postings by Nathalie Martin

Supreme Court Ruling in A.T. & T. v. Concepcion Approves Class Action Bans in Consumer Contracts

posted by Nathalie Martin

What a depressing day in the law of consumer protection. We’ll get to that in a minute, but in the meantime, I heard a humorous radio program this morning in which Europeans were complaining about how you never know the real price of anything in America. Things seem cheap, but once you consider the taxes, the tipping, the hidden ad-ons, the price is so much more.  There is no transparency. Boy, they don’t know the half of it. At times it seems everywhere you turn, you find a scam or an unauthorized fee. Thank goodness for the legal system, right? The way we can all fight back?

Ahem...not so fast. Most Americans can’t access attorneys. A Huff Post article reports on a world-wide survey, that ranks the U. S. lowest among 11 developed in providing access to justice to its citizens, and lower than some third-world nations.

Continue reading "Supreme Court Ruling in A.T. & T. v. Concepcion Approves Class Action Bans in Consumer Contracts" »

Some Banks Charge Business Customers Merely for Running Checks Through Their System

posted by Nathalie Martin

We all know that banks are allowed to charge customers for things that do not cost them anything, but I guess I just assumed that they did this only to consumers. Silly me. 

I just bounced a check. Long story but my dad sometimes shares bank account numbers with nice people who call him on the phone to “confirm” these numbers. After an incident like this, if I learn of it, I close the account and some checkbooks sometimes survive the whole thing. Today, dad’s tailor called to say a check we wrote was on an account that could not be found, and that as a result, she (the tailor) was charged $12 for processing our “bounced” check. Say what? This is a totally new one on me. Anyone else heard of this? I know for a fact that the larger customers do not generally pay these fees, but I am curious what you all know. Bankrate.com, my go-to for things like this, ran one story on these fees, but there is little else out there.  If you are a business and you pay these fees, it’s time to shop for a new bank.

Meaningfully Shopping for Insurance is Next to Impossible

posted by Nathalie Martin

Anybody who cares about consumer rights should take a look at this recent article by Professor Dan Schwarcz, a law professor and insurance expert from the University of Minnesota Law School. This guy actually gets his jollies reading insurance policies, and what he has learned can help you. Well, sort of….. In reality, what he has learned can educate you, anger you, and hopefully motivate you to help solve a tricky problem, namely that consumers don’t generally get to see their policies until they’ve signed on. Policy terms also vary a lot, but no one seems to know this. It is a classic case of consumers shopping solely on the basis of price, when other things like coverage matter more. According to Professor Schwarcz, consumers have access to virtually no information about the things that matter most in an insurance policy. 

Continue reading "Meaningfully Shopping for Insurance is Next to Impossible " »

How Credit Card Companies Get Around the Card Act

posted by Nathalie Martin

Want to do a riddle?  Try this.

Mrs. Marquez wrote herself a $5,000 check from her credit card company....you know, those ones that come in the mail with the bill? Her family makes just $40,000 a year, but the card company approved this loan, under an offer advertized as 0% interest for one full year, starting April 1, 2010, a transaction clearly covered by the Card Act. In July of 2010, Ms. Marquez needed another $5,000, so the company allowed her to take out another $5,000, same terms, with the 0% deal expiring on July 1, 2011. The fee was $150 per transaction, not bad in and of itself. The Marquez' diligently paid on the loan so that they'd pay the whole first $5,000, in full, by April 1, 2011. Now the credit card company says they owe interest at some huge amount, on an amount close to $5,000? Can the company do this? Hint:  The Card Act requires that payments be applied to the highest interest portion of the loan first (after the minimum payment), but both loans are allegedly interest only.

Employers and Consumers: Read this Before You Buy Insurance

posted by Nathalie Martin

Two sad insurance stories follow, with one happy one at the end. I hope to get a conversation going about which companies pay claims and which don’t.

First, check out this clinic case. Ms. Garcia, a 60 year- Spanish-speaking housekeeper suffered an injury requiring surgery in June of 2010. Because of the surgery and recovery, she could not work at her job at a chain hotel. She applied for disability under the insurance contract her employer provided with Met Life. Met Life received Ms. Garcia's claim for disability in June, and denied her claim a month later on the basis that the injury was a pre-existing condition. Yet Ms. Garcia had been working at the same job since 2003.  MetLife only became the insurance carrier in January on 2010, when the employer hired a new insurer for disability. The employer went to bat for Ms. Garcia, informing Met Life that because she was a pre-existing policy holder, her condition was covered when MetLife took over the policy. 

Continue reading "Employers and Consumers: Read this Before You Buy Insurance " »

Funding Your Buddy's Bachelor Party Through A Payday Loan?

posted by Nathalie Martin

You probably know that title lenders and payday lenders are not just looking for customers who are faced with an emergency.  According to the lenders’ ads, there are many great reasons to take out such a 300% loan.  This ad, however, takes the cake.

Servicemen and Debt: Know Your Rights

posted by Nathalie Martin

If you don’t personally go to war, you might not think about what being deployed does to your pocketbook. Of course, American civilians regularly take on debt, like mortgages, student loans, credit card debt and so on. Active duty troops, particularly reservists, live in both worlds, sometimes as civilians, sometimes in active duty. This on again off again relationship with credit can wreak havoc on finances, a lesson some are learning the hard way.  Yet service persons in active duty get special rights in foreclosure, as well as in bankruptcy after they return. 

First, only a judge can authorize a foreclosure on a protected service member’s home, even in states where court orders are not required for civilian foreclosures. Moreover, a judge can act only after a hearing where the military homeowner is represented. The law also caps a protected service member’s mortgage rate, as well as rates on all other credit,  at 6 percent.

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Gap in Cost of Credit for Haves and Have-nots Broadens Further

posted by Nathalie Martin

I can remember when the Card Act first came out. Many professionals, including some of my colleagues, bemoaned the loss of perks for the well-heeled. They were all sure that from now on, since the card companies could no longer boost rates on existing balances or in the first year of a card relationship, or charge more than $25 in late fees, annual fees for all were going up and points and other perks were going down. Did it happen? Nope. At least not for the good credit risks. Quite the contrary.

