April 22, 2014

Student Loan Co-Signer Death May Trigger Default

We have previously warned - on this blog - of the dangers of co-signing. Usually a relative or love interest asks the co-signer to simply add his or her signature to loan documents. "I just need your credit," the borrower says, "You'll never have to pay a cent." Nothing could be further from the truth. Creditworthiness is based on the borrower's ability to repay the loan. Sometimes the co-signer requirement is prompted by an aggressive car salesman or loan officer who wants to close the deal fast. The only reason an automotive dealer, mortgage company, or student lender would require a co-signer is if they doubt the borrower's ability to repay. The co-signer is taking precisely the risk the lender has declined.678948_writing_check.jpg

Girlfriends and grandparents are typical targets. Sad as it may be, the co-signer is usually trading money for love. With a sense of betrayal, it is the co-signer who gets stuck having to pay the loan or risk devastation to their credit rating.

Even if the student dies by accidental injury or unexpected illness, and even without completing his or her intended degree, the grieving co-signer could still be on the hook to repay the deceased student's loans. And the lenders are relentless.

But now, a troubling twist has come to light. A Consumer Financial Protection Bureau report prompted the New York Times proofreaders to get to work reading the fine print of private student loan contracts. The NYT investigative journalists, with the help of eagle-eyed copy editors, verified what the CFPB had uncovered, and what increasing numbers of student loan borrowers have come to regret. Death of the co-signer triggers default of the loan.

What does that mean for the primary borrower? It means the full amount of the debt immediately comes due. You can read the full story here, as well as the underlying press release and report of the Consumer Financial Protection Bureau here.

Not all lenders are eager to accelerate the debt, preferring the steady stream of repayment. Much of the reported trillion dollars in outstanding student loan debt is bundled, packaged, securitized, and sold to downstream debt collectors. Many lenders would prefer simply to keep collecting on the original terms. And in California, a new law that went into effect January 1, 2014, requires debt collectors to produce competent evidence of the original loan. Since some debt buyers just purchase a spreadsheet of borrowers and balances, the original loan docs can be hard to come by. Any student borrower who realizes a new and unfamiliar finance company is trying to collect on a student loan should seek immediate professional legal advice.

Nonetheless, this is just more bad news for students. Already grieving their loved one, who did them a favor in their time of need, they are bound to regret their original co-signer request.

April 21, 2014

General Mills Backs Down

Last week we reported on General Mills' efforts to bully consumers into forced binding arbitration and we predicted the ploy would backfire. Well, it did backfire. Consumer outrage and negative publicity erupted. Public Justice reports that General Mills has reversed its policy. You can read the full story here.

Gradually, the problem of arbitration in consumer contracts is beginning to resonate with people across the country. The New York Times was one of several national news organizations which reported on General Mills' behavior. Since then, another great article in the New York Times explains how forced arbitration enables financial institutions to get away with lending abuses. You can read NYT reporter Emily Bazelon's excellent article here.

Financial institutions should take a look at General Mills' experience, and realize that borrowers as well as consumers of goods and services are getting fed up with being denied their day in court to challenge defective products and deceptive practices.

April 17, 2014

General Mills Arbitration Ploy Could Backfire

Arbitration clauses hidden in the small print of many contracts take away consumers' right to sue in court, the right to a jury trial, the right to discovery of internal corporate documents, the right to class actions, the right to appeal, and other aspects of civil justice Americans take for granted.

Because binding arbitration can insulate corporations from liability for fraud, product defects, false advertising, even contaminated food and dangerous drugs, arbitration clauses have become more and more common in form contracts drafted by company lawyers. Exculpatory in nature, they eviscerate long-standing consumer protection laws.

Courts have held that consumers do not have to actually know what rights they are giving up, in order for hidden arbitration clauses to be enforceable. This is shocking. The absurdity of the fiction that purchasers have agreed to give up important consumer rights just by using a product, has given rise to a long-standing joke among advocates: namely, that a future arbitration clause could be hidden like a plastic prize at the bottom of a Cheerios box.

That's no longer a joke. The future is here.

The food conglomerate General Mills recently posted a notice on its website that consumers give up their right to sue the company if they download coupons, like it on social media such as Facebook, or received any benefit from the company that can be accessed using the website. Since the website advertises the company's vast list of products, General Mills might argue that just buying its products would bind consumers to waive his or her rights and accept arbitration. The action brought an avalanche of unwelcome publicity, including articles in business journals, online new magazines and the New York Times.

