Last week I attended the annual seminar my law firm (the Simon Law Firm) puts on for the benefit of Legal Services of Eastern Missouri. We've done this for almost ten years, and I'm proud to be part of a firm that has raised a total of more than $100,000 for the St. Louis office of Legal Services.
What does Legal Services do for the folks it serves? The lawyers of Legal Services provide "high-quality legal assistance and equal access to justice to low-income people." Consider this:
Our lawyers provide counsel, advice and representation to clients in a variety of domestic cases including orders of protection, dissolution of marriage, modifications, paternity establishments and child custody cases. Other legal needs are addressed as well, sometimes by bringing the expertise of lawyers in other specialty practice areas like public benefits, housing or consumer.
According to a new report by Pew Charitable Trusts, the median length of the list of disclosures that you will be presented when you open a new checking account is 69 pages.
Financial institutions do not summarize important policies and fee information in a uniform, concise, and easy-to-understand format that allows customers to compare account terms and conditions. The median length of bank checking account disclosure statements has decreased, but is still cumbersome at 69 pages. For credit unions, the median length is 31 pages. Although shorter, credit union disclosures often do not include information that would allow a customer to compare account fees, terms, and conditions.
Complaints are the primary way that most consumers interact with the new agency. The CFPB said it has received more than 45,000 in the year since the bureau was launched. How it handles those complaints — and how much it makes public — has been a source of tension between the agency and financial industry groups.
The Problem with Standard Form Contracts
Many businesses use standard form contracts, pre-printed contracts filled with fine print, in transactions with individual consumers. These contracts are usually "boilerplate," "take-it-or-leave it," non-negotiable contracts.
The problem presented by many of these contracts can be summed up as unequal bargaining power -- between the consumer and the corporate entity that uses them.
Corporations use these contracts to have uniformity and efficiency by reducing the costs to them of negotiating with consumers on an individual basis. Consumers sign these kinds of contracts routinely -- usually never reading, much less understanding, the fine print they contain. And there is the rub.
The party with superior power -- the corporate entity that drafts the contract -- can use the fine print, coupled with the knowledge that the consumer rarely, if ever, reads the terms, to take advantage of the unsuspecting consumer in the underlying transaction.
Consumers often make purchases based on price and quality, but there are a number of other factors in the fine print of these transactions that merit consumer attention: These provisions may, and often do, work against consumer interests. Though some say consumers can always walk with their feet or dollars and choose to not engage in these transactions, often the consumer, having not read the fine print, is completely unaware of these provisions until the corporation tries to enforce them against the consumer. Worse, often entire industries have contracts containing these unfair provisions, thereby leaving the consumer with no meaningful alternate choice. Even worse, businesses often reserve for themselves the right to modify or change the terms of the contract, making comparison shopping pointless if the contract or the prospective contract is always subject to change.
To add insult to injury, these contracts often contain forced arbitration, venue and/or choice-of- law provisions, so resolution of disputes no longer even takes place in a public courtroom forum, but in a private, business-dominated industry of arbitrators, who are neither required to follow the rule of law, nor are subject to its oversight. Contract law and a consumer's day in court has been "privatized" to a process whose outcomes are often unknowable and unchallengeable.
[T]he modern-day reality with fine print in standard form contracts is that there is no mutuality of assent, and there is often no time for or inclination by the consumer to read the terms, or even an ability to cross comparison shop those terms. And even if the consumer did try to comparison shop, it wouldn't do much good if the sellers can always change their terms and insulate their provisions from meaningful judicial review. This adds up to a fiction in the law of contracts and makes a mockery of the idea of consumer freedom in a free market.
Ralph Nader shares these concerns:
This problem of consumers failing to understand critically important contracts if rife in the field of real estate mortgages. Consider, for example, the findings reported by law professor Jeff Sovern, that “more than two-thirds of the brokers reported that less than 30% of their borrowers spent more than a minute with the disclosures.” From "Preventing Future Economic Crises Through Consumer Protection Law or How the Truth in Lending Act Failed the Subprime Borrowers," p. 786. Here's another excerpt:
The brokers were nearly unanimous in reporting that borrowers never withdrew from a loan after reading the final TILA disclosures at the closing and never used those disclosures for their stated purpose of comparison shopping for loans. In addition, brokers reported that many borrowers spent a minute or less with the disclosures, despite the fact that mortgage loans are among the largest, longest-term, and most complex obligations most consumers ever assume. It thus appears that many borrowers enter into their mortgages without comprehending the terms and the ramifications of those loans.
