Law Commons^™

Note: City Of Oakland V. Wells Fargo Co.: Examining The Proximate Cause Standard Under The Fair Housing Act, Ava Lau-Silveira

Golden Gate University Law Review

The Financial Services Modernization Act of 1999 partially deregulated the financial industry under the premise of helping “everyone attain the American dream of home ownership.” In 1999, the “Fannie Mae” made subprime mortgage loans readily accessible to those who normally would not qualify. People in Oakland, who “used to find it difficult to obtain mortgages,” were suddenly able to obtain mortgage loans, but with subprime terms, which started with low monthly payments, but would increase based on changes in the market interest rates. By 2008, subprime borrowers began defaulting on their loans at an unprecedented rate.

During the 2008 mortgage …

Wells Fargo V. City Of Oakland: A Matter Of Proximate Cause, Shawna Doughman

Golden Gate University Law Review

President Lyndon B. Johnson saw passage of the Fair Housing Act (“FHA”) to be a fitting tribute to the Reverend Dr. Martin Luther King, Jr., who had just been assassinated. The United States was in turmoil, much as it is today, with cities burning and people divided. The FHA was first introduced by Democratic senator Walter Mondale. The lobbying efforts of Republican senator Edward Brooke, the first Black senator to be elected by popular vote, and Democratic senator Edward Kennedy finally brought this legislation to fruition as Title VIII of the Civil Rights Act of 1968. Senator Mondale remarked, “in …

American Usury Law And The Military Lending Act, Paul Kantwill, Christopher L. Peterson

Utah Law Faculty Scholarship

In 2006 Congress adopted the Military Lending Act (“MLA”) to protect active duty military service members and their families from high-cost, predatory loans. The core provision of the statute is a usury limit capping interest rates at no more than 36 percent per annum. The United States Department of Defense finalized regulations implementing the MLA in 2007 and then later issued substantially revised regulations in 2015. The MLA is America’s first modern, national usury law that is applicable to all types of creditors and was adopted after the evolution of our national credit card market. After over a decade, the …

Letter To The Hon. Sen. Orrt (Nys Senate) Regarding Litigation Finance (Lawsuit Lending) (2018), Maya Steinitz

Faculty Scholarship

Following testimony to the New York State Senate's Standing Committee on Consumer Protection (available on SSRN and YouTube), Professor Steinitz was asked to elaborate on her recommendation for a statutory minimum recovery requirement to protect consumers of litigation financing. Enclosed is her response to this inquiry.

The Cfpb’S Endaround, Chris O'Brien

Catholic University Law Review

The financial crisis of 2008 led Congress to enact the Dodd-Frank Wall Street Reform and Consumer Protection Act and establish the Consumer Financial Protection Bureau (CFPB) to better protect consumers. Although Dodd-Frank and the CFPB introduced sweeping changes to many areas of financial lending, automobile dealers and financers were expressly excluded from oversight by the CFPB. Despite this express limitation on the CFPB’s authority, the Bureau nonetheless expanded its definition of “larger participants” to encompass automobile dealers and financiers. This action has resulted in duplicative regulatory oversight and increased costs to consumers, which in turn, imposes additional burdens on those …

Testimony On Third Party Financing Of Lawsuits, Maya Steinitz

Faculty Scholarship

In this written testimony, Professor Steinitz addresses bills pending in the New York State Senate and Assembly relating to consumer litigation finance. Among other things, she suggests (1) establishing a “Minimum Payment” for plaintiffs, instead of (or in addition to) flat rates or interest caps; and (2) defining the scope of application by applying an “Unsophisticated Plaintiff” test rather than by focusing on the financing amount. She also addresses other matters implicated by the bills such as whether lawyers should be permitted to provide financial advice, prohibition of prepayment penalties, registration requirements, and right of rescission in the context of …

Choosing Corporations Over Consumers: The Financial Choice Act Of 2017 And The Cfpb, Christopher L. Peterson

Utah Law Faculty Scholarship

The Financial Choice Act of 2017 is appropriately named in at least one sense: its proposed restrictions on the authority of the Consumer Financial Protection Bureau reflect a choice by the House of Representatives to protect financial companies at the expense of consumers. This choice is borne out by the data. As this empirical review of CFPB enforcement cases demonstrates, nearly all of the relief provided to American consumers in CFPB enforcement cases arose where a bank, credit union, or other finance company deceived their customers about a material aspect of their product or service. Between 2012 and 2016, the …

