CFPB finds violations of federal law by student-loan servicers and university-owned lenders

Today, the Consumer Financial Protection Bureau released a special edition of Supervisory Highlights on recent examination findings covering the practices of student loan servicers, and schools that lend to students directly. The exams found that these schools had improper blanket policies of withholding transcripts to force students to make payments. The CFPB also found that student loan servicers illegally hampered borrowers’ access to federal student loan payment relief and cancellation programs including Income-Driven Repayment, Public Service Loan Forgiveness and Teacher Loan Forgiveness. The CFPB directed servicers to act to remediate these issues.

The CFPB's press release has more details, here.

Chamber of Commerce and bank groups sue CFPB for using unfairness power to pursue discriminatory conduct

by Jeff Sovern

As we have previously discussed, the CFPB takes the position when supervising banks that discrimination is unfair within the meaning of the Consumer Financial Protection Act. As reported by Bloomberg's Evan Weinberger, the Chamber of Commerce, the American Bankers Association, the Consumer Bankers Association, and others have now sued the CFPB in Texas (it's always Texas) to challenge that position. The complaint also alleges that the CFPB's funding structure violates the appropriations clause.

Article on #Fintok and FinReg

Nikita Aggarwal of UCLA, D. Bondy Valdovinos Kaye of the University of Leeds, and Christopher K. Odinet of Iowa have written #Fintok and Financial Regulation, forthcoming in the Arizona State Law Journal. Here's the abstract:

Social media platforms are becoming an increasingly important site for consumer finance. This phenomenon is referred to as “FinTok,” a reference to the “#fintok” hashtag that identifies financial content on TikTok, a popular social media platform. This Essay examines the new methodological possibilities for consumer financial regulation due to FinTok. It argues that FinTok content offers a novel and valuable source of data for identifying emerging fintech trends and associated consumer risks. As such, financial regulators should use FinTok content analysis—and social media content analysis more broadly—as an additional method for the supervision and regulation of consumer financial markets. The Essay test-drives this method using audiovisual content from TikTok in which consumers discuss their experience with “buy now, pay later,” a rapidly growing and less regulated form of fast, digital credit. It reveals tentative evidence of payment difficulties and strategic default in the buy now, pay later credit market, with attendant consumer protection risks. These insights provide a point of entry for the further study and regulation of the buy now, pay later credit market.

 

Study examines whether data breach notification laws work

Aniket Kesari of NYU's Information Law Institute has written Do Data Breach Notification Laws Work? Here's the abstract:

Over 2.8 million Americans have reported being victims identify theft in recent years, costing the U.S. economy at least $13 billion in 2020. In response to this growing problem, all 50 states have enacted some form of data breach notification law in the past 20 years. Despite their prevalence, evaluating the efficacy of these laws remains elusive. This Article fills this gap, while further creating a new taxonomy to understand when these laws work and when they do not.

Legal scholars have generally treated data breach notification laws as doing just one thing—disclosing information to consumers. But this approach ignores rich variation: differences in disclosure requirements to regulators and credit monitoring agencies; varied mechanisms for public and private enforcement; and a range of thresholds that define how firms should assess the likelihood that a data breach will ultimately harm consumers.

This Article leverages the Federal Trade Commission’s Consumer Sentinel database to build a comprehensive dataset measuring identity theft report rates since 2000. Using staggered adoption synthetic control – a popular method for policy evaluation that has yet to be widely applied in empirical legal studies – this Article finds that whether identify theft laws work depends on which of these different strands of legal provisions are employed. In particular, while baseline disclosure requirements and private rights of action have small effects, requiring firms to notify state regulators reduces identity theft report rates by approximately 10%. And surprisingly, laws that fail to exclude low-risk breaches from reporting requirements are counterproductive, increasing identify theft report rates by 4%.

The Article ties together these results within a functional typology: namely, whether legal provisions (1) enable consumer mitigation of data breach harms, or (2) encourage organizations to invest in better data security. It explains how these results and typology provide lessons for current federal and state proposals to expand or amend the scope of breach notification laws. A new federal law that simply mimics existing baseline requirements is unlikely to have an additional deterrent effect and may preempt further innovations. At the state level, introducing private rights of action may help at the margins, but likely suffers from well-identified issues of adequately establishing standing and damages. States that close loopholes surrounding breach requirements for encrypted data see lower identity-theft report rates, which suggests that other states may be wise to tighten these requirements as well. Looking forward, states should experiment with solutions such as automatically enrolling consumers in identity theft protection services or providing direct incentives for strong data security.

CFP for Berkeley Consumer Law Scholars Conference extended to 9/23

The abstract & outline submission deadline for the Consumer Law Scholars Conference has been extended to next Friday, September 23. Please see below for the information we received with submission instructions.

Abstracts & Outlines Due September 23

Please consult the conference webpage for more information on the conference format, important dates, and expectations for abstract submissions. If you would like to workshop an unpublished paper, please submit HERE by September 23, 2022: (1) a title, (2) a brief abstract that includes an explanation of how your article relates to other published work and advances the field, and (3) an outline of the article.

Examples of submissions from previous years showing the appropriate format may be found here.

Drafts of complete papers (suitable for workshop discussion) will be due January 31, 2023.

Fleming Scholars Program

We particularly encourage scholars who are currently working at legal services organizations to submit abstracts and to participate in the conference. The Fleming Scholars Program was launched two years ago in memory of our colleague Anne Fleming, who was a legal aid attorney before turning to academia. The program provides support, including conference travel costs and mentorship opportunities, for legal aid lawyers with scholarly aspirations. Please contact us if you are interested.

