The home mortgage market has changed considerably in the past 15 years and as a result, loan servicing companies have become an important actor in the lending industry. The business function of loan servicers is to collect mortgage payments from borrowers and remit these payments to the owners of the mortgage. Borrowers have no input in deciding what company services their loan and consumer advocates have suggested that this has allowed some loan servicers to provide poor customer care or act unethically. In response, lawmakers have initiated efforts to regulate loan servicing practices. In 2007, the North Carolina General Assembly passed House Bill 1374 to regulate loan servicers operating in North Carolina. Through a literature review, content analysis of the statute, and interviews with stakeholders, I provide guidance for lawmakers who are considering similar legislation at the state and federal levels.
{"title":"Regulating Mortgage Loan Servicing","authors":"S. Coffey","doi":"10.2139/SSRN.1266826","DOIUrl":"https://doi.org/10.2139/SSRN.1266826","url":null,"abstract":"The home mortgage market has changed considerably in the past 15 years and as a result, loan servicing companies have become an important actor in the lending industry. The business function of loan servicers is to collect mortgage payments from borrowers and remit these payments to the owners of the mortgage. Borrowers have no input in deciding what company services their loan and consumer advocates have suggested that this has allowed some loan servicers to provide poor customer care or act unethically. In response, lawmakers have initiated efforts to regulate loan servicing practices. In 2007, the North Carolina General Assembly passed House Bill 1374 to regulate loan servicers operating in North Carolina. Through a literature review, content analysis of the statute, and interviews with stakeholders, I provide guidance for lawmakers who are considering similar legislation at the state and federal levels.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"53 6","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-09-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120922299","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This Critique takes issue with four of the main assertions of the American Bankers Association's Study on Credit Card Regulation. First, this Critique addresses the ABA Study's claim that credit card pricing is risk-based and demonstrates that only certain elements of card pricing are marginally risk-based; overall, credit card pricing is not risk-based, and risk-based pricing does not explain card issuers' abusive and manipulative billing practices such as unilateral term changes, two-cycle billing, universal cross-default, and retroactive application of higher interest rates. Instead, these practices are merely rent extraction devices that allow card issuers to take advantage of cardholder lock-in. Second, the putative benefits of risk-based pricing?lower costs of credit to creditworthy consumers, and greater availability of credit to subprime consumers?are either illusory or attributable to other causes. To the extent that credit card interest rates have declined over the past two decades, it is attributable to issuers' decreased cost of funds, and overall, credit card pricing may not have decreased for any consumers. Greater subprime access to credit cards is attributable to issuers' ability to pass off risk and increase lending capacity through securitization, and increased credit card access is hardly a boon absent ability to repay debts. Third, this Critique shows that contrary to the ABA Study's claims, credit card debt now supplements, rather than replaces other forms of consumer debt. And fourth, this Critique exposes the flaws in the ABA Study's conclusory assertion that there is no basis for credit card price structure regulation. Instead, seven of the eight standard independent reasons for regulation apply squarely to credit cards, making regulatory intervention in the credit card market a question of how, not whether.
