Christopher Lewis Peterson
University of Utah – S.J. Quinney College of Law

Washington and Lee Law Review, Vol. 69, No. 2, 2012

Abstract:     
Over a hundred different local governments around the country have adopted ordinances restricting high cost, small loans. This trend reflects the solid majority of the American public that opposes the legality of triple-digit interest rate loans and the long historical tradition of treating “payday” and car-title lending as a serious civil offense or even a crime. Nevertheless, perhaps owing to limits on municipal power, local payday lending law has generated relatively little scholarship or commentary. This paper describes the existing local law governing small, high-cost consumer loans and proposes a more emphatic ordinance that better reflects the policy judgment of many local leaders and a solid majority of the America public. In particular, this paper (1) introduces the historical background of regulation of usurious lending; (2) analyzes the recent growth in local ordinances attempting to control small, high-cost loans; (3) discusses the evidence of market failure in the small high-cost loan market; (4) proposes a model ordinance requiring that lenders who offer loans in excess of 45% per annum display a cautionary message that reads: “Warning: Predatory Lender,” on their street, storefront, and other on-premises signs; and, (5) argues that the well-established municipal authority over signage provides a solid statutory and constitutional basis for such a law. An appendix with a model ordinance suitable for adoption by most local governments follows.

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© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

(Reuters) – Bank of America Corp has agreed to pay $108 million to settle government charges that its Countrywide unit, the mortgage lender that became synonymous with risky lending practices, bilked borrowers with misleading and excessive fees.

Housing Market

The Federal Trade Commission said two Countrywide mortgage servicing units deceived cash-strapped homeowners by overcharging them by hundreds or thousands of dollars, sometimes when they were already in bankruptcy.

The alleged activity took place before Bank of America acquired the distressed lender in 2008.

The settlement is a small win for regulators trying to hold to account those who contributed to the deep financial crisis.

The agency called the $108 million settlement one of the largest in an FTC case and the largest in a mortgage servicing case. The FTC has no jurisdiction over banks but does have jurisdiction over deceptive practices by non-bank financial services and products firms.

Countrywide, which was once the nation’s top mortgage lender, “profited from making risky loans to homeowners during the boom years, and then profited again when the loans failed,” said FTC Chairman Jon Leibowitz, noting that some fees during the foreclosure process were marked up more than 400 percent.

Bank of America said in a statement that it agreed to the settlement to void the expense and distraction of litigating the case. There was no admission of wrongdoing.

The FTC said the $108 million, which represents the amount consumers were overcharged, would be used to repay borrowers but could take months to sort out.

“The record-keeping of Countrywide was abysmal,” said Leibowitz. “Most frat houses have better record-keeping than Countrywide.”

In May, Countrywide agreed to a $624 million settlement of a class action lawsuit accusing it of misleading investors about its lending practices. The case was led by several pension funds, including the New York State Common Retirement Fund, that state’s $129.4 billion public pension fund, and five New York City pension funds.

Once the largest U.S. mortgage lender, Countrywide and its long-time chief executive, Angelo Mozilo, became known for risky lending practices that helped fuel the U.S. housing boom and subsequent bust.

Countrywide nearly collapsed as credit markets tightened, before Bank of America agreed to buy it in January 2008 in a stock deal valued at about $4 billion.

Mozilo and two other former Countrywide executives remain defendants in a U.S. Securities and Exchange Commission civil fraud lawsuit.

The SEC alleges that Mozilo hid from investors the deteriorating prospects of Countrywide, and conducted insider trading by entering a systematic stock selling plan in late 2006, knowing that the mortgage lender’s prospects would worsen.

The SEC claimed Mozilo violated insider trading rules in generating a $139 million profit by exercising stock options in 2006 and 2007.

It said the exercises came after he admitted in an email to colleagues that Countrywide was “flying blind” as to the quality of its loans.

Sen. Charles Schumer, a New York Democrat and a member of the panel working out final wording on a comprehensive overhaul of Wall Street, called the FTC settlement “a major breakthrough that closes one of the ugliest chapters of the entire subprime mortgage crisis.”

“Anyone who believes the blame for the housing crisis rests with borrowers should read this settlement and learn just how shameless these lenders were during these years,” Schumer said.

(Additional reporting by Diane Bartz in Washington and by Joe Rauch in Charlotte; editing by John Wallace and Gerald E. McCormick)

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.