Senate Banking Hearing on Predatory Mortgage Lending

by Deepak Gupta

This morning, at 10am, the Senate Banking Committee will hold another important hearing on a pressing consumer issue: "Preserving the American Dream: Predatory Lending Practices and Home Foreclosures." (The last such hearing, on credit card abuses, generated a lot of attention and put the spotlight on some very indefensible industry practices.) It's still to early to tell whether these hearings will translate into actual legislation that does something about the problems being addressed, but it's certainly a step in the right direction--an indication that consumer advocates may be moving, ever so slightly, from playing defense to offense.

On the consumer side of the ledger, the witnesses will be Hilary Shelton of the NAACP, Martin Eakes of Self-Help Credit Union and the Center for Responsibe Lending, Jean Constantine-Davis of AARP; and two consumers--Delores King and Amy Womble. A late, high-profile addition is the Reverend Jesse Jackson, who will be testifying first. (It's notable that a civil rights leader of Jesse Jackson's stature will be weighing in on predatory lending issues; whether he has anything of substance to add remains to be seen.) On the industry side, the witnesses are Harry Dinham (Nat'l Ass'n of Mortgage Brokers) and Doug Duncan (Mortgage Bankers Ass'n). As always, we'll try to bring you a report or two after the hearing is over.

Once it gets underway, you should be able to watch a live webcast of the hearing at this link.

Is Identity Theft Declining?

by Jeff Sovern

A new study by Javelin Strategy & Research has found a decline in identity theft--though it still concludes that 8.4 million Americans, or one in 27, discovered last year that they had been victimized by identity theft.  The Javelin Study has received significant attention from the media (for example, The New York Times article on the Study can be found here).  But Chris Hoofnagle, staff attorney at the Samuelson Law, Technology and Public Policy Clinic and senior fellow at the Berkeley Center for Law and Technology at Berkeley law school retorts that the finding is "dead wrong" because the study was based on a telephone survey and telephone surveys are unlikely to measure so-called "synthetic identity theft" in which identity thieves create identities using information from multiple victims.  Hoofnagle notes that Mike Cook of ID Analytics has written that synthetic fraud “is a larger problem than identity theft and is growing at a faster rate.” The Javelin survey was sponsored by Wells Fargo & Co., Visa, and CheckFree Corp., which makes bill paying software.

Congress passed the Fair and Accurate Credit Transactions Act of 2003 ("FACTA") to address the problem of identity theft.  The fact that Javelin can report 8.4 million victims of identity theft this long after passage of FACTA--whether the incidence of identity theft is declining or not--makes if very clear that FACTA has not solved the identity theft problem.

Father Robert Drinan and His Role in Consumer Justice

    by Willard Ogburn

    [Introductory note:  Will Ogburn, the Executive Director of the National Consumer Law Center, recently penned this inspirational memorial to Father Robert Drinan.  Jeff Sovern referred to the memorial in a recent post.  We asked Will if we could post the memorial on the blog, and Will graciously agreed.]

    NCLC founder and friend Father Robert Drinan died over the weekend at age 86.  Nationally, you may recall that during his tenure in Congress  he was one of the House's most principled congressmen, human rights activists, and Vietnam war protesters.

    NCLC valued him as a man of vision and courage who helped found and form the Center in the late 1960s and early 70s.  More recently he was pleased to serve as Honorary Chairman of our Partners Committee.

    When NCLC was created in the earliest days of the War on Poverty under President Lyndon Johnson, it was one of the first national support centers formed to help legal services attorneys, and it was formed at Boston College Law School while Father Drinan was its Dean. When I would talk with Father Drinan in later years, he would always point out with pride that he started NCLC. He was chagrined that NCLC left Boston College (a fact he blamed on BC's pressing demand for too large a share of our budget), but clearly took great pleasure in the fact that the Center had grown in stature and effectiveness over the years as a voice for low income consumers, and even thrived out from under the legal services umbrella. He treasured it as a significant part of his legacy.      

