Consumer Law & Policy Blog

Financial Privacy Legislation May Lead to Simplified Notices; What Will the Effect be on Consumer Opt-outs?

by Jeff Sovern

In 1999, Congress enacted the Gramm-Leach-Bliley Act, 15 U.S.C. § 6801 et seq., permitting financial institutions to disclose information about their customers provided they notified customers that they have the right to keep the information confidential.  The result has been a flood of privacy notices.  See W.A. Lee, Opt-Out Notices Give No One a Thrill, 166 Am. Banker Issue 131, at 1 (July 10, 2001) (more than a billion notices sent to consumers by that time).   It appears that few consumers have opted out, with estimates running under ten percent, though little information on opt-outs has been available.   Why have so few consumers opted out?  Is it because few consumers actually care enough about the privacy of their financial information to opt-out?  Or is it because consumers have so much difficulty wading through the notices?  In that regard, critics have complained about the readability of the notices (though the Lee article cited above reports that an American Bankers Association telephone survey found that two-thirds of the consumers who said they had received the notices also said they read them), see John Schwartz, Privacy Policy Notices are Called Too Common and Too Confusing, N.Y. Times, May 7, 2001 at A1; Mark Hochhauser, Lost in the Fine Print: Readability of Financial Privacy Notices (2001), while some have implied that financial institutions prefer complicated forms.  Here, for example, is an excerpt from a speech by Julie Williams, then-Acting Comptroller of the Currency, given on July 12, 2005:

[W]hen presented with the prospect of lessening burden and saving costs by providing a streamlined, short form privacy notice containing only certain key information – some in the industry seem to balk. Marketing departments get uneasy because simple and straightforward disclosure of a bank’s information sharing policies and an easy means for customers to opt out of that sharing might mean – that customers will actually understand those policies – and decide to opt out! The tension here is that shorter, focused consumer disclosures can meaningfully reduce regulatory burden, but, if they are done well, they will also empower consumers to make some decisions that a particular bank may not like.

(emphasis in original).  Soon we may get a chance to find out whether and how consumers respond to simplified notices.  Last fall Congress added a new subsection (e) to 15 U.S.C. § 6803, directing federal regulators to develop a model privacy disclosure form.  Federal regulators presumably have no incentive to fashion a form that is more complex than necessary, and so, If we're lucky, the new form will be both short and comprehensible.  While financial institutions will be under no obligation to use the model form, the statute offers them an incentive to do so by providing that those using the model form will be deemed in compliance with the statute.  And if financial institutions prefer their own more complicated forms to the simpler form, that too will say something.

Freedom of Information in India: A View One Year After Enactment

[Introductory Note:  The following piece, written by U.S. lawyer Michele Host, is about India's Right to Information Act of 2005.  Michele is currently living and working in India.  Michele analyzes the Act, providing both the good news and the bad news one year after its enactment.  Please note that links to the Right to Information Act and relevant articles are listed at the end of Michele's article.  I hope you find this article interesting.  I did.] 

By Michele Host

    During the summer of 2006, India celebrated the first anniversary of the Right to Information Act 2005 (“RTI”).  Much like the Freedom of Information Act (FOIA) in the United States, the RTI sets out procedures for citizens to “secure access to information under the control of public authorities, in order to promote transparency and accountability in the working of every public authority.”

    Many Indians hope that the RTI will cure two of the maladies hampering India’s rapid development: corruption and judicial inefficiency.  In Transparency International’s annual corruption survey, which measures a country’s perceived degree of corruption on a scale of 0-10, where 0 is highly corrupt and 10 is highly clean, India scores just 3.3 points – tied with China, Ghana, and Mexico.  For comparison’s sake, the United States receives a 7.3.  The situation in India’s courts is similarly dire:  Not only are the courts infected with the corruption that permeates the rest of India’s institutions, but the backlog is so immense that it appears insurmountable. According to The Economist, there are more than thirty million civil and criminal cases pending in India, and India has only eleven judges for every one million people.  Compare that to the United States, where we have 107 judges per million citizens.

