U.S. Senate Throws Out Single Most Needed Step to Help Millions of American Families Keep Their Homes

Joint Statement from Civil Rights, Consumer, & Housing Groups

Washington, DC – More than 15 national organizations (listed below) issued the following joint statement in response to the Foreclosure Prevention Act and its failure to include bankruptcy measures:

"The Senate Housing package misses the single most significant step needed to help the 20,000 American families with subprime loans that are losing their homes each week through foreclosure: the bankruptcy amendment.

We are left with a bill loaded with special considerations for mortgage companies and builders that does very little for homeowners who were sold predatory loans by mortgage lenders.

Any final bill hammered out between the U.S. House and Senate that is a serious effort to stem the foreclosure crisis must include meaningful relief to families to modify their mortgage in bankruptcy. Bankruptcy relief will stabilize communities, keep more than half a million families in their homes and provide lenders at least as much income as they would receive through foreclosure.

As the Senate bill stands, we will continue to see foreclosures tear down communities and wipe out the most important source of financial security that most Americans have.

We are encouraged that there is recognition that the bill under consideration by the U.S. Senate today is only part of the solution. Without bankruptcy relief, Congress will be condemning hundreds of thousands of American families this year to losing their homes.

Center for Responsible Lending

Leadership Conference on Civil Rights

ACORN

American Federation of Labor and Congress of Industrial Organizations

Consumer Action

Consumer Federation of America

Consumers Union

Lawyers’ Committee for Civil Rights Under Law

NAACP Legal Defense & Educational Fund, Inc.

National Association of Consumer Advocates (NACA)

National Association of Consumer Bankruptcy Attorneys (NACBA)

National Consumer Law Center

National Association of Neighborhoods

National Community Reinvestment Coalition

National Council of La Raza

National Fair Housing Alliance

Opportunity Finance Network

Service Employees International Union (SEIU)

New York Times: “The Foreclosure Machine”

March 30, 2008
The New York Times

The Foreclosure Machine
 
By GRETCHEN MORGENSON and JONATHAN D. GLATER

Nobody wins when a home enters foreclosure — neither the borrower, who is evicted, nor the lender, who takes a loss when the home is resold. That’s the conventional wisdom, anyway.
The reality is very different. Behind the scenes in these dramas, a small army of law firms and default servicing companies, who represent mortgage lenders, have been raking in mounting profits. These little-known firms assess legal fees and a host of other charges, calculate what the borrowers owe and draw up the documents required to remove them from their homes.

As the subprime mortgage crisis has spread, the volume of the business has soared, and firms that handle loan defaults have been the primary beneficiaries. Law firms, paid by the number of motions filed in foreclosure cases, have sometimes issued a flurry of claims without regard for the requirements of bankruptcy law, several judges say.

Much as Wall Street’s mortgage securitization machinery helped to fuel questionable lending across the United States, default, or foreclosure, servicing operations have been compounding the woes of troubled borrowers. Court documents say that some of the largest firms in the industry have repeatedly submitted erroneous affidavits when moving to seize homes and levied improper fees that make it harder for homeowners to get back on track with payments. Consumer lawyers call these operations “foreclosure mills.”

“They get paid by the volume and speed with which they process these foreclosures,” said Mal Maynard, director of the Financial Protection Law Center, a nonprofit firm in Wilmington, North Carolina.

John and Robin Atchley of Waleska, Georgia, have experienced dubious foreclosure practices first hand. Twice during a four-month period in 2006, the Atchleys were almost forced from their home when Countrywide Home Loans, part of Countrywide Financial, and the law firm representing it said they were delinquent on their mortgage. Countrywide’s lawyers withdrew their motions to seize the Atchleys’ home only after the couple proved them wrong in court.

The possibility that some lenders and their representatives are running roughshod over borrowers is of increasing concern to bankruptcy judges overseeing Chapter 13 cases across the country. The United States Trustee Program, a unit of the Justice Department that oversees the integrity of the nation’s bankruptcy courts, is bringing cases against lenders that it says are abusing the bankruptcy system.

