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									   State Bar of Michigan



 Consumer Law
                        N E W S L E T                                                         T E R



V. 9, No. 1                    State Bar of Michigan Consumer Law Section                                                              April 2004



     Credit Counseling: A Panacea or Just Another Consumer Scam?
                                                                              By Lorray S.C. Brown



                                                                                               E     xcessive debts and difficulties making
                                                                                                     required monthly payments are causing
                                                                                              more and more consumers to turn to debt
                                                                                              counselors or credit counselors. This demand
                                                                                              has given the credit counseling industry an
                                                                                              opportunity to exploit these vulnerable consumers.
                                                                                              Consumer advocates must understand credit
                                                                                              counseling industry practices to recognize unfair
                                                                                              and deceptive practices. This article will: 1) give
                                                                                              an overview of the credit counseling industry
                                                                                              practices and the responses to those practices;
                                                                                              2) describe a typical credit counseling agency
                                                                                              scenario; and 3) set out some of the statutes that a
                                                                                              credit counseling agency might have violated.

                                                                                              Credit Counseling Industry Practices
                                                                                                  The credit counseling industry has existed
                                                                                              since the early 1970’s.1 Historically, credit
                                                                                              counseling agencies have been non-profit agencies
                                                                                              providing valuable services such as credit and
                                                                                              budget education. The credit counselors would
                       Contents                                                               also refer consumers to other professionals, such
From the Chair........................................................................ 2      as lawyers or social service agencies for help in
Thomas Domonoske Offers New Tips
                                                                                              emergencies. Rarely did the credit counseling
For Consumer Litigators....................................................... 6              agencies charge for their services, usually provided
                                                                                              during face-to-face meetings.
Furnisher Liability Under
The Fair Credit Reporting Act............................................. 7                      When appropriate, a credit counseling
                                                                                              agency would also offer to help the consumer
Time to Upgrade Michigan’s
Home Sales Solicitation Act.................................................. 9               restructure his existing debt payments through
                                                                                              a debt management plan (DMP). DMPs allow
Seniors Hotline Seeks Pro Bono Help ............................... 11                        consumers to pay the credit counseling agency
Section Notes .......................................................................... 12                                   Continued on page 3
Consumer Law Newsletter


         Council                             From the Chair
         2003-2004
    Chairperson
    Steven E. Goren
    Bingham Farms

    Chairperson-Elect                2004 marks the tenth year of the Consumer Law
    Dani K. Liblang              Section. Thanks to the able leadership of past chairs,
    Birmingham                   officers and council members, our committee has grown
                                 and expanded. The challenge for the coming year will be to
    Secretary
    Laurin’ C. Roberts Thomas    continue the good work that has been done in the past.
    Lansing                          What can we do to continue expanding the usefulness of
                                 this section? Goals we have as a committee include:
    Treasurer
    Lawrence J. Lacey
                                     • Setting up a directory of consumer attorneys available
    Royal Oak
                                       on the Internet
    Council Members                  • Expanding membership
    William J. Ard                   • Obtaining a legislative voice
    Lansing                          • Assisting judicial interpretation of key acts through
                                       judicial education, a brief bank, and possibly a
    Frederick L. Miller
    Detroit                            consumer law book
                                     • Providing seminars to educate consumer attorneys
    Adam G. Taub                       consumer groups, both within our state and elsewhere
    Southfield                         in the country, to allow us to share ideas and to keep
                                       educated on new developments
    Peter L. Bagley
    Saginaw                          • Creating networks with other consumer groups, both
                                       within our state and elsewhere in the country, to
    Carolyn B. Bernstein               allow us to share ideas and keep educated on new
    Saginaw                            developments
                                     • Networking with the press to allow us to serve as a
    Lorray S.C. Brown
    Ann Arbor                          watchdog and give a voice to consumers regarding a
                                       wide range of issues
    Terry J. Adler
    Grand Blanc                      We are a small committee with a limited number of
                                 people to work on these many projects. However, with
    Clarence R. Constantakis
    Dearborn Heights             persistence and commitment, we can expect continued
                                 growth and continued success this year and well into the
    Gary M. Victor               future.
    Ypsilanti
                                 Steven E. Goren
    Immediate Past Chairperson
    Kathy P. Fitzgerald          Chairperson
    Lansing                      Consumer Law Section

