CFPB orders tech giants to turn over information on their payment systems

The Consumer Financial Protection Bureau has ordered Amazon, Apple, Facebook, Google, PayPal, and Square to turn over information on their payment system plans. The orders look like this.

The agency's press release begins this way:

Today, the Consumer Financial Protection Bureau (CFPB) issued a series of orders to collect information on the business practices of large technology companies operating payments systems in the United States. The information will help the CFPB better understand how these firms use personal payments data and manage data access to users so the Bureau can ensure adequate consumer protection. “Big Tech companies are eagerly expanding their empires to gain greater control and insight into our spending habits,” said CFPB Director Rohit Chopra. “We have ordered them to produce information about their business plans and practices.”

Read the full statement of Director Chopra here.

Robert F Kennedy Jr. Sues to Identify Blogger Who Pointed Out That He Spoke at Rally Connected to Neo-Nazis

by Paul Alan Levy

Our latest effort to defend the right to speak anonymously about issues of public concern brings us up against Robert F. Kennedy Jr.

Last summer, Kennedy spoke at an August 29 rally convened by the German far right to protest government restrictions aimed at corralling the COVID pandemic. Kennedy was, apparently, the third choice speaker, after appeals from a rightwing group called Querdenken to Donald Trump and Vladimir Putin went unheeded.  But when this group learned that Kennedy was coming to Germany for other reasons, it issued a public invitation and he responded. The German right waxed rhapsodic about the way in which Kennedy’s presence was lending legitimacy to their activity.

The rally and his speech were widely covered in the mainstream media, which reported that his rally was heavily attended by neo-Nazis  and that a variety of antisemitic and neo-Nazi factions  had been involved in organizing the event. Kennedy was infuriated by this coverage of the audience to whom he had become connected by speaking at the rally.  His position is that any neo-Nazis were at some other rally on the same day, and that Querdenken is a fine group unsullied by neo-Nazi or anti-Semitic ties. Our expert witness says otherwise.

The National Consumer Law Center is hiring a consumer-justice lawyer to work on predatory lending and banking

The great consumer-justice lawyers at the National Consumer Law Center are hiring a lawyer to work on predatory lending and banking issues. The job announcement is here. 

 

Traitor Joe – another big company with no sense of humor making IP threats

by Paul Alan Levy

I recently had the pleasure of representing Dan McCall again — author of such wicked parodies as NSA – the Only Part of Government That Actually Listens (we got to sue the NSA for a declaratory judgment of noninfringement); Ready for Oligarchy (over which we came with hours of filing suit against Hillary Clinton’s exploratory committee); and Bernie Is My Comrade (Sanders’ committee had the smarts to retract quickly).  Last week, I sent a response to a demand letter sent on behalf of Trader Joe's from a BigLaw attorney lawyer who, considering his claim to be a "seasoned intellectual property litigator," really should have known better than to subject his client to the Streisand Effect.

Read Rohit Chopra's statement to CFPB staff and other financial regulators right after his swearing in

Here.

An open letter to Rohit Chopra: Don't forget arbitration

Dear Rohit:

Congratulations on your confirmation to serve as Director of the Consumer Financial Protection Bureau! You are an excellent choice for many reasons, not least because you bring to the CFPB helm the experience of having served as an FTC Commissioner as well as having been at the CFPB in its earliest days.

Much has been written about the matters you are likely to pursue. No doubt much is also being written and said to you about what people want you to do. This is one of those communications: I hope you will use the CFPB’s power to regulate arbitration clauses. Pre-dispute arbitration clauses remain a serious limit on consumer protection and they are made all the worse by the fact that people agree to them without even knowing that they are surrendering constitutional rights.

It may feel as if you don’t have a deadline to act on arbitration clauses and so can put it off to attend to other matters that may seem more immediate. In fact, I fear you may have such a deadline. Because we do not know how the 2024 presidential election will go, your service at the Bureau might, unfortunately, end on January 20, 2025. And because of the Congressional Review Act, it is possible that Congress could block in 2025 rules adopted during the second half of 2024. In other words, your deadline for rules, including an arbitration rule, might actually be some time during the first half of 2024—less than three years from now. Accordingly, I hope you will not delay moving on arbitration clauses.

