My latest paper: Not-So-Smartphone Disclosures

by Jeff Sovern

I co-authored it with Nahal Heydari.  It's available here. And here's the abstract:

Consumers increasingly engage in financial transactions on smartphones, including obtaining loans. Lawmakers depend on mandatory disclosures to alert consumers when loan terms are excessive. When those disclosures are provided on the tiny screen of a mobile phone, can consumers decipher them? To answer that question, we surveyed 659 consumers, showing half of them standard credit card disclosures on a computer or laptop and half of them disclosures on a mobile phone, and using many of the same questions about the disclosures posed in a 2008 survey with the forms on paper. We found that consumers understood the disclosures significantly less well on smartphones, suggesting that predatory lenders would have an easier time persuading consumers to take out high-priced loans by offering them on mobile apps. Indeed, our respondents who saw the disclosures on smartphones failed to answer correctly nearly half the time.

Our study also indicates that many consumers cannot comprehend credit card disclosures whether they see them on a computer, a mobile phone, or, for that matter, on paper. More specifically, more than a third of the time, on average, consumers could not come up with the correct answer to questions about the forms. The problem is particularly acute for African-American and LatinX respondents, thus opening the door to reverse-redlining. Finally, we found that consumers have an easier time grasping disclosures of penalty fees, such as late fees—as to which charges are limited by federal law—than of penalty interest rates (e.g., higher interest rates assessed because a consumer fails to make timely payments) or non-penalty fees (e.g., cash advance fees)—as to which charges are not limited. Indeed, consumers were 36% more likely to answer questions correctly when asked about matters on which credit card issuers are barred from charging unreasonable fees than when they were asked about items as to which their ability to understand the disclosure was their only protection. These findings suggest that disclosure inadequately protects consumers and that lawmakers should consider imposing additional limits on credit card charges.

Maryland seeking applications for consumer law endowed faculty position

From the announcement:

The University of Maryland Francis King Carey School of Law invites applications for a newly endowed tenured or tenure-track faculty position in consumer law to begin July 1, 2023. For this position, we will consider junior- and senior-lateral candidates and experienced practitioners with demonstrated potential for outstanding teaching and original scholarship. 

Qualifications 

We are seeking a candidate who exhibits national leadership and distinction in consumer law and who has prior experience representing consumers and publishing scholarly articles concerning the interests of consumers in legal matters. The successful candidate will teach a consumer law course and will, on a reasonable basis, teach a first-year or large upper-level course in an area related to consumer law and protecting the rights of consumers (for example, civil procedure, contracts, torts, or commercial law). The University of Maryland has a strong commitment to diversity. We welcome applications from persons of color, people with disabilities, veterans, women, and other members of historically disadvantaged groups. Contact: Co-Chairs of the Appointments Committee, Professors Richard Boldt and Michael Pinard, University of Maryland Francis King Carey School of Law, 500 West Baltimore Street, Baltimore, MD 21201. Email: rboldt@law.umaryland.edu; mpinard@law.umaryland.edu.

 

FTC issues ANPR on consumer privacy and data security

More here.

Today at the CFPB

Two announcements today from the CFPB:

CFPB Warns that Digital Marketing Providers Must Comply with Federal Consumer Finance Protections

Today, the Consumer Financial Protection Bureau (CFPB) issued an interpretive rule laying out when digital marketing providers for financial firms must comply with federal consumer financial protection law.

CFPB Takes Action Against Hello Digit for Lying to Consumers About Its Automated Savings Algorithm

The Consumer Financial Protection Bureau (CFPB) is taking action against Hello Digit, LLC, a financial technology company that used a faulty algorithm that caused overdrafts and overdraft penalties for customers. Hello Digit was meant to save people money, but instead the company falsely guaranteed no overdrafts with its product, broke its promises to make amends on its mistakes, and pocketed a portion of the interest that should have gone to consumers.

Cal Chief Judge calls for stronger oversight of "private judging," after scandal involving JAMS

The LA Times has the story here (might be behind a paywall). More on the scandal here.