Joel B. Rosenthal, a United States bankruptcy judge in the Western District of Massachusetts, wrote in a case last year involving Wells Fargo Bank that rising foreclosures were resulting in greater numbers of lenders that “in their rush to foreclose, haphazardly fail to comply with even the most basic legal requirements of the bankruptcy system.”

Law firms and default servicing operations that process large numbers of cases have made it harder for borrowers to design repayment plans, or workouts, consumer lawyers say. “As I talk to people around the country, they all unanimously state that the foreclosure mills are impediments to loan workouts,” Mr. Maynard said.

LAST month, almost 225,000 properties in the United States were in some stage of foreclosure, up nearly 60 percent from the period a year earlier, according to RealtyTrac, an online foreclosure research firm and marketplace.

These proceedings generate considerable revenue for the firms involved: eviction and appraisal charges, late fees, title search costs, recording fees, certified mailing costs, document retrieval fees, and legal fees. The borrower, already in financial distress, is billed for these often burdensome costs. While much of the revenue goes to the law firms hired by lenders, some is kept by the servicers of the loans.

Fidelity National Default Solutions, a unit of Fidelity National Information Services of Jacksonville, Fla., is one of the biggest foreclosure service companies. It assists 19 of the top 25 residential mortgage servicers and 14 of the top 25 subprime loan servicers.

Citing “accelerating demand” for foreclosure services last year, Fidelity generated operating income of $443 million in its lender processing unit, a 13.3 percent increase over 2006. By contrast, the increase from 2005 to 2006 was just 1 percent. The firm is not associated with Fidelity Investments.

Law firms representing lenders are also big beneficiaries of the foreclosure surge. These include Barrett Burke Wilson Castle Daffin & Frappier, a 38-lawyer firm in Houston; McCalla, Raymer, Padrick, Cobb, Nichols & Clark, a 37-member firm in Atlanta that is a designated counsel to Fannie Mae; and the Shapiro Attorneys Network, a nationwide group of 24 firms.
 
While these private firms do not disclose their revenues, Wesley W. Steen, chief bankruptcy judge for the Southern District of Texas, recently estimated that Barrett Burke generated between $9.7 million and $11.6 million a year in its practice. Another judge estimated last year that the firm generated $125,000 every two weeks — or $3.3 million a year — filing motions that start the process of seizing borrowers’ homes.
 
Court records from 2007 indicate that McCalla, Raymer generated $10.4 million a year on its work for Countrywide alone. In 2005, some McCalla, Raymer employees left the firm and created MR Default Services, an entity that provides foreclosure services; it is now called Prommis Solutions.
For years, consumer lawyers say, bankruptcy courts routinely approved these firms’ claims and fees. Now, as the foreclosure tsunami threatens millions of families, the firms’ practices are coming under scrutiny.
 
And none too soon, consumer lawyers say, because most foreclosures are uncontested by borrowers, who generally rely on what the lender or its representative says is owed, including hefty fees assessed during the foreclosure process. In Georgia, for example, a borrower can watch his home go up for auction on the courthouse steps after just 40 days in foreclosure, leaving relatively little chance to question fees that his lender has levied.

A recent analysis of 1,733 foreclosures across the country by Katherine M. Porter, associate professor of law at the University of Iowa, showed that questionable fees were added to borrowers’ bills in almost half the loans.

Specific cases inching through the courts support the notion that figures supplied by lenders are often incorrect. Lawyers representing clients who have filed for Chapter 13 bankruptcy, the program intended to help them keep their homes, say it is especially distressing when these numbers are used to evict borrowers.
 
“If the debtor wants accurate information in a bankruptcy case on her mortgage, she has got to work hard to find that out,” said Howard D. Rothbloom, a lawyer in Marietta, Georgia, who represents borrowers. That work, usually done by a lawyer, is costly.

Mr. Rothbloom represents the Atchleys, who almost lost their home in early 2006 when legal representatives of their loan servicer, Countrywide, incorrectly told the court that the Atchleys were 60 days delinquent in Chapter 13 plan payments two times over four months. Borrowers can lose their homes if they fail to make such payments.

