Consumer Law & Policy Blog

City of Baltimore Sues Wells Fargo Over Predatory and Discriminatory Mortgage Lending

by Brian Wolfman

Read this Baltimore Sun article about the City of Baltimore's suit alleging that Wells Fargo engaged in predatory and racially discriminatory lending against Baltimore citizens. Baltimore Mayor Sheila Dixon, pictured to the left, is behind the suit.

Baltimore claims that it reviewed foreclosure data and concluded that Wells Fargo was intentionally steering African-American Baltimoreans into subprime loans. Wells Fargo denies the allegations. The City alleges that it has been injured because it has been required to spend more social services funds on its citizens who have been victimized by Wells Fargo's allegedly unlawful conduct. I think you'll find the complaint very interesting. Note in particular page 34 of the complaint - - a full-color map of the city depicting the racial disparities alleged in the complaint. The New York Times has also covered the story.

Fourth Circuit FCRA Identity Theft Decision: Sloane v. Equifax

Readers of this blog will likely be interested in the Fourth Circuit's recent Fair Credit Reporting Act decision in Sloane v. Equifax, No. 06-2044 (Dec. 27, 2007). The case concerns an instance of identity theft that severely affected the plaintiff's home and work life. Equifax's failure to respond to the plaintiff's requests and to follow its own procedures are laid out in the court's opinion. The Fourth Circuit rejected all of Equifax's arguments on liability and most as to emotional distress damages, but did reduce the emotional damages from $245,000 to $150,000. (The jury's $106,000 economic damages award was left in place.) The opinion also discusses the societal scourge of identity theft. Well worth reading.

Improving Your Credit Score By Buying Someone Else's

Check out this wild LA Times article about a San Diego company, TradeLine Solutions, Inc., that, for about $1200, effectively sells better credit scores to people with bad credit scores by putting their customers' names on paid-up mortgage loans. The company's website says its business model is "100% legal." But, according to the Times, the company's chief executive Ted Stearns concedes that other folks may not see it that way: "Are there people out there who are going to say that it's mortgage fraud?" Stearns asks. "Sure, there could be." He goes on to say that though it's "possible" that his customers might  face legal problems, but noted "that it is really hard to enforce the law." The company's website describes its services succinctly:

TradeLine Solutions is proud to be the only company offering Seasoned Primary Accounts to our customers including a Rapid Rescore! What does this mean? Now, a customer with a 550 credit score can come to us on Monday and walk into a bank by Friday with great credit ready to refinance or obtain a loan. How? By purchasing someone else's perfect credit history.

Putting a "Freeze" on Your Credit Report

by Brian Wolfman

The Washington Post's Michelle Singletary has this interesting article in today's paper on the three national credit bureaus' new policy of allowing consumers to "freeze" access to their credit reports so that identity thieves cannot use the reports to obtain credit under the victims' names.  The article explains that obtaining a freeze with the credit bureaus will cost $10 per company or $30 overall, except in states that have credit freeze laws on the books.  If you live in one of those states, the cost is much less.  For a ton of information on state freeze laws and efforts to get national legislation, go to this website created by Consumers Union.  Definitely worth reading.

Reckless Disregard of What?

by David Arkush

Readers may recall that in Safeco Insurance Co. v. Burr, 127 S. Ct. 2201 (2007), previously discussed here and here, the Supreme Court held that the language "willfully fails to comply with any requirement imposed under this subchapter," 15 U.S.C. § 1681n(a), encompasses not just knowing, but also reckless violations of the Fair Credit Reporting Act (FCRA).

To my surprise, the September 28th issue of the Class Action Litigation Report (BNA) contains an attempt to read this as a pro-defense ruling that creates a consumer harm requirement. The "Analysis & Perspective" piece argues that, after Safeco, a defendant is not liable for statutory violations unless it "subjected the consumer to 'an unjustifiably high risk of harm that is either known or so obvious that it should be known.'" (emphasis added). This interpretation would allow defendants to escape liability for statutory violations in numerous cases. But it's dead wrong.

Times Editorial on Lending Discrimination

by Jeff Sovern 

Today's Times has an editorial, "Subprime in Black and White," as a follow-up to the article earlier this week about the NYU Furman Center Study (that Brian Wolfman blogged about here) finding that neighborhoods with a majority of borrowers of color have a higher incidence of subprime loans than majority-white neighborhoods, even when they have similar median income levels.  Some excerpts:

Evidence is mounting that during the housing boom, black and Hispanic borrowers were far more likely to be steered into high-cost subprime loans than other borrowers, even after controlling for factors such as income, loan size and property location.