Maybe it's the Chamber that needs to be held accountable: comments on their ad attacking the CFPB

by Jeff Sovern

As you may know, the US Chamber of Commerce has been running commercials attacking the CFPB and its director, Rohit Chopra. If you are going to read further, I suggest you first click on the link to watch the commercial. And now, some comments:

The title of the commercial is "The CFPB Needs to Be Held Accountable." But since the Seila Law decision, the CFPB has been accountable to the president, who can fire the CFPB director without cause. And indeed, former Director Kathy Kraninger left the directorship when President Biden took office, even though her term had not expired. The director also provides a report to Congress and testifies before each house of Congress every six months. To be sure, the CFPB's budget is not set via the appropriation process, which is too often a way of making agencies accountable to lobbyists, like those the Chamber hires. The budgets of other agencies that regulate the financial industry, such as the Fed, are also not subject to the appropriations process. As Fed officials can't be fired by the president, the Fed is less accountable than the CFPB. And yet I don't recall any Chamber commercials complaining about that.

The commercial calls the Bureau a black box and complains that no one knows how or why its decisions are made. But under Director Chopra the CFPB's web site is jammed with press releases, blog posts, etc. And, as noted above, the director takes questions from members of Congress at least four times a year.

The commercial complains that the Bureau has changed rules without any accountability. I've already discussed accountability. As for changing rules, the Bureau under Director Chopra hasn't done much yet with formal regulations. If by changing the rules, the Chamber means that Chopra has not gone through the formal rule-making process before announcing guidance, etc., well, neither did Kathy Kraninger always do so. And until the Court decided Seila Law during Director Kraninger's tenure, the director was less accountable to the president than Director Chopra is now.

The commercial also complains that Director Chopra wants to restrict choice. Here, the commercial reflects a disagreement about what is best for consumers. Too many choices helped land us in the Great Recession because consumers took out mortgages they later couldn't repay. It gets consumers stuck in debt traps. If that's what the Chamber is advocating for, count me out.

Oh and one minor point: I loved it when the Chamber criticized the Bureau for not sticking with "time-tested bipartisan norms" with an agency that is only eleven years old.

The commercial doesn't offer much about the specifics of the actions it is criticizing. We know that the Chamber is unhappy with the Bureau's interpretation of unfairness as embracing discrimination. I wonder how many people would be convinced that the Chamber is correct if it explained that one of the things seemingly underlying the commercial is that it wants financial institutions to be able to engage in discrimination without facing Bureau blowback.

If you are interested in hearing more about the Chamber's perspective, I encourage you to listen to the latest episode of the Consumer Finance Monitor Podcast on which Alan Kaplinsky interviewed Bill Hulse, Vice President of the Chamber's Center for Capital Markets Competitiveness.

Bruckner & Ryan paper compares complaints about fintech and traditional student loan lenders & servicers

Matthew A. Bruckner of Howard and CJ Ryan of Louisville and the American Bar Foundation have written The Magic of Fintech? Insights for a Regulatory Agenda from Analyzing Student Loan Complaints Filed with the CFPB, Dickinson Law Review, Forthcoming 2022. Here's the abstract:

This paper looks at consumer complaints about student loan lenders and servicers from the Consumer Financial Protection Bureau’s (CFPB’s) consumer complaint database. Using a novel dataset drawn from 30,678 complaints filed against 212 student loan companies, we analyze consumers’ subjective views about whether traditional or fintech student loan lenders and servicers provide a better customer experience. Overall, we find that consumers initiate far fewer complaints against fintech lenders than traditional lenders. But we find that fintech lenders are twenty-eight times more likely than traditional lenders to receive complaints for making confusing or misleading advertisements. Our data also show that complaints against fintech lenders or servicers have not risen in parallel with greater loan volume by those firms, despite the rising number of complaints being filed against traditional lenders and servicers, as those firms continue to dominate the market share of student loan lending and servicing. We consider various reasons for this difference, including whether this means fintech student loan companies are providing a better consumer experience.

GOP legislators accuse CFPB of colluding with states, as Kraninger did

by Jeff Sovern

Three House Republicans have accused CFPB director Rohit Chopra of "colluding with states" and "conspiring with state agencies." And yet, the Trump-nominated CFPB director Kathy Kraninger collaborated with state attorneys general, as for example, in the Bureau's settlement with Nationstar Mortgage. I wonder if the legislators complained about Kraninger colluding with states.