    So what exactly does the RTI aspire to do, and how well is it doing?  

Know Your Credit Score

    By Brian Wolfman

    Check out yesterday's Washington Post for a long article concerning common misconceptions about consumer credit scores and what consumers might do to improve their scores.  The article points out that although federal law gives consumers the right to get a free copy of their credit reports once a year, 86% of consumers do not do so.  The article explains that it's a good idea to check out one's credit report  because the error rate - - that is, the risk that the report contains incorrect information that may increase the cost of borrowing or other consumer purchases - - is quite high.

Telephone Record Privacy

Observers of privacy in the United States have long commented on how privacy protections are largely sectoral and enacted in response to particular incidents.  For example, after a newspaper printed the video rental records of then-Supreme Court nominee Robert Bork (revealing that he had a taste for westerns), Congress enacted 18 U.S.C. § 2710, protecting the privacy of video records.  In the wake of the Hewlett-Packard pretexting scandal, Congress has now repeated the pattern for telephone privacy by enacting the Telephone Records and Privacy Protection Act of 2006, Pub. L. No. 109-476, 120 Stat. 3568, which adds a new section 1039 to title 18 of the U.S. Code.  The statute bars obtaining or attempting to obtain confidential phone records by pretexting or via the Internet without the permission of the consumer to whom the records pertain as well as selling, purchasing, or receiving confidential phone records without the permission of the affected consumer.

Brian Wolfman had blogged on the bill (at the point at which it had been passed by the Senate) back on December 9.

20/20 Takes on Credit Card Debt; Payday Lenders as Lions in the Economic Jungle, and More

by Deepak Gupta

Tonight, at 10pm EST, the ABC News Program 20/20 will air an episode entitled "Flat Broke: Begging And Borrowing In America."  I'm reliably informed that the segment will include interviews with prominent consumer advocates, including Professor Elizabeth Warren of Harvard Law School and a NACA member or two.  You can read one of the stories that will be featured tonight here.   The episode looks promising and seems to be part of a noticeable upswing in mass media coverage of credit and debt issues.

On the other hand, if you're familiar with the work of the conservative ABC News correspondent John Stossel, you won't be surprised to hear that--despite every indication that the rate of complaints against abusive and out-of-control debt collectors is skyrocketing--he was somehow able to muster a story that's largely sympathetic to the collection agencies; debt collectors, it turns out, are people too.  ("Is Debt a Four Letter Word?  Why Some Americans Need to Learn to Pay Up").  Along similar lines, The New York Times yesterday ran an astonishing column by the Cornell economist Robert Frank, comparing payday lenders to blameless lions in a jungle of lax credit--moral outrage against the industry, the author suggests, is misdirected; they're just following their Darwinian role preying on weaker members of the community.

Exxon Valdez Oil Spill Litigation: Exxon Seeks Rehearing En Banc

    An earlier post discussed the Ninth Circuit's December 22 decision halving the plaintiffs' punitive damages award in the long-running Exxon Valdez oil spill litigation.  The Ninth Circuit's $2.5 billion award was still far more than the $25 million Exxon claims is the maximum permissible award.  Last week, Exxon filed its petition for rehearing en banc, which you can read here.

More on Tax Refund Anticipation Loans

    By Brian Wolfman

    The National Consumer Law Center and the Consumer Federation of America have issued a press release warning consumers to avoid tax refund anticipation loans (RALs) and reporting on the state of the RAL industry.  The press release comes in advance of the groups' annual comprehensive report on RALs, which will be available later this month.  To give you a sense of where the NCLC and CFA are coming from, here's an excerpt from the press release:

