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al.com

Debt collector scam targets Birmingham area residents

Published: Wednesday, February 22, 2012, 8:15 AM

By Roy L. Williams -- The Birmingham News

Birmingham bankruptcy lawyer Brad Botes talks over the debt collection scam issue with client Gwendolyn Taylor, front left, and Stacy Murphy, a non-client who called him for advice after getting targeted by the scam. (The Birmingham News/Joe Songer)

BIRMINGHAM, Alabama -- A debt collector scam targeting victims across the nation has hit Birmingham.

Bankrupcty lawyer Brad Botes said he has received dozens of complaints from victims of the scheme, which the Federal Trade Commission says involves callers who allege phantom payday loan "debts" that targeted consumers do not owe. Botes said he has heard of similar cases from other lawyers.

David Smitherman, head of the Birmingham-based Better Business Bureau of Central Alabama, said his agency has received dozens of calls about the scam from victims in the metro area, which has also been reported to BBB offices nationwide.

On Tuesday, the FTC announced a U.S. District Court has halted a California-based operation that took in more than $6 million from victims over the past two years. The operation used partners who made millions of collection calls from India.

The FTC charged Villa Park, Calif.-based American Credit Crunchers LLC, an affiliated company called Ebeeze LLC, and the companies' owner, Varang K. Thaker, with violating the FTC Act and the Fair Debt Collection Practices Act.

Over the last two years, consumers have filed more than 4,000 complaints with the FTC and state attorneys general about fraudulent debt collection calls.

"This is a brazen operation based on pure fraud, and the FTC is committed to shutting it down," David Vladeck, director of the FTC's Bureau of Consumer Protection, said in a release. "Consumers should not be pressured into paying debt they don't remember owing. Legitimate debt collectors must provide consumers with both written information about the debt, and instructions for protecting themselves if they don't think they owe the debt."

Stacy Murphy of Birmingham says she was victimized by a similar scam, receiving a call from an operation not connected to the California firm targeted by the FTC. She said a man claiming to be a debt collector called on Feb. 9, demanding immediate payment of a debt and threatening to have her arrested if she didn't pay up.

Murphy, who has been jobless for a year and gets by on a $200 weekly unemployment check, says she got scared and figured the caller was from a payday loan company that she borrowed $300 from because he knew personal financial details about her.

After what she described as a harassing conversation with two men playing good cop, bad cop, Murphy gave the man her checking account number and paid $100 up front, including a $10 transaction fee.

She later learned the collector was not the company that gave her the loan and was not affiliated with it.

"He told me he'd do his best to get me payments I could afford but I needed to do something now to avoid being arrested," Murphy said.

Warning signs

In the California case, the FTC alleges that information submitted by consumers who applied online for short-term payday loans found its way into the hands of the defendants. Often pretending to be law enforcement or other government authorities, the callers working with the defendants would falsely threaten to immediately have consumers arrested if they did not agree to make a payment on a delinquent payday loan, the FTC said.

At other times, the callers said they were filing a lawsuit against the consumer because of the delinquent loan or would have the consumer fired from his or her job, according to the FTC.

But the consumers did not owe money to defendants. Either the payday loan debts did not exist or the defendants had no authority to collect them because they are owed to someone else, according to the FTC. The FTC's court order stopped the illegal conduct and froze the California firm's assets while the agency investigates the case.

Gwendolyn Taylor of Birmingham got a call from another alleged debt collector not connected to the California operation shut down by the FTC. Taylor said the man claiming to be a debt collector also contacted her work supervisor, threatening to have Taylor arrested if she didn't pay. Taylor, who filed for Chapter 13 bankruptcy last year, said she recognized it as a scam when the "collector" acted evasive when she questioned him, and immediately contacted her lawyer, Botes of Bond & Botes in Birmingham.

"These people know all the right buttons to push to try and make people pay up," Botes said. "I have been hearing these type complaints for over a year and warned my clients. They know it is a scam."

Botes said if a debt collector refuses to give his or her address and personal information about the company, or threatens to have you arrested for non payment, it is a scam.

"A collector cannot have anyone arrested for a debt," Botes said. "Always ask for verification in writing, and refuse to give them personal information such as Social Security numbers and bank account numbers. If a debt collector is too aggressive, be cautious and call your attorney. Don't let them rush you into making a payment."

Martin Sher, who along with his brother David co-owns AmSher Receivables Management, a Birmingham-based collection agency, said he applauds the FTC "for putting an end to a despicable scam." Martin Sher, past president of ACA International, a trade group representing collectors worldwide, said legit collectors do not engage in such practices as threatening to arrest people for non-payment of debt.

"ACA and its members don't condone this sort of activity and believe that collectors or alleged collectors mistreating consumers should be held accountable for their actions" he said. "Scams like this do not represent the important, legitimate work of third-party debt collectors, which has an invaluable impact on the national and Alabama economies."

For more information about how to handle callers who claim to be debt collectors, go to ftc.gov.

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Consumer Financial Protection Bureau

February 16, 2012

CONTACT:

Office of Public Affairs

Tel:(202) 435-7170

CONSUMER FINANCIAL PROTECTION BUREAU PROPOSES RULE TO SUPERVISE LARGER PARTICIPANTS IN CONSUMER DEBT COLLECTION AND CONSUMER REPORTING MARKETS

Proposed Rule Would Subject Industries to Federal Supervision for the First Time

WASHINGTON, D.C. The Consumer Financial Protection Bureau (CFPB) today announced a proposed rule to include debt collectors and consumer reporting agencies under its nonbank supervision program. This would mark the first time these important and far-reaching consumer financial market participants are subject to federal supervision.

Consumer financial products and services have become more complex over the years and they have expanded well beyond traditional banks, said Richard Cordray, CFPB Director. Our proposed rule would mean that those debt collectors and credit reporting agencies that qualify as larger participants are subject to the same supervision process that we apply to the banks. This oversight would help restore confidence that the federal government is standing beside the American consumer.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB, authorizes the CFPB to supervise nonbanks in the specific markets of residential mortgage, payday lending, and private education lending. In addition, for other nonbank markets for consumer financial products or services, the CFPB has the authority to supervise larger participants. As directed by Dodd-Frank, the Bureau must define such larger participants by rule, and an initial such rule must be issued by July 21, 2012. Last summer, the CFPB sought public comment about possible markets to include in the initial rule and available data sources the Bureau could use to define larger participants in nonbank markets.

Debt collectors and consumer reporting agencies touch millions of American consumers. About 30 million Americans have debt under collection. For these consumers, the average amount under collection is $1,400. Three main kinds of debt collection firms dominate the market: firms that collect debt owned by another company in return for a fee; firms that buy debt and collect the proceeds for themselves; and debt collection attorneys and law firms that collect through litigation. A single company may collect through any or all of these activities.

Under the proposed rule, debt collectors with more than $10 million in annual receipts from debt collection activities would be subject to supervision. Based on available data, the CFPB estimates that the proposed rule would cover approximately 175 debt collection firms -- or 4 percent of debt collection firms -- and that these firms account for 63 percent of annual receipts from the debt collection market.

The consumer reporting market plays a critical role in the consumer financial services marketplace and in consumers financial lives. It includes the largest credit bureaus selling comprehensive consumer reports, consumer report resellers, and specialty consumer reporting agencies. According to the Consumer Data Industry Association, each year there are 36 billion updates to consumer files, and three billion reports are issued. The three largest consumer reporting agencies alone maintain information on 200 million American consumers.

Lenders use consumer reports, which are commonly called credit reports, when evaluating applications for credit cards, home mortgage loans, automobile loans, and other types of credit. Specialty consumer reporting agencies collect and provide information used to make eligibility decisions for a variety of products, such as checking accounts.

Under the proposed rule, consumer reporting agencies with more than $7 million in annual receipts from consumer reporting activities would be subject to supervision. This would include approximately 7 percent of consumer reporting agencies based on available data. The proposed threshold would allow the CFPB to cover about 30 consumer reporting agencies. The CFPB estimates that these 30 companies account for about 94 percent of the annual receipts from consumer reporting.

This is the CFPBs first in a series of rulemakings to define larger participants. The CFPB chose annual receipts as the criterion for both debt collection and consumer reporting because it approximates market participation in these two markets. As the CFPB adds new markets, it will choose the best criteria and the appropriate thresholds for each market.

The proposed rule is open for comment for 60 days after the rule is published in the Federal Register. The CFPB welcomes comment from the public on the proposed rule.

The proposed rule will be published online on Thursday at 11 a.m. here: http://www.consumerfinance.gov/notice-and-comment/

More information about the CFPBs Nonbank Supervision Program is available here: http://www.consumerfinance.gov/pressrelease/consumer-financial-protection-bureau-launches-nonbank-supervision-program/

The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.ConsumerFinance.gov.

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FOR IMMEDIATE RELEASE:NEWS MEDIA

February 15, 2012

CONTACT: Janice Wise, 202-418-8165

E-mail: janice.wise@fcc.gov

FCC ADOPTS RULES TO STRENGTHEN CONSUMER PROTECTIONS AGAINST UNWANTED TELEMARKETING ROBOCALLS TO WIRELINE AND WIRELESS PHONES

Washington, D.C. To further protect consumers from unwanted autodialed or prerecorded calls, often referred to as robocalls, the Federal Communications Commission (FCC) today approved changes to its telemarketing rules. Unwanted telemarketing calls and texts were consistently in the top three consumer complaint categories at the FCC in 2011. Robocalls invade consumers privacy, and can, in the case of calls to wireless numbers, use up their minutes.

The Order adopted today helps put an end to these intrusions by empowering consumers with increased rights under the FCCs telemarketing rules. The new rules reduce regulatory uncertainty with minimal burden on industry and maximize consistency with those of the Federal Trade Commission. Specifically, the rules protect consumers by:

• Requiring telemarketers to obtain prior express written consent from them, including by electronic means such as a website form, before placing a robocall to a consumer;

• Eliminating the established business relationship exemption to the requirement that telemarketing robocalls to residential wireline phones occur only with prior express consent from the consumer;

• Requiring telemarketers to provide an automated, interactive opt-out mechanism during each robocall so that consumers can immediately tell the telemarketer to stop calling; and,

• Strictly limiting the number of abandoned or dead air calls that telemarketers can make within each calling campaign.

The rules also ensure that informational calls, such as those related to school closings and flight changes, continue to be available to consumers who wish to receive them.

Action by the Commission February 15, 2012, by Report and Order (FCC 12-21). Chairman Genachowski, Commissioners McDowell and Clyburn. Separate statements issued by Chairman Genachowski, Commissioners McDowell and Clyburn.

For further information, contact Karen Johnson at 202-418-7706 or karen.johnson@fcc.gov. Press contact: Janice Wise (202-418-8165; janice.wise@fcc.gov).

-FCC-

For news and information about the FCC, please visit: www.fcc.gov

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Why Wall Street Should Stop Whining

POSTED: February 8, 11:02 AM ET

Everybody on Wall Street is talking about the new piece by New York magazines Gabriel Sherman, entitled "The End of Wall Street as They Knew It."

The article argues that Barack Obama killed everything that was joyful about the banking industry through his suffocating Dodd-Frank reform bill, which forced banks to strip themselves of "the pistons that powered their profits: leverage and proprietary trading."

Having to say goodbye to excess borrowing and casino gambling, the argument goes, has cut into banking profits, leading to extreme decisions like Morgan Stanleys recent dictum capping cash bonuses at $125,000. In response to that, Sherman quotes an unnamed banker:

"After tax, thats like, what, $75,000?" an investment banker at a rival firm said as he contemplated Morgan Stanleys decision. He ran the numbers, modeling the implications. "Im not married and I take the subway and I watch what I spend very carefully. But my girlfriend likes to eat good food. It all adds up really quick. A taxi here, another taxi there. I just bought an apartment, so now I have a big old mortgage bill."

Quelle horreur! And whos to blame? According to Sherman's interview subjects, it has nothing to do with the economy having been blown up several times over by these very bonus-deprived bankers, or with the fact that all conceivable public bailout money has essentially already been sucked up and converted into bonuses by that same crowd.

No, it instead apparently has everything to do with the Dodd-Frank bill, and specifically the Volcker rule banning proprietary trading, which incidentally hasnt gone into effect yet.

He quotes Dick Bove, the noted analyst who last year downgraded Goldman Sachs. Boves quote on the bonus sadness:

"The government has strangled the financial system," banking analyst Dick Bove told me recently. "Weve basically castrated these companies. They cant borrow as much as they used to borrow."

When I read things like this Im simultaneously amazed by two things. The first is the unbelievable tone-deafness of people who would complain out loud, during a time when millions of people around the country are literally losing their homes, that their bonuses not their total compensation, mind you, but just their cash bonuses, paid in addition to their salaries and their stock packages are barely enough to cover the mortgage payments for their new condos, the taxis they take when walking is too burdensome, and their girlfriends with expensive tastes.

The second thing that amazes me is that Sherman is buying all this. I dont know this reporter at all, and Im happy to concede that he probably hangs out with more Wall Street people than I do. But Im still in touch with plenty of people in the business, and I have yet to have any investment bankers crying on my shoulder about how the Dodd-Frank bill is forcing them into generic breakfast cereals.

Now, Im sure if you put it to them the right way "Hey, Mr. Habitually Overpaid Banker, do you think Barack Obama and the Dodd-Frank bill are ruining your bonus season?" youll get a good percentage of people wholl take that cheese and cough out the desired quote.

But in reality? Please. Wall Street people complain a lot, but in the last six months, the grave impact of Dodd-Frank on bonuses hasnt even been within ten miles of the things these people are really panicked about. The comments Ive heard have been more like, "My asshole has been puckered completely shut for four months in a row over this Europe business," or, "If the ECB doesnt come up with a Greek bailout package, Im going to have to sell my children for dog food."

Bonuses are indeed down this year, especially when compared with the bonuses of recent years, but lets be clear about why. It has nothing to do with Dodd-Frank. We can posit three other factors:

1. Banks have unfortunately had to give up the practice of simply printing trillions of dollars out of thin air by selling off worthless mortgages for huge profits and/or making millions of synthetic copies of those same worthless mortgage assets;
2. After twice being saved from the execution chamber by Ben Bernankes Quantitative Easing programs, which printed trillions of new dollars and injected them straight into Wall Streets arm, Wall Street was rocked this summer when Helicopter Ben decided to temporarily forestall QE3;
3. Europe, a slightly more than minor factor in the global financial picture, is imploding, causing mass hoarding of assets all over the world, severely impacting the business of investment banks everywhere.

Now, Sherman barely even mentions Europe in his article, which is interesting, because the banks on whose behalf he wails so loudly in this piece have mostly all pointed to Europe as more or less the sole reason for their reduced revenues of late.

