Consumer Law & Policy Blog

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!

Virginia Poised to Enact Lenient Payday Loan Legislation

    Those of you interested in state legislative efforts in the predatory lending area should take a look at this report from the Richmond-Times Dispatch, which describes yesterday's committee action in the Virginia House of Delegates signing off on legislation "sought by" the lending industry that provides for almost no regulation of payday loans.  The same legislation has already easily passed the Virginia Senate.

Center for Responsible Lending Critiques Predatory Lending Study

Ed Mierzwinski over at U.S. PIRG's Consumer Blog reports that "The Center for Responsible Lending has published a critique of major analytical flaws in a new working paper 'Defining and Detecting Predatory Lending' . . . by Federal Reserve economist Donald P. Morgan of the Federal Reserve Bank of New York."  Ed's post and all the relevant links can be found here.

Dear Senator Dodd: A Credit Card Holder's Bill of Rights

After this week's hearing on the credit card industry, Texas consumer lawyer Craig Jordan sent the following letter to Chris Dodd, outlining a "Credit Card Holder's Bill of Rights." I asked Craig if he would let us reprint the letter here because I thought our readers would find his commonsense proposal worth reading.

Dear Senator Dodd:

I am a consumer lawyer with over 20 years experience representing consumers, both as an assistant attorney general for the State of Texas and as a private attorney. I commend your recent hearings on the credit card industry and I hope that you will take action to stop some of the serious problems the industry causes for consumers.

I believe, based upon my daily representation of consumers with problems relating to their credit cards accounts, that the industry has entirely lost touch with the basic concepts of fair play and honest dealing. To remedy the most serious problems I have published on my law firm website a credit card holder's bill of rights:

Credit Card Holder's Bill of Rights

1. No credit card company shall hold a card holder in default for any reason other than failure to make timely payments on the account being declared in default.

2. No credit card company shall change the interest rate payable on the existing balance of an account except pursuant to a previously agreed variable rate agreement in which the interest rate is tied to a published market rate.

3. No credit card company shall change the interest rate payable on future transactions unless the card holder has a meaningful opportunity to reject the change and pay off the account at the existing interest rate.

What Does Barney Have Planned?: Are Stricter Mortgage Lending Rules On Their Way?

    By Brian Wolfman

    Today's Washington Post has this annoyingly non-specific article based in part on the author's interview with Rep. Barney Frank (D-Mass.), the new Chair of the House Financial Services Committee.  The topic is "suitability" in mortgage lending -- the quaint notion that lenders should only lend on terms that provide borrowers a realistic ability to stay out of foreclosure.  Frank is quoted as saying that "[y]ou shouldn't lend [home buyers or refinancers] more than they can afford to pay back, and you [shouldn't] lend them more than their house is worth."  As I said, the article is short on specifics, but Frank seems to be considering a combination of more disclosure for potential borrowers and substantive requirements that would prohibit lending to people who don't have a realistic likelihood of repaying.   Is he contemplating a sort of HOEPA for all mortgage lending or something with more teeth?  Comments anyone?

A Bit More on the Senate Credit Card Hearing

Go here for the Washington Post's overview of yesterday's Senate hearing on credit card practices.

Reactions to Yesterday's Senate Hearing

In yesterday's post, I mentioned the Senate Banking Committee's hearing on credit card abuses, which received some attention in today's papers.  Jeanne Sahadi had an interesting column at the CNN Money website.   The Gannett service had this story, quoting Elizabeth Warren.  And Professor Warren's own blog has a post about how the phrase "tricks and traps" recurred throughout the hearing, as well as the reactions of one of her students.   Here's a quote from Senator Dodd:

“I would like to put the credit card industy . . . on notice,” Committee Chairman Sen. Christopher Dodd, [D-Conn.], said at the hearing. “If you currently engage in any business practice that you would be ashamed to discuss before this committee, I would strongly encourage you to cease and desist that practice.”

I asked Ira Rheingold, a seasoned legislative advocate for consumers who was at the hearing, to offer his take on how it went. Here's Ira:

Yesterday, the Senate Banking Committee held the first, of a promised series of hearings on the anti-consumer business practices of the credit card industry (The hearing can be seen here.) For now, while not much can be expected from this Congress that might really force the banking industry to end its myriad of predatory practices (in credit card lending and beyond), the hearing actually provides some hope that eventually something productive might happen.

