Consumer Law & Policy Blog

Amendments to TILA

Most of our posts on the federal housing act signed into law last month, which can be found at Pub. L No. 110-289, 122 Stat. 2654, have focused on the Hope for Homeowners Act of 2008.  But the statute also contained other consumer law provisions aimed at the subprime mortgage meltdown.  It included the Mortgage Disclosure Improvement Act of 2008, which amended 128(b)(2) [§ 1638] and 130(a) [§ 1640] of TILA.  When the amendments become effective, which might not be for thirty months, they wlll change the disclosures for adjustable rate loans.  Lenders making such loans will have to provide examples of how shifts in interest rates would affect the monthly payments; one such example must present the highest possible payment the consumer would be required to make. Before the Fed publishes rules implementing the new provision, it is to conduct consumer testing to determine the appropriate format for providing the disclosures “so that such disclosures can be easily understood, including the fact that the initial regular payments are for a specific time period that will end on a certain date, that payments will adjust afterwards potentially to a higher amount, and that there is no guarantee that the borrower will be able to refinance to a lower amount.”  Other amendments, which become effective next year, provide that good faith estimates of disclosures are to be made at least seven business days before consummation of the loan, except when the consumer is experiencing a bona fide personal financial emergency. Congress also increased the amount of statutory damages for TILA violations in closed end credit loans secured by real property.  The housing statute also provided for registration of mortgage originators in the S.A.F.E. Mortgage Licensing Act of 2008.

Foreclosures Affect Renters Not Just Homeowners

We tend to think only of homeowners when we think of foreclosures. But what about people who rent homes that go into foreclosure? This Washington Post article discusses the issue.

Call for Papers on Marketing and Public Policy

The 2009 Marketing & Public Policy Conference (MPPC), to be held in Washington, DC on May 28-30, 2009, brings together academics, marketing practitioners, government officials, consumer representatives, legal professionals and other interested parties to discuss current issues and research pertaining to public policy issues in marketing. Part of the conference will examine advances and possible regresses on significant policy issues over time (e.g., regulatory actions and the consumer environment) and emerging topics for the future.
 
The conference co-chairs seek submissions of abstracts, completed research papers, and special session proposals that address significant and emerging issues at the intersection of public policy and marketing.  General conference information is available at: http://business.nd.edu/MPPC2009/

Potential conference topics include disclosures in advertising and marketing communications, consumer vulnerability in the marketplace, international public policy issues, misleading or deceptive advertising, Internet consumer protection, privacy, and information sharing, marketing to children, nutrition information provision and use, regulatory issues in pharmaceutical marketing, public health and healthcare, competition and antitrust issues, intellectual property rights, social marketing initiatives, effectiveness of consumer education programs, unintended consequences of public policies and marketing practices, legal issues in marketing, not-for-profit marketing concerns and issues, consumer product safety, behavioral economics, what is new for policy makers?, the role of information in financial decisions, target marketing:  good or bad?, risk communication – new ideas on presenting risk metrics to consumers, First Amendment and paid political speech, and anti-trust marketing issues. Overall, papers addressing any topic related to policy issues associated with marketing will be welcomed for consideration.  Submissions for competitive papers, special sessions, and working papers/extended abstracts must be received no later than Friday, November 14, 2008.   Please direct correspondence to: mppc2009@nd.edu.
 

Joseph P. Mulholland Paper on Behavioral Economics and the FTC

Joseph P. Mulholland has written "Behavioral Economics and the Federal Trade Commission."  Here's the abstract:

This paper discusses the relevance of behavioral economics to consumer protection policy, especially to that practiced at the U.S. Federal Trade Commission. It finds that a good deal of the decision-making approach utilized at the Commission - as guided by the conventional economic model based on neoclassical principles - fits under the broad framework of what is commonly referred to as behavioral economics. This is especially so in regard to the primacy given to determining how consumers utilize information in the formulation of consumer policy. As a result, the contribution of behavioral economics to consumer protection policy has so far been quite limited. Its impact on future consumer policy will most likely come through improvements in empirical methods used to analyze the behavior of consumers, and in the development of ways to communicate more effectively with them.

