How the Disappearance of Locally-Owned Banks Hurts Rural Economic Development

In preparation for some upcoming projects with sociologists, including my new collaborator Rob Mayer (Utah) and on another project, Alan Burton (UNM Sociology professors and UNM law student), I am beefing up on my sociology research. Alan directed me to a recent article, Restructuring the Financial Industry: The Disappearance of Locally-Owned Traditional Financial Services in Rural America. This article explains how the loss of small banks in rural America has negatively affected economic development, which has in turn reduced opportunities for rural communities to increase income, reduce poverty, decrease out-immigration, and reduce crime rates.

Welcome Matthew Bruckner

Today we welcome Matthew Bruckner as a guest blogger. Professor Bruckner teaches at Howard University School of law. I first became acquainted with him through his wonderful scholarship applying virtue theory to bankruptcy law. He teaches a variety of business and commercial law courses, including contracts and bankruptcy. Professor Bruckner has previously taught at St. John’s University School of Law and Cleveland-Marshall College of Law. His academic interests center on commercial bankruptcy issue and his most recent scholarship focuses on how to reduce the cost of professional representation in corporate bankruptcy cases.

Prior to law teaching, Professor Bruckner was an attorney practicing in the areas of bankruptcy, bank regulatory, M&A, and other general transactional matters with Allen & Overy, LLP. Professor Bruckner also undertook a number of pro bono engagements for the Public International Law and Policy Group, where he led a team working on comparative constitutional law issues. After leaving Allen & Overy, Professor Bruckner clerked for the Honorable Allen L. Gropper of the United States Bankruptcy Court for the Southern District of New York. In a prior life, he was a stagehand at the Metropolitan Opera House in New York City.

Welcome Matthew!

Nostradamus-Style Predictions for Consumers in 2015

First some easy ones you all know:

1. The stock market will drop, perhaps precipitously, making now great time to rebalance retirement portfolios.

2. The price of gas will inch up and in the meantime, more states will add a little gas tax here and there to quietly fill empty coffers.

On Mortgage Lending:

3. There will be more low rate, “no closing costs” home refinancings available to good credit risks, as lenders try to figure out what to do with themselves. Not much of a spoiler here, since this is already happening.

4. More lenders will be answering the phones when borrowers want to settle up their mortgages. Lenders will be cutting the red tape that is costing them a fortune. Also, more lenders will be settling pending home foreclosure litigation. Something is better than nothing, some might be thinking. 

5. Cases that don’t settle will result in more large judgments against lenders, in part because lenders did not do some of the things mentioned above all along.

On High -Cost Lending:

6. The CFPB will announce its long-awaited payday lending rules, which will apply to all high-cost loans, including payday loans, title loans, and high-cost installment loans.  These new rules will go a long way (though perhaps not all the way) to curbing high-cost lending abuses and protecting consumers from the debt trap. After all, the bureau is called the Consumer Financial Protection Bureau. Lenders will not like the rules much and may even sue over them but they won’t have a high-cost leg to stand on.

Foreclosure News: Who Gets to Decide Whether a State is a Judicial Foreclosure State or a Non-Judicial Foreclosure State, Legislatures or the Mortgage Industry?

Apparently some mortgage lenders feel they can make this change unilaterally. Big changes are afoot in the process of granting a home mortgage, which could have a significant impact on a homeowner’s ability to fight foreclosure. In many states in the Unites States (including but not limited to Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont and Wisconsin), a lender must go to court and give the borrower a certain amount of notice before foreclosing on his or her home. Now the mortgage industry is quickly and quietly trying to change this, hoping no one will notice. The goal seems to be to avoid those annoying court processes and go right for the home without foreclosure procedures. This change is being attempted by some lenders simply by asking borrowers to sign deeds of trust rather than mortgages from now on.

Another Tribute to Jean Braucher: On the Lighter Side

Bob’s post made me cry. Jean was an incredible scholar and colleague. She also had a fun, light side that I will forever cherish, and that I share here. 

I met Jean about 18 years ago through my mentor Bill Woodward (formerly of Temple University Law, now at Santa Clara Law), Jean and Bill were very close academic friends and he thought Jean and I would also hit it off.  He was right. From the very beginning, she helped me with everything from casebook selection to choosing (and negotiating) my job here. Not too long after I moved to New Mexico Law, Jean moved to the Arizona Law faculty. Bill used to ask me “do you ever see Jean out there?” as if we’d now run into each other regularly, since we lived just 7 hours apart by car. The west is a big place, for all your easterners out there, but actually, Bill was on to something. Whatever the reason, Jean herself became a mentor and close friend.

We organized a few conferences together, most recently at Washington and Lee in 2011 with Jim Hawkins (Houston law Center). Wherever we were, we always stayed up late, drinking and gossiping and just having fun. One year at Richard Alderman’s Conference in Houston, my husband said “that’s it, no more hanging out with Jean Braucher” (Mary Spector you were also implicated)

Local and State Treasurers Can Build Wealth in Struggling Communities

Sometimes you can beat the door down with efforts to get Federal and State officials to tackle problems, but at the end of the day, locals can best get the job done, quietly and quickly. A story in Monday’s New York Times bears this out.  For example, San Francisco City Treasure Jose Cisneros noticed that families who finally took advantage the of the earned income credit, the country’s largest public benefit program, often had no bank accounts in which to deposit their refunds. This meant losing a portion of this important public benefit to check cashers and others.

Because of this problem, Treasurer Cisneros started a program called Bank On, that helps people on the financial fringes open bank accounts and develop credit histories. This model has spread across the country, leading the Treasury Department to conclude that Bank On has “great potential” to “create a nationwide initiative that attends to the needs of underserved families and works to eradicate financial instability throughout the country.” In 2010, Mr. Cisneros also started Kindergarten to College, a program that automatically opened a bank account with $50 ($100 for low-income families) for every kindergartner in public schools. The city pays for the administration and initial deposits, while corporate, foundation and private donations provide matching money to encourage families to save more. His office even figured out how to open bank accounts for thousands of children without social security numbers.

