New Predatory Lending Legislation a Possibility

Yesterday's New York Times reports that Congressional Democrats are contemplating new predatory lending legislation.  Representative Barney Frank, chair of the House Financial Services Committee, plans to move a bill that "would give borrowers and others the ability to sue the Wall Street firms that package those mortgages and then sell them as mortgage-backed securities, as well as the purchasers of those securities in the secondary market" while Senate Democrats, including Senators Dodd and Schumer, are also looking into the matter.  I wonder if Congress will consider eliminating the authority of federal regulators to preempt state predatory lending statutes as to federally-chartered and regulated financial institutions.

Comparative Consumer Insolvency Conference Schedule Released

by Christopher Peterson

Earlier this week the Law and Society Association released the program for an upcoming conference entitled "Compartive Consumer Overindebtedness". (See: Download ls_berlin_conference_program.3-15-07.rtf ) The meeting, organized by the steady hand of Bill Whitford (U.of Wisconsin), along with Johanna Niemi-Kiesilainen (Umeå University) and Iain Ramsay (Osgood Hall), is part of the Law and Society Association’s annual meeting scheduled for Berlin later this summer. The meeting will include presentations by approximately forty different consumer law scholars from all around the world. A quick glance at the program suggests the meeting is likely to produce one of the more interesting intellectual discussions of consumer credit policy in several years.

The “Check Float” Is On Its Way Out

By Brian Wolfman

You probably take advantage of the “check float” from time to time; I know I do.  That’s the idea that you can write a check when there are insufficient funds in your checking account and then deposit money in the account in the next few days, before the check clears, without worrying about bouncing your check.

You may not want to do that anymore.  I was surprised to read in Michele Singletary’s article in today's Washington Post that the “check float”  is on its way out.  Beginning tomorrow, banks can  use new technology that will clear the check -- that is, take the funds out of your account and make them available to the payee -- almost immediately and definitely by the next day.  Singletary explains that this change will not occur on an industry-wide basis overnight because the necessary technological systems and legal protections are not fully in place.

This change will have some advantages to consumers, including when dealing with a payee who will not consummate a transaction until the consumer’s check has cleared.  It may reduce the need in some circumstances for certified checks or money orders.  And retailers will like the new regime, as they will have use of your money sooner.  In any event, beware: The “check float” will become a thing of the past.  Singletary’s article explains the technology that will make this happen.  Definitely worth reading.

Nightline To Tackle Debt and Credit Issues Tonight

The coalition Americans for Fairness in Lending has kicked off its campaign to increase public awareness about debt and credit issues and to set the stage for legislation that will protect consumers' rights.  During AFFIL's kick-off event in New York last week, ABC's NightLine asked to interview AFFIL for one of its shows. That afternoon, James Scurlock, the writer and producer of the movie Maxed Out, and Professor Elizabeth Warren of Harvard Law School were filmed. Our sources tell us that NightLine will run the show this evening. (Thanks to Charles Delbaum of NCLC for the tip.)

Wal-Mart Uses Digital Millennium Copyright Act Against Consumer Blog

by Greg Beck

A while ago I wrote about how companies use the takedown provisions of the Digital Millennium Copyright Act to demand removal of their Black Friday sales prices from the Internet.  The DMCA gives Internet service providers a strong incentive to comply with demands to remove information that a company would rather not have online.  Yesterday, Wal-Mart used the DMCA against the Consumerist blog, demanding removal of an internal Wal-Mart PowerPoint presentation sent in by one of the blog's readers.  The presentation classifies Wal-Mart shoppers into categories that are either "More Loyal to WM" or "Less Loyal to WM."  Among those classified as "less loyal" are fourteen percent of the population Wal-Mart classifies as "Conscientious Objectors."  On advice of counsel, the Consumerist has complied with Wal-Mart's demand, but not before the Associated Press covered the story and Wal-Mart admitted that the slide show was authentic.   

Do Companies Ignore Consumer Complaints?

Over at U.S. PIRG's consumer blog, Ed Mierzwinski explains why he thinks companies ignore legitimate consumer complaints.  Two main reasons:  Consumers don't have effective redress in court because of mandatory arbitration, and the regulatory agencies are not doing their jobs policing improper corporate practices.  Ed suggests that someday consumers may harness the power of the Internet to fight back.

