Sixth Circuit says that the Center for Disease Control's eviction moratorium is unlawful

The Sixth Circuit just ruled that the Center for Disease Control's eviction moratorium is unlawful because it lacks any basis in the statute that the government says authorizes it. Read the decision here.

US PIRG report on CFPB's first 10 years

As the Consumer Financial Protection Bureau turns 10 years old, a new report from the U.S. PIRG Education Fund recaps how the agency has helped consumers over the past decade and the steps under way to refocus the CFPB on its mission after three years of retrograde decisions under the Trump Administration. The report also provides recommendations for CFPB action moving forward, especially on credit reporting.

FTC actions this week

FTC to Ramp Up Law Enforcement Against Illegal Repair Restrictions (July 21, 2021)

FTC Rescinds 1995 Policy Statement that Limited the Agency’s Ability to Deter Problematic Mergers (July 21, 2021)

FTC Votes to Reverse Course on Repeal of Fabric Care Labels (July 21, 2021)

Reuters: Former CFPB Director Kraninger to join crypto firm

Here. Excerpt: 

Cryptocurrency startup Solidus Labs has hired the former director of the U.S. Consumer Financial Protection Bureau (CFPB) as its top regulatory official, she told Reuters.

* * *

Founded in 2017 by former Goldman Sachs employees, New York-based Solidus Labs provides cryptocurrency trading surveillance and risk monitoring tools. Its backers include private equity firms Evolution Equity Partners and Hanaco Ventures.

Kraninger will lead and build out Solidus Labs' regulatory team, spending most of her time working with regulators, U.S. lawmakers and traditional institutions to explain how digital markets can be effectively policed, she said in an interview.

Vijay Raghavan article on Consumer Law's Equity Gap

Vijay Raghavan of Brooklyn has written Consumer Law's Equity Gap, Utah Law Review (forthcoming 2022). Here is the abstract:

This article is about the views that shape and constrain the development of consumer law. Consider the market for short-term, high-cost loans. Policymakers tend to justify intervening in these markets on inefficiency grounds (consumers exhibit present bias) and rarely on equitable grounds (these loans cost too much). Why? One recent explanation suggests that policymakers may focus on inefficiency because they believe access to credit is essential for social and economic development. In this article, I offer an alternative explanation. The lack of equity in consumer law is not a function of narrow conceptions internal to consumer law but the external view that the law should prioritize efficiency and ignore equity. The dominant rationale for this view is that redistribution through legal rules distorts economic behavior more than redistribution through an income tax. Here, I discuss the longstanding and recent critiques of this rationale and build on these critiques to show why it is a fundamental mistake to ignore distribution in consumer law. In particular, background legal rules shape consumer demand in particular markets. These background conditions may mean that seemingly irrational exchanges are, in fact, rational. An approach tethered to consumer preferences may struggle to justify altering the terms of rational exchanges. In order to overcome this problem, I suggest that we center distribution in the way we justify interventions and conceptualize solutions to problems in consumer financial markets. I detail what centering distribution in consumer law might look like and conclude by considering some objections to redistributive policies in consumer law.

Teaching Consumer Law Conference

SAVE THE DATE!

Teaching Consumer Law Conference

With a Full Day Devoted to Clinical Education

May 19, 20 & 21, 2022

Santa Fe, New Mexico

Presented by the Center for Consumer Law, University of Houston,

and the Center for Consumer Law & Economic Justice, UC Berkeley

It may seem like forever since there has been an in-person conference... but the Center for Consumer Law at the University of Houston Law Center and the Center for Consumer Law & Economic Justice at the UC Berkeley School of Law are proud to present the twelfth biennial international Teaching Consumer Law Conference. We are doubly proud to announce that the Teaching Conference has combined forces with the Law School Consumer Clinics Conference – so the program will begin with a full day devoted exclusively to consumer clinical education.