  Some of America’s most cash-strapped taxpayers – those from low- and moderate-income families – spent nearly $1 billion in the latest year recorded for what is almost always an unnecessary product: the so-called “refund anticipation loan” at income tax time. With another tax season gearing up, consumer advocates at the National Consumer Law Center (NCLC) and Consumer Federation of America (CFA) are warning taxpayers to steer clear of refund anticipation loans (RALs), one of the most avoidable tax-time expenses. New figures reveal that RALs drained about $960 million in loan fees, plus over $100 million in other fees, from the wallets of nearly 9.6 million American taxpayers in 2005. “Taxpayers can save themselves over a billion dollars by just saying ‘no’ to quick tax refund loans,” says NCLC staff attorney Chi Chi Wu. “These loans take a chunk out of your hard earned tax refund, and they expose you to the risk of unmanageable debt if your refund doesn’t arrive as expected.”

     Michelle Singletary discussed the NCLC-CFA findings in her "Color of Money" column in today's Washington Post.  Late last year, NCLC and CFA issued a report on new forms of RALs - - "pay stub" and "holiday" RALs - - which give consumers the opportunity to acquire debt at crushing interest rates year 'round.   I blogged about the earlier report here.

Study: Bankrutpcy Fresh Start Policy May be Empty Promise for Some

by Christopher Peterson

Katherine Porter, a law professor at the University of Iowa, and Deborah Thorne, a sociologists at Ohio University, have just published an interesting study on the wellbeing of families a year after bankrtupcy. Their Cornell Law Review article questions whether the banktrupcty code actually delivers on its promise of a fresh start. Porter and Thorne conducted 359 telephone interviews with debtors approximately one year removed from a Chapter 7 discharge. The core finding of the research is that more than one-third of the debtors reported that their financial situations were actually the same as or worse than at the time of their bankruptcies. The author's suggests that bankrtupcty's fresh start cannot be viewed as a substitute for stable and sufficient income.  The findings also cast doubt on whether bankrutpcy related consumer education will improve the well being of bankrupt consumers--given that for many the enduring problem is insufficient income, rather than financial mismanagment. The piece is well done and a fascinating read.

Transcript of FCRA Arguments

Here's the just-released transcript of this morning's oral arguments in the FCRA cases.   A post-argument report from the Financial Times relays the business community's take on the arguments:  "A majority of the justices on Tuesday seemed reluctant to adopt an expansive interpretation of a federal credit reporting law that the US Chamber of Commerce and others warned could lead to an explosion of class action lawsuits against US businesses, and many billions of dollars in damages . . .  'The court seemed sympathetic to the concerns of the business community,' said Robin Conrad of the US Chamber of Commerce."   

Along the same lines, an AP report sums up the case this way:  "Several Supreme Court justices seemed taken aback . . . at the idea that insurance companies might be required to notify tens of millions of customers they aren't getting the best rates because of their credit reports."   

Today's Fair Credit Reporting Arguments

by Deepak Gupta

In the next hour, the U.S. Supreme Court will hear oral arguments in the consolidated cases of Geico v. Edo and Safeco v. Burr.  The cases concern two aspects of the Fair Credit Reporting Act: the meaning of the statute's "willfulness" standard for civil liability and the scope of the "adverse action" notice requirement in the context of insurance companies' use of credit scores to set rates.  A prior post, by my colleague Scott Nelson (who is co-counsel for the respondents) summarized the case at the time cert was granted; SCOTUSblog also recently ran an in-depth preview, with summaries of the briefing. 

I previously posted all of the "top-side" briefs: the two petitioners' merits briefs, the Solicitor General's brief, and the many industry-side amicus briefs.  Here are the remaining briefs:

Respondents' brief

State AGs' amicus brief supporting respondents

Consumer groups' amicus brief supporting respondents

GEICO reply brief

Safeco reply brief

Arguing for GEICO is Maureen Mahoney, one of the stars of the Supreme Court Bar.  Arguing for the respondents is a first-timer, Oregon lawyer Scott Schorr.  I participated in a moot court for Mr. Schorr at Georgetown on Friday and was impressed with his performance.  Patty Millett will argue for the SG.  I hope to bring you an update on the arguments later today.