    Commissioner Liaison
    Elias J. Escobedo, Jr.
    Waterford


2
                                                                                                April 2004

Credit Counseling...                                   deceptive and misleading. For example, the
                          Continued from front page.   agency will tell the consumer that it does not
one consolidated monthly payment for all of their      charge for its services. However, the agency will
unsecured debts that are included in the plan.         then request the consumer to make a monthly
After the monthly payment is collected, the agency     “voluntary contribution” to the agency to cover the
disburses payments to the creditors in the plan.       costs of maintaining the consumer’s account.5
     The credit counseling industry was actually           Similarly, the agency will tell the consumer
created by the creditors who saw this as an            that he or she must make monthly installment
opportunity to recoup their debts.2 The creditors      payments to have payments disbursed to creditors.
would voluntarily pay to the credit counseling         However, in most instances the agency will keep
agencies a certain percentage of the funds they        the consumer’s payments until the up-front fees
received from the debtors. This voluntary payment      for participating in the DMP are paid and disburse
made by the creditors was generally known as a         none to the consumer’s creditors. As a result, the
“fair share” contribution.3 In addition to the “fair   consumer’s debts are being paid late, if at all, and
share” contribution, the creditors often reduced       the consumer is incurring late charges.
interest rates and waived certain fees to consumers        The NCLC/CFA Report also found that
who paid through a DMP.                                in most cases the credit counseling agencies
     Unfortunately, over the years, more and           charge excessive fees. Some agencies charge
more creditors decided to decrease or eliminate        monthly account maintenance fees (or “voluntary
their “fair share” contributions to the credit         contributions”) ranging from $10 to $50.6
counseling agencies and to eliminate any interest      Additionally, initial fees to set up a DMP account
rate concessions. As a result, the industry saw        range from $300 to $500.
the rapid growth of a new generation of credit             Finally, the NCLC/CFA Report found that
counseling agencies. The new agencies provided         many of the new credit counseling agencies
little counseling but instead immediately pushed       falsely represent themselves as non-profits.
consumers into debt management plans (DMPs)            The NCLC/CFA Report states that some of the
even if that was not appropriate for the consumer.     credit counseling agencies should not be non-
Further, these new credit counseling agencies          profits because of close connections to for-profit
began to charge consumers for the DMP services.        businesses.7 Moreover, a number of these agencies



                                                         T   he newer agencies provide hardly
                                                             any face-to-face meetings. Instead
                                                         most of these agencies provide assistance
                                                         exclusively by telephone or the Internet.

                                                       were paying the directors and management
    The newer agencies provide hardly any face-        employees salaries and benefits in excess of
to-face meetings. Instead, most of these agencies      $400,000.8
provide assistance exclusively by telephone or             In light of these abuses, the Internal Revenue
the Internet. In many cases, the agencies are not      Service (IRS) has taken steps to ensure that
located in the consumer’s state.                       these credit counseling agencies comply with its
    In April 2003, the National Consumer Law           laws. The IRS has increased its audits of credit
Center (NCLC) and the Consumer Federation              counseling agencies and, when warranted, will
Association (CFA) reported on the number of            revoke their tax-exempt status.9 The IRS has also
consumer abuses with the new credit counseling         issued several consumer alerts on credit counseling
agencies.4 The NCLC/CFA Report found that              agencies.10
the credit counseling agencies’ practices were                                       Continued on page 4.

                                                                                                         3
Consumer Law Newsletter

Credit Counseling...                                     Potential Legal Claims
                              Continued from page 3.         For consumers who seek credit counseling,
     In addition, the federal government and other       current legislation presents a dilemma. Nearly
states are challenging this growing industry and         every credit counseling agency has non-profit,
its deceptive practices. For example, the Federal        tax-exempt status. Non-profit, tax-exempt
Trade Commission filed a complaint against               organizations are exempt from many state and
AmeriDebt, a non-profit credit counseling agency,        federal consumer protection laws. For credit
alleging that it engages in various deceptive            counselors however, the current legislation
practices.11 Also, the attorneys general of Illinois,    presents opportunities for exploitation. There
Missouri, Minnesota, and Texas have sued                 are three statutes that significantly affect the
AmeriDebt alleging similar deceptive and abusive         consumer – credit counselor relationship. They
practices, including falsely representing itself as      are: the Federal Credit Repair Organization Act12,
a non-profit when the debt management work is            the Michigan Debt Management Act13, and the
done by a for-profit company.                            Michigan Credit Services Protection Act14.