The Conference will be held at the Hilton Hotel in Santa Fe, New Mexico, the “City Different,” one of the oldest and most fascinating cities in the United States. The Conference will focus on all aspects of teaching consumer law, as well as on traditional substantive issues of consumer protection and economic justice. There will be presentations and discussions on US and international pedagogical techniques – from integrating technology and virtual teaching into the classroom, to bringing the classroom to local businesses, to providing additional information to students in advance of class discussion and collaborating with students to build curriculum. We also will discuss developing consumer law programs at law schools around the world – and a plan to create a network of consumer law students around your home country. And, of course, there will be presentations on current and cutting-edge substantive issues in consumer law – everything from how the pandemic has affected consumer law, to arbitration and class actions, false advertising, credit reporting, debt collection, small-dollar lending, student loans and financial technology. Although most of the focus of the conference will be on private enforcement, public enforcement entities like the CFPB and the FTC will also be on the table.

The conference is directed toward those currently teaching or interested in teaching consumer law or a consumer clinic, full-time or as an adjunct. Proposals are welcome from all jurisdictions, but presentations must be in English. Information regarding the process for designing and submitting proposals will be distributed this fall.

For more information contact Professor Emeritus Richard Alderman, alderman@uh.edu.

We look forward to seeing you in Santa Fe, May 2022!

 

Second Circuit holds that private student loans may be discharged in bankruptcy

As you may know, most student loans are notoriously difficult to discharge in bankruptcy.

But not all loans, according to In re Hilal K. Homaidan (CA2 July 15, 2021). In that decision, the Second Circuit has joined the Fifth and Tenth Circuits and held that private student loans are dischargeable in bankruptcy. The exceptions to discharge for certain student educational benefits contained in 11 U.S.C. § 523(a)(8)(A)(ii), the Court held, do not include private educational loans. Thus, private students loans are dischargeable, period, so the debtor need not show "undue hardship"--the generally applicable and very-hard-to-prove standard. A private student loan is one that is not "made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution." See 11 U.S.C. § 523(a)(8)(A)(i).

Our readers may enjoy the Second Circuit's detailed statutory analysis.

Am. Banker: What to expect from Chopra's CFPB

Here (behind paywall but available on Lexis), by Kate Berry. The headline has the summary: "Harsher rules, more enforcement." Excerpt:

"The CFPB has been extraordinarily active under acting Director Dave Uejio, who is not acting like a typical acting director," said Jeff Naimon, a partner at the Buckley law firm. "He knows how things work and how the administration wants him to work. He's very effective."

* * *

"The CFPB is going to have a singular focus on racial equity looking at issues from redlining to appraiser discrimination," said Richard Horn, co-managing partner at the law firm Garris Horn and a former CFPB senior counsel and special advisor. "There's going to be a lot more fair-lending enforcement and more enforcement against executive owners of companies. That's the new mindset."

Meanwhile, GOP senators who voted against Chopra's confirmation on the Senate Banking Committee are reportedly complaining that he has not answered questions they posed in a letter sent well after the confirmation hearing. Law360 has the story (possible paywall).

The CFPB is turning 10; celebrate and hear Elizabeth Warren

Americans for Financial Reform, the Public Interest Research Group, the Center for Responsible Lending, the National Consumer Law Center, the Consumer Federation of America, National Association of Consumer Advocates, New Jersey Citizen Action, the Woodstock Institute and the Leadership Conference on Civil & Human Rights is commemorating the 10th anniversary of the creation of the Consumer Financial Protection Bureau (CFPB). Everyone is invited. Elizabeth Warren is speaking.

Go here to RSVP. 

 

  

Colorado becomes third state to enact major consumer privacy law; will Congress react?

by Jeff Sovern

Bloomberg Law has the story here (possibly behind pay wall). The first was California, and the second was Virginia. Others are likely to follow. The more states that enact privacy laws, the more businesses are likely to complain that they are encountering compliance difficulties and expense complying with the different laws. They will probably push Congress harder to enact a national privacy law that would preempt state privacy laws. Thus far, the negotiations in Congress over enacting a privacy law have foundered over disagreement on two main issues: whether such a law should provide for a private claim and whether it should preempt state laws. My own view, for what it's worth, is that this is an instance where we should let Justice Brandeis's view of the states as laboratories operate for at least a while longer. As technology advances, the law's response should also keep pace, and if Congress acts enacts a law now, it will freeze the law's response as of now, so that the law will lose the ability to adapt to the new technology. And if you think Congress will pass a new law as technology evolves, just think about the fact that the Fair Debt Collection Practices Act still regulates the use of telegrams in debt collection.