After the Atchleys supplied proof that they had made their payments on both occasions, Countrywide withdrew its motions to begin foreclosure. But the company also levied $2,793 in fees on the Atchleys’ loan that it did not explain, court documents said. “Every paycheck went to what they said we owed,” Robin Atchley said. “And every statement we got, the payoff was $179,000 and it never went down. I really think they took advantage of us.” 

The Atchleys, who have four children, sold the house and now rent. Mrs. Atchley said they lost more than $23,000 in equity in the home because of fees levied by Countrywide.

The United States Trustee sued Countrywide last month in the Atchley case, saying its pattern of conduct was an abuse of the bankruptcy system. Countrywide said that it could not comment on pending litigation and that privacy concerns prevented it from discussing specific borrowers.
 
A generation ago, home foreclosures were a local business, lawyers say. If a borrower got into trouble, the lender who made the loan was often a nearby bank that held on to the mortgage. That bank would hire a local lawyer to try to work with the borrower; foreclosure proceedings were a last resort.  Now foreclosures are farmed out to third-party processors who hire local counsel to litigate. Lenders negotiate flat-fee arrangements to try to keep legal bills down.
 
An unfortunate result, according to several judges, is a drive to increase revenue by filing more motions. Jeff Bohm, a bankruptcy judge in Texas who oversaw a case between William Allen Parsley, a borrower in Willis, Tex., and legal representatives for Countrywide, said the flat-fee structure “has fostered a corrosive ‘assembly line’ culture of practicing law.” Both McCalla, Raymer and Barrett Burke represented Countrywide in the matter.
 
Gee Aldridge, managing partner at McCalla, Raymer, called the Parsley case unique. “It is the goal of every single one of my clients to do whatever they can do to keep borrowers in their homes,” he said. Officials at Barrett Burke did not return phone calls seeking comment.

In a statement, Countrywide said it recognized the importance of the efficient functioning of the bankruptcy system. It said that servicing loans for borrowers in bankruptcy was complex, but that it had improved its procedures, hired new employees and was “aggressively exploring additional technology solutions to ensure that we are servicing loans in a manner consistent with applicable guidelines and policies.”

The September 2006 issue of "The Summit", an in-house promotional publication of Fidelity National Foreclosure Solutions, another unit of Fidelity, trumpeted the efficiency of its 18-member “document execution team.” Set up “like a production line,” the publication said, the team executes 1,000 documents a day, on average.

Other judges are cracking down on some foreclosure practices. In 2006, Morris Stern, the federal bankruptcy judge overseeing a matter involving Jenny Rivera, a borrower in Lodi, N.J., issued a $125,000 sanction against the Shapiro & Diaz firm, which is a part of the Shapiro Attorneys Network. The judge found that Shapiro & Diaz had filed 250 motions seeking permission to seize homes using pre-signed certifications of default executed by an employee who had not worked at the firm for more than a year.
 
In testimony before the judge, a Shapiro & Diaz employee said that the firm used the pre-signed documents beginning in 2000 and that they were attached to “95 percent” of the firm’s motions seeking permission to seize a borrower’s home. Individuals making such filings are supposed to attest to their accuracy. Judge Stern called Shapiro & Diaz’s use of these documents “the blithe implementation of a renegade practice.”   Nelson Diaz, a partner at the firm, did not return a phone call seeking comment.

Butler & Hosch, a law firm in Orlando, Fla., that is employed by Fannie Mae, has also been the subject of penalties. Last year, a judge sanctioned the firm $33,500 for filing 67 faulty motions to remove borrowers from their homes. A spokesman for the firm declined to comment.
 
Barrett Burke in Texas has come under intense scrutiny by bankruptcy judges. Overseeing a case last year involving James Patrick Allen, a homeowner in Victoria, Tex., Judge Steen examined the firm’s conduct in eight other foreclosure cases and found problems in all of them. In five of the matters, documents show, the firm used inaccurate information about defaults or failed to attach proper documentation when it moved to seize borrowers’ homes. Judge Steen imposed $75,000 in sanctions against Barrett Burke for a pattern of errors in the Allen case.

A former Barrett Burke lawyer, who requested anonymity to avoid possible retaliation from the firm, said, “They’re trying to find a fine line between providing efficient, less costly service to the mortgage companies” and not harming the borrower.

