Consumer Law & Policy Blog

Times Reports on Home Equity Loans, Countrywide Litigation, Subprime Borrowers, and More

Another roundup of article in recent issues of the Times: Friday's Times brought another important installment in "The Debt Trap" series, this one headlined "Home Equity Frenzy Was a Bank Ad Come True," about how banks reframed second mortgages--once seen as a product for those experiencing dire financial problems--as home equity loans.  These loans were presented as ways to use the home as a source of funds for "living richly," and thereby vastly increased consumer indebtedness and reduced the amount of equity Americans have in their homes. 

Today's Times includes Bob Tedeschi's Mortgages column, "Finding Cash in a Home," about an alternative to reverse mortgages which cuts down on the normally high closing costs for reverse mortgages--but because the lender takes out a life insurance policy on the owner, only owners eligible for life insurance can take advantage of it.  In an August 3 column titled "Subprime Loans' Wide Reach," Tedeschi reported on a study by Compliance Technologies that contradicted standard wisdom about subprime loans:

WHILE subprime loans deeply penetrated low-income and minority groups, a new study suggests that more upper-income borrowers and more whites took out such loans than any other groups.

* * * [R]oughly 56 percent [of subprime loans originated in 2006] went to non-Hispanic whites. Affluent borrowers, those with annual income at least 120 percent of their given area’s median income, meanwhile, took out more than 39 percent of the loans.

That seems like a rather low definition of affluent.

Yesterday's Times reported "Judge Rejects Countrywide Settlement" about how a bankruptcy judge rejected the settlement between Countrywide and nearly 300 of its borrowers, saying he wasn't convinced it was fair to the borrowers.  The complaint charges Countrywide with making inaccurate claims, and demanding improper fees, among other things.  Meanwhile, back on August 7, the Times noted that "Connecticut Joins Other States in Suing Countrywide."

On Wednesday, the Times published a short but ominous-sounding piece, "Some New York Loans Shunned," at the tail of a longer article.  Here's an excerpt:

Freddie Mac said Tuesday that it would stop buying subprime loans issued in New York State as a new law takes effect that holds investors accountable for mortgage fraud.

Freddie will not buy loans dated on or after Sept. 1 that meet the state’s subprime definition, the government-chartered company said in a lender bulletin on its Web site. Gov. David A. Paterson of New York signed new foreclosure and lending laws last week that tighten legal protections for borrowers.

The legislation holds mortgage buyers like Freddie liable in ways that “we have no way of monitoring and preventing,” Brad German, a company spokesman, said.

It's not clear how many such loans would be made even if Freddie Mac was willing to buy them: the state law will almost certainly be preempted as to federal lenders, and in the past, lenders have tended to avoid loans labeled as high-interest loans, thus making mini-HOEPA laws effectively usury statutes. 

On Monday the Times ran "Web Privacy on the Radar in Congress," about behavioral marketing.  An excerpt:

On Aug. 1, four top members of the House Committee on Energy and Commerce sent letters ordering 33 cable and Internet companies, including Google, Microsoft, Comcast and Cox Communications, to provide details about their privacy standards. That followed House and Senate hearings last month about privacy and behavioral targeting, in which advertisers show ads to consumers based on their travels around the Web. * * *

As advertisers become more sophisticated about behavioral targeting, and online privacy standards become increasingly varied, regulators and privacy advocates are becoming concerned. A few companies have taken precautionary measures to try to fend off criticism; in the last few days, for instance, both Yahoo and Google have made it easier for people to opt out of targeted ads on their sites. But that may not be enough.

“Some type of omnibus electronic privacy legislation is needed,” said Representative Edward J. Markey, Democrat of Massachusetts, chairman of the House Subcommittee on Telecommunications and the Internet, “regardless of the particular technologies or companies involved.”

Back on August 6, the Times ran an editorial,"Listen to the 56,000," about the response to the Fed's call for comments on its proposed rules on credit cards.  Excerpts:

This anguished deluge should send a clear message to leaders in Washington. The Federal Reserve should swiftly adopt its proposed rules against unfair or deceptive credit card practices. But the real burden to curb these abuses falls on Congress.

For too long, members of Congress have shirked the responsibility to ensure fair lending to credit card customers and have listened more intently to the banking lobbyists. A low point came in 2005, when Congress passed a bankruptcy law that was badly tilted against borrowers. * * *

Ronald Mann, a Columbia Law School professor, has argued that the law creates a “sweat box of credit card debt.” 

The editorial also noted that the House Financial Services Committee had voted for a cardholder's bill of rights, but that banks oppose it.