Take for instance Lloyd Blankfein and Goldman, Sachs. Lloyd has the most famous reduced bonus on Wall Street hes making $7 million this year (it was $12.6 million last year) as his bank, Goldman, had a disastrous fourth quarter. Goldmans $6.1 billion in revenues was down 30% off last years fourth quarter. To what does the big Lloyd attribute this sad development?

"This past year was dominated by global macro-economic concerns which significantly affected our clients' risk tolerance and willingness to transact," Blankfein said, "While our results declined as a consequence, I am pleased that the firm retained its industry-leading positions across our global client franchise while prudently managing risk, capital and expenses. As economies and markets improve and we see encouraging signs of this Goldman Sachs is very well positioned to perform for our clients and our shareholders."

Translation: Europe is such a mess right now that all our biggest clients are sitting on their money instead of letting us steal it from them. However, once Europe rebounds, as we expect it to, we will be well positioned to start stealing from them again.

Goldmans numbers offer a hilarious counterpoint to Shermans piece. The banks earnings in total for last year were $4.4 billion, down some 65% off of last years numbers. Its revenues for the year were down 26%. Despite these bummerific numbers, Goldman reduced bonuses and compensation by only 21%, down to (a mere) $12.2 billion. If the era of outsized bonuses is over, how come the biggest banks arent even cutting them to match revenues, much less profits? One could even interpret Goldmans numbers as a major increase in the size of the bonus pool, relative to earnings.

But what about other banks? Well, Citigroup also saw a drop in revenues for the year (although its net income actually went up, from $10.6 billion to $11.3 billion). But what was most concerning was the banks crappy fourth quarter, when it suffered an 11% drop in earnings.

So where did CEO Vikram Pandit lay the blame for the lost revenue? Dodd-Frank? Reduced leverage? Uh, no. He blamed Europe, too:

"Clearly, the macro environment has impacted the capital markets and we will continue to right-size our businesses to match the environment," Pandit said.

How about JP Morgan Chase? The banks CEO, Jamie Dimon, was breathlessly quoted in the Sherman piece, and in fact had this to say to Sherman about the culture change:

"Certain products are gone forever," Dimon tells Sherman. "Fancy derivatives are mostly gone. Prop trading is gone. Theres less leverage everywhere."

So its prop trading and derivatives thats the problem? Thats not what Wall Street analysts said, when Chase posted a 23% drop in earnings in the fourth quarter. While Dimon in a Q&A last month did go off on the potential problems the Volcker rule might inspire in the future, he was careful to note that those problems are still very much future problems ("I'm going to put Volcker aside, okay, because that really hasn't been written yet").

Instead, virtually every headline about Chase's fourth-quarter earnings drop pegged Euro troubles. "JPMorgan Chase (JPM) ended a long run of profit gains when it logged a steep drop in fourth-quarter earnings Friday, as weakness in Europe contributed to a decline in investment banking revenue," wrote Investors Business Daily.

The Telegraph commented thusly: "JPMorgan Chase chief executive Jamie Dimon struck a positive note on the outlook for the US economy even as Europe's debt crisis dragged down the bank's quarterly profits."

And Dimon himself seemed to go along with his counterparts at Goldman and Citi in blaming macro troubles for the recent drop, talking about issues with the "current environment":

The bank's third-quarter profit fell 4% as its businesses were hit hard by Europe's financial woes and the fragile recovery in the United States...

"All things considered, we believe the firm's returns were reasonable given the current environment," said Jamie Dimon, JPMorgan's chairman and chief executive.

When I look at the revenue and bonus numbers on Wall Street this year, I see a number of companies that, despite being functionally insolvent in reality and dependent upon a combination of corrupt accounting and cheap cash from the Fed to survive, are still paying out enormous amounts of money in compensation.

In fact, when one considers the lost billions and trillions from the end of the mortgage bubble scam and the expiration of the quantitative easing program, its pretty incredible (one might even call it an inspirational testament to the industry's dedication to the cause of high compensation) that bonuses are even in the same ballpark as they used to be.

***

And all of this is just looking at things from a bottom-line, Wall-Street-centric point of view. Looking at the question from the point of view of an ordinary human being, however, Shermans thesis is even more nuts. Hes written a sort of investment-banking version of Jimmy Carters "malaise" speech, complaining about a lost era of easy money, when in fact there are two damning realities hes ignored:

1. Hes wrong. See the above argument about Europe, QE, etc.
2. Even if he wasnt wrong, which he is, his reaction to the "news" that Wall Streets outsized bonuses are dropping is all wrong. If it were true, it would be good news, not bad news.

Since 2008, the rest of America has suffered a severe economic correction. Ordinary people everywhere long ago had to learn to cope with the equivalent of a lower bonus season. When the crash hit, regular people could not make up the difference through bailouts or zero-interest loans from the Fed or leveraged-up synthetic derivative schemes. They just had to deal with the fact that the economy sucked and they adjusted.

This ought to have been true also on Wall Street, but in a curious development that is somehow not addressed in Sherman's piece, the denizens of the financial services industry managed to maintain their extravagant lifestyle standards in the middle of a historic global economic crash that, incidentally, they themselves caused.

After suffering one truly bad year 2008, in which the securities industry collectively lost over $42 billion Wall Street immediately rebounded to post record revenues in 2009, despite the fact that the economy at large did nothing of the sort. The numbers were so huge on Wall Street compared to the rest of the world that Goldman slashed its 4^th-quarter bonuses, just so that the final bonus/comp number ($16.2 billion, down from what would have been $21 billion) didnt look so garish to the rest of broke America.

What Sherman now argues is that Dodd-Frank has so completely hindered Wall Streets ability to magically invent profits through borrowing and gambling that, unlike those wonderful days in 2009, its fortunes are now reduced to rising and falling heaven forbid along with the rest of the economy. Things are so bad, his interview subjects argue, that one is now more likely to make big money going into an actual business that makes an actual product:

"If youre a smart Ph.D. from MIT, youd never go to Wall Street now," says a hedge-fund executive. "Youd go to Silicon Valley. Theres at least a prospect for a huge gain. Youd have the potential to be the next Mark Zuckerberg."

Once upon a time, Sherman argues, banking was boring. "In the quaint old days, Wall Street tended to earn its profits rather boringly by loaning money, advising mergers, and supervising bond issues and IPOs," he writes. But then, in the eighties, the business became "turbocharged" when new ways to create leverage were introduced. A sudden surge in credit turned this staid business into the realm of super-compensated superheroes:

Credit was the engine that powered the explosion in bank profits. From junk bonds in the eighties to the emerging-markets crisis in the nineties to the subprime mania of the aughts, Wall Street developed new ways to produce, package, and sell debt to willing investors. The alphabet soup of complex vehicles that defined the 2008 crash CLO, CDO, CDS had all been developed to sell more credit.

But all of this leverage led to problems, Sherman grudgingly concedes, and those problems led to reforms, and now Wall Street is being threatened with a return to those "quaint" days of loaning money and supervising bond issues and such.

Such a return is being demanded by the 99-percenters, much-loathed by Shermans interview subjects and portrayed as a bunch of ignoramuses who dont understand where their bread is buttered. In New York especially, its the regular people, he argues, who benefitted from all that crazy leverage. Why, without ginormous leverage-generated bonuses, New York would be Philadelphia!

Consciously or not, as a city, New York made a bargain: It would tolerate the one percents excessive pay as long as the rising tax base funded the schools, subways, and parks for the 99 percent. "Without Wall Street, New York becomes Philadelphia" is how a friend of mine in finance explains it.

Sherman then goes further:

In this view, deleveraging Wall Street means killing the goose.

Look, the financial services industry should be boring. It should be quaint. Lets take the municipal debt business. For ages, it was a simple, dull, low-margin sort of industry, in which banks arranged municipal bond issues and made small but dependable profits as cities and towns financed improvements and construction projects.

That system worked seamlessly for decades, until people like Shermans interview subjects suddenly decided to make the business exciting. You know what happens when you make municipal debt exciting? Jefferson County, Alabama happens. Or, on a macro level, Greece happens.

When making a few points on mere bond issues stops being enough, and you have to cook up crazy swap schemes and indices to bet against those schemes, ingenious scams allowing politicians to borrow billions of dollars that they will never in a million years be able to pay back, you might end up getting a few parks, schools, and subways in New York.

But what you get everywhere else is a giant clusterfuck that costs the rest of us years and even more billions of tax dollars to remedy.

This is what the protests are all about its anger that Wall Street has been profiting from an imaginary economy that leaves bankers overpaid, but creates damage everywhere else. Sherman doesnt get this. He seems to subscribe to the well-worn straw-man position that protesters are simply upset that bankers and financiers make a lot of money. Take for example his view on John Paulson, the hedge fund titan who was involved in Goldmans infamous Abacus deal:

In October, a thousand protesters stood outside John Paulsons Upper East Side townhouse and offered the hedge-fund billionaire a mock $5 billion check, the amount he earned from his 2010 investments. Later that day, Paulson released a statement attacking the protesters and their movement . The truth was, Paulson was furious that the protesters had singled him out. Last year, he lost billions of dollars on bad bets on gold and the banking sector. One of his funds posted a 52 percent loss. "The ironic thing is John lost a lot of money this year," a person close to Paulson told me. "The fact that John got roped into this debate highlights their misunderstanding."

Hey, asshole: nobody misunderstands anything about John Paulson. Theyre not mad that he made billions the year before, and theyre not happy that he lost money this year. Theyre mad that the way he made his money in previous years which involved putting together a born-to-lose portfolio of toxic mortgage bonds and then using Goldman Sachs to dump them on a pair of European banks, who in turn had no idea that Paulson was betting against them.

At least part of this transaction was illegal (so ruled the SEC, anyway), and all of it looks pretty damned underhanded. And if the benefit to society from this sort of work is the tax money New York City received from the proceeds of this fleecing, well, were willing to go without those taxes, thank you very much.

Listening to Wall Street whine about how it is misunderstood is nothing new. Its been going on for years (often in that same mag). But if Shermans piece heralds a new era of Wall Street complaining about how it is not only misunderstood but undercompensated, youll have to excuse me while I spend the next month or so vomiting into my shoes.

The financial services industry went from having a 19 percent share of Americas corporate profits decades ago to having a 41 percent share in recent years. That doesnt mean bankers ever represented anywhere near 41 percent of Americas labor value. It just means theyve managed to make themselves horrifically overpaid relative to their counterparts in the rest of the economy.

A banker's job is to be a prudent and dependable steward of other peoples money being worthy of our trust in that area is the entire justification for their traditionally high compensation.

Yet these people have failed so spectacularly at that job in the last fifteen years that theyre lucky that God himself didnt come down to earth at bonus time this year, angrily boot their asses out of those new condos, and command those Zagat-reading girlfriends of theirs to start getting acquainted with the McDonalds value meal lineup. They should be glad theyre still getting anything at all, not whining to New York magazine.

Read more: http://www.rollingstone.com/politics/blogs/taibblog/why-wall-street-should-stop-whining-20120208#ixzz1lzonlxZ0

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FTC Shuts Down Robocallers Who Claimed to Reduce Credit Card Interest Rates

Marketers Settle Charges They Deceived More Than 13,000 Consumers

The Federal Trade Commission has reached a settlement with four of the defendants in an allegedly phony debt relief services operation that claimed that, for $995, it would dramatically reduce consumers' credit card interest rates. Under the settlement, reached as part of the FTC's continuing efforts against frauds that target financially strapped consumers, the defendants will be banned from robocalling consumers and from selling debt relief services. The operation, based in Canada and New York, used telemarketing boiler rooms in Orlando, Florida, to defraud consumers. Although the defendants operated under several different names, they often used "AFL Financial Services," or variations of the name "AFL."

According to the FTC's complaint, F&F Payment Processing Inc., Bajada Management Group Inc., Baird B. Fisher, Jacqueline M. Fisher, and others used illegal robocalls and falsely promised refunds to consumers if they did not save at least $2,500 as a result of lowered credit card interest rates. Based on records obtained by the FTC, the operation took in over $13 million from more than 13,000 consumers. When the case was filed, the court halted the operation and froze the defendants' assets pending a trial.

As alleged in the complaint, the defendants claimed they would negotiate lower credit card interest rates. At most, the defendants sometimes telephoned credit card issuers and attempted to conduct three-way calls among the credit card company, the consumer, and one of the defendants' so-called financial representatives. Often the defendants did not make these calls at all. When they did, the calls were unsuccessful. Some credit card issuers refused to participate in the calls as a matter of policy. Instead of a reduction in interest rates, consumers, who were already in dire financial straits, found themselves saddled with an additional $995 credit card charge.

In addition to banning the defendants from delivering prerecorded messages and selling debt relief services, the proposed settlement order permanently prohibits the companies and their owners from:

• making misrepresentations about any goods or services, including anyone's ability to obtain a loan modification or improve a consumer's credit rating;
• misrepresenting the terms of any refund or cancellation policy, affiliation with any government or non-profit program, or that a consumer will receive legal representation;
• violating the FTC's Telemarketing Sales Rule;
• illegally calling numbers on the National Do Not Call Registry, or abandoning calls without involving a live operator; and
• failing to transmit caller identification, and failing to disclose the seller's identity and the call's purpose.

In addition, the settlement prohibits the defendants from selling or otherwise benefitting from customers' personal information, from failing to properly dispose of customers' personal information within 30 days, and from failing to monitor sales personnel for compliance with the order. The order also imposes a judgment of more than $13.1 million, which will be suspended upon payment of $159,000 by the defendants who are part of the settlement. Additional funds are expected from the court-appointed receiver's sale of the defendants' assets in the U.S. The full judgment will become due immediately if the defendants are found to have misrepresented their financial condition or fail to meet the terms of the order. The other four defendants named in the complaint are in default.

The FTC brought this case in cooperation with the Ministry of the Attorney General of Ontario, Civil Remedies for Illicit Activities Office. The Ministry simultaneously filed a separate lawsuit in Ontario seeking assets for consumer redress to victims in the United States and Canada.

The FTC also worked cooperatively with the Florida Department of Agriculture and Consumer Services and the Toronto Strategic Partnership in bringing this case. The Toronto Strategic Partnership members include the United States Postal Inspection Service, the Competition Bureau Canada, the Toronto Police Service Fraud Squad - Mass Marketing Section, the Ontario Provincial Police Anti-Rackets Section, the Ontario Ministry of Consumer Services, the Royal Canadian Mounted Police, and the United Kingdom's Office of Fair Trading.

The FTC thanks Bank of America and the Better Business Bureau for their assistance.