An AP story  that ran in many papers across the country today confirms a trend toward very beneficial credit deals for the rich. The story reports that while people with excellent credit used to get 44% of all offers mailed, they now get 64% of those offers. The offers are also better than ever for this demographic. One premium card offers five times the typical rewards and waives the annual fee for people with $50,0000 in the bank. Some of the balance transfer cards offer 18 months without interest! Some cards even eliminate those irritating foreign transaction fees. No doubt, the lenders plan to make their money on merchant fees on these cards, since many in this demographics don’t pay late and don’t carry balances. 

Offers to the well-off but less fastidious in credit cleanliness are worse than before. These B-listers are getting card offers at higher interest rates and higher annual fees than before. This is the demographic from which card compares will make up for lost fees resulting from the Card Act. As for the ones with poor credit habits and little funds? They are getting fewer offers, period.

RALs - Will They Become Extinct?

posted by Nathalie Martin

Refund appreciation loans, or RALs, are among the priciest loan transactions out there.  Customers pay a fee (frequently 40% to 700% if expressed as an APR) to get their tax refund early.  The fees can be much higher.  I saw one where a consumer was owed a $4,000 tax refund, and paid $1,000 of that to a RAL provider, in order to receive the remaining $3,000 two weeks earlier than the customer otherwise would have.  In some parts of the country, for example in Indian Country, RALs seem like the only option.  This year I also saw a very well known tax preparers advertise FREE tax return preparation, only to find out they were actually providing high-fee RALs.  Not so free…..

But the RAL gravy train may be almost over.  The FDIC just ordered one of the last underwriters of the products to stop backing the controversial loans. The FDIC told Kentucky-based Republic Bank & Trust Co. that the loans are unsafe and unsound now that the IRS no longer offers banks its debt indicator, a tool loan providers used to determine whether a taxpayer had outstanding tax liabilities that could be garnished from a tax refund.

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MERS Can’t Transfer Mortgages

posted by Nathalie Martin

MERS, which holds roughly half of all U.S. home loans, has no right to transfer mortgages, according to a Bankruptcy Court in Islip, New York. This could significantly affect the foreclosure process nationwide. MERS, which stands for Mortgage Electronic Registration Systems, tracks more than 60 million mortgages, and has filed thousands of foreclosure actions on behalf of lenders. While MERS was designed to speed up legal recordkeeping of mortgages and sales of mortgage loans through securitizations, critics including borrowers' lawyers and advocacy groups contend it has no right to pursue foreclosures because it does not own the mortgage loans.

What will be the impact of this decision? Essentially that in future cases involving MERS, at least in cases in which the court agrees with this case, parties seeking to pursue their foreclosure rights must show they own both the note and the mortgage. See In re Agard, U.S. Bankruptcy Court, Eastern District of New York, No. 10-77338.

Internet Payday Loans, Arbitration Clauses, and Agreements Not to Bring Class Actions

posted by Nathalie Martin

You know a case before the New Mexico Court of Appeals is a big when  lots of out of town lawyers come to argue the case. And, so it was in the case of Andrea Felts, heard on January 19, 2011. Ms. Felts, a high school vice principal, took out  internet payday loans when going through a divorce, one at 684 percent per annum, and another at 730 percent. After paying back more than she borrowed in just a few months, she found a consumer lawyer to bring a class action against the two lenders, CLK Management and Cash Advance Network Inc., for unconscionability and unfair practices. One small detail….language buried in the click-through screens in her on-line “contract” said any disputes between the parties must be arbitrated, and also that she could not bring a class-action lawsuit.

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Does the Public Think Most Payday loans Get Rolled Over?

posted by Nathalie Martin

This cartoon suggests that the public thinks they do get rolled over. Otherwise, this woudn't be funny! 

Download Payday.us.china.

Hot Pursuit of Customers: The Real Reason More People are Turning to Payday Loans

posted by Nathalie Martin

As one who studies the advertising and marketing plans of payday and title loan companies, I was interested in two Wall Street Journal articles published this week on the topic of payday loans, one claiming that Dodd-Frank has pushed many consumers into the hands of payday lenders, and another describing how hard payday lenders are working to steal customers from banks. Since many payday loan customers do not fully understand the terms of the loans, it isn’t that hard to steal customers from banks.  Payday loans, often at least ten times more expensive than credit cards, are easier to get. The lenders are far friendlier to customers and have more locations and business hours.  Plus, have you seen the advertising? It makes it sound easy and even fun to take out a 500% loan.  Payday loan industry experts now claim that their toughest business challenge going forward is not collecting on bad loans but finding enough new customers to keep the hundreds of thousands of stores afloat. Payday loan volume dropped $38.5 billion in 2009, or 24% since 2007, in part because of state regulation. Industry has successfully dodged regulation in some state, mostly by claiming that customers desperately need these loans for emergencies. The truth of this statement seems critical to the survival of this industry, but let’s look at the industry’s advertising and the real uses of these loans.

Continue reading "Hot Pursuit of Customers: The Real Reason More People are Turning to Payday Loans" »

India’s Microfinance Industry Fuels Suicides

posted by Nathalie Martin

Most of us remember Muhammad Yunus’s 2006 Nobel peace prize for microfinance, small loans to start businesses, with extremely low default rates. Now it looks like this industry has done what many American financiers have done, lent more than people can ever pay back, in order to make greater profits. In India and other parts of Asia, however, cultural factors mean that over indebtedness causes more than just sadness and bankruptcy. This lending without regard to ability to repay has causes suicide on the part of borrowers. This is particularly insidious, given that- unlike home loans or payday loans in the U.S. -  the whole point of microfinance is to help the poor start businesses.

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What Do Giving to Charity and Having Sex Have in Common?

posted by Nathalie Martin

Both light up the same pleasure responders in the brain. In other words, it feels good to give! Plus, it is not too late to get a 2010 tax break for a good cause. With over 1.4 billion people currently living below the international poverty line of $1.15 a day, there is also plenty of need.   I was moved to blog about this topic after reading about Betty Londergan, who responded to her job loss by giving $100 a day for 365 days, and then blogging about it. There are more extreme stories too, like the one about the Salwen couple in Atlanta who sold their big house, gave away half the proceeds, and moved into a smaller one. And then there are the rest of us … who just might just be willing to give up a new toothbrush holder or shoe caddy so someone with nothing can have something. 

