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.


January 8, 2015

Honda Faces $70 Million Fine for Under-reporting Injuries

Stepping up its enforcement authority, the National Highway Transportation Safety Agency ("NHTSA") levied two separate $35 million fines against Honda Motors this week. The total of $70 million in penalties is believed to be the highest ever assessed by NHTSA. At issue was Honda's failure to document more than 1,700 claims of injuries and even deaths, that came within data required to be disclosed by federal statute and by NHTSA's Early Warning Reporting system ("EWR"). The EWR program requires auto manufacturers to report claims they receive that blame vehicle defects for serious injuries or deaths. It is not voluntary.

The agency wanted to send a significant message, along with a fine large enough to be noticeable to management, that Honda's irresponsible and misleading nondisclosures of injuries and deaths caused by defective vehicles will not be tolerated. NHTSA's new head, Mark Rosekind, referred to the missing or misreported data as "critical safety information.”
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In fact, the penalties are long overdue, as the audit period extends back all the way to 2003, a period of more than a decade. The deception came to light in large part due to the efforts of Clarence Ditlow, pictured at the left. Ditlow is Director of the Center for Auto Safety in Washington, D.C., a respected consumer advocate. In a letter to NHTSA last October, Ditlow urged NHTSA to enforce compliance with the EWR requirements. His letter reminds the agency that he had notified NHTSA of the need for action against Honda as early as 2011. You can read the full text of the letter here

Honda executives said they had just been confused by what was to be covered. That claim is hardly credible. In fact, that excuse for omissions in its reporting practices was particularly weak, when compared with what it did report. NHTSA found that Honda had failed to report 1,729 written claims of injuries or deaths from 2003 to 2014. But the shocking thing was that it only reported about 900 injuries or deaths. This was true even when there were wrongful death lawsuits involved. Clearly, this was not a minor oversight.

Since knowledge of existing design and manufacturing defects in similar make and model vehicles is one of the strongest forms of consumer protection the driving public has, it is almost certain that correct reporting of this "critical safety information" could have saved lives. A $70 million fine sounds like a lot, until one thinks that it is addressed to a callous disregard for lives and safety. Given the egregiousness of Honda's behavior, Ditlow has called for a criminal investigation.

December 2, 2014

Buckle Up For Safety

The exploding airbag saga is not going away. We previously reported on this problem on October 21, 2014, in a post entitled "Lifesaver or Lethal Weapon?" on this site. But now, Japanese manufacturer Takata Corp. appears to be defying efforts of the National Highway Traffic Safety commission to recall the dangerous components nationwide.

Testifying before Congress today, company spokesman Hiroshi Shimizu insisted "I would drive a car with a Takata air bag." Skeptical lawmakers had to wonder how much he was paid to say that.

Takata wants to pass the risk and responsibility on to its client automakers in the United States, and have them decide whether to widen the recall to all cars nationwide or not. By one account, Honda has already agreed to do so. Facing that enormous expense, other car manufacturers are hesitating. airbag-explosion.jpgEarlier this week,Toyota said it intends to ask the industry to hire an independent engineering company for testing of the suspect parts. General Motors, Nissan, Subaru, Chrysler and Ford initially agreed to cooperate and to share results so that they can evaluate potential recall repairs. But events may be moving too quickly for that. You can read more about this emerging story here. Separately, Takata's Shimizu told Congress the company will set up its own "independent quality assurance panel" to investigate the matter. Just how "independent" this panel would be will be is anyone's guess.

It sounds more like a battle of the experts is brewing. And lawsuits. With at least five deaths, and many injuries alleged to be caused by the problem, Takata is busy putting its legal team in place. The Wall Street Journal reports that former Department of Transportation Secretary Norman Mineta will be among the hired hands.

Takata may be playing for time. Earlier reports indicated that it has insufficient replacement parts on hand to comply with the possible expanded NHTSA recall. Currently, the recall only covers regions of high humidity, because air humidity is thought to be factor in the fragmentation upon deployment. But the climate limitation is expected to change as the recall widens. And it should. If Florida is humid, what about North Carolina? Texas? California? And cars move around.

In the meantime, many consumers are taking precautions themselves, such as activating the PSIR switch that can turn off the supplemental restraint system ("SRS" the common acronym for airbags). But not all cars and trucks have a PSIR switch, or other suppression capability. If you have one of the millions of affected vehicles, check your manual or call the dealer.

Remember, whether or not your car has airbags, you should always use your seat belts anyway. It's time once again to heed the old jingle, "Buckle Up for Safety, Buckle Up."

November 29, 2014

EPA Will Set New Clean Air Standards

EPA Administrator Gina McCarthy announced this week that the agency intends to issue new, stricter pollution standards in 2015. The Clean Air Act tasks the Environmental Protection Agency with the job of re-evaluating smog standards every five years.

images-1.jpg In a CNN Op-Ed, McCarthy writes, "So today, following science and the law, I am proposing to update national ozone pollution standards to clean up our air, improve access to crucial air quality information, and protect those most at-risk -- our children, our elderly, and people already suffering from lung diseases like asthma." Articulating the scientific measurement behind the effort, she continues, "This proposal would lower the current standard of 75 parts per billion (the concentration of ozone pollution in the air we breathe) to a standard in the range of 65-70 parts per billion, while taking public comment on a level as low as 60."

The Clean Air Act of 1970 is one of the strongest environmental protection laws on the books.The regulations promulgated under its authority have vastly improved the health and welfare of Americans, according to the American Lung Association. You can read about the ALA's efforts to protect the statute here.

Given the current climate in Washington, D.C., it is easy to forget that the Clean Air Act was historically the product of bipartisan support. Signed into law by Richard Nixon, it was amended and strengthened during the George H. W. Bush administration. Yet, today's Republican lawmakers vilify the regulations the Clean Air Act requires.

