Foreclosure Fraud 4: Reigning in the Imbalance of Power

Anyone who has negotiated a price for a car knows what happens next.  Having agreed upon a price, the salesperson or clerk starts filling out an invoice and adding more fees, charges, and items over and above the agreement.  A whole new round of negotiations starts, and unless the buyer is willing to walk away from the car, she or he may be stuck with paying these "mandatory" fees.

Banks and other lenders have taken a page from the car dealer's book, and they must have entire departments devoted to thinking up charges and fees with fancy and official-sounding names.  With the passage of reforms for the credit card business and other consumer credit, these fee inventors have redoubled their efforts to replace outlaws charges with new ones.

If there is any fairness in the consumer credit industry, then this ability to arbitrarily and independently add fees and charges has to be reigned in.  Borrowers need to be able to enter discussions on modifications with at least the presumption that the process has their interest as a concern along with the lender's interest.  We want the attorneys general to enforce procedures which help maintain a balance of power in the loan modification and foreclosure process.

Problem: Servicers take unfair advantage of borrowers in default by charging multiple fees, sometimes for services that are unnecessary, and sometimes for costs that are disproportionate to the service being performed (in some cases by affiliated companies).

Solution:

All Fees Must Be Reasonable and Transparent

All servicer fees must be bona fide and reasonable and fully disclosed to the borrower.  Lender attorneys fees charged to borrowers may not exceed bona fide and reasonable fees for work.  Fees may only be collected for services actually rendered or for work actually performed.

Forced-place Insurance Severely Limited

The use afforce-placed insurance must be limited to reasonable application, affordable payments and only after other options, including borrower's option to purchase on open market, have been exhausted.

Problem: For any requirements (including those already in place), adequate enforcement provisions and staff must be put in place so servicers are not able to ignore the requirements with impunity.

Solution:

• Each settlement should contain the creation of an ombuds-office under the AG that will investigate violations of the agreement. Fines should be imposed for violations of the agreement if servicer refuses to cure. Also, the AGs should have the right to issue a "cease and desist" letter to halt foreclosure activity during the investigation.
• A portion of any monetary funds from the settlement should be directed to legal aid and housing counseling groups to assist with modifications and enforcement of agreement including foreclosure prevention litigation.
• In addition to assigning each borrower a single case manager, a single team should be created in house at each servicer as part of the settlement to oversee loan modification activity under the settlement.

The next post will deal with which people should have relief and recourse in dealing with foreclosure fairness and foreclosure fraud.

It's a Nationwide Fight Against Predatory Payday Lending

For numerous years, a fight has been going on from state to state and on a national level to curb and stop usurious payday lending.  This loan-sharking business exists by finding the cracks in the laws.  They hire sophisticated lawyers to find the legal loopholes, and slick PR firms to explain why they fill a need in the credit market.  They prey on desperate people and pretend to be a friend of the people who need credit.  The real nature of their business, however, is to be debt sharecroppers.  They gain an interest and claim on a person's future income in perpetuity.  It is a business designed to entrap borrowers so that they can never get out of debt.

I'll get a chance to speak about this predatory business at a public hearing on Tuesday, February 22, at the Texas Senate Committee on Business and Commerce.  I am impressed with the work of Texas Faith for Fair Lending, at whose invitation I will be speaking.  Some of these folks are the ones I used to work with as a wet-behind-the-ears seminary graduate in the mid-1980s.  In those days, these organizations were working to protect and provide for children in poverty and trying to hold off the tsunami of state-sponsored victimization through gambling businesses.  Suzii Paynter of the Texas Baptists Christian Life Commission will be part of the fight, and I am proud to get to work with such a distinguished drum major for justice.  The quoted material below comes from the Texas Faith for Fair Lending web site.  You can read the original at this link.

