The movement for consumer justice has gotten bigger and stronger, and if you’re in Chicago next week you can experience it firsthand.  Americans for Financial Reform (AFR), a big coalition of which AFFIL is a member, is organizing a series of demonstrations on October 25 – 27.  Over 5,000 people are expected to attend.

And that’s not all Americans for Financial Reform (AFR) is up to.  This mega-coalition was formed a few months ago to take advantage of the current opportunity to reform the nation’s financial regulatory system.   

AFR considers itself a “David” in colossal battle against the Goliath banking industry.  Indeed, today’s Wall Street Journal has this headline:  “Wall Street Steps Up Political Donations, Lobbying.”  The Chamber of Commerce is throwing its weight around too, running ads that suggest that somehow the CFPA would harm your local butcher’s business.  Fortunately President Obama called their bluff, calling the ads “completely false.”

But misinformation can be deadly even when the President counters it.  The consumer movement is bigger and stronger than ever, and in some ways the banks are weaker than ever, but it’s still going to take a lot of hard work to get common sense reforms the like CFPA enacted.  To help, you can join AFFIL’s mailing list and keep up on all the action.

Debtors’ prison was supposedly eliminated in the United States in the 19th century, but in the 21st, people are still being arrested and tossed into jail for debts. It just takes an extra step these days.

This morning, I sat in court and watched a debt collector get six bench warrants for debts under $1,000. I recognized the names of all the plaintiffs: Palisades, LVNV, and Capital One. Palisades and LVNV, and maybe Capital One, probably would not have won their lawsuit if the defendants challenged them. But each defendant defaulted when he or she did not answer the lawsuit, and gave up their right to challenge it.

After getting a default judgment, the debt collector asked the court to issue an order for disclosure. An order for disclosure orders the debtor to disclose his or her assets—where they keep their money. Like any other court order, failure to obey will result in jail time. This makes perfect sense under ordinary circumstances, but debt collectors use the courts like an assembly line leading to jail.

The problem is not necessarily the court rules and Minnesota statutes that the debt collectors are using. Defendants should have to answer a lawsuit to challenge it, and court orders must be enforceable. But in order to do those things, defendants must understand their rights, as well as the documents they receive. Unfortunately, the rules and statutes, along with the court’s forms, are practically incomprehensible to non-lawyers. As a result, non-lawyers, like the defendants who will be tossed in jail as a result of what I saw this morning, probably had no idea how to answer their lawsuit, or that they would go to jail if they did not disclose their assets.

Debt collectors are just taking advantage of a system that is unfriendly and nearly impenetrable to non-lawyers.

(photo: abardwell)

White House economic adviser Austan Goolsbee on the proposed Consumer Financial Protection Agency:

(via Consumerist)

A new report from the National Consumer Law Center explains in detail how “[a]buses and abusers from the subprime mortgage industry have begun showing up in the reverse mortgage market, putting at risk the equity and savings of millions of seniors.” (Report is here (pdf); press release is here (pdf).)

In the aftermath of the implosion of the subprime mortgage industry, many of the bad actors who enriched themselves in that debacle are looking for the next big opportunity.  They’ve noticed the huge amount of equity that seniors have in their homes – more than twelve million seniors own their homes outright (that is, with no mortgage debt), including over seven million with annual incomes below $30,000 – and are actively scheming on how to transfer as much as possible of that equity into their own pockets.

The availability of subprime mortgages can be great boon in some cases, but they are expensive, highly complex products where opportunities for abuse abound.  The situation is so worrisome that even John Dugan, the notoriously bank-friendly chief regulator of national banks, issued a strong warning earlier this year (which we blogged about here.)

Senator Claire McCaskill, who will be introducing legislation to strengthen regulation of reverse mortgages, participated in the press conference announcing the release of the NCLC report.  As she put it:

We’ve seen this movie before and it didn’t have a pretty ending.  Abuses in the subprime lending market almost brought down our economy.  Now we’ve seeing similar abuses with reverse mortgage lending – something needs to be done before more lifesavings are depleted and more tax dollars are drained.

(Photo: Ed Yourdon)

An estimated 45% of the country’s banks make more from overdraft fees than they do from credit card fees(!). They will generate $27 billion in covering overdrafts on checking accounts this year. Proposed legislation, however, may at least put in dent in that healthy source of bank revenue.

A 2008 FDIC study estimates that 41% of banks have automated overdraft programs, and a robust 77% of large banks have such programs. The FDIC also estimates that 93% of overdraft charges come from 14% of bank customers.

Some banks have also come under fire for manipulating the chronological order of withdrawals to ensure there are multiple penalties. For example, a customer has $10 in their account, and makes purchases of $3, $4, and $26. If the bank processes the purchases in true chronological order, there should only be an overdraft fee for the final purchase. But if the $26 purchase is processed first, the customer gets tagged three times. It’s just plain shady.