The Commission vote approving the proposed consent order was 4-0. The order was entered by the U.S. District Court for the Northern District of Illinois, Eastern Division on January 25, 2012.

For more information about this kind of deception, read Credit Card Interest Rate Reduction Scams.

NOTE: This consent order is for settlement purposes only and does not constitute an admission by the defendants that the law has been violated. Consent orders have the force of law when approved and signed by the District Court judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC's online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC's website provides free information on a variety of consumer topics. Like the FTC on Facebook and follow us on Twitter.

MEDIA CONTACT:

Frank Dorman
Office of Public Affairs

STAFF CONTACT:

John C. Hallerud
FTC's Midwest Region
312-960-5615

(FTC File No. X110003)

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Disappearing Cases

http://blog.wexlerwallace.com/?p=1270

February 02, 2012

by Amy Sayre, Paralegal

The following is a guest post by F. Paul Bland, Jr., a Senior Attorney for Public Justice.

This probably wont shock you: five members of the U.S. Supreme Court really like mandatory arbitration.

Over the last few decades, the most important cases pertaining to arbitration heard by the Court have been decided 5-4 with the dissenting four dissenting strongly.

Mandatory arbitration sounds complex, but its straightforward enough: instead of taking a company that has harmed you to court (filing a lawsuit), you are required to pursue your grievance in arbitration.

Straightforward, yes. Harmless, not in the least. Arbitrations take place in front of an arbitrator, not a judge and jury. Arbitration clauses require people to act individually, and prevent them from joining together in a class action. They are often costly. They happen behind closed doors. And, historically, they favor business interests over individuals.

That is, if they ever get far enough along to be resolved. Many just disappear.

Let me explain.

In the consumer, employment, medical and securities contexts, this phenomenon is known as forced arbitration because unaware individuals have the terms of arbitration clauses dictated to them by corporations (through contracts that individuals are required to sign).

The courthouse doors are slammed shut by these clauses. As a consequence, consumer, civil rights and other cases are thrown out of court.

So what happens then? Are large numbers of valid consumer and civil rights cases actually pursued in and resolved by arbitration, or do they just disappear? Is the Supreme Court really shifting disputes from one forum (court) to another (arbitration), or is it just getting rid of the cases altogether?

At the Ninth Circuits 2011 Judicial Conference, a few reporters got an unusual chance to interview Justice Anthony Kennedy. They asked him about the Supreme Courts shrinking docket. Justice Kennedy responded, A lot of big civil cases are going to arbitration. I dont see as many of the big civil cases.

Now its true that a lot of large commercial business-to-business cases are going (and have been going for years) to international arbitration. But have more civil cases involving cutting-edge statutory issues in consumer and civil rights law the kinds of cases that the U.S. Supreme Court used to decide been going to arbitration?

The answer largely appears to be no: consumer cases are simply not going to arbitration in any appreciable numbers.

Take the American Arbitration Association and its consumer docket. The AAA is named sole arbitrator in hundreds of millions of consumer contracts. (AT&T Mobility alone has over 60 million customers and requires its customers to take significant disputes to the AAA. Numerous other corporations with AAA clauses have tens of millions of customers.) So with the AAA specified in millions of consumer contracts, are large numbers of consumers rushing to arbitrate their disputes before the AAA?

Not so much. In 2010, the AAAs complete consumer docket every single case for the entire country amounted to around 1,300 cases. Remember, thats out of hundreds of millions of individuals bound to arbitration by their contracts. 1,300 cases.

The year before, the AAA consumer docket was even lower, in the 900s.

When the National Arbitration Forum was operating (a corruption scandal forced it to stop doing consumer arbitrations in 2009), it averaged a grand total of about 50 consumer cases a year over a five year period.

Each year, hundreds of thousands of consumers send complaints to the Federal Trade Commission or their state attorney general. Hundreds of thousands also file complaints with Better Business Bureaus or post them to online consumer complaint sites.

The reality is that there are millions of consumers in America with legitimate disputes against corporations.

But the one thing most consumers with disputes dont do is navigate the unfamiliar (and often hostile and expensive) world of forced arbitration. As a federal district court noted in one recent case, while thousands of AT&T Mobility customers had expressed great unhappiness with the corporations behavior, only an infinitesimal number of its customers would or could in reality go through its arbitration system.

A ton of American consumers have claims, and many involve illegal acts by corporations. But so many of those claims never see the light of the day. Justice Kennedy can say that many important civil cases are going to arbitration. But for consumer cases, Justice Kennedy is wrong. Nearly all of the cases are not going to court, they are just going away.

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FINRA Hits Merrill Lynch With Historic $1 Million Fine For Circumventing Mandatory Arbitration During Collection of Employee Promissory Notes

Bill Singer

1/26/2012

For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority (FINRA) and without admitting or denying the findings, prior to a regulatory hearing and without an adjudication of any issue, Respondent Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) submitted a Letter of Acceptance, Waiver and Consent (AWC), which FINRA accepted. In the Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Respondent (AWC 2009020188101/January 25, 2012).

Few Wall Street firms are more iconic than Merrill Lynch, a FINRA member firm since 1937 with over 31,000 registered individuals and more than 1,200 branch offices. Notwithstanding its legendary status, Merrill Lynchs recent history particularly since the onset of the Great Recession has not been particularly sterling and the Wall Street giant stumbled and fell from its once lofty heights. In January 2009, Merrill Lynch was acquired by Bank of America Corporation.

In an effort to retain high-producing brokers during the tumultuous days of the Great Recession and on the heels of its merger into Bank of America, Merrill Lynch implemented its Advisor Transition Program (ATP) through which it paid about $2.8 Billion in lump sum retention payments to some 5,000 brokers.By no means was Merrill Lynch alone in seeking ways to attract and retain its top producers similar efforts occurred atWells Fargo, JP Morgan,Morgan StanleySmith Barney,UBSand other big boys.

Although many brokers refer to these payments as retention bonuses, in fact, the payments are actually structured as loans supported by a promissory note. Bonuses tend to be fully earned when paid. Loans come with strings not the least of which is an obligation to repay.

SIDE BAR: In accordance with terms set forth in an Agreement between the retained brokers and Merrill Lynch, following each month of employment, the firm made a payment minus taxes on a pro rata portion of the loan, over a period that typically lasted for a seven-year term. An acceleration of the loan balances interest and principal repayment by the broker was typically triggered by the individuals bankruptcy, insolvency, failure to make a payment, or the termination of employment by Merrill Lynch for any reason.

Impermissible Circumvention?

The ATP promissory notes securing the loans were made by Merrill Lynch International Finance, Inc. (MLIFI), a non-registered Merrill Lynch affiliate with which the brokers had no relationship. The loans were funded by Merill Lynchs parent via a payment to an account at the FINRA member firm in the name of MLIFI. The executed promissory notes obligated the brokers to make repayment to MLIFI when employment at Merrill Lynch was terminated and contained a clause stating:

[t]he undersigned agrees that any actions regarding the [n]ote, including actions to recover amounts due under this [n]ote, shall be brought solely in the Supreme Court of the State of New York in New York County.

On the surface, a seemingly hyper-technical legalmaneuver. A well known FINRA rule is that all intra-industry disputes between member firms and other member firms, between member firms and their associated persons must be arbitrated before a FINRA arbitration panel. This is such an ironclad policy that its know as mandatory industry arbitration. Mandatory as in no ifs, ands, or buts. How then did Merrill Lynchs ATP court-based collection pass FINRA muster?

SIDE BAR: The New York State court jurisdictional language provided Merrill Lynch with the ability to pursue collections of amounts due under the promissory notes in expedited New York court proceedings, as provided under New York State Civil Practice Law and Rule (CPLR)3213. An advantages of invoking CPLR 3213 is that New York States expedited collection procedure restricts the debtors ability to assert counterclaims against the creditor.

CPLR 3213: Motion for summary judgment in lieu of complaint

When an action is based upon an instrument for the payment of money only or upon any judgment, the plaintiff may serve with the summons a notice of motion for summary judgment and the supporting papers in lieu of a complaint. The summons served with such motion papers shall require the defendant to submit answering papers on the motion within the time provided in the notice of motion. The minimum time such motion shall be noticed to be heard shall be as provided by subdivision (a) of rule 320 for making an appearance, depending upon the method of service. If the plaintiff sets the hearing date of the motion later than the minimum time therefor, he may require the defendant to serve a copy of his answering papers upon him within such extended period of time, not exceeding ten days, prior to such hearing date. No default judgment may be entered pursuant to subdivision (a) of section 3215 prior to the hearing date of the motion. If the motion is denied, the moving and answering papers shall be deemed the complaint and answer, respectively, unless the court orders otherwise.

Following the resignation or termination in 2009 of a number of its brokers, Merrill Lynch pursued collection of the principal and interest balances due on those loans that were not repaid in accordance with the ATP programs terms. Between January 2009 and November 2009, Merrill Lynch filed over 90 summary collection proceedings in New York state court in the name of MLIFI.

FINRA Steps In

FINRAs Code of Arbitration Procedure for Industry Disputes Rule 13200(a) requires the mandatory arbitration of intra-industry disputes between member firms and associated persons, and the failure to abide by that obligation has frequently been interpreted by FINRA as conduct inconsistent with just and equitable principles of trade in violation of FINRA Rule 2010.

SIDE BAR: Rule13200: Required Arbitration

(a) Generally

Except as otherwise provided in the Code, a dispute must be arbitrated under the Codeif the dispute arises out of the business activities of a member or an associated person and is between or among:

• Members;
• Members and Associated Persons; or
• Associated Persons. . .

FINRA alleged that Merrill Lynchs conduct constituted an impermissible violation of its obligation to engage in intra-industry arbitration of business-related disputes with its associated persons, in violation of FINRA Rule 2010. In accordance with the AWC, Merrill Lynch was Censured and fined $1,000,000.

In addition to entering into the AWC, Merrill Lynch submitted a Corrective Action Statement to FINRA which represented:

As a corrective action, Merrill Lynch and MLIFI stopped pursuing ATP collection actions in New York state court in January 2010, and will not do so in the future.

This Corrective Action Statement does not constitute factual or legal findings by FINRA, nordoes it reflect the views of FINRA or its staff.

Bill Singers Comment

Those familiar with my decades of published commentary about Wall Street know that I have frequently chided the industry regulators for a double standard that too often comes down like a ton of bricks on the smaller firms and individual brokers while showing too much leniency for the powerful and connected. As I noted inPadded Expense Accounts Ends Hartford Brokers Career (Street Sweeper, September 7, 2011):

What bothers me is the double standard that permeates all of Wall Street regulation. In this FINRA case, an individual stockbroker is rightfully barred from the industry for defrauding his employer through the submission of bogus business expenses, some of which are double-billed. A just comeuppance and good riddance!

However, this high dudgeon, this moral outrage by FINRA just doesnt seem to apply to the big boys be they senior management at major brokerage firms or the too-big-to-fail firms themselves. For example, remember this incident from about the same 2008 2009 time period involved in Lees case?

The Perfect Office

No longer content with the corner office or the penthouse in hues of teakwood, former Merrill Lynch CEO John Thain, whose tenure drove Merrill Lynch to lose $15 billion in the fourth quarter of 2009, spent $1,405 on a trash can. As his company was eliminating jobs, a newly acquired $87,000 rug graced the floor of his office.

Most executives hire interior designers, and Thain was no exception hiring Michael Smith, of celebrity design fame. The tab for his designer office $1.2 million.

5 Outrageous CEO Spending Abuses and Perks (Forbes Personal Spending by Investopedia, August 3, 2011)

Thains questionable office expenses in 2008 were well documented and have become the stuff of legend and, yes, in the face of public outrage, he purportedly repaid the full cost of the renovation. On the other hand, did FINRA or any regulator bring charges against him forsubmittingthose charges?

I applaud FINRA for taking this overdue action against its larger member firms. For too long, FINRA has fostered a counterproductive image that it was little more than a lapdog serving the interests of its more influential members. If, indeed, this first step towards re-balancing the self-regulators agenda is sincere, then there may yet be hope for over 600,000 registered persons and nearly 4,000 small member firms. Although I am not yet convinced, I welcome this historic action and will continue to monitor this regulator.

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American Banker

JPM Chase Quietly Halts Suits Over Consumer Debts

JAN 10, 2012

JPMorgan Chase & Co. has quietly ceased filing lawsuits to collect consumer debts around the nation, dismissing in-house attorneys and virtually shutting down a collections machine that as recently as nine months ago was racking up hundreds of millions of dollars in monthly judgments.

A sampling of court records in the major cities in five states shows that Chase collection suits have virtually disappeared. In a sixth state, Illinois, contract attorneys continue to file small-dollar cases, though at a reduced rate.

It is unclear whether Chase has stopped pursuing collection on many claims nationwide, or if intends to pursue the debts in some other fashion. The bank has not explained its apparent moratorium and declined comment.

Chase's halt does, however, follow scattered defeats in state courts and a whistle-blower's allegation that it falsely overstated the balances of thousands of delinquent accounts it sold to a third party. Former Chase employees and debt collection experts insist that the bank would not have abruptly retreated from its collections efforts in the absence of trouble.

In a sign that Chase acted with urgency, numerous regional collections teams were fired in mid-2011 at the order of the New York bank's headquarters, according to people familiar with the events.

"Nobody told anybody anything. It was very traumatic," says a former Chase attorney who asked to remain anonymous because of a nondisclosure agreement. "I think there were investigations by the [Office of the Comptroller of the Currency] and other government entities. If we're not there, we can't be interviewed."

The OCC declined to comment. Chase declined to say whether its moves were related to government investigations or legal concerns. In an email to American Banker, a spokesman for the bank called its collection strategy "proprietary."

Chase and other credit card issuers have historically filed lawsuits to compel consumers to repay defaulted loans. Such suits typically involve only a few thousand dollars each, but en masse add up; Chase recovered $1.4 billion from defaulted credit card accounts last year, according to its financial filings with the Securities and Exchange Commission. (Not all of that necessarily came from judgments.)

Jerry Salzberg, a lawyer who represents debt collectors and banks in the Chicago area, was familiar with Chase's dismissed Illinois collections attorneys, whom he describes as experienced, productive and profitable.

"Someone from New York brought in the three lawyers, kicked them out with no warning and dismissed all their cases," Salzberg says. "These were people who were by the book. If they weren't the most profitable [of Chase's regional collection teams], they sure as hell were making a lot of money for the bank. Obviously something happened."

Chase collections cases have dropped off sharply in Illinois in recent months, in addition to disappearing in five other states, an American Banker review indicates. The review focused on California, Florida Maryland, New York and Washington, where local court records are electronically searchable.

