Consumer Law & Policy Blog

Cleaning Up a Consumer Lending Mess

By Christopher Peterson

WHEN THE CEO of HSBC, one of the world's largest banks, and legal aid attorneys who represent poverty-stricken Americans find something to agree on, it is no small event. Recently, CEO Michael Geoghegan explained that massive losses in HSBC's home mortgage lending business were caused by the mistake of "going for volume." The nation's legal aid attorneys have a different description. They call it predatory lending.

Continue reading Boston Globe Op-ed   ...

Consumer Protection, Bush Style

By Brian Wolfman

    President Bush has nominated Michael Baroody to chair the Consumer Product Safety Commission.  Baroody is a longtime executive with the National Association of Manufacturers.  Hmmm.

  Here's what tomorrow's edition of Congress Daily has to say about it:

    The White House announced Thursday that President Bush intends to nominate Michael Baroody, a longtime executive at the National Association of Manufacturers, as chairman of the Consumer Product Safety Commission. Baroody, who serves as the association's executive vice president, has worked for the group since 1990 except for a period in 1993-94 when he ran a Republican-affiliated group.

     He has been heavily involved in NAM's lobbying, policy and political operations. NAM President John Engler praised Baroody for his skills as a consensus builder, and for his efforts to promote policies that make manufacturers competitive.

     "Mike Baroody has spent a lifetime in Washington serving in a variety of professional venues and has distinguished himself at every turn for his good sense, good judgment and good humor," Engler said.

     Baroody previously worked as a White House aide when Ronald Reagan was president and then as an assistant Labor secretary. His nomination goes to the Senate Commerce Committee and requires confirmation by the Democratic-controlled Senate.

    So, will Baroody get through the Senate?  (Note:  A little while back, there were rumors that the Administration would put Baroody in through a recess appointment.  Either the rumors were false or the Admnistration changed its mind.)

The 12 Most Popular Tax Scams

By Brian Wolfman

    In today's Washington Post, Michele Singletary discusses her "Dirty Dozen": the 12 most popular scams that tax preparers try to sell to taxpayers hoping for a big (but illegal) federal tax refund.  At the end of the day, either the rest of us are the victims (if the IRS does not catch the cheaters) or the taxpayer gets socked with a big liability, including the unpaid taxes, interest, civil monetary penalties, and even criminal sanctions.  The top scam this year, Singletary explains, relates to a new law entitling millions of taxpayers to a credit for an improperly collected 3% federal telecommunications excise tax.  The credit is a flat $30 to $60, unless the taxpayer has records showing that he or she actually paid more in excise tax.  The scam artists are urging taxpayers to inflate the credit, and, Singletary claims, some taxpayers, at the insistence of tax preparers, have sought credits in the total amount of their phone bills rather than just the 3% excise tax.

More on Payday Loans: The Industry PR Folks Strike Back

    Check out this article in today's Washington Post by Michelle Singletary - - "Payday Loans: Costly Cash."  Among other things, the article discusses a new ad campaign by the Community Financial Services Association of America, the trade group for the payday loan industry.  Consumer advocates portray the campaign as part of an effort to stop state and federal legislation to curb the industry.  The industry responds that its ads are a charitable "effort to encourage consumers to use payday advances in a responsible manner."  I wonder whether the industry's shareholders are ticked off that their money is being spent to help consumers act responsibly rather than to turn profits.

New Ninth Circuit CAFA Ruling on Burden of Proof

By Brian Wolfman

In Serrano v. 100 Connect, Inc., No. 06-17366 (Feb. 22, 2007), the Ninth Circuit has held that in assessing whether a federal district court should or must decline jurisdiction under the "exceptions" to jurisdiction of the Class Action Fairness Act, the burden is on the party resisting a federal forum to show that jurisdiction is lacking. Three other circuits had earlier come to the same conclusion.

As I discussed in an an earlier post, under CAFA, some cases just don’t meet CAFA’s basic jurisdictional requirements: $5 million in controversy, 100 class members, and minimal diversity. 28 U.S.C. 1332(d)(2), (d)(5)(B). Then there are 28 U.S.C. 1332(d)(3) and (d)(4), the supposed "exceptions" to jurisdiction.  Both have been called exceptions because they allow for remand or dismissal even where the basic prerequisites have been met.  Under (d)(3), the court "may, in the interests of justice and looking at the totality of the circumstances, decline to exercise jurisdiction" based on an evaluation of six factors.  Subsection (d)(4) sets out circumstances in which a district court "shall decline" to exercise jurisdiction. The circumstances in which this category is triggered are complicated and not worth exploring in detail here, but they focus on controversies that are highly localized. To me, the (d)(4) category does not comprise an "exception" to CAFA; it’s just a further, albeit unusual, limit on jurisdiction akin to the $5 million, 100-class-member, and minimal diversity limits.

Update on Payday Loan Legislation in Virginia

by Brian Wolfman

I previously reported here that Virginia was poised to enact lenient payday loan legislation without any fee/interest rate cap, after a House committee approved such legislation already passed by the state Senate.  The Washington Post suggests here, however, that, although the full House has now passed the legislation, Governor Tim Kaine may well not sign it without a cap.

Fox in the Henhouse?

by Deepak Gupta

The headline of a piece in today's Washington Post reads The Banker's Candidate: Senator Dodd Amasses Huge Warchest.  In the interest of balance, the story mentions Dodd's recent leadership on predatory mortgage lending and high-interest credit cards, but the overwhelming focus is on his close ties with the banking industry.  The Post also includes a data-filled chart (on left; click to enlarge), showing Dodd's donations from the finance and insurance industries over time.  Here's a snippet: 

Connecticut Sen. Christopher J. Dodd has two big jobs. He is a candidate for the Democratic nomination for president, and he chairs the Senate Banking Committee.

They are proving to be a lucrative combination. Among Democrats, Dodd's $5 million campaign nest egg is surpassed only by that of Sen. Hillary Rodham Clinton (N.Y.), who has one of the most elaborate fundraising machines ever assembled.

Dodd's electoral riches can be traced to the banking panel, whose jurisdiction includes some of the wealthiest industries in America -- banking, insurance and financial services. In addition, Dodd's home state is the hedge fund and insurance capital of the country.

But it is Dodd's philosophy, not only his geography, that has made him a cash magnet. Each of these big-money interests applauds his light-handed approach to financial regulation and considers him a reliable friend -- a fact that raises questions about Dodd's viability in a Democratic field even as it bolsters his fundraising prowess.

New Jersey Supreme Court Issues Important FDCPA Decision

    By Brian Wolfman

    In Hodges v. Feinstein, Raiss, Kelin & Booker LLC, No. A-113 (1/31/07), the New Jersey Supreme Court held, by a vote of 4 to 2, that lawyers who regularly file summary dispossess (eviction) proceedings are “debt collectors” subject to the Fair Debt Collection Practices Act.  The majority opinion is worth reading for a number of reasons.  The key holding rejected the defendant law firm’s argument that the firm was not an FDCPA “debt collector” because “the sole remedy available in a summary dispossess proceeding is possession, not money damages.”  The court agreed that possession was the sole statutory remedy, but responded by relying, of all things, on reality: “We do not question the legislative intent to provide landlords a remedy of expedited possession. However, in practice, the summary dispossess action is also a powerful debt collection mechanism.”  Two justices dissented, agreeing with the law firm that because the only remedy sought was possession, the firm was not a “debt collector” under the FDCPA.

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.

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.