Some argue that Congress’s use of the Congressional Review Act in 2017 would prevent you from acting. For reasons I have explained at https://pubcit.typepad.com/clpblog/2021/05/a-suggestion-to-the-cfpb-for-a-new-arbitration-rule.html, I do not think that is so. If you proceed, there will be a battle, but it is a battle worth fighting.

One final point: many disagreements between consumer advocates stem from the desire of consumer advocates to prevent consumers from making poor choices (e.g., predatory loans, payday loan debt traps, and yes, contracts with arbitration clauses) and the desire of the industry to maximize consumer ability to make choices, including very bad ones. The unnecessary deaths of unvaccinated people from Covid has brought home the consequences of allowing people to make terrible decisions in another context. Similarly, during the Great Recession, millions lost their homes because they had willingly entered into tragic transactions. You can’t save lives, but part of your job is to prevent people from entering into transactions that could blow up their lives. I look forward to watching you do so.

Jeff Sovern

Are the Authors of Consumer Reviews Protected by Anti-SLAPP Laws?

by Paul Alan Levy

Today we entered an important case that will determine whether New York’s new and improved anti-SLAPP law protects the authors of consumer reviews against being sued for defamation when they reveal publicly that they were less than thrilled with a business’s services or products.

The case arose from the horrible experience of the Sproule family in early March 2020, when they traveled from their home in the Chicago suburbs to Sarah Sproule’s hometown, Wantagh, New York, to attend her father’s funeral. They brought along their daughter’s brand-new puppy (her Christmas present!) and took him in for grooming at a local business, VIP Pet Grooming Studio.  The precise course of events is disputed, but the bottom line is that the grooming was interrupted because the puppy reacted badly; water accumulated in the dog’s lungs; and after two days on a ventilator at a local animal hospital, at a cost of more than $10,000, the dog had to be put down.

Compounding the family’s misery, the grooming outfit refused to take any responsibility for what had happened. So Robert Sproule posted reviews on both Yelp and Google, and both he and his wife sued the grooming company for negligence once the courts reopened as the pandemic eased. On the same day that it responded to the negligence complaint, VIP Pet Grooming sued for defamation. In a particularly sleazy move, the company sued both Robert and Sarah Sproule, even though only Robert Sproule had posted the reviews. Was this punishment for Sarah Sproule’s having sued for negligence? Was it just extra pressure on the family as a whole? VIP's lawyer has ignored that question so far.

FTC settement bans bogus debt collectors from collections

An Atlanta-based debt collection company and its owners will be permanently banned from the debt collection industry under the terms of a settlement with the Federal Trade Commission.

The FTC's press release is here.

CFPB report on consumer complaints finds variations by race and wealth

The Consumer Financial Protection Bureau has released a report analyzing, by U.S. Census tract, patterns in the consumer complaints submitted to the CFPB between 2018 and 2020. The report finds that the complaints from wealthier communities and communities with higher percentages of white, non-Hispanic residents were more frequently about loan origination and performing servicing, while the complaints from communities of color and lower income communities were more frequently about credit reporting, identity theft, and delinquent servicing.

Some of the report’s other findings are:

• Complaints about loan originations increased by nearly 50% over the course of 2020, driven largely by mortgage complaints. This increase was centered in higher-income neighborhoods and neighborhoods with fewer people of color.
• Neighborhoods with the highest share of white, non-Hispanic consumers submit complaints about loan originations at more than twice the rate of neighborhoods with the highest share of Black consumers.
• Consumers from neighborhoods with the highest share of Black residents submit the most complaints per resident. Census tracts with the greatest share of Black residents (95% and over) have estimated complaint rates that are double the rates for tracts with the lowest share (5% and under).
• Lower income census tracts (those at or below 40% of their area’s median income) submit around 30% more complaints per resident than census tracts at around 100% of their area’s median income.
• Lower-income and communities of color are more likely to submit complaints about credit reporting, identity theft, and delinquent servicing, while higher-income and majority white, non-Hispanic communities are more likely to submit complaints about origination and performing servicing.

The CFPB report is here.