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New Rule Requires that Collectors Disclose that a Debt is Time-Barred

posted by Nathalie Martin

Not too surprisingly, people are less likely to want to pay a debt that they can no longer be sued on. This fact has caused one state to require disclosure that a debt is time-barred, in order to comply with the state's unfair practices act. More specifically, the New Mexico Attorney General just released a rule requiring debt collectors to determine whether a debt is time-barred and to disclose this fact when collecting time-barred debt in New Mexico. The rule defines time-barred debt as "any debt that is not enforceable in a judicial proceeding because the applicable statute of limitations has run."A copy of the final rule, as well as the Attorney General's statement regarding adoption of the rule, is available here. For a little more information on how this came about, see this article by UNM psychology Professor Tim Goldsmith and I. We are thinking a few other states might follow suit.

A New Title Loan Philanthropic Organization?

posted by Nathalie Martin

I have been studying payday and title loans advertizing.  A student told me about this web site .  He heard an ad for it on the radio.  The Title Loan Advocates claim to be a “foundation” created to educate the public about the title loan industry.  Their top goal is to help people understand how title loans work.  Their second goal is to help consumers get their interest rate and payments lowered so they can eventually get out from under their “never ending title loans.”  The foundation claims to have saved clients an average of   $2,000-$4,000 over the life of their loans, and tons of customers are quoted on the page as loving this “service.”

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Holiday Gifts from the Heart

posted by Nathalie Martin

Buy it, sack it, take it home.

Wrap it, unwrap it, look for a place to put it.

Clean it, move it, throw it in a land fill.

Sorry, but I hate this time of year.  We make such a huge carbon footprint, not to mention spending a lot of money we don’t necessarily want to spend. But that’s the culture right?   Newsweek magazine’s Dec. 6th 2010 edition reports that we Americans can’t get over the urge to splurge, and that we have frugality fatigue.  We are reportedly sick and tired of depriving ourselves.  Wow, that was fast.  How long did the frugality movement last?

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Point of Purchase Bank Card Surcharges: Will They Help or Hurt Consumers?

posted by Nathalie Martin

Did you know that merchants are considering tacking on a point-of sale fee for purchases made with a debit or credit card?  In other words, at 2%, a $100 purchase would cost $100 in cash, but $102 when charged. I have seen this sort of thing in Europe, so will it happen here?  If so, who will it hurt and help?  The argument for imposing such a fee is that cash customers are now bearing part of the cost of processing all those bank card payments. In other words, the cost of goods is going up because without bank card purchase costs to absorb, merchants could charge all of us less for their products. As a credit card doubter and a vehement proponent of a cash economy, I was on board with this thinking. Why should I support all those card carrying members of the debt society?

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Kardashians Abandon the K-Kard

posted by Nathalie Martin

Thanks Mike Dillon for letting us know the Kardashian Kard is no longer being endorsed by the Kardashians. Perhaps, Katie, they are worried about becoming fat as a result of these cards too? No really, it is more likely that they dumped their card because they are being criticized for high fees, not to mention being investigated by Connecticut Attorney General Richard Blumenthal for being tantamount to predatory lenders.  Oh well, just another day in the life of the rich and financially unsavvy.  I mean, did they not know these were not great products?  Problem is, this card is not alone, as many other cards are just as bad.

So now the Kardashians Are Financial Role Models?

posted by Nathalie Martin

That’s what you might think if you heard and believed the buzz about the new Kardashian card, a pre-paid Visa card representing all the glitz and glamour as the sisters themselves. But let’s not forget the demographic for pre-paid cards, or the cost of the cards. Demographics? Tweens and those who can’t get a reasonably priced checking account with a debit card attached. For parents  with no concern for the dollars and cents, the Kardashian card might be a good deal, that is, if you don’t mind shelling out the high cost to get started, $59.95 (which includes fees for the first six months); the $7.95 monthly fee thereafter; and the $2 per item charge when paying bills. You’ll also get dinged up to $2.50 for every ATM withdrawal and $1.50 for every call to the service center. If the kid really wants to look cool, and you consider this a small price to pay for peace at home, go for it. For everyone else, including those in the other demographic that uses pre-paid cards regularly, namely those shut out of traditional banking relationship, I might suggest the green dot instead.

Facebook: Not Just for Finding Hot Dates Anymore

posted by Nathalie Martin

In a case referred to as an “invasion of privacy on steroids,” a recent debt collector used Facebook to contact a debtor and demand payment of a $362 car loan. The company, Mark LLC out of Florida, told Melanie Beacham's family and friends on the social network site to have Melanie call them. Now Melanie is suing the debt collection agency for  various violations of the Fair Debt Collection Practice Act, including the Facebook fiasco, calling her six to 10 times a day by phone, sending text messages, contacting a neighbor, and sending a courier to deliver a letter to her workplace.Beacham's attorney has asked a judge to prohibit Mark One from contacting her or her family through Facebook or Twitter.This is obviously not the first time Facebook has been used in this way. Jeffrey Hyslip, a Chicago lawyer, said he had one client who was friended on Facebook by a young woman in a bikini. The account turned out to be a debt collector's, something his client realized only when the "friend" posted a message on his wall: "Pay your debts, you deadbeat."

What's in Your Wallet Part II: Let's Shop for Credit Cards

posted by Nathalie Martin

I have been enjoying talking to my UNM colleagues about Katie’s post on what's in our wallets.  There are different credit cards for every demographic imaginable.  For example, there are cards with rights to all airport clubs and even the right to a personal shopper, for the truly rich and famous.  There is plenty of free pizza to be had with the cards touted to college students.

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Debt Settlement Plans: Run as Fast As You Can, Consumers

posted by Nathalie Martin

Tell me the truth.  Does this sound legal?  Crystal has $12,000 in credit card debt, and ABC Debt Settlement Company advertised that they can settle credit card debts for 50 cents on the dollar.  We’ve all heard the ads “Do you have more than $10,000 in credit card debts?  Banks got their bailout, now it’s time for yours.” 

