July 1, 2015

Big Banks versus the Consumer Financial Protection Bureau

The banking industry has targeted the Consumer Financial Protection Bureau since the day it was created. The finance industry pours money into a relentless effort to weaken the agency. This continuous lobbying is done in the background, out of the eye of American consumers, who stand to lose the most if the CFPB cannot do its job. One important thing the CFPB has been tasked to do is study the effects of forced arbitration, a procedure which strips borrowers of the right to bring actions in court to enforce consumer protection laws and stop fraud. That study revealed huge injustices in the unlevel playing field between consumers and banks.

The subject of mandatory arbitration is complex, and frankly boring to most people. It is boring until they themselves are cheated by a bank. Or, when a finance company has made a mistake on their loan payments. Or, when they are illegally bullied by a debt collector. Or, when their car or truck has been repossessed and sold without notice. Or, when they are charged illegal interest rates. Or, when a debt collector they never heard of duns them for debts they did not owe. Then arbitration locks the courthouse door. Suddenly denied access to the courts, they wonder how this injustice can be happening to them. There but for fortune go all of us. cfpb.jpg

Paul Bland, Executive Director of Public Justice, is the people's voice, leading the fight to keep the courthouse doors open for ordinary Americans. He is one of the few people who understand that erosion of the CFPB will start quietly in the wood-paneled committee rooms of Congress. Thus last week, he observed a menacing start of that erosive effort in a simple legislative proposal by Steve Womack (AR-3) and Tom Graves (GA-14). Bland notes, "Rep. Womack’s effort to block the CFPB from acting was done without any publicity, on a party-line voice vote that no one noticed. People NEED to notice."

Bland explains that the CFPB has done extensive studies, which demonstrate how harmful forced arbitration can be. The banks want to bury that damning evidence, before the CFPB can order effective regulation to help the American consumer. The current effort is an ugly glimpse into how bank lobbying - subtle and not so subtle - strips ordinary Americans of their right to civil justice.

You can read Bland's excellent article entitled "House Republicans Scheme to Let Banks & Payday Lenders Bar Consumer Law Suits," here.

June 29, 2015

¿Demandado Por un Cobrador de Deudas? Levántese y Defendiese

Demandas de cobro de deudas falsas se han convertido en un gran negocio para los prestamistas sin escrúpulos y para los cobradores de deudas. Con demasiada frecuencia, los prestatarios no luchan contra las prácticas abusivas de cobradores de deudas. Pero cuando lo hacen, puede ser mala noticia para los malos actores. En Mayo de 2015 un en jurado Kansas City otorgó $ 82.000.000,00 en daños punitivos contra la empresa de cobro de deudas llamada Portfolio Recovery Associates. La disputa comenzó por los intentos ilegales de la demandada para recoger apenas $ 1.130,14 en deuda original, y se convirtió en una pesadilla para el prestatario. Los medios de comunicación reportaron este relato aquí.

204756_signing_the_contract.jpg En otra parte de este blog, hemos escrito acerca de una variedad de prácticas de deuda ilegales: el intento de colección de la deuda rancio (una práctica conocida como "deuda zombie"), fracaso de dar avisos después de reposesión requeridos por la ley, falta de presentación de la documentación subyacente para apoyar la afirmación de un cobrador de deudas, y otros abusos.

En resumen, hay muchas defensas a los acciones de cobradores de deudas.

Si usted es demandado por un cobrador de deudas, recuerde estos consejos importantes:

En primer lugar, no ignore la citación y demanda. Si le sirven con una demanda, no se rinda antes de recibir asesoramiento jurídico. Si usted no se presenta en la corte, pierde derechos importantes para defenderse en corte. El cobrador de deudas gana su caso automáticamente y toma un fallo en contra de usted. Usted ha renunciado a su derecho a impugnar la deuda. El prestamista podría entonces tratar de embargar su salario o cuenta bancaria. Incluso si usted no tiene un abogado, asegúrese de comparecer en corte en la fecha prevista. Cortésmente pide al juez que posponga o continúa con la audiencia mientras que usted encuentre un abogado. Incluso si usted le debe a alguien una cantidad, es posible que no sepas si la cantidad demanda es correcta, y usted puede no saber lo que la empresa tiene derecho a cobrar.