 

Harvard Law Review to publish Wilf-Townsend article: Assembly-Line Plaintiffs

Daniel Wilf-Townsend of Chicago has written Assembly-Line Plaintiffs, Forthcoming in the Harvard Law Review. Here is the abstract:

Around the country, state courts are being flooded with the claims of massive repeat filers. These large corporate plaintiffs leverage economies of scale to bring tremendous quantities of low-value claims against largely unrepresented individual defendants. Using recently developed litigation-analytics tools, this article presents the first nationwide study of these “assembly-line plaintiffs,” examining millions of cases across hundreds of jurisdictions. It documents the pervasive nature of this litigation, finding that in many court systems just the top ten private filers account for between one fifth and one third of all civil litigation.

This pattern raises serious concerns. Drawing on existing empirical literature and a sample of 1,000 recent case dockets, the article describes how these cases turn state courts into near-automatic claims processors for large corporations, transferring assets from mostly absent defendants without significant scrutiny of the underlying claims. These defendants, moreover, are often particularly vulnerable low-income consumers or members of other marginalized groups. And although many concerns raised by this litigation overlap with those related to unrepresented litigants more broadly, the structural features of assembly-line litigation—its one-sidedness, high volume, and low claim value—present distinctive challenges. The article concludes by considering a few specific potential reforms designed to meet those challenges: assessing a surcharge on frequent filers as a form of congestion pricing; enabling common defenses to be asserted as affirmative causes of action to facilitate aggregation; and moving courts away from one-case-at-a-time adjudication toward a more investigative, administrative-agency-like model.

(Slow) Progress on nomination of Chopra for CFPB director

In February, President Biden nominated FTC Commissioner Rohit Chopra as director of the Consumer Financial Protection Bureau. Yesterday evening, the Senate voted 49-48 along party lines to advance his nomination to the Senate floor from the Senate Banking Committee. A confirmation vote could come next week.

Hawkins & Penner essay about advertising, racial steering, and lending

Jim Hawkins of Houston and Tiffany Penner have written Advertising Injustices: Marketing Race and Credit in America, 70 Emory Law Journal 1619 (2021). Here is the abstract:

Access to affordable credit played a central role in the Civil Rights Movement. But today, racial and ethnic minorities oversubscribe to high-cost lending products like payday loans and underuse more affordable credit options that traditional banks offer. These trends remain even when controlling for demographic variables like income, credit score, and education. While research verifies that these disparities exist, little work explains why.

This Essay argues that advertising entrenches these racial inequities. Two empirical studies we conducted of advertising by banks and payday lenders suggest that payday lenders steer African Americans and Latinos to their products while banks market to whites. For instance, though African Americans make up only 23% of payday lending customers, 35% of the “model” customers featured in advertising on these lenders’ websites depict African Americans. Meanwhile, almost 30% of mainstream bank websites featured no African American models. Almost 75% featured no Latino models. Only 3% did not feature a white model. Even after the outcry over racial injustice in 2020, banks did not appreciably increase the representation of people of color on their websites.

This needs to change. We argue that lenders themselves are the first and simplest source for racial justice in advertising credit. Both payday lenders and banks can easily ensure that their advertising reflects the communities they serve. Congress and the Consumer Financial Protection Bureau also have a role to play. Amendments we propose to the Equal Credit Opportunity Act, the Community Reinvestment Act, and the regulations that implement them call for advertising that welcomes people of color to affordable credit sources.

In consumer class action against Walmart, Eighth Circuit holds that right to enforce arbitration agreement was waived by Walmart's litigation conduct

Here's how the Eighth Circuit, in its brand-new decision, McCoy v. Walmart, described the merits of the consumer class action before it: "Debbie McCoy purchased Walmart gift cards as Christmas presents. The cards turned out to be worthless, however, because one had been deactivated and the other had no balance remaining. McCoy, seeking to represent a nationwide class of disgruntled gift-card purchasers, sued Walmart."

After many months of defending the case on its merits, Walmart then invoked an arbitration agreement, saying that, under the Federal Arbitration Act, the case didn't belong in court at all. The question was whether by “substantially invok[ing] the litigation machinery rather than promptly seeking arbitration," Walmart had waived any right it had to arbitrate. The answer, according to the Eighth Circuit, was "yes."

Our readership may find the opinion worth reading, as it contains a compact discussion of the considerations for determining waiver by litigation conduct. Note also that the Eighth Circuit's opinion cements that court's earlier rulings that the waiver question should be decided by the court not an arbitrator.