In Dade County, Florida, which includes Miami, Chase filed 640 collections claims in January 2011, most seeking between $3,000 and $12,000. On Jan. 4 alone it filed suits seeking over $200,000, which represents a rate of $50 million annually.

But in April of last year, Chase ceased filing claims altogether in Dade County. That month, The Wall Street Journal first reported that Chase had dropped "more than a thousand" consumer debt cases around the country. Some contract attorneys cited documentation irregularities for the move, the paper reported.

Robo-signing, or the high-volume production of signed legal documents, has been a key element of the governmental and media foreclosure reviews. Chase's current pullback raises at least the possibility that at least some banks may have documentation problems in other business lines.

Academics and attorneys who defend consumers against debt claims have leveled their heaviest criticism at collection agencies rather than banks themselves. The agencies allegedly seek on a regular basis to collect debts in the absence of legitimate documentation. Efforts to collect a bank's own debt generally have been regarded by consumer advocates as more credible than those by collections agencies, which pursue secondhand claims.

"If sloppy record keeping and problems with false affidavits is a problem with mortgages, it's 100 times bigger in credit card accounts," says Michelle Weinberg of the Legal Assistance Foundation of Metropolitan Chicago. Even so, Weinberg says, "On documentation issues, it wouldn't occur to me that Chase wouldn't be able to prove up its own account."

So far judges have questioned the validity of banks' own consumer debt records in only a few low-profile cases. However, a whistle-blower claim settled last year raises further questions.

Linda Almonte, a former team leader in Chase's San Antonio credit card services division, accused the bank of firing her for objecting to the sale of $200 million in legal judgments obtained by bank attorneys. Half the accounts lacked adequate documentation of judgment and one-sixth listed the wrong amounts owed, Almonte claimed in a suit filed in U.S. District Court for the Western District of Texas.

In its response, Chase did not dispute inaccuracies in the debt balances and documentation. Instead, it said its sales agreement allowed for errors and thus was proper. "[T]he parties explicitly agreed that the judgments were purchased 'as is' and "with all faults," Chase's attorney wrote.

Chase was unsuccessful in getting the case dismissed and settled it on undisclosed terms last April; it ceased filing new consumer debt lawsuits in many states the same month.

Should Chase stop pursuing such claims for any reason, the move could prove costly. The threat of litigation has an unquantifiable but significant influence on consumers' decisions to pay off their debts. What's more, even partial recoveries can be substantial and may already be declining as the result of Chase's pullback. After recouping $405 million in the first quarter of 2011, Chase's recoveries fell to $321 million in the second quarter and $266 million in the third quarter.

It is hard to say whether the absence of new suits has contributed to the decline. Credit card recoveries tend to be volatile and lag writeoffs. In the absence of its own collections activities, Chase could also be recouping money selling delinquent loans to collections agencies who then seek recoveries on their own. But a search for defendants in 10 cases that Chase dropped this spring did not uncover any surrogate claims.

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Foreclosures Are Killing Us

By CRAIG E. POLLACK and JULIA F. LYNCH

AFTER slowing down in the first half of the year, the rate of homes entering foreclosure is rising again. First-time default notices were served on 78,000 homes in August, a 33 percent increase from July. A $1 billion federal program to help jobless and underemployed homeowners ended Friday. Foreclosure notices were filed against a record 2.9 million properties last year, and an additional 1.2 million in the first half of this year.

Foreclosure is not just a metaphorical epidemic, but a bona fide public health crisis. When breadwinners become ill, they miss work, lose their jobs, face daunting medical bills and have trouble making mortgage payments as a result.

But that is only part of the story. A growing body of research shows that foreclosure itself harms the health of families and communities. In our 2008 survey of 250 people undergoing foreclosure in the Philadelphia area, 32 percent reported missing doctors appointments and 48 percent said they let prescriptions go unfilled, significantly higher rates than others in their community. A paper released last month by the National Bureau of Economic Research found that people living in high-foreclosure areas in New Jersey, Arizona, California and Florida were significantly more likely than those in less hard-hit neighborhoods to be hospitalized for conditions like diabetes, high blood pressure and heart failure.

More than one-third of homeowners in our study had symptoms of major depression. The N.B.E.R. study found significantly more suicide attempts in high-foreclosure neighborhoods. For every 100 foreclosures, it found a 12 percent increase in anxiety-related emergency-room visits and hospitalizations by adults under 50. Losing a home disrupts social ties to neighbors, schools, jobs and health care providers ties that under better circumstances promote good health. Neighborhoods suffer, not just homeowners.

Most programs to stem the tide of foreclosures rely on mortgage counselors at nonprofit groups supported by federal grants, who work closely with homeowners and banks to try to find a financial resolution.

These counselors have become, of necessity, crisis counselors in a national survey of 395 mortgage counselors we conducted in January, 37 percent said they had worked with at least one homeowner in the past month who was considering suicide but they need to be trained to quickly and efficiently screen for illnesses like depression. In fact, health care should be part of a comprehensive approach to foreclosure prevention; for example, mental health caseworkers should be embedded in mortgage counseling agencies.

Screening and treatment may actually help some families keep their homes. Studies of unemployed people have shown that treating depression can improve the chances of landing a new job. Such treatment might also help homeowners undertake the daunting documentation and financial planning that foreclosure prevention programs demand.

In a time of fiscal strain and rising need, where will the money come from? For one thing, the settlement negotiations with the financial services industry over mortgage fraud and abuse should include money for health care. Millions of Americans are locked into mortgages they cant afford. If we cant help them stay in their homes, the least we can do is help them stay alive.

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latimes.com

It's not 2008 all over again yet

The U.S. market's slump from its spring highs isn't on the scale of what happened in the fall of 2008.

Tom Petruno

Market Beat

September 24, 2011

Copyright 2011, Los Angeles Times

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After high court ruling, firms divide and conquer in consumer cases

September 21, 2011

By Bob Sullivan

MSNBC - The Red Tape Chronicles

If it seems easier lately for companies to add small fees on your bills and harder for you to get your money back, that's because it is.

A Supreme Court decision that was denounced asa crushing blow to consumers when it was announced in April has become exactly that, according to lawyers who argue on behalf of alleged victims of corporate cheating. The decision, which upheld corporations right to enforce fine-print contact language that compels consumers to waive their right to file lawsuits, is being used to squelch legal cases across the country, they say.

Defendants are trying to steamroll us out of court with this. We're getting completely shut down, said David DiSabato, who specializes in consumer law in New Jersey. The ruling opens the door for companies to pickpocket $10 at a time from millions of consumers.

As an example, DiSabato told the story of client John Considine of Rutherford, N.J., who found several phantom $10 charges on his Verizon cell phone bill from firms offering ring tones, horoscopes and other services he didn't want. In one case, he couldn't even find out the identity of the company levying the charge. Working with DiSabato, Considine learned that cramming is a common problem, and decided to file a class action lawsuit to get his money back and help others -- many who might not even realize they'd been victims.

But Considine ran right into a brick wall. Only days after the Supreme Court arbitration ruling, Verizon filed a motion to dismiss his case and to compel arbitration. If Verizon prevails, as expected, Considine will never have a day in court, will never be able to discover how many other consumers were hit by the same charges and may never even find out the name of the phantom company. He certainly won't be able to find legal representation for a fight to recover $10 fees, DiSabato said.

"(The Supreme Court decision) gave the telecom companies a license to commit petty theft without ever having to face the consequences," said DiSabato. "The telecom companies get rich by committing theft against consumers on a massive scale, and (the decision) deprives consumers of any meaningful ability to fight back."

Considine's case is among countless others around the country affected by the ruling, known as AT&T Mobility vs. Concepcion. In that case, the Supreme Court ruled that a California law prohibiting waiver of class action lawsuit rights was trumped by the Federal Arbitration Act. Open season was on.

The ruling is fostering decisions that a company's right to enforce arbitration clauses trumps almost every other interest -- and it's falling like a hammer on consumer cases around the country.

That's illustrated by a case decided in June against Matthew Wolf, a captain in the Army Reserve who was deployed in 2007. The Servicemembers Civil Relief Act gives deployed reservists a number of tools to ease their financial burden, including instant relief from car leases and pro-rated refunds of any prepaid leases. Wolf had a dispute with Nissan over prepaid fees he believed should be refunded, but a New Jersey court found in June that it had to choice but to dismiss his case.

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"New Jersey precedent notwithstanding, the court is bound by the controlling authority of the United States Supreme Court," the judge wrote.

The ruling shows that court favored arbitration "even if it hindered the policy goals behind the (Servicemembers Relief Act)," lamented the Alliance for Justice, in a blog devoted to chronicling the aftermath of the AT&T decision.

http://afjjusticewatch.blogspot.com/2011/08/at-aftermath-servicemembers-denied.html

Krystle Bernal had a similar outcome after she sued a private fashion school in 2010, alleging misrepresentations about costs made during high-pressure sales pitches. Bernal's lawyer argued that a lawsuit and comprehensive discovery process, including depositions of employees, were necessary to flesh out accusations of fraud. Colorado federal court judge William Martinez implied he agreed, but concluded that his hands were legally tied and granted the dismissal. The AT&T decision was a serious blow to consumer class actions and likely foreclosed the possibility of any recovery for many wronged individuals, he noted in his June ruling.

Hal Rosner has sued car dealers in California on behalf of consumers for decades, often winning compensation after consumers were allegedly misled during sales. He said his entire practice has changed as a result of the AT&T decision.

"Before the decision we had returned millions to consumers, and since very little, he said. Every week and most days my law firm finds ourselves dealing with another motion to compel arbitration by a car dealership. ... In a crowded court system with judges angry over budget cuts, Concepcion has become a way for Judges to get rid of cases. ... Without any doubt our world has changed beyond belief."

DiSabato said that as soon as the AT&T ruling was issued, he received motions to compel arbitration in about a dozen cases he was working on, including one where a settlement offer that was withdrawn. The ruling has been particularly fortuitous for telecom companies, he said.

The filings all look the same, as if the corporations' lawyers were sharing blank forms, he said.

"While New Jersey law had previously held arbitration provisions precluding class actions in certain consumer cases to be unconscionable, the United States Supreme Court recently held in the broadest terms that the FAA (Federal Arbitration Act) preempts any state attempt to impose class or representative proceedings on bilateral arbitration agreements and that arbitration provisions such as those at issue here must be enforced according to their terms," Verizon's lawyers wrote in their motion to compel arbitration in the Considine case." Accordingly, this court should stay this case and compel plaintiff to bring his claims on an individual basis in arbitration."

Considine's case revolves around third-party companies that are allowed to place charges on consumer phone bills, a sore subject that was the focus of a recent congressional investigation and hearing. In one of the three phantom charges, a company named SendMe claimed Considine signed up for its service while playing an intelligence "I.Q. quiz" online. Considine denies this, but there will be no courtroom airing of the evidence because SendMe has also claimed it has an arbitration agreement in force with the consumer, according to DiSabato. If such agreements are allowed to stand, the door would be open for a new kind of fraud, he argued.

"Our client is a stranger to SendMe, how can he have an arbitration agreement with them?" he said.

In general, Considine argues that Verizon allows third-party firms to use "misleading, oblique or inadequate consent procedures," when they are signed up for $10-a-month services.

The case neatly illustrated the need for class action cases, and the disaster of the Supreme Court ruling, DiSabato said.

"We are being precluded from taking any discovery that would force (Verizon) to identify the third company," he said. "No one would ever file a case for $10 by themselves. And we don't know how many consumers are harmed." He did say that 480,000 Verizon customers in New Jersey are subject to third-party charges like those crammed on his client's bill

Verizon General Counsel Leigh Schachter declined to discuss specifics of Considines case while its in litigation, but said in general he believed Verizons arbitration procedure was the best way to address consumer issues.

Our point of view is we think Supreme Court decision is the correct one, and we have an arbitration clause that we think is good for our customers, Schachter said. We have tried to design the clause in a way to make it as customer-friendly as we can.

A message left with SendMe was not returned, but the New Jersey Law Journal reported that the firm said it had obtained authorization for the $9.99 charge on Considines bill.

Class-action lawsuits for small but common grievances are hardly a panacea. They are notorious for producing so-called coupon settlements, which see a tiny sum even a $10 coupon going to consumers while lawyers rack up million-dollar fees. Tort reform advocates have long argued that arbitration is opposed by consumer lawyers only because they stand to lose out on hefty fees.

In every single one of my cases, my clients would have been better off with theAT&T Mobility arbitration provision than with what class-action attorneys negotiated for them, wrote Ted Frank earlier this year. The media is uniformly describing this case as one of consumers vs. businesses, when it's really one of consumers vs. lawyers trying to protect their monopoly on dispute resolution procedures.

But arbitration has a spotty record as an alternative. While public information about the proceedings is generally unavailable, data that have emerged show corporations win an overwhelming percentage of cases.

Class action cases offer the added benefit of alerting victims who might not otherwise know theyve been mistreated by a company say, they never noticed a $10 monthly ring-tone charge and compels firms to offer them refunds. Individual arbitration cases do no good for consumers who dont file them.

Christine Hines, a lawyer for the advocacy group Public Citizen, said the AT&T decision has impacts beyond standard form consumer contracts and annoying fees and surcharges. Binding arbitration agreements have also hit workers who try to sue their employers for unfair or even discriminatory practices. Employment arbitration clauses can be in effect even without a workers signature, as soon as an employee begins the terms of employment, she said.

"The Concepcion decision was ill-advised," she said. "I was initially startled by the effect on employment claims. Employment claims are typically based on federal laws. Its alarming when employees cannot band together to address often company-wide discriminatory or other wrongful practices."

Ed Mierzwinski, head of U.S. Public Interest Research Group, said advocacy groups had warned that the AT&T decision would wreak havoc with consumer lawsuits and would immediately ripple through the legal system.

"This was simply the wrong decision, and as we said at the time, it has become a crushing blow to consumers," Mierzwinski said. Youre seeing it used everywhere now.

For years, members of Congress have proposed legislation, such as the Fairness in Arbitration Act, designed to limit companies' ability to enforce fine-print lawsuit bans in consumer contracts. A form of such relief was passed as part of the omnibus Dodd-Frank financial reform bill. The new Bureau of Consumer Financial Protection is compelled to study the issue, and after reporting to Congress, will have the right to restrict arbitration uses by companies. That agency's fate, however -- let alone its ability to complete studies and enforce new rules is up in the air.

Meanwhile, the legal strategy of divide and conquer one consumer facing a $10 charge is easy to quiet, while 100,0000 is a massive headache now appears to be the law of the land.