Interested in keeping their cash cows, banks will fight tooth and nail against any proposed legislation. The Federal Reserve is considering requiring banks to get permission from customers before enrolling them in an overdraft program. My guess, however, is that this will do little to stop the chronic 13% of overdrafters from racking up these fees. In addition, the proposed legislation does little to fix the ridiculous inequity of getting charged a $26-$32 overdraft fee for overdrawing by 25 cents.

Overspending on Debit Cards is a Boon for Banks | NY Times

(photo: Great Beyond)

If you do not already know about the National Do Not Call Registry, hie thee hither and put your name down. Once you are on the registry, telemarketers may not call you for five years. There are a couple of exceptions. Businesses may call you for 18 months after you have bought something from them or used their services, but you can ask to be put on their internal do-not-call list when they do so.

For various reasons, telemarketers sometimes have a hard time “getting it,” however. Fortunately, the Telephone Consumer Protection Act gives consumers a remedy: $500 per violation, or up to $1,500 if the telemarketer violated the TCPA on purpose.

Best yet, you do not need a lawyer to sue. Just head on over to your town’s small claims or conciliation court and file your complaint there.

For the story behind the image, follow this link to Consumerist, who wrote up these tips first:

Hey, How Do I Sue Telemarketers Who Ignore The Do Not Call List? | Consumerist

Here are an assortment of juicy consumer links I haven’t had time to write about:

• Old Debts Under $100 Don’t Matter Under FICO ‘08 | Consumerist
• Bank Of America Reaches Out To Angry YouTube Star | Consumerist
• Congress Seeks To Move Up Credit Card Act Implementation To December 1st | Consumerist
• Fight begins over new consumer protection agency | The Red Tape Chronicles
• Beyond Overdraft Fees: 5 Bank Traps to Avoid | SmartMoney.com
• 6 Credit-Card Traps to Avoid Now | SmartMoney.com
• Banks Introduce Comprehensible Credit Cards Before Reforms Apply | Consumerist
• Lawsuit: Debt Collector Harassment Contributed To Man’s Death | Consumerist
• Dealing With Student Loan Debt After Bankruptcy | Bankruptcy Law Network
• Foreclosure Update | Consumer Law & Policy Blog

Strategic default—walking away from your home and mortgage—is getting more common. The interesting part is who is doing it: according to a recent study, people with good credit. For such consumers, strategic default may be the best of a range of bad options.

The same study found that 588,000 people walked away from their mortgages in 2008, far more than the industry thought. And most of them seem to understand what they are doing—they just do not have any better option.

Displaying their continuing failure to make any intelligent business decisions, banks apparently try to identify potential strategic defaulters, and then avoid offering them loan modifications. If this group is defaulting strategically, they would probably stay in their homes if it made sense. Maybe the banks ought to try making sense, for a change.

Homeowners who ’strategically default’ on loans a growing problem | LA Times (via Consumerist)

The Minnesota Attorney General took action against three companies that promised to lower customer’s interest rates on credit cards for high fees.

Swanson filed suit against Priority Direct Marketing, Clear Financial Solutions, and Moneyworks, LLC. The suit alleges that all three companies charged high up front fees, between $999 and $1,995, and promised to lower the interest rates on customer’s credit cards.

The AG alleged that the companies failed to follow through on their promise, and also failed to make promised refunds when confronted about failing to deliver their promised services. The AG also alleged that all three companies allegedly used aggressive solicitation over the phone to sign up customers.

If you receive one of these calls, be extremely wary. If you have any concerns, contact your local Attorney General or a consumer rights lawyer in your state.

ATTORNEY GENERAL SWANSON FILES THREE LAWSUITS AGAINST COMPANIES CLAIMING TO HELP CONSUMERS LOWER THEIR CREDIT CARD INTEREST RATES | Office of the Minnesota Attorney General

(photo: doyoubleedlikeme)

The number of FDCPA and FCRA lawsuits filed in 2009 is well ahead of both 2008 and 2007. In July 2009, the 5000th suit was filed. In 2008, that benchmark was not hit until the second week of October; in 2007 it took until early December.

So what is behind the surge? Here are my best guesses.

Consumers are becoming more aware of their rights

The internet is knowledge at your fingertips—and more and more people turn to the internet to research issues before approaching other sources of the law—like lawyers. This makes consumers more aware of their rights and more on the lookout for potential violations.

Debt collectors may be overworked

With the economy in the tank, more and more people are in default on various loan and credit card payments. On top of the that, many people can’t afford to make any payments even after contacted by a debt collector.

If you cannot pay a debt collector, they are likely to keep calling. The more they call, the more likely they are to make a mistake. It is also possible that the volume of debt has forced debt collectors to hire undertrained staff and throw them into the fray before educating them on the various dos and don’ts of debt collection.

FDCPA and FCRA lawsuits may continue to increase

The number of lawsuits has to peak at some point. From a sheer volume standpoint, debt collectors have to lose many of the cases brought against them—and money talks. The more financial damage debt collectors take, the more likely they are to amend any practices in violation of the FDCPA.

FDCPA lawsuits reach a new milestone | InsideARM

(photo: nahkahousu)