Payday Lenders and Car Title Lenders Evade Existing Texas Lending Laws

Although Texas lending laws provide generous regulatory and fee structures, payday lenders and car title lenders sidestep these provisions by posing as credit services organizations (CSOs), giving them an unfair advantage in the lending landscape.  As CSOs, payday and car title lenders operate outside of the bounds of the rules set for all other consumer lenders in the state and exploit a state law designed to protect consumers from seeking credit repair help. Both payday and auto title lenders could operate under Ch. 342.  For the smaller loans, auto title lenders could use the rate computations under 342F (or 342E).  For larger loans, they could operate under 342E.ⁱ

Below is a comparison of Texas's existing lending law which payday and car title lenders evade, and a snapshot of their abusive practices permitted by the CSO loophole.

It's Time to Level the Playing Field. 

The state's CSO statute was designed to protect consumers from abuse when seeking credit repair help, not as a vehicle for loans that result in long term indebtedness.  After more than 5 years of permitting this evasion of state law to continue, it is time for legislators to close this loophole, and ensure that these lenders operate under the Texas lending laws in place for all other consumer lenders.  It's time to close the loophole.

__________________

ⁱ The maximum loan under subchapter F is $1,240.  Under subchapter E, loans of up to $15,000 may be made.

ⁱⁱ Under existing Texas lending laws, finance charges for payday loans are set by the Texas Office of Consumer Credit Commissioner (OCCC).  Texas OCCC's authority to set these rates comes from TFC § 342.007, which allows the finance commission to establish rules for payday loans, and in TAC § 83.604(c) which incorporates the fees by reference.  For current Texas OCCC rates, see http://www.occc.state.tx.us/pages/int_rates/Index.html and click on the link for “Deferred Presentment Transaction Rate Charts.”  However, instead of complying with this law intended for them, payday lenders operate as CSOs, for whom there is no limit on finance charges, and rates reach upward of 500% APR (and higher) fur a loan that typically has a 14-day term.

ⁱⁱⁱ Under existing Texas lending laws, car title loans can carry finance charges consisting of a $10 set fee, plus $4 per $100 a month installment charge.  Car title loan finance charges are authorized under TFC § 342.253, which incorporates the fees permitted by TFC § 342.252 (3).  In addition to these finance charges, under existing Texas lending law, TFC § 342.502 (b) (5) expressly permits a “fee for recording a lien on or transferring certificate of title to a motor vehicle offered as a security for a loan.”  (The recording fee is not included in APR calculations because they are excludable from inclusion in the finance charge under the federal Truth in Lending, Act, Reg. Z § 226(e) (l).)  However, instead of complying with these state lending laws intended for them, car title lenders operate as CSOs, for whom there is no limit on finance charges, and rates reach upwards 300% APR fur a loan that typically has a 30-day term.

^iv Regardless if the cost is classified as "interest” or “fees” under state law, the cost to the borrower is the same.  The federal Truth in Lending Act requires that both interest and fees be combined and disclosed to borrowers as an Annual Percentage Rate (APR).  Federal law requires the cost of the all credit to be disclosed in terms APR, regardless of whether the loan is for two weeks or two years.

^v Existing Texas laws expressly permit payday loans to use a borrower's post-dated check as collateral for the loan, and expressly permits car title loans to use a borrower’s title to her car as collateral.  For payday loans, see TAC § 83.604 (b) (“The check given in the [payday loan] transaction may serve as security for the payment of the loan.”).  For car title loans, car title as security is not expressly prohibited under TFC § 342.503 and is stated as a permitted practice for authorized fees in TFC § 352.502 (b) (5).  However, even though the CSO statute does not expressly allow any of these collaterals, these payday and car title lenders operating as CSOs use checks and car titles as collateral respectively, as well as electronic access to a borrower’s debit account and a letter of credit issued by the CSO.

^vi Under existing Texas lending law, payday lenders and car title lenders, just like all other consumer lenders and brokers, are subject to oversight by the Texas OCCC.  Although CSOs are subject to private litigation and oversight of the Attorney General, these provisions have proven insufficient to protect consumers against abusive high cost lending.  CSOs are the only entities engaged in consumer lending transactions that escape oversight and compliance requirements of the OCCC.

I'll let you know how it goes.  This will be a first for me.