Credit Union President Predicts "death to lending to service members"

by Christopher Peterson

Consumer Law and Policy Blog Readers will recall that Congress recently passed a variety of new consumer credit protections for military servicemembers. Among the key features of the act is a 36% annual percentage rate cap and a ban on mandatory, binding arbitration clauses in consumer credit contracts with military personnel.

Today was the last day to submit comments to the Department of Defense before the Pentagon undertakes to write proposed regulations to enforce the statute. (For those of you wishing to comment, there will be another period after DOD proposes regulations.) A variety of banks, credit unions, and other lenders turned out in force to suggest the most narrow possible interpretation of the statute and predict apocalypse if the Pentagon does not follow suit. One comment submitted by Taylor Community Credit Union President Phillip A. Matous particularly stuck out in my mind. Mr. Matous predicts that “[u]nless Credit Unions join banks in having the law rewritten or suspended before it takes effect October 1, 2007, it might well be called the death to lending to service members act.”

Of course the same predictions of armegeddon follow every major policy shift in consumer lending. Some creditors predicted the same thing before the Truth in Lending Act, before the FTC adopted its holder-notice rule, and before North Carolina past its predatory mortgage lending statute.

Dee Pridgen's Report on the ABA Antitrust Section Consumer Protection Conference

My co-author, Dee Pridgen, Associate Dean and Professor of Law at Wyoming and author of the treatises Consumer Protection and the Law and Consumer Credit and the Law, attended the recent ABA Antitrust Section Consumer Protection Conference and kindly provided the following illuminating report:

I attended what was called the “inaugural stand-alone consumer protection conference” put on by the ABA Antitrust Section at Georgetown Law Center on January 29-30, 2007.  The focus was on FTC consumer protection enforcement and industry self regulation, with a smattering of state consumer protection enforcement thrown in. There was little or no discussion of private suits.  All five sitting FTC Commissioners, as well as the current and four former Bureau of Consumer Protection directors made appearances.  There was also good representation from the private sector, including firms and in-house counsel.  Two speakers from state attorneys general offices and two academics also spoke.  Thus, this conference was a good complement to the NCLC annual conference and the Teaching Consumer Law conference held biennially in Houston.

What I gleaned from the various speakers was that the FTC appears to be revitalized in the consumer protection area, with an emphasis on consumer privacy (including data security), consumer technology (spyware and adware), health and obesity issues, and international and criminal enforcement.  Several FTC speakers mentioned the recently passed US SAFE WEB Act [which we blogged about earlier here] as a major step forward in assisting the FTC in its overseas law enforcement efforts.

First Circuit Holds That Class Actions Are Unavailable For TILA Rescission Claims

    By Brian Wolfman

     As many of you know, rescission can be an important remedy in Truth in Lending Act cases.  Well, according to the First Circuit, not all that important.  In McKenna v. First Horizon Home Loan Corp., No. 06-8018 (1/29/07), the First Circuit has held that a class action is never available for litigating rescission claims under TILA on the ground "that Congress did not intend rescission suits to receive class-action treatment."  In reaching this conclusion, the First Circuit followed a Fifth Circuit ruling to the same effect, but rejected various district court rulings certifying TILA rescission claims.  The First Circuit also held that the plaintiffs' rescission claims could not go forward as a class action under the Massachusetts version of TILA, the Massachusetts Consumer Credit Cost Disclosure Act (MCCCDA), on the ground that the MCCCDA is to be interpreted the same as TILA.  One wonders whether the Massachusetts courts will see it the same way.

    If you really want to understand the opinion, you will have to read it with a dictionary by your side.  The opinion was written by the Honorable Bruce M. Selya and, thus, uses obscure or archaic words where ordinary words would have worked just fine.  Actually, I have never heard of one word used in the opinion, which I did not bother looking up, so it is possible that an ordinary word would have not worked there.  Happy reading!

Founders of Consumer Law Institutions

The death of Father Robert F. Drinan has been widely reported (The New York Times obituary is here.) What is less well known (at least by me, until I read Willard Ogburn's moving tribute) is that while serving as dean of Boston College's law school, he founded the National Consumer Law Center.  He also played a part in creating the Legal Services Corporation.

