November 15, 2024

Motoring: Automakers Push Back Against Consumer Protections

When the transmission in Sarah and Scott McKinney’s 2004 Audi A6 failed after five years, the repair cost thousands of dollars. Audi wouldn’t cover it, the McKinneys say, though the problem was a common one — so widespread that it later became the subject of a federal class-action suit.

The McKinneys, who live in Arlington Heights, Ill., say they are hoping a preliminary settlement in that suit will bring them a reimbursement later this year.

“I think it is our only hope,” Ms. McKinney said.

That recourse may not be available for car owners in the future, as some automakers have started to challenge class actions — and to a lesser extent, lemon laws — by trying to force consumers to agree instead to a binding arbitration process.

F. Paul Bland Jr., a senior attorney at Public Justice, a nonprofit consumer advocacy group, sees this as a brazen effort to take away important consumer automotive rights. If the automakers behind this effort are successful, consumer watchdogs say, owners like Gary Peterson of Spring Hill, Fla., might be stuck with defective vehicles that cannot be repaired.

The steering of Mr. Peterson’s 2011 Kia Sorento pulled so suddenly and strongly that the vehicle sometimes changed lanes by itself. When he could no longer tolerate the problem — and concluded that Kia would not help — he saw the lemon law as his only chance.

“Well, short of a lawsuit how are you going to take on a big company like Kia?” Mr. Peterson said. His complaint resulted in Kia’s having to buy back the vehicle.

That recourse might not be possible if the automakers’ efforts are successful.

The remedies sought by the McKinneys and by Mr. Peterson took different approaches. In a class action, thousands of consumers can benefit when a product they bought is judged to be defective.

In a typical lemon-law case, a lone consumer starts with arbitration, generally choosing among arbitration firms approved under each state’s lemon law. If the outcome is unsatisfactory, there are provisions to appeal, including the courts.

But now a few automakers are trying to do away with those resources by taking advantage of something consumers have done for decades when buying a vehicle: signing an agreement with the dealer to use arbitration to resolve disputes. Some automakers — including Honda, Toyota and Mercedes-Benz — are arguing that these sales agreements cover them, too.

Consequently, the automakers say, consumers may not use class-actions or lemon laws to get restitution. Instead, they argue, the consumer must use binding arbitration, in which the decision is final.

“I think this is a very worrisome issue,” said Christine Hines, the consumer and civil justice counsel at Public Citizen, a nonprofit consumer advocacy group.

Arbitration takes consumers out of a public process — the court or state-monitored lemon laws — and puts them in a private system, Ms. Hines said. Moreover, she said, it requires the consumer to play by rules set by the arbitration firm approved by the automaker.

Groups of consumers represented by a class-action may be happy to be included even if they receive only a small benefit, but few would devote the time, effort and expense to go into arbitration alone against an automaker, consumer advocates say.

“So one of the main benefits from the company’s standpoint is to eliminate claims against the company,” said Jean Sternlight, a law professor at the University of Nevada Las Vegas, who studies arbitration.

The legal force behind these challenges is the 2011 decision of the United States Supreme Court in ATT Mobility L.L.C. v. Concepcion. A result of that decision is that companies can bar consumers from bringing class-action suits and instead require each consumer to individually use binding arbitration.

Some critics argue that too often class-action suits benefit the plaintiffs’ lawyers while consumers get little of value.

But some class actions do help consumers with compensation and extended warranties, said Clarence Ditlow, executive director of the Center for Auto Safety.

Mr. Bland of Public Justice said that class-action suits could also reveal information about defects that manufacturers might want to keep secret — something that was possible in arbitration.

For example, Mr. Ditlow said, information that came out of suits over Firestone tire failures on Ford Explorers helped to prompt Congressional hearings and led in 2000 to Congress’s passing the Transportation Recall Enhancement, Accountability and Documentation Act.

Last year, Honda and Toyota separately asked federal district courts in California to dismiss class-action suits and compel each of the thousands of consumers who wanted to be compensated to individually use binding arbitration.

Article source: http://www.nytimes.com/2013/06/16/automobiles/automakers-push-back-against-consumer-protections.html?partner=rss&emc=rss

Mortages: Problems With New Good Faith Estimate Forms

But industry experts say the three-page, line-by-line disclosure — which lenders must provide within three days of receiving a loan application — still falls short of telling borrowers exactly what they will be paying. Some in the mortgage industry complain that it can even distort or obscure the true cost.

The new Good Faith Estimate form “is better than it used to be, but it’s not up to snuff,” said Kathleen Day, a spokeswoman for the Center for Responsible Lending, a consumer advocacy group. “There are things that need to be unbundled and made clearer,” she said.

The disclosure form, designed by the Department of Housing and Urban Development, became mandatory on Jan. 1, 2010, under the Real Estate Settlement Procedures Act that emerged from the mortgage crisis.

With the exception of certain fees, for services like title services and appraisals, lenders are bound to the costs they quote, notably those for origination and interest-rate locks.

The form also lists the services a borrower can shop around for, versus those selected by the lender. Charges for required services that the lender selects or that the borrower shops around for, using companies selected by the lender, can rise no more than 10 percent at closing. (An exception is fees for escrowed amounts and property taxes, costs that are beyond the control of the lender.)

The revised form, according to a consumer compliance alert issued last year by the Philadelphia branch of the Federal Reserve, is intended “to make the mortgage loan process more transparent to consumers, with fewer surprises at closing” in the form of higher fees.

But there are notable gaps.

The form, for example, does not break out seller-paid costs, such as transfer taxes, which are levied when a property changes hands, instead lumping those costs into the “total estimated settlement charges” figure at the bottom. (Transfer taxes, based on the sales price, vary by state; the combined New York State and city rate is 3.025 percent.)

As a result, borrowers are sometimes unknowingly looking at a larger final figure than they will actually have to pay. Nor does the new form account for down payments in the “total estimated settlement charges” column. Borrowers might then be looking at a smaller final number than they will need to pay.

This lack of clarity, according to Melissa Key, a spokeswoman for the Mortgage Bankers Association, can lead to delayed closings or even the loss of a locked interest rate.

Amid the uncertainty, a growing number of lenders have been furnishing consumers with their own custom “work sheets” as a supplement to — or in a few cases, in lieu of — the required disclosures, according to Brian Sullivan, a spokesman for the federal housing department. They were being used “to weed out window shoppers and borrowers who haven’t provided enough information for the lender to be required to furnish a G.F.E.,” he said.

But these work sheets may differ from the Good Faith form, further adding to the confusion.

Because Good Faith Estimates are binding on the lender, Mr. Sullivan said, some lenders appeared to be violating the new lending regulations by refraining from issuing the estimates, to avoid being locked into costs. He said that HUD would “intercede on the consumer’s behalf” if asked by the borrower, but only after lenders had been given a chance to correct any violations.

Still, the form may get yet another overhaul, by the new Consumer Financial Protection Bureau, itself part of the regulatory overhaul signed by President Obama last July. The bureau has said that it is considering revising the revised G.F.E. form to make all costs clearer to the consumer.

Article source: http://feeds.nytimes.com/click.phdo?i=2446429422a45a56f1ba954945ddfb3f