WSJ: Equifax Sent Lenders Inaccurate Credit Scores on Millions of Consumers

Here but paywalled. Excerpt:

* * * The scores were sometimes off by 20 points or more in either direction, the people said, enough to alter the interest rates consumers were offered or to result in their applications being rejected altogether. * * *

“We have determined that there was no shift in the vast majority of scores during the three-week timeframe of the issue,” Sid Singh, president of Equifax’s U.S. Information Solutions, said in a statement. “For those consumers that did experience a score shift, initial analysis indicates that only a small number of them may have received a different credit decision.” * * *

* * *In a small number of cases, applicants went from having no credit score at all to a score in the 700s—or vice versa, the person said. * * *

Unfairness and Disparate Effects

by Jeff Sovern

As we wrote about in May, the CFPB takes the position that it can use its unfairness power when consumer financial service companies discriminate. One issue that has arisen is whether when it does so, the Bureau will use the disparate effects test, sometimes called the disparate impact test, to determine if discrimination has occurred. I think the Bureau has answered that question in the negative, though I'm not sure how often it will really matter.

The disparate effects was originally something courts used in employment discrimination cases. When Congress enacted the Equal Credit Opportunity Act, barring discrimination in consumer credit transactions, courts transplanted the disparate effects test they were familiar with to the credit context. Under the disparate effects test (I'm simplifying a bit), a consumer carries the burden of showing discrimination even without proof that the company intended to discriminate, if the company's conduct--such as the criteria it uses to grant loans--has a disparate impact on a protected group. But the company can still avoid liability if it can show that the challenged practice is legitimate, despite the impact on the protected group. So the question is whether that would also constitute unfair conduct, or, to put it another way, whether the Bureau will transplant the disparate effects test again to apply to unfairness.

The clearest answer to that question from the Bureau that I have heard came from CFPB Assistant Director for the Office of Enforcement Eric Halperin at an American University symposium (written summary here). As I understand it, Director Halperin explained that unfairness has its own test and that the Bureau will use that test rather than the disparate effects test when it is using its unfairness power. While Director Halperin did not purport to speak for the Bureau, Director Chopra has made similar statements. 

But how much does it matter? As Director Halperin pointed out, unintentional conduct can be unfair under the Consumer Financial Protection Act. While the test of unfairness is worded differently from the disparate impact test, I wonder how often conduct will fail the disparate impact test but not be unfair. Something that produces a disparate impact is also likely to cause substantial injury to consumers that is not outweighed by countervailing benefits and cannot reasonably be avoided by consumers. If you can come up with an example of something that fails the disparate impact test but is not unfair, I hope you will post it in the comments.

CFPB analysis of potential impacts of medical debt credit reporting changes

This week, the Consumer Financial Protection Bureau published an analysis of how actions announced by the three largest national consumer reporting companies – Experian, Equifax, and TransUnion – will affect people who have allegedly unpaid medical debt on their credit reports. "Nearly half of those with medical collections appearing on their credit reports will continue to see them there even after the changes fully go into effect next year. The medical collection tradelines that will remain on credit reports after the changes will likely represent a majority of the dollar amount of all medical collections currently reported," the CFPB explained.

The report finds the changes likely will result in the majority of individual medical collections tradelines being removed from credit reports. However, in terms of dollar amount, a large majority of reported medical collections likely will still remain. The report also highlights the characteristics of consumers with reported medical collections currently, and provides a state-by-state breakout of how the credit reporting changes will impact consumers’ credit reports.

The press release with a link to the report is here.

OCC CFP: THE IMPLICATIONS OF FINANCIAL TECHNOLOGY FOR BANKING

From the CFP:

The Office of the Comptroller of the Currency (OCC) is soliciting academic-and policy-focused research on the impact of financial technology (fintech) entities and nonbanks on banking and the markets for lending, deposit-taking, and payment services through August 21, 2022.

The OCC will invite authors of selected papers to present to OCC staff and invited guests at OCC Headquarters in Washington, D.C., on November 7-8, 2022. These presentations will serve as a platform for interested academic, regulatory, and other experts to discuss research that explores how the banking system, and community banks in particular, leverage technology and respond to the growth of new providers of banking services, whether competitive or cooperative.