La lucha contra el cobro de deudas ilegales requiere un poco de conocimiento de las leyes que proporcionan una defensa. Por lo tanto, la posibilidad de derrotar a una demanda es mucho mejor si tiene un abogado a su lado. La mayoría de los condados tienen un número de teléfono que aparece para los servicios jurídicos de referencia y clínicas legales gratuitas, o abogados de los consumidores privados que trabajan con estos casos. Hay excelentes abogados que manejan estos casos por una base de "honorarios de contingencia ", que significa que el abogado sólo recibe sus honorarios si el caso tiene éxito. Por eso, usted nunca debe pagar a un abogado sólo para reunirse para la primera vez.

Avisos de cobro de deudas que vienen en el correo están diseñados para parecer oficial y espantoso. Algunas veces tienen un montón de tinta roja y amenazas directas o indirectas. Robo-llamadas a su teléfono - y en particular a su celular - también pueden ser el acoso ilegal. Estas tácticas de intimidación no significan necesariamente que la deuda fue válida en el primer lugar, o que la empresa exigiendo el pago es la entidad que puede aclarar la deuda o su crédito. Muchas personas terminan pagando más de una empresa para la misma deuda.

El cobro de deudas es una industria grande en California y a través de los Estados Unidos. Empresas de cobro de deudas compran deudas malas de empresas de tarjetas de crédito o de empresas de financiación por una fracción de su valor nominal. Ellos hacen una tremenda ganancia mediante la colección de la deuda en su totalidad, más los intereses y los honorarios. Sin embargo, cuando estas empresas compran una gran cantidad de estas deudas y lo hacen con prisa, con frecuencia no compran los documentos que necesitan para demostrar su caso en la corte, como el contrato, una justificación del supuesto equilibrio, y la historia de pago. Porque muy pocas personas consiguen asesoramiento jurídico, los cobradores de deudas ganan la mayoría de los casos por incumplimiento. Esto es una parodia de la justicia y, a menudo una tragedia para las personas involucradas.

California tiene una gran cantidad de buenas leyes para proteger a los consumidores contra los abusos en el sector financiero. Sólo tienes que saber dónde encontrarlos. Lo más que consumidores se defienden, lo más que las prácticas de préstamos abusivos desaparecerán.

Traducido del articulo de 17 May 2015 (Nancy Barron) por Rosa Baum, ©Kemnitzer, Barron & Krieg, LLP

May 17, 2015

Sued By A Debt Collector? Stand Up and Fight Back

Bogus debt collection lawsuits have become big business for unscrupulous lenders and down-stream debt collectors. All too often, borrowers do not fight back against abusive debt collection practices. But when they do, it can be bad news for bad actors. Last week a Kansas City jury awarded $82,000,000.00 in punitive damages against debt collection firm Portfolio Recovery Associates. The dispute began over the defendant's unlawful attempts to collect a mere $1,130.14 in original debt, and became a nightmare for the borrower. You can read this extraordinary story here.

204756_signing_the_contract.jpgElsewhere on this blog, we have written about a variety of illegal debt practices: the attempted collection of stale debt (a practice know as "zombie debt"), failure to give post-repossession notices required by law, failure to produce the underlying paperwork to support a debt collector's claim, and other abuses.

In short, there are many defenses to debt collection actions.

If you are sued by a debt collector, remember these important tips:

First of all, do not ignore the summons and complaint. If you are served with a lawsuit, do not give up before getting legal advice. If you do not show up in court, that means you default. The debt collector automatically wins its case and takes a judgment against you. You have given up your right to challenge the debt. The lender might then try to garnish your wages or bank account. Even if you do not have an attorney, be sure to appear in court on the scheduled date. Politely ask the judge to postpone or continue the hearing while you find an attorney. Even if you owe some amount, you night not know if the amount demanded is correct, and you might not know what company is entitled to collect it.