CFPB reports that companies' spotty responses undermine COVID-19 consumer relief

Last week, the Consumer Financial Protection Bureau issued a report on "several areas of concern related to relief provided in response to the COVID-19 pandemic, including the Centers for Disease Control and Prevention (CDC) eviction moratorium. Some consumers reported facing homelessness because of the negative impact of an eviction on their credit history reported by debt collectors. Consumers were also deprived of the full benefit of the economic impact payments as a result of overdraft practices at some financial institutions, and not all student loan borrowers were able to get the timely information and assistance they needed from their student loan servicer to get the full benefit of the variety of federal loan forgiveness, cancellation, and discharge programs offered through the CARES Act."

The report, which the CFPB calls a "complaint bulletin," is here.

Executive order on antitrust scheduled for today

Politico reports that President Biden is scheduled to to issue an executive order today "to promote competition throughout the U.S. economy in the most ambitious effort in generations to reduce the stranglehold of monopolies and concentrated markets in major industries." The order is part of an effort "to focus on competition as part of the economic recovery from the pandemic" and responds to "criticisms that the federal government has focused too much on supporting banks and other corporations without concern about the effect on consumers, who have watched their choices dwindle over the years."

The article is here.

Revised version of Six Scandals article available

by Jeff Sovern

I have revised my article, Six Scandals: Why We Need Consumer Protection Laws Instead of Just Markets, to take into account the many helpful comments I received at the Berkeley Consumer Law Scholars Conference.  Here is the updated abstract:

Markets are powerful mechanisms for serving consumers. Some critics of regulation have suggested that markets also provide consumer protection: for example, Nobel Prize-winning economist Milton Friedman said “Consumers don’t have to be hemmed in by rules and regulations. They’re protected by the market itself.” This article’s first goal is to test the claim that the market provides consumer protection by examining several recent incidents in which companies mistreated consumers and then exploring whether consumers stopped patronizing the companies, which would deter misconduct. The issue also has normative implications because if markets consistently protected consumers, society would need fewer regulations and regulators, as Friedman suggested. The article’s second goal is to begin construction of a theory on when the market does or does not protect consumers.

The article finds a more nuanced situation than Friedman and other critics theorized. In some instances, businesses’ sales actually increased after their misconduct became public, despite the fact that, in at least two cases, consumers had told pollsters they would avoid patronizing the company. Even when companies suffered declines in sales after their misbehavior became public, the scandals became known only because of laws and those who enforce them, suggesting that it is the very rules that Friedman decried that led to a market response. Though it is impossible to know what would have happened if the problematic conduct had not occurred, the evidence suggests that markets alone are often not enough to protect consumers, or at least that markets are not a reliable consumer protection mechanism.

 

Rep. McHenry opposes government-run credit bureau on ground that government suffers cyberattacks. Equifax, anyone?

by Jeff Sovern

Last week, the House Financial Services Committee held a hearing on credit reporting. I haven't yet watched the recording, but the American Banker's Neil Haggerty has a story here (the story is behind a paywall, but is available on Lexis). Among the topics addressed during the hearing was President Biden's proposal for a government-run credit bureau. Ranking member Patrick McHenry opposed a government-run credit bureau, commenting, according to the article:

"Cyberattacks are also a major issue with federal databases," McHenry said. "The idea that the government agency doing this will be a better steward of our data is quite questionable, given the track record the federal government."

The article continues:

But Chi Chi Wu, a staff attorney at the National Consumer Law Center, cited the 2017 Equifax data breach of more than 148 million consumers' data as a reason to be skeptical of the private sector's ability to protect consumers' data better than the government.

"Are we forgetting four years ago about the Equifax data breach, how one of these credit bureaus let hackers take the personal information of half the American adult population?" Wu said. "In terms of privacy, our data is with three private corporations that monetize and exploit it and don't do a very good job of making sure it's accurate."

A government-run credit bureau conflicts with conservative ideology. Conservatives tend to trust the free-market, oppose government intervention, and dislike government possession of information.  But the free-market does not operate with credit bureaus because consumers don't get to choose which bureau will report their information. Consequently, credit bureaus have little reason to fear consumer displeasure. And studies often indicate that credit reports contain errors. The FCRA has not been up to the task of protecting consumers. If we don't try something else, we are doomed to have a system in which many consumers are denied credit or charged higher prices for it through no fault of their own.

