For decades Wall Street’s big banks and the financial services industry have used—and abused–the judicial system to hammer working-class families and erode the American Dream. Left virtually defenseless because they could not afford to hire attorneys to fight back, millions of homeowners and consumers stood by helplessly as they lost their homes to court-ordered foreclosures or had their wages garnished to repay debts they didn’t actually owe.
Now, thanks to federal legislation like the Dodd-Frank Act, aggressive action by the Consumer Finance Protection Bureau (CFPB), and rulings issued by federal and state judges, consumers are slowly but surely gaining access to the courts and are now using the judicial system to turn the tables on the financial firms that have run roughshod over them for far too long.
These laws, regulations, and rulings create financial incentives for private attorneys and consumers to take on big banks and predatory lenders. Those incentives include forcing financial firms to pay the attorney fees of consumers who have been wronged, eliminating forced arbitration clauses that make it extremely difficult, if not impossible, for lawyers to file class action suits against the bad actors in the financial services industry, and making it possible for borrowers to collect significant monetary damages from lenders who violate their rights.
Much like the contingency fee system and class action suits that improved auto safety, forced pharmaceutical companies to remove dangerous drugs from the market place, and held polluters accountable for damaging the environment, the new rules and regulations make it economically feasible for private attorneys to grapple with the teams of high-paid lawyers who represent banks and other lenders. That will bring much needed stability and accountability to the nation’s consumer credit market.
While most of the big banks and traditional mortgage lenders are acting more responsibly these days, because they are bound by consent decrees signed in the wake of the 2007—2008 financial meltdown, new, largely unregulated entities including hedge fund-backed firms like Caliber Home Loans and Nationstar are using tactics as old as the predatory lending crisis itself: moving quickly to foreclosure, losing mortgage paperwork, and delaying or denying loan modifications to terrorize borrowers and toss working-class families out of their homes.
Unfortunately, the ongoing abuses aren’t limited to mortgage lending. Today, millions of people are struggling to repay home equity and other loans they took out as they attempted to keep their heads above water during the great recession. Not surprisingly, predatory debt buyers have purchased those loans from the original lenders and are now using local courts to seek judgments and collect debts that the borrowers may not owe. The debt buyers have been counting on the fact that consumers could not afford to retain counsel to defend themselves. In ruling that Ohioans now have the right to sue abusive debt buyers and the attorneys who represent them, the justices of the Ohio Supreme Court described the problem this way:
A predictable result of debt buyers filing a high volume of lawsuits based on imperfect information is that lawsuits are regularly filed after the right to collect debts has expired or that seek a debt that is not owed; “each year, buyers sought to collect about one million debts that consumers asserted they did not owe.
Like courts across the country, the CFPB is taking action against predatory debt buyers. For example, the agency sued Fredrick J. Hanna & Associates, a Georgia law firm, which it described as a “Debt Collection Lawsuit Mill,” and won a consent entry that prevents the firm from filing lawsuits or threatening to sue unless they can prove that the debt they are attempting to collect is valid.
The CFPB’s willingness to take on predatory lenders, the fact that it is now financially feasible for private attorneys to sue lenders, the enactment of tough new state laws that prohibit unfair and/or deceptive practices, favorable court decisions, and consumers’ ability to seek and secure significant monetary damages from firms that violate the law all combine to create a more level playing field in the credit markets.
The good news doesn’t end there. The CFPB is moving to impose regulations on payday and auto title lenders that will make it harder for the vultures that dominate the industry to exploit consumers. While some have criticized the proposed rules for not going far enough, they represent an important first step toward reining in an industry I fought hard to regulate during my tenure as Ohio’s attorney general.
I’ll be the first to admit that these important changes in the law don’t have the sex appeal of major public policy initiatives like health care reform. But throwing open the courthouse doors to those who have been victimized by big banks, mortgage servicers, debt buyers, and payday lenders and discouraging future abuses will enable millions of working-class families to gain control of their finances and renew their pursuit of the American Dream. And that will, inarguably, have a profoundly beneficial effect on our economy and our society for decades to come.
Marc Dann is Managing Partner of the Dann Law Firm. He specializes in representing clients who have been harmed by banks, debt buyers, debt collectors, and other financial predators. He has fought for the rights of thousands of consumers and brought class action lawsuits in both private practice and as Ohio’s Attorney General.