Judicial identity, politics, and class certification

Law profs Stephen Burbank and Sean Farhang have written Politics, Identity, and Class Certification on the U.S. Courts of Appeals, which asks whether there are associations between personal characteristics of appellate judges and the party of the presidents who appointed those judges, among other things, and class-certification decisions. Here is the abstract:

This article draws on novel data and presents the results of the first empirical analysis of how potentially salient characteristics of Court of Appeals judges influence precedential lawmaking on class certification under Rule 23. We find that the partisan composition of the panel (measured by the party of the appointing president) has a very strong association with certification outcomes, with all-Democratic panels having more than double the certification rate of all-Republican panels in precedential cases. We also find that the presence of one African American on a panel, and the presence of two females (but not one), is associated with pro-certification outcomes. Contrary to conventional wisdom in the scholarship on diversity on the bench, such diversity may be consequential to lawmaking beyond policy areas conventionally thought to be of particular concern to women and racial minorities.

Class action doctrine is a form of trans-substantive procedural law that traverses many policy areas. The effects of gender and racial diversity on the bench, through making more precertification law, radiate widely across the legal landscape, influencing implementation of consumer, securities, labor and employment, antitrust, prisoner’s rights, public benefits, and many other areas of law. The results highlight how the consequences of diversity extend beyond conceptions of “women’s issues” or “minority issues.” The results also suggest the importance of exploring the effects of diversity on trans-substantive procedural law more generally.

Our findings on gender panel effects in particular are novel in the literature on panel effects and the literature on gender and judging. Past work focusing on substantive antidiscrimination law found that one woman can influence the votes of males in the majority (mirroring what we find with respect to African American judges in class certification decisions). These results allowed for optimism that the panel structure — which threatens to dilute the influence of underrepresented groups on the bench because they are infrequently in the panel majority — actually facilitates minority influence, whether through deliberation, cue taking, bargaining, or some other mechanism.

Our gender results are quite different and more normatively troubling. We observe that women have more pro-certification preferences based on outcomes when they are in the majority. However, panels with one female are not more likely to yield pro-certification outcomes. Female majority panels occur at sharply lower rates than women’s percentage of judgeships, and thus certification doctrine underrepresents their preferences relative to their share of judgeships.

Our suggestions regarding mechanisms that may help to explain these results are speculative and tentative. Recent scholarship on the gender gap in political discussions and decision-making illuminates some disquieting possibilities. If the dynamics identified by this research are at play, one possibility is that a female judge in the minority who vigorously advocates for a preferred outcome is less successful because, as a panel minority in a substantive domain that, unlike anti-discrimination law, does not elicit gender-based deference, she is regarded as less authoritative and influential. Another is that the reinforcement of a female majority increases her propensity to advocate preferences that differ systematically from those of her male colleagues in areas without obvious gender salience.

Luguri & Strahilevitz paper on how online companies manipulate consumers using dark patterns--and UDAP laws

Jamie Luguri and Lior Strahilevitz, both of Chicago, have written Shining a Light on Dark Patterns. Here is the abstract:

Dark patterns are user interfaces whose designers knowingly confuse users, make it difficult for users to express their actual preferences, or manipulate users into taking certain actions. They typically exploit cognitive biases and prompt online consumers to purchase goods and services that they do not want, or to reveal personal information they would prefer not to disclose. Research by computer scientists suggests that dark patterns have proliferated in recent years, but there is no scholarship that examines dark patterns’ effectiveness in bending consumers to their designers’ will. This article provides the first public evidence of the power of dark patterns. It discusses the results of the authors’ large-scale experiment in which a representative sample of American consumers were randomly assigned to a control group, a group that was exposed to mild dark patterns, or a group that was exposed to aggressive dark patterns. All groups were told they had been automatically enrolled in an identity theft protection plan, and the experimental manipulation varied what acts were necessary for consumers to decline the plan. Users in the mild dark pattern condition were more than twice as likely to remain enrolled as those assigned to the control group, and users in the aggressive dark pattern condition were almost four times as likely to remain enrolled in the program. There were two other striking findings. First, whereas aggressive dark patterns generated a powerful backlash among consumers, mild dark patterns did not – suggesting that firms employing them generate substantial profits. Second, less educated subjects were significantly more susceptible to mild dark patterns than their well-educated counterparts. Both findings suggest that there is a particularly powerful case for legal interventions to curtail the use of mild dark patterns.

