consumers promptly when they have bought a hazardous product. The commission often keeps such data secret while it negotiates — for months or even years — with the manufacturer.

I've been meaning to post links to a couple of interesting articles from January.  First, Bob Tedeschi's column on mortgages, "How to Get a Cheaper Loan," which ran on January 20, described how lenders deal with the fact that the three credit bureaus sometimes report different credit scores for the same consumers:

To account for those differences during the mortgage application process, loan officers review the scores from all three credit bureaus and base their loan offers on the middle number. If a couple — married or not — is jointly applying for a mortgage, the loan officer will choose the middle score of the partner with the lower score.

This was news to me.  Tedeschi also reports:

Bureaus offer more than one type of report — TransUnion has its traditional report and its Vantage report, for instance. A bureau may well come up with different scores for the same borrower because each report weighs various factors like recent payment history in a slightly different way.

Finally, on January 19, the Times ran Janet Morrissey's "Your Money" column, headlined, "What's Behind Those Offers to Raise Credit Scores" about companies that, for a fee, piggy-back the credit records of people with good credit histories onto those with poor credit histories.

Credit Card Practices Bill Introduced in House of Representatives

Thanks to Ed Mierzwinski over at U.S. PIRG's Consumer Blog for this excellent post on the introduction last Thursday of the Credit Cardholders Bill of Rights Act, H.R. 5244. The bill addresses a number of credit card company practices, including imposition of certain interest rate and fee hikes and charging interest on already-paid-off balances. Ed's post has a number of useful links about the bill. The text of the legislation is here.

Foreclosure Counseling Controversy

by Alan White

The National Foundation for Credit Counseling, which represents many of the established non-profit debt advice agencies, dispatched a strongly-worded letter on Wednesday to the HOPE NOW foreclosure prevention alliance. In it, NFCC protests the refusal of the HOPE NOW hotline to include NFCC counseling agencies on its referral list for the national foreclosure hotline (888 995 HOPE). The letter asserts that because so few agencies are connected to the hotline, homeowners calling the hotline are not being referred to counselors, but often simply told to call their lenders (i.e. servicers.) This is the hotline number that President Bush misread on TV in December. HOPE NOW is an alliance of mortgage servicers and industry trade groups working with four housing groups to reach out to homeowners.

NFCC has its own hotline, 866 557-2227, foreclosure help web site, and referral network of housing counselors. Hopefully these groups, who all share the same goals, can work out their differences.

Foreclosure update: HOPE NOW report

By Alan White

The HOPE NOW alliance has released a 35-page report with a wealth of useful data from mortgage servicers about foreclosures started, sales completed, workouts and loan modifications during 2007. The data are based on a survey covering about 60% of outstanding mortgages (prime and subprime.) Some highlights: although the press release says that only one-third of foreclosures started led to a completed foreclosure sale, this is a bit misleading. The foreclosure starts increased dramatically from the first quarter of 2007 to the 4th quarter. If you compare foreclosures started in the first quarter to sales completed in the third quarter, about half of foreclosures started resulted in a foreclosure sale (assuming a six-month time lag.) Nevertheless, the total of completed sales for the year, estimated at 509,000, is far less than the foreclosure filings total, 1,504,000. In contrast, 336,000 loan modifications were concluded.

Completed sales are obviously the worst outcome (for homeowner and investor.) The other possible outcomes can range from lingering in default or bankruptcy for months or years to reinstatement by payment to a successful sale or refinancing. Some outcomes are clearly successes, while others, like repayment plans (over 1.1 million concluded in 2007) are ambiguous. On the loan modification front, the good news is that while foreclosure starts and sales went up roughly 50% from the first to the fourth quarter, loan mods tripled. For subprime loans, modifications went from 29,000 in the first quarter to 104,000 in the fourth quarter. While servicers are still offering repayment plans much more frequently than loan modifications, the ratio went from 1:6 in Q1 to 1:3 in Q4.

The report also provides state-by-state data. There are stark contrasts between the "bubble" states like California and Florida, and the "weak growth" states like Michigan and Ohio. Loan modifications have increased much more rapidly in the bubble states, perhaps because there is more homeowner income to work with. After I have digested this report a bit more I may post some additional highlights.

Ninth Circuit: Private Debt Collectors Under Contract With Prosecutors Are Not Shielded by Sovereign Immunity

by Deepak Gupta

Yesterday, the U.S. Court of Appeals for the Ninth Circuit, in an opinion by Judge Marsha Berzon, ruled that American Corrective Counseling Services (ACCS), the nation's largest operator of "check diversion" programs, may not shield itself from a consumer class action over its aggresive debt-collection practices by invoking the doctrine of state sovereign immunity.  (Information about the case, including the briefs and opinion, is available here.)

