Consumer Law & Policy Blog

Home Foreclosure Rate Hits 50-Year High

The Washington Post reports here this morning that, according to none other than the Mortgage Bankers Association, the percentage of home mortgage foreclosures in the first three months of this year hit a 50-year high.  As the Post article explains, this tragic problem is most acute in the sub-prime market:

The most dramatic fallout took place in the subprime market, which caters to people with blemished credit or other factors that make them a risk to lenders.  Those borrowers entered foreclosure at a rate of 2.43 percent, up from 2 percent the previous quarter.

The Post story goes into considerable detail on the issue, discussing, among other things, the connection between the popularity of adjustable rate mortgages and the increasing foreclosure rate.  The Wall Street Journal reports the same story, and notes that the Mortgage Bankers Association's chief economist predicts that the foreclosure rate will continue to rise into next year.

Consumer Comments on DOD Regs Implementing New Military Lending Act

CRL, NCLC, CFA and other consumer groups submitted comments on Monday on the Department of Defense's draft regulations to implement the Talent/Nelson Military Lending Act, which capped loans to military families at 36%.  The groups criticized the regulations for limiting the scope of the law to payday, auto title and refund anticipation loans, and defining even those so narrowly that predatory lenders will be able to restructure their products to escape any restrictions.  The comments are available here.

House Hearing on Fairness in Consumer Lending and Federal Preemption

    Americans for Fairness in Lending discusses here an important hearing held today before the House Committee on Financial Services.  The topic of the hearing was federal regulation (or the lack thereof) of consumer lending practices and preemption (or not) of relevant state consumer protection law.  Go directly to the Committee's website for full information on today's hearing, including testimony from federal and state regulators.

NCLC Report on Credit Counseling & Bankruptcy

Yesterday, Professor Sovern blogged about a roundtable on credit counseling and bankruptcy.   A new National Consumer Law Center study on the same subject finds that new counseling and financial education requirements imposed on debtors by 2005 changes in the nation’s bankruptcy laws have so far failed to deliver measurable benefits to affected debtors.  New Burdens but Few Benefits:  An Examination of the Bankruptcy Counseling and Education Requirements in Massachusetts questions the value  of making consumers spend time and money on counseling before filing for bankruptcy.  Creditors and agencies have failed to offer flexible and innovative programs that present real choices to those receiving counseling, the report says. “Consumers can be counseled and educated, but at the end of the day, if there are no good alternatives to bankruptcy,there isn’t much value to the effort,” says Deanne Loonin, NCLC staff attorney and coauthor of the study.

Some Details on Yesterday's House Hearing on Credit Cards

    As Deepak previously reported, yesterday the Financial Institutions and Consumer Credit Subcommittee of the House Committee on Financial Services held a hearing regarding credit card practices. U.S. PIRG's  consumer blog has this nice report on the hearing, including links to testimony and other information. 

Sixth Circuit Reverses Dismissal of Claim Alleging That Discover Card's Harassing Collection Activity Led to Cardholder's Suicide

by Brian Wolfman

Anyone interested in the potential human costs of debt collection harassment should read the Sixth Circuit's recent decision in MacDermid v. Discover Financial Services, No. 06-5792 (May 29, 2007).  The complaint in the case alleged that the plaintiff's wife, who suffered from bipolar disorder, committed suicide because of Discover's harassment of the couple over $15,000 in credit card debt.  The district court dismissed most of the claims on the pleadings and two claims at the summary judgment stage.  The Sixth Circuit reversed the dismissal of the claim that Discover had intentionally inflicted emotional distress or engaged in "outrageous conduct" in violation of Tennessee common law.  The court of appeals ruled that the plaintiff at least stated a claim for outrageous conduct based on Discover's threats of criminal prosecution for the failure of the plaintiff and his wife to pay a purely civil debt.  The court affirmed the dismissal of various claims under Tennessee law (including a wrongful death claim) and the federal Truth in Lending Act and Fair Debt Collection Practices Act.  The facts alleged - - including the wife's heart-wrenching suicide note - - are stated in detail at the beginning of the opinion.