A Typical Scenario                                       Federal Credit Repair Organization Act
     Typically, the credit counseling agencies               The most relevant federal statute is the Credit
solicit consumers for the DMPs through television,       Repair Organization Act (CROA). CROA was
radio, print, and Internet advertisements. These         enacted to protect consumers from unfair and
advertisements make various claims about the             deceptive business practices by credit repair
services they provide to consumers and invite the        organizations.15 It applies to credit repair
consumers to call for a free consultation. The           organizations that provide advice or assistance
consumer calls an 800- number and speaks to a            to any consumer with regard to any activity or
customer service representative, frequently called       service that improves a consumer’s credit record.16
“counselor.” In many cases, the person on the            Many credit counseling agencies should fall within
other end of that call is in another state.              this statutory definition.
     In the initial telephone call, the agency obtains       CROA prohibits the credit repair organizations
the consumer’s debt information and immediately          from making misleading representations about
advises the consumer to enter into a debt                services and engaging in fraud or deception.17 It
management plan (DMP). A contract is sent to             also prohibits these organizations from accepting
the consumer who then signs the contract without         any payment from consumers prior to fully
any further explanation and returns the contract by      completing all services.18 CROA, however, does
mail.                                                    not apply to tax-exempt 501(c)(3) non-profit
     After the agency receives the signed contract,      organizations.19 Therefore, the creative consumer
the agency contacts the consumer and tells the           advocate should be ready to challenge the agency’s
consumer to make the first payment as soon as he         non-profit status.
can to enroll in the program. In most instances,
the agency keeps the consumer’s initial payments         Michigan Debt Management Act
until the agency’s up-front fees are paid. In the             The Debt Management Act regulates
meantime, the agency does not disburse any               credit counseling agencies, although it focuses
payments to the consumer’s creditors. Once               exclusively on debt management practices.20 The
the agency establishes a DMP account for the             Act requires credit counseling agencies to be
consumer, the agency sends the consumer’s file to        licensed in the state of Michigan.21 The Act also
its servicing company, which is usually a for-profit     limits the fees that a licensed agency can charge.
agency.                                                  It places a $25 limit on the initial up-front fee.22
                                                              Finally, the Debt Management Act does not
                                                         provide for an automatic exemption based on

4
                                                                                                                April 2004

the agency’s tax-exempt 501(c)(3) status. The                2
                                                                  Id.
Act provides that certain organizations receiving
                                                             3
                                                                  Credit Counseling in Crisis: The Impact on Consumers of
                                                                  Funding Cuts, Higher Fees and Aggressive New Market
compensation from the government or from tax-
                                                                  Entrants, p. 6, April 2003 Report by National Consumer
exempt foundations may be granted exemption                       Law Center (NCLC) and the Consumer Federation of
upon a showing of safeguards in the handling of                   America (CFA).
debtor funds and if the exemption is found to be             4
                                                                  Id. at 2.
in the public interest.23 This seems to provide an
                                                             5
                                                                  Id. at 2, 17.
                                                             6
                                                                  Id. at 16.
opportunity for a consumer advocate to challenge             7
                                                                  Id. at 31.
the non-profit status of a credit counseling agency.         8
                                                                   Id. at 32.
    In light of this Act, a prudent consumer                 9
                                                                  See “IRS Takes Steps to Ensure Credit Counseling
advocate should first visit the website of the Office             Organizations Comply With Requirements for Tax-Exempt
of Financial and Insurance Services (OFIS)24 to                   Status,” October 2003, available at http://www.irs.gov/
                                                                  newsroom/article/0,,id=114575,00.html
determine whether the credit counseling agency               10
                                                                  See http://www.irs.gov/newsroom.
is currently licensed in Michigan. If the agency             11
                                                                  Federal Trade Commission v AmeriDebt Inc., DebtWorks,
is not licensed, any contract of debt management                  Inc., Andris Pukke and Pamela Pukke (D. Md. Filed Nov.
services made by the agency is null and void.25                   19, 2003). The complaint is available at
                                                                  http://www.ftc.gov/os/caselists/0223171/
                                                                  031119compameridebt.pdf
Michigan Credit Services Protection Act                      12
                                                                  15 USC § 1679 et seq.
    The Michigan Credit Services Protection Act              13
                                                                  MCL 451.411 et seq.
(MCSPA) is applicable if the credit counseling               14
                                                                  MCL 445.1821 et seq.
agency is not licensed under the Debt Management
                                                             15
                                                                  15 USC § 1679 (b)(2).
                                                             16
                                                                  15 USC § 1679a (3)(A).
Act.26 MCSPA also exempts 501(c)(3) non-                     17
                                                                  15 USC § 1679b (a)(3), (4).
profits.27 Again, the creative consumer advocate             18
                                                                  15 USC § 1679b (b).
should be ready to attack the non-profit status.             19
                                                                  15 USC § 1679a (3)(B)(i).
    MCSPA also prohibits the credit services                 20
                                                                  Some of the newer credit counseling agencies often state
organization from making false or misleading                      that they offer “debt negotiation or settlement services”
                                                                  instead of “debt management plans”. This is perhaps
representations about their services and engaging
                                                                  another attempt to evade state law. Most of the state laws
in fraudulent or deceptive practices.28 The most                  refer to debt management plans only. Debt negotiation
important aspect of MCSPA is that the credit                      or settlement seems to differ from debt management
services organizations are not allowed to charge                  plans only to the extent that the agencies providing debt
up-front fees. All services must be completed                     negotiation and settlement services do not send regular
                                                                  monthly payments to creditors. See NCLC/CFA Report,
before any fee can be collected.29
                                                                  supra at 6 n11. According to the NCLC/CFA Report,
                                                                  these agencies “encourage consumers to pay fees to
Conclusion                                                        the negotiation firm and not pay their creditors. These
    Not all credit counseling agencies are                        agencies generally maintain debtor funds in separate
                                                                  accounts, holding these funds until the agency believes it
unscrupulous. The consumer should be informed
                                                                  can settle the entire debt.” See id. Either way you cut it,
when selecting a credit counseling agency. The                    the agencies are managing the consumers’ debts.
consumer should make sure that the credit                    21
                                                                  MCL 451.413.
counseling agency offers other services besides              22
                                                                  MCL 451.423(1).
DMPs. The consumer advocate should be ready to
                                                             23
                                                                  MCL 451.414(2).
                                                             24
                                                                  See http://www.michigan.gov/cis
recognize these deceptive practices and be creative          25
                                                                  MCL 451.414.
in challenging these practices.                              26
                                                                  The Michigan Credit Services Protection Act exempts
                                                                  a debt management business licensed under the Debt
                                                                  Management Act. See MCL 445.1822(c)(vii).
Endnotes                                                     27
                                                                  MCL 445.1822(c)(ix).
1
  David A. Lander, Snapshot of an Industry in Turmoil: The   28
                                                                  MCL 445.1823(d), (e).
  Plight of Consumer Debt Counseling, Consumer Finance       29
                                                                  MCL 445.1823(b).
  Law Quarterly Report, p. 1(Fall 2000).