In states where arbitration has become the rule, consumers can no longer even get attorneys to help them, warned Rosner, the auto consumer advocate. And once (consumers) are sent to arbitration the system is biased against them.

http://redtape.msnbc.msn.com/_news/2011/09/20/7863184-after-high-court-ruling-firms-divide-and-conquer-in-consumer-cases

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THE WALL STREET JOURNAL

No Day in Court for Bank Clients

By ROBIN SIDEL

August 2, 2011

Some small and regional U.S. banks are prohibiting unhappy customers from taking their complaints to court or joining class-action lawsuits, instead requiring them to resolve disputes through arbitration.

The banks are emboldened by a U.S. Supreme Court ruling in April that said state laws can't supersede private contracts that require customers to present their complaints individually to an arbitrator.

The decision attracted attention from financial firms and other companies like cellphone providers that embrace mandatory third-party arbitration for customer gripes, saying it helps them resolve disputes fairly for customers and more cleanly than getting tied up in lengthy and costly court cases.

Consumer advocates say they don't like arbitration because it restricts the ways in which a customer can resolve a dispute, and that consumers are less likely to go through the arbitration process than to sue.

Dispute Resolution

Many of the nation's banks require customers to pursue arbitration to resolve disagreements on basic checking and savings accounts. Other banks permit customers to file lawsuits.

Mandatory Arbitration

1. Wells Fargo & Co.

2. J.P. Morgan Chase & Co.

3. TCF Financial Corp.

4. BB&T Corp.

5. Huntington Bancshares Inc.

6. Regions Financial Corp.

No Mandatory Arbitration

1. Bank of America Corp.

2. Fifth Third Bancorp

3. PNC Financial Services Group

4. Capital One Financial Corp.

Another complaint: Arbitration provisions often are written in legalese and buried deep within documents that consumers get but don't read when they open a bank account.

"I get all these 'we've changed the terms of your agreement' letters, but they make it very difficult to understand what was changed," said Vic Bullara, who runs an executive-coaching company in Lake Forest, Calif.

Regions Financial Corp., a regional bank based in Birmingham, Ala., last month strengthened the existing mandatory-arbitration provision contained in its deposit accounts. [This is a self-protection mechanism to insulate themselves when they drain your checking account to pay your fellow depositors' bills or when they purposefully re-order your transactions to make your account balance go negative so they can charge you $39 a pop in service charges. No matter what, it was DEFINITELY not done to protect their customers!]

Regions also simplified the language in the provision and moved it to the beginning of the 43-page agreement.

The July 21 agreement includes a boldface box that tells customers they "will not have the right to pursue [a] claim in court or have a jury decide the claim and you will not have the right to bring or participate in any class action or similar proceeding in court or in arbitration."

At the same time, Regions eliminated a provision that permitted some court actions even while a case was going through arbitration. The bank also extended the mandatory arbitration provision to heirs of a deceased customer.

A spokeswoman for Regions declined to comment.

First Tennessee Bank, which has nearly 200 branches, is "looking at the mandatory-arbitration-clause issue and will probably adopt whatever becomes the industry standard practice," said a spokesman for the bank, a unit of First Horizon National Corp., of Memphis, Tenn.

Alan Kaplinsky, a partner at law firm Ballard Spahr LLP in Philadelphia, said he has received "a ton of requests" from banks and other companies to help them put together mandatory arbitration provisions for consumer contracts. He declined to identify those banks, citing client confidentiality.

"The Supreme Court opinion has been a wake-up call for a lot of these companies to at least consider" mandatory-arbitration clauses, he said.

The nation's largest banks have long included such provisions in credit-card agreements and consumer-deposit products like checking and savings accounts.

According to a recent survey by Pew Charitable Trusts, nearly three-quarters of 265 accounts offered by the 10 largest U.S. banks included mandatory arbitration provisions.

Still, the practice is scattered. Wells Fargo & Co. and J.P. Morgan Chase & Co. both include mandatory-arbitration clauses in their deposit accounts, according to the companies.

Bank of America Corp., of Charlotte, N.C., eliminated mandatory arbitration from its consumer accounts in 2009 after the practice came under attack in debt-collection proceedings. Capital One Financial Corp. doesn't have mandatory-arbitration provisions on any of its products, said a spokeswoman for the McLean, Va., company.

Mr. Bullara, the executive coach, said he didn't realize that his multiple accounts with J.P. Morgan's Chase unit require disputes to go through an arbitration process. "I don't know if that's a good or bad thing," he said.

The practice has been less common among smaller institutions, which tend to highlight consumer-friendly policies.

"Consumer protection and fairness suggest it's not a good provision," said Steve Zuckerman, president of Self-Help Federal Credit Union.

The Durham, N.C., credit union mostly serves women and rural and minority communities in North Carolina, California and other U.S. states. Self-Help doesn't require arbitration and doesn't plan to change its policy, he said.

Mandatory arbitration was thrown into disarray two years ago when big arbitration firms backed away from participating in consumer debt-collection disputes. As a result, many large banks stopped using the process to chase down debtors. It remained in place for other consumer products.

April's Supreme Court decision is making more banks comfortable with the practice. In that case, California consumers sued AT&T Inc., saying they were defrauded because the company charged them $30.22 apiece in sales tax on cellphones that were advertised as free. AT&T invoked its arbitration clause, but California courts later concluded that such provisions were so unfair that they were void. The Supreme Court overturned the state ruling.

"Most of our community-bank clients believe that having the arbitration clause would be beneficial," says Joseph Porter, chairman of the financial-institutions practice at law firm Polsinelli Shughart in St. Louis.

The Dodd-Frank financial-overhaul law requires the newly formed Consumer Financial Protection Bureau to examine mandatory-arbitration agreements, but doesn't set a specific time frame for the agency to do so.

"We need more scrutiny over these things and make sure they are fair to consumers," said Susan Weinstock, a project director at Pew.

The arbitration issue is creeping up in other court cases. Nearly three dozen banks are facing lawsuits over overdraft fees in cases that were initiated before the April ruling.

Some of those banks had mandatory arbitration clauses for their customers. The cases still are pending.

"What the banks have done with these arbitration programs is buy themselves immunity with respect to complaints about their consumer practices," said Bruce Rogow, a lawyer at Alters Boldt Brown Rash & Culmo in Miami, which is involved in the overdraft cases.

Write to Robin Sidel at robin.sidel@wsj.com

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S&P downgrades Fannie and Freddie, US-backed debt

Daniel Wagner and Derek Kravitz, AP Economics Writers, On Monday August 8, 2011, 6:28 pm EDT

WASHINGTON (AP) -- Standard & Poor's Ratings Services on Monday downgraded the credit ratings of Fannie Mae and Freddie Mac and other entities linked to long-term U.S. debt.

S&P also lowered the ratings for: farm lenders; long-term U.S. government-backed debt issued by 32 banks and credit unions; and three major clearinghouses, which are used to execute trades of stocks, bonds and options.

All the downgrades were from AAA to AA+, reflecting the same downgrade S&P made of long-term U.S. government debt on Friday.

The downgrade of the mortgage giants Fannie and Freddie reflected their "direct reliance" on the U.S. government, S&P said.

The U.S. government rescued the two mortgage giants in September 2008 and has funded them since the financial crisis. Fannie and Freddie own or guarantee about half of all U.S. mortgages and nearly all new mortgages. So if the U.S. government can't pay its bills, neither can Fannie and Freddie.

It's unclear how the lower credit rating would affect consumers. The downgrade applied only to corporate bonds, not the mortgage-backed securities that Fannie and Freddie issue.

Banks could adopt tougher lending standards for homebuyers, if they felt there was a greater risk because of the downgrade. But it is unlikely to affect mortgage rates, which are already near record lows. Investors are shifting more money out of the stock market and into Treasury bonds, which has forced yields lower. Mortgage rates tend to track the yield on Treasurys.

The downgrade to the long-term U.S. government debt, which was announced late Friday, sent stocks tumbling Monday. The Dow Jones industrial average closed 634 points lower for the day, or 5.5 percent. The S&P 500 stock index closed down nearly 6.7 percent.

The lower ratings for Fannie and Freddie contributed to the sell-off, analysts said. Fannie and Freddie stocks are almost worthless -- neither trade on major exchanges. Still, both declined Monday. Fannie fell a nickel to 25 cents per share. Freddie dropped six cents to 27 cents per share.

Freddie Mac said in its quarterly earnings report Monday that the lower rating could reduce the supply of mortgages, adversely affecting home prices and leading to additional defaults on home loans it guarantees. Fannie Mae said in a filing Monday to the Securities and Exchange Commission that it "cannot predict the ultimate impact" of the downgrade.

Edward DeMarco, chief of the Federal Housing Finance Agency that oversees Fannie and Freddie, said the entities will meet their financial obligations because the government will continue to fund them.

Anika Khan, a housing economist at Wells Fargo, doubts the downgrade will have much impact on the housing market. Sales are already low and there are few potential buyers. Low mortgage rates and home prices have done little to change that.

"It's likely that once the storm passes, you'll get an increase in mortgage rates because of this, but it won't be significant. Housing is already depressed," Khan said.

Ten of the country's 12 Federal Home Loan Banks also were downgraded from AAA to AA+. The banks of Chicago and Seattle had already been downgraded earlier to AA+.

S&P also downgraded four clearinghouses: National Securities Clearing Corp., Fixed Income Clearing Corp. Depository Trust Co., and Options Clearing Corp

Clearinghouses perform crucial tasks for the markets. They connect sellers and buyers and ensure that both parties hand over the money or investments that they promised.

Unlike Fannie and Freddie, clearinghouses don't have explicit backing from the U.S. government.

S&P said it downgraded clearinghouses because their revenue is tied to U.S. trading activity, which would slow considerably if the economy soured. Such downgrades are routine when S&P downgrades the host nation's debt.

The downgrade of long-term U.S. debt affects the banking and lending industries because many interest rates are pegged to Treasury yields. In addition, many companies use the securities as collateral that they would surrender if their trades lost value.

The clearinghouses said the downgrade would not change how they value securities used as collateral.

"The fundamental strengths of our company are the same today as they were prior to this recent revision," said The Depository Trust & Clearing Corp., which owns National Securities Clearing Corp., Fixed Income Clearing Corp. and Depository Trust Co.

Options Clearing Corp., said the change will not harm its ability to execute trades for customers.

AP Business Writer Martin Crutsinger contributed to this report.

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Portfolio Recovery Breaks All Kinds of Records with Q2 Results

Posted By Patrick Lunsford On July 29, 2011

Debt buyer Portfolio Recovery Associates, Inc. (Nasdaq: PRAA) late Thursday reported financial results for the second quarter of 2011 marked by record-high net income, cash collections, and revenue.

The Norfolk, Va.-based accounts receivable management firm reported net income of $25.6 million for the second quarter of 2011, up 31 percent from the same period a year ago. Earnings per share were $1.48 in the second quarter, up 30 percent from Q2 2010. Analysts polled by Thomson Reuters expected the company to report earnings of $1.41 per share in the quarter.

Portfolio Recovery said that cash collections rose 37 percent to a record $176.3 million in the second quarter of 2011. By collection channel, the companys call center and other collections increased 19 percent, external legal collections increased 45 percent, internal legal collections grew 41 percent, and purchased bankruptcy collections gained 56 percent when compared with the year-earlier period.

The jump in cash collections drove total revenues for the quarter up 23 percent to a record $114.8 million. PRAs fee-for-service businesses generated revenues of $14.5 million in the second quarter of 2011, a decline of 10 percent from the same period a year ago due largely to a decrease in revenues generated by PRA Location Services. Together, the fee-for-service businesses accounted for 12.6 percent of the companys overall revenues in Q2 2011, down from 17.3 percent a year ago.

This outstanding performance reflects the efforts of our entire PRA staff, including the Companys more than 1,500 call-center collectors, said Steven D. Fredrickson, chairman, president and CEO. Im proud of the hard work and dedication of our very talented team and look forward to our future successes.

PRA purchased $1.41 billion of face-value debt during the second quarter of 2011 for $89.5 million. [They bought this debt for an amazingly low price of 6.3 cents on the dollar!! Wow!] The debt was acquired in 76 portfolios from 10 different sellers.

The company purchased $89.5 million of charged-off debt in the second quarter, bringing our total purchases for the first half of the year to $197.4 million, said Kevin P. Stevenson, chief financial and administrative officer. Importantly, we were able to accomplish this while paying down $40 million in principal on our line of credit during the quarter, strengthening our ability to continue making smart investments in the future.

For the second quarter, Portfolio Recovery reported a total employee headcount of 2,504, up very slightly from the first quarter of 2011 but representing a 5.5 percent increase from the second quarter of 2010.

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July 30, 2011

Some Bankers Never Learn

By GRETCHEN MORGENSON

YOUD think the mortgage bust would qualify as a teachable moment.

But some people refuse to learn from mistakes a list that apparently includes certain mortgage bankers. Their industry is fighting a new rule that might prevent a repeat of the lending binge that helped drive our economy off a cliff.

In case you just arrived from another planet: Americas mortgage mania was fueled by home loans with poisonous features that made them virtually impossible to repay. It was fun while it lasted, at least for the financial types who profited by making dubious loans and selling them to investors.

But the Dodd-Frank financial overhaul last year barred lenders from making home loans before determining that people could probably repay them.

(Its depressing that we have to legislate common sense, but, hey, thats the world we live in.)

Dodd-Frank also required regulators to define the characteristics of loans that would most likely be repaid. The idea was to ensure that banks had skin in the game when they bundled risky mortgages into securities.

The proposal was this: If a mortgage security contains only high-quality loans, the banks can sell the entire offering. If the investments included riskier mortgages, the underwriters must keep 5 percent of the issue on their own books.

Basically, Wall Street would have to eat a bit of its own cooking.

Earlier this year, the Federal Reserve, the Federal Deposit Insurance Corporation, the comptroller of the currency, the Securities and Exchange Commission, the Federal Housing Administration, the Federal Housing Finance Agency and the Department of Housing and Urban Development all agreed on what makes a mortgage most likely to perform well. They examined how different types of loans defaulted, and the attributes of the borrowers in question. Then they invited the public to comment on their proposal; that comment period ends tomorrow.

One attribute of safer loans, the regulators found, was that homeowners had made a down payment of at least 20 percent. Another was that their housing debt did not exceed 28 percent of their monthly income, and that their total debts did not exceed 36 percent.

In other words, regulators said, a relatively low-risk mortgage should look an awful lot like the ones that local banks made before the days of securitization on steroids. Regulators also said that the origination costs on low-risk mortgages should no more than 3 percent of the amount borrowed.

THE mortgage industry squawked. It would prefer that we return to the days of high-fee, anything-goes lending. That is not surprising. But what is surprising is that mortgage bankers are leaning on the same tired argument that saner lending requirements will undermine the goal of expanding homeownership.