Daniel Solove's Collection of Funniest Privacy Videos

Here. 

New study confirms that few consumers complain to government agencies about consumer fraud

Keith B. Anderson of the Federal Trade Commission - Bureau of Economics has written To Whom Do Victims of Mass-Market Consumer Fraud Complain?. Here is the abstract:

Utilizing data from surveys of mass-market consumer fraud sponsored by the Federal Trade Commission in 2005, 2011, and 2017, this paper explores whether victims of such mass-market consumer frauds complain to anyone beyond their families and friends about being victimized, and if they do complain, to whom they complain. It also explores whether victims with different demographic characteristics are more or less likely to complain.

In about 45 percent of instances, victims complained to someone beyond their family and friends. This might have been the seller or manufacturer of the fraudulent product of service; a provider of payment services such as a credit card company, a bank or another payment service; a Better Business Bureau; or a government agency. This figure is stable across the three surveys included in this analysis.

While there is little, if any, variation in complaint rates across the three surveys, there is considerable variation in the likelihood that victims of different types of frauds complained. Those who were billed for an item that they had never agreed to purchase were the most likely to report having complained – with 61 percent of those victims indicating that they had complained to at least one party. Fifty-eight percent of those who paid for a product or service that they never received reported having complained. For victims who experienced other types of frauds, no more than 40 percent complained. Of those who purchased fraudulent credit card insurance or a fraudulent computer repair, less than 20 percent complained.

Not surprisingly, complaints were most frequently directed at someone directly involved in the transaction – a seller or a manufacturer. Thirty percent of victims reported having complained either to a seller or to a manufacturer. About 12 percent complained to a credit card company, a bank, or some other payment service provider.

Less than 3 percent of victims complained to a government entity. Somewhat more than half of these – 1.5 percent of victims – complained to a local authority – the local police or a local consumer agency. Less than 1 percent complained to a state Attorney General or other state authority or to a federal agency. Just over 2 percent of victims reported having complained to a Better Business Bureau. Together, 4.8 percent of victims complained to a BBB or to a government agency.

To whom a complaint is directed varies somewhat with the type of problem being considered. While a seller or manufacturer is the most frequent recipient of complaints for most of the types of fraud considered here, the percentage of victims who complained to a seller or manufacturer ranged from 43 percent among victims who paid for an item that they never received to 6 percent for victims of fraudulent computer repair offerings. The percentage of complainants who complained to a governmental entity or the BBB likewise varied with the type of fraud – with around 20 percent of victims of a debt-relief fraud complaining to one of these entities, while less than 1 percent of those who purchased a fraudulent weight-loss product did so.

Rates of complaining differ somewhat depending on the demographic characteristics of the consumer who was reporting on the experience. Consumers who were more educated were more likely to complain about their experiences. Looking at race and ethnicity, Latinos were less likely to complain than were those in other racial and ethnic groups, though overall the differences across racial and ethnic groups are not statistically significant. There was no statistically significant relationship between the age of a victim and likelihood of the victim complaining.

Supreme Court Limits FCRA Standing in TransUnion v. Ramirez

This morning the Supreme Court released its decision in TransUnion v. Ramirez. The decision reveals that although Justice Thomas has jumped off the bandwagon, the Court's majority is continuing its project of expanding its Article III standing doctrine as an obstacle to suits in federal court. This time, the Court holds explicitly that even when Congress has conferred a private right on consumers, and a cause of action to enforce it, consumers cannot pursue a claim in federal court unless the Court agrees that the deprivation of that statutory right is a genuine injury.

Congress passes resolution to overturn OCC's fake lender rule

This afternoon, the House of Representatives voted to overturn the Office of the Comptroller of the Currency’s “fake lender” rule, which allows predatory lenders to evade state interest rate laws by putting a federally-chartered bank’s name on the paperwork. The Senate passed the same resolution on May 11. It now heads to President Biden for signature.

National Consumer Law Center's press release is here.

The OCC put out a statement, here, affirming that "predatory lending has no place in the federal banking system."