A partial list of brands covered by the clause includes: Pillsbury, Betty Crocker, Hamburger Helper, Nature Valley, Wheaties, Chex, Bisquick, Cheerios, Total, Yoplait, even the organic favorite, Cascadian Farms. And, of course, Lucky Charms.

The cereal maker apparently doesn't know its own folklore. Legend holds that if a human catches a leprechaun, the mischievous little thief must grant its captor three wishes. The first wish any consumer of Lucky Charms should be simply: "I wish General Mills would give me back my rights."

April 14, 2014

Reading, Writing and Financial Literacy

A course in financial literacy is one subject Americans need most, and yet it is most often omitted from high school, or even college, class offerings. Math is only one component of financial literacy. Understanding the power of advertising, sales practices, and the consequences of our own behavior are just as important as the functions of arithmetic. Financial ignorance drives many consumers into debt and leaves people vulnerable to fraud or scams. The lack of financial literacy even leads to avoidable habits that can cause a credit score to plummet.

The Federal Trade Commission wants Americans to know that April is "Consumer Literacy Month". You can read the full press release here. The FTC website has a host of good information about credit and debt here.

What is the difference between credit and debt? Why does a credit score matter and what factors go into that number? How is "big data" changing the way credit will be scored in the future? What are the risks of credit cards? What is interest and what is a term? How do you fill out a credit application? How do you get a free credit report? How do you buy a car? Does the small print matter? What are your rights as a consumer? What are you choices?

Knowing the answer to these questions will save you money. It will save you money every single day.

One organization that is trying to change the poor state of financial literacy is the non-profit called FoolProof. FoolProof.gif Its interactive online format is gaining traction in high schools throughout the country. Its programs for service members are impressive. Its customized modular programs address a variety of needs for different ages and levels of financial sophistication. Some of its programs are free, as a part of its advocacy effort. You can find out more about this organization and its growing influence here.

On the other hand, if your lack of financial literacy has left you drowning in a pool of trouble, financial literacy can still teach you to swim. The National Consumer Law Center in Boston has published a handy guide called "Surviving Debt." You can purchase it here or look for it in your public library.

March 20, 2014

Car Makers Face Criminal Penalites For Putting Lives At Risk

Automotive safety issues are a matter of life and death. For decades, trial lawyers have addressed many manufacturers' conscious disregard for the safety of consumers through cases in court, seeking remedies including punitive damages. These are often tragic cases of injury and death and sorrow, which work their way through the civil justice system: case by case, judge by judge, jury by jury.holder.jpg

Now, the United States Justice Department has stepped in to raise the level of inquiry to that affording criminal penalties. The long-running investigations by NHTSA and other agencies into Toyota's sudden acceleration problems have been the subject of many recalls. Now those investigations have resulted in a $1.2 billion settlement, reported to be the largest in history. Even so, the Justice Department deferred further criminal prosecution for three years. You can read more about this landmark settlement here.

While the Attorney General specifically mentioned the Toyota settlement, Toyota is not alone. The federal government has put all car manufacturers on notice that automotive safety is a priority for this administration. In announcing the Toyota settlement, Eric Holder said, " "No company is above the law."

All eyes are now on General Motors, which recalled 1.6 million cars last month for defects in certain ignition switches related to sudden stalling and numerous deaths over a period of 10 years. You can read more about the General Motors investigation here.

One of the noteworthy aspects of both the Toyota and G.M. investigations is that the defects involve what car makers call "driveability" problems - that is, a driver's ability to control the acceleration and deceleration of the vehicle. For years, manufacturers tried to argue in lemon law cases that driveability problems did not rise to the level of substantial impairment of the use, value or safety of the vehicle. For more about the California Lemon Law, click here. They claimed, as Toyota tried to argue in some of the wrongful death cases involving sudden acceleration, that it was "driver error." Such defenses add insult to injury, sometimes grievous injury, and do not sit well with juries. Nonetheless, just raising the defense allowed manufacturers to drag out meritorious cases unnecessarily or require expensive expert testimony. Other car manufacturers have tried to argue that sudden stalling is a mere inconvenience. Not so. Sudden stalling in traffic is a serious, life-threatening safety defect.

These criminal charges, investigations and penalties may change car manufacturers' deceptive defenses of hiding what they knew about life-threatening dangers of their defective cars. What may be bad news for G.M. or Toyota is good news for consumers and everyone on the nation's highways.

March 10, 2014

Consumer Reports Names Best Used - As Well As New - Cars On the Market

There are so many “Best in Show” categories for cars these days as to make the competitions seem like nothing but hype.