* * *

[T]he burden of proof has to be on the lenders to show that no discrimination has occurred. They have data on the risk characteristics of their borrowers. When the Federal Reserve began in 2004 to require lenders to provide specific data on subprime loans, the industry fought successfully to keep the risk profile of borrowers, including credit scores, under wraps. Now, with indications of discrimination rife, Congress must demand that data be fully disclosed.

* * * Whether there has . . . been widespread racial discrimination by lenders is a question that lawmakers must confront fully, without delay.

Mortgage Lending and Race

This article in yesterday's New York Times describes a new data analysis by New York University's Furman Center for Real Estate & Urban Policy showing that home buyers in black and Hispanic neighborhoods are more likely than those in non-Hispanic white neighborhoods to get home mortgages on unfavorable lending terms.  According to the Times, "[t]he analysis showed that even when median income levels were comparable, home buyers in minority neighborhoods were more likely to get a loan from a subprime lender." The Furman Center's analysis is available here.

Times Reports on Spam, Telemarketing, Credit Discrimination, Credit Card Legislation, and More

I've fallen behind on my reading of the Times, but here's an attempt to make up for that.  Today's "What's Online" column has several pieces relevant to consumer law.  The column opens  by noting that Symantec's monthly State of Spam report observed an increase in spam in September. The increase is due in part to spam offering loans and homes in response to the Fed's rate cut.  So much for CAN-SPAM.  The column goes on to describe something reported on consumerist.com (which occasionally picks up our postings and is listed on our blog roll at left): DirecTV claims the right to make "informational calls" to consumers on its Do-Not-Call list to give consumers "an opportunity to change [their] do-not-call preference."  Finally, according to Geoff Williams of Entrepreneur.com, telemarketing is among ten industries likely to die in the next decade.  That contrasts with earlier reports that telemarketing has grown since adoption of the Do-Not-Call rule.

In other recent stories, the Times reported here that the N.A.A.C.P. has filed suit against eleven mortgage lenders for steering African-Americans to subprime loans even though they could have qualified for prime rates.  The suit is founded on ECOA and the Fair Housing Act, and the plaintiffs are seeking to have it certified as a class action.  An editorial in yesterday's issue, titled "Common Sense and Credit Cards" praises bills that would outlaw universal default and limit credit card marketing to college students.  It calls for Congress to look at school-themed credit cards offered by alumni associations.  Finally, just to prove that identity thieves spare no one, here's a report on the victimization of the billionaire Mayor Bloomberg.

Do Waiters Engage in Racial Discrimination When Serving Customers?

Yale Law Professor Ian Ayres has a post here at the Balkinization Blog about racial discrimination by servers at restaurants.  Ayres has previously written about racial and other discrimination at car dealerships in his article Fair Driving: Gender and Race Discrimination in Retail Car Negotiations, 104 Harv. L. Rev. 817 (1991).

Recent Third Circuit Fair Credit Reporting Act Case

Take a look at Whitfield v. Radian Guaranty, No. 05-5017 (3d cir. Aug. 30, 2007), a recent Third Circuit decision construing the Fair Credit Reporting Act.  In this case, the Whitfields financed a home purchase through Countrywide Home Mortgage. After the loan documents were signed, Countrywide arranged for Radian to provide mortgage insurance. The premiums would be paid by Countrywide to Radian out of proceeds Countrywide would receive from the Whitfields.  Radian based the price of the insurance in part on Mr. Whitfield’s credit score, which had been obtained by Countrywide (not Radian).  Radian conceded that if the credit score had been higher, the insurance premium would have been lower.  As was its custom, Radian did not provide the Whitfields with an adverse action notice under FCRA.  (A notice would have alerted the Whitfields to the fact that the premium was based in part on adverse information in the credit report and allowed them to challenge inaccuracies in the report; such a challenge, in turn, might have led to an improved credit score and a lower insurance premium.)

The main question in the case was whether Radian had a duty to provide an adverse action notice even though it did not have a contractual relationship with the Whitfields.  Relying on both FCRA’s text and purpose, Judge Dolores Sloviter agreed with the Whitfields that FCRA requires a notice despite the absence of privity.  Judge Sloviter’s opinion indicates that prior authority on this issue was scant but consumer-favorable.