Both he and another former lawyer at the firm said Barrett Burke relied heavily on paralegals and other nonlawyer employees in its foreclosure and bankruptcy practices. For example, they said, paralegals prepared documents to be filed in bankruptcy court, demanding that the court authorize foreclosure on a borrower’s home. Lawyers were supposed to review the documents before they were filed. Both former Barrett lawyers said that with at least 1,000 filings a month, it was hard to keep up with the volume.

This factory-line approach to litigation was one reason he decided to leave the firm, the first lawyer said. “I had questions,” he added, “about whether doing things efficiently was worth whatever the cost was to the consumer.”

James R. and Tracy A. Edwards, who are now living in New Mexico, say they have had problems with questionable fees charged by Countrywide and actions by Barrett Burke. In one month in 2002, when the couple lived in Houston, Countrywide Home Loans withdrew three monthly mortgage payments from their bank account, Mrs. Edwards said, leaving them unable to pay other bills. The family filed for bankruptcy to try to keep their home, cars and other assets.

Filings in the bankruptcy case of the Edwards family show that on at least three occasions, Countrywide’s lawyers at Barrett Burke filed motions contending that the borrowers had fallen behind. The firm subsequently withdrew the motions.
 
“They kept saying we owed tons and tons of fees on the house,” Mrs. Edwards said. Tired of this battle, the family gave up the Houston house and moved to one in Rio Rancho, N.M., that they had previously rented out.
 
Countrywide tried to foreclose on that house, too, contending that Mr. and Mrs. Edwards were behind in their payments. Again, Mrs. Edwards said, the culprit was a raft of fees that Countrywide had never told them about — and that were related to their Texas home. Mrs. Edwards says that she and her husband plan to sue Countrywide to block foreclosure on their New Mexico home.

Pamela L. Stewart, president of the Houston Association of Debtor Attorneys, said she has become skeptical of lenders’ claims of fees owed. “I want to see documents that back up where these numbers are coming from,” Ms. Stewart said. “To me, they’re pulled out of the air.”

An inaccurate mortgage payment history supplied by Ameriquest, a mortgage lender that is now defunct, was central to a case last year in federal bankruptcy court in Massachusetts. “Ameriquest is simply unable or unwilling to conform its accounting practices to what is required under the bankruptcy code,” Judge Rosenthal wrote. He awarded the borrower $250,000 in emotional-distress damages and $500,000 in punitive damages.

Fidelity National Information Services has also been sued. A complaint filed on behalf of Ernest and Mattie Harris in federal bankruptcy court in Houston contends that Fidelity receives kickbacks from the lawyers it works with on foreclosure matters.

The case shines some light on the complex relationships between lenders and default servicers and the law firms that represent them. The Harrises’ loan servicer is Saxon Mortgage Services, a Morgan Stanley unit, which signed an agreement with Fidelity National Foreclosure Solutions. Under it, Fidelity was to provide foreclosure and bankruptcy services on loans serviced by Saxon, as well as to manage lawyers acting on Saxon’s behalf. The agreement also specified that Saxon would pay the fees of the lawyers managed by Fidelity.
 
But Fidelity also struck a second agreement, with an outside law firm, Mann & Stevens in Houston, which spelled out the fees Fidelity was to be paid each time the law firm made filings in a case. Mann & Stevens, which did respond to phone calls, represented Saxon in the Harrises’ bankruptcy proceedings.
 
According to the complaint, Mann & Stevens billed Saxon $200 for filing an objection to the borrowers’ plan to emerge from bankruptcy. Saxon paid the $200 fee, then charged that amount to the Harrises, according to the complaint. But Mann & Stevens kept only $150, paying the remaining $50 to Fidelity, the complaint said.
 
This arrangement constitutes improper fee-sharing, the Harrises argued. Texas rules of professional conduct bar fee-sharing between lawyers and nonlawyers because that could motivate them to raise prices — and the Harrises argue that this is why the law firm charged $200 instead of $150. And under these rules, sharing fees with someone who is not a lawyer creates a risk that the financial relationship could affect the judgment of the lawyer, whose duty is to the client. Few exceptions are permitted — like sharing court-awarded fees with a nonprofit organization or keeping a retirement plan for nonlawyer employees of a law firm.