                                                                                                                           5
Consumer Law Newsletter

                  Annual Meeting Speaker Thomas Domonoske
                   Offers New Tips For Consumer Litigators
                                            By Carolyn Bernstein
     The Consumer Law Section was fortunate to             Domonoske opines that he can find a statutory
have Thomas Domonoske address our membership           violation in every single car transaction he’s seen.
at the Annual Meeting in September in Lansing.         He uses the Truth in Lending Act, the Fair Credit
Domonoske is a nationally recognized consumer          Reporting Act, the Equal Credit Opportunity Act,
advocate in private practice from Virginia. He         the Odometer Act, common law and state title
specializes in — and makes an embarrassingly           transfer laws to uncover lender improprieties.
good living working on — individual fee-shifting       Often, a lender’s denial of one violation constitutes
cases, rather than class actions. Domonoske’s          an admission of another.
exuberance for consumer cases was inspiring
to Michigan attorneys lately beleaguered by an
unfriendly judiciary and legislature.
     Domonoske began his career as a public
                                                             H    e cleverly turns the
                                                                  current pro-business
                                                             climate to advantage by
benefits representative in San Francisco, later
moving to Virginia where he handled car repo                 arguing to the courts that
cases for Legal Aid. He soon realized that a great           consumer statutes are all
way to beat a repo deficiency case was to allege
fraud and consumer statutory violations at the               about improving the American
initial loan stage. When the federal government              economy.
barred Legal Aid from handling fee-shifting cases
in 1996, it was a short hop for Domonoske to                For example, a used car dealer in a typical yo-
make the transition to private practice. At Legal      yo sale must pretend to the consumer that the first
Aid, he routinely waived attorney fees as an           installment contract is not really a contract at all.
incentive to car dealers to settle cases. He doesn’t   He does this because dealers make money selling
waive those fees anymore.                              two things: cars and the signed credit contracts.
     Even the most experienced consumer                The dealer is looking to maximize profit from the
advocates learned a trick or two from Domonoske.       resale of the loan after the buyer takes the car. But
He cleverly turns the current pro-business             what if the dealer can’t sell the paper for enough
climate to advantage by arguing to the courts that     money? In a yo-yo sale, he hauls the consumer
consumer statutes are all about improving the          back in to sign a second contract at a higher
American economy. The Truth in Lending Act’s           interest rate, telling him he wasn’t approved by the
credit disclosure rules encourage competition by       bank for the first loan. If the dealer admits the first
helping consumers compare lending terms. How           contract is genuine, then he has no basis to demand
can they make good decisions without shopping          the higher interest rate. The dealer will never
credit offers around? And how can they shop            admit to such outright fraud. But if the dealer
around without absolutely accurate disclosures         denies the first installment contract was genuine,
provided in a form they can take with them to          then he must characterize it as merely an offer that
the next lender? Don’t these disclosure rules          was declined. Since the dealer pulled the buyer’s
encourage competition in all the right ways? And       credit report on the first “offer”, he is required to
what about faulty credit reports? Businesses lose      provide to the buyer an adverse credit action notice
money when they deny loans on the basis of false       under the Fair Credit Reporting Act and a credit
information. That’s why it’s so important for the      denial notice under the Equal Credit Opportunity
Fair Credit Reporting Act to enable consumers          Act. Dealers never do that. Moreover, if the deal
to check and fix their reports. These compelling       fell through, then the Truth in Lending disclosures
arguments can sway even some hostile courts.                                            Continued on page 8
6
                                                                                                  April 2004