These and similar effort have now been replicated in more than 100 cities, showing that even mundane public races might make a big difference in the health and well-being of citizens, if not the entire U.S. economy.

Is a 36% Cap Radical?

I was pleased to see today’s New York Times editorial entitled “A Rate Cap for All Consumer Loans.”  It created a very public description of an industry indiscretion involving loaning money to the military at over 36%. Those loans are illegal because a federal law makes it so, a law that passed with broad and deep bipartisan support because trapping military personnel in high-cost loans interferes with military readiness and thus threatens national security. This editorial, not in some fringe publication, but rather the New York Times, argues that we all deserve the same protections from high cost loans.  I agree (in this recent article), and think the time is right to start listening to people and not industry on this topic.

Is a federal 36% cap radical? Historically, 36% would seem heinously high. Plus, if 36% is radical, why does much of the U.S.‘s eastern seaboard's state law forbid consumer loans with interest rates of over 36%? Are these radical states? The public favors a hard cap, over and over again in every study,  regardless of politics. Hearing politicians support consumer loans with 500% or even 1,000% interest, is so mysterious it makes me want to look at their list of campaign contributors.  Remember, real people over political contributions. We elect politicians and pay their salaries. In turn, they speak for us. Do you like what they are saying?

Goodbye to Military Lending Act Loopholes

How long will we be seeing signs like this in our communities?  I refer specifically to the little sign in the store “Military Welcome,” which arises from sneaky loopholes that have been used for years to get around Military Lending Act (the “Act” or the MLA”), a bipartisan law passed by the House and Senate and signed into law by President George W. Bush as a part of the 2007 National Defense Authorization Act.  The law recognized that payday and other high cost loans interfere with military readiness and as a result, passed a rather uncontroversial 36 percent military APR, including all costs and fees. 36% period. End of story.

But we know it wasn’t true and as always they found their way around it, circumventing the definitions, increasing the terms, so on and so on. Last week, the Department of Defense released proposed rules to close the loopholes, thank goodness, given that no one opposed the MLA. The spruced up law still does not cover any transaction that is not covered by the Truth in Lending Act, meaning that big overdraft fees and rent-to own are still problems for Military personnel.  Also, the scope of the Act is still limited, so the Act still does not cover expensive auto purchase loans, mortgages, or purchase money goods, which can still cause hardship for Military families. Still, this is a big improvement in a situation that has circumvented the full supported MLA for a very long time. This DOD press release contains most of the details. Very nice.

New Case Holding High-Cost Loans Unconscionable and a Payday Loan Video

 A little bit of payday loan news for our readers. First, the New Mexico Supreme Court has held that 1100% high cost installment loans (the payday loan substitute in states where payday loans are illegal) are unconscionable.

Also, did you see John Oliver’s bit on payday loans this weekend? Take a look.  It even features Sarah Silversman. Warning: There is some bad language in the video.

Pick up A Copy of Financial Justice: The People’s Campaign to Stop Industry Abuse (but first watch three cool videos here)

I recently read a review of the book Financial Justice: The People’s Campaign to Stop Industry Abuse, by economist Larry Kirsch and University of Utah professor Robert N. Mayer. The favorable review induced me to sit down and read the book, all in one sitting. This book about how grassroots efforts helped create the CFPB is a page-tuner. Written for lawyer and non-lawyer alike, it chronicles the entire political battle, along with the political personalities, the policy, the compromises, and the people who made it happen, both up front and behind the scenes. Written for lawyers and non-lawyers alike it is, informal, campy in a good way, and very entertaining.

It is a celebration of Senator Elizabeth Warren and all that she has done, but is also an example of we what we all can do to bring about our own version of justice. Incidentally, it contains a few quotes from credit slips, as well as a quote from our colleague Katie Porter. It also references these two fantastic video, here and here  about the CFPB process.  Although not mentioned in the book, these videos reminded me of another video about the Senator I rather enjoy, found here.
Even though the Senator has now written her own book about her life and others have written about her too, Financial Justice is worth your time,  not just for what it says about the Senator but what it says about the capacity of the rest of us as well.It's a truly populist story.

Publishing Opportunity with International Consumer law Journal

The National Law School of India University (NLSIU), Bangalore, sponsored by the Indian Ministry of Consumer Affairs Department, New Delhi. India, is involved in various research activities in the area of Consumer Protection. It publishes the International Journal on Consumer Law and Practices and seeks articles on the topic of consumer law, which might be of use to students, academicians, consumer lawyers, policy-makers, consumers themsleves, and non-governmental organizations worldwide.

The Journal hereby invites contributions to the second Volume of Journal 2014.

Not all Native Americans are Doing, Let Alone Getting Rich Off, Payday Loans

 The Wall Street Journal has run several stories over the past few years about how Indian Tribes are getting rich off payday lending. These stories always tell a fraction of this story, leaving readers with the misperception that all tribes do this lending and that those who do, get rich. The reality is that only a small percentage of Native people do payday lending, and the only people getting rich off these operations are non-tribal lenders that use tribes to get around state laws. A week or two ago, it happened again. The Wall Street Journal published Payday Loans Have Brought Jobs and Revenue, but Tribal Leaders Say Government Crackdown Jeopardizes Business, once again claiming that tribes are getting rich off this business.

The article, also about operation choke point, claims that payday loan revenues make up one-fifth of the revenue on some tribal lands, but give no details on the dollars made. The story quotes one tribal member making $10 an hour, as well as the head of the Native American Financial Services Association, which represents just 19 of the 566 federal registered Indian Tribes. These people like tribal payday lending. But they are but one tiny voice in the debate as most tribes neither engage in nor condone this business. A July 17, 2014, an Al Jazeera story also covered operation choke point but told a very different story. This article entitled When tribes Team Up With Payday Lenders, Who Profitsdescribes exactly how tribal payday lending (part of the four billion dollar online payday loans industry) works. Little of the revenue flows to the tribe, sometimes 1% of the loan, or even just a finder’s fee of $2.50 to $5.00 per loan.