“If it’s fee-sharing, and if it doesn’t fall into those categories, it sounds wrong,” said Michael S. Frisch, adjunct professor of law at Georgetown University. Greg Whitworth, president of loan portfolio solutions at Fidelity, defended the arrangement, saying it was not unusual for a company to have an intermediary manage outside law firms on its behalf.

The Harrises contend that the bankruptcy-related fees charged by the law firms managed by Fidelity “are inflated by 25 to 50 percent.” The agreement between Fidelity and the law firm is also hidden, according to their complaint, so a presiding judge sees only the lender and the law firm, not the middleman.

Fidelity said the money it received from the law firm was not a kickback, but payments for services, just as a law firm would pay a copying service to duplicate documents. In response to the complaint, Fidelity asserted in a court filing that the Harrises’ claims were “nothing more than scandalous, hollow rhetoric.”

But the Fidelity fee schedule shows a charge for each action taken by the law firm, not a fee per page or kilobyte. And Fidelity’s contract appears to indemnify Saxon if the arrangement between Fidelity and its law firm runs afoul of conduct rules.

Mr. Whitworth of Fidelity said that the arrangement with Mann & Stevens did not constitute fee sharing, because Fidelity was to be paid by that law firm even if the law firm itself was not paid.
He also said that by helping a servicer manage dozens or even hundreds of law firms, Fidelity lowered the cost of foreclosure or bankruptcy proceedings, to the benefit of the law firm, the servicer and the borrower. “Both parties want us to be in the middle here,” Mr. Whitworth said, referring to law firms and mortgage servicing companies.

The Fidelity contract attached to the complaint also hints at the money each motion generates. Foreclosures earn lawyers fees of $500 or more under the contract; evictions generate about $300. Those fees aren’t enormous if they require a substantial amount of time. But a few thousand such motions a month, executed by lawyers’ employees, translates into many hundreds of thousands of dollars in revenue to the law firm — and the lower the firm’s costs, the greater the profits.
 
“Congress needs to enact a national foreclosure bill that sets a uniform procedure in every state that provides adequate notice, due process and transparency about fees and charges,” said O. Max Gardner III, a consumer lawyer in Shelby, North Carolina. “A lot of this stuff is such a maze of numbers and complex organizational structure most lawyers can’t get through it. For the average consumer, it is mission impossible.”

http://tinyurl.com/2v4bd2

Report: Debt Collection Complaints Increased in 2007

The Federal Trade Commission (FTC) reported that consumers lodged 70,951 complaints of violations of the Fair Debt Collection Practices Act by third-party debt collectors last year, 2.4 percent more than the 69,249 complaints received during 2006, according to CreditandCollectionsWorld.com.

The most frequent complaint was that collectors attempted to collect debts that consumers did not owe or a debt larger than what consumers actually owed. In 2007, FTC received 27,393 such complaints – or 38.6 percent of all complaints, which compares with 40.3 percent of complaints to the FTC in 2006.

In 2007, 19.7 percent of FDCPA complaints the commission received (or 13,989) alleged harassment. About 6.5 percent (or 4,592 consumers) alleged that third-party collectors falsely threatened a lawsuit or some other action that they could not or did not intend to take.

Easy Credit Gives Way to High Consumer Debt and Defaults

A growing number of Americans are buckling under the weight of debt that started among homeowners with subprime mortgages last year and has spread to other consumers who rely on credit, according to the Washington Post.

Auto loan borrowers are having an especially hard time as the number of people more than 60 days late on their car payments has spiked to a 10-year high, according to Fitch Ratings. The number of repossessions soared last year by 10 percent, and it is expected to rise by the same amount this year, said Thomas Webb, chief economist for Manheim, a global car auction firm.

Similar problems are brewing for credit card holders, as card balances written off as uncollectible have jumped 24 percent and late payments are up 16 percent from a year ago. According to Moody’s latest report, cardholders are paying back less of their debt. In November, they paid back, on average, 17.9 percent of their credit card debts — about 3 percent lower than the previous November rate of 18.5 percent.