Fighting illegal debt collection requires some knowledge of the laws that provide a defense. Thus, your chance of defeating a lawsuit are much greater if you have a lawyer on your side. Most counties have a phone number listed for legal referral services and free legal clinics, or private consumer lawyers who handle such cases. There are excellent attorneys who handle such case on a “contingency fee” basis, meaning the attorney only gets paid at the end if the case is successful, so you should never pay a lawyer up front just to meet with you a first time.

Debt collection notices that come in the mail are designed to look official and scary. Some times they have lots of red ink, and even direct or indirect threats. Robo-calls to your phone -- and particularly cell phone -- can also be illegal harassment. These bullying tactics do not necessarily mean the debt was valid in the first place, or that the company demanding payment is the entity that can clear up the debt or your credit. Many people end up paying more than one company for the same debt.

Debt collection is a major industry in California and through the United States. Debt collection companies buy bad debts from credit card or finance companies for a fraction of their face value. They make a tremendous profit by collecting the debt in full, plus interest, plus fees. However, when these companies hastily buy the accounts in bulk, they often do not purchase the documents they need to prove their case in court, such as the contract, an accounting of the alleged balance, and past payment history. Because very few people get legal advice, debt collectors win most cases by default. This is a travesty of justice and often a tragedy for the people involved.

California has a host of good consumer laws to protect borrowers against abuses in the finance industry. You just have to know where to find them. The more consumers fight back, the more predatory lending practices will disappear.

May 14, 2015

Exploding Airbags, Exploding Recalls

The story of exploding Takata airbags just gets worse and worse. We previously wrote about this problem here and here. airbag.jpeg

Now it looks like the recall itself can't be contained. Early efforts to limit its effect to certain makes and models, or geographic areas, or other arbitrary parameters have failed. Yesterday, the recall expanded again with Honda issuing a global recall for another 5 million cars. The original manufacturer, Japan's Takada, has not been able to keep pace with replacement parts; now suppliers from Sweden and elsewhere have stepped into the breach.

Honda's latest action comes on the heels of its previous recalls of 11.4 million vehicles equipped with Takata airbags since 2008. Earlier this week, Toyota and Nissan recalled a combined 6.56 million vehicles as well.

You can read about Honda's recall program here, Nissans recall program here, and Toyota's recall program here. Be prepared to enter the VIN number found on your purchase documents or on the inside of the driver's door, so that you can obtain precise information for your vehicle.

These recalls concern a safety issue with the airbag itself, not just a failure to deploy as a supplemental restraint. Anyone whose car is subject to the recall should definitely take steps to obtain replacement parts.

May 11, 2015

Driverless Cars: A Preview

It was eerie. I was driving along the freeway between San Francisco and San Jose, comfortably guided under cruise control, when I noticed a car smoothly glide by on my left. Its occupants were engaged in conversation. They were not looking at me. They were not focused on the road, particularly. The man in the front lefthand seat was not holding the wheel. I'm not even sure there was a wheel. Suddenly, I realized no one was driving the car.

I felt the need to reassert myself in the driver's seat of my own vehicle. I turned off the cruise control, tapped my foot on the brake and accelerator. I touched the turn signal. I gripped the wheel. I stared ahead, glancing now and then in the rearview mirrors.

A driverless car? It feels futuristic. But as it turns out, the future is here.

I had just been passed by the Google car.driverless%20car.jpg

The real question everyone is asking is: will they be safe? Will they be safer than cars are today? In more than six years of experimenting and nearly one million miles of road testing, the Google car has only been in 11 minor accidents. Google spokesman Chris Urmson hastens to add that “Not once was the self-driving car the cause of the accident.” You can read more about the research and development of driverless cars here

Accidents do happen. The safety question must be viewed against present statistics. In 2012, NHTSA reported 5.3 million vehicle collisions, in which 2.2 million people suffered injuries. And, more than 32,000 deaths in addition to those injuries. Earlier studies by NHTSA show that the human factor is a significant cause of those crashes. Strong state lemon laws and consumer advocates have helped make cars safer over the last few decades -- but a safe car also needs a safe driver. A 2008 NHTSA study of more than 5,000 collisions found that the human element was a significant contributing factor to vehicle crashes. The human frailty factor included things like distracted driving, poor judgment, illegal turns and lane changes, aggressive driving, failure to brake in time, inattention and simple loss of control. Not to mention the problem of DUI. Broken down like this, it is conceivable that robotic components and technology might yet be better than people are at the controls.