When Crystal contacts ABC about the program, ABC advises her to stop paying her debts in order to show the credit card companies whose boss.  ABC has her sign a $515 a month electronic funds transfer from her bank account.  This money will be put into an account to use to settle with her credit cards, but guess what?  ABC has no agreements to settle anything with anyone.  But they keep collecting the $515 a month.

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More on Foreclosures and Discovery

posted by Nathalie Martin

But first, want to see the house that started the whole robo-signing controversy? look here.  
 
On to the discovery .... Adam's post earlier this week, about how Federal bank regulators are  examining whether mortgage companies cut corners during foreclosures, suggests more discovery questions for those defending foreclsoures. These inquires might include “To your knowledge, are your mortgage foreclosure policies or procedures currently under investigation by any governmental agency?  If so, please state the name of the investigating agency and describe the nature of the investigation.”  The request for production could also include a request for “copies of all documents you have received in connection with any investigation described in response to [the interrogatory].”  An attorney might also  request regular supplements to the response, where the rule does not require it, since  the discovery rules can be scetchy on this point in some jurisdictions.

What the Foreclosure Fiasco Means for People in Foreclosure

posted by Nathalie Martin

It’s hard to keep up with all the foreclosure news or to make heads or tails of it, but two articles strike me as critical reading for foreclosure defense attorneys and people in foreclosure, the first quoting our own Adam Levitin, as well as one on the MERS debacle quoting both Adam and Professor Chris Petersen of the University of Utah. Both explain why robo-signing is not about formalities but real, substantive defenses to foreclosure. The latter article also explains why questions about MERS’ standing are not frivolous. There also is a fabulous series of PBS videos those in foreclosure might want to watch.

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Debt Collector to Pay $1.75 Million

posted by Nathalie Martin

More Robo-news, this time robo- dialers.  Allied Interstate Inc., a large Minnesota debt collection agency with a history of consumer complaints, has agreed to pay $1.75 million to settle federal allegations that it broke the law by trying to collect debts people didn't owe, according to the Minneapolis Tribune today.  This is the second largest civil penalty the FTC has ever obtained against a debt collection firm. The suit brought, and the resulting settlement, send a message to the collections industry that repeatedly calling consumers who dispute a debt is not tolerated.

What are some other common collection infractions? Speaking to neighbors, co-workers or others about a consumer's debts, threatening legal action the collector does not intend to take, calling the wrong person, calling after being asked by a consumer in writing to stop calling, using foul language, and using "robo dialers," to automatically call the same people multiple times a day. With Allied, such calls continued even after people insisted the firm was calling the wrong person or that they did not owe the debt, the FTC alleged in a federal lawsuit.

Still, according to consumer attorneys, suits against collectors are few and far between and even this fine may not be enough to deter collectors. Quoting from the article above, attorney Peter berry of Minneapolis stated that  the “fine levied for this relentless abuse of consumers is tiny compared to the profits this agency made over the years engaging in that abuse."

Wondering How Lenders Are Making Up for Missing Credit Card Fees? Check Your Home Escrow.

posted by Nathalie Martin

Following credit card reform, interest rates on credit cards have gone up, but this is not the only way lenders are making up for lost fees. My own home loan escrow was recently reset, and increased by about $120 a month on a $1,450 loan. I saw similar things happening to clinic clients and decided to inquire. My taxes and insurance went up roughly $750 or about $60 a month. So what, I wondered, explained the extra $60 a month I was being charged? 

The gentleman I reached at my lender (and yes I did find a live body) was super-polite. He explained that the extra $60 was the “voluntary” portion of my escrow. I asked why he called it voluntary.  He said this was the voluntarily portion because “if you would prefer not to pay it, we will stop charging you for it.”

This begs the question of why anyone would want their lender to hold this money for them. Multiply this practice over millions of mortgages, and this really will help lenders’ bottom lines. If you don’t want to help in this way, however, be sure to inquire and let the lender know.

Correction:(10/13) I originally misstated the increse in my monthly escrow payment as $200, not $120 a month, and attributed $80 to the "volunarty" or "unaccounted-for" portion, when the correct amount for the "unaccounted-for" portion is  $60 out of the total $120 increase.  I apologize for the confusion.

 

Foreclosure Relief Could Help Economy and End Chaos Faced By Borrowers

posted by Nathalie Martin

A bevy of recent New York Times articles claim that several lenders will now freeze certain foreclosure actions. Look,here, here and here. Why the sudden desire for reconciliation? Problems in the paperwork supporting lenders’ right to foreclose. News of these "problems” is not new. The June 2010 deposition of  GMAC exec Jeffrey  B.  Stephan revealed that he at times signed 12,000 affidavits a month, verifying personal knowledge of loan debts and even note ownership, when in fact he had no such knowledge.

As a result of widespread verification problems, GMAC Mortgage and JPMorgan Chase now say they will amend paperwork in cases in which affidavits were files that were not actually verifying known information.  Bank of America will go a step further, amending all affidavits in foreclosure cases that have not yet gone to judgment.

Lenders claim the entire verification problem is cause by understaffing and an inability to keep up with the volume of foreclosures. Lawyers who defend foreclosures will likely agree that lenders are understaffed, or at least staffed in the wrong way. Lenders call customers five or six times a day to tell them to pay the mortgage, but these people who call have no idea what the actual status of the mortgage is.  Even pre-foreclosure, customers and their attorneys are often unable to get anyone on the phone who actually knows anything about an account. Paperwork that is sent to the borrower is often in conflict with other paperwork sent by the same lenders, and in big ways. One piece of paper says a modification is approved, another says it is denied. One letter says a debt is current, another says the loan is $10,000 in default. In one case in our clinic, we had to file a pleading in bankruptcy court to find out what was due. Let’s hope the freeze will be good news for everyone, not just those in foreclosure. It could result in more staff, thus improving customer service.  At the very least, the freeze may cause lenders to settle with more borrowers, and thus help get the economy back up and running.

