California Credit Law Blog

A few days ago, the White House sent Congress a bill to create a Consumer Financial Protection Agency (CFPA). Everyone who favors consumer protection should support this bill. Georgetown University Law School Professor Adam Levitin argued the case for the creation of the CFPA in the "Credit Slips" blog that covers credit and bankruptcy. He states we need the CFPA because the current regulatory structure doesn’t work and it will almost inevitably cause future crises, if not of the scale of the current one, then still too serious to countenance.

Prof Levitin points out that the economic disaster of 2008 is the chief exhibit in showing that the current system doesn't work. There were many factors behind the economic disaster, but bad consumer credit products were an important factor. A major lesson from this crisis is that consumer debt can affect global economic stability (no surprise as consumer spending is something like 70% of GDP).
(Continued below)

Continue reading "Obama's Proposed Consumer Financial Protection Agency " »

Posted by Mark F. Anderson | Permalink | Email This Post

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The three major credit bureaus charge fees for revealing consumers' credit scores. However, two new sites, www.creditkarma.com and www.quizzle.com, offer free credit scores based on Trans Union and Experian data. The sites allow you to compare your score to a sample of other consumers. You have to register to get the scores, but the sites promise they won't share your data with yours.

Posted by Mark F. Anderson | Permalink | Email This Post

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A towing company towed our client's car from the public streets because the registration had expired. The towing company sold the car for nothing. Then it assigned its claim for the towing charge to a collection company, Pacific Creditors. Pacific Creditors pulled our client, Maria Pinto's credit report. Apparently it was trying to determine if she had enough assets to satisfy a judgment. Assured by her credit report that she was sufficiently well-off, Pacific Creditors then began to telephone Ms. Pintos repeatedly. Its agents told her that if she did not pay the towing charge, it would ruin her good credit. Pacific Creditors knew she had good credit because it had viewed her credit report.

Andrew Ogilvie of our firm filed suit against Pacific Creditors, charging that it had violated the Fair Credit Reporting Act (FCRA) by pulling Ms. Pinto's credit report without a permissible purpose.

Today the Ninth Circuit Court of Appeals, in Pintos v. Pacific Creditors Ass'n, issued an opinion confirming that Pacific Creditors violated the FCRA by obtaining Ms. Pinto's credit report without any Fair Credit Reporting Act-sanctioned purpose.

The FCRA only allows credit reports to be pulled “in connection with a credit transaction involving the consumer . . . and involving the . . . collection of an account of . . . the consumer.” Mr. Ogilvie did not believe that the mere fact of owning a car that was later towed constituted such a "credit transaction." The Ninth Circuit's opinion confirms that it is not a "credit transaction."

Continue reading "A Towed Car Does Not Establish A Credit Relationship Under the Fair Credit Reporting Act" »

Posted by Carol McLean Brewer | Permalink | Email This Post

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Throwing a lifeline to homeowners under water on their mortgage obligations, the U.S. Treasury announced its Home Affordable Refinance Program in mid-February. The program is supposed to facilitate mortgage servicers in modifying troubled homeowners' mortgages so that their monthly payment is reduced to no more than 31% of gross monthly income. Eligibility requirements include that the loan have been originated on or before January 1, 2009 and that the mortgage is a first lien on owner-occupied property. The unpaid principal balance can be up to $729,750. Income must be documented and the homeowner must sign an affidavit of financial hardship.

It sounds great in principle. The trouble was that no banks seemed aware of the program.

That may be changing. According to Carolyn Said's blog yesterday in the San Francisco Chronicle, Ocwen sent out a press release this week claiming that it "is among the first servicers (if not the first) in the country to begin executing loan modifications under the U.S. Treasury Department's new Home Affordable Modification Program." And last week Bank of America/Countrywide sent out its own press release saying it would start doing trial loan modifications in two weeks.

Hopefully this indicates that other banks are becoming aware of this program and will offer it to homeowners whose mortgages they service. If you think this program can help you, print out the summary and take it to your mortgage servicer. The more educated you are, the more you can help yourself.

Posted by Carol McLean Brewer | Permalink | Email This Post

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A report by the Pew Charitable Trusts found that most credit cards include “unfair and deceptive” practices as measured by new Federal Reserve guidelines that go into effect in 2010. Reviewing consumer credit cards issued by the 12 largest companies that represent 88% of outstanding credit card debt, the study found:

• 100 percent of cards allowed the issuer to apply payments in a manner which, according to the Federal Reserve, is likely to cause substantial monetary injury to consumers.
• 93 percent of cards allowed the issuer to raise any interest rate at any time by changing the account agreement.
• 87 percent of cards allowed the issuer to impose automatic penalty interest rate increases on all balances, even if the account is not 30 days or more past due. The median allowable penalty interest rate was 27.99 percent per year.
• 72 percent of cards included offers of low promotional rates which issuers could revoke after a single late payment.

