Here’s a disconcerting story about anti-consumer legislation pending in California. The bill would limit consumer class actions by allowing unhappy defendants to appeal pro-consumer rulings. There are multiple levels of irony in California’s AB298.

It’s being pushed by the “Civil Justice Association.”  Turns out that the Civil justice Association is controlled by AIG, bailed out banks and big tobacco reps. George Orwell is having a heckuva of laugh over that one.

Consumer class actions are one of the few remaining methods that the rest of us use to exercise control over corporate profiteers gone wild. They provide consumers with the ability to obtain civil justice by forcing rogue corporations to refund ill-gotten profits from illegal schemes.

Automatic appeals slow cases. We’ve seen this problem in Oregon, as our Comcast late fee class action has taken almost five years to date, and it’s nowhere near over. And that five years inclued one automatic appeal already. Brought to you by AIG should be enough to kill this. But of course, that only happens if consumers make noise.

David Sugerman

I’ve been amazed by the one-sided nature of the bail out relief package. The Bush plan that gave $700 billion to bail out Wall Street’s greed mongers failed to provide meaningful relief for homeowners in trouble.

I suppose it’s easy to be critical of consumers who got in over their heads by buying more house than they could afford. But if you’re going to help one side, fairness requires that you help the other.

Finally, this proposal to at least delay foreclosures. Not sure whether it has any real chance of going anywhere. But still. Consumers teetering near the brink should follow this development closely, as it may provide a means of keeping people in their homes.

David Sugerman

Countrywide is back in the news, and–shockalert–it’s not good news. Apparently, the company notified some 19,000 mortgage customers that their personal financial data has been compromised. At the same time, authorities has reportedly arrested a former Countrywide employee who took personal information on mortgage holders and sold it to data thieves.

The sad part for consumers is that many courts refuse to find an injury when a financial record data theft occurs. Instead, many courts conclude that you don’t have a claim until you suffer direct financial loss after the fact. And to heap it on, many of the same courts conclude that the damages a consumer may recover in financial record data thefts are limited to out-of-pocket losses. In other words, you don’t get compensated for the harms and losses that you’ve suffered, including inconvenience, fear of future harm and the like.

Some states are better than others, and local statutes may provide more protection to consumers. Even so, it’s pretty amazing how little protection most consumers have in these cases.  I suppose that stripping consumers of claims is simply one more feature of this horrendous corporate coddling that goes on today. But I guess that’s a rant about a reign of error that is for another day.

David Sugerman

On the political side, it’s a bit interesting to see President Bush cave and sign the housing rescue bill that he threatened to veto.  The president had little choice.  From what the experts say, if Freddie Mac and Fannie Mae go down, we would be looking at a profound financial crisis.

And of course, this means a taxpayer bailout.  I’ve got precious little math talent, so you should take my rough calculations with a grain of salt. But according to my pencil, when you add this bailout in the cost of the Iraq war and subtract revenue from tax cuts, we’ll be paying for this for…looks like about 407 years.  (Like I say, rough reckoning; you may get different numbers if you check my math.)

The sad truth is that this collision was brought to bear by very simple human forces. The truth is that people tend to be greedy.  And when you have a complex market, that tendency toward greed can go off in different directions. It will motivate lenders to loan money they should never loan. It will push borrowers to sign deals that are too good to be true. It will drive investors to buy junk securities that are nothing more than piles of bad debt. Everyone who gets a cut has an incentive to push and grab.

That’s where regulation comes in.  While market regulation isn’t perfect, it is the best way of controlling unchecked greed that gets you down into the multi-trillion hole that we will now bequeath to our children and grandchildren. I wonder if the president understands this now? Or is this profoundly expensive rescue going to be nothing more than the cost of doing future business?

I’m curious how the free market purists are reacting to this deal. I imagine that most concede that this rescue was inevitable. Regardless of whether they think the rescue was inevitable, I hope that a few have come to understand that unregulated markets don’t work in a complex world.

This issue of unregulated commerce is actually important to the work that I do.  Here’s how.

When a manufacturer sells an unsafe product that causes a profound injury, I have to come try to put the pieces back together.  That’s a claim and/or lawsuit process.

The purpose of that process is to assign responsibility for unlawful conduct and pay the injured person for his or her harms and losses.  Of course, we would all be better off if the injury didn’t happen. Reasonable regulation of product safety is the best way to prevent injury. And for those who really dislike trial lawyers, there is an added incentive: when regulations promote safety and injuries decrease, people like me have less work. That’s an outcome I’m ready to embrace.

I would really like to hear from free market advocates about whether this rescue was essential and whether this costly stain doesn’t undermine the argument that unregulated markets are essential.

David Sugerman

Double dose of irony in this report in today’s Oregonian. It seems that a lobbyist for the Oregon Coalition of Mortgage Originators, Shane Jackson, filed suit in Multnomah County Circuit Court to collect his unpaid fees of $20,000. According to the news report, he sued both the Oregon Coalition of Mortgage Originators and its president, William Ridge.