Teaching Consumer Law Conference May 30-31 in Santa Fe

Still looking for a conference to attend this May? Come to beautiful Santa Fe and learn the latest and greatest about teaching consumer law. This conference features speakers from around the world. More specifically, On May 30–31, the Center for Consumer Law at the University of Houston Law Center, in cooperation with the University of New Mexico and the National Association of Consumer Advocates, will present the only international conference dedicated to the teaching of consumer law.

More than 25 presenters will discuss issues related to teaching consumer law, establishing a consumer law program, as well as substantive issues regarding U.S. and international consumer law. Registration is still open but don't delay. A Conference brochure and Registration form is available here.  The Conference will be held at the Hilton Santa Fe Plaza Hotel, in historic Santa Fe, New Mexico. Santa Fe is truly “the city different,”and according to some, is the #2 travel destination in the U.S. Here is a guide to Santa Fe we have prepared.

 

Call for Papers on Upward Mobility and the Great Recession

The Community Affairs Officers of the Federal Reserve System invite paper submissions for the ninth biennial Federal Reserve System Community Development Research Conference, to be held on April 2-3, 2015 in Washington, D.C. The Federal Reserve System Community Development Research Conference is a unique event that aims to bridge the gap between research, policy and practice on key issues facing the country.

High-quality and emerging research is presented in a dialogue with policymakers and community practitioners who can utilize the lessons gleaned from research. The 2015 conference seeks to inform a robust public conversation about economic mobility. Profound economic forces, most recently those associated with the Great Recession, have challenged the financial stability and optimism of families, the prosperity of communities, and the sustained growth of the U.S. economy.

These challenges have led to widespread public debate over whether and how the prospect of economic mobility (moving up the economic ladder) has changed in the U.S. Conference organizers hope to use the broad theme of economic mobility to advance our understanding about how people and communities get ahead, where impediments exist, how factors such as inequality play a role, and what has changed over time. To add to this dialogue, the Federal Reserve invites original, high-quality research from a range of disciplines that can inform and affect how policy is formed and how community practice is carried out.

People are More Embarrassed of their Credit Score than their Age or Weight

In a recent Washington, DC study conducted by the National Foundation for Credit Counseling, study participants were asked to rank things they’d be embarrassed to admit and given five categories from which to choose. In addition to credit card debt, the options included age, weight, bank balance, credit score or none. The thing these consumers ranked as most embarrassing to admit was their credit card balances. See the actual stats in the article link above. Coming in a strong second was their credit score. I found this surprising as I’d much rather talk about my credit than my (advancing ) age, for example. But I am not typical. Are you?

A spokesperson from the NFCC explained the significance of he study as follows: “Since consumers revealed that the two facts they’d be most embarrassed to admit are related to credit, it is obvious that they are not comfortable with how they are currently managing their money.”

 

Pre-paid Cards Enter the Credit Market, Thwarting the Primary Impetus for Using the Cards

A while back, The PEW Charitable Trust did two fascinating papers, found here and here, on prepaid cards. The studies reported that nearly 12 million consumers loaded more than $64 billion onto prepaid cards in 2012, and that three of the top 10 companies now offering prepaid cards are highly recognizable banking institutions that did not offer the product before. This is a big change. Indeed, we here at credit slips do not even have a category for stories on pre-paid cards, but the cards are the next big thing. Since these reports came out, I have seen numerous conferences advertised to help people learn more about how to make money issuing pre-paid cards. The business plan for making more money from a seemingly simple payment device? Offering overdraft “protection” for the cards, meaning that if the money is gone, the card holder can just overdraw the pre-paid card…for a few bucks of course. Hmmm…

Teaching Consumer Law Conference in Santa Fe New Mexico, May 30-31, 2014

Richard Alderman (Houston Law Center ) and I welcome all of you to beautiful Santa Fe New Mexico on May 30-31,  2014 for the only international conference in the world dedicated to the teaching of consumer law. The conference is sponsored by the Center for Consumer Law at the University of Houston Law Center, in cooperation with the University of New Mexico, and the National Association of Consumer Advocates. This year the theme is “Teaching Consumer Law in a Virtual World.”

More than 25 presenters will discuss issues related to teaching consumer law, establishing a consumer law program, as well as substantive issues regarding U.S. and international consumer law. Some of the topics include: Increasing the Prominence of Consumer Law and Influencing Policy, Debt Collection, What’s New with the FTC and the CFPB?, Economic Justice and Consumer Law. 
Teaching the Financial Crisis through Consumer Law, Virtual Currency, Privacy, Making the Most of Consumer Clinics, Consumer Arbitration , Class Actions, Innovations in Teaching, “Legal” Drug Advertising, Computerized Delivery of Consumer Law, Foreclosure Defense, Online Peer-to-Peer Lending , and Strict Product Liability in South Africa. Click here  to register and here for the brochure. 

Will 2014 Be the Year the Bureau Takes on Payday Lending? If So, What Data Will They Use in Regulating?

 To question number one, it looks that way. According to Kim Chapman and Carter Dougherty at Bloomberg, as well as other news outlets, Director Richard Cordray has announced his intention to move forward with regulations aimed at lenders that make small loans like payday loans, title loans, and installment loans with triple digit interest rates.  The question of course is what this “oversight” and “regulation” will look like. Will the rules look something like those in Colorado, which still permits loans of up to 200% in some cases? See Pew report on this issue. Will the new regulations deem certain practices of lenders unfair and deceptive?  Will regulation of online lenders be included? What empirical data will be considered in devising these regulations? Hopefully not that found in a paper I recently read on the Online Lenders Alliance website, entitled Assessing the Optimism of Payday Loan Borrowers.