{"title":"A Critique of the American Bankers Association's Study on Credit Card Regulation","authors":"Adam J. Levitin","doi":"10.2139/SSRN.1029191","DOIUrl":"https://doi.org/10.2139/SSRN.1029191","url":null,"abstract":"This Critique takes issue with four of the main assertions of the American Bankers Association's Study on Credit Card Regulation. First, this Critique addresses the ABA Study's claim that credit card pricing is risk-based and demonstrates that only certain elements of card pricing are marginally risk-based; overall, credit card pricing is not risk-based, and risk-based pricing does not explain card issuers' abusive and manipulative billing practices such as unilateral term changes, two-cycle billing, universal cross-default, and retroactive application of higher interest rates. Instead, these practices are merely rent extraction devices that allow card issuers to take advantage of cardholder lock-in. Second, the putative benefits of risk-based pricing?lower costs of credit to creditworthy consumers, and greater availability of credit to subprime consumers?are either illusory or attributable to other causes. To the extent that credit card interest rates have declined over the past two decades, it is attributable to issuers' decreased cost of funds, and overall, credit card pricing may not have decreased for any consumers. Greater subprime access to credit cards is attributable to issuers' ability to pass off risk and increase lending capacity through securitization, and increased credit card access is hardly a boon absent ability to repay debts. Third, this Critique shows that contrary to the ABA Study's claims, credit card debt now supplements, rather than replaces other forms of consumer debt. And fourth, this Critique exposes the flaws in the ABA Study's conclusory assertion that there is no basis for credit card price structure regulation. Instead, seven of the eight standard independent reasons for regulation apply squarely to credit cards, making regulatory intervention in the credit card market a question of how, not whether.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"167 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-08-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115272881","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The regulation of payday loans holds the potential of extending the benefits of regulating overindebtedness, currently provided via bankruptcy legislation to the middle-class, to lower income debtors. This potential needs to be balanced against lower income debtors' need for credit and the corresponding benefits resulting from access to credit provided by alternative credit markets, such as the payday lending market. Unlike the United States, where payday lenders have more locations than Starbucks and McDonalds combined, and payday lending regulation is up there with Vampire Weekend and the Tipping Point as an attention grabbing pop-culture reference, payday lending is relatively new, underdeveloped and unregulated in Canada. Over the last year, in the wake of a recent amendment to the Canadian Criminal Code, that would see payday lenders exempted from the 60 per cent criminal rate of interest in provinces where payday lenders are provincially regulated, Canadian provinces have began to regulate and put forth regulatory proposals for a previously unregulated area. This exercise has been attempted in the context of limited recent domestic analysis of the payday lending industry, borrowers and regulatory options. Accordingly, this article sets out to fill this void. The article draws on the American experience with payday lending and payday lending regulation, and also a first-hand experience of attempting to obtain a payday loan in Toronto, Ontario, to evaluate the current provincial reform efforts.
{"title":"Regulating Payday Lenders in Canada: Drawing on American Lessons","authors":"Stephanie Ben-Ishai","doi":"10.2139/SSRN.1128147","DOIUrl":"https://doi.org/10.2139/SSRN.1128147","url":null,"abstract":"The regulation of payday loans holds the potential of extending the benefits of regulating overindebtedness, currently provided via bankruptcy legislation to the middle-class, to lower income debtors. This potential needs to be balanced against lower income debtors' need for credit and the corresponding benefits resulting from access to credit provided by alternative credit markets, such as the payday lending market. Unlike the United States, where payday lenders have more locations than Starbucks and McDonalds combined, and payday lending regulation is up there with Vampire Weekend and the Tipping Point as an attention grabbing pop-culture reference, payday lending is relatively new, underdeveloped and unregulated in Canada. Over the last year, in the wake of a recent amendment to the Canadian Criminal Code, that would see payday lenders exempted from the 60 per cent criminal rate of interest in provinces where payday lenders are provincially regulated, Canadian provinces have began to regulate and put forth regulatory proposals for a previously unregulated area. This exercise has been attempted in the context of limited recent domestic analysis of the payday lending industry, borrowers and regulatory options. Accordingly, this article sets out to fill this void. The article draws on the American experience with payday lending and payday lending regulation, and also a first-hand experience of attempting to obtain a payday loan in Toronto, Ontario, to evaluate the current provincial reform efforts.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"165 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122826783","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
One of the strongest arguments against regulating credit cards is the substitution hypothesis, which states that if a restriction on one form of credit decreases access, borrowers will respond by using other, less desirable forms of credit. For low-income consumers, the argument is more powerful still, because their other options are high-cost lenders such as pawn shops and rent-to-own stores. But the substitution hypothesis has been more frequently assumed than investigated, and the empirical research that has taken place does not support the theory as strongly as has been supposed. The theory is based on a naive presumption about the constancy of demand for consumer credit and a failure to account for a more nuanced view of the role of credit supply. This Article presents original data from a study of low-income women. The findings suggest that lenders such as pawn shops and rent-to-own stores may function as complements more than substitutes. In addition, the research uncovered another form of credit that low-income families routinely use and participants evaluated favorably, but that has never been discussed in the academic literature. These findings suggest a more nuanced formulation of the hypothesis that better predicts the consequences of credit card regulation.