The report also revealed that the number of people more than 30 days late on their credit card payments in November rose from 3.89 percent a year ago, to 4.28 percent, the highest it’s been since March 2005. It was the fifth consecutive month-to-month increase.

Hotline to help North Carolina homeowners facing foreclosure

HOPE hotline will connect callers with local non-profits to help people keep their homes

Help for North Carolina residents who are at risk of losing their homes to foreclosure is now just a telephone call away, North Carolina Attorney General Roy Cooper and the NC Office of the Commissioner of Banks recently announced.

“It’s tragic when families lose their homes, especially when it could be prevented,” Cooper said. “One toll-free call could give them the advice they need to stop foreclosure.”

North Carolina homeowners can call the HOPE Hotline toll-free at 888-995-HOPE 24 hours a day, seven days a week to receive free counseling on options to avoid foreclosure. The hotline will connect callers with non-profit housing and credit counselors in their local community who can advise them about options such as modifying their loan, selling or refinancing their home or setting up a repayment plan with their lender.

“Homeowners struggling to pay their mortgage need to know there are resources available to help them avoid foreclosure. Call the NC HOPE Hotline and you may be able to save your home,” said Deputy Commissioner of Banks Mark Pearce.

While North Carolina has not experienced the wave of foreclosures seen in many other states due to our strong laws against unfair loans, foreclosures are on the rise in the state. Foreclosure starts were up 9.4 percent in North Carolina in 2007 and are expected to increase by 10 to 20 percent in 2008, according to the Commissioner of Banks’ office.

According to research by Freddie Mac, more than half of all homeowners who experience foreclosure never contact their mortgage company to try to avoid unnecessary foreclosure. Mortgage servicers and lenders have a strong incentive to help homeowners avoid foreclosure because they stand to lose $40,000 to $50,000 in net value when a typical home loan is foreclosed. Finding a solution to foreclosure can be in the best interest of both the homeowner and the lender.

Cooper and the Commissioner of Banks have teamed up to provide $300,000 in seed money to reimburse counselors who are able to help prevent unnecessary foreclosures for North Carolinians who call the hotline, with more reimbursement going to counselors who are able to help homeowners keep their homes. Additional funding from Congress and the General Assembly could expand access to local counselors through the hotline.

Local non-profits will also be able to connect hotline callers with other resources as needed, such as referrals for legal help when there is evidence that the homeowner may have been the victim of predatory or abusive lending practices. The Attorney General’s Office will be notified when there is a pattern of lending abuses and can take action to enforce North Carolina’s strong laws against predatory lending.

Counselors can also help connect homeowners who qualify with Federal Housing Administration secure loans. In some cases, non-profits may be able to purchase a home before it is foreclosed upon and then lease it back to the homeowner, applying their lease payments to the purchase of the home.

The national Hope Hotline is a joint project between NeighborWorks America, a non-profit organization chartered by Congress, and the Homeownership Preservation Foundation, a non-profit organization based in Minnesota. The NC Commissioner of Banks and NC Attorney General Cooper are working together to select and support more than 20 high-quality counseling agencies across the state to accept referrals from the national Hope Hotline. These local counselors will be able to provide assistance not currently available through the national hotline.

“Foreclosures are hurting families across our state and damaging our neighborhoods and communities,” said Cooper. “It’s in all of our interest to help homeowners find a way out of foreclosure when possible.”

More information about the hotline and the organizations involved is available at www.ncforeclosurehelp.org

For North Carolina homeowners who are unable to avoid foreclosure with help from the hotline, Chapter 13 bankruptcy may be an option.  To find out how Chapter 13 bankruptcy might help you protect your home from foreclosure, call our Hickory office at (828) 327-2240 or our Boone office at (828) 262-0500.

High Fee — Low Credit Predatory Credit Cards Prey Upon the Poor

“Fee-harvester” Cards Exploit Low-Income Consumers Need for Financial Services —
How Consumers With “$250 Credit Limit” End Up With $72 in Buying Power

A major warning for consumers:

Banks and marketers, taking advantage of inadequate laws and weak oversight by regulators, are
quietly collecting hundreds of millions of dollars in profits selling nearly worthless
predatory credit cards targeting vulnerable consumers, including those with bad credit,
according to a new report from the nonprofit National Consumer Law Center (NCLC).