The punch line of this study is that most payday loan borrowers expect to repay their loan on its due date and not borrow again.  Indeed, most of the borrowers in the survey did just that. Paid it back quickly.  The majority of the paper’s sample population of payday loan borrowers expected to repay the loan on its due date and not borrow again.  Only 40 percent expected to have the loan out for more than one pay period, and the mean duration of indebtedness that those borrowers expected was 36 days.  Interesting. 

New Foreclosure Case Analyses Standing and Tangible Net Benefit

The New Mexico Supreme Court decided Bank of New York v. Romero, No. 33,224 slip op. (N.M. S. Ct. February 13, 2014), last Thursday, which can be found here. The court held that (1) the Bank of New York did not establish its lawful standing in this case to file a home mortgage foreclosure action, (2) that a borrower’s ability to repay a home mortgage loan is one of the “borrower’s circumstances” that lenders and courts must consider in determining compliance with the state Home Loan Protection Act (HLPA), which prohibits home mortgage refinancing that does not provide a reasonable, tangible net benefit to the borrower, and (3) that the HLPA is not preempted by federal law.

The opinion spelled out the tough standards banks must meet to have standing to  initiate foreclosures, reviewed a whole bunch of alleged “evidence” produced by Bank of NY to establish standing, including plenty of affidavits and testimony from people with no personal knowledge of what was going on. The opinion debunks the use of the business records exception to get in documents no one knows anything about and has some good MERS language too. The opinion on these facts should help homeowners with funky documentation in other states as the principles discussed are universal. As such, the case established strong principles for homeowner protection from unscrupulous lenders.

Well-Healed Borrowers May Want to RUN for the Ultimate Refi

There have been many news stories reporting on how the CFPB’s new “ability to pay” mortgage rules, now in effect, will make it harder for regular hard-working Americans to get home loans. Many of the stories make the new rules sound just terrible, but really, the rules just make it more likely that loans go only to people who will be able to pay off their homes and not go into foreclosure.  Banks must now consider a consumer's financial health, including income, existing debt obligations and credit history, when making a loan. Makes sense to me, though I’d image some low income borrowers will not be able to get loans now. No doubt too, there will be fewer loans to make, if the borrowers need to be more stable financially. Nevertheless, there are mortgage brokers out there that just need something to do, not to mention mortgage lenders that need to lend. There is no doubt that people with excellent credit are now in hot demand by lenders. We are finding out about this in our household first hand and it is fascinating.

CFPB What Have You Done for Me Lately? The Cash America Case, For One Thing

The CFPB just settled an enormous enforcement action against payday lender Cash America. Under the settlement, Cash America will pay $5 million in penalties and $14 million in refunds to overcharged customers. The CFPB found that Cash America or its affiliates robo-signed documents in debt collection lawsuits, made loans to military servicemen in violation of the federal Military Lending Act, and even destroyed documents during discovery. 

My student Andrew Anders is writing a paper about the other enforcement actions the CFPB has been bringing. As most of you know, the Dodd-Frank Act gives the CFPB various enforcement powers including the authority to engage in administrative enforcement actions (typically followed by a consent order) and to bring civil litigation proceedings. The CFPB is required to report all public enforcement actions to which it is a party, which is where Andy got his data, all from 2012.

During the time period of January 1, 2012 through December 31, 2012, the CFPB was involved in nine public enforcement actions. Of these actions, five were administrative actions and four were

Military Lending Act Has Loopholes Says NY Times Dealbook

Just as I was getting ready to roll out an article agreeing with Creola Johnson and explaining why Congress should implement a 36% cap, like the Military Lending Act, for all of us, the Dealbook rolled out this story.  As it turns out, the Military Lending Act is not stopping payday-style lending to the military after all.

Alarmed that payday lenders were preying on military members, Congress in 2006 passed the law, which was intended to shield servicemen and women from the loans tied to a borrower’s next paycheck. These loans carry double-digit or triple-digit interest rates and plunge customers into debt. Now, seven years since the Military Lending Act came into effect, government authorities say the law has gaps that threaten to leave hundreds of thousands of service members across the country vulnerable to potentially predatory loans — from credit pitched by retailers to pay for electronics or furniture, to auto-title loans to payday-style loans. The law, the authorities say, has not kept pace with high-interest lenders that focus on servicemen and women, both online and near bases.
The short-term loans not covered under the law’s interest rate cap of 36 percent include loans for more than $2,000, loans that last for more than 91 days and auto-title loans with terms longer than 181 days.

Lenders who specialize in ripping off military personnel have official sounding names like Military Financial, Just Military Loans, and Patriot Loans. They like lending to the military because they get paid from the military allotment, which virtually assures payment.  Moreover, soldiers have to stay in good financial shape in order to maintain their security clearance, which means lenders have maximum leverage over their borrowers.  One lenders web site claims “We know the military because we are former military,” Lenders also lure customers by offering $25 Starbucks gift cards for referrals and throw parties with free  food.

Research Symposium at Suffolk Law on Student Loans

Suffolk Law School and the National Consumer Law Center are convening a Research Symposium on Student Loans in Boston on April 10th and 11th.  The goal of the Symposium, which is invitation-only, is to bring together the nation’s top experts, including academics, attorneys, industry representatives, consumer advocates, and government officials, to discuss research and policy related to student loans. We invite paper proposals that are empirical, qualitative, theoretical or policy-oriented.  Topics of particular interest are:

The Impact of high levels of student debt

Impact of debt on individuals

Impact of  student loan debt on the economy, e.g. housing markets and  consumer spending

Government loans

ABI To Hold All-Day Program on the Next Big Thing, the Dischargeability of Student Loan Debt

On Friday, November 15, 2013, the American Bankruptcy Institute will hold a conference in its Alexandria Virginia Offices, and by webinar, entitled You Can’t Discharge Student Loans in Bankruptcy – Or Can You? The conference will run from 9:30 a. m. to 3:30 p.m., and will be held at 66 Canal Center Plaza, Suite 600 in Alexandria, Virginia.  You can also participate remotely.  More information can be found here.   When we say the next BIG thing, we aren’t kidding, as this graphed Mother Jones article shows. 

