Times Articles on Securitization Woes and Lead Trinkets

Yesterday's Times had two front-page articles on consumer issues.  The first article, "More Home Foreclosures Loom as Owners Face Mortgage Maze,"reported on the difficulties consumers have in restructuring mortgages in the era of securitization.  Two quotes, which in turn include quotes from familiar names: 

“Securitization led to this explosion of bad loans, and now it is harder to unwind and modify them even where it is in the best interests of both the borrower and the investors,” Kurt Eggert, an associate professor at the Chapman University School of Law in Orange, Calif., said in an interview. “The thing that caused the problem is making it harder to solve the problem.”

* * *

Ira Rheingold, executive director of the National Association of Consumer Advocates, says companies in the chain should be held responsible. “Because Wall Street is responsible for the mess we are in, they need to bear some of that burden,” Mr. Rheingold said. “Why should people who have been funding these bad loans get a free pass?”

The second article, "Bid to Root Out Lead Trinkets Falters in U.S.", states that " hundreds of thousands of tainted items are still being sold across the United States, the federal government has found."   

Opt-out arbitration

I was surprised to receive my arbitration notice from Comcast containing an "opt-out" provision. It says I may opt-out by giving written notice or visiting their website within 30 days. They claim that my decision to opt-out will have no adverse effect on my relationship with Comcast. I wonder why they are doing this? It may be they want to be nice to consumers, or more likely, they want to have an enforceable clause and this makes it look like I have voluntarily agreed.

It also seems to be a very fair provision with respect to costs. It states that Comcast will advance all costs and that I am responsible for my share only f I lose and only "up to the extent awardedable in a judicial proceeding. I assume that means I do no have to pay the arbitrators fees, which is not a cost I would be responsible for in a judicial proceeding.

The notice also prohibits class actions, which may be all they really want.

NHTSA Recalls for July 2007

Recalls instituted by the National Highway Transportation Safety Administration for July 2007 are available here.

Article on Transnational Consumer Law

As more consumer purchase items across borders, perhaps without realizing they're doing so, transnational consumer law becomes more important.  Gralf-Peter Calliess of the University of Bremen - Faculty of Law has written an article on the subject, "Transnational Consumer Law: Co-Regulation of B2C-E-Commerce."  It's available at  http://ssrn.com/abstract=988612.  Here's the abstract:

The nation states provide workable contract enforcement
institutions for domestic commerce. Due to a lack of
international cooperation the same does not hold true when it
comes to cross-border situations. Thus, the institutional
organization of international commerce is characterized by its
reliance on private ordering or private legal services. Many
believe that the emergence of a New Law Merchant can be observed
in international commercial arbitration. This trend towards the
privatization of commercial law, however, is believed to be
limited to the sphere of corporate actors or merchants. When it
comes to the protection of weaker contract parties like
consumers, self-regulation is not held to be a viable option. In
fact, consumers do shop increasingly across borders when engaging
in e-commerce, often without noticing. The 1999 OECD Guidelines
proposed to tackle the resulting consumer protection concerns by
means of co-regulation. In this article, I intend to examine the
potential role of private ordering and co-regulation in the area
of cross-border consumer contracts. I start with a survey of the
different mechanisms of private ordering, which have developed in
e-commerce. This illustrates that electronic market places fulfil
an essential role in bundling different means of private ordering
into what I call transnational civil regimes for consumer
protection. Finally, I aim at demonstrating how states, industry,
and civil society actors can jointly contribute to the
establishment of a civil constitution for such regimes.

May an Identity Theft Victim Sue the Lender that Allowed the Thief to Open the Account?

Suppose an identity thief takes out a loan in your name with a lender, defaults, and so blemishes your credit record.  Do you have a claim against the lender for opening the account ? (The question of what the lender's obligations in its role as a furnisher of information is dealt with by the FCRA in § 1681s-2 and I won't address that in this post.)  Up to now, the answer has usually been no.  If you could show that the lender had obtained your credit report and that it lacked a reason to believe that the imposter was in fact you, then under FCRA § 1681b the lender would have obtained your credit report without a proper purpose, and it would be liable.  See Andrews v. TRW, Inc., 225 F.3d 1063 (9th Cir. 2000), rev'd on other grounds sub nom. TRW Inc. v. Andrews, 534 U.S. 19 (2001).  But often the lender will indeed have a reason to think that you are the person applying for credit.  Many common law claims are preempted by FCRA § 1681h(e) and courts have generally rebuffed consumers arguing for creation of a new claim, such as negligent enablement of imposter fraud.  See, e.g., Polzer v. TRW, 256 A.D.2d 248, 682 N.Y.S.2d 194 (1st Dept. 1998).  But a new case offers more hope to identity theft victims. In Wolfe v. MBNA America Bank, 485 F.Supp.2d 874 (W.D.Tn. 2007), plaintiff alleged that the defendant had issued a credit card to an identity thief using the plaintiff’s name without verifying the accuracy of the information in the identity thief’s application.  The court refused to dismiss plaintiff’s negligence claim, saying:

With the alarming increase in identity theft in recent years, commercial banks and credit card issuers have become the first, and often last, line of defense in preventing the devastating damage that identity theft inflicts. Because the injury resulting from the negligent issuance of a credit card is foreseeable and preventable, the Court finds that under Tennessee negligence law, Defendant has a duty to verify the authenticity and accuracy of a credit account application before issuing a credit card. The Court, however, emphasizes that this duty to verify does not impose upon Defendant a duty to prevent all identity theft. The Court recognizes that despite banks utilizing the most reasonable and vigilant verification methods, some criminals will still be able to obtain enough personal information to secure a credit card with a stolen identity. Rather, this duty to verify merely requires Defendant to implement reasonable and cost-effective verification methods that can prevent criminals, in some instances, from obtaining a credit card with a stolen identity. Whether Defendant complied with this duty before issuing a credit card in Plaintiff's name is an issue for the trier of fact. Accordingly, Defendant's motion to dismiss Plaintiff's negligence and gross negligence claims in the first factual context is DENIED.

