More on "Another Form of Equity Skimming"

This equity skimming typically involves what we call a "foreclosure rescue scam" and NCLC has a detailed chapter on litigation approaches to saving the home and challenging the practice in the 2006 Supplement to our Foreclosures manual.  This discussion is updated in Foreclosures Second Edition (2007) which is at the printer and due for release at the end of this month.  (A money saving tip: buy the first edition and supp. within the next week at the old price and you will receive the second edition free when it comes out in a few weeks.)

Insurer Use of Credit Scores

NCLC has just released a report titled "Credit Scoring and Insurance: Costing Consumers Billions and Perpetuating the Economic Racial Divide," arguing against using credit scores to determine whether consumers will get home and auto insurance, and for what price.
    Insurance companies use credit scores - three digit numbers generated using a consumer's credit report - in insurance underwriting and ratesetting.  The new NCLC report documents the numerous problems with this practice, include a summary of the many studies indicating enormous racial disparities created by credit scoring.   
    "Credit scores are essentially a numerical expression of the huge economic divide we have based on race in this country," noted Chi Chi Wu, NCLC Staff Attorney and the report's primary author, "As such, the use of these scores in insurance perpetuates and reinforces this racial wealth divide."
    The NCLC report includes an analysis by Birny Birnbaum of the Center for Economic Justice on how insurance credit scores cost consumers billions of dollars every year, potentially in the neighborhood of $67 billion.  According to Birnbaum, "Insurers' use of credit scoring - the introduction of many, many rate levels based predominantly on the insurance score - has contributed to a dramatic increase in profitability."
Other issues addressed in the NCLC report include:

    Consumers lack information about the use of credit scoring in granting or pricing insurance, with only 36% in one survey indicating they know about the practice.

    Some of the factors used in insurance scoring models are questionable, such as penalizing consumers with fewer than 2 credit card accounts.  Credit scoring in general has been criticized for high rates of errors and data inconsistency between the major credit bureaus.

    The insurance industry alleges that credit scoring is predictive in forecasting which consumers will have higher losses yet they have not offered a satisfactory explanation as to why this correlation exists.

    Anti-discrimination laws present limited avenues to challenge the racial disparities created by credit scoring, especially with respect to home insurance.

    The report's authors call upon states to outlaw the practice of using credit scores in insurance.  The NCLC Insurance Scoring report is available at this link at NCLC's website.

Another Form of Equity Stripping

Tuesday's New York Times had an article, "New Scheme Preys on Desperate Homeowners".  A quote: 

With the housing market in decline, financial predators are finding yet another way to take advantage of people who fall behind on their payments.

The schemes take various forms and often involve promises to distressed homeowners of cash upfront, free monthly rent and a chance to retain their houses in the long run. But in the process, someone else takes over the deed, borrows as much as possible against the value of the house and pockets the cash. And, almost always, the homeowners still end up losing their homes.

Consumer Product Safety Commission Recalls for June 2007

You can find the Consumer Product Safety Commission's product recalls for June 2007 right here.

Airline Passengers' "Bill of Rights" Moving Through Congress

U.S. PIRG's Consumer Blog has this story on the movement of an airline passengers' "bill of rights" through Congress as part of Federal Aviation Administration reauthorization legislation.  The story explains why, in PIRG's view, the current version does not do enough to protect airline consumers.

Is it Unethical to Match Consumers with Lawyers Online?

by Greg Beck

Web startup Avvo.com jumped into the business of rating lawyers this month and almost immediately found itself the defendant in a lawsuit that seeks to certify a class of all lawyers rated by the system.  The suit claims that the rating system is arbitrary, noting that the dean of Stanford Law School was rated as “average,” while Lynne Stewart, who was convicted of providing material support to terrorists and disbarred, received a rating of “very good.”  According to the complaint, the site engages in unfair and deceptive practices by “encourag[ing] consumer trust in a fallible system.” 

As Eric Goldman points out in his Technology & Marketing Law Blog, the design of Avvo's system may take it outside the immunity for website publishers afforded by the Communications Decency Act.  But while the site could likely be redesigned in a way that protects it from liability under the CDA, the complaint raises another troubling issue by claiming that running the website is a violation of state attorney ethics rules.