Remarkably, student loan debt now exceeds auto and credit card debt. This program will help you learn whether bankruptcy law is keeping up with the Jones’s so to speak.

Furlough Raises Moral Questions

Snaking up a mountain road toward our favorite trailhead yesterday, Stewart and I realized we’d face some moral dilemmas when we arrived. Assuming we could get into the National Forest at all, would we pay the fee, even though no one would fine us if we didn’t? Yes, we concluded. Fair is fair. Would we use the restrooms even though we knew they were not being cleaned?  As we left civilization, the answer to this one became increasingly “yes.” Would we throw our breakfast burrito wrappers in the bear-proof garbage cans? You bet. Those could attract bears even if left in the car. 
 As this photo shows, the feds didn’t leave these questions up to chance. The fee box, the restrooms, and even the garbage cans were all sealed shut. These are obviously just silly questions, but some questions raised by the furloughs are not so silly.  Non-essential federal employees are not being paid, even those that are low paid and barely paid, but Congress is?  How is this possible? I have heard that there is a law against not paying them for a current session (wonder who came up with that one), and also that some congresspersons are giving their pay to charity (nice choice to have). In any case, this strikes me as seriously wrong. 

 

A Few Things to Consider Before Federal or State Regulators Cave to Requests of Tribal Lenders to Back Off

Carter Dougherty added last week to the many recent articles (here and here) on regulators who are cracking down on internet lending, both state and federal. First, the Justice Department has been asking banks to cut ties to online lenders whom regulators suspect of shady business practices. Various governmental entities have even issued subpoenas to banks and other companies that handle payments for an array of financial offerings, ramping up an investigation that has been under way for several months, according to Justice Department officials. New York state is also cracking down. New York has even filed suit, alleging that lenders, including television advertiser Western Skies, were charging consumers ten times what New York State law allows.   

Last week though, Mr. Dougherty reported that an association of online lenders claiming to be operated by Native American tribes, The Native American Financial Services Association (NAFA)(which represents just 16 of the 566 federally-recognized Indian tribes in the U.S.) called on banks to resist pressure from the state of New York State to cut them off from the nation’s primary payment system, claiming violations of tribal sovereign immunity. 

Payday, Title, and Installment Lenders Show Signs of Strain

Given the many ways in which payday lenders have been able to transform themselves  into title lenders and installment lenders, and to otherwise avoid state law,  l try not to get too optimistic that high-cost lending practices  will be curbed. Yet I feel a bit hopeful after reading Paul Kiel’s recent ProPublica article  The Payday Playbook: How High Cost Lenders Fight to Stay Legal.

In this piece,  Kiel continutes his superb coverage of these products by chronicling the citizen’s ballot initiative undertaken by  Missouri consumers once they realized that their legislature was “bought and paid for” and would not be outlawing high-cost credit in Missouri. According to this article, citizens leading and participating in the ballot initiative, which included many religious organizations and non-profits, were tracked down, sworn at and yelled at by employees of  Missourians for Equal Credit Opportunity (“MECO”), a non-profit formed by the high-cost credit industry. And that is not the half of it. Clergy organizing the ballot initiative (many from African- American churches) received a “legal notice” in the mail from  MECO, threatening criminal sanctions for “the collection of signatures for an initiative petition.” Say what? Then MECO filed a lawsuit to try to stop the organizers from collecting signatures for the ballot initiative, under grounds that were, well, groundless.  As many of you know, ballot initiatives have been used in many states to eradicate payday lending, among hundreds of other purposes. Finally, MECO ran television ads featuring clandestine figures in dark suits instructing voters that “if someone asks you to sign a voter petition, just decline to sign.” When none of this seemed certain to kill the ballot initiative, 5,000 ballots were stolen out of one organizer’s car.

When did the usual efforts of transforming loans (from payday to title or installment) and lenders (from payday lender to CSO to tribe to off-shore) become not enough to survive? Am I the only one catching a whiff of desperation here?

 

Woman Wins $18.6 Million Verdict Over Smeared Credit

I had to laugh at a comment made by Ken Doran in response to my post on credit score internet dating.  Ken claimed that while he agrees that people considering joining their lives should share financial information, he wouldn't give a rodent's backside about the future partner’s credit score. Thirty plus years as a consumer bankruptcy attorney has taught him that the reports often contain errors, a fact confirmed by a Federal Trade Commission study finding that 21 percent of reports do contained errors.

With an error rate that big, it is surprising that creditors rely as heavily as they do on such reports. Smeared credit is serious business, though, as a recent $18 million jury verdict shows. Julie Miller of Oregon was awarded $18.4 million in punitive damages and $180,000 in compensatory damages against Equifax, after Miller contacted Equifax eight times between 2009 and 2011 in an effort to correct inaccuracies, including erroneous accounts and collection attempts, a wrong Social Security number, and an incorrect birth date.

Good News About Credit Card Debt Sales

American Banker reporters Maria Aspan and Jeff Horwitz have been sharing cutting edge news about the debt collection and debt buyer world for some time. The news they share this week is good news indeed. They report that JPMorgan Chase is pulling back even more in its credit card collections-related activities, by stopping most bad loan sales to outside debt buyers. Chase had been receiving criticism for the way in which it pursued defaulting customers, which included many procedural shortcuts, mass robo-signing, and so on. As a result, Chase stopped suing its own customers and began selling off even recent bad debts to third parties. Now, just in time to avert new OCC suggested best practices for selling bad debts, Chase says it will no longer sell the bad debt either.  This leaves me scratching my head over here. Exactly what will happen to the bad debts now? 

