Consumer Law & Policy Blog

Is Credit Discrimination Against Soldiers Lawful?

by Jeff Sovern

A couple of weeks ago, Chris Peterson blogged about  a credit union president's warning that the new statute regulating loans to service members and their dependents "might well be called the death to lending to service members act.”  In other words, lenders faced with a choice between complying with the new statute or not lending to service members will simply decline to lend to soldiers.  I wonder if that would qualify as discrimination against the military.  Such discrimination would certainly raise public relations issues, but would it be lawful? 

The Equal Credit Opportunity Act (ECOA) does not explicitly bar discrimination on the basis of military status, and there's even a case, Williams v. Amity Bank, 703 F. Supp. 223 (D. Conn. 1988), that seems to stand for the proposition that ECOA does not reach such discrimination.  But there are some interesting wrinkles on that.  First, at least one state's law bars discrimination on the basis of military status (though such state statutes would probably be preempted as to federal lenders).  See N.Y. Exec. L. § 296-a.  Second, courts have approved the use of the disparate effects test under ECOA.  In other words, if a ban on lending to the military would have a disparate effect on a protected group under the statute, it could be found to violate ECOA (though in fact the determination would depend on much more than that--for example, lenders are allowed to defend on the ground that the challenged practice is legitimate--and proving a disparate effect might be difficult).  I don't know enough about the composition of the military to know if the relevant demographics would justify a disparate impact claim, but it's an interesting thought.

I suspect that if lenders did decline to lend to soldiers because of the statute, at least some members of Congress would support a New York-like approach to banning credit discrimination against service members.

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.

Transcript of FCRA Arguments

Here's the just-released transcript of this morning's oral arguments in the FCRA cases.   A post-argument report from the Financial Times relays the business community's take on the arguments:  "A majority of the justices on Tuesday seemed reluctant to adopt an expansive interpretation of a federal credit reporting law that the US Chamber of Commerce and others warned could lead to an explosion of class action lawsuits against US businesses, and many billions of dollars in damages . . .  'The court seemed sympathetic to the concerns of the business community,' said Robin Conrad of the US Chamber of Commerce."   

Along the same lines, an AP report sums up the case this way:  "Several Supreme Court justices seemed taken aback . . . at the idea that insurance companies might be required to notify tens of millions of customers they aren't getting the best rates because of their credit reports."   

Today's Fair Credit Reporting Arguments

by Deepak Gupta

In the next hour, the U.S. Supreme Court will hear oral arguments in the consolidated cases of Geico v. Edo and Safeco v. Burr.  The cases concern two aspects of the Fair Credit Reporting Act: the meaning of the statute's "willfulness" standard for civil liability and the scope of the "adverse action" notice requirement in the context of insurance companies' use of credit scores to set rates.  A prior post, by my colleague Scott Nelson (who is co-counsel for the respondents) summarized the case at the time cert was granted; SCOTUSblog also recently ran an in-depth preview, with summaries of the briefing. 

I previously posted all of the "top-side" briefs: the two petitioners' merits briefs, the Solicitor General's brief, and the many industry-side amicus briefs.  Here are the remaining briefs:

Respondents' brief

State AGs' amicus brief supporting respondents

Consumer groups' amicus brief supporting respondents

GEICO reply brief

Safeco reply brief

Arguing for GEICO is Maureen Mahoney, one of the stars of the Supreme Court Bar.  Arguing for the respondents is a first-timer, Oregon lawyer Scott Schorr.  I participated in a moot court for Mr. Schorr at Georgetown on Friday and was impressed with his performance.  Patty Millett will argue for the SG.  I hope to bring you an update on the arguments later today.

Hearings on Credit Report Errors

The Boston Globe reports here that the incoming chair of the House Financial Services Committee, Barney Frank, plans to hold hearings on procedures at credit bureaus.  The article suggests that Representative Frank is concerned about problems in correcting errors in credit reports and that he feels the 2003 FACTA Act, which amended the Fair Credit Reporting Act, may not have gone far enough in addressing the problem. 

Follow-Up on Profiting From Identity Theft

by Jeff Sovern

Last week I posted a link here to an article in The New York Times about how "the biggest beneficiaries from identity theft have been the three credit bureaus."  The Times today published my letter responding to the article.  Here's the text of the letter: 

Re “Protectors, Too, Gather Profits From ID Theft” (front page, Dec. 12):

Federal law imposes on credit bureaus an obligation to follow reasonable procedures to assure maximum possible accuracy in credit reports.

Yet because, as you report, credit bureaus are the biggest beneficiaries of identity theft, they have an incentive to use systems that enable identity theft so they can profit by selling services to prevent it.

We will not see an end to identity theft until those with the greatest ability to prevent it have an incentive to do so.

Profiting From Identity Theft

by Jeff Sovern

Three years ago, I published an article, The Jewel of Their Souls: Preventing Identity Theft Through Loss Allocation Rules, 64 U. Pitt. L. Rev. 343 (2003), in which I wrote that:

[C]redit bureaus may actually have disincentives to take steps to prevent identity theft . . . . If they can develop mechanisms to reduce the incidence of identity theft, they can market those mechanisms separately for an additional fee.  If, on the other hand, they make those mechanisms available without extra charge, they give up potential income.