More information here.

Dan Solove gives the pending privacy bill a B+ but pans preemption

Here.  Excerpt:

One possible compromise: The ADPPA could contain a preemption provision that would sunset after 5 or 10 years unless Congress would amend the law to renew the preemption term for another 5-10 years. This would force Congress to revisit the law in order to renew the preemption for another period.

Paper responds to Wilf-Townsend's Assembly-Line Plaintiffs

Last year, we published a link to Daniel Wilf-Townsend's Harvard Law Review article  Assembly-Line Plaintiffs. Now Jessica Steinberg of George Washington, Colleen F. Shanahan of Columbia, Anna E. Carpenter of Utah, and Alyx Mark of Wesleyan's Dept. of Government and the American Bar Foundation have written a response to it, The Democratic (Il)legitimacy of Assembly-Line Litigation, 135 Harv. L. Rev. F. 359 (2022). Here is the abstract:

In response to Daniel Wilf-Townsend’s Assembly-Line Plaintiffs we take a panoramic picture of state civil courts, and debt cases in particular, and name specific features of the courts that must be taken into account in crafting reform prescriptions. In doing so, we question both the democratic legitimacy of debt collection courts and the adequacy of incremental reform that targets the structure of litigation. Part I contributes two critical components to Wilf-Townsend’s rich description of consumer debt cases: pervasive intersectional inequality among pro se defendants and a record of fraud among top filers. We add a sharper focus on the racial, gender, and class dynamics of civil courts, which play an outsized role in state civil justice dysfunction and have normative implications for institutional design solutions. In addition, we enhance Wilf-Townsend’s depiction of assembly-line plaintiffs by documenting pervasive fraud on the part of assembly-line plaintiffs as germane to the operation of civil courts. The clustering of corporate entities in state civil courts tells part of the story; the fraudulent conduct of plaintiffs in debt cases also plays a significant role in exacerbating poverty and inequity for marginalized groups in civil courts. Part II positions Wilf-Townsend’s proposal to restructure debt proceedings into agency-style adjudication as a form of problem-solving courts, which have an established history in the U.S. justice system. We place his proposal within the larger literature on active and suggest that Wilf-Townsend sets forth a first step toward reimagining state civil courts. Part III draws on an invest/divest framework to set forth a broader and more aspirational vision of reform. We propose that bold reform would focus on reestablishing the democratic legitimacy of state civil courts by increasing social provision to defendants economically ravished by assembly-line litigation and also by keeping courts squarely in the business of resolving two-party adversarial disputes.

CFP: Berkeley Consumer Law Conference

by Jeff Sovern

Abstracts are due September 16. The conference will be at Berkeley on March 2-3, 2023. More information here. This is always one of the best consumer law conferences of the year so if you have a paper that will be ready to be workshopped next spring, I urge you to submit it.

The National Consumer Law Center is hiring a LITIGATION DIRECTOR

Job is for the Boston or D.C. Office. Here's the announcement:

Director of Litigation opportunity at the National Consumer Law Center

The National Consumer Law Center, the country’s preeminent advocate for low-income consumers, proudly traces its roots to the 1960s “War on Poverty” in its work as a support center for legal services offices. NCLC’s expertise includes policy analysis, high-impact advocacy, litigation, and extensive training for a nationwide network of consumer advocates. It works closely with nonprofit and legal services organizations, private attorneys, civil rights and grassroots organizations, and federal and state policymakers across the nation to stop exploitative practices, help financially stressed families build and retain wealth, and advance economic fairness.

NCLC seeks an experienced professional to lead the organization’s litigation initiative as Director of Litigation. As a member of NCLC’s advocacy staff, the Director will develop and implement litigation strategies that advance the interests of low-income consumers.

This is an exciting opportunity to work for a growing and dynamic national advocacy organization that is fighting to level the economic playing field and ensure greater economic fairness and security, especially as it relates to advancing racial justice. This position will report to the Deputy Director and will play an important leadership role in the organization.

NCLC has partnered with Lindauer, a global executive search firm, to conduct this search. Please see the prospectus to learn more. To apply or nominate someone for this position, contact Terri Rutter, Assistant Vice President at trutter@lindauerglobal.com.