Crossing The Line: Prime, Subprime, And Predatory Lending, Nathaniel R. Hull

Maine Law Review

The cornerstone of the “American Dream” has long been marked by the purchase of a home. Most families cannot afford to purchase a home with cash and, almost universally, need financing. Financing for a home purchase begins when a person or couple applies and is preliminarily approved for a home loan by a lender. The lender’s decision to approve is based on a number of different factors that are thought to predict how likely it is for the borrower to repay the loan according to its terms. The factors used to make this prediction have undergone drastic reformulations over the …

Calling On The Cfpb For Help: Telling Stories And Consumer Protection, Pamela Foohey

Articles by Maurer Faculty

Since it began operating in 2011, the Consumer Financial Protection Bureau (CFPB) has handled more than a million complaints regarding consumer financial product and services. Beginning in June 2015, the CFPB began publishing consumers’ narratives submitted with their complaints. This Article analyses a random sample of 5,000 of these narratives to assess how people engage with the complaint mechanism in light of the CFPB’s role in processing complaints. I find that people predominately use the complaint function for two distinct purposes: to express their anger and frustration about companies’ practices, or to express sadness and fear about how companies’ practices …

Consumer Financial Protection Bureau Law Enforcement: An Empirical Review, Christopher L. Peterson

Utah Law Faculty Scholarship

In the aftermath of the U.S. financial crisis, Congress created a new federal agency — the Consumer Financial Protection Bureau (CFPB) — with the goal of fashioning a more just and efficient American consumer finance market. The CFPB now serves as the U.S. Government’s primary regulator and civil law enforcement agency governing consumer lending, payment systems, debt collection, and other consumer financial services. In its first four years of enforcing federal consumer protection laws, the CFPB has announced over a hundred different law enforcement cases forcing banks and other financial companies to relinquish over $11 billion in customer refunds, forgiven …

A Behavioral Analysis Of Predatory Lending, Patricia A. Mccoy

Akron Law Review

This essay considers experimental evidence from behavioral economics can shed light on injured borrowers’ decisionmaking processes and the choice of legal redress. Specifically, I posit that predatory lenders exploit the behavioral principle of framing effects to manipulate homeowners’ otherwise strong aversion to losing their homes to foreclosure. Through clever marketing, distraction, and an often legal lack of transparency concerning the true risks involved, predatory lenders are able to divert the focus of homeowners from the fear of losing their homes to other fears, many of which are often conducive to less destructive solutions.

Law And Economic Exploitation In An Anti-Classification Age, Hila Keren

Florida State University Law Review

Does our legal system permit the economic exploitation of extreme vulnerability? Focusing on predatory housing loans—a thriving business at the dawn of the twenty-first century—this Article argues that the answer in most cases is yes. Under an individualistic neoliberal paradigm, borrowers are held liable for their contracts, even if they were targeted with predatory practices. Further, borrowers’ attempts to resort to antidiscrimination law, and frame their exploitation as “reverse redlining,” have offered no real answer. An important yet undertheorized explanation for this problem is the impact of the Supreme Court’s anti-classification jurisprudence on lower courts. In an anti-classification age, even …

Turning A Blind Eye: Wall Street Finance Of Predatory Lending, Kathleen C. Engel, Patricia A. Mccoy

Patricia A. McCoy

No abstract provided.

Rethinking Disclosure In A World Of Risk-Based Pricing, Patricia Mccoy

Patricia A. McCoy

In response to subprime loan abuses, it is common for policymakers to exhort consumers to comparison-shop for residential mortgages. This policy prescription ignores the fact that price revelation works differently in the prime and subprime markets, impeding search in subprime. In the prime market, lenders reveal firm prices for free, without requiring consumers to first submit loan applications. This dynamic, combined with Truth-in-Lending Act (TILA) disclosures that standardize prices, make it easy to comparison-shop for prime mortgages. In contrast, in the subprime market featuring risk-based pricing, consumers must reveal their creditworthiness before lenders can determine loan prices, which allows lenders …

Turning A Blind Eye: Wall Street Finance Of Predatory Lending, Kathleen Engel, Patricia Mccoy

Patricia A. McCoy

No abstract provided.