Some of the technology that will power driverless vehicles already exists in the cars we drive today. Forward collision avoidance, blind spot alerts, lane assist technology, and other advanced warning devices, are already installed on some makes and models on the roads today. Manufacturers are still working out glitches in some of these components. And of course, there is that early form of driverless technology, the ubiquitous cruise control function I was using when I was passed by the Google car.

As driverless cars enter the marketplace, the law of accountability will have to catch up. But the purpose of the lemon law could never be more clear: to ensure safe and reliable transportation no matter who is in control.

April 11, 2015

Lights Out for GE Capital

General Electric announced last week that it was selling off GE Capital, its financial services division, and returning to its core business of manufacturing. Consumer advocates lauded the change. Marcus Stanley, of Americans for Financial Reform hailed the news, "I see this as a win not just for too-big-to-fail, but for the extension of the regulatory perimeter in Dodd-Frank." Stanley further explained, "You basically had one of the largest consumer and investment banks in the country stapled onto a major industrial corporation, and because it was part of this conglomerate, it wasn't being regulated like a major bank. When the Fed changed that regime, GE decided it wouldn't be as profitable." light%20switch.jpg

GE had previously claimed that, "By recognizing upcoming shifts in regulation, a company can help mitigate costs by shifting business operations well in advance of the new rules or by implementing compliance regimes gradually rather than at the last minute." However, this time, GE's action was not taken soon enough to avoid that "regulatory perimeter" altogether. And, it turned out that size was not the only problem on the governing agencies' radar. While GE Capital had been on the Federal Reserve's watch list for some time due to its significant size, the Consumer Financial Protection Bureau hit GE Capital with a whopping $225,000,000 fine for deceptive practices in credit card lending. You can read more about the CFPB action here.

In publicizing its decision to shut down GE Capital, the parent company GE complained that the banking business had become less profitable due to the regulatory climate. Clearly a penalty of $225 million would cut into profits. But the purpose of such a penalty is to discourage and deter illegal and predatory misconduct. GE Capital had faced challenges to its business practices in connection with its automotive lending practices and other financial products before and was no stranger to litigation. The implication that unlawful and predatory banking practices are essential to profitability in banking gives life to the saying, "the best way to rob a bank is to own one," which has been called the "oldest joke in finance."

At the same time, there is a good twist to the news from GE. In a Harvard Business Review article entitled, "Is the End of GE Capital Good News for Ecomagination?" environmental author Andrew Winston looks at the positive side of GE's decision to refocus on is core manufacturing products. "Yes, we need a financial system to help manage all of this, but we truly need the GEs of the world to focus on making our very concrete essentials leaner, smarter, and cleaner. GE’s newly trim company is a victory of making stuff over making markets, and that’s a good thing."

Meanwhile, it looks like GE's exit from financial services may be good for business. Company stock prices rose on the news.

March 25, 2015

Federal Court Approves BMW Z4 Cracked Wheels Class Action Settlement

The Honorable Vincent Chhabria of the U.S. District Court (Northern California) has granted preliminary approval of a class action settlement, which will provide BMW owners and lessees significant compensation for past repairs and the promise of no charge for future repairs of certain cracked alloy wheels in its popular sports car model Z4.

For years BMW refused warranty repairs for cracks in the metal alloy used in its Style 296 (sometimes described as "V-spoke") wheels in the Z4 models, even though it had been sued in other actions concerning a similar defect in wheels installed on its other model cars. For years owners complained of damaged tires, alignment problems and visible cracking, but BMW dealers refused to pay for the repair or replacement of such wheels under warranty. bmw%20wheel.jpg The fact that consumers were told they had to pay for new tires damaged by the defective wheels just made matters worse. Adding insult to injury, BMW often tried to blame the consumer for poor driving habits or even vehicle abuse, when in fact the metal alloy it used just couldn't take the stress of normal driving conditions. But many consumers just didn't buy BMW's "curb and pothole" excuse. And they did not like to be blamed for something that wasn't their fault.