Finance Professor McNulty paper on consumer protection settlements

James E. McNulty a finance professor at Florida Atlantic University has written Consumer Protection Settlements: Theory and Policy. Here's the abstract:

Lawsuits have a deterrent effect, but this is mitigated if settlements are routine. Regulators and judges should consider that a firm contemplating predatory activity directed at financially unsophisticated individuals might have built an estimate of settlement costs into their analysis of the net present value of the “project.” This suggests that choosing not to settle to establish a precedent would be an appropriate regulatory policy, especially in cases involving egregious behavior. Hence, while private settlements may be Pareto optimal, this notion does not apply to public consumer protection class action settlements. Asymmetric information is a major factor in consumer protection litigation, but the consumer protection regulator has an information advantage; this can allow regulators to represent the class effectively. We develop these issues by considering theories of the settlement process in the context of a pivotal case. We provide suggestions for theoretical research on consumer protection class actions, an underdeveloped area of the literature.

John Oliver on Housing Discrimination

Here. As usual, he reports the facts in an engaging way.

New Ninth Circuit ruling on Federal Arbitration Act preemption

The Ninth Circuit issued a decision today in Chamber of Commerce v. Bonta. The Ninth Circuit write summaries of its opinions for public consumption. As the Ninth Circuit puts it, a summary "constitutes no part of the opinion of the court. It [is] prepared by court staff for the convenience of the reader." The following summary provides a synopsis of the majority opinion authored by Judge Charles Lucero (a Tenth Circuit judge sitting by designation) and a partial dissent authored by Judge Sandra Ikuta:

The panel reversed, in part, the district court’s conclusion that California Assembly Bill 51 is preempted by the Federal Arbitration Act; affirmed the district court’s determination that the civil and criminal penalties associated with AB 51 were preempted; vacated the district court’s preliminary injunction enjoining AB 51’s enforcement; and remanded for further proceedings.

AB 51, which added § 432.6 to the California Labor Code, was enacted with the purpose of ensuring that individuals are not retaliated against for refusing to consent to the waiver of rights and procedures established in the California Fair Employment and Housing Act and the California Labor Code; and to ensure that any contract relating to those rights and procedures be entered into as a matter of voluntary consent, not coercion. Other provisions of the California Code, specifically Labor Code § 433 and Government Code § 12953, render violations of § 432.6 a misdemeanor offense and open an employer to potential civil sanctions. The district court concluded that AB 51 placed agreements to arbitrate on unequal footing with other contracts and also that AB 51 stood as an obstacle to the purposes and objectives of the Federal Arbitration Act (“FAA”). The district court preliminarily enjoined enforcement of § 432.6(a)–(c) as to arbitration agreements covered by the FAA.

More on Alavaro Bedoya's nomination as an FTC commissioner

Following up on Jeff's post from yesterday about my colleague Alvaro Bedoya's nomination to the FTC, for more information go here and here. 

Bloomberg: Biden to nominate Georgetown prof and privacy expert Alvaro Bedoya for FTC

Here. Given the FTC's role as the leading federal agency on privacy issues, there is value in having a privacy advocate on the Commission. If confirmed, Bedoya would get Rohit Chopra's seat, assuming Chopra is in turn confirmed to lead the CFPB. 

Webinar: The Rise in Debt Collections Litigation and What States can Do

The Aspen Institute Financial Security Program and Pew will hold a webinar on Thursday, October 28 at 1:00 pm ET on the debt collections litigation system and ways to create better outcomes for people. Here is the description:

The system for collecting unpaid debts is broken. One in three American adults had debt in collections prior to the pandemic in 2019 -- and during the pandemic almost half of Americans reported facing serious financial problems. The leading cause for debt collectors to contact consumers for non-loan debt include medical bills, telecom bills, and utility bills -- and many times, people are unaware they owe a debt until a collector calls.

The consequences of burdensome debt are clear: consumer debt threatens people’s financial security by making it harder to stay housed, obtain credit, and build wealth. What is far less discussed is this: for 68 million people across America, the average amount in collections was less than $2,000.

Some states and advocates are pioneering ways of fixing the broken system of debt collections litigation. To do this, they must first understand the common ways the system fails individuals, and the state and federal solutions to ensure that debt is legitimate; that defendants know they are being sued; and that judgments do not permanently damage debtors’ financial security.

Register here.

