Consumer Law & Policy Blog

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).

Eleven Big Junk Food Sellers Promise To Limit Advertising To Kids

In an effort to ward off federal regulation, eleven big food companies, including McDonald's and Pepsi, have voluntarily agreed to limit their junk food TV advertising to kids.  Read this New York Times article for a complete explanation, including why General Mills will be limiting its advertising of Trix but not of Cocoa Puffs!  Hmmm . . .

Consumer Law Questions for Presidential Candidates

by Jeff Sovern

The presidential campaigns and media outlets are understandably concerned with issues like the Iraq war, health care, the economy, nuclear proliferation, global warming, and the like. But the nation also faces important consumer law issues. One service a specialized subject-matter blog like ours can provide during national elections is to ask the candidates about issues within our purview that might fly below the general media’s radar screen. We cannot guarantee that the candidates will answer, but it might be helpful to post a list of questions that seem worth asking, invite readers to suggest other questions, and then pose the questions to the candidates. We can post responses as we receive them (and even if we don’t receive any responses — which seems unlikely, though we may have to wait for responses until the parties choose their candidates — the exercise of compiling questions might itself be useful). The questions could also be asked of candidates for the Senate or House of Representatives.

State Security Freeze Laws

U.S. PIRG's Consumer Blog has this excellent discussion of state security freeze laws -- laws that allow consumers to put a freeze on their credit reports.  These laws are weapons against identity theft.  As the PIRG post puts it:

Your best defense against identity theft is to freeze your credit report. That way, when a thief applies for credit using your purloined Social Security Number, he or she is denied when the cell phone company or department store contacts the bureau and is told that your report is frozen.

The PIRG post surveys what various states have done and discusses the progress of weaker, but  non-preemptive proposed federal legislation.

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.

Federal Student Loan Legislation Moving Through Congress

Today's Washington Post includes this story on the student loan (and grant) reform legislation moving rapidly through the U.S. House and Senate.   Insiders predict that the legislation - - which would cut $19 billion in subsidies to lenders, increase subsidies for students, and liberalize repayment rules - - could be enacted in the next month or two.  Among other things, the legislation would gradually increase the size of Pell grants, the main federal grant program for low-income students.

Oregon Curbs Payday Lenders

    by Scott Nelson

   Oregon Governor Ted Kulongoski yesterday signed into law a package of bills designed to protect consumers against abuses by the payday lending industry and other short-term lenders that target vulnerable borrowers with high-interest loans.  Together, the new laws will, among other things, cap interest rates, limit rollovers of short-term loans, and attempt to regulate internet transactions.  Importantly, the interest rate caps are not limited to specific loan products -- which would facilitate evasion as lenders responded by modifying their loans to take them outside the laws' restrictions -- but apply to all consumer finance loans involving amounts less than $50,000.

  The new laws should significantly ease the triple-digit interest rates charged by payday lenders and their cousins, auto title lenders.  Indeed, payday lenders say the new laws will drive them out of the state altogether.  Whether that is so remains to be seen, but the laws still allow payday lenders, through a combination of interest rates and "origination fees," to charge effective annual interest rates of well over 150% on one-month loans.

Background of the New Laws

  Oregon, like many other states, had effectively repealed its usury laws in 1981, when a law imposing an interest rate cap of 36% on consumer loans was repealed.  In recent years, the payday lending industry had taken full advantage, charging interest rates that often exceeded 500% annually.  One frequently cited measure of the industry's penetration of the Oregon market is that the number of payday lenders operating in the state substantially exceeds the number of McDonald's franchises (though this is true in most other states as well, according to a researcher at California State University - Northridge).

Mandatory Arbitration of Investor Disputes

by Brian Wolfman

Michele Singletary reports in today's Washington Post about a study of securities arbitrations conducted mainly under the auspices of the National Association of Securities Dealers (NASD).  The study looked at arbitrations from 1995 to 2004.  (Most investors are subject to mandatory arbitration and cannot go to court to litigate their individual securities claims.)  During that 10-year period, both the win rate for investors and the amounts recovered as a percentage of the claim dropped fairly dramatically.  The entire study is available here.

The Post article discusses a number of possible reasons for these results, including most prominently that three-person NASD arbitration panels include someone who is working for or has ties with the securities industry.  One of the authors of the study, Daniel R. Solin, a securities arbitration attorney and registered investment adviser, is quoted as saying that "[t]his study paints an alarming picture of a steadily worsening situation for investors who have no alternative to securities arbitration administered by the very industry that they are suing."

Here's a synopsis of the study's findings from the Post article:

[T]he win rate for investors in securities arbitration cases dropped to 44 percent in 2004 from a high of 59 percent in 1999.  When it came to their claims for damages, investors were awarded 22 cents on the dollar in 2004, as a percentage of the amount claimed, compared with a high of 38 cents in 1998. (Ninety percent of the cases reviewed went through the NASD arbitration process.)  The recovery percentage plunged to 12 percent for claims of more than $250,000. The larger the award and the bigger the brokerage firm, the smaller the recovery . . ..

Other news reports on the study are available here, here, here, and here.  And here's a column by Solin from the Huffington Post.

More on Proposed Military Predatory Lending Regs

We've previously blogged several times (including here, here, here and here) about the new federal legislation regulating predatory lending to the military, known as the Military Lending Act or MLA (10 U.S.C. 987).  Comments to the Defense Department's proposed regulations implementing the statute were due this week, and the docket is now overflowing with views from the entire gamut of the consumer credit industry, from banks to pawnshops, all seeking various carve-outs for their business.  Here's a sampling of some of the other views:

• The other day, Jon Sheldon posted about the comments of the Center for Responsible Lending, National Consumer Law Center, and Consumer Federation of America, and other consumer groups.
• Public Citizen's comments, which you can read here, echo some of the policy arguments made in considerable depth in the NCLC/CRL/CFA comments, but emphasize an administrative-law approach, arguing that proposed regulations would be arbitrary and capricious and contrary to the MLA.
• Yesterday, I learned that the Federal Trade Commission has also filed comments that largely endorse the narrow scope of the proposed regulations.  On the bright side, FTC specifically rejects the suggestion that the DOD should carve out banks from the regulations' coverage, noting that banks offer many of the same products that are covered by the regulations and that exempting them would create an enormous loophole in the law.  The FTC specifically points to "the absence of market studies or other evidence that military consumers benefit when banks and similar entities engage in the practices that Congress generally found harmful."
• Our co-blogger Christopher Peterson, whose research informed the report that led to the legislation and who testified before Congress on the subject, filed comments that are accessible here.