The court also found that plaintiff’s allegations stated a claim under the Tennessee UDAP statute and were not preempted by the FCRA.   

CPSC Product Recalls for July 2007

Here are the Consumer Product Safety Commission's recalls for July 2007.

NYT: Credit Card Buyer Beware

The federal agencies that are supposed to regulate the banking and credit card industries have failed utterly to keep pace with deceptive and unfair practices that have become shamefully standard in the business. As a consequence many hard-working Americans who pay their bills are mired in debt — and in danger of losing whatever savings they have, and perhaps their homes. Congress, which sat on its hands while the problem got worse and worse, needs to rein in this sometimes predatory industry.

Read more of this editorial from yesterday's New York Times.

Washington Post Editorializes In Favor Of Limits On Payday Lending

Check out this editorial in today's Washington Post in favor of state-law limits on payday lenders.  The editorial specifically endorses efforts in the District of Columbia Council to limit interest rates on payday lenders in the District.

FTC Seeks Comments on the Use of Social Security Numbers

Many commentators have expressed the view that use of the Social Security Number as an authenticator contributes to identity theft.  The FTC is trying to learn more about this problem.  It seeks comments by September 5 on the following topics: 

1. Current Private Sector Collection and Uses of the SSN
   • What businesses and organizations collect and use the SSN? For what specific purposes are they used?
   • What is the life cycle (collection, use, transfer, storage and disposal) of the SSN within the businesses and organizations that use it?
   • Are governmental mandates driving the private sector’s use of the SSN?
   • Are there alternatives to these uses of the SSN?
   • What has been the impact of state laws restricting the use of the SSN on the private sector’s use of the SSN?
2. The Role of the SSN as an Authenticator
   • The use of the SSN as an authenticator – as proof that consumers are who they say they are – is widely viewed as exacerbating the risk of identity theft. What are the circumstances in which the SSN is used as an authenticator?
   • Are SSNs so widely available that they should never be used as an authenticator?
   • What are the costs or other challenges associated with eliminating the use of the SSN as an authenticator?
3. The SSN as an Internal Identifier
   • Some members of the private sector use the SSN as an internal identifer (e.g. employee or customer number), but others no longer use the SSN for that purpose. What have been the costs for private sector entities that have moved away from using the SSN as an internal identifier? What challenges have these entities faced in substituting another identifier for the SSN? How long have such transitions taken? Do those entities still use the SSN to communicate with other private sector entities and government about their customers or members?
   • For entities that have not moved away from using the SSN as an internal identifier, what are the barriers to doing so?
4. The Role of the SSN in Fraud Prevention
   • Many segments of the private sector use the SSN for fraud prevention, or, in other words, to prevent identity theft. How is the SSN used in fraud prevention?
   • Are alternatives to the SSN available for this purpose? Are those alternatives as effective as using the SSN?
   • If the use of the SSN by other sectors of the economy were limited or restricted, what would the ramifications be for fraud prevention?
5. The Role of the SSN in Identity Theft
   • How do identity thieves obtain SSNs?
   • Which private sector uses of the SSN do thieves exploit to obtain SSNs, i.e, SSN as identifier or SSN as an authenticator? Which of those uses are most vulnerable to identity thieves?
   • Once thieves obtain SSNs, how do they use them to commit identity theft? What types of identity theft are thieves able to commit with the SSN? Do thieves need other information in conjunction with the SSN to commit identity theft? If so, what other kinds of information must they have?
   • Where alternatives to the SSN are available, what kind of identity theft risks do they present, if any?

For more information, and to submit comments, click here.

Senate Hearing Today on Credit Repair Organizations and Telemarketing Fraud

The Senate Commerce Committee is holding a hearing at 2:30 this afternoon on telemarketing (specifically, the Do-Not-Call list and proposals to improve it, as well as telemarketing fraud aimed at seniors) and the Credit Repair Organizations Act (CROA).

The CROA may not be the best-known federal consumer protection statute, but it's an important one.  It was passed in 1996 to address abuses by credit repair organizations, outfits that take money for services that will purportedly improve a consumer's credit score.  The legislation was the result of a rare alliance between consumer advocates and credit reporting agencies, who were getting swamped with dispute letters generated by credit repair services.  The Act requires certain disclosures, provides for a 3-day right to cancel, prohibits the acceptance of payment before services are performed, and prohibits any person--not just "credit repair organizations"--from engaging in certain deceptive acts.  (The statute has thus been applied to lawyers, debt collectors, and payday lenders in certain circumstances.)  CROA has strong civil liability provisions, including punitive damages.

Connnecticut consumer advocate Joanne Faulkner, who an expert on bringing cases under the CROA, is testifying this afternoon on behalf of the National Association of Consumer Advocates, the National Consumer Law Center, U.S. PIRG, and Consumer Federation of America.   Joanne will suggest a number of improvements to CROA, including a clear ban on mandatory binding arbitration, distant forum, and class action waiver clauses, as well as a provision allowing for injunctive relief.  You can read her written testimony here.  The other witnesses are Lydia Parnes (Director of the Bureau of Consumer Protection, FTC),  Richard Johnson (AARP), Jerry Cerasale (lobbyist for the telemarketing industry), Robin Holland (lobbyist for Equifax), and Steve St. Clair (Iowa Attorney General's office).