          Furnisher Liability Under The Fair Credit Reporting Act:
                   Statutory Changes And New Caselaw
                                               By Fred Miller
     The responsibilities of creditors and debt         willful, statutory and punitive damages.4 However,
collectors furnishing consumer debt information         the statute does not make clear what kind of
to credit reporting agencies under the Fair Credit      investigation is required by the furnisher.
Reporting Act (FCRA) has been both altered and
clarified by amendments to the Act and a recent         4th Circuit Sets a Standard
4th Circuit appellate ruling.                               The Fourth Circuit is the first federal appellate
     “Furnishers” of credit information to reporting    court to rule on the nature of the required
agencies — creditors and debt collection agencies       reinvestigation by the furnisher. When the plaintiff
— were treated well by the FCRA as originally           in Johnson v MBNA5 disputed the credit card entry
enacted, given nearly blanket immunity from             on her credit report, the matter was referred by the
common-law tort liability (defamation, invasion         credit reporting agency to the creditor, MBNA, for
of privacy, negligence) for information given           investigation as required by the Act. Like many
to credit reporting agencies1 while they got few        creditors, MBNA limited its investigation to a
new responsibilities under the Act. Amendments          review of the computer record. Johnson claimed
in 1996 began to define responsibilities for            she was only an authorized user on her husband’s
furnishers, and opened a narrow area of potential       account, not a co-applicant. MBNA investigators
liability for furnishers to consumers for failure to    saw a computer code supporting Johnson’s
act in accordance with the statute.                     responsibility, and on that basis verified the debt.
     Under the 1996 amendments, furnishers were             The Fourth Circuit rejected MBNA’s argument
barred from reporting information they knew was         that the content of the investigation was not
wrong, consciously avoided knowing was wrong,           regulated by the Act, so it need not be a reasonable
or were correctly informed was wrong by the             investigation, as long as some review was done.
consumer. Furnishers also were required to correct      The Court said the word “investigation” itself
information sent to agencies when they found            connotes a careful inquiry, so the review has to be
out it wasn’t accurate and notify agencies when         reasonable. And the Court concluded MBNA’s
information they were providing was disputed            investigation was not. Since Johnson maintained
by the consumer.2 However, consumers were               she was only an authorized user on the original
given no right to sue for violation of any of these     application, not an applicant or cosigner, and the
requirements.                                           creditor had only a computer code to review (since
     The narrow opening for consumer enforcement        no documents had been retained), MBNA should
by suit was for the requirement that furnishers         have reported back that it could not conclusively
reinvestigate the validity of items they submitted      verify that Johnson was a co-obligor.
when informed by credit reporting agencies that a           The Johnson case sets a standard for
dispute was filed by the consumer.3 The furnisher       reinvestigations, and suggests that creditors
is to report back to the credit reporting agency,       should not be verifying the validity of debts they
correcting information that the furnisher finds is      have previously reported unless they have the
incomplete or inaccurate, in time for the agency        documents to “conclusively” refute information
to meet deadlines set by the statute for its own        submitted by disputing consumers.
investigation, usually 30 days from the filing of the
dispute.                                                New Furnisher Requirements
     Failure to follow the requirements for a           in 2003 Amendments
reinvestigation can result in liability of the              Late last year, amendments to the FCRA
furnisher to the consumer for actual damages,           were adopted in the Fair and Accurate Credit
attorney fees, and, if the violation is deemed                                       Continued on page 8.
                                                                                                           7
Consumer Law Newsletter