The first good sign was that the hearing actually took place and a stellar lineup of consumer advocates had the opportunity to testify (although I might add, for some reason – feel free to take a guess – the consumer witness who was scheduled to testify was bumped at the last minute). Our side's testimony, particularly the descriptions of what really happens to actual consumers when they fall prey to the "tricks and traps" of the credit card industry, clearly made a marked impression on the Senators. We saw this in the other positive sign from the hearing, that a number of the Senators (including several of the Republicans and especially the new Democratic members) expressed real concern about the credit card industry’s behavior and unquestionably put the industry on the defensive. It seemed clear that most of the members of the Committee (with the particular exception of Senator Carper (D-DE)) were deeply disturbed by indefensible industry practices as “double-cycle billing”, “universal default” and the incessant marketing of credit cards to unemployed college students. While turning this expressed concern into a bill with teeth (instead of another recycled version of improving “disclosures”) isn’t going to happen tomorrow, I think at least we can now begin to see the flicker of possibility.

Senate Banking Hears Testimony on Credit Card Abuses

by Deepak Gupta

A hearing before the Senate Banking Committee on “Examining the Billing, Marketing, and Disclosure Practices of the Credit Card Industry, and Their Impact on Consumers" is now underway. You can watch the hearing live on your computer at this link.

Guests include Elizabeth Warren, Leo Gottleib Professor of Law and author of The Two Income Trap: Why Middle Class Mothers and Fathers are Going Broke, Harvard Law School; Dr. Robert Manning, Professor of Finance and Author of Credit Card Nation, Rochester Institute of Technology; John Finneran , President of Corporate Reputation and Governance, CapitalOne Financial; Richard Vague, Chief Executive Officer, Barclaycard US; Carter Franke, Executive Vice President of Marketing, JP Morgan Chase & Co.; Tamara Draut, Director, Economic Opportunity Programs, Demos; and Travis Plunkett, Legislative Director, Consumer Federation of America.

Consumer litigator and NACA member Mike Donovan of Philadelphia will be testifying and sharing some client stories about the effect of credit card industry practices on consumers. You can read his written testimony here. With the new leadership in Congress, we can expect more opportunities like this one for consumer advocates to share their clients' stories--and hopefully bring about some positive legislation, after so many years of playing defense. (Thanks to Ira and NACA and Ed at U.S. PIRG for the tip.)

Freedom of Information in India: A View One Year After Enactment

[Introductory Note:  The following piece, written by U.S. lawyer Michele Host, is about India's Right to Information Act of 2005.  Michele is currently living and working in India.  Michele analyzes the Act, providing both the good news and the bad news one year after its enactment.  Please note that links to the Right to Information Act and relevant articles are listed at the end of Michele's article.  I hope you find this article interesting.  I did.] 

By Michele Host

    During the summer of 2006, India celebrated the first anniversary of the Right to Information Act 2005 (“RTI”).  Much like the Freedom of Information Act (FOIA) in the United States, the RTI sets out procedures for citizens to “secure access to information under the control of public authorities, in order to promote transparency and accountability in the working of every public authority.”

    Many Indians hope that the RTI will cure two of the maladies hampering India’s rapid development: corruption and judicial inefficiency.  In Transparency International’s annual corruption survey, which measures a country’s perceived degree of corruption on a scale of 0-10, where 0 is highly corrupt and 10 is highly clean, India scores just 3.3 points – tied with China, Ghana, and Mexico.  For comparison’s sake, the United States receives a 7.3.  The situation in India’s courts is similarly dire:  Not only are the courts infected with the corruption that permeates the rest of India’s institutions, but the backlog is so immense that it appears insurmountable. According to The Economist, there are more than thirty million civil and criminal cases pending in India, and India has only eleven judges for every one million people.  Compare that to the United States, where we have 107 judges per million citizens.

    So what exactly does the RTI aspire to do, and how well is it doing?  

Know Your Credit Score

    By Brian Wolfman

    Check out yesterday's Washington Post for a long article concerning common misconceptions about consumer credit scores and what consumers might do to improve their scores.  The article points out that although federal law gives consumers the right to get a free copy of their credit reports once a year, 86% of consumers do not do so.  The article explains that it's a good idea to check out one's credit report  because the error rate - - that is, the risk that the report contains incorrect information that may increase the cost of borrowing or other consumer purchases - - is quite high.