The authors of the study call for legislation to ensure that cardholders are charged only the interest rates they agreed to pay; fees are imposed responsibly and in a transparent fashion; cardholders have sufficient time to review and pay their bills; and interest is not charged on balances cardholders have already paid.

Posted by Mark F. Anderson | Permalink | Email This Post

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In May 2006 a debt collector sued an Oregon consumer--in Oregon--for a credit card debt. The consumer had made her last payment in November 2001 before she defaulted. The credit card agreement said that New Hampshire law would apply to the agreement. In New Hampshire, the statute of limitations for an action on a credit card is three years.

So the consumer has a statute of limitations defense to the 2006 lawsuit, right? Wrong, according to today's opinion by the Ninth Circuit Court of Appeals in Avery v. First Resolution Management Corp. New Hampshire law also provides that the statute of limitations is tolled if a defendant is "absent from and residing out of the state at the time the cause of action accrued."

The consumer reasoned that since she had lived in Oregon the whole time, she would have to be absent from Oregon, not New Hampshire, for the limitations period to toll. No, said the court. Because the consumer was "absent from New Hampshire at all relevant times," the debt collector's claim was tolled and had not run by the time it brought the lawsuit.

Continue reading "Statute of Limitations Defense to Debt Collection? Not So Fast" »

Posted by Carol McLean Brewer | Permalink | Email This Post

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We often receive calls from panicked homeowners who need advice about the ballooning mortgage they can no longer handle. The government was supposed to set up agencies for help with that sort of problem, but reports indicate the success rate is dismal. One problem is that the company servicing the mortgage almost never holds the mortgage note, as these loan have been "sliced and diced" and then resold. Since the servicer has no skin in the game, there is little incentive to work with the homeowner so they can remain in their home. Even worse, the servicer often benefits from foreclosure because its fees come off the top of the sale proceeds.

Now the New York Times is reporting that some of these banks don't even bother to take possession of property after foreclosing, because the repossession costs exceed the real estate's diminishing value.

Banks estimate that 40% to 50% of the property value is lost during the foreclosure process. Two factors contribute, the soft housing market and that vacated houses are often vandalized or stripped. If the property value isn't sufficient, the bank may simply stop the foreclosure process, leaving the vacant (and often vandalized) property in the homeowner's name. The bank may just dismiss the foreclosure complaint. Or it may take a judgment of foreclosure, but then fail to schedule the property for sheriff’s sale. Either way, the homeowner is still liable for property taxes and obligated to maintain the property. It's a lose-lose scenario, for both the bank and the homeowner.

Continue reading "Banks Walking Away From Foreclosed Properties, Leaving Displaced Homeowners Holding the Bag" »

Posted by Carol McLean Brewer | Permalink | Email This Post

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The economic pundits couldn't disagree more on how to fix the economy. Most agree, however, that at least part of the crisis was due to consumer overspending and under-saving. Folks thought the equity in their houses would continue to rise forever, so they used that equity, often with disastrous results. But now the experts tell us that people have to start spending again (buy cars! go out for dinner!) so the economy will recover. It's enough to make anyone feel guilty and confused about spending on anything that's not an absolute necessity.

But sometimes a small splurge is good for your health. Given the choice of a spa treatment worth $80 or $85 in cash, most people would take the $85. Obviously, $85 would pay for the spa treatment with $5 left over for a latte. But a recent study reported in the New York Times revealed that a substantial minority of the study participants would prefer to just take the treatment. Those folks seem to know that they "need" that spa treatment. They don't want the option of spending spa money on something responsible and boring, like groceries, the mortgage or their credit card balance.

Even more interesting, it develops that an occasional splurge on a satisfying experience is appropriate treatment for a malady called hyperopia. That's the medical term for farsightedness (and the opposite of myopia, nearsightedness), because it results from people looking too far ahead. Folks who suffer from hyperopia are so obsessed with preparing for the future that they are unable to enjoy the present. These people end up looking back sadly on all their lost opportunities for fun.

Remember Aesop's fable of the Grasshopper and the Ant? The industrious (and hyperopic) Ant toiled all summer so she would have a safe and warm winter. Her friend, the fun-loving, carefree (and myopic) Grasshopper, sang the summer away and then had to beg the Ant for food. Although the fable teaches us that we should encourage our inner Ant, sometimes it's good to savor the present and enjoy the moment like a Grasshopper.

Posted by Carol McLean Brewer | Permalink | Email This Post

Posted In: Consumer Debt

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Charging too much on your credit cards is a good way to get into financial trouble. So, in this economic climate, it's best to keep those cards in your wallet, right? According to an article in MSN Money, not necessarily so.

