The Corporate Observer Blog : Consumer Protection, Corporate Abuse : Class Action Lawyer & Attorney : Steven Berk Law Firm

Rumors abound (click here for WaPo, click here for BostonGlobe, here for Politico)  concerning the possibility of Elizabeth Warren’s appointment to head the new Consumer Financial Protection Bureau. Warren, a professor of law at Harvard University, was a major proponent of the most recent financial reform bill and is particularly popular with supporters of financial reform.

Warren has made a career studying and advocating for the common consumer. She has published multiple books and scores of scholarly articles on the topic of middle class economics and is widely regarded as a leading voice in the field. Time magazine named Warren to its top 100 most influential people in the world list in both 2009 and 2010.

Why All the Hullabaloo?

Last Thursday, first year students in section 3 at Harvard Law were informed that Warren would not be teaching their contracts course. Though the Harvard Crimson reports that Warren will still be co-teaching a seminar on the empirical analysis of law, the freedom from a post as contracts professor could be a strong sign that Warren is headed to Washington.

Here at the Corporate Observer we think it’s clear that Warren is an excellent choice for the first head of the new consumer watchdog bureau created under the Dodd-Frank financial reform bill. A champion of the consumer, and influential policy adviser, and an educated decision maker – Warren seems perfectly fit for the job. We commend Warren for her commitment to change and oversight. We agree with her statements in an interview with Tom Ashbrook that "it’s about reining in an incredibly powerful industry. It’s about reining in a group that gives money and knows how to exercise power in Washington."
 

Elizabeth Warren is not related to Chief Justice Earl Warren. Nevertheless, should Warren head up the new agency, her potential to effect change in America could rival that of the celebrated Chief Justice.  Though today’s post is merely speculation – the formulation of the leadership of this new important watchdog bureau is important news and we will keep you informed on updates as they come.

Assisted by Zach Kady

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Here is a Federal Agency willing to walk the walk.  The FTC recently announced that Countrywide, one of the nation’s largest mortgage lenders and now a member of the Bank of America family was fined $108 million for improperly pursuing foreclosures and charging excessive and unfair fees to lenders being thrown out on the street.  Where is the pity?  How bout showing a little humanity. Nope.  Instead, Countrywide took advantage of folks that who had no resources to fight back.  As just an example or two, Countrywide’s egregious action included fees for  a $300 lawn mowing and the approval of a trustee’s fee that exceeded the going rate by more than 400%.   Shocking ... Not.

But no need to dwell on Countrywide’s disgraceful, dishonest, shameful (insert your own sentiment here) behavior.  There is a bright side.  The fighting and fit FTC; going to bat for the American public. As Gretchen Morgenson rightly pointed out in her column on Monday, the wheels of justice have been turning painfully slowly but we at Berk Law are delighted to see justice any time – even when it shows up late to the party.

So, three cheers for the FTC for reaching this settlement.   No doubt thousands of aggrieved homeowners will be made whole. The United States Trustee, the investigative arm of the Department of Justice that assisted the FTC in this matter plans to look into similar predatory practices committed by other now-defunct mortgage-lending banks.

There are undoubtedly scores of lenders whose predatory actions, despite harming thousands of citizens, have gone undetected and unpunished. We hope that investigations and results such as this recent settlement with Countrywide scare some sense into banks and other financial institutions who are in a position to make mischief for homeowners while lining their own pockets.

 

Assisted by Zachary Kady

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What happens when a consumer needs to pay bills, but doesn’t have a credit or debit card? A new and increasingly popular answer is prepaid debit cards. This new business is booming. The New York Times reported on October 5^th that over $8.7 billion was loaded onto prepaid cards in 2008 alone. These cards offer the convenience of a debit/credit card without the credit check or bank account fees. Unfortunately, this is not the whole story. There is, quite often, a long list of fees including:

·      Activation fees

·      Convenience fees

·      ATM withdrawal fees

·      Balance Inquiry Fees

·      Purchasing Fees

Keep in mind; this is by no means an exhaustive list of fees connected with most prepaid cards.  I am not the first to raise the issue that some large companies may be taking advantage of their target markets: college students, and the uncreditworthy.

Of course the companies issuing the cards (small upstarts like Green Dot, Net Spend, and Account Now) have the right to a reasonable profit. We should also remember that without charging interest, fees will certainly be included in any of their schemes. My problem with the current system is that consumers are generally unaware of these fees which often end up considerably devaluing the money put on a card. This is a growing problem in the financial world and I think it’s time we found a solution.

Let’s look at an example:

This is a short sample of the fees that a consumer would incur with normal use of the MiCash prepaid MasterCard.

A deposit of $500

- $9.95 activation fee

- $17.50 (10 ATM withdrawals)

- $5 (5 ATM balance inquiries)

- $10 (20 purchases)

-$8 ($4 per month for “monthly maintenance”)

_________________________________________

Net Value: $449.50

A consumer using this card would have lost 10% of his or her initial payment just in fees by using this card normally for a two month period. Is this fair? Well, there certainly is precedent in the check cashing and pay-day loan industries for charging outrageous fees just for people to access their own money. However, even these questionable industries seem more willing to disclose fees than prepaid credit card companies.

Though prepaid cards may still be a better option than high interest credit cards or certain bank fees, many consumers rightfully feel that they are being charged fees without being made explicitly aware of them. The MiCash program in particular discloses the fees in the “terms and conditions” which are not directly posted on the application page – rather a user would have to follow a small link at the bottom of the application. This method of disclosing fees is perfectly legal, but is still deceiving. Nowhere on the application page does MasterCard mention any fees. In fact the only mention of fees is in reference to a lack of outrageous overdraft fees. However, it is clear in the fine print of the “terms and conditions” that overdraft or “negative balance” fees do indeed exist with the MiCash program.

We are not seeking an end to prepaid debit cards, nor are we seeking an end to all fees. All the common person is seeking is a fair representation of products, a clear warning that fees will be deducted from a prepaid card. Federal oversight should be the next step towards ensuring full and fair disclosure of fees. The industry is relatively new and has not been subject to a substantial amount of governmental review. Perhaps legislation will be the best way to guarantee disclosure. The card should warn customers that any initial deposit will actually have a lower net value. Hopefully, this clear warning will help assure that consumers are not tricked into allowing big banks and credit card companies to take their hard-earned money.  

Assisted by: Zach Kady 

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