As of October, the U.S. Electronic Signatures Act, 15 USC 7001, is law. Congress wanted to show that it was "with it" on Internet commerce. But there are severe problems for consumers.

The Act provides in general terms that electronic "signatures" bind consumers, trumping most laws requiring an actual signature. The act does not define what a permissible signature is. A mouse click may qualify. The act excludes wills, divorce agreements, foreclosure and eviction notices, and a few others.

While the law is OK for buying a book on the Internet, what about car sales and home mortgages? What about non-Internet loans? Congress has given away the store to banks and commercial interests. When you install software, you see only the top of a complex contract, with most terms not visible. To click on [Accept] is to sign for hidden terms which few read. You can't change any term. The bad parts of the new law will let banks and lenders make contracts and disclosures: Truth in Lending Act, monthly credit card statements, electronically, if you agree. To get a loan, you may agree to a contract with terms and essential disclosures which are largely invisible. The potential for unfair contract terms is enormous.

So CLNJ has some advice: just say NO to electronic disclosures and statements, ask to get your contracts in writing, on paper, for you to take home. If you have to agree to something on (or off) the Internet, print it out and read it before you sign it.

At the National Consumer Law Center's Consumer Litigation Conference, held recently in Colorado, attorneys shared their expertise on auto fraud.

Auto dealers have special incentives to get financing for their customers. The obvious one is that it sells cars. What some auto dealers are not disclosing is that you were approved for a lower interest rate, and the dealer inflated it! While you are waiting, the dealer sends your credit application to one or more finance companies and banks. The manufacturer's credit arm runs a credit check on you, and approves you for credit at 12% APR. Then the dealer comes back and tells you it got financing for you at 15%, concealing that you are approved for 12%. Those extra three percentage points on a $20,000, 60 month credit sale will cost you an extra $1850. The dealer and the finance company then split their ill-gotten gain. This is outright consumer fraud.

Worse yet, a civil rights suit in Tennessee alleges that a certain dealer marked up African Americans even higher than white people. On October 27, this story broke in The New York Times. That night, advocates in Colorado watching ABC's 20/20 cheered when attorneys we knew exposed these vile practices. Auto fraud, like rent to own and predatory lending, is race discrimination hidden in the fine print.

What can you do? Shop for an auto loan at a bank before you go to the car dealer. Know your interest rate in advance. Insist on a lower rate. Walk out of the showroom!

When you walk into an auto dealership, you are walking into a minefield of potential consumer frauds. One trick to lure you is mailed coupons with offers to cut $1,000 off the price. When you get in, the salesmen tells you your credit is not good, and the dealer won't honor the offers. (Walk out!)

After you agree to buy a car at a price, watch out that the finance manager doesn't raise the price! The finance man is actually paid on commission, so his salary depends on cheating you. He may also insert charges you didn't request, and don't need, like extended warranties, rustproofing, and expensive credit insurance. It is illegal for a dealer to make you buy credit insurance or anything you did not request. By the way, the dealer will also be inflating the price of the extended warranty, which will overlap the manufacturer's warranty. He won't tell you that the bank approved you for lower interest, at a lower "buy rate."

So how do auto dealers deceive consumers into signing contracts filled with frauds? They make you wait hours for "credit approval." Then they rush over and ask you to sign a contract without reading it, sometimes with no numbers filled in! Then they take the contract with them, not giving you your copy. They treat consumers nicely (until you sign the contract). Consumers trust them, and don't read terms and numbers. Most consumers focus on the monthly payment. Tell a dealer what you can pay, they will soak you for that amount, and more. Shop instead for the lowest APR, and reject unwanted extras. Be willing to walk out! Don't let yourself be blinded by a shiny new car. Don't bring the kids when you shop for cars. The salesman will sell the kids, and you will have kids pressuring you to sign and go home. (Continued next col.)