The article concludes by examining legal frameworks for ameliorating the dark patterns problem. Many dark patterns appear to violate federal and state laws restricting the use of unfair and deceptive practices in trade. Moreover, in those instances where consumers enter into contracts after being exposed to dark patterns, their consent could be deemed voidable under contract law principles. The article proposes a quantitative bright-line rule for identifying impermissible dark patterns. Dark patterns are presumably proliferating because firms’ secret and proprietary A-B testing has revealed them to be profit maximizing. We show how similar A-B testing can be used to identify those dark patterns that are so manipulative that they ought to be deemed unlawful.

WSJ article about how debt settlement firms can harm consumers

Here.  Excerpt:

Companies like National Debt Relief seek out heavily indebted consumers with a promise to help them get out from under it. But regulators say these debt-settlement programs can leave customers worse off, facing high fees, damaged credit scores and unexpected income-tax bills.

* * *

Data from credit-reporting companies has been used by some debt-settlement firms to solicit consumers as their debt is rising and when many are trying to sort out their financial situation. Other firms flood mailboxes with offers of loans, but when consumers call, the pitch can be very different. * * *

Former GreenLink employees said only a small number of people who responded to the company’s mailings were offered loans. Instead, they were pitched a debt-settlement program that GreenLink sells on behalf of San Mateo, Calif.-based Freedom Debt Relief, the former employees said.

GreenLink’s salespeople were taught to “get the client’s guard down,” according to a GreenLink telephone sales script reviewed by the Journal. The Journal couldn’t determine the date of the script.

 

Court affirms class certification in case about Facebook's facial-recognition technology

The Ninth Circuit Court of Appeals on Thursday affirmed the district court’s order certifying a class Facebook users in a case challenging Facebook’s facial-recognition technology as a violation of Illinois’s Biometric Information Privacy Act (BIPA).The court held that plaintiffs alleged a concrete and particularized harm, sufficient to confer Article III standing, because BIPA protected the plaintiffs’ concrete privacy interest, and violations of the procedures in BIPA actually harmed or posed a material risk of harm to those privacy interests. Specifically, the panel concluded that the development of a face template using facial-recognition technology without consent (as alleged in this case) invades an individual’s private affairs and concrete interests.

The decision did not address the merits of the case, only the issue whether the case can proceed as a class action.

The court's decision is here. A US News & World Report story on the decision here.

Empirical analysis of the Supreme Court's class-action cases

Scotusblog this week posted an analysis of the U.S. Supreme Court's review of class action cases. Among its observations is that the Court overturns almost 70 percent of class action decisions made by appeals courts by either reversing or vacating these decisions. In addition, the analysis found that, between the 2010 and 2018 terms, the Court favored the defendant companies in the vast majority of consumer class actions, although the outcome in court in securities class actions was more balanced.

The full blog post is here.

How collectors trick consumers into reviving old debts

The Washington Post reports today on debt collectors' tactics to revive debts that they cannot otherwise collect on because the statute of limitations has passed. If the consumer makes a payment, even against his or her own will, that can be used to try to revive the life of the debt. So debt collectors often "focus on getting consumers to reset the statute of limitations through a variety of means, including sending them credit cards that let them pay off their old debts or by allowing them to make a small payment to halt debt collection calls. The efforts have contributed to the flood of debt-collection lawsuits clogging courts across the country, consumer advocates say. In New York City, the number of debt-collection lawsuits surpassed 100,000 last year, compared with 47,000 in 2016, according to data from the New Economy Project."

The full article is here.

