Federal Reserve Board Improves HOEPA Regulation on Predatory Lending

The US Home Ownership Equity Protection Act (HOEPA), part of the Truth in Lending Act, is intended to fight predatory mortgage lending. But HOEPA did not apply, unless the homeowner was being exploited by interest ten points above a Treasury rate, or by points and fees equal to eight percent of the loan amount. Hence predatory lenders charged points and fees of almost 8% of the loan. For example, $7,990 of fees to get a $100,000 mortgage.

In the December 20, 2001 Federal Register, the FRB lowered the interest trigger to 8% for first mortgages, eff. October 1, 2002. Second mortgages still have a 10% trigger, a loophole. Credit insurance will now be a fee which triggers HOEPA protection. The FRB will prohibit the lender/assignee from refinancing a HOEPA mortgage within 12 months, unless it is in the borrower's interest. Lenders refinance to get the $7,990 fee all over again, from seniors and people with problems paying their first predatory loan. The FRB will also require these lenders to document borrowers' income- lenders are not supposed to be making loans to people whose income is less than the monthly payment. Why do they make these loans? Predatory lenders do this because a) they always sell the mortgage immediately to another finance company; b) the home will be foreclosed to cover the loan, c) if a consumer gets in trouble, so much the better: another opportunity to refinance and get the outrageous fees over again!

This FRB action improves the HOEPA regulations a bit, but Congress could do more-- Repeal the federal override of first mortgage ususry ceilings, for example. Repeal the Alternative Mortgage Transaction ParityAct, i.e. shut the Pandora's box which loosed these demons on the country in the first place.

House Committee Votes to Legalize Deceptive Rent to Own Practices, Prohibit Disclosure of Annual Percentage Rate

November 28, 2001 was a dark day in the U.S. House of Representatives with a 20-4 vote in a Financial Services Subcommittee to release a bill written by the rent to own industry.

N.J. Rep. Mike Ferguson courageously voted against a bill aimed squarely at New Jersey, where rent to own has been defeated eleven years straight in its quest to legalize its form of loansharking. Rep. Ferguson wins our consumer hero badge; Rep. Marge Roukema passed (did not vote). The bill has "bipartisan" support, meaning money talks, both parties are equally open to taking contributions from an industry which has hired some Clinton alumni to lobby for it.

The bill, HR 1701, would condemn inner city and poor citizens to second class credit when buying appliances. The bill would let RTO charge unlimited interest, and would prohibit the Federal Reserve and the states from telling those suckered in by RTO that they were paying interest at 100% to 300% Congress has required this key disclosure, the Annual Percentage Rate, since 1969 in the Truth in Lending Act. With this rent to own gag rule, states and the Federal Reserve could not require disclosing the APR! The APR is the cornerstone of the Truth in Lending Act. To prohibit disclosure of the APR turns HR 1701 into the "Lies in Lending Act." Its purpose is so the United States government would join the RTO con game on the wrong side.

Consumers believe that the U.S. Senate Banking Committee, with Senator Sarbanes, will give the RTO industry a tougher fight.

Click here for CLNJ's position paper: what is wrong with HR1701, what is needed for true RTO reform (hint: mandatory disclosure of the APR, honest cash prices, usury ceilings). CLNJ supports HR2498 (Rep. Maxine Waters) which mandates disclosure of the APR, requires RTO stores to obey federal consumer protection laws, not evade them.

Most Americans take for granted our precious system of justice. For hundreds of years, any person who has been wronged could sue in state or federal court. For a small filing fee, ranging from $20 to $200, any person could sue any person or corporation. "Equal justice under law." "No man is above the law." "A jury of twelve peers." "Congress writes law and Judges enforce laws as written by Congress and the state legislatures." Unlike Congress which takes contributions, Judges are not allowed to accept one dollar from litigants, because that's bribery. The American system of justice is the envy of the world.

Or used to be. Did you read the fine print which arrived with your credit card lately? That fine print says in many cases that you waived all your rights to use the Courts which your tax dollars support. Instead you are deemed to "agree" to arbitrate disputes with your bank, or car dealer or mortgage company, or telephone company.

The bank picks the association of arbitrators. You and the bank split the cost of the arbitration. In a serious suit, the arbitrator will charge about $2,000 per day! That will put a serious damper on consumers who wish to sue banks and car dealers. Who are these arbitrators? While in some cases, the arbitrators are retired judges, which is not so bad, in other cases, the arbitrators are attorneys whose main business is representing banks. One Arbitration group, started by a credit industry man, has startled advocates by sending ads to banks which seem to suggest that hiring this arbitration group will protect the banks from consumer suits. Bias?? The arbitration clause is being used by banks to try to stop class action suits, another benefit touted by the arbitration group in their appeal to have the banks hire them as arbitrators. Contrast that with the judicial ethics in the state and federal courts: the judges are not allowed to accept money from litigants, and solicitations promising certain results would certainly lead to the disqualification of that judge. Some judges have been disqualified just for making statements to reporters (like Judge Jackson in the Microsoft case). Consumers sent to compulsory arbitration justifiably feel that they will not get a fair trial with an unbiased judge.