Back story: Jackson and the Oregon Coalition of Mortgage Originators worked to stop reforms aimed at tightening the rules on mortgage lending. Alert readers might immediately connect this effort to the whole lack of regulation that got us into the mortgage lending crisis.

More detail: The Oregon Coalition of Mortgage Originators took great glee in killing SB 965 in the 2007 session. The bill,  Senate Bill 965, would have required plain language disclosures and use of underwriting standards.  It would also have allowed consumers harmed by mortgage lenders misconduct to directly sue.

According to the news report, the real estate market downturn put Mr. Ridge in a position of being unable to meet the payments on his new South Waterfront Condo.  Ridge apparently defaulted. That’s apparently part of the reason why Mr. Jackson has not been paid.

So here’s the first level of irony. These cowboys were so busy protecting their “rights” (read: positions at the trough) that they wouldn’t acknowledge the obvious. Lack of regulation and market oversight caused the mortgage lending meltdown.  And that is the main culprit in the real estate slide that bit Mr. Ridge in the backside.  While no one knows whether prompt action would have boosted consumers’ confidence in the market, it’s easy to see how Mr. Ridge, the Oregon Coalition of Mortgage Originators, and their lobbyist have all gotten swept up by the under-regulated markets.

And as for the second level of irony, my vague recollection is that the Oregon Coalition of Mortgage Originators opposed reforms in part because they allowed consumers harmed by misconduct to…gasp…file a lawsuit if the lender’s misconduct injured the consumer.  I guess Mr. Jackson didn’t lose any sleep over filing a lawsuit when he got stiffed for his rightfully owed $20,000. Maybe he now has a different take on the need to be able to pursue claims in court?

The whole thing would be little more than a belly laugh if so many others weren’t otherwise harmed by the collapse.  Can’t help but wonder what my friends at Our Oregon think of all this. They fought valiantly for consumers on SB 965. Angela Martin from Our Oregon was demonized for taking the lead. A number of good people–my friend Phil Goldsmith, for example–spent countless hours working on behalf of consumers on these issues.

I wonder now if Mr. Ridge and Mr. Jackson have had second thoughts about their work opposing lending  reform or about Our Oregon’s work on SB 965?

David Sugerman

The analysis came from my good friend, Oregon trial lawyer Robert Neuberger. As I was heading down toward a full-on rant over the Bear Stearns rescue, Robert pointed out that we’ve arrived in an era of Wall Street vs. Main Street.

Today’s news couldn’t make the point any better. For full ironic effect, you have to go old school and look at today’s (April 4, 2008) Oregonian (that would be a newspaper with newsprint) D-2. Two articles sit one above the other, and the headlines highlight the Neubergarian point that it’s Wall Street vs. Main Street.

Top article, entitled “Fed chief defends Bear Stearns rescue” is an account of Federal Reserve Chair Bernanke’s appearance in front of the Senate Banking Committee. Just below is “Homeowner aid provision dies,” an account of how the mortgage relief act provides $25 billion in tax relief to businesses but will not give homeowners the ability to restructure mortgages in bankruptcy.

Bear Stearns, we’re told, had to be rescued or we would face grave consequences. Fair enough. So we went with the old government supported bailout. Not necessarily a bad play, given the stakes. But consumers are left to their own devices and will lose their homes to foreclosure.

In the trenches, I hear all the time about choices that consumers made when they signed agreements, when they opted to borrow money, when they took on obligations. No one will rescue the consumer, and it looks like Congress and the current administration isn’t about to start.

My beef with all of this is very simple. If you are going to give corporate welfare to the rich, then consumers should get like-kind relief.

Using cold contract logic, Bear Stearns and its investors made choices and they should suffer the consequences. That’s a little absurd, in that it reduces very complex problems to black and white platitudes. But the same is true of consumers who signed up for horrible mortgages on a wing and a prayer. The deals were bad, but you cannot and should not shove cold contract logic down the throats of consumers if you are unwilling to do the same thing to Bear Stearns and Wall Street.

David Sugerman

Today’s news reports that Senate reached a compromise on the subprime mortgage relief for borrowers. The Senate measure excluded a provision opposed by banks that would have amended the bankruptcy laws to allow borrowers in trouble to stay in their homes.

The Center for Responsible Lending estimates that 20,000 subprime mortgage holders lose their homes every week. That number doesn’t do justice to the impact. Every foreclosed houme is in a neighborhood, and every neighbor loses value when neighborhood homes go into foreclosure. Every foreclosed home is in a community, and every community bears the burden of the added strain on the community safety net when a family loses its home.

But the Senate’s choice is more galling than tragic. The protections that consumers sought are the same ones available to commercial real estate owners and yacht owners who go into bankruptcy. When things go bad for the yachts owner, the loan is restructured in bankruptcy, and the yacht owner keeps the boat and pays the restructured loan. But not so for the subprime mortgage holder.

The last galling piece is the double-standard for failure. When banks make bad loans and get heavily invested in bad, unregulated securities, Wall Street and the federal government ride to the rescue. But subprime mortgage holders are on their own. Seems only fair that if we’re going to bailout one, we should bailout the other.

David Sugerman