Why Don’t More Elite Law Schools Offer Consumer Law Courses?

by Jeff Sovern

Recently I asked a research assistant to review the web sites of several top law schools to see if they offer courses in consumer law.  Though the web sites may not necessarily report accurately what course are offered (courses are sometimes added and dropped at the last minute, etc.), to the extent that the web sites are accurate, they are disappointing.  Among the schools that appear not to offer a basic consumer protection course are Yale, Columbia, NYU, Virginia, Stanford, Chicago, Michigan, and Texas.  Georgetown offers a comparative consumer protection course (comparing US and European laws) while Harvard has a Predatory Lending/Consumer Protection Clinical Workshop.  I’ve heard that Penn and Boalt will offer consumer law courses next year. 

Of course I have a personal stake in more law schools teaching consumer law. Not only have I co-authored a consumer law casebook, as regular readers of the blog know, but more full-time professors in the area would probably increase the amount of consumer law scholarship.  In addition, professors at such schools could be expected to enhance both the quality of such scholarship and professorial conversations about consumer law topics.  All this would benefit me personally. 

But the rest of you also have such a stake in elite schools teaching consumer law.  Consumers and consumer lawyers would benefit if more law students at elite schools were exposed to consumer protection laws.  Many of the graduates of these schools become leaders in law-making, serving on the bench or in legislatures, and if they better understood the relevant legal issues, we might get better consumer protection laws. These schools disproportionately feed the law professoriate, and also serve as models for non-elite schools, and so more non-elite law schools would probably offer consumer protection courses too.  Doctrinal law school classes tend to provide a balanced approach to consumer protection issues, exposing students to the policy arguments on behalf of both consumers and industry. Thus, perhaps graduates of these schools who go on to represent lenders, say, would better understand the costs of their recommendations to their clients. Perhaps more graduates of such schools would be interested in representing consumers if they were more familiar with consumer laws. 

NCLC Reports on Big Name Banks' Support of Payday Lenders

Over at the Consumerist you'll find this nice discussion of a new National Consumer Law Center report on the relationship between some of the biggest banks and your friendly local payday lender.  Yes, Bank of America, Wells Fargo, JP Morgan, and others are bankrolling the payday lending industry to the tune of hundreds of millions of dollars in lines of credit. (But they don't sell payday loans at their local branch banks, do they?).  The Consumerist characterizes what it learned from NCLC's report this way:  "Kinda like finding out the local hardware store owner sells crack on the side."

Supreme Court Grants Important Preemption Case

The Supreme Court just announced that it has granted an important case on federal preemption of suits by consumers injured by medical devices.  The case, which we've blogged about previously, is Riegel v. Medtronic, and the question presented is whether the Medical Device Amendments to the Food, Drug, and Cosmetic Act preempt state-law suits seeking damages for injuries from medical devices that have received FDA pre-market approval.  My colleague Allison Zieve represents the consumer petitioner.  Although the state and federal courts have been split on this issue for many years, the Court has previously denied several similar petitions on the same question.   Just as in was in the pesticides preemption case a few years ago (Bates v. Dow Agrosciences), the Court's decision to grant this case is an encouraging sign.  Here's the cert petition in Riegel, and here are some previous posts with more on the case:

Should Premarket Approval Be a Liability Shield? (Allison Zieve)

Supreme Court Asks for Solicitor General View's in Important Preemption Case (Brian Wolfman)

U.S. Firms Prepare for European Class Actions

Today's Legal Times has an interesting article on the rise of consumer class actions in Europe.  "The next hot American import in Europe may well be class action litigation.  In recent months a number of U.S. firms have been positioning themselves in anticipation of a potential fusillade of class actions across the Atlantic. . . . Although there has been very little class action litigation in Europe to date, the United Kingdom, the Netherlands, Germany, Sweden and Portugal already allow some form of group or class action-style litigation. Other European countries are considering following suit, and the European Commission has been clamoring for more private enforcement of competition law."