California Credit Law Blog

Remember the 1992 McDonald's "hot coffee" case in which a 79 year old woman spilled a cup of coffee and suffered burns? She sued McDonald's and a jury awarded $2.7 million. Business interests then misrepresented the verdict trashing the civil justice system and advocating for "tort reform." Susan Saladoff has made a movie about case and what really led to the verdict (which a judge reduced to $500K).

The movie is currently available on HBO. Besides the McDonald's case, the movie covers the mandatory arbitration problem--corporations' ability to force individuals to give up their right to go to court to get compensation for corporate wrongdoing. "Hot Coffee" also has interesting segments on corporate support of judicial candidates willing to do their bidding and caps on personal injury awards.

Under the Dodd Frank law, consumers denied credit or good terms are entitled to see their credit scores. The new law provides that any borrower who is denied credit or offered a higher than usual interest rate is entitled to see his credit scores without having to ask. The purpose of the rule is to add transparency to the lending process and to help consumers shop for a better deal. Without the new law, consumers cannot even see their credit score for free except when they apply for a mortgage.

There are some exceptions such as when a bank uses only its own scoring system with its own data to evaluate a borrower. Also, home and car insurance and utility companies may not be covered by the law.

Some insurance companies are using credit scores based on policyholders' credit histories. Insurance companies argue that the credit score correlates to the likelihood an individual will make a claim. Consumer groups cry foul asking why someone with negative credit entries on their credit reports should have to pay more for insurance.

Loretta L. Worters, who is with the Insurance Information Institute states that "Insurers use credit-based insurance scores in a variety of ways. Some companies use it for ratemaking, some for underwriting, others do not use it at all."

FICO, the company that started the credit score business, says that 95% of auto insurance policies and 90% of all homeowner's policies are awarded today based on credit-based insurance scores.

An Illinois insurance regulator states that his office receives complaints about insurance scoring not only from people with heavy debt loads, but also from those consumers with little or no debt at all. "We've had complaints (about scoring) from people who don't use credit."

For more on this topic, go to creditcards.com.

A federal jury in New Mexico awarded $1.26 million to a woman against collection law firm for twice trying to garnish her wages for a debt she did not owe. The case started when Target National Bank assigned a credit card debt to a debt collector law firm.

Ms Lucinda Yazzie told the law firm she never had a Target credit card and she often received collection calls looking for another persons with the same name. Nevertheless, the law firm sued her and obtained a garnishment order. Yazzie's employer interceded and the law firm withdrew the order. But two years later, the law firm obtained another garnishment order. This time Yazzie sued the law firm and the bank based on violations of the Fair Debt Collections Act.

The evidence showed that a law firm employee changed the Social Security number in the company’s system to that of the Yazzie named in the suit. The bank had provided the social of the Lucinda Yazzie that actually owed the money.

The jury awarded Ms Yazzie $161,000 in actual damages for emotional distress and $1.1 million in punitive damages.