Hawkins' Fringe Banking Premise is that Payday and Title Loans are Short-term: If Only it Were True

posted by Nathalie Martin

Paydaylendingphoto Although I disagree with the starting point of the paper Katie wrote about yesterday, Fringe Banking by Professor Jim Hawkins, and thus disagree with most of Professor Hawkins’ conclusions, I have great respect for him and am grateful that his paper is part of the national discourse on this topic. I deal with very poor people regularly and know some have no place else to go besides payday or title lenders when they need cash. Thus, I try to keep an open mind that on some level products like payday loans could serve some utility in the world, if they were truly used sparingly and for emergencies only. And if there were no rollovers and people could not use 10 or 12 of them at a time. In other words, if they worked the way Professor Hawkins says they do.

Jim’s paper gets a valuable idea out there, but the facts about how these products are really used, and how they are marketed, explain why these loan products create more problems than they solve. My own curbside data of payday use (read the long version or the short version) suggest that Professor Hawkins’ starting point, that these loans are designed to be short term and thus to keep people out of a cycle of debt, is out of synch with the reality of either borrowing habits or lender business plans. Still, his idea does start a conversation, and in this field the two sides do not talk. Period. The product designs he speaks of, if actually followed in practice, would make this type of lending much less abusive. I might even like these products.

Continue reading "Hawkins' Fringe Banking Premise is that Payday and Title Loans are Short-term: If Only it Were True" »

The Dodd-Warren Rift: President Obama Can you Hear Me?

posted by Nathalie Martin
With even Dr. Phil coming out in favor of Warren for CFPB head, Chris Dodd very much opposed and waffling about why, and a new rap video about Professor Warren going viral, according to an article in the New York Times, Americans are waiting to see what the President will do. I agree with readers who say this’ll take some courage, but Mr. President,you wouldn't ignore Professor's Warren's record and instead listen to Senator Dodd, would you? That wouldn't make much sense. By the way, I am not friends with Elizabeth Warren (unlike Dr. Phil apparently and many of my co-bloggers) and have never given a dime to any political campaign.  Differences in world view aside, no one can claim this Harvard law professor is not the most qualified. The CFPB is a reality now and going to be staffed, no doubt at very significant expense. If we are going to do this, and I guess we are, why not give credit-crushed consumers (see Aug. 21 New York Times article) good value for their money and appoint someone who will most swiftly and efficiently fulfill the mission (and namesake) of the bureau. In this instance in particular, shouldn't we get our money's worth?  

Make Your Home Finance Audit Fun While Fighting Back Against Bank Fees

posted by Nathalie Martin

The article Katie posted on bank fees was right on. The fees have gotten so creative that we invented a new household game to combat them, in which we compete for a pre-determined prize.  The prize makes it fun.  We do a competitive home finance audit over a glass of wine or two on the 5th or the 6th of the month, once the statements are all complete on line. Today is the 6th. Game on!! Stewart and I like competition.  To play, we scour all bank and credit card statements as well as certain purchases. The prize goes to the one that incurred the least interest or fees of any kind on anything, except the home mortgage. If there are no fees at all, no one wins the prize, but we both win!

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Broke USA Tells Payday Loan Stories from the Ground Up

posted by Nathalie Martin

Those interested in the dark crevices of consumer lending might want to go to the library or book store and pick up Gary Rivlin’s new book Broke, USA, or at least read this article about it. I just had a spirited discussion with some lenders’ attorneys about payday lending and they insisted that I not worry so much about 500% APRs but instead focus on the high cost of making these loans. In other words, as the argument goes, profits are not that high so the rates are necessary.

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Let’s Stop Praying to the Credit Score

posted by Nathalie Martin

Mortgage brokers, and those hoping to buy homes, are disgusted by the preeminence of the credit score in “scoring” a home loan today. According to an article, in Friday’s New York Times, this overemphasis on credit scoring in the home mortgage market is not helping the economic recovery either, because people just cannot qualify for a home. Some people’s scores have decreased even though they have done nothing differently. The author’s interesting article recounts many mistakes in his own credit report, a common phenomenon as it turns out.  The author is so disgusted he thinks the CFPB ought to take up credit reporting and scoring as a high priority once it is up and running.

I agree that this is a shame, all this focus on credit scoring in lending, but I also think consumers can whip themselves into a frenzy over these scores, even when they do not want, need, or plan to use future credit. Always remember what the score is for, to qualify for more credit. Staying out of debt is as good a strategy as any for keeping the score high. Students acquire more credit cards than they need in order to get three open items.  Before they know it, their scores are lower because they cannot pay. I know a terminally ill woman, with no job and no intention to take on any more credit.  She wants to keep paying dribs and drabs on her enormous medical debts to protect her score until the end. Why?  I hate to give these scores, and the agencies that create them, more power over us than they deserve.

Auto Title Loans, Not So Bad After All--Who Knew?

posted by Nathalie Martin

In a recent article, Money to Go:  Auto Title Lending has an Important Role in the Financial Services Marketplace, Professor Todd Zywicki concludes that outlawing title loans would be bad for consumers, and that title loans are cheaper and better for consumers than their likely alternatives.

Many statements in the article seem questionable, including that:

Continue reading "Auto Title Loans, Not So Bad After All--Who Knew?" »

Consumerism and the Environment: What Would Jesus Buy and Subsequently Throw Away?

posted by Nathalie Martin

Sorry, Morgan Spurlock, had to steal that one. One key to meaningful financial literacy education is that a person has to really care about something to work for it. If you take the time to let it sink in, people can see financial literacy education as a way to consciously choose a course of action that is counter to the prevailing culture of consumerism, and that gives them back their time and their lives. For some, this will resonate, especially younger people.

Yesterday, I was handed a free sample of a Starbucks mocha-something-or-other while in line at Target.  It was my first taste of Starbucks coffee.  I am too cheap for Starbucks. I don’t have cable T.V. I do not choose to live in a home resembling Hadrian's Villa, because I’d have to work at a different kind of job to do all that and don’t want to. These are the kinds of choices I want to help people make.