For example, J.D. Power, Edmunds, Car & Driver, and Consumer Reports all have multiple categories for their branded award citations. You can find the “best cars on the market,” “best small,” “best luxury,” “best mid-sized luxury,” “best SUV,” “best compact,” “best subcompact,” “roomiest,” “best fuel economy,” “best hybrid,” “most fun to drive,” “most fun on a budget.” It just never ends. Some commentators have compared the industry frenzy to a child’s soccer team, where everyone goes home with a gold-painted plastic trophy at season’s end. Call it the Oscars of the automotive world.

The April 2014 issue of Consumer Reports just hit the newsstands. It is the Annual Auto Issue, dedicated to reviewing the full range of models available in the U.S. Although more objective and credible than most others, Consumer Reports still lists so many categories, it appears to have something for everyone. It might be more important to examine the sidebars at the end that identify the “Models to Avoid.”

Unlike other reports that focus on the current year makes and models, this issue has a useful section on used car purchasing. The team at Consumer Reports has crunched the numbers and analyzed its own data on reliability and performance from the last decade. Because price is a primary filter for used car buyers, Consumer Reports has organized its results in increments of $5,000 and by year. A separate chart sorts the information by size and model type.

One particularly helpful visual compares problems with different components as vehicles age. This gives the reader valuable information about what parts are more vulnerable at 3, 6 and 12 years. The chart has some surprising results. Many people think the transmission is the riskiest proposition in an old car; but in fact the fuel system is the most commonly reported problem in cars 8 years or older.

One of the reasons the price of used cars has increased in recent years is due to the manufacturers' CPO or "Certified Pre-Owned" programs, which are promoted at the dealerships. These used cars are sold at a premium, presumably because they have been thoroughly checked out. That is not always true. The buyer needs to carefully examine the long list of things covered by a particular CPO program and should compare that list to the Consumer Reports chart entitled "What goes wrong as cars age." Obviously you want to see fuel system, engine and suspension - not just mirrors and audio system - on the list of covered items, to decide whether it is worth paying more for a CPO car.

Used car buying is never an easy process. But, with its emphasis on reliability, not just styling, and its urging to purchase what's right for you, this Consumer Reports guide is a helpful tool for consumers trying to sort through the used car market.

March 6, 2014

Court Certifies Class Action Against Sacramento Car Dealer In Hmong Community

The United States Federal District Court for the Eastern District of California has certified a class of 253 car buyers who bought cars from Yia Yang dba Yia's Auto Sales, financed by the owner-affiliated Yia Yang dba Plantinum Financial. See, Pha, et al, v Yia Yang, et al, Case No. 2:1-cv-01580-TLN-DAD.

In a lucrative scheme, which the representative plaintiffs Bor Pha and Nou Lee allege was a deceptive practice, Yia Yang falsely stated the interest rate as 12% on the conditional sales contracts, when in fact it was 20% or more. Failure to comply with the truth-in-lending provisions of the Rees Levering Automotive Sale Finance Act allowed the true cost of credit to be concealed among other contract terms.The plaintiffs allege that misstating the interest rate in such a way was not an isolated incident, but a pattern of practice that Yia Yang engaged in systematically over a number of years.

In a disturbing twist on the scheme, Yia Yang admitted that the majority of his sales,or approximately 125 identified customers, were from his local ethnic Hmong community. The Court certified this group as a subclass. The subclass may be entitled to additional remedies under a civil rights claim made separately on their behalf in the lawsuit.

Class notice will be mailed shortly to class members identified in the defendant's records. A trial date has not been scheduled, but may occur as early as later this year. In its class certification order, the Court appointed the law firm Kemnitzer, Barron & Krieg LLP as Class Counsel. Any inquiries concerning the case should be made to senior associate, Amy Tay.

March 4, 2014

Redesigning the Rearview Mirror - Nissan Thinks Outside The Box

Blindspots have long plagued the driver's range of vision through a passenger vehicle's rearview mirror. A driver can easily miss seeing a child who is standing or moving behind the car. A small person, bicycle rider, skateboarder or wheelchair bound senior can unfortunately be invisible to the driver who is shifting into reverse, exiting a driveway, or backing out of a garage. nissan%20logo.jpgThe problem is even worse for SUVs and trucks, which have a high chassis. On this blog, we have previously reported on the potential for accidents and other unintended consequences. See "Backing Up Into Tragedy," posted October 23, 2013.