And watch this great video on NCLC's work: https://www.youtube.com/watch?v=oQpgbMuX7w0&t=6s 

WSJ: CFPB working on guidance to force banks to cover more scams on Zelle and similar apps

by Jeff Sovern

Here, behind a pay wall. Excerpt:

At present, banks generally are only required to repay consumers for payments they didn’t authorize. The coming regulatory guidance could change that threshold by maintaining that fraudulently induced transactions, even those approved by the consumer, are considered unauthorized. That could require a bank to conduct more investigations of such transactions—and to compensate more customers for their losses.

* * * 

 * * * A key concern: so-called “me-to-me” fraud, or when a scammer tells the consumer that his or her bank account was compromised, and persuades the person to send money to what appears to be himself or herself using Zelle. In reality, the scammer has linked the consumer’s cellphone to a fraudulent account.

“Scams have become widespread on Zelle, a money-transfer platform owned by the largest banks in the nation,” [Senator] Menendez said at an April 26 hearing with Mr. Chopra, citing media reports. “The banks are well aware of these scams but have done little to enhance Zelle’s security or reimburse defrauded consumers.”

One advantage to putting the burden on the bank is that it gives the bank an incentive to adopt safeguards against such frauds. That is exactly what happened when Citibank was held liable for ATM frauds. Citibank and other banks responded by changing the architecture of their ATMs to prevent such frauds. Consumers can't do that but banks can.

Consumer law and the "major questions" doctrine

In response to the Supreme Court's recent ruling in West Virginia v. EPA, the National Consumer Law Center has written Impact of Supreme Court’s “Major Question Doctrine” on Consumer Litigation. Read it here.:  

Will Congress pass an online privacy bill?

by Jeff Sovern

The House Energy and Commerce Subcommittee on Consumer Protection and Commerce has forwarded to the full committee a bipartisan bill (draft here, though perhaps not the version the subcommittee approved; section-by-section commentary here). The last I heard, Senator Cantwell, the Senate Commerce Committee chair, had not signed on, putting the bill's future in doubt. The bill would give consumers the right to see what companies know about them, whom the information has been shared with, correct errors, and direct the business to delete the data. On the positive side, the bill also provides for a private claim for injured consumers and in addition provides that arbitration clauses are ineffective to block such claims. On the negative side, the bill preempts the state online privacy laws, including those passed in California, Virginia, Utah, etc., and limits the amount injured consumers can recover to actual damages, injunctive relief, and attorney's fees. That raises questions about whether consumer injuries will be sufficient to cause them to sue. Cases can be brought as class actions but I wonder about the impact of TransUnion's standing requirements on class members. The bill has a lot more in it that will be of interest to consumer law folks.

Distracted driving kills thousands of people every year

According to the National Highway Traffic Safety Administration, more than 3100 people were killed in 2020 alone because drivers were distracted. A significant percentage of the problem is caused by cell-phone use while driving. We all see people texting while driving. Sending or reading a text can take the driver's eyes off the road for about 5 seconds. Here's a scary thought: At 55 mph, that's like going the length of a football field with your eyes closed. Read more about the problem here.

Chao paper suggests unjust enrichment claims confer standing, even after TransUnion

Bernard Chao of Denver has written Unjust Enrichment: Standing Up for Privacy Rights. Here is the abstract:

In TransUnion LLC v. Ramirez, one of the country’s largest credit reporting agencies violated the Federal Credit Report Act (“FCRA”) by failing to “follow reasonable procedures to assure maximum possible accuracy . . ..” As a result, thousands of credit reports incorrectly said that consumers were potential terrorists, drug traffickers, or serious criminals. The case wound its way to the Supreme Court on the issue of Article III standing. For plaintiffs that had their reports disseminated, the Court found standing. For victims that did have their reports disseminated, the Supreme Court concluded that they had not suffered a “concrete injury.” Accordingly, these victims did not have standing and could not recover the statutory damages provided by the FCRA.

TransUnion has the potential to impact several types of modern data privacy rights. While the European Union (“EU”) has led the way in recognizing several new rights, this country has followed, and federal and state laws are beginning to adopt their own versions of these rights. Specifically, privacy statutes are now giving individuals the right to: 1) not have their personal data collected, 2) access their data, 3) rectify inaccurate data, and 4) have their data deleted. But after TransUnion, the Supreme Court may have eliminated the ability of Congress to use statutory damages to enforce such rights. This Essay suggests an approach that will restore this option to Congress.