Fed Proposes Amendments to Regulation Z for Credit Card Accounts

by Brian Wolfman

On May 23, the Federal Reserve Board proposed revisions to Regulation Z regarding disclosures of the cost of credit for credit card accounts (sometimes referred to as "open-end" credit).  Regulation Z implements the federal Truth in Lending Act (TILA).  This effort represents the first comprehensive overhaul of Regulation Z since 1981.  Most of the proposed changes are non-substantive and concern, as does most of TILA, the type and manner of credit disclosures.  One arguably more substantive proposal would require creditors to give borrowers 45 days' notice when terms of the account are changed.  (Currently, only 15 days' notice is required.)

The Fed's proposal and a range of related documents are available here on the Fed's website.  Comments are due within 120 days of the date that the proposal is published in the Federal Register.  Publication should occur shortly.  (It is possible that the proposal has been published already, but I could not a Federal Register version.)

Fed Plans to Revise Credit Card Rules

By Kathleen Day
Washington Post Staff Writer
Thursday, May 24, 2007; D01

To read about how the Federal Reserve Board proposes to revise current credit card rules, view this Washington Post article.

Encyclopedia Entry on Consumer Bankruptcy

Todd Zywicki's entry on "Consumer Bankruptcy" for the forthcoming Encyclopedia of Law and Society: American and Global Perspectives, can be found at http://ssrn.com/abstract=960822.  The abstract is as follows:

This is the entry for "Consumer Bankruptcy, Doctrinal
Issues In" in the Encyclopedia of Law and Society: American and
Global Perspectives. This entry provides a summary and overview
of the law and policy of consumer bankruptcy. First, it
summarizes the American bankruptcy law legal regime. Second, it
explores the competing hypotheses for the rise in bankruptcy
filings during the past three decades, contrasting the
"traditional" or "distress" model of consumer bankruptcy with the
"incentives" or economic model. Third, it describes the recent
amendments to the American consumer bankruptcy regime. Finally,
it provides a comparative view of consumer bankruptcy law by
comparing the American system and trends in American bankruptcy
law and policy with Europe and other areas of the world.

Credit Card Debt in the U.S.: An Ill-Fated Love Affair

By Brian Wolfman

Today's Washington Post contains a major article by Kathleen Day, entitled "A Highly Charged Relationship," about Americans' love for credit cards, but their vehement dislike for some of the credit card companies' practices -- practices hidden in the fine print until they spring into action.  As Day puts it, "Call it a love affair with a dark side."  Consumer complaints to federal banking regulators are about credit card companies more often than anything else.  The third paragraph of the article gives you a sense of what the article is about:

The avalanche of gripes generally boils down to objections about a half-dozen practices, according to congressional staff and consumer groups. The complaints mostly center on what consumers see as unfairly high interest rates and penalty fees; confusing policies that constantly change, almost always in the lender's favor; and near-insurmountable hurdles to getting help when a consumer falls into trouble or when a company makes a billing mistake.

After the main article, the Post includes a series of vignettes -- under the title "Mad About Credit Card Companies" -- featuring real consumers who felt victimized by various credit card practices.  Read about "over limit" fees and penalties; interest charges on the whole debt even when part of it has been paid; flat-out company billing errors (in the case discussed, Capital One harassed a dad mourning the death of a son who had left a debt of $217 -- Capital One erroneously insisted that the debt was more than 6 times greater); refusal to work with credit counselors who are trying to help the card holder; "workout plans" that don't reduce the consumer's debt; and "due dates" on days when it is literally or effectively impossible to make payment (here, the consumer paid in person at the bank on Saturday, in advance of the Sunday due date -- a date on which it was impossible to pay -- but since Saturday payments are not credited until the next business day, the consumer got hit with a late charge).