The report, “Fee-Harvesters: Low-Credit, High-Cost Cards Bleed Consumers,” opens a
window on a shadowy submarket where savvy card companies extract hundreds of millions
of dollars in fees and other revenue from the pockets of consumers in the so-called
subprime market. One of the fee-harvester cards featured in the NCLC report comes with a
credit limit of $250. However, the consumer who signs up for this card will automatically
incur a $95 program fee, a $29 account set-up fee, a $6 monthly participation fee, and a $48
annual fee – an instant debt of $178 and buying power of only $72.

Fee-harvesting is extremely lucrative for the industry. In 2006, Atlanta-based CompuCredit
– one company featured in the NCLC report – collected $400 million in fees from a
portfolio of fee-harvester cards that by mid-2007 had saddled cardholders with nearly $1
billion in debt.

As the NCLC report explains: “… CompuCredit, frustrated in efforts to get its own bank
charter, has marketed fee-harvester cards in partnerships with compliant banks that act as
issuers. Recently, CompuCredit partnered with Urban Trust Bank, which says its “mission”
is to bring affordable banking services to minority communities …Several small banks
specialize in the issuance of fee-harvester cards, including South Dakota-based First
Premier and First National of Pierre, and Delaware-based First Bank of Delaware and
Applied Bank, formerly known as Cross Country Bank. Some big banks also have big
stakes in the subprime market, including Capital One, which has sometimes used the fee-harvesting model, and HSBC.”

“The current subprime mortgage crisis has highlighted abusive lending practices by profit-driven
banks and marketers that now threaten millions of Americans with the loss of their
homes,” noted NCLC Consumer Advocate Rick Jurgens. “While attracting much less
attention, the use of fee-harvester cards and other high-cost credit cards provide another
channel by which predators – often with the backing of Wall Street – profit from the poor.”

Consumer Action’s Consumer Services Manager Joseph Ridout said: "Like all predatory
lenders, issuers of these fee-harvesting cards make the claim that they are going out of their
way to provide credit to sub-prime borrowers. But when you check the numbers, the intent
is to extract as many junk fees as possible from those who can least afford it, and the effect
is to keep these borrowers sub-prime."

Gabor Marsi, a 39-year-old Akron, Ohio, air conditioner repairman applied for and got a
Capital One MasterCard after a bankruptcy caused by unexpected medical expenses.
Capital One made Marsi pay a $50 application fee and gave him a card with a $200 credit
limit. Marsi declined to sign up for a “diner’s club” membership, but Capital One didn’t
take no for an answer.

As the NCLC report explains: “After Marsi and his wife used the card to charge a $130
baby crib, they were shocked to discover that the card had been charged $99 for the diner’s
club membership, and that the card’s credit limit had been exceeded. The Marsis ended up
paying $700 to finance their $130 baby crib and are now fighting a lawsuit by Capital One,
which claims Marsi still owes $3,500.”

How did things get this bad for consumers and what should be done to fix the problem?

Federal statutes and bank regulators have preempted state laws designed to prevent lenders
from taking advantage of consumers desperate for credit. This preemption, combined with
too much bank-friendly regulation at the federal level and in some states, enables the credit
card industry to boost the cost of credit and engage in multiple practices that hurt consumers.

Preemption has also allowed new threats to consumers to emerge alongside the high costs
already pervasive in the subprime credit card market. Congress should act to close the legal
and regulatory loopholes that allow fee-harvesters and other issuers of high-cost cards to
profit from low-income and vulnerable consumers.

Preemption should be abolished and limits on credit card fees, interest rates and terms should be enacted. Any offering by card marketers and issuers should deliver substantial credit to cardholders. Legally protected credit information about consumers should not be available to marketers and issuers who offer credit lines that are mostly consumed by fees.

Copies of the report are posted at the National Consumer Law Center web site at
www.nclc.org.

ABOUT NCLC

NCLC is a non-profit organization specializing in consumer issues on behalf of low-income
people. NCLC works with thousands of legal services, government and private attorneys,
as well as organizations, who represent low-income and elderly individuals on consumer
issues.