Call for Papers for 4th CFPB Research Conference on Consumer Finance

We've received the following Call for Papers:

4th CFPB Research Conference on Consumer Finance
December 12th–13th, 2019
This December, the Consumer Financial Protection Bureau (CFPB) will host its fourth research
conference on consumer finance at Catholic University in Washington, DC. Information on prior
conferences can be found here: https://www.consumerfinance.gov/data-research/cfpbresearch-conference/
We encourage the submission of a variety of research. This includes, but is not limited to, work
on: the ways consumers and household make decisions about borrowing, saving, and financial
risk-taking; how various forms of credit (mortgage, student loans, credit cards, installment
loans, etc.) affect household well-being; how salience of product fees and terms affect saving and
borrowing; the structure and functioning of consumer financial markets; distinct and
underserved populations; and relevant innovations in modeling or data, including the use of
alternative data.

A deliberate aim of the conference is to connect the core community of consumer finance
researchers and policymakers with the best research being conducted across the wide range of
disciplines and approaches that can inform the topic. Disciplines from which we hope to receive
submissions include, but are not limited to, economics, law and economics, and cognitive
sciences.

The conference’s scientific committee includes:

• Michael Baye (Indiana University)
• Ken Brevoort (Federal Reserve Board of Governors)
• Jeremy Bulow (Stanford University)
• Liran Einav (Stanford University)
• Gregory Elliehausen (Federal Reserve Board of Governors)
• Robert M. Hunt (Federal Reserve Bank of Philadelphia)
• Brian Melzer (Dartmouth College)
• Tom Miller (Mississippi State University)
• Janis K. Pappalardo (Federal Trade Commission)
• Wilbert van der Klaauw (Federal Reserve Bank of New York)

Authors may submit complete papers or detailed abstracts that include preliminary results. All
submissions should be made in electronic PDF format to CFPB_ResearchConference@cfpb.gov
by Tuesday, September 3, 2019.

Please remember to include contact information on the cover page for the corresponding author.

Please submit questions or concerns to CFPB_ResearchConference@cfpb.gov.

Travel expenses will be provided for the presenting author of each accepted paper in the
program.

FTC update on claims in Equifax settlement

Last week, the Federal Trade Commission announced a $700 million settlement with Equifax concerning its liability for the 2017 data breach in which hackers stole the personal information of 147 million people. The settlement seemed to offer people as much as $125 in cash. In the week after the FTC announced the settlement, more than 4.5 million people visited the settlement site. So many people that the FTC has now announced that the payments will be much less than $125. The settlement also offers people the option of three years of free credit monitoring, instead of cash. But the FTC has now stated that, those who take the cash "will wind up only getting a small amount of money.”

The FTC's update, encouraging people to opt for credit reporting, is here.

Subpoenas to Identify Online Consumer Critics on the Ground That They Weren't Really Customers

by Paul Alan Levy

What sort of showing must a criticized business make when it wants to identify an anonymous online critic on the theory that the critic was never an actual customer and that, consequently, any criticisms are necessarily false?

Attorney Thomas P. Kelly III of Santa Rosa California

That issue has been presented in a couple of recent subpoena cases that we have handled. Probably the more significant of these two — because it is now pending in the California Court of Appeal — is Kelly v. Doe, where Thomas P. Kelly III, a lawyer in Santa Rosa, California, sued an anonymous critic who had complained on Yelp about alleged inadequacies in the legal service that the lawyer had provided to her. The review was fairly barebones:

California Supreme Court rejects strict class-certification "ascertainability" requirement

The California Supreme Court today issued its unanimous decision in Noel v. Thrifty Payless Inc., which rejected a strict class-certification "ascertainability" requirement sometimes associated with decisions of the U.S. Court of Appeals for the Third Circuit. This paragraph sums up the issue and the court's conclusion:

This case is a putative class action brought on behalf of retail purchasers of an inflatable outdoor pool sold in packaging that allegedly misled buyers about the pool’s size. We must decide whether the trial court abused its discretion when it denied the representative plaintiff’s motion for class certification on the basis that he had not supplied evidence showing how class members might be individually identified when the time came to do so. The Court of Appeal upheld this ruling. It reasoned that this evidence was necessary to ensure that proper notice would be given to the class, and that without it, the trial court could appropriately conclude that plaintiff had not satisfied the ascertainability requirement for class certification. We conclude that the trial court erred in demanding that plaintiff offer such evidence to satisfy the ascertainability requirement.