Moving right along, here is an article about deceptive advertising of "free" credit reports that end up costing money.  And finally, an article that may scare some, "If You Run a Red Light, Will Everyone Know?" reports on a web site, www.CriminalSearches.com that enables people to conduct free searches to see who has a criminal record.

Times Articles on Mortgage Regulation, Privacy, and Marketing

by Jeff Sovern

Here is the article in today's Times on the new Fed rules that Alan blogged about yesterday.  Saturday's edition noted in "By Large Margin, Senate Votes to Help Homeowners and Overhaul Loan Agencies" that the Senate had approved the bill intended to help borrowers avoid foreclosure.  The bill now returns to the House.  Sunday's issue included "The Silence of the Lenders," which tells the story of the email Angelo R. Mozillo, Countrywide's chief executive called "[d]isgusting."  The email was from a borrower, Dan A. Bailey, Jr., and sought a loan modification that would permit him to keep his home.  As the headline implies, the article is about how borrowers are having difficulties getting the attention of loan servicers. Excerpts:

* * * As of the most recent quarter, 2.67 percent of the loans that Countrywide services were more than 90 days delinquent. (The Bank of America Corporation acquired Countrywide on July 1 and is now overseeing the Countrywide portfolio.)

Lenders and servicers like Countrywide are inundated with requests for help from borrowers who cannot afford their loans. Alas, these companies’ operations weren’t set up for such work; servicing units were originally intended to collect monthly checks from borrowers and then disburse the payments to mortgage holders. During the boom years, there was little need to advise borrowers or restructure loans.

* * *

That said, foreclosures are vastly outnumbering loan workouts today, a year and a half after the subprime mortgage debacle began creeping into the headlines. In May, for example, even as Hope Now conducted 70,000 loan modifications, an estimated 85,000 families lost their homes to foreclosure. That same month, 276,000 loans either entered or completed foreclosure.

Times Articles on Credit Card Law Reform, Online Privacy, and New York's Foreclosure Legislation

The weekend's consumer law harvest from the Times:

The Times reported on Saturday that Credit Card Overhauls Seem Likely.  The entire article is worth reading, but here's an excerpt:

Working with the Office of Thrift Supervision and the National Credit Union Administration, the Federal Reserve introduced its proposals in early May. It has asked for comments and expects to formalize proposals by the end of the year.

At the same time, the legislation most likely to succeed in both the House and Senate sets similar rules on consumers’ behalf. Representative Carolyn B. Maloney, the Democrat of New York who wrote the House bill, and Senator Christopher J. Dodd, the Democrat of Connecticut behind the Senate measure, said they planned to bring their measures to the floor for votes before Congress adjourns in September.

The House and Senate bills as well as the Federal Reserve require that lenders apply payments to the debt with the highest interest rate. All would ban “double cycle” billing, in which interest is charged on some already repaid debt, and all would extend the time required, currently 14 days, between a statement mailing and payment due date.

All the measures would, under various conditions, prohibit lenders from raising interest rates on existing debt. The central bank proposes that except for increases caused by changes in stated variable and introductory offers, lenders may increase interest rates only if minimum payments are more than 30 days late.

Only the Dodd bill prohibits charges for paying by mail, phone or online, and restricts marketing and offers of credit to consumers under 21.

Friday's edition included Google Told to Turn Over User Data of YouTube, about a decision that has privacy advocates concerned.  An excerpt:

For every video on YouTube, the judge required Google to turn over to Viacom the login name of every user who had watched it, and the address of their computer, known as an I.P. or Internet protocol address.

Both companies have argued that I.P. addresses alone cannot be used to unmask the identities of individuals with certainty. But in many cases, technology experts and others have been able to link I.P. addresses to individuals using other records of their online activities.

The amount of data covered by the order is staggering, as it includes every video watched on YouTube since its founding in 2005. In April alone, 82 million people in the United States watched 4.1 billion clips there, according to comScore. Some experts say virtually every Internet user has visited YouTube.

And on Sunday Bob Tedeschi had a column, Mortgage Brokers as Naysayers, about the new New York foreclosure legislation, passed by the legislature, but not signed by the Governor, at least as of the time Tedeschi's piece went to press--though the article states that the Governor is expected to sign it into law [I should note that last week I posted that the bill had been enacted by the legislature, which was premature].  More excerpts:

* * * [The bill provides] that brokers have a “duty of care” to offer appropriate loans to subprime borrowers — those with poor credit.

Brokers are asking, however, what constitutes an appropriate loan, and what happens if a borrower disagrees with a broker’s recommendation.