Furnisher Liability...                                  agencies will be required to make “fraud alerts”
                              Continued from page 7.    available for consumers on their reports to protect
Transactions Act of 2003 (FACTA).6 The                  against damage from identity theft, a practice
amendments have a number of provisions                  already used widely but which will now be subject
expanding the responsibilities of furnishers, but       to regulations. Notice to consumers will be
most are not enforceable by private action of           required when credit is granted on less favorable
consumers. Most of the provisions of FACTA will         terms due to a credit report item, not just when
go into effect on December 4, 2004, under new           there is a denial.
rules adopted by the Federal Reserve and FTC.               One other new provision of considerable
    The basic standard for accuracy in reporting        interest to consumer attorneys is a change in
information to agencies was altered, so that it         the statute of limitations for FCRA claims. The
will now prohibit reporting of information that         two-year statute of limitations will now run from
a furnisher “knows or has reasonable cause to           the date of discovery of the violation by the
believe” is inaccurate — a clearer and somewhat         consumer, with a limit of 5 years from the date of
higher standard. However, consumers will                the violation. This provision goes into effect on
continue to have no private right to enforce the        March 31, 2004
standard for initial reporting by furnishers.
                                                        Endnotes
    In the past, the FCRA required furnishers           1
                                                          15 USC 1681h(e).
to respond only to those disputes brought to the        2
                                                          15 USC 1681s-2(a).
furnisher’s attention by a credit reporting agency      3
                                                          15 USC 1681s-2(b).
                                                        4
                                                          15 USC 1681n and 1681o.
responding to a consumer dispute. Under FACTA           5
                                                          2004 WL 243404 (4th Cir. Va.).
amendments, furnishers will now be obligated to         6
                                                          PL 108-159 (Dec. 4, 2004).
respond to disputes about credit report items that
are raised directly by the consumer, in the same
timeframe now set for agencies — usually 30 days.       Annual Meeting Speaker ...
However, once again, consumers will have no                                             Continued from page 6.
private right to enforce this requirement. To have      initially given must all be wrong. So by fraudulently
a right to sue either the agency or the furnisher,      denying the first contract was genuine, the dealer
consumers will have to continue to invoke the           admits violating federal law.
process for correcting report errors by sending              And what about that thorny title transfer issue?
dispute letters to the credit reporting agencies.       Dealers don’t consider the deal complete until they
    Violation of one new furnisher requirement can      sell the paper to another lender. In a yo-yo sale,
lead to consumer litigation. Under the prior FCRA,      that is often well after the buyer drives off in her
furnishers contacted by credit reporting agencies       new car. But Michigan law requires a seller to
responding to consumer disputes were required           transfer title at the time of delivery of a vehicle.
to reinvestigate and report back to the agency.         MCL 257.233. Moreover, the odometer reading
Under the FACTA amendments, furnishers in               must be disclosed on the title under federal law.
this situation will have to take action in their own    Odometer disclosures made by a separate statement
databases or files, when appropriate, to modify,        are permissible only for old, non-conforming titles.
delete or permanently block the reporting of the        Newer title disclosures cannot be erased, buyers must
erroneous item. If the erroneous item shows up          sign them, and dealers can be jailed for violations.
again on a credit report or in some other way is        Dealers try to get around the rules by back-dating
used against the consumer, the furnisher may be         the title, or having the buyer sign a power of attorney
liable for failure to act to make sure it is changed,   authorizing the dealer to sign their name on the title,
deleted or blocked from further dissemination.          or giving the buyer a separate odometer disclosure
    There are many other changes in the FCRA            form. Domonoske uses a dealer’s admission that
under the FACTA amendments. Credit reporting            he used a separate disclosure as proof of intent to
                                                        defraud the buyer.
8
                                                                                                 April 2004

         Time to Upgrade Michigan’s Home Sales Solicitation Act
                                                 by John Gear