The Noel decision -- which interprets California's class action rule, not federal Rule 23 -- is a victory for consumers. Imposing a strict ascertainability requirement is part of the corporate effort to weaken consumer class actions by pushing various attributes or needs of class litigation -- such as identifying and notifying the class members -- to the beginning of the case as a prerequisite for certification. The California Supreme Court properly rejected that effort here.

UPDATE: As legal reporter Perry Cooper noted in her piece on Noel, "the Third Circuit appears to have backed off its strict interpretation of the [ascertainability] requirement."

Schwarcz Article on Discrimination in Insurance

Daniel Schwarcz of Minnesota has written Towards a Civil Rights Approach to Insurance Anti-Discrimination Law, 69 DePaul Law Review (Forthcoming). Here's the abstract:

Discrimination is fundamental to the business of auto and homeowners insurance. Yet state insurance law does remarkably little to police against the risk that this discrimination will unfairly harm minority or low-income communities. Not only do state insurance regulators completely ignore the prospect that facially-neutral insurance practices might disparately impact vulnerable populations, but they affirmatively suppress the production and dissemination of data that would advance a better understanding of this risk. Meanwhile, most states continue to cling to an antiquated, ineffective, and inefficient scheme of “public utility style” rate regulation that purports to prohibit “excessive, inadequate, or unfairly discriminatory” insurance rates. This scheme not only undermines the operation of efficient insurance markets, but also helps to shield the industry and state regulators from scrutiny regarding how insurance practices impact larger social goals, like facilitating socio-economic mobility. This Article argues that insurance law should scrap its regime of public utility style rate regulation in favor of a civil rights approach to anti-discrimination law. Such an approach should, at a minimum, promote the collection and public disclosure of company-specific, transaction-level data on insurance applications, purchases, losses, and policyholder membership in legally protected groups, much in the manner of the Home Mortgage Disclosure Act. Further paralleling modern anti-discrimination regimes in consumer finance, this civil rights approach should afford private parties a cause of action against insurers based on a modified disparate impact theory that reflects the important role of risk-based discrimination in insurance markets. This could be accomplished by recognizing that insurance discrimination based on factors that genuinely predict claim frequency or severity even after controlling for prohibited characteristics constitutes a “legitimate non-discriminatory” practice under the familiar burden-shifting scheme for disparate impact liability.

The conservative case for class actions

Professor Brian Fitzpatrick has a new book, set for release in October, called The Conservative case for Class Actions. Here is the summary:

Since the 1960s, the class action lawsuit has been a powerful tool for holding businesses accountable. Yet years of attacks by corporate America and unfavorable rulings by the Supreme Court have left its future uncertain. In this book published by the University of Chicago Press, Vanderbilt Law Professor Brian Fitzpatrick makes the case for the importance of class action litigation from a surprising political perspective: an unabashedly conservative point of view.

Conservatives have opposed class actions in recent years, but Fitzpatrick argues that they should see such litigation not as a danger to the economy, but as a form of private enforcement of the law. He starts from the premise that all of us, conservatives and libertarians included, believe that markets need at least some rules to thrive, from laws that enforce contracts to laws that prevent companies from committing fraud. He also reminds us that conservatives consider the private sector to be superior to the government in most areas. And the relatively little-discussed intersection of those two beliefs is where the benefits of class action lawsuits become clear: when corporations commit misdeeds, class action lawsuits enlist the private sector to intervene, resulting in a smaller role for the government, lower taxes, and, ultimately, more effective enforcement of the law.

The conflict between the increasingly restrictive due-process constraints on personal jurisdiction and substantive state products-liability law

That's the topic of The New Privity by law prof Alexi Lahav. I thought the article would be interesting to our readers, who (1) may be concerned about the Supreme Court's expanding due-process restrictions on where alleged corporate wrongdoers may be sued and (2) want products-liability law to remain robust and adaptable. Here is the abstract:

This Article describes and critiques the arc of judicial reasoning in personal jurisdiction doctrine over the last 100 years with respect to tort claims, from MacPherson v. Buick to J. McIntyre Machinery v. Nicastro. In the early 1900s, state courts rejected the privity doctrine, a step in the products liability revolution which rejected privity as a limitation on the ability of victims of defective products to sue manufacturers and allowed the exercise of jurisdiction over a distant manufacturer. Today, the Supreme Court is reinstating a privity doctrine through the due process clause, barring suits against foreign manufacturers in many cases. The reasoning of the Court’s recent personal jurisdiction decisions echoes those of the late 1800s when privity was the rule: a reliance on abstract categories and inductive logic, unmoored from reality. The narrowing of due process — what I describe as the new privity — is problematic as a substantive matter because it is in direct conflict with the structure of state products liability law. The way the Court has arrived there is problematic because of its poor legal reasoning. Understanding these developments both allows us to predict the outcome of cases likely to come before the Court in the near term, and to better understand the relationship between form and substance in common law constitutional interpretation.

Eleventh Circuit rejects class-action attorney's fee multiplier

In In re the Home Depot Customer Data Security Breach Litig.,the Eleventh Circuit has held that when a defendant agrees to pay class-action fees in a class-action settlement, in an amount to be determined by the district judge, separate from the fund set up by the settlement to compensate class members, the attorney's fee may not include a fee multiplier.

FTC imposes $5 billion penalty and new privacy restrictions on Facebook

The Federal Trade Commission announced this morning that it has reached a settlement with Facebook over the FTC's charges that the company violated a 2012 FTC order by deceiving users about their ability to control the privacy of their personal information. Under the settlement, Facebook will pay a $5 billion penalty and submit to new restrictions and a modified corporate structure that will hold the company accountable for the decisions it makes about its users’ privacy.

The FTC's press release is here. The court order entering the settlement as a stipulation is here.

Bill introduced to crack down on online hotel booking scams

A bipartisan group of lawmakers in both chambers has reintroduced a bill to combat online hotel booking scams. The Stopping Online Booking Scams Act would make it illegal for scammers to fool customers into thinking they are paying for hotel services when they are not. The bill had more than 40 co-sponsors in the Senate last year.

The Hill has the story, here.

What is the optimal structure for the Consumer Financial Protection Bureau?

That's the topic of Commissioning the Consumer Financial Protection Bureau by law prof Jolina Cuaresma. Here's the abstract:

There has been much debate over the Consumer Financial Protection Bureau’s lack of executive and congressional oversight: its single director removable only for cause and its operations are not subject to appropriations. This paper explains how this very leadership and accountability structure — intended to politically insulate the agency — had the perverse effect of politicizing it. Since Director Cordray’s departure, there has been increased regulatory uncertainty, discouraging financial innovation and harming consumer welfare. This paper recommends that Congress restructure the Bureau into a multi-member, bipartisan commission to provide industry regulatory predictability and ensure that consumer protection retains its independent seat in the financial regulatory system.

Watch these debt-defense videos from the National Association of Consumer Advocates

The National Association of Consumer Advocates has created this series of five videos on debt defense. The videos educate ordinary consumers on how to deal with debt collection. Click on the links or on the embedded videos below to watch all five videos. Consumers can get other debt-collection information from NACA here.

1. Dealing with debt collectors

2. I received notice of a lawsuit, what should I do?

3. Defending yourself in a lawsuit

4. Was I served legal papers properly?

5. I have a judgment against me. Money is being taken from my bank account.

 

 

Study: Medicaid expansion under Affordable Care Act saved lots of lives (but, of course, only in the states where Medicaid expanded)

As you'll recall, the Affordable Care Act (ACA) significantly expanded Medicaid -- the War on Poverty legislation that had, for decades, provided comprehensive medical insurance to (certain) poor people.

Among other things, the ACA Medicaid expansion required state Medicaid programs to cover all adults with incomes below 133 percent of the federal poverty level. Before ACA passage, coverage generally had income and other requirements that were considerably stricter. (For instance, before the ACA, Medicaid did not cover childless adults at all, no matter how poor.) 

Medicaid is a "cooperative" federal-state program in which participating states choose to accept federal funds to help pay for the program, subject to various federal requirements. All states currently participate in Medicaid in one form or another. Under the ACA, the costs of Medicaid expansion is paid for at first 100% with federal dollars and then 90% with federal dollars beginning in 2020.

As written in the ACA, Medicaid expansion was not optional. A state could quit Medicaid entirely, but if it participated, it had to expand.