I used to have more expensive tastes, but realized that one thing they aren’t making any more is more hours in a day. It takes a lot of time to care for expensive stuff. Most things we buy will either end up (1) in our homes or offices where we must dust, move, organize, or otherwise take valuable time caring for, (2)in a landfill somewhere, or (3)in the used items market and then in someone else’s closet or home, after we paid retail for them. Since I don’t want to pay retail for something that ends up in someone else’s house, I see no alternative but to forego…even in the case of shoes.

Continue reading "Consumerism and the Environment: What Would Jesus Buy and Subsequently Throw Away?" »

Financial Literacy Education Under Attack: Man’s Search for Meaning

posted by Nathalie Martin

As a provider of financial literacy education, I read with great interest Professor Lauren Willis’ recent article Against Financial Literacy Education. It is a creative, must-read for anyone interested in the subject and adds greatly to the literature in this area.

Professor Willis is rightly concerned about financial literacy education being used as a proxy for meaningful reform. She also doubts whether it works, noting that credit industries support it but would clearly lose if it did work. She also claims that most financial products (she focuses on investments not credit) are now so complex that no one can help us understand them. We just need good advisors, she implicitly claims, not our own educational framework. I appreciate her work because it helps me know what to watch out for and compensate for. I reach different conclusions, however. I think financial literacy can work, if it is carefully designed to be meaningful. Otherwise it is worthless, I agree.

Meaningful consumer credit regulation would certainly be far better for society than financial literacy education, if we could only pick one, but we can have both. Plus, education, if it works, can be passed on from generation to generation and no one can take it away from us, whereas consumer protection laws (as we have seen) come and go like the wind.

Continue reading "Financial Literacy Education Under Attack: Man’s Search for Meaning" »

Justifying Debt Forgiveness: Information Asymmetry and Risk Allocation

posted by Nathalie Martin

In my last guest blogs before quitting, I want to briefly discuss, and hopefully get a discussion going, about two topics related at the Illinois Debt Symposium. This was a fabulous interdisciplinary event, about which Mechele Dickerson has blogged extensively already.  But a couple of the topics are still stuck in my craw.

Ever since Heidi Hurd’s talk at the Illinois Debt Conference, about why we grant a bankruptcy discharge in our society, I have been unable to stop thinking about it. She attempted to justify debt forgiveness because it is the right things for a just, moral, wealthy society to do. The most interesting thing about topic is that it implicitly challenges what many of us take as a given. Is it necessary to forgive debts for people cannot pay them? On what basis? Many readers of this blog cannot imagine a world without a bankruptcy discharge, but numerous others in our society (and other societies) completely disagree. Professor Hurd (and her coauthor Professor Brubaker) ask us to justify the forgiveness of debts, something we should be able to do.

Continue reading "Justifying Debt Forgiveness: Information Asymmetry and Risk Allocation " »

What is the Difference Between a Crack Dealer and a Creditor Soliciting a Bankruptcy Debtor?

posted by Nathalie Martin

The crack dealer leaves you alone once you're broke, right? I know bankruptcy debtors are seemingly better credit risks than average people because they cannot get another bankruptcy discharge for 8 years, and because they seemingly have less debt, but most people still find it unbelievable that creditors hotly pursue bankruptcy debtors in order to give them more credit. My view is that these creditors are also hoping to fuel credit addiction. One would hate to have people outside the credit market too long. They might get used to it. Katie Porter’s work on credit card solicitations and bankruptcy debtors is ground-breaking. I had almost forgotten about the intense solicitation of credit to bankruptcy debtors until I went back into the clinic this semester. A new thing since my last clinic semester (Summer 2003) is that the solicitations come sooner now, within days of the filing and certainly before the discharge. Also, the clear (rather than unspoken) theme of the solicitations is that the debtors have been through a hard time, that these financial problems are not their fault, and that the time has come to treat oneself. As both Katie and Elizabeth Warren have noted elsewhere on this blog, this is a far cry from what creditors said about debtors during bankruptcy reform. The ads also suggest that buying a car now, right after filing for bankruptcy, can improve your entire life. For example, check out this ad, received yesterday, just THREE days after filing for bankruptcy:

Continue reading "What is the Difference Between a Crack Dealer and a Creditor Soliciting a Bankruptcy Debtor?" »

Many Internet Payday Loans are Unenforceable

posted by Nathalie Martin

Internet payday loans are often even more impossible to pay off than storefront loans. Internet payday lenders are also among the most aggressive collectors, but maybe not for long. As it turns out, many of these loans are unenforceable.

First, why are they so hard to pay off? To get an internet payday loan, you need to share your bank account information, of course. Many loans are set up so the loan is automatically rolled over, unless the customer notifies the lender three days in advance of the due date that he or she wants to pay the loan off. I know of one consumer who mailed a certified check for the full amount, after the three day notice period but before the due date. The lender would not cash it. This happened repeatedly, making the loan virtually impervious to repayment in full.

If one gets caught up in one of these situations, the first thing to do is find a new banking relationship. Then what? Here is the good news. Payday loans made by lenders who do not comply with state laws cannot be enforced.

For example, all lenders (regardless of whether they are located inside or outside of New Mexico) loaning amounts of $2,500.00 or less to New Mexico residents must be licensed by the Director of the Financial Institutions Division and comply with all of the state rules and regulations regarding such loans. NMSA 1978 § 58-15-3(A). Payday loans made by unlicensed lenders are void and the lender has no right to "collect, receive or retain any principal, interest or charges whatsoever." NMSA 1978 § 58-15-3(E). Most if not all internet payday lenders have failed to register, or to comply with a bunch of other requirements, such as getting a license, providing a toll free number to New Mexico residents, and providing funding for the examination of their records by the public. Thus, it looks like these loans are uncollectible.

The Myth of the Non-Bankruptcy Exemptions

posted by Nathalie Martin

How does the saying go, possession (of a lawyer) is 9/10ths of the law? When it comes to exercising ones rights under the state exemption schemes, the adage is true. The common lore is that if a person's assets are worth less than the state's exemptions, they do not need a bankruptcy to protect these assets. But the non-bankruptcy exemptions can be deceptively difficult to take advantage of without a lawyer. And, there is little reason to believe people who have just had a judgment entered against them for non-payment of a debt will have access to lawyer.

