In a year dominated by the subprime mortgage meltdown and foreclosure crisis, the National Consumer Law Center
was a powerful advocate for low-income consumers. In 2007 NCLC’s team of seasoned attorneys pushed policymakers
to adopt tough new rules clamping down on mortgage companies, banks, and other financial institutions that for years
had made huge profits by gouging the most vulnerable consumers.
Whether exposing new rip-offs, testifying before lawmakers, correcting misinformation circulated by industry, or calling
public attention to dangerous financial products, NCLC’s staff of consumer law experts fought against rich and powerful
industry opponents for the rights of low-income consumers.
With an understanding of both the technical legal rules and the bigger public policy picture, NCLC challenged
predatory and destructive business practices that are decimating low- and moderate-income families, their communities,
and the broader economy.
2007 Advocacy Highlights
Fueled by reckless and predatory lending, the nation plunged into a foreclosure crisis in 2007 as foreclosure filings jumped by 75
percent compared to 2006. Neighborhoods and entire cities are reeling from the epidemic of foreclosures, as homes are boarded up and
abandoned, lowering property values and decimating local tax bases. The ripple effects of the crisis are reverberating throughout the
entire U.S. economy.
Seeking Loss Mitigation Requirements. To help stem the tidal wave of foreclosures, NCLC urged quick
Congressional action. In testimony before the House Subcommittee on Housing and Community Opportunity, for
example, NCLC pushed for legislation that would require mortgage servicers to engage in reasonable loss mitigation
efforts before initiating a foreclosure. This would include offering automatic loan modifications to certain classes of
mortgages. NCLC criticized the industry’s preference for voluntary measures, which failed to produce meaningful
New Law in Massachusetts. In November 2007, Massachusetts enacted a foreclosure prevention law that fortified
state oversight of mortgage lending and sought to help borrowers who fall behind on loan payments. NCLC was
instrumental in getting policymakers to adopt a 90-day “Right to Cure” provision, which allows homeowners to catch
up on their payments without accruing lender attorney’s fees. The law requires brokers and lenders to pay an annual
licensing fee and subjects them to supervision by the state Division of Banks.
Predatory Mortgage Lending
Years of predatory lending came home to roost in 2007 as the subprime mortgage industry imploded. Funded by profit-hungry
investors on Wall Street, predators sold dangerous home loans to millions of Americans, many of which were adjustable rate mortgages
with low teaser rates that sharply increased after two or three years.
Opposing Counterproductive Legislation in Congress. NCLC opposed a House bill that, under the guise of
mortgage reform, would have shielded from liability the very parties that funded predatory loans. The bill also contained
a damaging provision that eliminated a homeowner’s ability to raise key state claims against any assignees of the
mortgage. At the same time, NCLC strongly supported the anti-predatory lending bill introduced by Sen. Dodd, the
chair of the Senate Finance Committee, because of its strong new consumer protections, effective enforcement structure,
and preservation of state regulatory flexibility. Behind the scenes, NCLC worked closely with officials from the House
and Senate to craft much-needed reforms.
Pushing Federal Reserve to Act. NCLC called on the Federal Reserve Board to take immediate action to deal with
the mortgage crisis. Among other things, the Fed was pressed to ban prepayment penalties, require escrowing for taxes
and insurance, and prohibit “stated income” or “low-doc” loans. Under current law, the Fed has ample rulemaking
authority to prohibit unfair or deceptive acts or practices in the mortgage market.
Congressional hearings exposed the ways credit card companies make huge profits by systematically exploiting their customers.
Consumers testified about the bewildering fine print in credit card contracts as well as the host of dubious tactics used to rack up fees
and penalty charges. Issuers used hair-trigger tactics to impose penalty fees and rates, junk fees unrelated to cost of credit and
unilateral/retroactive changes in terms.
Urging Federal Officials to Protect Consumers. In testimony to a Senate committee that received extensive
media coverage, NCLC called on Congress to end abusive credit card lending by imposing substantive limits on the
terms and the cost of the credit, including the interest rate and all fees and charges. In response to the Federal Reserve
Board’s proposed rules changes for credit card disclosures, NCLC and other national consumer groups urged the Fed to
take stronger action to ban or restrict abusive practices under the Federal Trade Commission Act.
Spotlight on Fee Harvesters. NCLC’s investigative report, Fee Harvesters: Low-Credit, High-Cost Cards Bleed
Consumers, documented how millions of consumers are being victimized by credit card offers that charge hundreds of
dollars in fees and extend minimal available credit – sometimes as little as $50. The report has spurred policymakers to
scrutinize the fee harvester industry and debate regulatory approaches.