Isaiah and Economic Justice 4: Misleaders

Isaiah 3:12b-15

O my people, your leaders mislead you,

….and confuse the course of your paths.

The Lord rises to argue his case;

….he stands to judge the peoples.

The Lord enters into judgment

….with the elders and princes of his people:

It is you who have devoured the vineyard;

….the spoil of the poor is in your houses.

What do you mean by crushing my people,

….by grinding the face of the poor? says the Lord God of hosts.

Isaiah 3:18-24

In that day the Lord will take away the finery of the anklets, the headbands, and the crescents; the pendants, the bracelets, and the scarfs; the headdresses, the armlets, the sashes, the perfume boxes, and the amulets; the signet rings and nose rings; the festal robes, the mantles, the cloaks, and the handbags; the garments of gauze, the linen garments, the turbans, and the veils.

Instead of perfume there will be a stench;

….and instead of a sash, a rope;

….and instead of well-set hair, baldness;

….and instead of a rich robe, a binding of sackcloth;

….instead of beauty, shame.

Isaiah 3 continues to point out the instability of the conspicuous wealth of the powerful in Israel. One part of the chapter comments on the wealthy women who love to show off their finery while constantly shopping for more. But this is not strictly a criticism of women. It is about one of the visible features of a system in which the wealth of has grown so far beyond the level of human need that it becomes primarily a measuring rod within a competitive structure of status and power.

In this text, it is the most powerful, the same ones who by social delegation should be most responsible, who receive the greatest attention. The leaders have brought about this problem. The elders and princes have brought the nation to this desperate economic situation, yet they do not even see the problem. They lie to themselves and to everyone else to justify a system organized around fulfilling their insatiable greed. Of course, what they are doing is right since it is working for them; moreover, if what they are doing is right, it is by their logic good for all.

At the heart of their sin is deception. They mislead the people, and ultimately come to believe their own deceptions. They foment confusion about economic matters which anyone should be able to understand. They create technical language and lengthy regulations full of caveats and qualifications in order to conceal their intentions. They work in backrooms to strategize the path to their self-interest, then dress it in empty platitudes of the common good. We might recognize this in the marketing of subprime mortgages. We might hear echoes of their deceptions in the cunning secrecy of credit default swaps. We may know of what they speak in the hidden fees and traps of consumer credit. We may continue to hear the deception in the claim that capping interest rates will make it impossible to loan money to lower-income people, as if high interest rates are transforming them into becoming more creditworthy.

The prophet does not mince words. The vineyard image bears rich significance here. First, it is a symbol of a prosperous and good life. To have a thriving vineyard is to be blessed with wine at one’s table as well and with a valuable product for trade. But equally importantly, a vineyard is an image of Israel as the Lord’s planting and cultivation of a people (5:1ff). God has tenderly and conscientiously cared for the vineyard. But rather than Israel blossoming and bearing rich fruit as a people, the ones who should have cared for the vineyard have stripped it bare and left it in ruins.

The image gives way to a very concrete indictment. After saying they have devoured the vineyard, the prophet explicates the symbolic language. Their fullness and fatness comes from despoiling the poor. Their wealth is the product of oppression. Their mansions are framed and decorated by the rightful possessions of the poor. Their wealth is not derived from their virtue. Their only expertise is in being good criminals and hiding their crimes. This is what God despises.

Ultimately, the prophet claims that their appearance of greatness is ephemeral. They will lose it, and this oracle spares no detail. Perfume, sash, hairdo, robe, and all other trappings of beauty will soon be gone. In their place will come a stench, a raggedy piece of rope, a hairless head, sackcloth for clothing, and shame. This kind of economic system cannot sustain itself. Moreover, God demands justice. A prophet must rise up to speak the truth.

One last quotation from the Bruce Cockburn song, “Call It Democracy,” may help us see.

See the paid-off local bottom-feeders

Passing themselves off as leaders.

Kiss the ladies. Shake hands with the fellows:

Open for business like a cheap bordello,

And they call it democracy.