Author: Adam Levitin

  • Is Spending the Way2Save?

    Posted by

    Adam Levitin

    Financial institutions have begun to offer programs that appeal to consumers’ desire for assistance with disciplining their saving and spending decisions. These programs draw on the insight of behavioral economics and cognitive psychology that default rules have a powerful effect in shaping consumer behavior. For example, Richard Thaler and Shlomo Benartzi have proposed requiring people to opt-out, rather than opt-in to employer-sponsored savings plans in order to overcome bounded rationality and encourage higher savings rates.

    The first financial institution I know of that offered a savings assistance program was Bank of America’s Keep the Change program, which has been well-critiqued around the web. Now Wachovia has a new program called Way2Save. On the surface the program looks great. But when probed, it isn’t clear whether consumers end up with meaningful savings—increased purchasing power. With all of these programs the question that we need to ask is how much does it cost you to save?

    (more…)

  • $175,862.27 in Credit Card Debt and a Bleg

    Posted by

    Adam Levitin

    I’ve been going through consumer bankruptcy filings recently and have been astounded by the levels of credit card debt that show up on some (but certainly not most) debtor’s schedules of assets and liabilities. I’ve seen a bunch of cases with upwards of $60,000 of debt for a single debtor, a few with over $100,000, and the current record holder is $175,862.27. Yes, that’s right, $175,862.27. That’s larger than a lot of mortgages.

    (more…)

  • Will the Mortgage Industry Fix the Mortgage Mess Itself? A Look at Project Lifeline

    Posted by

    Adam Levitin

    The mortgage industry has been arguing against bankruptcy reform legislation that would permit the court-supervised modification of single-family principal home mortgages in bankruptcy. The industry argues that permitting mortgage modification in bankruptcy would result in higher interest rates and that its private efforts will solve the problem. In an earlier post and in a working paper, I have shown that we are unlikely to see higher interest rates as a result of allowing bankruptcy modification. Here, though, I want to take issue with the mortgage industry’s claim that its private efforts will solve the problem.

    Hopefully the mortgage industry is correct about this. But there is good reason to doubt the efficacy of the industry’s efforts. To date, the mortgage industry’s efforts to fix the foreclosure crisis have been a lot of sizzle, but not much steak. Unfortunately, this seems to be the case with Project Lifeline, the latest half-measure to come out of the mortgage industry. As I explain below, the very structure of Project Lifeline means that homeowners in a significant number of states will be unable to take advantage of Project Lifeline’s meager offering because it will kick in only after their homes have been sold in foreclosure.

    (more…)

  • Mortgages at the Dem’s Debate

    Posted by

    Adam Levitin

    To my surprise, the second thing out of Hilary Clinton’s mouth, after “health care,” when asked about the differences between her and Barack Obama, was “mortgages.” It’s about time that the foreclosure crisis is getting prime billing in the presidential race.

    (more…)

  • Credit Card Rewards Down Under

    Posted by

    Adam Levitin

    The Sydney Morning Herald (Australia) was kind enough to feature my article about the social costs of credit card merchant restraints. (Sorry for the shameless self-plug…)

    It’s worth noting that when the Reserve Bank of Australia forced credit card networks to lower interchange rates and allow merchants to surcharge, the card networks had to cut back on their rewards programs (which are funded from merchant fees). That reduces the incentive to use cards simply for transacting, which means that fewer Australians are likely to end up paying interest and fees because of overestimating the likelihood that they’ll make their card payments on time (because of everything from carelessness to changed financial circumstances).

  • House Judiciary Cramdown Hearing

    Posted by

    Adam Levitin

    A great thing about teaching in Washington, D.C., is the ability to drop in on legislative hearings. Today I went to a House Judiciary subcommittee hearing on the cramdown bill, also known as the Emergency Home Ownership and Mortgage Equity Protection Act of 2007(HR 3609). A report is below the break.

    (more…)

  • More Bogus Numbers from the Mortgage Industry

    Posted by

    Adam Levitin

    The past few months have seen story after story about fraud in the mortgage industry.  Now we’re seeing a new type of fraud–mortgage lobbying fraud.  The Mortgage Bankers Association has been claiming the proposed bankruptcy reform legislation that would significantly roll back the special treatment given to mortgage lenders in chapter 13 bankruptcies would result in residential mortgage interest rates rising 1.5 to 2 percent.  (Somehow this number started at 2% and has drifted down to 1.5% without any explanation.)  The MBA’s number is pure and demonstrable hokum.  As Joshua Goodman, a Columbia University economist and I show in a new working paper, permitting bankruptcy modification is likely to have little or no impact on mortgage interest rates or origination volumes.  Keep reading below the break for the proof.

    (more…)

  • Bankruptcy at the Dem’s Debate

    Posted by

    Adam Levitin

    I think this blog has been really good at eschewing electoral politics issues, and I don’t want to be the one to change that. Serendipitously, though, during the five minutes I had the TV on watching the Democratic debate, Tim Russert asked the Democratic candidates tonight about bankruptcy reform and their past positions on bankruptcy legislation, and the occasion cries out for a blog post.

    (more…)

  • European Commission Rules MasterCard’s Interchange Fees Are Illegal

    Posted by

    Adam Levitin

    In December, the European Commission antitrust authority, the Directorate General Competition, ruled that MasterCard’s interchange fees are illegal. (I realize it is now mid-January, but I wasn’t blogging when it the ruling came out.)  MasterCard is, of course, appealing. 

    Although ruling this made page 4 of the Wall Street Journal, it has gotten very little attention otherwise in the business or general press.  ( The ruling has huge ramifications for consumers and merchants.  The underlying issue is technical, however, but well worth understanding.   

    (more…)

  • Your Free Lottery Ticket: Credit Card Truncation and Identity Theft

    Posted by

    Adam Levitin

    You might be holding a litigation lottery ticket without knowing it.
    Take a look at your most recent credit card receipt. The receipt likely
    shows your credit card account number—but with everything except the
    last

    Confused? The explanation lies in a strange little federal statute and
    tells us some very important things about the root causes of a key
    consumer credit problem–identity theft.

    (more…)