Over the last decade a growing number of auto and home insurers have been using credit scores to determine whether to insure a
consumer and at what price. This means that a consumer with a poor credit history may be charged anywhere from 40 percent to
several hundred percent more in premiums for car insurance.
Discriminatory Impact of Scoring. NCLC criticized the use of credit scores in home and auto insurance in the
report, Credit Scoring and Insurance: Costing Consumers Billions and Perpetuating the Economic Racial Divide. Citing numerous
studies that have documented how credit scores disfavor minority consumers, NCLC urged states to outlaw the use of
insurance scoring in order to stop the perpetuation of economic discrimination.
After completing a Chapter 7 bankruptcy, the vast majority of a consumer’s debts are discharged by a court order, which should allow
the person to rebuild their finances with a clean slate. Yet over 50 percent of the time, credit reporting giants Experian, Equifax, and
Trans Union continue to issue credit reports showing discharged debts as still due and owing.
Class Actions Filed Against Credit Reporting Agencies. NCLC filed two nationwide class action lawsuits on
behalf of millions of consumers that have been effectively denied the fresh start promised by the bankruptcy laws. Their
credit scores are damaged and it is much harder for them to rebuild and re-establish their credit. Unfortunately for
consumers, their creditors have no incentive to update their reporting of the accounts to the credit reporting agencies.
Even worse, many creditors fail to do so in order to pressure the consumer into paying the debt that was discharged in
Manufactured homes are a key form of housing for a lot of families, especially in rural America. Just as stick-built homes are the
primary assets for many families, a manufactured home can also be a means to build wealth for low- and middle-income families. In
most states, a manufactured housing community can be sold out from the very ground underneath their homes without giving the
residents any advance notice or any opportunity to purchase the community themselves. A few states require the residents to be given
advance notice and an opportunity to purchase the community, but in most of these states there are significant gaps in the law.
Helping States to Pass Stronger Laws. NCLC worked closely with advocates across the country to strengthen
protections for manufactured housing residents. Washington State passed a law encouraging residents of a manufactured
home park to purchase the park. And NCLC helped draft legislation that is pending in Illinois, Delaware, Maryland,
Vermont, Ohio, and New York, and are working with advocates in Florida, Pennsylvania, Utah, Georgia, and New Jersey.
In addition, NCLC has expanded and refined a model law that gives park residents a right of first refusal.
Creditor Seizure of Federal Benefits
Every month thousands of elderly and low-income recipients of Social Security, Supplemental Security Income (SSI), Veteran’s benefits,
and other federal payments are left temporarily destitute when banks allow creditors to freeze bank accounts containing those benefits
through garnishment proceedings. Even though federal law clearly prohibits creditors from seizing these benefits to pay debts, the
practice is widespread.
Pushing Regulators to Protect Exempt Funds. NCLC is working with other consumer groups and members of
Congress to pressure the federal banking agencies to protect the indispensable federal benefits of elders. In September
2007 we testified at a hearing of the Senate Finance Committee to educate policymakers about the issue. NCLC’s
advocacy also prompted a number of excellent articles on the issue in the Wall Street Journal.
Refund Anticipation Loans
RALs are usurious (from 67 to 774 percent APR) short-term loans secured by the taxpayer’s refund that are typically sold by
commercial tax preparers and their partner banks. Without the costly loan, most taxpayers could receive their refund free-of-charge in
two weeks or less.
NCLC Brings About Changes in RAL Market. Marking a major victory for NCLC was the near-total elimination
of pay stub and holiday RALs. These were RALs made prior to the tax filing season, before taxpayers received their IRS
Form W-2s and could file their returns. During the spring of 2007, all three of the major RAL banks – HSBC, SBBT
and JPMorgan Chase – announced they would stop offering these loans. In another victory for taxpayers, H&R Block
and JPMorgan Chase lowered their standard RAL fees.
Student Loan Advocacy
For a low-income person with limited job skills, education is a long-term investment that can convert a low-wage job to a financially
secure career. Many attend poor quality vocational schools that do not prepare them for the jobs they will need to pay back the loans.
Still others cannot complete their coursework due to financial pressures. Unable to pay back their loans, they end up facing the
government’s formidable collection powers.
NCLC Study: Crisis for Borrowers. Finding a Way Out: Improving the Assistance Network for Financially Distressed
Student Loan Borrowers laid bare the severe shortage of assistance resources for the growing population of financially
distressed student loan borrowers. NCLC called on the higher education community and policymakers to give
borrowers access to a range of services, from informational services to mediation to legal representation.
New Website. NCLC launched www.studentloanborrowerassistance.org to help struggling student loan borrowers. The
site includes information on repayment options, avoiding and getting out of default, dealing with collections agencies,
and much more. The site uses plain language to describe the rights and obligations of student borrowers.