The exemptions allow the debtor to keep some necessary assets (house, car, tools of trade) out of the hands of judgment creditors. The reason we do this is not kindness but efficiency and utilitarianism. We want to save creditors the trouble of grabbing assets with little value and keep debtors from become wards of the state, keep them working, living inside, etc.  In theory, state exemption laws allow some people to avoid formal bankruptcy and still keep their assets, because they have no non-exempt assets that can be reached by creditors.

Nice theory, but here is how it works in real life.  Creditor gets a judgment.  Debtor gets notice of the judgment and a large packet of documents in the mail.  Among them is a piece of paper asking the debtor to state whether any of his or her assets are exempt from execution. If this is not done within 10 days (20 in some states), the exemptions are "deemed waived."

Continue reading "The Myth of the Non-Bankruptcy Exemptions" »

Unconscionability and Funky Mortgages

posted by Nathalie Martin

People have posted some comments to the funky mortgage story and I wondered if anyone had any experience using the doctrine of unconscionability to help ward off foreclosure and keep people in their homes.  As a contracts teacher, I know the doctrine is old and tired and disparaged, but it is still out there and was used with a least some success in the days of the phony home repairs/unfavorable mortgage refinancing schemes popular in the late 90's. See, e.g., Matthews v. New Century Mortgage Corp., 185 F. Supp. 2d 874 (S.D. Ohio 2002). The Restatement of Contracts includes one unconscionability factor that seems right on in these situations, namely that the stronger party had no reasonable believe that the weaker party would be able to receive substantial benefits under the contract, which I read to include situations where the weaker party has no chance of actually performing the contract. There also is language in the Restatement about how the weaker party is unable to reasonably protect his interests by reason of . . . ignorance, illiteracy, or inability to understand the language of the agreement.   Various state consumer protection statutes invite courts to weigh similar factors. Does any of this get us anywhere, or is this just wishful thinking?  Or, is this another one of those times where securitization will eliminate the defense because unconcionabilty cannot be asserted against a successor in interest? Do tell....

The Magical Mystery Mortgage: Loans Gone Wild

posted by Nathalie Martin

This site has had some fabulous posts about mortgage fees in Chapter 13 and mortgage services fraud. This is a short story about mortgage fees or funky interest rates, or perhaps just plain old fraud, in the context of the stripdown of a mobile home. Many of us know about negative amortization mortgages, ARMs that adjust up when the rate goes up, ARMs that adjust up no matter what happens, 2/28s, and a host of other exotics. I think, however, I have discovered a new type, one that has the same principal balance no matter how much money the borrower pays on the loan. I call it the magical mystery mortgage.

Continue reading "The Magical Mystery Mortgage: Loans Gone Wild" »

Financial Education: Money Talk Hits a Sore Spot

posted by Nathalie Martin

Money is a touchy subject. No matter how much you try to make discussions about how to preserve it, how much importance to place on it, etc, value neutral and nonjudgmental, people have issues.

I spend most of my free time these days trying to keep people off economic death row. While some of this work involves reviving a workable bankruptcy system, much more relates to prevention through financial education. I also believe that any financial education class must be very carefully crafted to fit the specific audience. Age and income are huge variables, so you can’t just teach a cookie cutter curriculum.

I teach a two-day financial literacy class to UNM undergrads and law students, and would love to share the details with anyone out there who is interested. Here is a start: http://lawschool.unm.edu/faculty/martin/fl-1.php.  Karen Gross gave me the idea and I have built on it. But, this year I was asked to do one hour on the topic for first year students, in part because they are in such terrible financial condition. Because the class in which this is taught is comprised of 9 sub-sections, I had the pleasure of having eight of my colleagues attend this class. We started with basic compounding interest hypos, including one exercise in which one person gave up one $4.50 latte a day for 10 years, saved, $18,000, invested it at 8% and held it for 30 years, ending up with over $150,000! We then saw the math moving in the other direction with credit card debts, learned a bit about credit reporting and scoring, a bit about bad car deals, and then broke up into groups to think of ways to economize. The students enjoyed this last part, even if some of the suggestions (selling plasma, getting paid to be in drug tests, finding a sugar mama/daddy,  or giving up long-distance relationships), were a bit extreme.

Students enjoyed the class but many of my colleagues had issues. "Wasn't it unfair to tell students they could reasonably expect to earn 8% on investments?" Um, no. "Don’t they need to use credit cards to build credit?" Uh….not really, no. "What is wrong with a car lease if you’ll be getting a new car every two years anyway?" "And expensive car payments? So what? Why does the total cost of interest matter if on a cash flow basis, you are fine. Isn’t it all about the cash flow?" These last two are stumpers all right. I guess I am both greedier and simpler than most people. I like to drive it till it dies, earn interest, not pay interest, etc.

This does tell you though that it is hard to listen to advice about money that is geared to a different crowd. Cash flow is the issue if retirement is fully funded and the kids are out of college. Otherwise, I can't imagine how a little extra dough lying around could be a bad thing…

Comments, anyone? What information would be useful in a class like this?

Think Public Benefits are Exempt from Execution? Think Again.

posted by Nathalie Martin

I have been telling my students this for years. Perhaps you have too. 42 U.S.C. § 407(a) says social security and other public benefits are free from the claims of executing creditors, but for many people that is true only on the books, not in real life. Why the disconnect? Because right now, under current law and regulations, banks are under no obligation to check to see if the money in a bank account comes from social security or disability payments before allow a garnishment to go through. This is true even if the only funds in the account are wired there directly from the government and are marked SSI or SSA. In fact, banks say they must comply with any garnishment order, even if the funds are obviously exempt. Of course, they also make a bundle on all the fees that result from this shameless practice.

Section 407(a) is not worth the paper it's printed on because it is very hard for a consumer to undo the garnishment, as I recently learned. My cousin (a 67 year old woman with a disabled adult son, who has been through a horrible marriage and divorce, several minimum wage jobs since she had no work experience, a car breakdown, etc.) had her ATM refused.