Barry Jekowsky, who had leased a Z4 and had to pay to replace cracked wheels and damaged tires, filed this class action on May 10, 2013. Jekowsky alleged that BMW Z4s, equipped with 296-style wheels suffer from a common defect (namely, cracking under normal driving conditions during the warranty period), and that BMW consistently refused to offer the needed replacement, requiring consumers to incur substantial costs. He further contended that BMW’s failure to disclose the subject wheels’ tendency to prematurely crack, and failure to honor its own warranty, violated state and federal consumer protection laws. Plaintiff Jekowsky contended that the alloy used in the wheels was simply not strong enough to handle the stress of normal Z4 driving conditions and the particular tires they were made to support. Plaintiffs argued that the deficiency presented a safety problem as well as economic injury to the consumers.

Eventually BMW agreed to settle the nationwide class, for owners and lessees of 2009-2012 BMW Z4 vehicles equipped with Style 296 wheels ("Class Wheels"). This week Judge Chhabria issued an order granting preliminary approval of the class settlement . He also approved class notice along with a clear and simple claim form class members entitled to restitution must fill out and return to get money back. In addition. BMW has agreed to replace the cracked Class Wheels without charge in the future, if consumers bring their Z4s into an authorized dealer during the remainder of their factory new-car warranty. Notice will be sent out shortly. The Court scheduled a final approval hearing for October 29, 2015.

The law firms Kemnitzer, Barron & Krieg LLP and Chavez & Gertler LLP represent Jekowsky and Settlement Class.


March 19, 2015

The Faith-Based Fight Against Usury

Usury is a term that generally refers to an unlawful rate of interest. The California Constitution states that usury is more than 10% per annum (even 7% in some circumstances). But the California banking lobby has managed to get a loophole enacted so that they can charge more than 100% in some types of loans. This is unconscionable, to say the least.

Similar loopholes have found their way into the laws of other states. There is a nationwide movement to cap interest rates at 36%, but the effort has found a mixed response among lawmakers, whose campaign coffers are filled by the finance industry. When bankers talk legislatures into enacting loopholes in the usury law, it is time to remember that the free market economy itself has no moral compass. It is up to people to make the difference. And now the fight against usury has found a strong and vocal ally in faith-based organizations, and the people who lead them.

At the forefront of financial pain on Main Street America are payday loans and car title loans. Payday lenders lure those living paycheck-to-paycheck, and these storefront loan sharks bank on the borrower's inability to repay promptly so that they ultimately charge as much as 400% APR. Car title loans are small loans, secured by title to the borrower's car that might be worth many times over the value of the loan. Both types of financing victimize the poor, the credit challenged, the desperate, the destitute. These are unaffordable loans that no one can pay back. It is a classic case of robbing the poor just because they are poor.

Some religious leaders see their entire communities threatened and have decided to take a stand. The Center For Responsible Lending offers this contingent an excellent guide for discussion of modern-day usury applied to payday lending, and equally to car title loans.

Some have taken their sermon to the state capitols. For example, the Virginia Interfaith Center has officially supported a statewide 36% interest cap on payday lending and similarly predatory car title loans. Alabama has also seen strong statewide action. A Catholic Diocese of Kansas urged state lawmakers to "consider stricter regulations on predatory lending last fall when Bishop Edward Weisenburger addressed legislators in a series of videos," the Consumerist reports. You can read the full article entitled "Faith v Greed - The Battle Between Faith-Based Organizations and the Payday Loan Industry" here.

Other churches such as the Wesley Memorial United Methodist Church in Richmond, Virginia, have assisted with micro-lending, by offering funds as collateral so that parishioners could qualify for a loan through the Virginia United Methodist Credit Union. This option offered interest rates of as low as 6% on small loans, as opposed to the 400% interest rates some payday lenders would charge. On a community level, the difference in well-being is huge.

Usury laws that limit interest rates have plenty of basis in scripture. Just one example is Proverbs 22:22, "Do not rob the poor because they are poor." That is also just plain common sense and simple compassion.