Operating in relative obscurity for the past decade, the “debt buyer” industry is booming. Debt buyers range from small, local firms to
large national and international companies traded on Wall Street. Their hardball tactics against consumers have grown increasingly
aggressive. For example, the number of lawsuits against consumers filed by one debt buyer, Encore Capital Group, exploded by 1,548
percent between 2003 and 2007, from 23,000 to 379,000 lawsuits.
NCLC Speaks Out at FTC. Marking 30 years since the Fair Debt Collection Practices Act was passed in 1977, the
Federal Trade Commission asked for public comments on the state of the debt collection industry. NCLC and the
National Association of Consumer Advocates submitted 52 pages of comments that documented the rise of the debt
buyer industry and how they have abused the courts with thousands of debt collection filings. The comments also
described the new ways that debt collectors steal consumers’ money through electronic collection methods as well as the
use of the old abusive tactics and harassment that had prompted the enactment of the FDCPA.
NCLC Pushes for Reform. NCLC led efforts to reform the debt collection process in Massachusetts. Working with
a coalition of consumer and legal groups, NCLC helped draft a proposal to protect consumers from abusive collection
tactics. NCLC is also part of a court-run working group to reform the treatment of individual consumers in debt
collection cases before the small claims courts.
Fast cash from payday lenders comes at a steep price. Interest rates typically start at 390 percent, and can even exceed 1,000 percent.
The loans may last for only a few days or weeks, but then require full and immediate payment of principal, interest and fees. Despite
the cost, payday lending has spread like a wildfire over the past decade, with high profits and permissive state laws fanning the flames.
A recent tally found more than 24,000 payday loan outlets in 39 states.
Shining Light on Utilities’ Use of Payday Lenders. NCLC published an investigative report, Utilities and Payday
Lenders: Convenient Payments, Killer Loans, which documents how 21 large utility chains used more than 650 payday
lenders as authorized bill payment agents. These utility customers, who are often strapped for cash, are rich targets for
the ultra-high-cost payday lenders. Within weeks of the report’s release, Southwest Gas announced that it was ending
payday lenders’ role as payment stations for its 1.8 million customers in Arizona, California and Nevada.
While the Bankruptcy Code generally permits secured claims to be modified, one section singles out mortgage claims and shields them
from modification, other than through a plan which cures a mortgage default. This provision prevents consumers from changing the
interest rate, amortization, or term of a mortgage loan in a Chapter 13 plan.
Modifying Mortgages in Bankruptcy. One solution to the foreclosure crisis is to give consumers on the brink of
losing their homes more flexibility to restructure their loans in bankruptcy. NCLC urged Congress to pass legislation
that would permit mortgage claims to be stripped down to the value of the home and the loan term to be modified.
While the bankruptcy law currently permits modification of a loan to save a yacht, vacation home, commercial real
estate, or family farm, it is not an option for a family seeking to save a primary residence.
Home Energy and Utilities
As energy prices continue to skyrocket, more families are cut off from essential gas, electric, and telephone services because they cannot
afford to pay the bills. Losing utility services has serious consequences, especially for the health and safety of children or elders in the
NCLC Secures Millions in Emergency Heating Funds. NCLC helped convince federal officials to release $450
million in emergency fuel assistance funds for distribution among all the states. These funds were critical to help
struggling low-income families make it through the winter. And, in Massachusetts, NCLC secured $15 million in state
fuel assistance funding after delivering a compelling presentation to lawmakers on the recent run-up in heating oil
prices, the limited reach of core federal funding for energy assistance, and the shocking numbers of households whose
utility service had been terminated
Efficiency Standards for Household Appliances
Requiring household appliances to be more efficient has tremendous benefits for the poor. Among low-income households, more than
half live in rental housing and have little or no ability to replace inefficient large appliances. Renters are usually not allowed to buy
and install their own boilers, furnaces, or water heaters. Yet their landlords have little incentive to replace aging appliances with the most
efficient new models and have every reason to stick with poor-quality, less-efficient units.
Energy Bill Authorizes Regional Standards. NCLC played a major role in getting a key provision into the federal
energy bill that was signed into law in December 2007. The provision authorizes the Department of Energy to establish
distinct regional standards for most heating and cooling products. The legislation makes it more likely that DOE, under
the next administration, if not the current one, will adopt stricter standards for gas-fired furnaces installed in colder,
northern states. NCLC had testified before a Congressional panel in May on the importance of strong appliance
efficiency standards for low-income households.
USING OUR EXPERTISE IN CONSUMER LAW TO PROTECT VULNERABLE
CONSUMERS AND PROMOTE MARKETPLACE JUSTICE