Kreiczer-Levy article on the duties of online marketplaces

Shelly Kreiczer-Levy of Ramat Gan College of Law & Business; Global Affiliated Faculty, The Vulnerability and Human Condition Program, Emory Law School has written The Duties of Online Marketplaces 58 San Diego Law Review (2021). Here's the abstract:

Is Amazon a seller for the purpose of product liability law? Is it obligated to stop price gouging by its sellers in the midst of the Covid-19 pandemic? Is Airbnb responsible for discrimination practiced by its users? These legal issues are discussed separately, and courts are typically divided into two camps. Some courts force platforms into unfitting categories such as a seller, a hotel chain or an employer in order to establish liability; others exempt platforms from liability altogether. This Article argues we need to think of these legal duties holistically, and suggests a new legal category: the market-constituting platform. Certain online platforms constitute a market: they create the infrastructure for the activity, the mechanism for closing a deal, the code of acceptable behavior, and the rules of participation in this activity. The challenge to legal thought and practice is to properly conceptualize the legal role of market-constituting actors and the duties that this role entails. This novel legal category has broad implications in different legal areas, including antidiscrimination law, tort law, and consumer protection.

Study reports consumers find courts fairer than arbitration

Farshad Ghodoosi of the David Nazarian School of Business & Economics, California State University, Northridge and Monica Sharif of California State University, Los Angeles have written Justice in Arbitration: The Consumer Perspective, International Journal of Conflict Management (2021). Here is the abstract:

Purpose: Arbitration—a binding private third-party adjudication—has been the primary legal way for resolution of consumer disputes. Consumers, however, rarely use arbitration to resolve their disputes while evidence suggests that their disputes remain unresolved. Contrary to the current prevailing emphasis on who’s winning in arbitration, our study establishes that consumers believe that the court is more just than arbitration, regardless of the outcome. Our study further establishes that consumers’ perceived poor legitimacy and lack of familiarity, not cost calculation, are what drive their justice perception.

Methodology: In three experimental studies, participants were presented with scenarios in which they were to envision themselves amidst a consumer dispute. The scenarios were followed by survey questions that examined individuals’ perceptions of justice. Three mediating variables of legitimacy, cost and familiarity were also examined.

Findings: The results suggest that consumers hold a high perception of justice for court as opposed to arbitration. Even though a favorable outcome increases consumers’ perception of justice, the results suggest that consumers find courts to be fairer regardless of the outcome. Familiarity and legitimacy mediate this relationship, not cost.

Originality: Current research does not provide an adequate explanation for consumers’ underutilization of arbitration nor does it focus on correct factors. Studies in psychology and law primarily focus on ex post feelings of individuals after dispute resolution, ex post favorable outcomes, and ex ante cost-benefit analysis. The present study for the first time analyzes ex ante consumer perception of justice.

Update: WSJ reports Biden to designate Lina Khan to chair FTC

Here (may be behind paywall). As we reported earlier, the Senate confirmed Professor Khan to be an FTC commissioner earlier today. Now that the FTC will have two democratic commissioners, besides Rohit Chopra, the expectation is that the Senate will proceed to vote on Chopra's confirmation to be the CFPB director.

 

Noam Kolt article on computational language models reading contracts

Noam Kolt of the University of Toronto has written Predicting Consumer Contracts, 37 Berkeley Technology Law Journal (2022 Forthcoming). Here is the abstract:

This Article empirically examines whether a computational language model can read and understand consumer contracts. Language models are able to perform a wide range of complex tasks by predicting the next word in a sequence. In the legal domain, language models can summarize laws, draft case documents, and translate legalese into plain English. However, the ability of language models to inform consumers of their contractual rights and obligations has not been explored in detail.

To showcase the opportunities and challenges of using language models to read consumer contracts, this Article studies the performance of GPT-3, a powerful language model released in June 2020. The case study employs a novel dataset comprised of questions relating to the terms of service of popular U.S. websites. Although the results are not definitive, they offer several important insights. First, owing to its immense training data, the model can exploit subtle informational cues embedded in questions. Second, the model performed poorly on contractual provisions that favor the rights and interests of consumers, suggesting that it may contain an anti-consumer bias. Third, the model is brittle in unexpected ways. Performance was highly sensitive to the wording of questions, but surprisingly indifferent to variations in contractual language.