* * *

* * * Mr. Tricozzi[, president of the New York Association of Mortgage Brokers] said, the legislation requires brokers to weigh a borrower’s future earnings in selecting appropriate loans. For some borrowers, like pregnant women or workers nearing retirement, such prognostications might be unreliable. Yet refusal to offer loans to such borrowers could be construed as age or gender discrimination, he said.

* * *

* * * some advocates want to hold mortgage brokers to the same legal standard as stockbrokers and other financial advisers, who carry a fiduciary duty to act in their clients’ best interests and offer only “suitable” financial products. New York’s proposed law specifically stops short of the suitability standard, said Richard H. Neiman, New York’s banking superintendent.

Times Articles on the Tort War, Illinois' Suit Against Countrywide, and Google's Marketing

Recent articles from the Times of interest:

Yesterday's edition contains "Google Tries Tighter Aim for Web Ads" about how Google uses what a consumer searched for a few minutes ago to target ads for that user.  Another article, "Post-Spitzer, A New Breed of Reformer," explores the differences between former New York Attorney General Eliott Spitzer's and the current New York Attorney General Andrew M. Cuomo's approaches to bringing cases against the financial industry.

Here is Wednesday's report on the Illinois case against Countrywide, a case Alan White reported on yesterday.

Last Sunday's issue brought "To the Trenches: The Tort War is Raging On," about business's attempts to take on the trial bar.  Some excerpts:

Businesses count among the victories federal legislation passed in 2005 that made it harder to file class-action lawsuits in state courts, where judges and juries were often perceived as hostile to business. In state courts, where most civil litigation plays out, the number of suits involving auto accidents, allegations of medical malpractice and the like fell steadily from 1995 to 2005, according to the National Center for State Courts. The Chamber of Commerce says the number of megaverdicts for more than $100 million dropped to 2 last year, from 27 in 2000.

NEVERTHELESS, there are battles in individual states over judicial campaigns and legislative initiatives.  * * *

Strikingly absent from debates over who should be able to sue whom, when and for how much is any discussion of the fairest and most effective way to make sure that true victims are appropriately compensated for injuries and that people without authentic injury are not compensated.

“That’s not the conversation we’re having,” because the only voices heard belong to advocates of one side or the other, said Robert L. Rabin, a law professor at Stanford. “Those advocates reflect advocacy interests — that is, either defense-side interests or plaintiff-side interests — rather than some overview of global fairness.”

One Reason No One Reads Privacy Policies and How Changing the Incentives Might Make Privacy Policies More Readable

by Jeff Sovern

At the Privacy Law Scholars Conference at GWU, hosted jointly by GWU and Berkeley Law Schools, on June 12 and 13, I served as a discussion leader for a session titled "Death to Privacy Policies" about how few people read privacy policies, why that is, and what could be done about that.  In that capacity, I presented a short talk, about three minutes.  But of course I would have liked to talk longer about the subject, so I'm posting here what I would have said if I'd had, say, five minutes (plus I'm tossing in a few cites).  Privacy policies are only a subset of the many documents consumers don't read, such as contracts with cell phone providers, credit card issuers and the like, and much of what I say here is just as applicable to such documents.

One reason privacy polices may fail to attract attention is that those providing them typically have little incentive to attract attention to them and little incentive to make them clear.  For example, many financial institutions sell their customer lists; if bank customers notice the privacy policies that banks send them and ask the banks not to sell their information, the banks lose money.  So the banks have an incentive to construct their privacy policies in such a way as to minimize the attention they draw.  Here, for example, is an excerpt from a scintillating privacy policy from Cap One:

We may share the information described on Page 1 under “information we may collect” with companies in the Capital One family or with business partners such as financial service providers (including credit bureaus, mortgage bankers, securities broker-dealers and insurance agents); nonfinancial companies (including retailers, online and offline advertisers, membership list vendors, direct marketers, airlines and publishers); companies that perform marketing services on our behalf, or other financial institutions with which we have joint marketing agreements; and others, such as non-profit organizations and third parties that you direct us to share information about you.