A Tale Of Three Markets: The Law And Economics Of Predatory Lending, Kathleen Engel, Patricia Mccoy

Patricia A. McCoy

Predatory lending - the practice of making exploitative high-cost loans to naive borrowers - has spurred policy-makers, activists, lenders and scholars to debate whether intervention is warranted and, if so, what type of intervention is appropriate. The solution requires understanding the incentives in the home mortgage market that have fueled predatory lending. Recent changes in the credit market have created new possibilities for lenders to profit by exploiting information asymmetries to the detriment of unsophisticated borrowers. As a result, a new, predatory lending market has emerged alongside the legitimate prime and subprime home mortgage markets. Neither market forces nor existing …

Turning A Blind Eye: Wall Street Finance Of Predatory Lending, Kathleen Engel, Patricia Mccoy

Patricia A. McCoy

Today, Wall Street finances up to eighty percent of subprime home loans through securitization. The subprime sector, which is designed for borrowers with blemished credit, has been dogged by predatory lending charges, many of which have been substantiated. As subprime securitization has grown, so have charges that securitization turns a blind eye to financing abusive loans. In this paper, we examine why secondary market discipline has failed to halt the securitization of predatory loans.

When investors buy securities backed by predatory loans, they face a classic lemons problem in the form of credit risk, prepayment risk, and litigation risk. Securitization …

The Cra Implications Of Predatory Lending, Kathleen Engel, Patricia Mccoy

Patricia A. McCoy

Traditionally, policymakers, communities, and industry have regarded the Community Reinvestment Act ("CRA") as a positive mandate for banks and thrifts to do good by increasing investment in low- and moderate-income ("LMI") neighborhoods. When Congress enacted CRA, it was inconceivable that LMI neighborhoods might eventually receive too much credit in the form of abusive mortgages. However, by the late 1990s, predatory mortgages- exploitative high-cost loans to gullible borrowers-were ravaging the inner cities. We address the question: given the surge in predatory lending, how should CRA respond? CRA and federal subsidies to regulated lenders can create perverse incentives for lenders to engage …

It's Critical: Legal Participatory Action Research, Emily M.S. Houh, Kristin Kalsen

Michigan Journal of Race and Law

This Article introduces a method of research that we term “legal participatory action research” or “legal PAR” as a way for legal scholars and activists to put various strands of critical legal theory into practice. Specifically, through the lens of legal PAR, this Article contributes to a rapidly developing legal literature on the “fringe economy” that comprises “alternative lending services” and products, including but not limited to pawnshops, check cashers, payday lenders, direct deposit loans, (tax) refund anticipation loans, and car title loans. As importantly, this article also contributes to the related fields of critical race theory, feminist legal theory, …

The Emperor's New Loans: A Cautionary Tale From The Subprime Era, David J. Reiss

David J Reiss

A body of folk tales from the subprime mortgage era is now being written. Some are in PowerPoint. Some are in video format. Some appear in the guise of a non-fiction account. After all, isn’t The Big Short just Jack the Giant Slayer —with the little guys not only ending up with the gold, but also with the big guys dead on the ground? And some stories are just plain old fairy tales like the one contained herein. You might ask why a complex financial crisis needs such folk tales. And I would tell you that they are necessary because …

Preventing A Return Engagement: Eliminating The Mortgage Purchasers' Status As A Holder-In-Due-Course: Properly Aligning Incentives Among The Parties, Alex M. Johnson Jr.

Pepperdine Law Review

No abstract provided.

Consumer Protection Out Of The Shadows Of Shadow Banking: The Role Of The Consumer Financial Protection Bureau, David J. Reiss

David J Reiss

Consumer protection remains the stepchild of financial regulation. Notwithstanding the fact that the economic doldrums we find ourselves in originated in the under-regulated subprime mortgage sector, relatively few academic commentators focus on the role that consumer protection can play in reducing such risks as well as in restoring the balance between consumer and producer in the financial markets. This essay suggests that consumer protection regulation has an important role to play in the regulatory structure of the shadow banking sector.

