Associations to the Rescue: Reviving the Consumer Class Action in the United States and Italy

• Author: Sarah A. Westby
• Pages: 157-196

Associations to the Rescue: Reviving the Consumer Class

Action in the United States and Italy

Sarah A. Westby*

I. INTRODUCTION ......................................................................................... 158

II. THE IMPORTANCE OF COLLECTIVE ACTION S IN PROVIDING REDRESS

FOR NEGATIVE VALUE CONSUMER CLAIMS ................................................. 161

A. Injuries to Consumers in the United States and Italy: An

Illustration ........................................................................................ 161

B. The Collective Action as a Consumer’s Only Remedy ..................... 163

III. ITALY’S NEW CLASS ACTION AS THE GOVERNMENT’S REMEDY ............. 166

IV. THE U.S. AND ITALIAN APPROACHES T O PROTECTING CONSUMERS

THROUGH COLLECTIVE ACTIONS FOR DAMAGES: TWO IMPORTANT

FEATURES .................................................................................................... 174

A. The Opt-In/Opt-Out Comparison: Which Is More Effective

for Consumer Class Actions?. ........................................................ 174

B. Associational Standing: Should it be Broad or Limited? .......... 178

1. Associational Standing in I taly ................................................. 180

2. Associational Standing in the United States. ......................... 181

V. SYNTHESIZING THE OPT-IN/OPT-OUT CLASS ACTION DEVI CE AND

ASSOCIATIONAL STANDING IN ITALY AND THE UNITED STATES: WHICH

FLAWS ARE ADDRESSED AND WHCH FLAWS REMAIN? ................................ 184

A. Italy: Combining Broad Associational Standing and an Opt-In

Regime ............................................................................................... 184

B. United States: Opt-Out Class Action and Associational Standing

as Alternative Solutions .................................................................... 190

C. Implications ....................................................................................... 193

1.United States ................................................................................. 193

2. Italy ................................................................................................ 195

VI. CONCLUSION ........................... ............................................................... 196

158 TRANSNATIONAL LAW & CONTEMPORARY PROBLEMS [Vol. 20:157

I. INTRODUCTION

Predatory lending cost Carla Hoffler an d her family their home. 1 Carla is

a middle-aged African American woman who resides in Connecticut with her

husband and three sons.2 Before falling victim to predatory len ding, Carla

and her husband had stable jobs, earn ing a combined income of over $100,00 0

per year.3 However, a chain of events that began with a mortgage refinance

marked by undisclosed fees and an excessive interest rate ballooned into a

financial crisis for the Hoffler family. In 2005, Carla’s husband was injured

on the job and could no longer work.4 He received a mere fraction of his

salary in worker’s compensation. 5 Carla became the sole wage earner for her

family.6 At that time, the Ho ffler family had a $900 per month mortgage. 7

These payments were easy to manage until the Hofflers lost more than half of

their combined income due to Mr. Hoffler’s injuries.8 Carla found herself

struggling to make the mortgage paym ents in addition to their car payments,

cell phone bills, and credit card bills. She decide d that refinancing their

home9 was the only option to keep from drowning in debt.

The refinance took place over a three- to four-week period, during which

Carla and her husband met with representatives from the mortgage

company.10 During these meetings, the representatives never disclosed the

high fees and costs accompanying the refinance, and did not even disclose the

* This author would like to thank Professor Robin Effron of Brooklyn Law School for her time

and effort in making this Note publishable. Thank you also to James E. Hartley, Jr., Attorney

with Verus Financial, LLC, Ernesta Visentini, Attorney with Studio Visentini Marchetti e

Associati in Italy, and Anthony Wong, 2010 Managing Editor of the Brooklyn Journal of

International Law, for their input and support throughout the writing process. Finally, thank

you to the editorial board of The University of Iowa journal of Transnational Law and

Contemporary Problems for publishing this Note. This author is a member of the class of 2011 at

Brooklyn Law School and an Executive Notes & Comments Editor of the Brooklyn Journal of

International Law.

1 Telephone Interview with Carla Hoffler, Connecticut Resident and victim of predatory lending

(Nov. 9, 2009).

2 Id.

3 Id.

4 Id.

5 Id.

6 Hoffler, supra note 1.

7 Id.

8 Id.

9 A refinance often “triggers a round of points and fees that are added to the principal,” which

results in “an ever-increasing principal and a severe reduction in the equity in that home.”

ELIZABETH RENUART, STOP PREDATORY LENDING: A GUIDE FOR LEGAL ADVOCATES 16

(2002). The borrower is responsible for paying off fees on the old mortgage in addition to the new

points and fees from the refinance, which accumulate interest throughout the life of the loan. As

indebtedness increases, the equity in the home decreases. Id.

10 Hoffler, supra note 1.

Spring 2011] ASSOCIATIONS TO THE RESCUE 159

interest rate. 11 Carla’s monthly payments swelled to $1,300. 12 Carla initially

believed these monthly payments would be feasible because they would

include taxes.13 Howeve r, when she received a tax bill from the city, Carla

was confused and angered because she had refinanced in the past, and the

mortgage company had always included taxes in her monthly payments.14

The mortgage company never disclosed the fact that she wo uld pay taxes in

addition to the monthly payments.15 Carla could not understand why her

payments had drastically increased if taxes w ere not included.16 If the result

of the refinance was increased payments at a high interest rate without any

concomitant reduction in other expenses, the refinance would have been a

pointless venture. Carla called the mortgage company on numerous occasions

to discuss the increased monthly payments and to negotiate a lower interest

rate.17 However, the mortgage company refused to work with her.18 “It was

like they just didn’t care,” Carla rec alled.19

The Hofflers simply could not afford all of their expenses with the

increased refinance payments. 20 Their auto dealer repossessed the family car

because the Hofflers had two overdue payments that they could not pay.21

Their financial situation forced the Hofflers to file for bankruptcy.22 About

one year later, the Hofflers realized that they were going to lose their home.23

“This has been just a total nightm are,” Carla sadly remembered.24

Carla Hoffler’s story illustrates the profound consequences consumers

may suffer as a result of unscrupulous business practices. These practices,

such as predatory lending and consumer fraud, have exposed the deficiencies

11 Id.

12 Id.

13 Id.

14 Hoffler, supra note 1.

15 Id.

16 Id.

17 Id.

18 Id.

19 Hoffler, supra note 1.

20 Id.

21 Id.

22 Id. The bankruptcy was a disaster in itself because the Hofflers accumulated almost $6,000 in

attorney’s fees. Id.

23 Hoffler, supra note 1. Carla reports that were it not for the generous assistance of a local

politician and lawyer, her family would have been forced into foreclosure. Id. Instead, they were

able to move to another home in a nearby town but still struggle with mortgage payments and a

poor credit history as a result of the initial refinance. Id.

24 Id.