March 10, 2015

CFPB Study Slams Forced Arbitration

The Consumer Financial Protection Bureau issued its long-awaited study of forced arbitration today, and the study paints a grim picture of justice denied. The arbitration clause tucked into standard form contracts deprives consumers and borrowers of the right to go to court to challenge fraud, breach of contract, abusive collection practices and a host of other ills. Not only do forced arbitration clauses lock consumers out of court, the clauses usually include a ban on class actions, which are the only affordable way consumers can sue financial institutions.

cfpblogo.jpgThe banking industry has repeatedly said that arbitration lowers the cost of justice of consumers, because it is cheaper and faster than going to court. That is simply not true; and this study debunks that industry claim once and for all.

The CFPB report analyzed nearly 850 consumer loans and other financial contracts. The study included credit cards, student loans, checking account agreements, auto loans and other banking transactions. The agency also examined over 1,800 consumer arbitration disputes filed between 2010 and 2012. That review lead it to find that the finance industry is overstating consumer benefits -- not only as to price but as to outcome.

Consumers fare poorly in the arbitration forum. The CFPB surveyed data on a sample of about 600 consumer arbitrations per year against a comparable sample of federal lawsuits between 2010-2012 and found that consumers get the short straw time after time. In the aggregate, the relative recovery for consumers is minimal, compared to the banks. Miniscule, actually, when one looks at the arbitration data compared to consumer recovery in the courts.

There is a reason the banks push so hard for forced arbitration. Pre-printed arbitration clauses effectively lock consumers out of court. Students, car buyers, credit card customers, checking account holders, and other consumers, cannot sue the banks collectively for deception and fraud.

This is the second report from the CFPB on the subject. The first, issued in December 2013, was also critical of forced arbitration. The banking industry wasted no time in rallying its lobby to fight back with a whole wardrobe of ways to cover up the truth about unfair arbitration. Expect some blowback this time as well. Richard Hunt, CEO of the Consumer Bankers Association, has already released a statement saying how much he looks forward to "working with the CFPB to improve consumers' understanding of the arbitration process and how it can benefit them." Like the Emperor in the fairy tale, he hasn't gotten the message that the clothes are off. The rules of arbitration usually require participants to pledge a vow of secrecy. Thanks to the CFPB's latest report, now there is nothing to hide behind.

The two CFPB studies are significant, because the Dodd-Frank Act, which established the CFPB, also gives the agency the right to issue regulations on arbitration agreements in other consumer financial products. This revealing study really turns that right into an obligation. The CFPB's Director, Richard Cordray, says, “Now that our study has been completed, we will consider what next steps are appropriate." Anyone but a banker reading the latest study has to conclude: "There ought to be a law against it." Maybe there will be soon. You can read the full report here.

January 12, 2015

Parable of the Dead Donkey

Punitive damages are greatly misunderstood. The so-called "tort reform" movement is a campaign of misinformation designed to confuse the public about one of the most effective deterrent tools of the civil justice system. Funded by companies that engage in fraud and deceptive practices - or corporations that show callous disregard for the safety of people who use defective products they sell - groups who call themselves "tort reformers" have fought the civil remedy of punitive damages for years. Starting a few decades ago, these companies and their trade groups poured money into a campaign to convince juries, Congress, and the consumer public that punitive damages were the product of rogue juries, certain courts and a handful of trial lawyers.donkey.jpg

Not true. Punitive damages serve to prevent and deter egregious behavior that harms people, often lots of people.

Ron Burdge, an excellent consumer advocate and trial lawyer in Ohio, has posted the best metaphor I have seen to describe why we have the remedy of punitive damages for fraud and deceptive conduct. He tells it so well, a summary won't do. It reads like a parable. You can click here to read the full story, and remember Young Chuck and the Texas farmer before setting foot on any car dealer's lot.

Many people have tried to explain why that extra penalty is necessary to stop the bad acts from continuing. The free market system we live in is a kind of legal honor system, and that system fails to function if bad actors are willing to break the law - consumer laws - over and over again until they get caught. Sometimes a good, short parable - like a good picture - is worth a thousand colorful words.