In a comment letter filed with regulators last week, David Stevens, the president of the Mortgage Bankers Association, warned that the requirements on down payments and debt-to-income ratios were unnecessary and not worth the societal costs of excluding far too many qualified borrowers from the most affordable mortgage loans to achieve homeownership.

Mr. Stevens, who last March left his job as federal housing commissioner at the Department of Housing and Urban Development, didnt mention the enormous costs associated with reckless lending. We are still tallying the bills, but to date, taxpayers have funneled $154 billion to Fannie Mae and Freddie Mac. Investors have suffered even greater damage.

While we are discussing societal costs, lets not forget how minority borrowers and first-time homebuyers were the targets of predatory lenders who lured them into toxic loans loaded with fees.

A study issued last week on the widening wealth gap between minorities and white Americans points to the costs of predatory lending. Conducted by the Pew Research Center, a nonpartisan organization, the study noted that housing woes were the principal cause of precipitous declines in household net worth among both Hispanics and blacks from 2005 through 2009. The organization found that, adjusted for inflation, the median wealth of Hispanic households fell by two-thirds during that period. The wealth of black households declined 53 percent. The net worth of white households fell only 16 percent.

And yet, Mr. Stevens noted in his letter that the mortgage bankers were working in harmony with a very wide coalition of consumer advocates, civil rights groups and other industry associations, to educate policy makers and legislators concerning this rule.

One wonders how people who have lost their homes because of abusive lending practices feel about their advocates forming an alliance with mortgage lenders on this issue.

Mr. Stevens also argues that restricting mortgage fees to 3 percent, as proposed, would hurt borrowers by reducing their access to credit. Noting that his association opposes excessive fees, he wrote that his group knows of no data evidencing that points and fees have affected borrowers ability to repay their loans.

He told a different story when he was at HUD overseeing the portfolio of loans insured by the F.H.A.

Testifying before Congress in May 2010, Mr. Stevens cited five years of F.H.A. data showing that loans in which the seller of the property helped defray a borrowers origination costs by more than 3 percent, known as a sellers concession, experienced significantly greater default rates.

In 2008, for example, F.H.A.s insurance claims on loans where sellers covered 3 percent to 6 percent of buyers costs were 50 percent higher than claims on loans where concessions from sellers fell below 3 percent.

The higher concessions created incentives to inflate appraised value, Mr. Stevens testified. In other words, high costs do have consequences.

Mr. Stevens, through a spokesman, declined to comment.

As the advocate of the mortgage banking industry, Mr. Stevens is entitled to express the industrys views. But it would be troubling if such arguments gained traction with regulators. In the years leading up to the crisis, the Mortgage Bankers Association and other financial trade groups persuaded regulators to postpone or water down rules that could have reined in subprime lending relatively early. We all know the consequences and surely do not need to repeat past mistakes.

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Signature fraud abounds in the mortgage industry

By MICHELLE CONLIN and PALLAVI GOGOI

THE ASSOCIATED PRESS

July 24, 2011

Mortgage industry employees are still signing documents they haven't read and using fake signatures more than eight months after big banks and mortgage companies promised to stop the illegal practices that led to a nationwide halt of home foreclosures.

County officials in at least three states say they have received thousands of mortgage documents with questionable signatures since last fall, suggesting that the practices, known collectively as "robo-signing," remain widespread in the industry.

The documents have come from several companies that process mortgage paperwork, and have been filed on behalf of several major banks. One name, "Linda Green," was signed almost two dozen different ways.

Lenders say they are working with regulators to fix the problem but cannot explain why it has persisted.

Last fall, the nation's largest banks and mortgage lenders, including JPMorgan Chase, Wells Fargo, Bank of America and an arm of Goldman Sachs, suspended foreclosures while they investigated how corners were cut to keep pace with the crush of foreclosure paperwork.

Since then, suspect paperwork has been filed not only with foreclosures, but also with new purchases and refinancings. Critics say the new findings point to a systemic problem with the paperwork involved in home mortgages and titles. And they say it shows that banks and mortgage processors haven't acted aggressively enough to put an end to widespread document fraud in the mortgage industry.

"Robo-signing is not even close to over," says Curtis Hertel, the recorder of deeds in Ingham County, Mich., which includes Lansing. "It's still an epidemic."

In Essex County, Mass., the office that handles property deeds has received almost 1,300 documents since October with the signature of "Linda Green," but in 22 different handwriting styles and with many different titles.

Linda Green worked for a company called DocX that processed mortgage paperwork and was shut down in the spring of 2010. County officials say they believe Green hasn't worked in the industry since. Why her signature remains in use is not clear.

"My office is a crime scene," says John O'Brien, the registrar of deeds in Essex County, north of Boston.

In Guilford County, N.C., the office that records deeds says it received 456 documents with suspect signatures from Oct. 1, 2010, through June 30. The documents, mortgage assignments and certificates of satisfaction, transfer loans from one bank to another or certify a loan has been paid off.

Suspect signatures on the paperwork include 290 signed by Bryan Bly and 155 by Crystal Moore. In the mortgage investigations last fall, both admitted signing their names to mortgage documents without having read them. Neither was charged with a crime.

And in Michigan, a fraud investigator who works on behalf of homeowners says he has uncovered documents filed this year bearing the purported signature of Marshall Isaacs, an attorney with foreclosure law firm Orlans Associates. Isaacs' name did not come up in last year's investigations, but county officials across Michigan believe his name is being robo-signed.

O'Brien caused a stir in June at a national convention of county clerks by presenting his findings and encouraging his counterparts to investigate continued robo-signing.

The nation's foreclosure machine almost came to a standstill when the nation's largest banks suspended foreclosures last fall. Part of the problem, banks contended, was that foreclosures became so rampant in 2009 and 2010 that they were overwhelmed with paperwork.

The banks reviewed thousands of foreclosure filings, and where they found problems, they submitted new paperwork to courts handling the cases, with signatures they said were valid. The banks slowly started to resume foreclosures this winter and spring.

The 14 biggest U.S. banks reached a settlement with federal regulators in April in which they promised to clean up their mistakes and pay restitution to homeowners who had been wrongly foreclosed upon. The full amount of the settlement has not been determined. But it will not involve independent mortgage processing firms, the companies that some banks use to handle and file paperwork for mortgages.

So far, no individuals, lenders or paperwork processors have been charged with a crime over the robo-signed signatures found on documents last year. Critics such as April Charney, a Florida homeowner and defense lawyer, called the settlement a farce because no real punishment was meted out, making it easy for lenders and mortgage processors to continue the practice of robo-signing.

Robo-signing refers to a variety of practices. It can mean a qualified executive in the mortgage industry signs a mortgage affidavit document without verifying the information. It can mean someone forges an executive's signature, or a lower-level employee signs his or her own name with a fake title. It can mean failing to comply with notary procedures. In all of these cases, robo-signing involves people signing documents and swearing to their accuracy without verifying any of the information.

Most of the tainted mortgage documents in question last fall were related to homes in foreclosure. But much of the suspect paperwork that has been filed since then is for refinancing or for new purchases by people who are in good standing in the eyes of the bank. In addition, foreclosures are down 30 percent this year from last. Home sales have also fallen. So the new suspect documents come at a time when much less paperwork is streaming through the nation's mortgage machinery.

None of the almost 1,300 suspect Linda Green-signed documents from O'Brien's office, for example, involve foreclosures. And Jeff Thigpen, the register of deeds in North Carolina's Guilford County, says fewer than 40 of the 456 suspect documents filed to his office since October involved foreclosures.

Banks and their partner firms file mortgage documents with county deeds offices to prove that there are no liens on a property, that the bank owns a mortgage or that a bank filing for foreclosure has the authority to do so.

The signature of a qualified bank or mortgage official on these legal documents is supposed to guarantee that this information is accurate. The paper trail ensures a legal chain of title on a property and has been the backbone of U.S. property ownership for more than 300 years.

The county officials say the problem could be even worse than what they're reporting. That's because they are working off lists of known robo-signed names, such as Linda Green and Crystal Moore, that were identified during the investigation that began last fall. Officials suspect that other names on documents they have received since then are also robo-signed.

It is a federal crime to sign someone else's name to a legal document. It is also illegal to sign your name to an affidavit if you have not verified the information you're swearing to. Both are punishable by prison.

In Michigan, the attorney general took the rare step in June of filing criminal subpoenas to out-of-state mortgage processing companies after 23 county registers of deeds filed a criminal complaint with his office over robo-signed documents they say they have received. New York Attorney General Eric Schneiderman's office has said it is conducting a banking probe that could lead to criminal charges against financial executives. The attorneys general of Delaware, California and Illinois are conducting their own probes.

The legal issues are grave, deeds officials across the country say. At worst, legal experts say, the document debacle has opened the property system to legal liability well beyond the nation's foreclosure crisis. So someone buying a home and trying to obtain title insurance might be delayed or denied if robo-signed documents turn up in the property's history. That's because forged signatures call into question who owns mortgages and the properties they are attached to.

"The banks have completely screwed up property records," says L. Randall Wray, an economics professor and senior scholar at the University of Missouri-Kansas City.

In the Massachusetts case, The Associated Press tried to reach Linda Green, whose name was purportedly signed 1,300 times since October. The AP, using a phone number provided by lawyers who have been investigating the documents since last year, reached a person who said she was Linda Green, but not the Linda Green involved in the mortgage investigation.

In the Michigan case, a lawyer for the Orlans Associates law firm, where Isaacs works, denies that Isaacs or the firm has done anything wrong. "People have signatures that change," says Terry Cramer, general counsel for the firm. "We do not engage in 'robo-signing' at Orlans."

To combat the stream of suspect filings, O'Brien and Jeff Thigpen, the register of deeds in North Carolina's Guilford County, stopped accepting questionable paperwork June 7. They say they had no choice after complaining to federal and state authorities for months without getting anywhere.

Since then, O'Brien has received nine documents from Bank of America purportedly signed by Linda Burton, another name on authorities' list of known robo-signers. For years, his office has regularly received documents signed with Burton's name but written in such vastly different handwriting that two forensic investigators say it's highly unlikely it all came from the same person.

O'Brien returned the nine Burton documents to Bank of America in mid-June. He told the bank he would not file them unless the bank signed an affidavit certifying the signature and accepting responsibility if the title was called into question down the road. Instead, Bank of America sent new documents with new signatures and new notaries.

A Bank of America spokesman says Burton is an assistant vice president with a subsidiary, ReconTrust. That company handles mortgage paperwork processing for Bank of America.

"She signed the documents on behalf of the bank," spokesman Richard Simon says. The bank says providing the affidavit O'Brien asked for would have been costly and time-consuming. Instead, Simon says Bank of America sent a new set of documents "signed by an authorized associate who Mr. O'Brien wasn't challenging."

The bank didn't respond to questions about why Burton's name has been signed in different ways or why her signature appeared on documents that investigators in at least two states have deemed invalid.

Several attempts by the AP to reach Burton at ReconTrust were unsuccessful.

O'Brien says the bank's actions show "consciousness of guilt." Earlier this year, he hired Marie McDonnell, a mortgage fraud investigator and forensic document analyst, to verify his suspicions about Burton's and other names on suspect paperwork.

She compared valid copies of Burton's signature with the documents O'Brien had received in 2008, 2009 and 2010 and found that Burton's name was fraudulently signed on hundreds of documents.

Most of the documents reviewed by McDonnell were mortgage discharges, which are issued when a home changes hands or is refinanced by a new lender and are supposed to confirm that the previous mortgage has been paid off. Bank of America declined comment on McDonnell's findings.

In Michigan, recorder of deeds Hertel and his counterparts in 23 other counties found numerous suspect signatures on documents filed since the beginning of the year.

In June, their findings led the Michigan attorney general to issue criminal subpoenas to several firms that process mortgages for banks, including Lender Processing Services, the parent company of DocX, where Linda Green worked. On July 6, the CEO of that company, which is also under investigation by the Florida Attorney General's office, resigned, citing health reasons. [Looking at possible criminal indictments - I bet that causes health problems.]

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iWatch News

These are faces of Americans trapped in confusing loans they couldn't afford. Can the Consumer Financial Protection Bureau help?

By Julie Vorman

July 14, 2011

Borrower Nightmares: $700 dormitory fee costs family its car

By Amy Biegelsen

July 15, 2011

The Consumer Financial Protection Bureau, which opens its doors on July 21, would like to regulate auto-title lenders like Fast Auto Loans and Cashpoint but for now it's up to the states.

Margaret Mosunic of Queens, New York. Ben Hallman/iWatch News

Gail Greene, a home equity loan borrower in Queens, New York. Ben Hallman/iWatch News

To mark the July 21 launch of the Consumer Financial Protection Bureau, a new regulator with broad powers, iWatch News is publishing stories about borrower nightmares: Americans from different walks of life who borrowed money with terms they didnt understand and couldnt afford.

The stories build on our Debt Deception investigation, begun in February, of how lenders are accused of exploiting gaps in existing laws to make predatory and confusing loans. Here's a brief description of the borrowers we will profile in this installment:

$700 college fee costs family its car

Mildred Morris, a single mother with a federal job in West Virginia, was overjoyed when her high school son won a coveted spot at a famous New York performing arts college to continue his education. But to come up with an unexpected $700 dormitory fee before a college loan was ready, Morris had to put up her fully paid 2002 Pontiac Sunfire as collateral for an auto-title loan. Faced with a 300 percent interest rate, she soon fell behind in her payments and the car worth several times the amount of the loan was repossessed.

Small-town shame over credit card bills

Embarrassed about her mounting credit card bills, retired schoolteacher Mary Linville signed up with what she thought was a debt settlement company that promised to cut her $72,000 debt in half. The firm she hired, Morgan Drexen, electronically withdrew $7,000 from Linvilles bank account but never paid a cent to Discover, Bank of America, Lowes and other major creditors. After filing for personal bankruptcy, Linville was too ashamed to be seen in public by her small town neighbors, and drove 40 miles for weekly grocery shopping.

New York home equity becomes no equity

After living in her Queens, N.Y., brick rowhouse for 40 years, Margaret Mosunic was approached by a mortgage broker offering her a $40,000 home equity loan so she could make repairs to a downstairs rental apartment. At the loan closing, Mosunic, who is legally blind and lives on a $738 monthly disability check, says the broker rushed her through the paperwork for a loan. It wasnt until later that Mosunic realized she had signed her name to a $300,000 loan she couldnt possibly afford to repay, and an 18 percent default interest rate that kicked in when she missed her first payment, she alleged in a lawsuit. The daughter of Croatian immigrants is now challenging her foreclosure in court. The bank disputes the allegations.