Earlier work (by myself and others) has already explained why unjust enrichment can help overcome issues of harm, causation and standing in privacy law. This Essay builds on that work by addressing TransUnion and arguing that restitution and unjust enrichment can provide standing to plaintiffs that sue under emerging privacy statutes. Because unjust enrichment is based on the defendant’s gain instead of the plaintiff’s injury, plaintiffs can surmount standing’s “concrete injury” requirement. Moreover, plaintiffs have pursued various unjust enrichment claims in courts for centuries. Therefore, it is precisely the kind of historically rooted theory endorsed by TransUnion. Finally, both Congress and state legislatures should consider expressly including a disgorgement remedy in their privacy statutes to allow victims to recover the money the companies wrongly receive (or wrongfully save) for violating these laws. Such carefully drafted laws will prevent courts from somehow limiting the availability of the unjust enrichment remedy.

CFPB issues advisory to protect privacy when companies compile personal data

The Consumer Financial Protection Bureau has issued a legal interpretation to ensure that companies that use and share credit reports and background reports have a permissible purpose under the Fair Credit Reporting Act. The CFPB’s new advisory opinion makes clear that credit reporting companies and users of credit reports have specific obligations to protect the public’s data privacy. The advisory also reminds covered entities of potential criminal liability for certain misconduct. The advisory is available here.

Regulators fine BofA $225 million over botched disbursement of unemployment benefits

Today, the Consumer Financial Protection Bureau fined Bank of America $100 million for botching the disbursement of state unemployment benefits at the height of the pandemic. The CFPB said that "Bank of America automatically and unlawfully froze people’s accounts with a faulty fraud detection program, and then gave them little recourse when there was, in fact, no fraud." The order requires Bank of America to undertake a process that is estimated to result in hundreds of millions of dollars in redress to consumers. In a separate order, the Office of the Comptroller of the Currency fined the bank $125 million.

Read more about it here.

Consumer protection and the Supreme Court's new "major questions doctrine"

On the last day of its term, the Supreme Court issued its decision in West Virginia v. EPA—a decision highly anticipated, and perhaps dreaded, by federal agencies, administrative law experts, and members of the public who care about the ability of the government to act to protect public health, safety, consumer interests, and the environment. The suspense stemmed from the likelihood that the Court would address the so-called “major questions doctrine”—a new approach to judicial review of agency rules that hovered in the background of a case that primarily concerned an already defunct Clean Air Act regulation.

The Court’s majority opinion in the case did not disappoint … in that it addressed the major questions doctrine. The majority opinion adopted the “major questions doctrine” as the “label” for “an identifiable body of law that has developed over a series of significant cases all addressing a particular and recurring problem: agencies asserting highly consequential power beyond what Congress could reasonably be understood to have granted.” The Chief Justice explained that, “in extraordinary cases” concerning agency action, “something more than a merely plausible textual basis” is necessary to support the agency’s claim to statutory authority. “The agency instead must point to clear congressional authorization for the power it claims.” The “major questions doctrine” is thus a “clear statement rule” applicable when an agency makes an “extravagant” assertion of statutory authority.

Where the new doctrine applies, the Court will not defer to the agency’s interpretation of its statutory authority, even if the scope of the authority is ambiguous. To that extent, the decision is a step back from the Court’s longstanding approach to review of agency action, under which it gives so-called Chevron deference to the agency’s interpretation of ambiguous statutory language, when the language reflects that Congress intended for an agency to fill in the gaps. That step back is no small thing. At the same time, deference had already failed to save the agency actions in those few “extraordinary” cases that the Court cited as forerunners of the major questions doctrine.

CFPB moves to reduce fees charged by debt collectors

The Consumer Financial Protection Bureau last week issued an advisory opinion affirming that federal law often prohibits debt collectors from charging “pay-to-pay” fees. These charges, commonly described by debt collectors as “convenience fees,” are imposed on consumers who want to make a payment in a particular way, such as online or by phone.

The press release, with a link to the advisory opinion, is here.