{"title":"Testing the Substitution Hypothesis: Would Credit Card Regulation Force Low-Income Borrowers Into Less Desirable Lending Alternatives?","authors":"Angela K. Littwin","doi":"10.2139/ssrn.1014460","DOIUrl":"https://doi.org/10.2139/ssrn.1014460","url":null,"abstract":"One of the strongest arguments against regulating credit cards is the substitution hypothesis, which states that if a restriction on one form of credit decreases access, borrowers will respond by using other, less desirable forms of credit. For low-income consumers, the argument is more powerful still, because their other options are high-cost lenders such as pawn shops and rent-to-own stores. But the substitution hypothesis has been more frequently assumed than investigated, and the empirical research that has taken place does not support the theory as strongly as has been supposed. The theory is based on a naive presumption about the constancy of demand for consumer credit and a failure to account for a more nuanced view of the role of credit supply. This Article presents original data from a study of low-income women. The findings suggest that lenders such as pawn shops and rent-to-own stores may function as complements more than substitutes. In addition, the research uncovered another form of credit that low-income families routinely use and participants evaluated favorably, but that has never been discussed in the academic literature. These findings suggest a more nuanced formulation of the hypothesis that better predicts the consequences of credit card regulation.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-09-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134304363","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Who should have priority to foreclose on a home? Naturally, one might say that the bank or mortgage company that provided the loan to build or purchase a home should have priority. Most states follow this common-sense approach to property ownership and foreclosure. Twenty-two states, however, have granted Homeowner Associations (“HOAs”) “super-priority” status in foreclosure proceedings. This means that debt owed to HOAs has priority over any debt owed to the mortgage provider. Some state statutes even grant HOAs the power to foreclose on a home, sell it at auction, and wipe out the mortgage providers secured interest entirely. Recently, the Ninth Circuit in Bourne Valley Court Trust v. Wells Fargo found that Nevada’s version of the HOA super-priority statute was “facially unconstitutional.” Many states, including Nevada, adopted these statutes using the same language and recommendations from the Uniform Law Commission, leaving other states respective statutes subject to future constitutionality attacks. Additionally, these statutes have led to severe economic consequences in both the mortgage and housing industries and are generally bad public policy.This Article is the first to examine the Bourne Valley decision declaring Nevada’s statute “facially unconstitutional.” Additionally, this Article is the first to propose repealing HOA super-priority statutes and replacing the statutes with legislation that attaches the HOA debt to the person, and not the property. Alternatively, this Article provides solutions to both substantively and procedurally enhance current HOA super-priority statutes to ensure that the mortgage provider’s interest is adequately protected.