Trapped in payday loan cycle

Patricia Bailey had a dilemma: Suffering from diabetes, depression, and an anxiety disorder, her new jobs health insurance had yet to kick in and she couldnt afford to pay $400 a month for her medication. The Salt Lake City woman took out a payday loan to cover what she thought was a temporary cash shortage. But when the next month came around, Bailey, 64, had a car to fix so she borrowed again. Then she was laid off from her job at a call center. To stay afloat, Bailey fell into the payday loan cycle that has trapped many consumers in thousands of dollars of debt during hard economic times.

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Operating Instructions

The Supreme Court shows corporate America how to screw over its customers and employees without breaking the law.

By Dahlia LithwickPosted Friday, July 1, 2011, at 5:21 PM ET

Was the Supreme Court's Wal-Mart case a bellwether? Or an instruction manual?Depending on how you count "big cases," the Supreme Court has just finished off either a great (according to the U.S. Chamber of Commerce) or spectacularly great (according to a new study by the Constitutional Accountability Center) term for big business. The measure of success here isn't just the win-loss record of the Chamber of Commerce, although that's certainly part of the story. Nor is it news thatin keeping with a recent trendthe court is systematically closing the courthouse doors to everyday litigants, though that's a tale that always bears retelling. The reason the Roberts Court has proven to be Christmas in July for big business is this: Slowly but surely, the Supreme Court is giving corporate America a handbook on how to engage in misconduct. In case after case, it seems big companies are being given the playbook on how to win even bigger the next time.

Start with one of the most important cases of the term, the recently deceased class-action suit filed by a million and a half women employed by Wal-Mart. The headlinesincluding minecontended that the import of the court's decision lay in the ways class-action suits would be severely limited in the future. But dig a little deeper. In his majority opinion on behalf of the five conservatives on the court, Justice Antonin Scalia found that Wal-Mart could not be held accountable for discrimination in pay and promotions because the plaintiffs lacked "convincing proof of a companywide discriminatory pay and promotion policy." Then Scalia went one further and offered Wal-Mart, the largest private employer in the country, a virtual guidebook on how to discriminate better: Do it in bulk up and down the chain of command, and make certain to do it at every possible level. As SCOTUSblog's Lyle Denniston pointed out almost immediately after the decision came down:

For large companies in general, the ruling in Wal-Mart offered a second message: the bigger the company, the more varied and decentralized its job practices, the less likely it will have to face a class-action claim. Only workers who have a truly common legal claim may sue as a group, the Court majority made clearand, even that claim will require rigorous proof that every single worker suffered from exactly the same sort of bias. Sample statistics and anecdotes won't do.

The greatest impact of the Wal-Mart decision isn't the blow dealt to class-action suits. It's the guidance it provides employers: Immunize yourself from claims of gender discrimination with a written policy that says "we don't discriminate"and a system of decentralized decision-making. The decision doesn't discourage future corporate discrimination. It just makes it harder to identify and prove it.

The same is true for the court's remarkable 5-4 holding in AT&T Mobility v. Concepcion. In that decision, the court read a federal statute to mean that consumers may not participate in class action suits if their contractin this case, with a cell phone companycontains an arbitration agreement (by which, I promise you, you are currently bound). In AT&T, a class of California plaintiffs tried to bundle together their claims alleging that AT&T had engaged in false advertising and fraud by charging sales tax on phones it had promoted as free. California law provided that the mandatory arbitration provision was not enforceable and that the parties should be allowed to litigate as a class. But the courtScalia writing againdetermined that the California rule was pre-empted by the Federal Arbitration Act. "It was important [for the court] to protect defendants, such as corporations, from the 'in terrorem' effects of class actions, which pressure them into settlements," writes Erwin Chemerinsky, dean of the UC-Irvine School of Law. "In fact, the Court went further and said that the Federal Arbitration Act requires that claims be arbitrated on an individual basis and that class arbitration is not allowed."

Yes, the AT&T case will make class-action suits vastly less likely, as Justice Stephen Breyer pointed out in his dissent: "What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim? The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30." Even more important, however, the case provides corporate America with another useful tip on how to avoid costly litigation: If you haven't already done so, rush to lock your customers and /or employees into invisible mandatory arbitration agreements that will bar them from challenging your misconduct in a class-action suit. As Nan Aron at Alliance for Justice explained when the AT&T case first came down, the real winner here was not "justice":

Corporations will now be able to decide on their own which civil rights and consumer protections they want to obey, knowing that there will be no effective means available to their victims to find redress. Even worse, not only has the radical conservative majority damaged the ability of consumers or employees to find justice, it has effectively removed any incentive for corporations to behave within the law in the first place. Why act lawfully if your victims are helpless, especially in cases like this when the harm to each individual is small but the potential for profit is huge?

Think Progress' Ian Millhiser put it even more starkly. After AT&T, he writes, big corporations "need never worry about a class action again. They can simply tell all of their workers to sign away their rights or they're fired. Likewise, cell phone companies, banks, credit card companies, nursing homesindeed, anyone who requires you to sign an agreement before they will do business with youcan completely immunize themselves from class actions simply by adding a few magic words to the agreement." We may need a new metaphor. This is not merely closing the courthouse doors anymore. It's turning the civil justice system into a hostage situation.

Which brings us to the third case in this trifecta, a case that has gone largely unnoticed in the blur that is the end of the 2010 term: In yet another 5-4 decision last week,Janus Capital Group, Inc. v. First Derivative Traders, the court not only immunized big business from yet more awkward and messy litigation; it gave them an instruction manual on how best to lie to consumers. Millhiser again:

Securities and Exchange Commission regulations make it illegal to "make any untrue statement of a material fact in connection with the purchase or sale of any security." And according to a complaint filed by the New York Attorney General's office, an investment company named Janus did exactly that. Essentially, the complaint maintains, Janus promised its investors that it would prevent any new investors from engaging in a particular kind of price manipulation while secretly entering into agreements permitting that manipulation to occur.

In a 5-4 opinion written by Justice Clarence Thomas, the court found that the false and misleading statements made by Janus were not in fact "made" by Janus but by a second company Janus had set up, which actedin Thomas' viewmore like a speechwriter. And, as a mere speechwriter, of course, it couldn't be held responsible for its statements.

Even though Janus Capital Management did indeed produce the false prospectuses, the court found that they were actually filed by a separate legal entitythe Janus Investment Fund. And even though the Janus Investment Fund is run by Janus Capital Management, Janus Capital Management is not on the hook for the lies. Wrote Thomas, "Even when a speechwriter drafts a speech, the content is entirely within the control of the person who delivers it. And it is the speaker who takes creditor blamefor what is ultimately said."

Don't even bother asking how huge financial companies will benefit from the holding in the case. It's as easy as setting up a dummy corporation to make your false statements for you. In the wake of the holding, William A. Birdthistle, an associate professor of law at Chicago-Kent College of Law, toldBloomberg columnist Susan Antillato expect "corporations outside of the investment-management business to alter their legal structures to gain the same protection that funds now enjoy." As he put it, "In Delaware, with 30 minutes and $50, you can create a legal entity."

As the Boston Globe editorialized, the new rule "lets Janus and similar companies hide false information in a complicated organization chart [and] can only undermine public confidence in the mutual fund industry over time." Ask yourself whether you really want the Supreme Court to be in the business of teaching corporate giants how better to deceive you about your investments. Yet Thomas, like Scalia in the AT&T case, was more worried about Janus, and its possible exposure to burdensome new lawsuits, than he was about the investors who were deceived. The purpose of civil litigation isn't solely to redress past wrongs. It's also to encourage better future conduct, particularly in situations where the parties have vastly unequal power. When you obliterate the very possibility of civil litigation, you are, by definition, helping big business screw over the little guy. But when you teach big business precisely how to screw over the little guy, and how to do it faster, cheaper, and without detection well, that's not even an illusion of justice anymore. It's enabling.

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THE NEW YORK TIMES

May 23, 2011

Bank of America to Settle Overdrafts Suit for $410 Million

By ANDREW MARTIN

Bank of America would pay $410 million to settle its piece of a broad lawsuit involving excessive overdraft fees on debit cards in a deal tentatively approved by a federal judge in Miami on Monday.

The legal action against Bank of America is part of a class-action lawsuit on behalf of consumers. It accuses the nations banks of manipulating debit transactions to maximize the fees they could charge customers who exceeded the balance in their accounts.

Bank of America was the first defendant to settle in the case, said Robert Gilbert, one of the plaintiff lawyers. There are roughly 30 remaining defendants, including JPMorgan Chase, Wells Fargo, U.S. Bank, and Citibank, he said.

A spokeswoman for Bank of America declined to elaborate on the settlement. Judge James Lawrence King of Federal District Court in Florida scheduled final approval for Nov. 7.

The legal action sprang out of complaints like one filed by Ralph Tornes, a Florida man who sued Bank of America for charging him about $500 in overdraft fees, after the bank was suspected of rearranging the order in which it processed his purchases.

In May 2008, Mr. Tornes said he had $195 in his account and made two debit purchases, for $8 and $13. The bank also processed a bill payment of $256.

Mr. Tornes claimed the bank had not processed the purchases in chronological order, but instead rearranged them from largest to smallest. The effect was that Mr. Tornes paid three $35 overdraft fees instead of one.

These days, Bank of America no longer charges overdraft fees for debit purchases, but rather declines the card if there are not sufficient funds in its customers account to cover the purchase.

In addition, the Federal Reserve now requires banks to obtain customers approval before enrolling them in overdraft programs.

In a related case, Wells Fargo last year was ordered to pay California customers $203 million for manipulating the order of transactions to maximize fees.

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New York Times
http://www.nytimes.com/2011/05/30/opinion/30mon3.html
May 29, 2011

Millions Need Not Apply

Millions of Americans who lost their jobs to the recession and fell behind in payments to creditors are being penalized again, this time by companies that use credit records to screen job applicants. Five states have limited the use of credit histories by potential employers and about 20 are considering similar measures that deserve to become law.

Damaged ratings are often the result of irresponsibility. They can also be due to bad luck and hard times, including a layoff, divorce or catastrophic illness, which is a leading cause of bankruptcy in the United States.

Thanks to intensive marketing by the credit reporting industry, about 60 percent of employers now do credit checks on job applicants up from less than 20 percent in the mid-1990s. But even some in the credit industry acknowledge that a poor rating doesnt necessarily make someone a bad job prospect. Last year, Eric Rosenberg, director of state government relations for TransUnion, one of the countrys largest reporting companies, told Oregon legislators: At this point we dont have any research to show any statistical correlation between whats in somebodys credit report and their job performance or their likelihood to commit fraud.

Oregon has since passed a bill prohibiting the use of credit histories in job screening with several exceptions, including for federally insured banks or where employers can show that the information is substantially related to the job. Hawaii, Illinois and Maryland have similar laws.

Nearly 45 million Americans have damaged credit. Using a credit record as a key factor in hiring could marginalize millions of families and create a new, credit-record underclass.

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THE NEW YORK TIMES

May 14, 2011

Credit Error? It Pays to Be on V.I.P. List

By TARA SIEGEL BERNARD

The credit rating bureaus, whose reports influence everything from credit cards to mortgages to job offers, have a two-tiered system for resolving errors one for the rich, the well-connected, the well-known and the powerful, and the other for everyone else.

The three major agencies, Equifax, Experian and TransUnion, keep a V.I.P. list of sorts, according to consumer lawyers and legal documents, consisting of celebrities, politicians, judges and other influential people. Those on the list and they may not even realize they are on it get special help from workers in the United States in fixing mistakes on their credit reports. Any errors are usually corrected immediately, one lawyer said.

For everyone else, disputes are herded into a largely automated system. Their complaints are often electronically ferried to a subcontractor overseas, where a worker spends, on average, about two minutes figuring out the gist of the matter, boiling it down to a one-to-three-digit computer code that signifies the problem account not his/hers, for example and sending a dispute form to the creditor to investigate. Many times, consumer advocates say, the investigation translates to a perfunctory check of its records.

The legal responsibility of the credit reporting agencies and of the creditors is well established, said Leonard Bennett, a consumer lawyer in Newport News, Va. There is a requirement that they do meaningful research and analysis, and it is almost never done.

Consumers who have trouble fixing errors through the dispute process can quickly find themselves trapped in a Kafkaesque no mans land, where the only escape is through the court system.

You are guilty before you are proven innocent in a situation like this, said Catherine Taylor, 45, of Benton, Ark., who said she had been denied employment and credit because her filing was mixed up with a felon who had the same name and birthday.

Judy Johnson of Bossier City, La., was confused with a less creditworthy Judith Johnson, with a similar address and Social Security number. For nearly seven years, Judy Johnson, a 63-year-old credit manager for a building supply company, said she tried to remove the black marks from her credit report. But when she was denied a credit card, she knew the problem had returned a third time. This time, I was livid, she said.

She ultimately brought a suit against one of the bureaus, and recently settled for an amount she cannot disclose. But the problems still linger. A deputy sheriff recently came to her door to serve her papers for a debt she says she does not owe.

The credit rating bureaus, private-sector companies that each attempt to track all American consumers credit use, have grown much more powerful over the last couple of decades as credit has become a crucial cog in the nations financial system. Their reports are used to formulate the all-powerful credit score, which lenders use to determine creditworthiness.

But as the bureaus work has become more important, consumer advocates say, regulation has not kept up, in large part because their overseer, the Federal Trade Commission, lacks broad authority. That could change once responsibility for the credit bureaus shifts to the new Consumer Financial Protection Bureau, which will be able to write rules and examine the credit agencies policies.

The bureaus, meanwhile, do not have an economic incentive to improve the system, consumer advocates say, because their main customers are the creditors, not consumers.

There is no neutrality in the credit reporting agencies, said John Ulzheimer, who has been an expert witness in more than 80 credit-related cases and is president of consumer education at SmartCredit.com. They work for the lenders who buy credit reports from them, and anyone who suggests otherwise is not being intellectually honest.

When asked about the V.I.P. category, TransUnion said all consumers have the ability to speak to a live representative. Equifax said consumers who received a free copy of their credit report were provided with a number for customer service.

Experian denied that it had V.I.P. lists. But a spokeswoman did say that prominent people deemed high risk like politicians in an election year might have their credit files taken offline so that creditors or other companies making inquiries could not get access without the bureaus permission. Experian said those people did not receive any other special handling.

David Szwak, a consumer lawyer in Shreveport, La., who has handled dozens of credit cases, said that the V.I.P. designation and preferential treatment did exist at Experian, and he provided sworn testimony from former Experian employees that the category existed.

