Consumer Law & Policy Blog

Senate Committee Investigates Credit Card Company Practices

The Permanent Subcommittee on Investigations of the U.S. Senate’s Committee on Homeland Security and Governmental Affairs today held a hearing on “Credit Card Practices: Fees, Interest Rates, and Grace Periods.”  The hearing was, the committee promised, ”the first of several Subcommittee hearings that will examine a variety of credit card practices that raise concerns.”  Yahoo news has this lively report on the hearing.  The Senate Committee's website contains all of the testimony at today’s hearing.

Maxed Out: "A Horror Movie for Our Times"

By Brian Wolfman

In today's Washington Post, Michele Singletary reviews the new, critically acclaimed movie "Maxed Out" and its companion book "Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders."  Deepak Gupta previously discussed the movie in detail on this blog.  The movie opens in Washington, D.C., and in other markets around the country this coming Friday.  A list of openings can be found here.  As the Post puts it, this movie is "A Horror Movie for Our Times."

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   ...

Fourth Circuit on Fees for TILA Litigation

by Allison Zieve

Last week, the Fourth Circuit issued a decision upholding an award of attorney fees in a Truth in Lending Act (TILA) case, Nigh v. Koons Buick. Two aspects of the decision are noteworthy.

First, although Mr. Nigh won the case, the amount of damages that he had originally been awarded ($24,192) was reduced by the Supreme Court in 2004. The Court held that TILA capped damages at $1,000.  On remand, the district court had affirmed its prior attorney fee award and also awarded Mr. Nigh attorney fees for work done on the successful appeal and the unsuccessful trip to the Supreme Court.  In its February 21 decision, the Fourth Circuit upheld the fee award in its entirety. The appellate court explained that TILA requires a fee award to an person who brings a "successful action" and that Mr. Nigh’s action was successful (he proved a TILA violation). Although the fee covered work for parts of the case as to which Mr. Nigh was unsuccessful, the appellate court held that the district court did not abuse its discretion and that the amount of the award was reasonable.

Second, the court strongly rejected Koons Buick’s argument that Mr. Nigh’s degree of success—as measured by $1,000 in statutory damages—did not merit a full fee award. The court wrote that Mr. Nigh had received not minimal damages, but the statutory maximum. "Koons contention that this recovery is somehow de minimis betrays a profound misunderstanding of either the expression or the facts of the case."  Nicely put.

[Disclosure: I was co-counsel for Mr. Nigh in the Supreme Court proceedings but have not been involved in the fee proceedings on remand.]

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.

Blogging Away Debt

by Deepak Gupta

This morning's New York Times has an interesting article on a strange new phenomenon: people who anonymously blog about their personal debt (e.g. Poorer Than You, We're in Debt). The article suggests that, although they're too embarassed to talk about it with their family or friends, these bloggers gain discipline by cataloguing their spending habits and announcing them to the world. For a sampling, click on the image on the right.

Update: Angie Littwin of Harvard Law School read the same article has some extended reflections on the subject at Credit Slips. She observes that "these bloggers have developed a self-control mechanism that aligns perfectly with cutting-edge research in behavioral economics."

NCLC Reports on Rising Debt Among Older Americans

    I just ran across an important National Consumer Law Center 2006 study - - The Life and Debt Cycle - - written chiefly by NCLC's Deanne Loonin, about the rising level of debt among older Americans.  The study begins with these basic (and to me, generally surprising) facts:

Older consumers generally hold less credit card debt than younger consumers. What is new is that elders are catching up. The average credit card debt for Americans between 65 and 69 years old rose a staggering 217% between 1992 and 2001, to $5,844. Not surprisingly, given these and other trends, elders are filing bankruptcy in record numbers.

   

Part one of the report describes the issue in detail; part two of the report offers potential solutions.  Check it out.

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.

More on Tax Refund Anticipation Loans

    By Brian Wolfman

    The National Consumer Law Center and the Consumer Federation of America have issued a press release warning consumers to avoid tax refund anticipation loans (RALs) and reporting on the state of the RAL industry.  The press release comes in advance of the groups' annual comprehensive report on RALs, which will be available later this month.  To give you a sense of where the NCLC and CFA are coming from, here's an excerpt from the press release:

  Some of America’s most cash-strapped taxpayers – those from low- and moderate-income families – spent nearly $1 billion in the latest year recorded for what is almost always an unnecessary product: the so-called “refund anticipation loan” at income tax time. With another tax season gearing up, consumer advocates at the National Consumer Law Center (NCLC) and Consumer Federation of America (CFA) are warning taxpayers to steer clear of refund anticipation loans (RALs), one of the most avoidable tax-time expenses. New figures reveal that RALs drained about $960 million in loan fees, plus over $100 million in other fees, from the wallets of nearly 9.6 million American taxpayers in 2005. “Taxpayers can save themselves over a billion dollars by just saying ‘no’ to quick tax refund loans,” says NCLC staff attorney Chi Chi Wu. “These loans take a chunk out of your hard earned tax refund, and they expose you to the risk of unmanageable debt if your refund doesn’t arrive as expected.”

     Michelle Singletary discussed the NCLC-CFA findings in her "Color of Money" column in today's Washington Post.  Late last year, NCLC and CFA issued a report on new forms of RALs - - "pay stub" and "holiday" RALs - - which give consumers the opportunity to acquire debt at crushing interest rates year 'round.   I blogged about the earlier report here.

Center for Responsible Lending Report Predicts 2.2 Million Subprime Borrowers Face Foreclosure

A study by the Center for Responsible Lending predicts that nearly one out of every five subprime loans issued in the last two years will end up in foreclosure and that foreclosures will cost homeowners $164 billion.  That's a frightening--if not terrifying--prediction.  Of course, the lenders and borrowers on those loans must have a different expectation.  The Report also contains some policy recommendations and discusses some of the effects such high foreclosure rates might have.