Visit NCLC on the Web at http://www.nclc.org.

Senators Introduce Credit Card Safety Star Act

Senators Ron Wyden and Barack Obama (D-Ill.) recently introduced legislation known as "The Credit Card Safety Star Act of 2007", which would create a five-star safety rating system for credit cards in order to increase the transparency of credit card agreements, according to CreditandCollectionsWorld.com. The legislative proposal is an attempt to encourage credit card issuers to abandon what are considered abusive practices by offering consumers fair terms they can understand.

Much like the five-star crash test rating system for new cars, the bill requires every credit card, billing statement, agreement, application and piece of marketing material to carry the credit card’s safety star rating with five stars representing the safest cards. Cards would be awarded stars based on a points system, with cards earning points for consumer-friendly terms and losing them for terms that tend to get consumers into trouble.

Under this rating system, most of the cards available today will rate an average of only one or two stars, according to Wyden. The Safety Star program would be administered by the Federal Reserve and periodically reevaluated and updated based on market innovations and the program’s effectiveness.

November Foreclosures Up 68 Percent From Last Year

RealtyTrac’s November 2007 U.S. Foreclosure Market Report showed a total of 201,950 foreclosure filings (default notices, auction sale notices and bank repossessions), up 68 percent from November 2006, according to CreditandCollectionsWorld.com.

The national foreclosure rate for the month was one foreclosure filing for every 617 households. With one foreclosure filing for every 152 households – more than four times the national average – Nevada continued to register the nation’s top state foreclosure rate for the 11th straight month.  A total of 6,694 foreclosure filings were reported in Nevada during November 2007, up 1 percent from October and up 167 percent from November 2006.

Florida’s rate of one foreclosure filing for every 282 households ranked second highest among the states, despite a 3 percent month-to-month decrease in foreclosure activity. A total of 29,238 foreclosure filings were reported Florida last month, up 212 percent from November 2006.

California cities accounted for five of the nation’s top 10 metro foreclosure rates in November 2007, one fewer than during October.

FED PROPOSES RULES TO CLEAN UP MORTGAGE MARKET

The Federal Reserve has proposed sweeping new rules to clean up the market for subprime and all forms of home mortgages, according to MarketWatch.com. The proposed rules would not help current borrowers holding a loan but aim to head off another lending crisis like the one that has hurt the subprime mortgage industry.

The rule proposals – including tightening rules on prepayment penalties and prohibiting creditors from making loans without verifying a borrower’s income – aim to strike a balance between protecting borrowers without causing lending to shrink. "We strive to protect borrowers from practices that are unfair or deceptive, but to do so without unintentionally causing responsible lending to shrink or unduly limiting consumer choice," said Fed Gov. Randall Kroszner, who is leading the central bank’s effort.

The proposals would prohibit lenders from granting mortgages to borrowers whose only means of repayment would be an increase in the value of the property. It also prohibits lenders from paying mortgage brokers fees for higher-rate loans.

Auto Loan Delinquencies Surge

Delinquencies in the auto loan market are ticking up to their highest level in several years, forcing lenders to tighten terms in some cases and raise interest rates, according to the Wall Street Journal. About 4.5 percent of auto loans made in 2006 to top-rated borrowers were at least 30 days delinquent as of the end of September, up from 2.9 percent the previous month, according to a Lehman Brothers survey of companies servicing these loans.

That is the biggest one-month jump in at least eight years. Lehman also said that 12 percent of subprime borrowers were delinquent on their 2006 auto loans as of September. That is the highest level since 2002 and up from 11.1 percent the previous month.

About $575 billion in loans for new and used cars are made annually, according to the National Automotive Finance Association. "Auto loan defaults tend to be event-driven, like a job loss or an unexpected health-care bill or a divorce," says Dan Berce, CEO of AmeriCredit Corp., one of the country’s largest subprime auto lenders.

In the second quarter, borrowers were at least 30 days behind on 2.77 percent of all auto loans made by nonbank lenders, according to the American Bankers Association. That was the highest delinquency rate since 1991.