Markup Study finds "loan applicants of color were 40%–80% more likely to be denied than their White counterparts"

Here, by Emmanuel Martinez and Lauren Kirchner and headlined "The Secret Bias Hidden in Mortgage-Approval Algorithms." Excerpt:

An investigation by The Markup has found that lenders in 2019 were more likely to deny home loans to people of color than to White people with similar financial characteristics—even when we controlled for newly available financial factors that the mortgage industry for years has said would explain racial disparities in lending.

Holding 17 different factors steady in a complex statistical analysis of more than two million conventional mortgage applications for home purchases, we found that lenders were 40 percent more likely to turn down Latino applicants for loans, 50 percent more likely to deny Asian/Pacific Islander applicants, and 70 percent more likely to deny Native American applicants than similar White applicants. Lenders were 80 percent more likely to reject Black applicants than similar White applicants. These are national rates.

* * *

We sent our complete analysis to industry representatives: The American Bankers Association, The Mortgage Bankers Association, The Community Home Lenders Association, and The Credit Union National Association. They all criticized it generally, saying the public data is not complete enough to draw conclusions, but did not point to any flaws in our computations.

Becher & Benoliel article: Dark Contracts

Samuel Becher of Victoria University of Wellington and Uri Benoliel of Ramat Gan Law School have written Dark Contracts. Here is the abstract:

Millions of consumers are routinely subject to non-transparent consumer contracts. Such contracts undermine fundamental contract law notions. They leave consumers uninformed and disempowered. They also encourage unethical behavior and undercut the ability of legal and meta-legal forces to discipline firms.

The legal treatment of non-transparent consumer contracts is undertheorized and partial in scope. This Article develops a new holistic framework for understanding these opaque consumer contracts. To conceptualize the various non-transparent ways in which firms use consumer contracts, the Article develops the notion of Dark Contracts.

Part I of this Article explains what Dark Contracts are. It documents multiple non-transparent contractual mechanisms and instruments that consumer contracts often incorporate. It delineates how firms design and employ non-transparent tools in almost every possible contractual juncture: from the nature, scope, and language to performance and change to dispute resolution, conflict management, and termination.

After documenting this non-transparency in action, Part II places the problem of Dark Contracts in a wider context. First, it argues that the sum of these non-transparent components is greater than its parts; Dark Contracts not only create pockets of non-transparency but also produce an in terrorem effect. Next, it opines that Dark Contracts harm not only consumers. Specifically, Dark Contracts emasculate the ability of legislatures, regulators, courts, and market watchdogs to scrutinize the ways firms exercise their power. Thereafter, it explains how Dark Contracts also interfere with the market’s ability to offer effective reputational systems that discipline firms. Subsequently, it maintains that Dark Contracts facilitate a moral wiggle room, enhancing firms’ unethical behavior.

Against this backdrop, Part III calls for introducing transparency-related concepts to the law of consumer contracts. It explicates the potential of and the limitations in utilizing transparency principles in the law of consumer contracts. It further argues that policymakers should design transparency-related principles to (1) better scrutinize firms’ practices, (2) empower consumers to make better-informed decisions, and (3) ensure that firm’s unethical contractual behavior is not the prevalent norm. Concluding remarks follow.

Tschider article on consent and privacy

Charlotte Tschider of Loyola of Chicago has written Meaningful Choice: A History of Consent and Alternatives to the Consent Myth, 22 N.C. J.L. & Tech. 617 (2021). Here is the abstract:

Although the first legal conceptions of commercial privacy were identified in Samuel Warren and Louis Brandeis’s foundational 1890 article, The Right to Privacy, conceptually, privacy has existed since as early as 1127 as a natural concern when navigating between personal and commercial spheres of life. As an extension of contract and tort law, two common relational legal models, U.S. privacy law emerged to buoy engagement in commercial enterprise, borrowing known legal conventions like consent and assent. Historically, however, international legal privacy frameworks involving consent ultimately diverged, with the European Union taking a more expansive view of legal justification for processing as alternatives to consent.

