A bill to provide mortgage relief to hundreds of thousands of Americans has stalled in the Senate because Senator John Ensign (R-Nev.) says that he won't allow the bill to go forward until the Senate tacks on tax breaks to encourage the production of renewable energy (such as solar and wind power). As the Washington Post reports, Ensign's tactic has upset expectations of Senators who believed Congress was on the verge of passing the mortgage relief bill.
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Thursday, June 26, 2008
Wednesday, June 25, 2008
Tuesday, June 24, 2008
One Reason No One Reads Privacy Policies and How Changing the Incentives Might Make Privacy Policies More Readable
by Jeff Sovern
At the Privacy Law Scholars Conference at GWU, hosted jointly by GWU and Berkeley Law Schools, on June 12 and 13, I served as a discussion leader for a session titled "Death to Privacy Policies" about how few people read privacy policies, why that is, and what could be done about that. In that capacity, I presented a short talk, about three minutes. But of course I would have liked to talk longer about the subject, so I'm posting here what I would have said if I'd had, say, five minutes (plus I'm tossing in a few cites). Privacy policies are only a subset of the many documents consumers don't read, such as contracts with cell phone providers, credit card issuers and the like, and much of what I say here is just as applicable to such documents.
One reason privacy polices may fail to attract attention is that those providing them typically have little incentive to attract attention to them and little incentive to make them clear. For example, many financial institutions sell their customer lists; if bank customers notice the privacy policies that banks send them and ask the banks not to sell their information, the banks lose money. So the banks have an incentive to construct their privacy policies in such a way as to minimize the attention they draw. Here, for example, is an excerpt from a scintillating privacy policy from Cap One:
We may share the information described on Page 1 under “information we may collect” with companies in the Capital One family or with business partners such as financial service providers (including credit bureaus, mortgage bankers, securities broker-dealers and insurance agents); nonfinancial companies (including retailers, online and offline advertisers, membership list vendors, direct marketers, airlines and publishers); companies that perform marketing services on our behalf, or other financial institutions with which we have joint marketing agreements; and others, such as non-profit organizations and third parties that you direct us to share information about you.
And, not surprisingly, what data is publicly available suggest that few consumers have opted out. See Testimony of John C. Dugan, Partner at Covington and Burling on behalf of the Financial Services Coordinating Council, Before the U.S. Sen. Com. On Banking, Housing and Urban Affairs, Sept. 19, 2002 (“opt-out rates have generally been low, and in nearly all cases under 10 percent.”); W.A. Lee, Opt-Out Notices Give No One A Thrill, 166 American Banker Issue 131, at 1 (July 10, 2001) (“5% opt-out rate . . . has been circulating as the unofficial industry figure . . . .”); ACB Survey (60% of financial institutions report that less than one percent of customers opted out). We know that companies sometimes respond to the incentive to create forms consumers won’t read because in Ting v. AT &T, 319 F.3d 1126 (9th Cir.), cert denied, 540 U.S. 811 (2003), AT&T conducted extensive market research to discover what it could write that would cause consumers to ignore its customer service agreement—and then it went with the form that would cause consumers to throw its letter out.
Friday, June 20, 2008
New Study on Elderly Abuse by Banks
Banks charged over $1 billion in overdraft fees to elderly consumers dependent on Social Security for most of their income. This is one of the many findings in a report issued this week by the Center for Responsible Lending, relying both on consumer survey data and a database of bank account records. In one case study, an elderly consumer whose only apparent income was a $1,000 Social Security monthly benefit was charged $448 for overdrafts never exceeding $220. Perhaps this helps explain why so many elderly consumers are going bankrupt.
Bounce loans, the Fed rule and the unbanked
By Alan White
The Federal Reserve has proposed a rule to allow consumers to opt out of their bank's discretionary overdraft payment and fee harvesting programs, better known as bounce protection or bounce loans. In the past four or five years banks have adopted the practice of not only paying overdrawn checks at their discretion (and charging a fee of about $35) but also paying debit card purchases, and even ATM withdrawals, and charging the fee. Some banks add a $1 per day fee so long as the account remains overdrawn. Recently banks have started permitting overdrafts at ATMs, with a vague warning that "this withdrawal may result in an overdraft", and without mentioning the $35 fee. Some banks even include a discretionary overdraft limit in the consumer's balance on ATM receipts, misleading the consumer into incurring bounce fees. For more details on bank overdraft practices, read here and here.
At this week's Consumer Advisory Council meeting, industry representatives pushed back hard against the idea of requiring consumers to opt IN to bounce loans. The banks are unsure exactly how they would disclose their programs, because they assert that they retain the discretion whether or not to approve a particular overdrawn check, debit card payment or ATM withdrawal, so they make no contractual promises. It is indeed difficult to describe a contract term that allows one party to provide or not provide a service and price it at its whim.
Particularly compelling were the comments of credit counselors and financial educators, who complained that bounce fees and random overdraft policies make financial education for "unbanked" populations much more difficult. Many unbanked consumers are understandably wary of checking accounts, because of recent salient experiences they or their acquaintances have had paying bank fees. Teaching consumers how to use a checking account is now much more difficult because the tricks and traps keep proliferating. Reason enough to restrict or ban the practice, and force banks to offer the safer cheaper alternatives of linked savings accounts and lines of credit.
HT to Prawfsblawg for the graphic.