Now Nissan reports that it has totally re-examined the ordinary rearview mirror, which has, up to now, been constructed of reflective glass. Not only is the current design vulnerable to the vehicle's own blindspots, it is frequently blocked by passengers or personal belongings piled in the back seat of the car. The new development is still in the testing stage. But this lateral thinking approach to an age-old design is promising. You can read about Nissan's new approach to the problem here.
Not only will the new, improved rearview mirror systems prevent accidents, but the potential for higher resolution from a camera image will provide a better view of everything: tailgating drivers, that pothole you just drove over, or the highway patrol car that seemed to come right out of nowhere and is now following attentively right behind.

March 3, 2014

Cleaner, Greener Gasoline

Today the Environmental Protection Agency is issuing important new regulations that will improve air quality nationwide by demanding substantial reductions in harmful automotive emissions. Read more about these long-awaited developments here.

True to campaign promises, the Obama administration is supporting federal agency action that will significantly reduce harmful chemical content in the gasoline used in cars and trucks on the nation's highways. Toxic pollutants continue to plague cities where motor vehicles driven on fossil fuels are the primary means of transportation. After years of hearings and studies and testimony, the EPA has finalized rules that will require tighter emissions standards for motor vehicles, a move intended to save thousands of lives per year.smog.jpg

The effects of sulfur and other toxic pollutants are not just the ugly layer of urban haze we refer to as smog. Sulfur content in the air has been linked to a host of health concerns, including heart problems and a wide variety of respiratory illnesses such as asthma.

Of course, the oil and gas industry is poised to publish ominous warnings that gas prices will go up in response to the new EPA rules. But the public attitude has reached a tipping point. Given that oil company profits are at an all-time high, few people believe the price at the pump is due to the government's efforts to clean up the air.

Contrary to oil companies' view, at least some automakers hail the new rule, even though car prices also may be slightly affected. Michael J. Stanton, president and CEO of Global Automakers, sees opportunity. "Reducing sulfur in gasoline brings instant benefits to consumers and the environment," he says. "This rulemaking will reduce emissions from the existing fleet of vehicles on our roads today and opens the door for even cleaner cars in the future." You can read their press release here.

The EPA rules have been in the works for years, but are being finalized today. They take effect in 2017.

February 6, 2014

New Rules for Debt Collectors

What seemed like a simple loan in the beginning can get complicated quickly. Most borrowers do not realize that their car loan, or credit card debt, or even student loans, can be bundled and sold in a secondary market as part of a larger debt portfolio. All of a sudden, the bills are coming from afar, under the logo of some company you have never heard of. Worse yet, the new company may be charging the wrong amount or adding on fees that you never agreed to. The entity demanding payment might own the debt or just be a "servicer" collecting the debt for a flat fee. If it bought the debt, chances are it paid mere pennies on the dollar, taking the risk it can collect only part of what is owed.debtlogo.png

This practice is of debt buying and downstream debt collection is rife with abuse. The Federal Trade Commission has been studying the problem for years and has reported on the need for reform. In the past, these debt bundles might have been evidenced by nothing more than a spreadsheet with names, balance figures, and phone numbers. Debt collection lawyers could get default judgments by the bushel basket.

But all that is about to change in The Golden State. California lawmakers have taken action. Sponsored by Sen. Mark Leno (D-San Francisco) and Lou Correa (D-Anaheim), SB 233 is commonly known as the "Fair Debt Buying Practices Act." The new law applies to debt sold on or after January 1, 2014. At last, it regulates the activities of a person or entity that has bought charged-off consumer debt for collection purposes. It also sets forth sensible rules a debt collector must follow before filing a lawsuit against a borrower. The law prohibits a debt buyer from making any written statement in an attempt to collect a consumer debt unless the debt buyer actually has concrete information that (1) the debt buyer is the sole owner or is authorized to assert the rights of all owners of the specific debt at issue, (2) the debt balance, (3) the name and address of the creditor at the time the debt was charged off, and (4) other details. The bill would require the debt buyer to make certain documents available to the debtor, without charge, within 15 days of a request, along with other significant consumer protections.

In other words, if you get a call from a debt collector you don't recognize or you get a bill from an entity you never heard of, you may now be entitled to information showing that stranger has a right to payment. In short, the borrower will be able to say to the debt collector, "Prove it." Too often borrowers have no way to verify that the payment they are making will actually go toward the amount owed. Too often, confused borrowers who get sued simply default, rather than seeking legal advice. Consumer advocates believe this new California law will prevent debt collection scams, and bring fairness and accountability to what the FTC has called a "broken system" of debt collection practices.