Every time the EPA has required tougher smog standards, the public has benefitted from cleaner air. This is especially true in California, which has more cars on the roads than any other state. Thanks to the Clean Air Act, the smog has largely lifted from Los Angeles, and the mountains are visible from downtown again on most sunny days. Residents of San Jose, San Diego, San Francisco, Sacramento and cities throughout the state all enjoy postcard perfect blue skies only when the air is clear and scrubbed of smog. Most importantly, cleaner air means Californians can breathe.

Nonetheless, the EPA message has lobbyists for the American Manufacturers Association mobilizing for a public relations offensive to block the EPA's latest efforts to improve air quality. They claim that the changes would be costly for companies, such as the auto industry. But they have made the same arguments for 44 years, since the enactment of the Clean Air Act itself. They have raised the same refrain throughout the efforts of successive administrations to strengthen ozone standards. The automotive industry has consistently complained that such regulation is costly, threatening its business model, risking jobs. But, as McCarthy writes, "Auto makers didn't fold, they flourished."

As they previously threatened when the EPA took measures to remove lead from gasoline and reduce acid rain, industry lobbyists claim that measures to reduce ground ozone levels will be ruinous to business. But, as McCarthy notes, the sky is not falling. It is just getting cleaner.

November 19, 2014

C.A.R.S. Targets CarMax for Selling Unsafe Vehicles

Consumers for Auto Reliability and Safety, known by the acronym C.A.R.S., has launched a campaign against the automotive megadealer CarMax, alleging that its used car lots engage in a widespread practice of reselling unsafe cars, some with outstanding safety recalls, while touting its extensive checkpoint system.

C.A.R.S. director Rosemary Shahan, who is known as a tireless consumer advocate, is pushing for a new state law preventing dealers from selling cars under active recalls. Shahan asserts, "Dealers should not sell unsafe, recalled cars to consumers. Period. Yet, dealers continue to sell cars with serious safety defects that have killed and maimed people, and are being recalled by the manufacturer." With that unassailable logic, Shahan and C.A.R.S. have created a facebook page to spotlight some dark practices of the CarMax group. This interactive site gathers other media coverage of the issue, consumer complaints, comments, photos, and other evidence. To the extent all of this is true, there are a lot of really dangerous cars out there on the road.

Part of the problem is that used car dealers have started claiming their inventory has passed inspection of long checklists of components and parts, or been "certified" by the dealer's own professional service departments before being offered for sale. carmax.jpg This kind of advertising lulls even naturally skeptical buyers into trusting the dealer and declining to get an independent inspection before buying the car. These programs are often deceptive, because consumers are lead to believe that a long list must include everything. Nonetheless, even a 100-item list could omit crucial things like the engine or brakes. Even buyers who read the list are apt not to notice what it doesn't include.

The issue of unaddressed recalls raises this deception to another level. That is where Shahan's proposed legislation comes in. Unresolved recalls involve, for the most part, defects that are known to be dangerous, constituting a risk of unreasonable harm, even bodily harm. An unsafe car may be unsafe not only for the driver, but for the entire stream of traffic on a busy road.

You can check out C.A.R.S. campaign to highlight the problem right here.

November 13, 2014

Kemnitzer, Barron & Krieg Named "Ambassors of Justice"

California Rural Legal Assistance has honored attorneys Bryan Kemnitzer, Nancy Barron, and Bill Krieg of the law firm Kemnitzer, Barron & Krieg with its 2014 Ambassadors of Justice Award. The award was presented to the consumer law firm on November 5, 2014, at its annual San Francisco Fiesta held at San Francisco's AT&T Park. IntialsVerticalLogo.png

Accepting the award from Executive Director, Jose Padilla, founding partner Nancy Barron emphasized the synergy between the mission of CRLA and the work of the private bar in prosecuting consumer class actions. Kemnitzer, Barron & Krieg specializes in bringing cases against the car industry for defective products and against the finance industry for deceptive practices. Kemnitzer, Barron & Krieg also employs the Unruh Civil Rights Act and financial elder abuse statutes, to enhance remedies available under financial and consumer statutes.

The use of the class action device to enforce laws enacted for the public good, and especially for the benefit of vulnerable populations, is a form of collective redress that promotes economic civil rights for millions of Californians, Nancy Barron explained. This form of collective redress in the court system is under attack by corporations and businesses that benefit from exploiting the poor and uneducated, those with little choice, those without a voice.

The consumer rights movement was born of the labor rights movement, because that which can be earned in the workplace can be stolen in the marketplace. The great civil rights leader of the 1960s, Rep. John Lewis of Georgia, recently said that economic justice - including consumer rights in the form of truth in lending, fair credit, fair debt practices, freedom from fraud, financial literacy, and fair access to the court system - is the civil rights battlefield in the new millennium.

Since its founding in 1966, California Rural Legal Assistance has grown to provide urgent and essential education and representation to more than 29,000 individuals per year. It does so through its 23 regional offices in more than 22 California counties. CRLA serves an array of clients including its traditional base of farmworkers, but also individuals with disabilities, unemployed, immigrants, children, seniors and individuals with limited English proficiency.

clra.jpg CRLA staff conducts litigation, offers outreach and legal education on the most pressing issues facing low-income communities: housing, employment, education, workplace safety, discrimination, access to healthcare, domestic violence and sexual harassment in the workplace. These are basic human needs. These are basic human rights.

Although the percent of the population living below the poverty level in California is among the highest in the country, CRLA finds reason to celebrate. Their outreach is broad, and getting broader. Their advocacy is effective, and their influence is on the rise. You can read more about CRLA and the Ambassadors of Justice Award here.