Subprime Loan Interest Rate Freeze Agreement

The Associated Press is reporting here (on the New York Times website) that the Bush administration has reached an agreement to freeze interest rates for five years on certain subprime loans.  It sounds very much like the proposal previously put forward by the head of the FDIC, Sheila Bair, about which we previously blogged here and here.  It's not clear from the report who the parties to the agreement are, but the article refers to talks among "banking regulators and banks, mortgage investors and consumer groups . . ."

Transcript of Oral Argument in Riegel v. Medtronic

The Supreme Court heard oral argument today in Riegel v. Medtronic, Inc., concerning whether federal medical device law preempts certain kinds of state-law damages suits.  Here's the oral argument transcript.

The Loans are Subprime, Not the Borrowers

By Alan White

The Wall Street Journal has a story today confirming that nearly half of homeowners with subprime mortgages could have qualified for prime-rate loans. While many of us have pointed this out before, the WSJ analysis, based on the best loan database available, shows how much the steering problem has worsened in the last three years. One industry response is that a 620 credit score is a bit low as a definition of a prime borrower. But even if you set the bar higher, 40% of subprime borrowers were over 640 FICO, and 30% were over 660. There is no getting around the fact that the mostly unregulated subprime market is neither efficient nor fair, and is costing homeowners billions in excess interest costs, quite apart from the devasting cost of foreclosures.

The dramatic contraction in the subprime mortgage market undoubtedly has a human toll, for the workers in the housing and mortgage industries who are losing income and jobs. On the other hand, the rapid expansion to the point where $600 billion in subprime loans were made in 2006 has done many consumers (and lately, investors) more harm than good. Hopefully this debacle can lead to the emergence of a smaller subprime market offering regulated, tailored products to the small group of homeowners with marginal credit who can benefit from buying or refinancing a home.

Washington Post Articles on Proposed Legislation to Curb Credit Card Fees and a Possible Deal to Address Subprime Lending Mess

Today's Washington Post has two articles that are worth a look.

Here's one on planned legislative and regulatory efforts regarding credit card fees.  The first couple sentences of the article provides a flavor: "Senior Democrats on Capitol Hill want to ban excessive credit card fees. Bank regulators are on the verge of forcing companies to give more notice before raising interest rates. And New York's attorney general, whose investigations transformed the student loan industry, now has his eye on conflicts of interest in the credit card sector."  On the latter, the NY AG is looking into "arrangements in which companies that supply electronic cards used to pay for purchases at bookstores and cafeterias are granted exclusive access to market their card products to students."

And here's an article describing an almost-consummated agreement "between top Bush administration officials and a broad alliance of Wall Street's biggest banks, mortgage investors, nonprofits and consumer groups," under which "mortgage rates for homeowners with spotty credit histories would be temporarily frozen . . .."

Riegel v. Medtronic To Be Argued To The Supremes On Tuesday

Riegel v. Medtronic, Inc. -- which presents the question whether federal pre-market approval of a medical device preempts state-law damages suits premised on defects in the design and labeling of that device - - will be argued this coming Tuesday, December 4, before the U.S. Supreme Court. This post provides links to all of CL&P's information on this important case. Friday's Law.Com has this article about the case. Here are the plaintiffs' Supreme Court briefs. Here is the defendant's brief. Check back here after the argument for a link to the oral argument transcript.

Mortgage Modifications not Happening

By Alan White

Consumer advocates, state and federal regulators and politicians are calling on subprime mortgage servicers to modify loan terms to stem the rising tide of home foreclosures. Lenders are promising hotlines but what happens when homeowners call servicers? Are the servicers modifying loan terms? Unfortunately servicers are not making this information public, at least in an accessible way. Monthly reports to investors, however, do include some data on loan modifications. I decided to try tabulating numbers from some of the November monthly remittance reports to see what the servicers are doing. These reports cover only the loans in a particular pool, usually two to ten thousand mortgages from a single month or quarter. It seemed logical to start with groups of mortgages originated in the last two years, since most subprime mortgages (60% to 80%) are 2/28 ARM’s, with big payment increases after two years. I gathered the November remittance reports for five leading servicers to see what they were doing. The results are discouraging.

A Self-Inflicted "Crisis"

by Barry Boughton, Public Citizen 

When NY’s Superintendent of Insurance announced a 14 percent across-the-board rate hike for medical liability insurance on July 1, 2007, doctors raised a hue and cry that the increase threatened a crisis in access to care because doctors could no longer afford to practice in New York and would be leaving the state or otherwise restricting their medical practices. As in the past, doctors again blamed the premium increases on skyrocketing claims and lottery awards and demanded tort reforms that would cripple meritorious malpractice claims by the victims of medical negligence.