     The Home Sales Solicitation Act (HSSA, MCL         parties for the purpose of negotiating a purchase
445.111 et seq) was passed as PA 227 in 1971. In        and the seller has a business establishment
it, the Michigan Legislature provided certain rights    at a fixed location in this state where the
to consumers who bought goods or services at            goods or services involved in the transaction
home.                                                   are regularly offered or exhibited for sale.”
     In the HSSA, legislators targeted the “home        (Emphasis added.)
solicitation sale,” which is narrowly defined. A            Think about the many out-of-state (and in-
sale is only a home solicitation sale if it meets all   state) businesses that reach Michigan consumers
five elements below (and that is before a long list     over the Internet. It appears that Michigan
of exemptions). There must be:                          consumers lack the protections that Ohio residents
                                                        enjoy when dealing with these businesses.
   1. a sale of goods or services;                          That’s because the third element in our
                                                        HSSA statute means it applies only to sales
   2. of more than $25.00;                              solicited through three specific methods:
                                                        “personal, telephonic, or written.” Door-to-door,
   3. in which the seller or [seller’s agent]           telemarketing, and junk mail, in other words.
     engages in a personal, telephonic, or written      That’s it. Internet solicitations – no matter how
     solicitation of the sale;                          full of sound, light, graphics, color, gimmicks, and
                                                        persuasive — and no matter how fraudulent or
   4. the solicitation is received by the buyer at      deceptive — appear not to come under Michigan’s
     a residence of the buyer; and                      HSSA.
                                                            As a result, I have drafted a proposed upgrade
   5. the buyer’s agreement or offer to purchase        for the HSSA. Knowing that minor tweaks are
     is there given to the seller or [seller’s          easier to pass through the legislative process than
     agent].                                            wholesale revisions, I tried to find a way to extend
                                                        HSSA protections to more Michigan consumers
    Ohio offers a useful contrast because Ohio          while changing as little of the law’s text as
is one of several states with a similar statute.        possible.
However, there are important differences.                   The method I hit on was to define a new
    First, in Ohio, “solicitations in response to       solicitation method under the definition of “home
or following an invitation by the buyer,” are           solicitation sale,” the electronic solicitation:
expressly covered — rather than excluded — by               “Electronic solicitation means any combination
the home sales law.                                     of voice, text, data, graphic, videotext, or audio
    Second, and more important for this article,        communication delivered over a public computer
Ohio law covers — rather than excludes — those          network to a buyer’s computer or communications
sales “in which the buyer’s agreement or offer to       device to encourage the recipient to purchase or
purchase is made at a place other than the seller’s     rent any goods and services, including data and
place of business.” (Ohio Rev. Code Ann. §              information services available for delivery over the
1345.21)                                                computer or communications network.”
    This second difference is crucial. It arguably          I think this language would bring Internet sales
applies Ohio’s homes sales act protections              made to Michigan consumers under the Michigan
to Internet purchases made from out-of-state            HSSA. Assuming that is correct, then it should
merchants. Ohio does exclude those sales where          work as follows:
“[t]he buyer initiates the contact between the                                         Continued on page 10.
                                                                                                          9
Consumer Law Newsletter

Time to Upgrade ...                                          frustrated consumer expectations out there.
                              Continued from page 9.             It is time to upgrade the HSSA to recognize
                                                             that more and more is being sold over the Internet
     Internet buyers who give a Michigan
                                                             — and that more and more scams are migrating
     billing address would be legally entitled to
                                                             there as well. The HSSA protections — such
     receive the proper HSSA disclosures and
                                                             as the “cooling off” period and the right to clear
     cancellation rights as part of their purchase.
                                                             disclosures – should not wither away just because
     The seller will know to apply the Michigan
                                                             the legislature failed to anticipate technological
     law because of the billing and delivery
                                                             changes.
     address; Internet sellers typically require
                                                                 My hope is that the members of the Consumer
     buyers to enter the billing address for the
                                                             Law Section – all of whom have much more
     credit card or other source of funds used
                                                             expertise and experience than I do – can and
     to make the purchase. Therefore, even
                                                             will offer suggestions to improve this proposal.
     Michigan consumers who make Internet
                                                             I believe that, together, we should be able to
     purchases while traveling out-of-state will
                                                             develop a solid proposal that a State Senator and
     enjoy HSSA protections for goods they
                                                             Representative can introduce to the Legislature.
     are having delivered to their homes in
                                                             With luck and effort, we can upgrade the HSSA so
     Michigan.
                                                             that it will continue to protect Michigan consumers
                                                             for at least another 33 years.
    In 1971, 33 years ago, the Internet was still a
crude network linking a handful of government
                                                             Endnotes
research laboratories. Today it is ubiquitous                1
                                                               Karen Alboukrek, Adapting To A New World Of E_Commerce:
in everyday life and commerce for millions of                  The Need For Uniform Consumer Protection In The International
Americans. But Michigan consumers making                       Electronic Marketplace, 35 Geo. Wash. Int’l L. Rev. 425 at 438.
Internet purchases lack key consumer protections.
This is even as a survey by the National Consumer
League says that “nearly half of Internet                        John Gear, jmgear@ameritech.net, graduated
purchasers incorrectly believe that they have a              from Thomas M. Cooley Law School in January
three-day ‘grace period’ to cancel their online              2004. Thanks to Consumer Law newsletter editor
orders.” [1] Assuming Michigan consumers are                 Fred Miller for the pointer to the law review
typical of those surveyed, there are likely many             article cited above.



 Upcoming Training:

          n   CORT** Consumer Law Training
              May 5-7, 2004
              Hilton Garden Inn (Downtown)
              Cleveland, Ohio

              A tentative agenda will be posted on the MPLP website in March
              www.mplp.org
              ** CORT (Committee on Regional Training) is a cooperative effort of legal services programs in Michigan,
              Ohio and West Virginia to provide high quality training to legal services staff.