Finally, A Dating Site for the Money Minded: CreditScoreDating.com

Props to Jodi Helmer for her recent story on creditcards.com about dating and credit scores. I am interested in this development in general and also in how it might jibe with current protocol on who pays for dates. 

For about ten years now, I have taught a weekend class to law and undergrad students on financial self-defense. Sometimes the students practice active listening in pairs about what financial issues trouble them most going forward. While student loan debt always tops the list (more so lately), a fair number of students share fears about the role of debt and credit in finding partners. Helmer’s story tells of the increasing role of creditworthiness in determining partner eligibility. I get it. To me, how one uses credit is one widow into how he or she handles commitment and obligation. A relatively new dating site, CreditScoreDating.com, capitalizes on those who care about credit and helps them find love. A few people who commented in the story thought this was a bad sign but I disagree.  If credit is not important to a person, they can use another site. 

While my clinic students today were not impressed and thought that screening based upon credit scoares was a wee bit superfical, I have always encouraged students to have the money talks sooner, and to unquestionably share credit scores before getting married.  This site helps determine credit compatibility from the beginning. The users will likely be self-selected people for whom credit use is of particular interest.  The site may also draw people who want to talk honestly about debt and credit issues and not shove them under the rug as is often done.

One thing about modern debt and dating that mystifies me is that guys are supposed to pay.  Every year men in my class report that this is the protocol, at least at first.   They also say that dating can put them in the red.  How does this square with equality? It seems wrong for women to care about credit scores if they are not footing the bill?   Back in the day (yes I am an AARP member), women wanted to pay for themselves for the sake of equality and independence, and perhaps for other now antiquated reasons.

Can our younger readers please confirm that this “the guy should pay” rule is indeed in place, and also explain it?  I look forward to learning from you.

Mortgage Settlement Checks Bounce

Remember the $3.6 billion settlement the government made with huge lenders accused of wrongful evictions and other abuses? Wronged homeowners are beginning to get their settlement checks in the mail, only to find that some of them bounce. That’s right. After more than two years of waiting for the checks, the first round of checks arrived last week, but the company chosen to distribute the checks, Rust Consulting, failed to fortify the account upon which the checks were written, Huntington National Bank in Ohio. Read the dealbook story by Jessica Silver-Greenberg and Ben Protess here.

Vermont Employer uses Behavioral Economics to Turn Debt into Wealth

Some readers might enjoy this PBS video about a Northern Vermont company that helps people weather financial storms with small loans. Rhino Foods in Burlington found that employees in financial strain were not as good at their jobs and that the small loans improved the company’s bottom line.  Rhino brought in a combination social worker/financial advisor, who helped arrange 17% income advance loans paid back through wage deductions. Once a loan is paid off, the default rule is that the employee continues to pay into a savings account in the same amount as the prior loan repayment deduction. People who had never saved a dime are now building wealth.

 

 

Interesting Automatic Stay Decision in FastBucks Chapter 11 Case

Readers might recall that back in November, I blogged about a case in which the unconscionability doctrine was used to invalidate one lender’s entire book of payday and installment loans. The post described how the court found that FastBucks employees encouraged borrows to not pay off loans, which loans were found to violate state law. We in New Mexico, where the case was brought, watched to see if the FaskBucks shops would close down, but they never did. Rather, Fastbucks filed some motions and an appeal in state court, then filed for Chapter 11 on December 10, 2012. Their largest creditor? The State of New Mexico.

FastBucks removed the New Mexico lawsuit to federal court, to be heard as part of its bankruptcy case. FastBucks also filed an adversary proceeding seeking to recover for violation of the stay and to enjoin the New Mexico Attorney General’s Office (the plaintiff in the suit) from:

No One is Immune from Credit Card Fraud, Not even the Chief Justice

Wow. Credit card fraud really can happen to anyone, as the Washington Post's Al Kamen reported this afternoon.  Apparently U.S. Supreme Court Justice John Roberts had his credit card number stolen and had to pay cash for his morning Starbucks.

This story raises so many questions.  First, how many credit cards does Justice Roberts carry?  Could it be that he carries just one? Second, what type of card was it? Third, where was it compromised? Fourth, how much hutzpah does this thief have? Did the thief not know who he or she was dealing with?  Finally, I wonder if this event might bear on future consumer law cases before the court. One thing is clear. Even important people have to watch thier backs.

Direct Deposit and Social Security: Not so Nice for Those who Owe: Part II

So just a bit more information on garnishing social security and other public benefits.   Basically 42 U.S.C. § 407(a) has always precluded creditors (other than the IRS for taxes or those holding child support claims) from garnishing social security benefits (SSA) or other public benefits. As I found out when my cousin got into trouble with a credit card company, however, the banks were under no obligation to determine if the funds in a bank account that contained funds from more than one source were non-garnishable (forgive me for making up words). NCLC’s Margot Saunders and others spearheaded the implementation of 31 C.F.R. 212.6, which provides in part:

Direct Deposit and Social Security: Not so Nice for Those who Owe

Jonathan Ginsberg posted an interesting article on the National Association of Chapter 13 trustees web site this weekend, that will be relevant to many of our readers as well. Social security is now requiring all beneficiaries to set up direct deposit, which means the resulted funds could become available to executing creditors if there are any funds from any other source in the account as well. You might recall my blog about this some time back, which contains cites to some of the relevant law.

As my previous blog explains, Federal law provides that Social Security payments are exempt from garnishment from civil creditors. If, for example, a credit card lender sues you and obtains a judgment, that creditor cannot ask Social Security to withhold funds from your government check. While these protections do not apply with equal force to the IRS collecting a tax debt or a creditor collecting child support, all other creditors are not to touch social security funds under any circumstances.