I've blogged here before about so-called check diversion companies -- private debt collectors that use their contracts with prosecutors to gin out collection demands, on official prosecutor stationary, threatening consumers who have written bad checks with criminal prosecution or jail unless they pay exorbitant collection fees.  Passing a bad check is only a crime where there's knowing and intentional fraud, but these companies demand fees regardless of whether a crime has been committed. It's a lucrative and shady business that essentially criminalizes civil debt collection.

Judge Berzon's opinion is the most thorough and scholarly treatment to date on the question of private entities and sovereign immunity.  In a sweeping rejection of ACCS's arguments, the Ninth Circuit characterized sovereign immunity as “strong medicine” that should be carefully limited, especially in the case of for-profit corporations that are not democratically accountable to the public. Quoting the philosopher Gilbert Ryle, the court called the argument that a private company could enjoy sovereign immunity a “category error,” like “inquiring into the gender of a rock or into which day of the week is reptilian.”

Consumer Groups Sue Justice Department Over Auto Database

by Deepak Gupta

1992, Congress required the federal government to set up a comprehensive national database covering the title-, theft-, and damage- history of used cars, based on data from insurance companies, junk and salvage yards, and all 50 states.  A consumer thinking about buying a used car would be able to instantly check the validity of the car's title and odometer reading and learn whether it had been stolen or severely damaged in the past.  Making that kind of information widely available would dramatically reduce the amount of auto fraud and save consumers from economic loss and physical injury.

But more than fifteen years since Congress first required the federal government to implement the database, the government still hasn't done it!

Yesterday, we filed a lawsuit against the U.S. Department of Justice, asking the federal district court in San Francisco to force the government to do what Congress required it to do. Public Citizen was joined in the suit by two other national consumer groups -- Consumers for Auto Reliability and Safety (CARS) and Consumer Action. You can read our complaint here and find additional information about the case here, here, and here.

Here's what Senator Chuck Schumer (D-NY), the lead sponsor of the original 1992 legislation, said in a statement released yesterday:

"We all know that you can't always judge a book by its cover and the same is true with many used cars that end up at junk and salvage yards. Consumers deserve to know the true origin and condition of the vehicles they are purchasing, including whether that car was once stolen.

It is simple: for sixteen years, the Department of Justice and junk yards have been eschewing their responsibility to consumers, law enforcement, and the public by ignoring their mandate to routinely file the required reports. It is about time that all parties were forced to comply with what I believe is a common sense measure to fight auto theft and to protect the public from fraud. I am encouraged by Public Citizen's efforts on this case, and I hope that this important law will finally be enforced as it should have been from day one."

Fifth Circuit Disapproves of Secret Class Action Fees

by Greg Beck

The Decision of the Day covers an interesting Fifth Circuit decision about secret fees in class action settlements. In In re High Sulfer Content Gasoline Products Liability Litigation, Shell Oil had agreed to pay $3.7 million to class members and almost double that as attorneys' fees. To divide up the fees among the 32 firms and 72 lawyers involved in the case, the district court appointed a five-member fee committee, which proceeded to award more than half the fees to its own members. The fee committee also recommended that the district court seal all records related to the disbursement and require all recipients to keep their fee awards confidential.

The Fifth Circuit vacated the award, writing:

On a broad public level, fee disputes, like other litigation with
millions at stake, ought to be litigated openly. Attorneys’ fees, after
all, are not state secrets that will jeopardize national security if
they are released to the public. . . . From the perspective of class
welfare, publicizing the process leading to attorneys’ fee allocation
may discourage favoritism and unsavory dealings among attorneys even as
it enables the court better to conduct oversight of the fees. If the
attorneys are inclined to squabble over the generous fee award, they
are well positioned to comment—publicly —on each other’s relative
contribution to the litigation.

Gang Rape Case Against Haliburton/KBR Sent to Arbitration

According to this ABC News story, a Texas trial judge has sent to arbitration the case of a woman who alleges that she was gang raped by Haliburton/KBR employees while working in Iraq. The judge appears to have reluctantly sent the case to arbitration because he felt bound to honor a mandatory pre-dispute arbitration clause.  As discussed earlier here, this case was the subject of testimony at a December 20, 2007 House Judiciary Committee hearing considering legislation to curb mandatory arbitration. We also discussed the case here.

The "New Redlining"

The Washington Post reported this weekend on mortgage lenders imposing loan restrictions on entire counties or zip codes considered to be "soft markets."

[via Consumerist]