10
                                                                                                 April 2004

                         Seniors Hotline Seeks Pro Bono Help
                                              By Cynthia Dinley


     The Legal Hotline for Michigan Seniors, a          is limited to legal advice and information over the
program of Elder Law of Michigan, a non-profit          telephone. For some areas of the law, we have
organization, needs concerned consumer law              law students who are able to provide brief services
attorneys to help senior citizens with consumer         for clients after they speak with an attorney; these
problems. Last year, the Legal Hotline provided         brief services include writing letters, making
free legal advice over the telephone to 1,143           telephone calls, and legal research.
seniors on consumer issues ranging from predatory            To sign up or for more information, call
lending to bankruptcy to home repair scams.             the Legal Hotline at 800-347-LAWS and ask
As the number of seniors grows, our caseload            for Cynthia Dinley or email your questions to
increases. We need your help to meet the growing        probono@elderslaw.org. To learn more about
demand for advice on consumer issues. You               Elder Law of Michigan, visit our website at
can help low-income seniors—people who are              www.elderslaw.org. Contact us now! Start 2004
very grateful for free legal advice—resolve their       by giving your time and talents to seniors who
consumer problems by providing information,             have no where else to turn!
guidance on next steps, and legal advice. In
2003, the Hotline provided free legal advice and             GIVE YOUR TIME AND TALENT
information to 4,764 clients on a wide range                  Legal Hotline at 800-347-LAWS
of personal legal problems. Consumer issues                   or probono@elderslaw.org
represented 24% of all our cases.                             ask for Cynthia Dinley
     The Hotline seeks attorneys to give over-the-
phone consumer advice on a pro bono basis. The
Hotline screens calls first, referring consumer
                                                              Elder Law of Michigan
cases that we believe can be handled by phone                 www.elderslaw.org
advice to our consumer attorney panel. However,
if the attorney believes that active representation
of the client is needed, he or she is free to make an
arrangement with the client.
     The Legal Hotline for Michigan Seniors will
provide training, support and back up to our pro
bono attorneys. An orientation is provided to
all volunteers and that can be done in person or
over the telephone. Training on bankruptcy, a
growing problem for Michigan elders, will be held
in March in Southfield and Lansing for interested
volunteers.
     Volunteering with the Legal Hotline is easy
because you decide how many cases you are able
to take—one a quarter, one per month, or one
each week. Our staff will email or fax contact
information to you and you can make the call to
the client from your home or office. Calls to clients
need to be returned within 48 hours. You email
or fax your case notes back to us and your work
is done! The Legal Hotline’s volunteers’ service
                                                                                                          11
Consumer Law Newsletter

     Section Notes: Consumer Law Section Addresses District Judges

    Ian Lyngklip and Gary Victor addressed the               In the days following their presentations, both
District Judges at their annual conference in            Ian and Gary received calls from judges about cases
Frankenmuth last September, speaking on Michigan         pending before them. Several judges indicated that
consumer law as representatives of the Consumer          they were distributing the presentation materials
Law Section. The genesis of the presentation was         to other judges in their district who had not been
past Section Chair, Kathy Fitzgerald’s, inquiry          able to attend in Frankenmuth. Also, Ian has been
to the Hon. Sara Smolenski, as conference                invited to make another presentation at a judges’
organizer whether the judges might be interested         conference set up by the Michigan Judicial Institute.
in such a presentation. After a positive reaction, a     All in all, the presentation was a fine first effort on
proposed presentation was approved by the judges’        the part of the Section to assist the courts in their
conference committee.                                    understanding and appreciation of consumer law.
    Ian provided materials briefly discussing
numerous consumer protection statutes which may          Section Plans Web Referral List
be of interest to the judges. During his presentation,       Planning is underway by the Consumer Law
he explained many of these statutes and the              Section council for a consumer attorney list to be
circumstances under which they might apply to            posted on the Web, available for potential clients
cases before the district courts. Gary’s presentation    or referral attorneys to consult. Section members
concerned the Michigan Consumer Protection Act           will be polled shortly on their interest in having
and the calculation of attorneys’ fees under the Act.    their names and consumer law specialties included
He provided materials in the form of several of his      on the list. Members will also be asked if they are
articles on these topics. The presentation was well      available for referrals or for consultation on issues
attended and the judges had quite a few questions        involving their areas of specialization. The goal is
for both presenters. The presentation was rated very     to build the network of consumer law practitioners,
positively by the attendees.                             and make our services more widely available to the
                                                         public. Watch your mail for information.

STATE BAR OF MICHIGAN                                                                FIRST CLASS MAIL
MICHAEL FRANCK BUILDING                                                              U. S. POSTAGE PAID
306 TOWNSEND STREET                                                                  LANSING, MI 48933
LANSING, MICHIGAN 48933-2083                                                           PERMIT NO. 191




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