And, not surprisingly, what data is publicly available suggest that few consumers have opted out.  See Testimony of John C. Dugan, Partner at Covington and Burling on behalf of the Financial Services Coordinating Council, Before the U.S. Sen. Com. On Banking, Housing and Urban Affairs, Sept. 19, 2002 (“opt-out rates have generally been low, and in nearly all cases under 10 percent.”); W.A. Lee, Opt-Out Notices Give No One A Thrill, 166 American Banker Issue 131, at 1 (July 10, 2001) (“5% opt-out rate . . . has been circulating as the unofficial industry figure . . . .”); ACB Survey (60% of financial institutions report that less than one percent of customers opted out). We know that companies sometimes respond to the incentive to create forms consumers won’t read because in Ting v. AT &T, 319 F.3d 1126 (9th Cir.), cert denied, 540 U.S. 811 (2003), AT&T conducted extensive market research to discover what it could write that would cause consumers to ignore its customer service agreement—and then it went with the form that would cause consumers to throw its letter out. 

Interesting Empirical Work on Consumer Privacy and EULAs

I spent part of last week at the splendid Privacy Law Scholars Conference at GWU, hosted jointly by GWU and Berkeley Law Schools, and organized by Dan Solove and Chris Hoofnagle.  One of the great things about the conference is that it included non-legal academics who have been conducting and posting to the web research that law professors might find useful. Among the most intriguing is the empirical work of Jens Grossklags on how consumers respond to the End User License Agreements ("EULAs"), those boxes on web sites that ask you to click that you agree to the web site’s terms for downloading software (you can find Jens’ publication list here), and the work of the Carnegie-Mellon Usable Privacy and Security Lab (their work is described here) on privacy policies. 

April 2008 Auto Safety Recalls

Go here to view the National Highway Traffic Safety Administrations recalls for April 2008.

Hoofnagle and King on What Californians Understand About Privacy Offline

Chris Jay Hoofnagle, who has  made important contributions on identity theft, has teamed with Jennifer King, both of Berkeley, to produce "Research Report: What Californians Understand About Privacy Offline."  The Report raises disturbing questions about the extent to which consumers understand how data about their transactions is being used.  Here's the abstract:

Many online privacy problems are rooted in the offline world, where businesses are free to sell consumers' personal information unless they voluntarily agree not to or where a specific law prohibits the practice. In order to gauge Californians' understanding of business practices with respect to the selling of customer data, we asked a representative sample of Californians about the default rules for protecting personal information in nine contexts. In six of those contexts (pizza delivery, donations to charities, product warranties, product rebates, phone numbers collected at the register, and catalog sales), a majority either didn't know or falsely believed that opt-in rules protected their personal information from being sold to others. In one context--grocery store club cards--a majority did not know or thought information could be sold when California law prohibited the sale. Only in two contexts--newspaper and magazine subscriptions and sweepstakes competitions--did our sample of Californians understand that personal information collected by a company could be sold to others.

Respondents who shopped online were less likely to say that they didn't know the answer to the nine questions asked than those who never shopped online. In about half of the cases, those who shopped online answered correctly more often than those who do not shop online.

Professor Alan Westin has pioneered a popular "segmentation" to describe Americans as fitting into one of three subgroups concerning privacy: privacy "fundamentalists" (high concern for privacy), "pragmatists" (mid-level concern), and the "unconcerned" (low or no privacy concern). When compared with these segments, Californians are more likely to be privacy pragmatists or fundamentalists, and less likely to be unconcerned about privacy. Fundamentalists were much more likely to be correct in their views of privacy rules. In light of this finding, we question Westin's conclusion that privacy pragmatists are well served by self-regulatory and opt-out approaches, as we found this subgroup of consumers is likely to misunderstand default rules in the marketplace.

Times Pieces on Foreclosure Crisis, Predatory Lending, and Wachovia Telemarketing Case

Yesterday the Times published an editorial on the Bush administration response to the foreclosure crisis, with the noteworthy headline, "Saying No to Everything."  An excerpt:

Even before the House passed a new plan last week to prevent foreclosures, President Bush threatened to veto the bill, calling it “overly burdensome.” The bill is not burdensome enough.

* * *

When Mr. Bush hasn’t been busy saying no to worthy efforts, he has been endorsing Orwellian-named programs that have failed to address the problem effectively. Hope Now, the mortgage industry alliance that pledged a big effort five months ago to modify subprime loans, has barely made a dent. Project Lifeline, announced last February, has yet to release any results. The Times reported last month that another program much touted by Mr. Bush, FHA Secure, has helped fewer than 2,000 homeowners at risk of foreclosure.

The Times has also published a number of other articles in recent weeks that we haven't yet linked to on the blog.  For example, on May 6, the Times reported on a speech by Fed Chair Bernanke in an article headlined "Bernanke Urges Flexibility in Mortgage Regulation."  Some excerpts:

The variety of factors leading to foreclosures makes it more difficult for mortgage lenders to help ailing homeowners, Mr. Bernanke said, noting that “lenders and services will have to develop new and flexible strategies to deal with this issue.”