Banks are apparently taking a hard look at customers who don't use their credit cards -- or who don't use them anough -- and simply canceling those cards. The banks reason that closing rarely-used accounts lowers their risk profile, because getting rid of unused accounts limits the bank's liabilities (potential available credit) compared to the bank's assets. Also, simply maintaining those accounts is an expense. But closing an account also means that the customer's available credit is reduced. You may not need that credit, but your credit score can take a big hit when an account is closed.

Credit scores are based on a complex formula. According to Craig Watts, spokesperson for Fair, Isaac, about 30% of your score is based on your credit utilization ratio -- the amount of your debt in relation to the amount of your available credit. Watts says a person with a solid credit score of 720, for example, whose utilization ratio increases from 35% to 75% after a bank closes an account is likely to see her credit score plummet by several dozen points. The resulting score would be far less than the 760 (or higher) consumers now need to get the best rates from lenders. (See Mark Anderson's January 6 post.)

The ironic conclusion is that credit may become more expensive for the consumer who thought she was being responsible by not using her credit card!

Posted by Carol McLean Brewer | Permalink | Email This Post

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Law Professor Elizabeth Warren proposes that Congress create a Financial Product Safety Commission to help protect consumers from predatory and deceptive financial products. To illustrate the need for such a commission, Prof Warren points out that if a consumer goes into an appliance store looking for a toaster that has a 1 in 5 chance of exploding, you won't find one. But if you go to a mortgage broker, you can buy a loan that has a 1 in 5 chance of ending up being foreclosed with you losing your house in the process.

Introduced by Senators Schumer and Durbin, the bill would create a commission responsible for identifying practices that undermine sound markets and to educate consumers on the responsible use of financial products and services.

Prof Warren is the chairwoman of the Congressional Oversight Panel monitoring the Treasury's economic rescue plan and the author of numerous articles and books on the ways in which consumers get into financial trouble.

Posted by Mark F. Anderson | Permalink | Email This Post

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Most of the time, survivors are not liable for the debts of their deceased relatives. If Uncle Waldo dies and leaves a $10,000 credit card debt, Niece Lauren is not obligated to pay it. The usual exeption is when Uncle Waldo has assets, his estate is probated, and the credit card company makes a timely claim against the estate assets.

But the New York Times reports that several debt colletion companies, including Minneapolis-based DCM Services, are specializing in collecting deceased people's debts, despite that usually there is no obligation to pay them.

According to the article, collecting on the debts of the dead is one of the healthiest parts of the debt collection industry. Maybe the survivors feel the deceased will rest easier if his debts are paid; maybe the survivors are concerned they will need the creditor's services in the future.

To help ease the survivors' minds, these debt collectors are even trained in the five stages of grief. One company explained that if a survivor was still in the denial or anger stage rather than advancing to the bargaining stage, the collector will offer to transfer him to a human resources company. There, “master’s level grief counselors” are available. After a week--presumably enough time for the survivor to recover somewhat--they are contacted again.

People pay for things they are not obligated to pay, all the time. But if you have a death in the family and are contacted by a collector, you should first ask whether you are liable for the debt. If you are making a voluntary payment, you should appreciate that it's voluntary and not something you'll be dunned for later if left unpaid.

Posted by Carol McLean Brewer | Permalink | Email This Post

Posted In: Debt Collection

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Capital One Bank and the credit reporting agencies (Equifax, Experian and TransUnion) recently settled with our client who was the victim of identity theft. It took years for the identity theft victim to get Capital One to stop trying to collect on the account it opened for an imposter.

The story began when Capital One sent a pre-approved credit card application to our client at her former college apartment. Someone in the building got the application from the mail and used it to get a VISA card from Capital One in our client's name. The imposter took $500 from the account, but Capital One quickly learned the account was fraudulent--a law enforcement agency told it that professional identity thieves had opened the account--so it closed the account and charged off the account balance.

That should have ended the matter, but it didn't. A year later, Capital One sent another credit card application to our client at the same old address. The imposter again used the application to apply for credit in our client's name and again Capital One issued the imposter a VISA card. This time it gave the imposter a $20,000 credit line and sent "convenience" checks that the imposter used to withdraw almost $18,000. When the imposter failed to make the payments, Capital One located and began to dun our client. She disputed the account, retained a different lawyer, wrote lots of letters. Nothing worked. Capital One sued her to collect on the account.

Then she contacted us.

Continue reading "Capital One Settles With Identity Theft Victim" »

Posted by Andrew J. Ogilvie | Permalink | Email This Post

Posted In: Consumer Debt , Credit Cards , Credit Reports , Debt Collection , Identity Theft

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