Identity Theft Incentives

by Jeff Sovern

I have previously blogged here and here about how credit bureaus lack sufficient incentives to prevent identity theft.  But what about lenders?  I had argued in an article, The Jewel of Their Souls: Preventing Identity Theft Through Loss Allocation Rules, 64 U. Pitt. L. Rev. 343 (2003), that lenders too have insufficient incentives to make it harder to commit identity theft.  Tomorrow's New York Times Magazine has a column by Stephen J. Dubner and Steven D. Levitt, the authors of the best-seller Freakonomics, that takes the position that banks, as well as consumers, and the police "aren't sufficiently incentivized to stop identity theft . . . ."  (Some information about the column can be found on the Freakonomics Blog).  The column paraphrases Sgt. Robert Beradi, head of the Los Angeles County Sheriff Department's ID Theft Task Force, as explaining that the credit industry "is reluctant to add even an ounce of friction to a consumer's purchase" and "identity theft is seen as simply the cost of doing business."  The column argues that the merchants who take credit cards--and are charged back when a particular item charge turns out to have been incurred by an identity thief--are the entities with the greatest incentive to stop identity theft.  The authors also cite a study that I, at least, had previously been unaware of, titled "Why Phishing Works", by Rachna Dhamija, J. D. Tygar, & Marti Hearst, all of Berkeley or Harvard, that chillingly found that "many users cannot distinguish a legitimate website from a spoofed website. In our study, the best phishing site was able to fool more than 90% of participants" and "we were able to fool even our most careful and knowledgeable users."

"Maxed Out" Opens in Theaters Today

by Deepak Gupta

If you haven't yet seen Maxed Out, the terrific new documentary about consumer credit and debt issues by director James Scurlock, now's your chance. Tonight, Maxed Out opens in select theaters in New York, Los Angeles, San Francisco, Dallas, Washington DC, Seattle, and Austin. A second batch of cities, including Chicago, Boston, and Minneapolis, gets added next week.

I've previously blogged about the movie here. As I've already discussed, the coalition Americans for Fairness in Lending is using the movie to help frame an exciting new public policy campaign; the group organized a special screening on Capitol Hill and a forum discussion accompanied by the movie in New York earlier this week. You can get lots of details, including theater locations, reviews, and information about the companion book, at the movie's website.

Press play to view the trailer:

UPDATE: Today's Washington Post ran a very favorable review of the movie by Ann Hornaday. She concludes that this "is a film all high school seniors should see. And their parents. And their siblings, neighbors, best friends and acquaintances. You should see it, too. And spread the word."

Another Ninth Circuit CAFA Decision

By Brian Wolfman

The day before yesterday, in Progressive West Insurance Company v. Preciado, No. 06-17367 (Mar. 6, 2007), the Ninth Circuit again ordered a class action remanded to state court on the ground that it did not meet the jurisdictional requirements of the Class Action Fairness Act. [I blogged yesterday about a March 2 Ninth Circuit ruling finding CAFA jurisdiction lacking.]

Here’s what happened in Progressive.  An insurance company sued one of its customers in state court for breach of contract, claiming reimbursement for medical expenses that it had paid on the customer’s behalf.  On February 17, 2005, the day before CAFA’s effective date, the customer filed a cross-claim (the equivalent of a federal counterclaim) on behalf of the “general public.”  The cross-claim alleged that the practice of seeking such reimbursements was an unfair business practice under California’s unfair competition law, Cal. Bus. & Prof. Code 17200 et seq.  The state court held that the customer had failed to make the class action allegations required to sustain an unfair competition claim on behalf of the general public.  See id. sec. 17203.  But the state court gave the customer leave to amend to add class action allegations.  The customer did so, but (obviously) after CAFA’s effective date.  The insurance company then removed the case to federal district court under CAFA.  The district court held that it lacked jurisdiction.

The Ninth Circuit affirmed for two independent reasons.  First, the court held that the case had been commenced before CAFA’s effective date and that the amended cross-claim related back to the original filing date as a matter of California law.  Therefore, CAFA did not apply.  Second, the court held that only a defendant, not a counterclaim defendant (that is, a plaintiff against whom a counterclaim is asserted), can remove a case under CAFA.  CAFA’s removal provision, the court explained, adopts the procedures of the general federal removal statute, 28 U.S.C. 1446(a), which applies only to “defendants.”

EU Considering Consumer Class Actions

by Deepak Gupta

Over the past few years, Europe has been moving, ever so slowly, towards adopting some kind of version of the American-style class action device.  The debates in Europe are an interesting mirror of the debates over class actions in the United States, reflecting a desire to promote efficiency while avoiding the potential for abuse.

Although a proposal in France to permit class actions was recently shelved, the Financial Times is reporting that the European Union's consumer affairs commissioner will announce next week that the EU is considering a new form of "collective redress" against providers of faulty goods or services.