In addition, a new documentary, "An Unreasonable Man," examines the legacy of Ralph Nader.  The Times review is here.

CSPI Sues Coke and Nestle Over Claims That Their Diet Soda Helps Achieve Weight Loss

   

The Center for Science in the Public Interest sued Coca-Cola and Nestlé today in federal court in New Jersey.  CSPI says that the companies are fraudulently claiming that their new, artificially sweetened green tea soft drink, Enviga, helps consumers lose weight.   The companies assert that the drink is a “calorie burner” that “keep[s] those extra calories from building up.”   CSPI counters that its scientists have reviewed studies cited by Coke and Nestlé and have determined that Enviga is "exactly the kind of faddy, phony diet aid it claims not to be."

    CSPI's press release on the case is available here.  The complaint in the lawsuit is available here.

Public Citizen Files Suit Against NY Attorney Ad Rules

by Greg Beck

On behalf of its members and of New York attorney James L. Alexander, Public Citizen filed suit today against the chief counsels of New York’s lawyer disciplinary committees to stop enforcement of new rules restricting attorney advertising in the state.  Although the rules are supposedly designed to prohibit false and misleading advertising, they are really anti-consumer in effect.  Public Citizen’s complaint, available here, contends that the rules are too vague and constitute an unconstitutional restriction on speech in violation of the First Amendment.  The rules are fraught with problems, including:

1. They create a complete blackout on attorney solicitations to personal injury victims for a period of thirty days after the event causing the injury.  This rule will leave injured consumers at the mercy of insurance companies, who are free to try to obtain a settlement during a time when the consumer is without representation.  It will also leave consumers without representation at a time when it may be critical to preserve evidence and to take steps to protect their rights.
2. They contain no exception for nonprofit attorneys soliciting potential clients for no-fee legal representation.  For example, the rules would prevent nonprofit legal organizations from contacting individuals at political demonstrations who have been physically harmed by police officers to inform them about their rights and the availability of pro bono legal help.

New blog-on-the-block: The Situationist

There is a new blog on the block that should be interesting to anyone investigating, litigating and advocating consumer issues such as deceptive advertising, visual illusions, and human biases in issues such as lending and credit payments. Indeed, one of its founders, Jon Hanson, has been a leader in consumer law scholarship and areas such as product liability and market manipulation, using insights from social psychology and behavioral economics to inform policy. Here is the description of the blog and its origins:

Part of a larger effort, including the Project on Law and Mind Sciences at Harvard Law School (website forthcoming), this blog will provide commentary by social psychologists, law professors, policy analysts, practicing attorneys, and others connected to law and mind sciences. Our posts . . . will address current events and law and policy debates, informed by what social scientists are discovering to be the causally significant features around us and within us that we believe are irrelevant or don’t even notice in explaining human behavior, that is “the situation.”

Situationism is premised on the social scientific insight that the naïve psychology—that is, the highly simplified, affirming, and widely held model for understanding human thinking and behavior—on which our laws and institutions are based is largely wrong. Situationists (including critical realists, behavioral realists, and related neo-realists) seek first to establish a view of the human animal that is as realistic as possible before turning to legal theory or policy. To do so, situationists rely on the insights of scientific disciplines devoted to understanding how humans make sense of their world—including social psychology, social cognition, and related disciplines—and the practices of institutions devoted to understanding, predicting, and influencing people’s conduct—particularly market practices. Jon Hanson & David Yosifon, The Situation: An Introduction to the Situational Character, Critical Realism, Power Economics, and Deep Capture, 152 U. Pa. L. Rev. 129, 149–77 (2003).

Situationism has been applied to such topics as power economics, natural disasters, obesity, commerical speech and junk-food advertising, Supreme Court dynamics, racial injustice, affirmative action, race and rape, employment discrimination, employee adherence to workplace rules, legitimization of war, inside counsel, and player autonomy in the National Basketball Association, among other topics.