Today Public Citizen released a report that exposes these claims of the doctors as full blown, deliberate and obvious exaggeration: A Self-Inflicted “Crisis:” New York’s Medical Malpractice Troubles Caused by Flawed State Rate Setting and Raid on Rainy Day Fund. These same claims have been made by doctors during each of the three cycles of rising premiums that have occurred over the past thirty-plus years. Our report shows that rising malpractice premiums are not the result of any escalation in the frequency or severity in malpractice payments. The increase has nothing to do with patients, lawyers, judges, or our courts. It reflects an insurance problem.

Public Citizen’s analysis of the best available New York data demonstrates that the number of malpractice payments made on behalf of doctors in 2006 was at its lowest point since 1991. The total amount of malpractice payments for doctors, adjusted for inflation, was near or below fifteen year average in three of the past five years.

Court Holds Resales Are Not Infringement

In Matrix Essentials v. Quality King Distributors, the Eastern District of New York recognized that trademark law is designed to protect consumers from confusion, not to preserve corporate distribution schemes and minimum prices. 

L'Oreal sued a competitor (and tried to interest the U.S. Attorney in starting a criminal prosecution) for "diverting" (i.e., reselling) L'Oreal's hair care products outside of L'Oreal's authorized distribution system. Although L'Oreal characterized the shampoo as "counterfeit," the court didn't buy it:

Under the "first sale" doctrine, long a basic premise of trademark law, a trademark owner cannot control distribution of a trademarked item beyond its first sale. The re-sale of such genuine goods does not create consumer confusion and supports neither a claim of infringement nor unfair competition.

Far from protecting consumers, penalizing resellers for selling authentic products raises prices by halting legitimate competition. Nevertheless, some courts have bought into the argument that resellers are liable for selling less expensive products without permission of the manufacturer. This court, at least, appears to have gotten it right.

via Likelihood of Confusion

Cy pres: Boon or Benefit?

by Stephen Gardner

As foretold by Deepak Gupta’s 11/27 post, here is a brief response to the November 26 New York Times article that discussed charitable payments of leftover class action settlement funds (known in the class action biz as “cy pres,” mostly because Law French always sounds fancier than English).

In short, the article does a great job of articulating the problems a few folks see with cy pres distributions, but not so much in reflecting the many positives about cy pres.

(Disclosure time: My organization, the Center for Science in the Public Interest, has received a few cy pres awards, and I have as a class action lawyer given many hundreds of thousands of dollars to suitable charities. My long-held professional bias is strongly in favor of cy pres payments, and my more recent institutional bias complements that bias. I was also a primary author of the Class Action Guidelines issued by the National Association of Consumer Advocates, one chapter of which addresses and supports cy pres distributions.

(Thus, my long-held professional bias is strongly in favor of cy pres payments, and my more recent institutional self-interest complements that bias.

(But I’m right, regardless.)

First, a quick summary of cy pres, just in case you don’t want to read the Times article (which you really ought to do, as it is a very well-written summary of cy pres concepts, better than I am likely to achieve.

CL&P Roundup

by Deepak Gupta

Another Class Action Ban Bites the Dust: Yesterday, a Florida appeals court struck down a class action ban in an auto lease agreement. Among other things, the ruling was based on the fact that attorneys' fees under the state's trade practices statute are limited based on the damages awarded: "Precluding class representation for holders of small claims whose attorney’s fees are limited by the amount of their individual damages," the court observed, would "dramatically undermine" the statute's "private enforcement mechanisms."  Relatedly, a detailed new article in Lawyers USA surveys the ongoing battle over class action bans. The piece quotes not one, not two, but three of this blog's contributors--Paul Bland, Ira Rheingold, and Jon Sheldon.

More on Binding Mandatory Arbitration:  Reporter Stephanie Mencimer has a terrific new story in Mother Jones on the evils of mandatory binding arbitration clauses, with a focus on used car sales; she recounts her own family's unsuccesful attempt to buy a used car without submitting to BMA and discusses the legislation pending in Congress.  In a related blog post, she discusses how arbitration has hit one member of the military deployed to Iraq.  In the field of arbitration fora stacked in favor of big business, the National Arbitration Forum is the worst of the worst; on Sunday, one NAF arbitrator posted a comment on this blog (scroll down) responding to a year-old post by Paul Bland discussing NAF bias. Judge for yourself.

"It might just be a good Christmas for books or movies": So says Senator Durbin, in response to questions about shopping for toys this season in the wake of scandals over toy recalls and lax Consumer Product Safety Commission enforcement.  A broad consensus is emerging that something needs to be done about the CPSC. [via US PIRG and Consumerist]

A critical view of cy pres: In yesterday's Times, legal reporter Adam Liptak ran a column with a negative angle on the distribution of cy pres funds to charities.  The column, which leans heavily on the views of NYU prof Sam Issacharoff, discusses these two opinions by Judge Harold Baer of the Southern District of New York--issued before and after reversal by the Second Circuit, respectively.  The question before Judge Baer: When very few class members claim benefits, do you give those class members a share larger than their damages, or do you distribute the funds to related charities?  Liptak is a good reporter, but this column may paint a somewhat unrepresentative picture of the use of cy pres in consumer class actions; look for a response here soon.