Unfortunately, consent as a procedural substitute for individual choice has created a number of issues in achieving legitimate and effective privacy protections for Americans. The problems with consent as a proxy for choice are well known. This Article explores the twin history of two diverging bodies of law as they apply to the privacy realm, then introduces the concept of legitimate interest balancing as an alternative to consent. Legitimate interest analysis requires an organization formally assess whether data collection and use ultimately result in greater benefit to individuals than the organization with input from actual consumers. This model shifts responsibility from individual consumers having to protect their own interests to organizations that must engage in fair data use practices to legally collect and use data. Finally, this Article positions the model in relation to common law, federal law, Federal Trade Commission activities, and judicial decision-making as a means for separating good-intentioned organizations from unethical ones.

Dep't of Education announces student-loan forgiveness of disabled borrowers

The Department of Education announced yesterday: "Over 323,000 borrowers who have a total and permanent disability (TPD) will receive more than $5.8 billion in automatic student loan discharges due to a new regulation announced today by the U.S. Department of Education. The change will apply to borrowers who are identified through an existing data match with the Social Security Administration (SSA). It will begin with the September quarterly match with SSA. The Department is also announcing two other policy items related to TPD today. First, the Department will indefinitely extend the policy announced in March to stop asking these borrowers to provide information on their earnings — a process that results in the reinstatement of loans if and when borrowers do not respond—beyond the end of the national emergency. Second, the Department will then pursue the elimination of the three-year monitoring period required under current regulations during the negotiated rulemaking that will begin in October."

The full press release is here.

Zimmerman article on appeals courts hearing class actions

Adam S. Zimmerman of Loyola of Los Angeles has written The Class Appeal, 89 University of Chicago Law Review (Forthcoming 2022). Here's the abstract:

For a wide variety of claims against the government, the federal courthouse doors are closed to all but those brought by powerful, organized interests. This is because hundreds of laws—colloquially known as “channeling statutes”—require disaffected groups to contest government bodies directly in appellate courts that hear cases individually. In theory, these laws promise quick, consistent, and authoritative legal decisions in appellate courts. In fact, without class actions, government bodies avoid judicial review by selectively avoiding claims brought by some of the most vulnerable claimants in the administrative state—from veterans and immigrants to coal miners, laborers, and the disabled.

This Article proposes a novel solution: courts of appeals should hear class actions themselves. In so doing, courts high in the judicial hierarchy would continue to authoritatively decide important legal questions involving government institutions, while ensuring groups of similar, unrepresented parties finally get their day in court. While appellate class actions might sound like a strange procedural innovation, appellate courts already have power do this. Relying on the All Writs Act, appellate courts long ago created ad-hoc procedures modeled after class actions to respond to systemic government harm.

This Article is the first to examine nascent experiments with appellate class actions. It shows that, contrary to popular belief, appellate courts can hear class actions and explains why they should do so. In cases challenging systemic abuse, this power has become vital not only to level the playing field between the government and the governed, but to protect courts’ core function in our separation of powers—to hear claims, interpret law, and grant meaningful relief. Without classwide judgments in such cases, courts risk ceding power to the executive branch to decide for itself when judicial decisions limit its own unlawful policies.

Covid-related tort claims against nursing homes

Law prof Betsy Grey Against Immunizing Nursing Homes about when nursing homes should be liable for covid-related tort claims. Here's the abstract:

Nursing homes and other long-term care facilities account for approximately one third of the over 500,000 Covid-19 deaths in the United States. Facing liability from that widespread harm, the facilities have sought immunity protection from tort liability. In particular, they have sought protection under the federal Public Readiness and Emergency Preparedness (PREP) Act, which is designed to extend immunity from liability claims arising from various Covid-19 countermeasures developed and used during the pandemic.

Importantly for this essay, the lawsuits filed against nursing homes have centered on their failure to take mitigation measures, rather than on harm from their affirmative use of mitigation measures. Initially, courts held that PREP Act immunity does not apply to these failure-to-act claims. In the waning days of the Trump Administration, however, HHS issued an opinion that (together with other HHS statements) interprets the statute otherwise, broadening immunity even to cover the failure to take mitigation measures. That interpretation has been followed by at least one federal district court. This essay questions the wisdom of HHS’s opinion. It argues that it misreads the words and purpose of the PREP Act’s immunity provisions, and undermines accountability of the nursing home industry, creates the wrong incentives for the industry, and may leave victims without any compensatory remedy. This issue should reach appellate courts soon. If the interpretation continues to be followed by the courts, then the Biden Administration should rescind the opinion so that tort law may continue to protect one of society’s most vulnerable populations.