Continue reading "Think Public Benefits are Exempt from Execution? Think Again." »

News from the Law Professors’ Conference

posted by Nathalie Martin

I thought I could channel techno-guru Bob Lawless and blog live from the AALS program on Creditors' and Debtors' Rights, but I couldn't so here's what went on at our conference yesterday. Our own Katie Porter (Iowa) organized this year’s panel, entitled "Broke, but not Bankrupt," a provocative and entertaining program about other (non-bankruptcy) laws affecting the down and out. Other panelists included Ronald Mann (Columbia) of credit card fame, Richard Alderman (Houston) who runs the FABULOUS consumer law conference at Houston every other May, and the always informative and entertaining consumer law maven Cathy Mansfield (Drake). Topics ranged from arbitration clauses that hurt consumers (and most do since according to Richard, businesses win 97% of the cases against consumers that go to arbitration, consumers have a hard time finding lawyers for arbitration, and businesses choose the arbitrators), race and the sub-prime crisis (lawyers should consider using the equal credit opportunity act to deal with credit discrimination, or as Cathy called it, credit apartheid), solutions to the sub-prime crisis, securitization, and fair debt collection or a total lack thereof (as Ronald pointed out, it is far more profitable to violate the collection laws than to comply with them).

If you missed the conference, you can order the tapes from the AALS (e-mail me if you don’t know how) because this was a great program. There is too much to revisit here, but here are a few highlights and interesting facts from the program.

Continue reading "News from the Law Professors’ Conference" »

Home Mortgage Crunch: Is it Better to Have Loved and Lost?

posted by Nathalie Martin

There is SO MUCH interesting on this site and in the TPM Cafe's posts today...not sure this stripdown thing is at the forefront of people's concerns, but....here are two more thoughts, relating to the economics of home mortgage stripdown and to the comparative treatment of second mortgages. The long-term economic ramifications of allowing or not allowing stripdown are important, but I do not think they weigh against allowing home mortgage stripdown. Adam Levitin just posted on TPM Cafe about interest rates. Great post! What about that other idea out there that allowing home mortgage stripdown will dry up home lending. First, I doubt it.  Second, maybe it is ok, even if it is true. If part of the goal is to improve the value and predictability of investments in these products, and to lend only to people who will likely pay the loan, more careful lending (and fewer loans) could be a good thing. In other words, it may indeed have been better to never have loved……That does not mean we shouldn’t help those who are in the bad loans. They may have spent all of their savings on a bad deal, and now be deserving of help. Second home mortgages in Chapter 13?  I am not sure but I think Prof. Scarberry is saying that under the current Chapter 13, borrowers can strip down the second home mortgage, but only if they can pay the whole mortgage off in the 3-5 year plan period. If a bill is passed that allows the primary home loan to be stripped down and stretched out, he argues, lenders will be treated less advantageously for second home loans. Prof. Scarberry feels this would be a problem, though I am not so sure. I’d like to see all these mortgage holders treated the same, but if we had to favor one over the other, I’d favor the creditor in the second home loan and the borrower in the primary home loan. It seems indefensible that under current law, borrowers might have an easier time saving a vacation home than a primary residence. (I admit, most of the time, borrowers cannot pay the second home mortgage in 3-5 years anyway, but at least theoretically borrowers are more protected on the vacation home than the primary residence). That just seems wrong. (as Bob lawless noted a few weeks back....). Again, if I had to choose between giving people a break on a primary home mortgage and giving them a break on a vacation home mortgage, I’d choose to give the break (and yes, to treat the mortgage lender less favorably) on the primary home loan. But the main thing is…..The treatment of vacation or second home mortgages should not bear at all on what we do with the overall issue of home mortgage stripdown. I mean, how often is second mortgage stripdown an issue? Second home mortgages are rare in Chapter 13, are a small percentage of the overall home mortgage market, and do not play a big part in the current crisis. I would just hate to see the tail wag the dog, in other words to allow current second home mortgage treatment (surely an afterthought in bankruptcy policy in any case), to direct our decision on how to treat primary home mortgages.

More on the Home Mortgage Stripdown Bills…Why We Should Not Hurt People for No Gain to Anyone Else

posted by Nathalie Martin

Yesterday I posted on the topic of the essential nature of secured debt and why we should be consistent in how we treat it across the board. Today, I wanted to address some more specific points brought out in ABI Resident Scholar Mark Scarberry’s testimony before Congress last week. The purpose of the post is to support passing a law allowing home mortgage stripdowns, with few limitations.

One argument Professor Scarberry made is that now that some personal property is excluded from stripdown, it would be wrong to treat home mortgage holders less advantageously than personal property loans. I totally agree that this would be wrong, but reach a different conclusion. Stripdown should be allowed in all undersecured cases, consistent with state law principles. Both the home mortgage stripdown exception and the 2005 limitations on stripdown are equally out of line with basic bankruptcy and state law collections principles. (see yesterday’s post). We can and should work on fixing this after the home mortgage crisis has passed, if not immediately.

Continue reading "More on the Home Mortgage Stripdown Bills…Why We Should Not Hurt People for No Gain to Anyone Else" »

On the Home Mortgage Stripdown Bills…Why Perpetuate Philosophical Inconsistencies and Hurt People for No Gain?

posted by Nathalie Martin

Thank you for the opportunity to guest blog. As Bob indicated, I will blog about the stripdown of home mortgages for a couple days, take a brief hiatus and be back with you at the first of the year. Some of the things likely to be bloged about next year include the “so called” exemption of federal benefits from execution (sounds boring but boy does this ever work differently than what we’ve been telling our students), a little about my upcoming payday lending study, and perhaps a small taste of financial literacy/anti-consumerism to boot. Thanks and I look forward to conversing with you!!

Now on to the home mortgage issues......

It seems that most of the arguments against the current senate bills on stripdown of home mortgages boil down to one notion: when some people don’t pay their debts, others are disappointed. Bankruptcy laws, as well as state collection laws from real estate foreclosures to Article 9, all recognize that some debts simply will not be paid back. This is economic, rather than legal, realism.

Continue reading "On the Home Mortgage Stripdown Bills…Why Perpetuate Philosophical Inconsistencies and Hurt People for No Gain?" »

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