Now The New York Times, in an article headlined "Protectors, Too, Gather Profits From ID Theft", reports that "the biggest beneficiaries from identity theft have been the three credit bureaus"  and that the credit-monitoring services sold by the big three credit bureaus are nearly a billion-dollar business.  The article notes that industry groups have also offered "stiff resistance" to legislation that could cut down on identity theft, like credit freeze laws.  Of course if such legislation stops identity theft, consumers will no longer require credit-monitoring services.

Three years ago I argued that if we want to eliminate identity theft, we should "give those who have the greatest power to prevent identity theft and the most knowledge about systems for granting credit the incentive to prevent identity theft" by making them "liable for the losses caused when they report the transactions of identity thieves as the transactions of consumer victims. . . ."  Sadly, nothing has happened since to cause me to change my view.

14 Top-Side Briefs Filed in FCRA Cases

by Deepak Gupta

In Safeco v. Burr and GEICO v. Edo, set for argument on January 16, the U.S. Supreme Court will decide whether a "willful" violation of the Fair Credit Reporting Act can be established by proof that the defendant recklessly disregarded the law. My colleague Scott Nelson, who is counsel for the respondents in both cases along with Scott Schorr of Portland, Oregon, has already summarized the case in this prior post and posted the the decision below, the petitions in Safeco and Geico, and our Brief in Opposition.

The other side's briefs have just been filed: two insurance company petitioners' briefs, the Solicitor General's brief, and a slew of industry amicus briefs--for a whopping total of 14 briefs in all. This is a perfect illustration of a point made by Brian Wolfman and Paul Bland at a panel on Supreme Court litigation in Miami this past weekend: Does anyone really believe that the Justices will have the time to carefully study all of these briefs?

(A sidebar: On the problem of amicus overload at the Court, see these two articles. Justice Ginsburg is quoted as saying that "she has her law clerks arrange the briefs into three piles: must-read briefs; those she could skim or read selected pages from; and then, the 'skip' pile that she does not need to read at all. The first pile, she said pointedly, is 'very thin.' The largest pile, she said sheepishly, is the 'skip' pile." Needless to say, when you have 14 briefs on one side of the case, the odds that a good number will end up in the 'skip' pile is pretty high.)

Valuable New Consumer Book: "Give Me Back My Credit"

by Paul Bland

There are not that many books available to a mass audience that explain what rights American consumers have when they encounter abusive or exploitative business practices. There have been a few exceptions, and my favorite two were written by America’s leading experts in their field: Evan Hendrick’s Credit Scores and Credit Reports, and Remar Sutton’s guide to car buying, Don’t Get Taken Every Time. But with these very notable exceptions, I have encountered surprisingly few readable books that would help most consumers understand a great deal about their legal rights and how to protect themselves against scams and corporate abuses.

There is a welcome new addition to the field, though, and it comes from a woman who learned much of what she has to tell from her own experiences as the victim of corporate abuse. Denise Richardson, a consumer who has become a prominent on-line consumer journalist and activist, has just published her first book: Give Me Back My Credit, and it’s a book that should be read by consumers, lawyers and policymakers alike.  The book is published by Infinity Publishing, and costs $16.95.  Ms. Richardson has also started a website, www.givemebackmycredit.com, with further information about her book, a blog, a petition for consumers, and other information.

A large part of Give Me Back My Credit consists of Ms. Richardson’s powerful telling of her own story, which started with a bank making arithmetic errors with her mortgage payments, and ended years later (after many more errors) with her credit record being all but destroyed. Ms. Richardson describes a series of mistakes that had ever widening ripples in her personal and financial life, and her lively and personal writing style makes it a book to which most Americans can relate. It’s easy to feel great empathy for this woman, as one reads about how her world was shaken and damaged by careless errors of big corporations.  Even more irritatingly, as she tells her story it becomes clear that the damage to her life was compounded by the corporation's stubborn refusal to acknowledge their errors and the efforts of their lawyers to deny and cover up the mistakes (and, of course, to try to blame her for them).  Ms. Richardson traces how she fought back against these abuses, refusing to knuckle under to the various financial, personal and legal pressures that were brought to bear on her.

Race, Price, and the Mortgage Market

by Deepak Gupta

Professor Lauren Willis of Loyola-Los Angeles (whose new article on price disclosures was discussed by Jeff Sovern here last week), had an op-ed in yesterday's Washington Post entitled "The Fleecing of Black Borrowers."   Willis cites new Federal Reserve Board data showing that less than one-fifth of non-Hispanic whites took out high-priced loans last year, as opposed to more than half of African-Americans.  "Black borrowers paid--and will continue to pay for the life of these loans--high prices at more than triple the rates that whites did."   

Neither racial discrimination nor the relative risk of lower-income minorities as borrowers, she says, fully explain these disparities:

The home loan market is what economists call "inefficient" and what the rest of us might call plain unfair: Minorities -- and many whites -- receive high-priced loans when they are financially qualified for lower-priced loans.

Why? As an official of the American Bankers Association, quoted in The Post, put it: "People shop more for a loaf of bread than they do for a mortgage."