ThePopTort

Credit Reports and the Courts

The Federal Trade Commission hasn’t always done a great job monitoring the sleazy industries that can financially ruin our lives, but lately, under the leadership of the soon-departing Jon Leibowitz, it’s been doing a pretty good job. Pay day loans.  Identity theft.  Mortgage relief scams. 

And lately, the FTC has been up to its eyeballs monitoring the credit reporting industry. In 2010,  the agency issued new rules about those deceptive and often irritating “free credit report” commercials, advertisements and websites. They aren’t.  Free, that is. Wish that were the only problem.

Today, the FTC released a new study finding that when it comes to the three biggest credit bureaus - Experian, Equifax and TransUnion, “As many as 42 million consumers have errors on their credit reports, and around 20 million have significant mistakes.” Says the FTC, “One in four consumers identified errors on their credit reports that might affect their credit scores,” but only “[o]ne in five consumers had an error that was corrected by a credit reporting agency (CRA) after it was disputed, on at least one of their three credit reports.”

So as beneficial as FTC monitoring is, sometimes it’s not enough. And that was made clear in last night’s 60 Minutes piece about how nearly impossible it is to get a credit reporting agency to fix a mistake once they know about it, sometimes with ruinous consequences for the consumer. And that’s where lawsuits and state Attorneys General can step in.

First the lawsuits. Judy A. Thomas, who had a great credit history, was denied car loans, credit cards, etc. etc. because her credit reports confused her with someone named Judith Kendall who had a lot of debt. It shouldn’t have come to this, but until she took those credit agencies to court, nothing got resolved. 

As for AG’s, back in 1996, Congress amended the Fair Credit Reporting Act (FCRA) to include state enforcement provisions. (See more in this law review article.) And last night’s piece, based on a series that first appeared in the Columbus Dispatch, showed how valuable a move that was. Writes the Dispatch:

Ohio Attorney General Mike DeWine [who appeared in the 60 Minutes piece]… and at least 24 other state attorneys general launched an investigation into the three national credit-reporting agencies after a Dispatch series Credit Scars, exposed systemic flaws in their operations that prevent consumers from correcting costly mistakes.

DeWine has discussed the problems with officials from Experian, Equifax and TransUnion. No solutions have been proposed yet, he told The Dispatch on Friday, but his work with them will continue…

Without that power, these 24 state AG’s would have no tools to help their own citizens, if only to try to push Congress to strengthen the federal law. This is the kind of state power that groups like the U.S. Chamber of Commerce and the American Tort Reform Association want Congress to strip away.  Seems they don’t want to sully our federalist system with too much state power. … Oh wait.

Desperate Homeowners Waive Rights

This morning, ProPublica co-published (with Slate) an eye-opening article about mortgage servicers.  These banks and lenders, some of the same companies that led to the financial crisis, are at it again.

Guilty of all sorts of abuses and violations of law, including robo-signing, which we talked about here, mortgage servicers have been facing increased litigation from homeowners.  They want the lawsuits to stop and they've figured out how to stop them!

In return for granting homeowners a “break” on their mortgages, mortgage servicers are forcing homeowners to waive their right to bring a lawsuit for anything having to do with their loan forever. 

Many desperate homeowners may not even realize they’re signing a waiver, since it’s buried in the fine print of their contracts.  But even if they are aware of it, they’re in a terrible position.  If they don’t sign, they’ll lose their homes.  What choice do they have?

What makes this worse is that regulators have already banned this practice.  But as ProPublica noted, mortgage servicers who limit or take away a homeowner’s right to sue have a variety of excuses:  they argue about the language in their contracts and exactly what it prohibits; they site a loophole in the regulation that they claim makes their actions legal; or, as in the case of Bank of America, they say the waivers are in the contracts as a mistake.  A mistake that somehow keeps happening!

And, perhaps most importantly, while the law forbidding these waivers applies to loan modifications, it does not apply to short-term forbearance agreements! 

In other words, a mortgage servicer might think twice about sticking a waiver in an agreement granting long-term relief, but they’d have no second thoughts putting a waiver in an agreement which offers short-term relief – forbearance agreements last anywhere from three to six months.   Your typical desperate homeowner, unable afford an attorney, might not realize that his three-month reprieve comes at such a high cost.

Funny that these are the same mortgage companies whose illegal and abusive predatory lending practices helped cause the subprime mortgage crisis.  As the Center for Justice and Democracy noted in a 2010 study, the mortgage companies could always be sued for predatory lending, while "Wall Street firms that pressured lenders to make these risky loans are not and they knew it at the time.” 

It seems the banks and lenders have had enough.  If homeowners can’t sue Wall Street firms, they don’t want to be sued either.   It remains to be seen if these waivers will hold up in court, but it’s pretty obvious that this is yet another example of corporations taking advantage of unsuspecting, vulnerable citizens.

What’s Clogging the Courts? Debt Collections, That's What

Unless you’re about 200 years old, you probably don’t remember debtors’ prisons, given that the U.S. abolished them in 1833. At least that’s what we thought.

Two Minnesota legislators announced yesterday that they will be introducing legislation to deal with “a growing public concern -- highlighted in a continuing Star Tribune series, ‘Hounded’ -- that debtors are being sued for money they don't owe and, increasingly, jailed when they fail to appear in court.”   Apparently the paper found that “use of arrest warrants against debtors jumped 60 percent in the past four years, with 845 cases in 2009. Some debtors who were arrested said they were unaware they had been sued for their debts and were required to appear in court.”

All of this comes on the heals of an incredible report issued Monday from the Federal Trade Commission, Repairing A Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration, that found “that the system for resolving consumer debt collection disputes is broken, and recommends significant litigation and arbitration reforms to improve efficiency and fairness to consumers.” (text here)

The report “recommended that state governments toughen laws to reduce the number of unsubstantiated lawsuits against debtors. It called on states to require collectors to offer more proof of debts in their lawsuits, and to curb suits over debts for which the statute of limitations has expired.”

In addition, “The Commission vote to issue the report was 5-0. Commissioner Julie Brill issued a concurring statement in which she urged Congress to enact a temporary ban on the mandatory arbitration of consumer debt collection disputes. ‘Such a ban should remain in place until the arbitration process can be shown to be fair, transparent, and as affordable as traditional litigation, and until consumers have a meaningful opportunity to opt out of pre-dispute arbitration without losing access to the credit services they seek,’ she said.”

The Minnesota lawmakers have been pushing this issue for years, and believe – hopefully – that the FTC report will “strengthen[] the case for changing the law."

Also incredibly, the New York Times reported that debt collection law firms have been clogging the courts with these lawsuits.

The litigation boom has been propelled by fundamental changes in the way debts are collected, particularly for credit cards.… Collection law firms are able to handle such large volumes of cases because computer software automates much of their work.…  Once the data is obtained by a law firm, software like Collection-Master from a company called Commercial Legal Software can “take a file and run it through the entire legal system automatically,” including sending out collection letters, summonses and lawsuits, said Nicholas D. Arcaro, vice president for sales and marketing at the company. … Most consumers fail to show up in court, and those who do rarely have a lawyer.

…

Lawsuits are sometimes filed against the wrong people, critics say. Other times, they say, the amount owed is incorrect or includes questionable fees and interest that has been added to the balance.

So while debt collections are skyrocketing, personal injury lawsuits continue to drop.