The consumer must under law be given, in hand, a filled-in copy of the credit contract/Truth in Lending disclosure. Read it carefully before you sign it. Then hold onto your copy. If you are leaving the dealer with the car, but without a your copy of the contract, you likely have been swindled. Time to see an attorney who is versed in the N.J. Consumer Fraud Act, and the federal Truth in Lending Act.

Tired of telemarketing calls in the middle of dinner? You are not alone. If you live in New York State, you should immediately register with the state's "Do Not Call" list, at www.consumer.state.ny.us,
or call 800- 697-1220, or write to
NYS Consumer Protection Board,
5 Empire State Plaza, Albany NY 12223. After May 1, unwanted calls will be subject to a fine of $2,000. There are a few exceptions, charities, for example.

Federal regulations already give you the right to tell callers not to call you again, but enforcement has been light. Unsolicited faxed ads are also illegal under U.S. law. The industry group Direct Marketing Association also maintains a "do not call" list. New Jersey ought to pass a law like New York's. This is going to be very popular with consumers!

Centennial Dinner Correction:

Patricia Royer's last name was inadvertently left out of our last issue. Ms. Royer, former director of the N.J. Division of Consumer Affairs, organized the CLNJ Centennial Dinner. CLNJ again thanks Ms. Royer for her efforts.

The National Consumer Law Center, Boston, has a model bill for consumer protections against predatory mortgage lending. This bill prohibits the terrible credit terms which are used to make mortgages impossible to pay, leading to losing one's home to foreclosure. Poor, elderly, minority and inner city home owners are the typical targets of predatory lending.

The NCLC bill would prohibit points and fees higher than 3 % points or $800. Fees would include all mortgage broker fees and credit insurance. The bill would ban prepayment fees if a consumer pays his mortgage early. (Some predatory lenders end a mortgage early, charge a penalty, then refinance the consumer and charge all their fees over again.) The bill would ban "flipping" which is the repeated refinancing of mortgage to run up the fees. It would limit late charges to reasonable amounts, and prohibit the "pyramiding" of late charges. It would prohibit a clause which lets the lender "call" (end the loan abruptly by demanding full payment). The bill bans the financing of mortgage credit insurance.

If the interest rate on a first mortgage was six or more points higher than a federal rate (or 8 points higher for a second mortgage) then special rules for high rate mortgages would apply: balloon payments (entire principal due in short times such as 3 years) would be banned, as would negative amortization (loan payments result in you owing more money than when you started). The interest rate could not be increased after default. No mandatory arbitration clause would be allowed to take away a consumer's right to seek justice in a court of law. No lending in high cost mortgages would be allowed without prior counseling from U.S.

Dept. of HUD-approved counselors. No lending to persons who did not have the ability to repay would be allowed. (Right now homeowners on Social Security are a prime target, and actually get mortgages because the predatory lenders predict the seniors will default and lose their homes to foreclosure.) No home repair contractor could receive loan payments unless the check was jointly payable to the consumer (to give the consumer a way to ensure that the work was actually done, and done right.)

The NCLC bill establishes that affirmative claims which homeowners have against contractors can always be asserted against the financiers of fraud, and that the right of rescission can be a recoupment defense.

The NCLC bill would give a right to cure the default (i.e pay the arrears) to stave off foreclosure, a right New Jersey already has in the N.J. Fair Foreclosure Law, the good parts of which were written by CLNJ.

New Jersey ought to enact the NCLC Model Home Loan Protection Act.

Governor Whitman Signs A.298
Despite Consumer Protest

CLNJ and NJPIRG protested NJ bill A298, but the Governor signed it anyway. In A298 if a home repair contractor has a pattern of soliciting senior citizens into high interest mortgages violating the US HOEPA law, that violates NJ law too. This would have been true without A.298. But the high threshold HOEPA law seldom applies since creditors know how to evade it. The troubling part of A298 has ambiguous language which the financiers of fraud might argue lets them off the hook. Consumers will respond that the bill's intent was to help senior home owners fight frauds, not make it easier to follow fraud with foreclosure!

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