Sixth Circuit Throws Out Debt-Buyer Settlement

The National Consumer Law Center’s e-blast this morning contained some very good news for consumers.  The 6th Circuit has just thrown out a nationwide settlement involving Midland, a robo-signing debt buyer, and over a million consumers.  This will allow other class and individual actions to proceed against Midland. The suit was thrown out for faulty notice to class members, who were not told in the settlement notice that they’d lose their individual fraud claims against Midland.  You may have heard about this case before, as it is the one in which an Ohio District Court held that “robo-signing” affidavits in debt-collection actions violate the FDCPA because the allegation of personal knowledge is false and misleading.  Midland employees had beensigning between 200 and 400 computer-generated affidavits per day for use in debt collection actions, without personal knowledge of the accounts. The unwound settlement would have paid consumers about $17 each.

Secret Creditor Reports, Overdraft Fees and the New Unbanked: The Perfect Storm

Did you know you have another type of credit report, something just as powerful as a traditional credit report? Your “other” credit report is an account screening report used by financial institutions to assess risk in their account opening processes. While technically not a credit report, this report can have just as much impact as a credit report and can result in denial of access to bank accounts and much higher costs for your everyday banking services. The problem? Most of us don’t even know this other credit report exists. I would not know about this myself, except that one of my seminar students in Consumer Law last semester, Ginger Chouinard, wrote her paper on this topic. You can download her paper here. Ginger is a former lending officer and wanted to learn more about the unbanked and underbanked, how this class of people has grown so quickly and how they got underbanked. Her prior experience in the field didn’t hurt, as she was well-versed in ChexSytems, your other credit report. 

Banks Processing Internet Payday Payments through Bank Accounts that Customers Asked be Closed

Banks and payday lenders have be close pals for a while now. First, we learned that banks were funding payday loans by lending to the lenders, then we learned that banks were doing their own payday loans or “Direct Deposit Advances” as some prefer to call them, and now, thanks to NYT writer Jessica Silver-Greenberg , we learn that some banks are helping payday lenders in a different way, by processing internet payday advances through bank accounts, even after being asked by customers to close the accounts, and even when the only money in the accounts is child support. The story claims that these lenders allow the auto withdrawals to go through even in states where payday loans are banned by law. The banking industry says it is simply serving customers who have authorized the lenders to withdraw money from their accounts, but the FDIC and the CFPB are taking a close look, by examining banks’ roles in the online loans. No doubt these loans have caused many to overdraw their accounts, which will be the subject of my next blog on ChexSystems. Stay tuned

Two very Important FTC Studies, One on Credit Reports and One on Debt Buyers

A recent FTC study of errors in credit reports is getting a lot of press. According to the most recent in a number of studies of the accuracy of credit reports, about 5% of U.S. consumers have an error on their credit report that is serious enough to increase their cost of credit. Although the credit industry is arguing that this is a small percentage (and I agree that this is a lot smaller than I expected), the head of the FTC does not consider it small. "These are eye-opening numbers for American consumers," said Howard Shelanski, director of the FTC's Bureau of Economics. "The results of this first-of-its-kind study make it clear that consumers should check their credit reports regularly. If they don't, they are potentially putting their pocketbooks at risk." The industry quickly noted that the errors in the other 95% do not affect people’s credit.

The State Legislative Process: It’s no Fun Watching Sausage Being Made

In a recent trip to testify before a state legislature, I was reminded of why one might want to avoid these types of interactions. First, it is no fun, second, is not required as a condition of my employment, and third, at least so far, no good ever comes of it.

I was there to support a consumer protection bill regulating disclosures and interest rate caps on refund appreciation loans (“RALs”). I know what you are thinking. Didn’t RAL providers go out of business when the IRS stopped providing lenders access to its debt indicator underwriting tools? Not all of them. RALS are still very common in Indian Country, for example.

Many Young People Will Die in Debt, but Hopefully Not From Debt

I had a weird night’s sleep and then openned up my e-mail to find this headline from credit and collection news “Does The Consumer Bureau Harm Those It Claims to Protect? & Study Predicts Millions Will Die In Credit Card Red.” The immediate implication in my drowsy state was that the CFPB was somehow killing people. Wow. As it turns out, these were two headlines from two different stories, first one about how the CFPB was hurting Americans and the overall economy by constricting credit, according to a  Heritage Foundation paper by Diane Katz, available here. 

The second story was by Laura Rolland of the Huffington Post, and contained some grim news from a recent Ohio State Study published in the January issue of the Journal of Economic Recovery. It claims, consistent with informal data from my financial literacy class, that young people are up to their eyeballs in debt. According to Rowley, Millions of young Americans will die in debt to credit card companies. The study data show that people in their late 20s and early 30s (born 1980 to 1984) carry significantly higher credit card debt than older generations and pay it off more slowly, have about $5,700 more than people born 1950 to 1954, and $8,200 more than those born 1920 to 1924. The study even predicts that these young people will continue to charge well into their 70s.

Happy New Year: Shall We Make Some Resolutions?

Welcome to 2013 Credit Slips Readers! It’s time to think about our debtor/creditor future, what to keep and what to leave behind. Sometimes I ask my fellow bloggers if they made any financially-related resolutions but usually everyone say no, so this year, we’ll just make a nice list of resolutions through your comments!   My List:

1. I resolve to read less about the financial crisis (leave it behind, all) and more about other juicy financial news. First, I want to get my hands on Pound Foolish, a new book by Helaine Olen slamming the financial advice industry. Ms. Olsen claims that advisors are not generally on the side of clients but rather on the sides of various people who buy their love. Yes we knew that, but this still might be a good read. Olen exposes the fallacies spun by some of America's current personal-finance celebrities, including  David Bach, a former senior vice president at Morgan Stanley, and his Latte factor theory. Olen also takes on Robert Kiyosaki (Rich Dad, Poor Dad), apropos since one of his companies (Rich Global, LLC) filed for Chapter 11 back in August.