In response, Mr. Bernanke recommended that government agencies take a more innovative approach to ensure that only qualified buyers take out loans. He urged Congress to provide the Federal Housing Administration, which insures mortgage loans, with “greater latitude” in setting appropriate standards for owners seeking to refinance their mortgages, and to adjust interest rates according to the level of risk of the applicants.

In "Countrywide Admit Errors at Hearing," published May 7, Countrywide acknowledged that its loan officers made mistakes "from time to time" but disputed other charges.  Countrywide promised to hire an outside auditor to review its actions.  Professor Katherine Porter of Iowa testifed:

that mortgage companies and servicers had improperly sought payments without fully disclosing or documenting fees.

In some cases, she said, companies have sought to foreclose on homes even after borrowers discharged their debts through the Chapter 13 bankruptcy process, which allows debtors to keep their homes while working out payment plans.

“The upsetting reality is that the current bankruptcy system routinely forces borrowers to pay bloated amounts and permits mortgage servicers to misbehave without serious consequence,” she told the Senate Judiciary subcommittee on administration oversight and the courts.

Federal law preempts state predatory lending statutes as to federal institutions, but what about when state institutions lend in other states?  Here is an article about a pact New York, New Jersey, and Pennsylvania signed last month providing that state institutions are subject to the predatory lending statutes of their home states when lending in one of the other states that is a party to the compact. 

We  previously blogged here about the case involving Wachovia's allegedly allowing telemarketers to use its accounts to steal millions from depositors. Wachovia and the OCC have now settled the case.  The report is here; Wachovia, while neither admitting nor denying wrongdoing, will pay as much as $144 million.  A case brought by alleged victims of the fraud is still pending.  The settlement's terms have drawn criticism, as reflected in the following excerpt:

Some critics of the settlement’s structure — including Representative Edward J. Markey, a Massachusetts Democrat and a senior member of the House Energy and Commerce Committee — complained that the agreement contained no guarantee that victims would be paid.

Under the terms of the settlement, victims will not automatically receive compensation from Wachovia. Instead, they will have to submit claims through a complicated bureaucracy. Because many of the victims are elderly or poorly educated, it is likely many of them will stymied by these obstacles, Mr. Markey said.

Times Reports on Prospects for the Housing Bailout Bill, Jingle Mail, and Cell Phone Spam

Yesterday's Times had several articles on consumer law.  First, "Housing Bailout Bill Seems on Shaky Ground" reports on the prospects for the bill the House passed on Thursday.  An excerpt:

The Bush administration on Friday said it would only support legislation that did not require taxpayer funds. The Congressional Budget Office estimates that the House-passed measure would refinance as many as 500,000 homes over the next five years, at a cost to taxpayers of about $2.7 billion. * * *

The measure now goes to the Senate, where it faces opposition among Republicans who have tapped into a broad wave of bailout resentment in states less affected by the crisis. And the failure of the House to adopt it by a veto-proof margin is likely to further embolden recalcitrant Republicans in the Senate who have so far managed to block action, Democratic supporters of the measure said on Friday.

Senator Christopher J. Dodd, the Connecticut Democrat who heads the Banking Committee, said Friday that he was hoping to quickly complete negotiations with the ranking Republican on the committee, Senator Richard C. Shelby of Alabama, and have the committee vote on a measure next week.

A second article, "Mortgage Holders Find it Hard to Walk Away From Their Homes," states that few homeowners who owe more on their homes than the homes are worth have used "jingle mail" and abandoned their homes, contrary to some anecdotal reports (the phrase "jingle mail" refers to the sound keys make when they are mailed to the mortgagee).

A third piece, "Spam Plague is Migrating From Computers to Cellphones" notes that Ferris Research estimates that Americans will receive 1.5 bilion unsolicited text messages this year.  So much for CAN-SPAM.  The many consumers who pay a charge for each text they receive find this particularly annoying.  Many demand refunds from their carrier. Some excerpts on how it is possible and how to stop it:

Most phone spam is actually e-mail that comes through gateways linking the Internet and cellphone networks, industry executives said.

Most wireless phones have a dedicated e-mail address. At AT&T, for example, it is a customer’s cellphone number followed by @text.att.net. Using computers, spammers create millions of possible number combinations, then send messages to those addresses.

* * *

All major communications companies give consumers the ability to thwart spam by changing the easily guessed e-mail addresses for their phones, or completely blocking messages coming from the Internet. They can do this by logging onto the company’s Web site and changing their preferences.