Estimates of credit reports with serious errors vary widely, anywhere from 3 to 25 percent. A recent study, paid for by the Consumer Data Industry Association, the trade group for the bureaus, found potential errors in 19.2 percent of reports, but said that less than 1 percent of them had disputes that, when settled, resulted in a meaningful increase in scores. Even 1 percent translates into millions of consumers, since there are at least 200 million files at each of the bureaus.

The F.T.C. is expected to deliver a nationwide study on credit report accuracy next year that could provide more clarity. It could also include recommendations for legislative action.

The volume of disputes has been rising as consumers borrow more and gain greater access to credit reports. The automated system was a response to that. A spokesman for the trade group said most consumers received an answer within 14 days.

Experian is the only bureau that still processes disputes in the United States, experts said, though most complaints wind their way through the same online system unless the dispute involves a V.I.P.

They get a lot more high-end treatment, said Mr. Szwak, the lawyer, who has read the bureaus internal procedure manuals and deposed or cross-examined employees. The biggest difference at TransUnion and Equifax, lawyers said, is that V.I.P.s disputes are specially handled domestically. Regular consumers files, meanwhile, may get priority treatment if they involve a time-sensitive issue, like a mortgage pending, or if the consumer is represented by a lawyer or dealing with fraud.

Last year, new rules went into effect to strengthen existing regulations on the accuracy of reports. The rules also allow consumers to dispute errors directly with the creditor. But critics say the rule lacks any teeth because consumers dont have the right to sue the companies. (Individuals can, however, sue the bureaus and creditors after lodging a dispute through their system.)

But the problem, advocates say, is that consumers cannot vote with their feet. They cannot remove their information from the bureaus, said Chi Chi Wu, a staff lawyer at the National Consumer Law Center, who wrote a report on the automated dispute process in 2009, or take their business elsewhere.

http://www.nytimes.com/2011/05/15/your-money/credit-scores/15credit.html?_r=2&hp

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Houston jury orders $13.8M verdict in Texas debt scam

Tuesday, April 26, 2011

HOUSTON -- A businessman and his debt repair companies must pay $13.8 million for committing fraud against hundreds of Texans.

Related Content

Attorney General Greg Abbott's office on Tuesday announced the penalty against Robert M. Lindsey, Jubilee Financial Management LLC, The Credit Card Solution and Freedom from Debt Alliance.

A jury in Houston found that the four failed to register with state authorities. The companies falsely claimed that debts would be eliminated and their credit ratings would be restored by just filing lawsuits. More than 700 people paid an average of $3,000 for fraudulent services including form letters.

Jurors found the companies and Lindsey violated the Texas Deceptive Trade Practices Act and the Texas Credit Services Act. Lindsey and TCCS violated the Texas Business Opportunity Act.

(Copyright 2011 by The Associated Press. All Rights Reserved.)

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Senate Investigations Subcommittee Releases Levin-Coburn Report On the Financial Crisis

FOR IMMEDIATE RELEASE
April 13, 2011

Contact: Senator Levin's Office
Phone: 202.224.6221

WASHINGTON Concluding a two-year bipartisan investigation, Senator Carl Levin, D-Mich., and Senator Tom Coburn M.D., R-Okla., Chairman and Ranking Republican on the Senate Permanent Subcommittee on Investigations, today released a 635-page final report (PDF, 6MB) on their inquiry into key causes of the financial crisis. The report catalogs conflicts of interest, heedless risk-taking and failures of federal oversight that helped push the country into the deepest recession since the Great Depression.

Links to the full report and the exhibits are available at the bottom of this page.

Using emails, memos and other internal documents, this report tells the inside story of an economic assault that cost millions of Americans their jobs and homes, while wiping out investors, good businesses, and markets, said Levin. High risk lending, regulatory failures, inflated credit ratings, and Wall Street firms engaging in massive conflicts of interest, contaminated the U.S. financial system with toxic mortgages and undermined public trust in U.S. markets. Using their own words in documents subpoenaed by the Subcommittee, the report discloses how financial firms deliberately took advantage of their clients and investors, how credit rating agencies assigned AAA ratings to high risk securities, and how regulators sat on their hands instead of reining in the unsafe and unsound practices all around them. Rampant conflicts of interest are the threads that run through every chapter of this sordid story.

The free market has helped make America great, but it only functions when people deal with each other honestly and transparently. At the heart of the financial crisis were unresolved, and often undisclosed, conflicts of interest, said Dr. Coburn. Blame for this mess lies everywhere from federal regulators who cast a blind eye, Wall Street bankers who let greed run wild, and members of Congress who failed to provide oversight.

The Levin-Coburn report expands on evidence gathered at four Subcommittee hearings in April 2010, examining four aspects of the crisis through detailed case studies: high-risk mortgage lending, using the case of Washington Mutual Bank, a $300 billion thrift that became the largest bank failure in U.S. history; regulatory inaction, focusing on the Office of Thrift Supervisions failed oversight of Washington Mutual; inflated credit ratings that misled investors, examining the actions of the nations two largest credit rating agencies, Moodys and Standard & Poors; and the role played by investment banks, focusing primarily on Goldman Sachs, creating and selling structured finance products that foisted billions of dollars of losses on investors, while the bank itself profited from betting against the mortgage market.

New Evidence. Todays report presents new facts, new findings and recommendations, with more than 700 new documents totaling over 5,800 pages. It recounts how Washington Mutual aggressively issued and sold high-risk mortgages to Wall Street, Fannie Mae, and Freddie Mac, even as its executives predicted a housing bubble that would burst, and offers new detail about how its regulator deferred to the banks management. New documents show how Goldman used net short positions to benefit from the downturn in the mortgage market, and designed, marketed, and sold CDOs in ways that created conflicts of interest with the firms clients and at times led to the banks profiting from the same products that caused substantial losses for its clients. Other new information provides additional detail about how credit rating agencies rushed to rate new mortgage-backed securities and collect lucrative rating fees before issuing mass ratings downgrades that shocked the financial markets and triggered a collapse in the value of mortgage related securities. Over 120 new documents provide insights into how Deutsche Bank contributed to the mortgage mess.

Our investigation found a financial snake pit rife with greed, conflicts of interest, and wrongdoing, said Levin. Among the reports highlights are the following.

• High Risk Lending. With an eye on short term profits, Washington Mutual launched a strategy of high-risk mortgage lending in early 2005, even as the banks own top executives stated that the condition of the housing market signifies a bubble with risks that will come back to haunt us. Executives forged ahead despite repeated warnings from inside and outside the bank that the risks were excessive, its lending standards and risk management systems were deficient, and many of its loans were tainted by fraud or prone to early default. WaMus chief credit officer complained at one point that [a]ny attempts to enforce [a] more disciplined underwriting approach were continuously thwarted by an aggressive, and often times abusive group of Sales employees within the organization. From 2003 to 2006, WaMu shifted its loan originations from low risk, fixed rate mortgages, which fell from 64% to 25% of its loan originations, to high risk loans, which jumped from 19% to 55% of its originations. WaMu and its subprime lender, Long Beach Mortgage, securitized hundreds of billions of dollars in high risk, poor quality, sometimes fraudulent mortgages, at times without full disclosure to investors, weakening U.S. financial markets. New analysis shows how WaMu sold some of its high risk loans to Fannie Mae and Freddie Mac, and played one off the other to make more money.
• Regulatory Failures. The Office of Thrift Supervision (OTS), Washington Mutuals primary regulator, repeatedly failed to correct WaMus unsafe and unsound lending practices, despite logging nearly 500 serious deficiencies at the bank over five years, from 2003 to 2008. New information details the regulators deference to bank management and how it used the banks short term profits to excuse high risk activities. Although WaMu recorded increasing problems from its high risk loans, including delinquencies that doubled year after year in its risky Option Adjustable Rate Mortgage (ARM) portfolio, OTS examiners failed to clamp down on WaMus high risk lending. OTS did not even consider bringing an enforcement action against the bank until it began losing substantial sums in 2008. OTS also failed until 2008, to lower the banks overall high rating or the rating awarded to WaMus management, despite the banks ongoing failure to correct serious deficiencies. When the Federal Deposit Insurance Corporation (FDIC) advocated taking tougher action, OTS officials not only refused, but impeded FDIC oversight of the bank. When the New York State Attorney General sued two appraisal firms for colluding with WaMu to inflate property values, OTS took nearly a year to conduct its own investigation and finally recommended taking action -- a week after the bank had failed. The OTS Director treated WaMu, which was its largest thrift and supplied 15% of the agencys budget, as a constituent and struck an apologetic tone when informing WaMus CEO of its decision to take an enforcement action. When diligent oversight conflicted with OTS officials desire to protect their constituent and the agencys own turf, they ignored their oversight responsibilities.
• Inflated Credit Ratings. The Report concludes that the most immediate cause of the financial crisis was the July 2007 mass ratings downgrades by Moodys and Standard & Poors that exposed the risky nature of mortgage-related investments that, just months before, the same firms had deemed to be as safe as Treasury bills. The result was a collapse in the value of mortgage related securities that devastated investors. Internal emails show that credit rating agency personnel knew their ratings would not hold and delayed imposing tougher ratings criteria to massage the numbers to preserve market share. Even after they finally adjusted their risk models to reflect the higher risk mortgages being issued, the firms often failed to apply the revised models to existing securities, and helped investment banks rush risky investments to market before tougher rating criteria took effect. They also continued to pull in lucrative fees of up to $135,000 to rate a mortgage backed security and up to $750,000 to rate a collateralized debt obligation (CDO) fees that might have been lost if they angered issuers by providing lower ratings. The mass rating downgrades they finally initiated were not an effort to come clean, but were necessitated by skyrocketing mortgage delinquencies and securities plummeting in value. In the end, over 90% of the AAA ratings given to mortgage-backed securities in 2006 and 2007 were downgraded to junk status, including 75 out of 75 AAA-rated Long Beach securities issued in 2006. When sound credit ratings conflicted with collecting profitable fees, credit rating agencies chose the fees.
• Investment Banks and Structured Finance. Investment banks reviewed by the Subcommittee assembled and sold billions of dollars in mortgage-related investments that flooded financial markets with high-risk assets. They charged $1 to $8 million in fees to construct, underwrite, and market a mortgage-backed security, and $5 to $10 million per CDO. New documents detail how Deutsche Bank helped assembled a $1.1 billion CDO known as Gemstone 7, stood by as it was filled it with low-quality assets that its top CDO trader referred to as crap and pigs, and rushed to sell it before the market falls off a cliff. Deutsche Bank lost $4.5 billion when the mortgage market collapsed, but would have lost even more if it had not cut its losses by selling CDOs like Gemstone. When Goldman Sachs realized the mortgage market was in decline, it took actions to profit from that decline at the expense of its clients. New documents detail how, in 2007, Goldmans Structured Products Group twice amassed and profited from large net short positions in mortgage related securities. At the same time the firm was betting against the mortgage market as a whole, Goldman assembled and aggressively marketed to its clients poor quality CDOs that it actively bet against by taking large short positions in those transactions. New documents and information detail how Goldman recommended four CDOs, Hudson, Anderson, Timberwolf, and Abacus, to its clients without fully disclosing key information about those products, Goldmans own market views, or its adverse economic interests. For example, in Hudson, Goldman told investors that its interests were aligned with theirs when, in fact, Goldman held 100% of the short side of the CDO and had adverse interests to the investors, and described Hudsons assets were sourced from the Street, when in fact, Goldman had selected and priced the assets without any third party involvement. New documents also reveal that, at one point in May 2007, Goldman Sachs unsuccessfully tried to execute a short squeeze in the mortgage market so that Goldman could scoop up short positions at artificially depressed prices and profit as the mortgage market declined.

Recommendations. The Report offers 19 recommendations to address the conflicts of interest and abuses exposed in the Report. The recommendations advocate, for example, strong implementation of the new restrictions on proprietary trading and conflicts of interest; and action by the SEC to rank credit rating agencies according to the accuracy of their ratings. Other recommendations seek to advance low risk mortgages, greater transparency in the marketplace, and more protective capital, liquidity, and loss reserves.

For the full report and relevant exhibits, use the links below:

• REPORT - Wall Street & the Financial Crisis - Anatomy of a Financial Collapse
• FOOTNOTE EXHIBIT LOCATOR (by FN and Bates)
• FN 107 - 1342 (pgs 1-1037)
• FN 1343 - 1459 (pgs 1038-2164)
• FN 1462 - 1576 (pgs 2165-3003)
• FN 1584 - 1622 (pgs 3004-3448)
• FN 1623 - 2406 (pgs 3449-4484)
• FN 2409 - 2706 (pgs 4485-5459)
• FN 2724 - 2831 (pgs 5460-5901)

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EXPERIAN GLITCH TEMPORARILY SINKS

CONSUMERS' CREDIT SCORES

From MSNBC.com's Red Tape Chronicles

April 6, 2011

Experian glitch temporarily sinks credit scores

http://redtape.msnbc.com/2011/04/experian-glitch-temporarily-sinks-credit-scores.html

A credit reporting glitch has temporarily torpedoed an undisclosed number of consumers' credit scores, msnbc.com has learned. The error came to light after many consumers who pay for credit monitoring services received alerts about the drop.

Credit bureau Experian erroneously reported HSBC credit card customers as having balances exceeding their credit limits, causing scores to plummet. One consumer said his score dropped 60 points.

Several consumers claim the glitch dropped the last two digits of the HSBC cardholders credit limits. For example, a consumer with a $1,500 credit limit suddenly was reported as having a $15 limit -- which in turn caused the consumer to have a balance far larger than the limit. That in turn spiked the consumer's so-called credit utilization, which has a big impact on scores.

"My CL (credit limit) is $1350 and my latest report shows the CL as $13," wrote one consumer on MyFico.com "My utilization is very low but it still caused my score to drop 60+points because according to the report my utilization is now well over 100 percent."

Other consumers reported that HSBC had told them it was working on the problem and their credit scores should return to normal soon.

HSBC referred questions about the incident to the Experian credit bureau. In a statement, Experian told msnbc.com that the error had already been fixed.

"On April 1, 2011, Experian loaded data from a single data furnisher and made an isolated administrative error in coding this data," it said. "This error was detected on Monday, April 4, which Experian quickly corrected and the data was immediately suppressed. Since that point, the information has now been reloaded accurately and the file reflects the most updated information provided by the lender.

"It is possible that consumers who are members of a credit monitoring service received an alert that their account was over the credit limit. At this time, we are not aware of any consumers who were negatively affected by the temporary change in their information.

The scale of the problem was unclear, but one HSBC customer told msnbc.com that he was told by the bank that it impacted thousands of consumers.

Experian said consumers credit scores were back to normal, but David Schott, an HSBC customer, said his credit monitoring service still indicates that his account is over the limit.