But the Supreme Court held in NFIB v. Sebelius, 567 U.S. 519 (2012), that Medicaid expansion was nonetheless optional for each state because requiring states to expand -- that is, requiring them to expand or leave the program entirely -- was too coercive under the constitution's so-called Spending Clause. As a result of that decision, today only about 35 states and D.C. participate in Medicaid expansion. The other states do not.

With all this in mind, take a look at a new National Bureau of Economic Research study entitled Medicaid and Mortalilty: New Evidence from Linked Survey and Administrative Data by Sarah Miller, Sean Altebruse, Norman Johnson, and Laura Wherry. The study finds that thousands of poor people's lives have been improved, and poor people's deaths prevented, in states that have accepted Medicaid expansion.

And what about the states that have not accepted Medicaid expansion because it's too "coercive"? There's this:

Our analysis provides new evidence that Medicaid coverage reduces mortality rates among low-income adults. Our estimates suggest that approximately 15,600 deaths would have been averted had the ACA expansions been adopted nationwide as originally intended by the ACA. This highlights an ongoing cost to non-adoption that should be relevant to both state policymakers and their constituents. (emphasis added)

Settlement reported in state and federal investigations into Equifax data breach

"Equifax has agreed to pay as much as $700 million to settle a series of state and federal investigations into a massive 2017 data breach that left more than 147 million Americans’ Social Security numbers, credit-card details and other sensitive information exposed. The punishment includes payments to affected consumers, fines to peeved regulators and a host of required changes to the credit-reporting agency’s business practices, government officials said Monday, as they faulted Equifax for putting more than half of all U.S. adults at risk for identity theft and fraud."

The full Washington Post article is here.

Sixth Circuit: Only someone liable to pay on a mortgage loan is a "borrower" who can sue under RESPA

The Sixth Circuit held today in Keen v. Helson that because the Real Estate Settlement Procedures Act's text gives a right to sue only to a "borrower," someone who signs the mortgage but does not sign the mortgage loan with the lender is not a "borrower" (and so can't sue under RESPA).

Is anything clear and conspicuous on the screen of a mobile phone or smartwatch?

by Jeff Sovern

Many consumer laws require that businesses make "clear and conspicuous" disclosures.  See, e.g., Reg Z, 12 C.F.R. 1026.17(a)(1) (closed-end loans). But increasingly, consumers are obtaining loans through mobile phones. How can any disclosure on those tiny screens be clear and conspicuous? When the Fed thought about this issue back in 2007, it took the position that “disclosures comply with the ‘clear and conspicuous’ requirement as long as they are provided in a manner such that they would be clear and conspicuous when viewed on a typical home personal computer monitor.” See Federal Res. Sys., Truth in Lending, 72 Fed. Reg. 63,462, 63,471 (Nov. 9, 2007). Its thinking was that lenders cannot control whether consumers read a disclosure on a desktop computer or a cell phone. But a lot has changed since 2007, not least of which is that much of the Fed's consumer protection function has been assumed by the CFPB, because Congress concluded the Fed had not protected consumers sufficiently (as the Fed's position on this matter may suggest). Another change since then is that consumers obtain online loans by downloading apps to their phones; with such apps, reading the disclosures on a desktop may not even be an option. In other words, lenders now can control whether consumers read a disclosure on their desktop computer or phone. So isn't it time to create disclosure rules for mobile devices? Or am I missing something?

Matt Bruckner article on preventing predation in fintech lending

Matthew A. Bruckner of Howard has written Preventing Predation & Encouraging Innovation in Fintech Lending. Here is the abstract:

More than 20 years ago, IBM's Deep Blue vanquished chess grandmaster and reigning world chess champion, Garry Kasparov, in a pair of best-of-six matches. Since then, numerous companies have invested large sums of money to develop additional game-playing, machine-learning algorithms. They have enjoyed significant successes. For example, in 2016, AlphaGo demolished Lee Sedol, a world champion Go player, 4-1 in a series of matches by, among other things, making “a move no human would ever play, stunning experts and fans and utterly wrong-footing world champion Lee Sedol.” In addition, Libratus defeated “four of the top-ranked human Texas Hold'em players in the world over the course of 120,000 hands” during a twenty-day poker competition in 2017. Other algorithms have also defeated top players in checkers, chess, Jeopardy!, and Scrabble.