Sovern has many ideas for un-tilting the playing field. One of those ideas is for independent consumer agencies to review form contracts and to grade them for consumers. The current problem is that consumers have no incentive to read fine print contracts and businesses have no incentive to draft contracts in readable form.
I invite you to view a brand new 54-minute video (embedded below) titled “Mortgage Crisis in a Nutshell.” The presenter is John Campbell, a St. Louis attorney and educator. I work with John at the Simon Law Firm in St. Louis, Missouri. We gained much of our experience in this area of law by litigating numerous suits for mortgage fraud on behalf of homeowners, both individual suits and class actions. Also on behalf of homeowners, we've defended many unlawful detainer suits (attempts to evict homeowners). We've both become passionate about this work as a result of witnessing firsthand that many homeowners have been victimized by unscrupulous and unrepentant banks.
In this 53-minute video John presents the main aspects of the mortgage crisis that has devastated the U.S. housing market and the economy. Our goal is empower all who seek to better understand what went wrong with the American mortgage system. As you will see when you click on the above link, this video can be watched in chapters:
I. The Big Picture and its Many Parts (:55)
II. Banks Flood the Market with Subprime Mortgages (3:54)
III. Banks, Securitize their Mortgages (10:05)
IV. Banks Cry for a Bailout (13:57)
V. Wall Street Malfeasance (16:54)
VI. Foreclosures, Robo-Signing, Trustees and Conflicts of Interest (18:20)
VII. MERS ("Mortgage Electronic Registration System) (33:45)
VIII. The Mortgage System Used to Work (43:42)
IX. Credits and Further Readings (52:43)
We created this video because we were frustrated by the fact that it is difficult to find websites and other materials describing the modern mortgage system in terms that are accessible to both lawyers and non-lawyers. As a result, many of our friends and acquaintances (those outside of the mortgage law community) don’t understand the inter-relationships among subprime loans, ratings of mortgage-backed securities, MERS, the bailout and robo-signing.
The failure to understand these things is making it easy for the entities that caused this crisis to conduct business as usual. Because this system is so difficult to understand, too many people think the crisis was entirely caused by “irresponsible borrowers.” The result is that our national dialogue is obsessed with the alleged need for less regulation instead of discussing how to change the system to make sure this never again happens.
We’ve used simple terms and basic drawings in order to make an opaque system understandable. Though it is undoubtedly slanted toward our perspective as attorneys who represent homeowners, we’ve worked hard to keep it factual and fair-minded.
We ask only one thing in return for the link to this video. To the extent that you find it helpful to your understanding of the mortgage crisis, please consider forwarding this link to anyone else you know who would benefit from viewing it. Our aim is to spread this video widely through email, list serves, Facebook, Twitter, blogs, websites other social media.
We certainly invite comments, both at DI and at YouTube. If this video works for you (or if it doesn't), please let us know. Thank you.
I wonder sometimes how a modern conservative maintains.
Romney has won the New Hampshire primary. All the buzz now is how he’s going to have a much tougher fight in South Carolina, primarily because of the religious and social conservatives who will see him as “not conservative enough.” There is a consortium of social conservatives meeting this week in Texas to discuss ways to stop him, to elevate someone more to their liking to the nomination. And right there I have to wonder at what it means anymore to be a conservative.
I grew up, probably as many people my age did, thinking of conservatism as essentially penurious and a bit militaristic. Stodgy, stuffy, proper. But mainly pennypinching. A tendency to not do something rather than go forward with something that might not be a sure thing.
I suppose some of the social aspect was there, too, but in politics that didn’t seem important. I came of age with an idea of fiscal conservatism as the primary trait.
That doesn’t square with the recent past. The current GOP—say since Ronny Reagan came to power—has been anything but fiscally conservative, although what they have spent money on has lent them an aura of responsible, hardnosed governance. Mainly the military, but also subsidies for businesses. But something has distorted them since 1981 and has turned them into bigger government spenders than the Democrats ever were. (This is not open to dispute, at least not when broken down by administrations. Republican presidents have overseen massive increases in the deficit as opposed to Democratic administrations that have as often overseen sizable decreases in the deficit, even to the point of balancing the federal budget. You may interpret or spin this any way you like, but voting trends seem to support that the choices Republican presidents have made in this regard have been supported by Republican congressmen even after said presidents have left office.)
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