We look forward to seeing you in March 2023!

Sincerely,

The CLSC Organizing Committee: Kathleen Engel Ted Mermin Manisha Padi Rory Van Loo Lauren Willis

Feel free to contact Ted Mermin (tmermin@law.berkeley.edu), and/or conference logistics coordinator Ben Hiebert (ben.hiebert@law.berkeley.edu ) with any questions.

Rapid Growth of “Buy Now, Pay Later” Lending

The Consumer Financial Protection Bureau published a report today on the "Buy Now, Pay Later" industry. The report, Buy Now, Pay Later: Market trends and consumer impacts, finds that industry grew rapidly during the pandemic, and that borrowers may receive uneven disclosures and protections. The five firms surveyed in the report originated 180 million loans totaling over $24 billion in 2021, a near tenfold increase from 2019.

The CFPB says that this type of loan serves as a close substitute for credit cards, and that the agency will work to ensure that borrowers have similar protections when using these loans as when they use credit cards.

Patagonia founder gives away the company

Patagonia founder's is giving away his company, reportedly worth about $3 billion. The company will now be in the hands of a trust and a nonprofit organization. All future profits will be donated to help fight climate change.

CNBC has the story, here.

CFPB and CMS address illegal nursing home debt collection practices

The Consumer Financial Protection Bureau has "released an Issue Spotlight highlighting some of the difficulties and experiences heard from caregivers about being pursued over friends’ or family members’ alleged debts from nursing home facilities. Based on the findings in the report, the CFPB and the Centers for Medicare & Medicaid Services have issued a joint letter confirming that a nursing care facility may not require that a third-party caregiver personally guarantee payment of a nursing home resident’s bills as a condition of the resident’s admission to the facility. Such conditions violate the Nursing Home Reform Act and, as discussed in a new Consumer Financial Protection Circular issued [yesterday], subsequent attempts to collect debts from caregivers may violate the Fair Debt Collection Practices Act and the Fair Credit Reporting Act."

The CFPB's press release is here.

Chris Peterson & Marshall Steinbaum Article on the Gig Economy, Consumer Protection, and Antitrust

Christopher Lewis Peterson of Utah Law and Marshall Steinbaum of Utah's Department of Economics have written Coercive Rideshare Practices: At the Intersection of Antitrust and Consumer Protection Law in the Gig Economy, University of Chicago Law Review, Forthcoming. Here's the abstract:

This article considers antitrust and consumer protection liability for coercive practices vis-à-vis drivers that are prevalent in the rideshare industry. Resale price maintenance, non-linear pay practices, withholding data, and conditioning data access on maintaining a minimum acceptance rate all curtail platform competition, sustaining a high-price, tacitly collusive equilibrium among the few incumbents. Moreover, concealing relevant trip data from drivers is both deceptive and unfair when the platforms are in full possession of the relevant facts. In the absence of these coercive practices, customers too would be better-off due to platform competition that would lower average prices by sharpening competition between incumbents, enable entry by rivals charging lower take rates, and unravel pervasive price discrimination. Coercive practices in the rideshare industry and elsewhere, and the business models they enable, result from the preference for hierarchy and domination inherent in the contraction of liability for vertical restraints since the 1970s.

Paper on the FTC's power to regulate discriminatory AI

Andrew D. Selbst of UCLA and Solon Barocas of Microsoft Research and Cornell have written Unfair Artificial Intelligence: How FTC Intervention Can Overcome the Limitations of Discrimination Law, 171 University of Pennsylvania Law Review __ (forthcoming). Here is the abstract:

The Federal Trade Commission has indicated that it intends to regulate discriminatory AI products and services. This is a welcome development, but its true significance has not been appreciated to date. This Article argues that the FTC’s flexible authority to regulate 'unfair and deceptive acts and practices' offers several distinct advantages over traditional discrimination law when applied to AI. The Commission can reach a wider range of commercial domains, a larger set of possible actors, a more diverse set of harms, and a broader set of business practices than are currently covered or recognized by discrimination law. For example, while most discrimination laws can address neither vendors that sell discriminatory software to decision-makers nor consumer products that work less well for certain demographic groups than others, the Commission could address both. The Commission’s investigative and enforcement powers can also overcome many of the practical and legal challenges that have limited plaintiffs’ ability to successfully seek remedies under discrimination law. The Article demonstrates that the FTC has the existing authority to address the harms of discriminatory AI and offers a method for the Commission to tackle the problem, based on its existing approach to data security.

FTC seeks public comment on advertising to kids in digital media

The Federal Trade Commission is seeking public comment on how children are affected by digital advertising and marketing messages that may blur the line between ads and entertainment. The FTC is seeking the input in conjunction with an October 19, 2022 event that will examine the topic.

More information is here.

"Actually, Canceling Student Debt Will Cut Inflation," by economist Joseph Stiglitz

Read Stiglitz's essay here.

The Search for Strategies to Reduce Medical Error and its relationship to tort law and regulation

In his essay The Search for Strategies to Reduce Medical Error, law prof Robert Rabin reviews Closing Death’s Door: Legal Innovations to End the Epidemic of Healthcare Harm, by Michael J. Saks and Stephan Landsman, which considers the policy strategies for reducing medical error. Rabin then places Saks and Landsman's work in the context of tort and regulatory perspectives on compensation and deterrence of medical harm.

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.