{"title":"Lien Back: Why Homeowner Association Super-Priority Lien Statutes Should Be Repealed","authors":"Davis S. Vaughn","doi":"10.2139/SSRN.2903577","DOIUrl":"https://doi.org/10.2139/SSRN.2903577","url":null,"abstract":"Who should have priority to foreclose on a home? Naturally, one might say that the bank or mortgage company that provided the loan to build or purchase a home should have priority. Most states follow this common-sense approach to property ownership and foreclosure. Twenty-two states, however, have granted Homeowner Associations (“HOAs”) “super-priority” status in foreclosure proceedings. This means that debt owed to HOAs has priority over any debt owed to the mortgage provider. Some state statutes even grant HOAs the power to foreclose on a home, sell it at auction, and wipe out the mortgage providers secured interest entirely. Recently, the Ninth Circuit in Bourne Valley Court Trust v. Wells Fargo found that Nevada’s version of the HOA super-priority statute was “facially unconstitutional.” Many states, including Nevada, adopted these statutes using the same language and recommendations from the Uniform Law Commission, leaving other states respective statutes subject to future constitutionality attacks. Additionally, these statutes have led to severe economic consequences in both the mortgage and housing industries and are generally bad public policy.This Article is the first to examine the Bourne Valley decision declaring Nevada’s statute “facially unconstitutional.” Additionally, this Article is the first to propose repealing HOA super-priority statutes and replacing the statutes with legislation that attaches the HOA debt to the person, and not the property. Alternatively, this Article provides solutions to both substantively and procedurally enhance current HOA super-priority statutes to ensure that the mortgage provider’s interest is adequately protected.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132211097","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Spanish Abstract: En este articulo se aborda el estudio de las limitaciones a los tipos de interes en el mercado del credito. Este estudio se realiza en un momento de crisis en el que se han adoptado nuevas limitaciones a los tipos de interes con abundante jurisprudencia destinada a proteger a los mas vulnerables. Con esta finalidad se objetiviza la prevencion de la usura, se limita la mora hipotecaria y se controla el abuso con clausulas suelo o intereses moratorios. Son medidas que buscan lograr un equilibrio entre la proteccion del cliente y la estabilidad de las entidades que operan en el mercado del credito, dotando al sistema de mayor seguridad juridica. English Abstract: This paper addresses the study of limitations on interest rates in the credit market. This study is carried out at a time of crisis in which new limitations on interest rates have been adopted with abundant jurisprudence designed to protect the most vulnerable. With this aim, the prevention of usury is objectified, mortgage default is limited and abuse with floor clauses or default interests is controlled. These are measures that seek to achieve a balance between client protection and the stability of the entities that operate in the credit market, giving the system greater legal certainty.
西班牙语摘要:本文探讨了信贷市场利率限制的研究。这项研究是在危机时期进行的，当时对利率采取了新的限制，并有大量的判例法旨在保护最脆弱的群体。为了实现这一目标，防止高利贷，限制抵押贷款违约，并通过最低利率条款或违约利息控制滥用。这些措施旨在在保护客户和在信贷市场上经营的实体的稳定之间取得平衡，为该系统提供更大的法律确定性。English Abstract: This paper addresses the study of limitations on interest房费in the credit市场。这项研究是在危机时期进行的，当时对利率采取了新的限制，并采用了大量旨在保护最脆弱群体的判例法。这样做的目的是使高利贷的预防更加客观，限制抵押违约，并控制附带担保条款或违约利息的滥用行为。这些措施旨在在客户保护和在信贷市场经营的实体的稳定性之间取得平衡，从而使该系统具有更大的法律确定性。
{"title":"Limitaciones a los intereses en el mercado del crédito y tutela del cliente en tiempo de crisis (Limitations on Interests in the Credit Market and Client Protection in Times of Crisis)","authors":"F. Zunzunegui","doi":"10.2139/ssrn.3553283","DOIUrl":"https://doi.org/10.2139/ssrn.3553283","url":null,"abstract":"Spanish Abstract: En este articulo se aborda el estudio de las limitaciones a los tipos de interes en el mercado del credito. Este estudio se realiza en un momento de crisis en el que se han adoptado nuevas limitaciones a los tipos de interes con abundante jurisprudencia destinada a proteger a los mas vulnerables. Con esta finalidad se objetiviza la prevencion de la usura, se limita la mora hipotecaria y se controla el abuso con clausulas suelo o intereses moratorios. Son medidas que buscan lograr un equilibrio entre la proteccion del cliente y la estabilidad de las entidades que operan en el mercado del credito, dotando al sistema de mayor seguridad juridica. \u0000 \u0000English Abstract: This paper addresses the study of limitations on interest rates in the credit market. This study is carried out at a time of crisis in which new limitations on interest rates have been adopted with abundant jurisprudence designed to protect the most vulnerable. With this aim, the prevention of usury is objectified, mortgage default is limited and abuse with floor clauses or default interests is controlled. These are measures that seek to achieve a balance between client protection and the stability of the entities that operate in the credit market, giving the system greater legal certainty.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"95 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126981736","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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