This essay does four things. First, it describes the role of shadow banking in the residential mortgage market—the shadow mortgage …

Responding To The Mortgage Crisis: Three Cleveland Examples, W. Dennis Keating, Kermit J. Lind

Law Faculty Articles and Essays

Just as SVD [Slavic Village Development] fought back against predatory lending, mortgage fraud, and speculator flipping, the City of Cleveland and Cuyahoga County also sought to prevent these practices and stem the rising tide of foreclosures. This included legislation, litigation, and homeowner counseling. This article will focus on three examples of the response to the mortgage crisis in Cleveland: the Cleveland Housing Court, the Cuyahoga County Land Reutilization Corporation (land bank), and community development corporations (CDCs) and local intermediaries (namely, the Cleveland Housing Network (CHN) and Neighborhood Progress, Inc. (NPI)). Each of these entities has developed initiatives aimed at the …

Promising To Be Prudent: A Private Law Approach To Mortgage Loan Regulation In Common-Interest Communities, Julia Patterson Forrester Rogers, Jerome Organ

Faculty Journal Articles and Book Chapters

This Article explores one possible private law prescription that may help common-interest communities avoid the financial disaster associated with foreclosure epidemics-a financing restriction that would limit (1) the ability of any homeowner in a common-interest community to borrow excessively against the value of her home, and (2) the ability of lenders to make loans that a homeowner does not have the ability to repay. Part I of this Article begins in the Great Depression with a discussion of Neponsit Property Owners' Association v. Emigrant Industrial Savings Bank, w exploring how the case both fostered the development of common-interest communities and …

Learning From Financial History: An Academic Never Forgets, David J. Reiss

David J Reiss

Those with short-term memories have been dominating our debate over the future of the Consumer Financial Protection Bureau. They argue that the financial industry has learned its lesson and they point to a more rational marketplace today. But the Bureau was designed to regulate the subprime mortgage market and other consumer credit markets through the credit cycle. A strong Bureau should be built today to deal with the inevitable irrational exuberance of lenders and consumers once the cycle rises from its current depths to the heights of tomorrow.

The Impact Of State Anti-Predatory Lending Laws On The Foreclosure Crisis, Alan White, Carolina Reid, Lei Ding, Roberto G. Quercia

Cornell Journal of Law and Public Policy

No abstract provided.

Racism, Capitalism, And Predatory Lending: How The U.S. Government's Failure To Regulate The Disproportionate Negative Effects Of Payday Lending In Black Communities Violates The International Convention On The Elimination Of All Forms Of Racial Discrimination, Paulina Davis

Articles & Chapters

No abstract provided.

Municipal Predatory Lending Regulation In Ohio: The Disproportionate Impact Of Preemption In Ohio's Cities, Brett Altier

Cleveland State Law Review

Whether in the case of predatory lending or other issues that will differ from location to location, municipalities should continue to protect their cities by exercising their power under the Home Rule Amendment to enforce regulations not in direct conflict with Ohio law. Even though the Framers of the Home Rule Amendment intended to protect municipal power by ensuring that only those ordinances in actual conflict would be voided, Ohio courts have denied municipalities their Home Rule police power by applying a conflict by implication test, contributing to the housing crisis still plaguing Ohio's cities. While Ohio courts have made …

Exploring The Determinants Of High-Cost Mortgages To Homeowners In Low- And Moderate-Income Neighborhoods, Michael S. Barr, Jane K. Dokko, Benjamin J. Keys

Book Chapters

In spite of the recent impetus to reform home mortgage markets, particularly as they affect low- and moderate-income (LMI) households, little systematic evidence is available about how potential abuses in mortgage lending manifest in the mortgages held by those households. While racial discrimination in mortgage markets has a long history in the United States, the role of mortgage brokers in lending has only recently increased and become controversial. In this chapter, we uncover two mechanisms through which differential mortgage pricing occurs among LMI homeowners: black borrowers and borrowers who use mortgage brokers pay more for mortgage loans than other borrowers, …

Book Review: The Subprime Virus: Reckless Credit, Regulatory Failure, And Next Steps, David J. Reiss

David J Reiss

John Godfrey Saxe’s 19th century poem, “The Blind Men and the Elephant,” opens with six learned men

Who went to see the Elephant

(Though all of them were blind),

That each by observation

Might satisfy his mind.

The financial crisis is the Elephant of our time. Over the last couple of years, more than six wise men and women have written books purporting to explain the financial crisis and many more such books are surely in the works. Most of these wise ones suffer from the same limitations as the poem’s learned men. As each reaches out, he or she …