These companies are not trying to dominate your family game nights. Instead, they are betting that many of the techniques and strategies used to create world-class game-playing algorithms can be deployed for other purposes as well. In other words, they are looking to create general-purpose artificial intelligence (AI) systems. One use for AI systems is to improve credit-underwriting models. The regulation of these types of AI systems is the focus of this paper.

This new breed of lenders, often called fintech lenders, are amassing hordes of data (Big Data) and using machine- learning techniques honed in the game-playing context to improve existing credit-underwriting models. Fintech lenders commonly use nontraditional, tech-centric methods to market themselves to prospective borrowers, evaluate borrower creditworthiness, and to match prospective borrowers with sources of credit. Examples include Lenddo and ZestFinance. Fintech lenders often claim that they can lower loan origination costs and loan default rates, thus improving credit accessibility. 

This essay proceeds as follows. First, it briefly explains fintech lending, focusing on its differences from traditional lending. Next, it highlights the promise and peril of fintech lending. Finally, it considers how state and federal regulators might deploy their powers to prohibit unfair acts and practices to encourage the promise and avoid the peril of fintech lending. A brief conclusion follows.

Tesla will soon market fully self-driving cars despite lack of safety regulation

This Washington Post article by Faiz Siddiqui explains that "Tesla is racing to be first to the market with a self-driving car made for the masses, promising to send as soon as this year an over-the-air software update that will turn hundreds of thousands of its vehicles into robo-cars."

Yet, "a dozen transportation officials and executives, including current and former safety regulators, auto industry executives, safety advocacy group leaders and autonomous-vehicle competitors" interviewed by the Post "expressed worries that Tesla’s plan to unleash robo-cars on the road on an expedited timeline — likely without regulated vetting — could result in crashes, lawsuits and confusion."

Because "autonomous vehicles are largely self-regulated — guided by industry standards but with no clearly enforceable rules — no one can stop the automaker from moving ahead."

Will NY's Governor Cuomo sign pending consumer protection bills?

by Jeff Sovern

Norm Silber of Hosfstra has pointed out to me that the New York legislature has passed two consumer protection bills that await Governor Cuomo's signature. One, S03704, would amend New York's existing Plain Language Law to require that consumer contracts involving up to $250,000 be written "in a clear and coherent manner using words with common and every day meanings." Currently the limit is $100,000.  I'm not sure how many consumer contracts involve more than $100,000 (perhaps some multi-year residential leases or expensive cars) but I also don't see a justification for having any consumer contract that is not written in plain language.  Those entering into consumer contracts should not be put to the choice of not understanding their contracts or having to hire a lawyer to explain it to them. Few consumers read contracts, but maybe those who sign large ones do. 

The second bill, S02302, would block consumer reporting agencies from evaluating a consumer's creditworthiness based on the members of a consumer's social network, or reporting creditworthiness information about their social network. CNN has reported that Facebook has taken out a patent to evaluate consumer creditworthiness by looking at the creditworthiness of social network friends. This practice may be dicey under the Fair Credit Reporting Act, which requires that consumer reports be issued only for permissible purposes: disclosure of information about others in your social network would not be for a permissible purpose involving them  but rather for you. Maybe the information is saved by the fact that a collective score is provided about many people or by some form of anonymization, but maybe it isn't. I am told that companies are not currently using this information, but credit scores are such a black box that I'm not certain of that, and just because it's not used today doesn't mean it won't be used in the future.  It seems unlikely that companies would use information about people in a social network without testing empirically whether it is predictive of defaults, but perhaps that testing is now occurring. What I wonder about is whether use of this information would help the roughly 11% of American adults who are credit invisible. If social network data would increase the number of consumers seen as worthy of credit, and if those consumers actually are worthy of credit, the bill might be a bad idea. On the other hand, if social network data would make it harder for consumers who are likely to repay loans to obtain credit, the bill would seem worth supporting. I guess it comes down to what the data show.  In addition, the practice of using social network data to evaluate creditworthiness might have incentive effects: would consumers decline friend requests for fear of damaging their credit?