Paul Bland of the Trial Lawyers for Public Justice, www.tlpj.org, spoke about how attorneys can fight compulsory arbitration, in an address to the National Consumer Law Center's recent Consumer Litigation Conference in Baltimore. The TLPJ has assisted attorneys around the country with amicus briefs. The National Consumer Law Center www.consumerlaw.org, also recently published a book, Consumer Arbitration Agreements with CD-ROM, for attorneys.

No Appeal from Arbitration:
CLNJ thinks that one of the pernicious things about arbitration is that, absent proven bribery (i.e. dollars for a specific result in a case), there is no appeal from an arbitrator's decision. So if the arbitrator decides he does not like a particular law of the United States, he can just ignore it. Consumers cannot appeal, because you "agreed" to give up all your rights to use the Courts of New Jersey and the United States. Does this system of "I am the law and you can't do anything about it" seem familiar? Sounds to us like the secret tribunals of totalitarian regimes.

The United States Supreme Court, abdicating its role of protector of the integrity of our judicial system, has been a ringleader in using the Federal Arbitration Act to deny consumers their day in Court, and send consumers to arbitration.

CLNJ thinks that the Federal Arbitration Act should be amended and limited to parties who are represented by an attorney, such as unions, corporations and highly paid sports figures. A contract agreeing to arbitration should require the signature of an attorney to prove that the arbitration clause has been fairly negotiated. The U.S. Bankruptcy Code has a similar requirement for disfavored agreements to reaffirm debt. Congress should ban the arbitration clause from preprinted contracts of adhesion, such as credit card notices, car purchases, mortgages, or a small loans. In these contract of adhesion, the consumer never has a choice to negotiate the terms of the contract-- it's either take it or leave it. When the consumer side has written not even one sentence of a "contract," it is a fiction to say that the consumer has negotiated the contract.

The American system of justice is in grave danger. Some arbitration goups have advertised for customers, and promised certain results, like quashing class actions. Corporations are sending consumers to a super-expensive alternative system, with arbitrators who may work in or for the credit industry, and who have a financial incentive to be biased, so they will be repeatedly chosen as arbitrators in future cases. Consumers are being denied their day in the Courts their tax dollars already fuded. A system of impartial courts deciding case according to the law is a cornerstone of American liberty. If the Courts turn justice over to arbitration, our rights have been abandoned, and justice is up for sale.

Have you ever received a letter from a collection agency? While most people pay their debts on time, some medical labs seem very quick to send your bill to collections while you are waiting for the HMO to pay it. Or perhaps you have been laid off in the current recession. Or perhaps you are a victim of theft of identity, and are being dunned for a bill you do not owe.

The Fair Debt Collection Practices Act is a federal law which limits what debt collectors may do. When you get the first dunning letter, the collector must tell you that it is from a debt collector, that any information will be used to collect a debt, and that you have the right to "validate" the debt, i.e, make a written demand for more proof that you owe the debt and the amount the collector claims. Consumers have the right to tell the collector to "cease communication." The FDCPA applies to persons who regularly collect the debts of consumers, or who buy such debts after default. There are many companies which buy consumer debt these days.

The FDCPA prohibits debt collectors from contacting or calling third parties. Congress wished to protect a consumer's right to privacy. The collector in general may not call your relatives, employer, friends and neighbors and may never tell them about your debt. The Act prohibits repetitive phone calls.

The Federal Trade Commission is the federal enforcer of the Act. For violations of the FDCPA, a consumer may sue for a $1,000 award, plus actual damages, plus an attorney fee.

Which attorneys do such suits? You might try the National Association of Consumer Advocates, www.naca.net, or your local bar association.

www.carfax.com This site has a database of millions of used cars. Use it to find the history of a particular car, perhaps finding it was wrecked or had the odometer turned back. Sometimes cars slip through, however. Back this up with DMV title histories.

www.kbb.com Kelley Blue Book will tell you what that car is worth if you are buying, or if you are selling (these are different amounts, due to dealer markup.)

www.consumerlaw.org The National Consumer Law Center writes manuals to explain consumer law, so attorneys will take cases and represent consumers. The NCLC also does pamphlets for consumers, in partnership with AARP and other groups, and has general audience books on auto lemons and a book for people who face debt problems..

www.nacba.org The National Association of Consumer Bankruptcy Attorneys has lobbied against that bad bill to "reform" bankruptcy. While the House and Senate have both passed versions of the bill, there is disagreement on which version is the best way to make consumers pay for the mistakes of the credit card banks. So the bill is not law yet.

www.njleg.state.nj.us/ The New Jersey Legislature has an excellent site. Look up bills and calendars. See what bills move. The state statutes are also available.

http://thomas.loc.gov The Library of Congress site for bills in the U.S. Congress, committee schedules etc. Named after Thomas Jefferson.

www.consumersleague.org You are here! Read our newsletters online, as well as legislative materials. You can download the RENT TO OWN RAP as a MP3 file!