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

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

I. Introduction - II. The importance of collective actions in providing redress for negative value consumer claims - A. Injuries to Consumers in the United States and Italy: An Illustration - B. The Collective Action as a Consumer’s Only Remedy - III. Italy’s new class action as the government’s remedy - IV. The U.S. and Italian approaches to protecting consumers through collective actions for... (see full summary)

 
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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. ITALYS NEW CLASS ACTION AS THE GOVERNMENTS 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.

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