While language models could potentially empower consumers, they could also provide misleading legal advice and entrench harmful biases. Leveraging the benefits of language models in reading consumer contracts and confronting the challenges they pose requires a combination of engineering and governance. Policymakers, together with developers and users of language models, should begin exploring technical and institutional safeguards to ensure that language models are used responsibly and align with broader social values.

AALS call for submissions on climate science and banking regulation

We received the following call for submissions:

The AALS Section on Financial Institutions and Consumer Financial Services invites submissions of no more than five pages for its session at the 2022 annual meeting of the AALS. Next year’s annual meeting will be held virtually from January 5-9, 2022, with the date and time of the Section’s session yet to be announced. The submission can be the abstract and/or introduction from a longer paper, and it should relate to the following session description:

Climate Finance and Banking Regulation: Beyond Disclosure?

In the United States, banking regulation has been slower than other forms of financial regulation (and slower than its European counterparts) to address climate-related financial risks. This panel explores the proper role of banking regulation in addressing the physical and transition risks from climate change. Possible measures include: standardized, mandatory climate risk disclosures by banks; supervisory assessments of climate-related financial risk; capital and liquidity regulation; climate risk scenario tests; determination of the appropriate role of banks in mitigating climate risk; financial stability oversight of climate risk; and action (through the Community Reinvestment Act and otherwise) to deter harms to disadvantaged communities and communities of color from climate change.

Please email your anonymized materials by Friday, July 16, 2021, to Joe Graham, jgraham@bu.edu<mailto:jgraham@bu.edu>. Please also indicate, in addition to the proposal submission of up to five pages: (a) whether you are tenured, pre-tenure, or other; (b) whether you are in your first five years as a law professor (including any years spent as a fellow or visiting assistant professor); (c) how far along the full article is and when you expect to complete the discussion draft; and (d) optionally, how you would contribute to diverse perspectives in our field or on the panel.

The Section will announce the author(s) selected to present by no later than early September, 2021.

On behalf of the Section on Financial Institutions and Consumer Financial Services

Chair: Patricia A. McCoy (Boston College)
Chair-Elect: Paolo Saguato (George Mason University)

Executive Committee Members:
Hilary Allen (American University)
Abbye Atkinson (University of California, Berkeley)
Felix Chang (University of Cincinnati)
Gina-Gail S. Fletcher (Duke University)
Pamela Foohey (Indiana University)
Kathryn Judge (Columbia University)
Michael Malloy (University of the Pacific)
Christopher Odinet (University of Iowa)
Jennifer Taub (Western New England University)
Rory Van Loo (Boston University)
David Zaring (The Wharton School)

Consumer Reports study reports errors in a third of the credit reports examined by participating consumers

by Jeff Sovern

The report, by Syed Ejaz, is titled A Broken System: How The Credit Reporting System Fails Consumers And What To Do About It. Here are excerpts from the Executive Summary:

Consumers are finding errors on their credit reports. More than one-third (34 percent) of consumers who participated in CR’s Credit Checkup survey reported that they found at least one error on their report, with 29 percent saying that they found errors in personal information and 11 percent finding account information errors.

Consumers, through no fault of their own, are struggling to access their credit reports. One in 10 consumers who completed the survey found accessing their credit reports to be “difficult” or “very difficult.” Many consumers gave accounts of being locked out of their credit reports because of identity verification questions that they could not answer.

I've been wondering if supervision by the CFPB and the settlement between the credit bureaus and the Attorneys General have fixed credit reports. I guess we have the answer.

Bar-Gill & Ben-Shahar paper on manipulation of consumers

Oren Bar-Gill of Harvard and Omri Ben-Shahar of Chicago have written Manipulation by Mislaid Priorities. Here is the abstract:

This paper lays a foundation for a new theory of manipulation, based on the misprioritization of (truthful) information. Since consumers review only a subset of all available information, firms can harm consumers by prioritizing information that maximizes firms’ profits but has a smaller impact on the utility that consumers stand to gain from the purchase. Moreover, the distortions due to misprioritized information can arise not only from firms’ boastful disclosures, but also from the warnings and disclosures mandated by lawmakers. The paper identifies the product and market characteristics that determine the optimal prioritization of information and, correspondingly, the incidence of harm when the wrong information is prioritized for disclosure—either voluntarily by sellers or by legal mandate. It provides a framework for optimal legal intervention.