Student-Loan Collections Could Be Subject to Drastic Overhaul

Bloomberg reports that Congress will consider overhauling debt collection in the $100 billion-a-year U.S. student loan program, replacing it with automatic withdrawals from borrowers’ paychecks tied to their income -- a system similar to those sued in the U.K., New Zealand and Australia. The bill, proposed by Wisconsin Republican Representative Tom Petri, would require employers to withhold payments from wages in the same way they do taxes, capping payments at 15 percent of borrowers’ income after basic living expenses. The bill follows growing concern about the burden of $1 trillion in outstanding student loans, which now exceed credit- card debt. Under the new system, the government would no longer need to hire thugs to collect, and I personally have found these student loan debt collectors to be quite formidable indeed. Never mind that the debt collectors fees can add up to 25 percent to borrowers’ loan balances, leaving defaulted former students even deeper in the hole.  This new process would streamline the confusing process of getting on a reduced payment plan if a borrower is un or under-employed, but would still provide for repayment of the student debt.

Debt Collection Goes Hollywood with Brad Pitt as Director

At long last, debt collection goes Hollywood! Brad Pitt's productio company Plan B and HBO are developing what looks like a new TV series called "Paper," a drama inspired by Jake Halpern's essay "Pay Up" featured in the New Yorker. "Paper" features a gangster trying to clean up his life and support his children as a single parent through a professional debt collector’s job. He finds, however, that life in the debt collection business can be just as lethal as the biz he's struggling to leave behind. I am excited for the TV series, which I picture to be a bit like  a combination of Breaking Bad and the Wire, without the drugs or the frontier or backwater towns. 

In Pay Up, the dad involved collected on aging payday loans, the kind of debt almost no one pays on. The project is classified as “in development,” with no production schedule set. Currently, there are at least two producers and one writer attached, so we should see this series or at least ads for it in about a year.

Skip the Chaos and Do a Black Friday Spending Fast on November 23, 2012

Perhaps you'll recall that a few years ago on black Friday (the day after thanksgiving), overzealous shoppers trampled a seasonal Wal-Mart worker (meaning a guy who did not even have a regularWal-Mart Job) to death. This is what happens when rampant consumerism meets pack mentality. This year, rather than providing more protection to workers, Wal-Mart plans to allay shoppers’ anxiety about not scoring the big Black Friday deals by opening at 8:00 p.m. on Thanksgiving. Target is  responding in kind by opening at 9:00 p.m. on Thanksgiving, causing the typically minimum-wage workers to lose one of the few days all year they can reliably spend with thier families. 

Before you cut your own turkey day short to hit the stores, consider a few more reasons not to shop.  First, we consumers are finally getting a little economic recovery of our own.  Be it through repayment or write-offs, credit card debt is down.  Why ruin a good trend by buying a bunch of stuff no one wants? Second, most people do not want all the garbage you give them during the holidays.

I invite you to join millions of others on November 23 and stop consuming for 24 hours. Ignore the Black Friday sales and challenge yourself to go cold turkey from consumer culture for one day. As reported on adbusters, you may be rewarded with a life-changing shift of perspective – a glimpse into how to consume less and live more on this precarious planet of ours.  

Daniel Schwarcz on the Lack of Transparency in Insurance Consumer Protection

State Payday Lending News Part II: Oregon Warns Tribal Payday Lenders to Back Off

A little something more to chew on while you are chewing off your fingernails over tonight’s election news. As reported on Turtle Talk this morning, Oregon and Washington are none too pleased about tribal payday lenders making loans to citizens of their state, in contravention of their state usury laws. Online tribal payday lenders are setting up shop on Native land in order to get the benefits of sovereign immunity, as Josh Schwartz and I wrote about in our Washington and Lee Law Review article.

According to a story posted on a Portland Oregon tv web site, tribal loans are now at the center of a legal battle at the highest levels of the U.S. Government. An Oregon senator is now trying to push a bill that he authored through the U.S. Senate, which would provide that lenders may not operate out of a tribal reservation or overseas, or anywhere else, if the resulting loans violate of state laws. If this federal bill became law, the Consumer Fraud Protection Bureau would have the power to stop the lending.The turtle talk post also linked to a warning to consumers posted by the Oregon Division of Finance and Corporate Securities. This link contains a partial list of the tribal payday lenders.

State Payday Lending News Part I: New Mexico Court Finds FastBucks Loans to be Unconscionable

A little something to chew on while you are chewing off your fingernails over tonight’s election news. The New Mexico Attorney General’s office has sued Fastbucks for providing unconscionable loans to New Mexico citizens, both under the common law unconscionability doctrine and the state’s Unfair Practices Act’s unconscionability provision. Read the short, pithy opinion Download Fastbucks decision.

The court’s opinion, karmatically handed down on Yom Kippur 2012, found that FastBuck steered borrowers into loans that subjected them to higher interest rates and kept them locked into recurring cycles of debt, that the FastBucks entities were experts in the loan products they created, and that these experts demonstrated their superior knowledge of these alternative loan products through their explicit actions to maneuver around the regulation of payday loans.  The court also found that defendants provided incentives to their representatives for steering borrowers into the more expensive installment loan products and away from less expensive loan products, and for promoting and prolonging recurring inescapable indebtedness.

Big Banks Offer Payday Loans

Yes, we know they do, but a Bloomberg story this morning caught my eye. I’ve known for quite a while that Wells Fargo and First Third Bank offered these payday-style loans, called direct deposit advances or ready advances, and also that certain bank customers get these prompts for this “service” EVERY time they go to an ATM. In fact, I know a woman who has one of these loans out from Wells Fargo pretty much at all times, except when once a year they ask her to clear it, at which point she goes to another payday lender to pay it off.

Still, Carter Dougherty’s story today added something I didn’t know, namely that so many people are finally interested in this.  The attorney general of North Carolina has asked the lenders to explain why the loans do not violate North Carolina’s famously successful state interest rate cap. A private lawsuit filed in U.S. District Court in Ohio claims that Fifth Third Bank deceived customers about the true costs of the loans.  Both the FDIC and the CFPB have taken notice of the loans and are investigating the practices. Enjoy the full story here.