A Nudge to Read Nudge

I recently finished listening to the audio version of Richard H. Thaler and Cass R. Sunstein's book Nudge (the audio version lacks references and endnotes, and sometimes I have to take my mind off of the audio for left turns across streets, etc., so take this comment for what it's worth).  The book is a "must-read" for consumer law policy-makers and those arguing for adoption of particular policies in the consumer law arena.

The authors argue for what they call "the real third way:" libertarian paternalism.  They demonstrate that consumers are often overwhelmed by having to choose among too many options but they don't believe in conventional paternalism, that is, having the state or some one else make choices for consumers.  Instead, they want to preserve the power of consumers to make their own choices but use "choice architecture" to deliver nudges to consumers which they believe will aid consumers in making the best choices. 

Thaler and Sunstein provide numerous examples of how choice architecture can assist consumers in choosing wisely.  For example, if designers of school cafeterias notice that placing food in some locations increases the consumption of those foods, the designers could put fruits and vegetables in those places to increase consumption of healthful foods.  Clever uses of defaults, and providing genuinely helpful advice are other examples of choice architecture.

Much here did not strike me as new, but a lot of it was indeed new to me (especially the material that didn't have to do with consumer protection) and the authors do an excellent job of pulling material together.  One consequence of the book is that it makes it harder to advocate curtailment of consumer choices without first considering whether a libertarian paternalistic approach might achieve the same end at lower cost and less paternalistically. 

In fact, consumer law policy-makers have applied libertarian paternalism to consumer protection problems for decades.  The Truth in Lending Act, by requiring disclosure rather banning certain loan terms, is an example of libertarian paternalism to some extent.  As Thaler and Sunstein note though, TILA has been a disappointment, most notably in recent years in failing to alert subprime borrowers of the obligations they were assuming, and so the authors propose amendments. 

But the book has some flaws.  Some are puzzling.   Lauren Willis's important Maryland Law Review piece (which we blogged about here) is for some reason attributed to "Lauren Wilkins."  The authors complain that the HOEPA warnings don't explicitly say "high risk" and the borrower simply needs to sign the form.  They add that there are many forms for homebuyers to sign and many borrowers sign without reading.  Fair enough.  But the HOEPA warning does say that "you could lose your home"--which is probably more meaningful to many consumers than the words "high risk"-- and the warning comes at least three days before the closing, when the consumer is less likely to receive a mountain of paper and so might be receptive to the warning (but maybe it doesn't matter because so few loans are subject to HOEPA).  The authors seem to like cooling-off periods and say they pass a cost-benefit test, except that, as far as I know, no one has ever demonstrated that cooling off periods confer any benefit.

A more serious problem is that sometimes libertarian paternalism might devolve into something else altogether.  Thaler and Sunstein, like many, are unhappy with the current med-mal system.  If I understand correctly (and I am not certain that I do; those left turns again), the authors suggest that it should be replaced with a system which would permit patients to waive in advance their ability to sue doctors for negligence; presumably doctors accepting such a waiver would be charged less for malpractice insurance and could pass those savings on to patients in the form of lower fees.  But I wonder if the result of such a system would be that all doctors would refuse to see patients unless patients signed the waiver, and so we would no longer have a med-mal system.  Some would see that as a good thing, but if that's the result, would we be better off debating moving to it instead of debating having everyone sign another piece of paper?  I can't help but think about the HIPAA form that everyone signs that says you've seen the doctor's HIPAA policy--but no one ever sees the policy, much less reads it (though to be fair the authors call for real waivers, not waivers that aren't read) 

Notwithstanding these flaws, the book offers an important approach to solving consumer protection problems, and is worth attention.

Consumer Product Safety Commission Recalls for July 2008

Read July's Consumer Product Safety Commission recalls.

Daniel Schwarcz on Resolving Consumer Insurance Disputes

Daniel Schwarcz of Minnesota has written "Towards a New Approach for Resolving Consumer Insurance Disputes."  Here's the abstract:

Much of insurance law and regulation is concerned with compensating consumers who have been wrongly denied coverage. But policyholders nonetheless have relatively few realistic options for challenging an insurer's adverse coverage determination. Litigation is often too slow and costly for those who have recently suffered significant financial loss. Meanwhile, the alternative dispute resolution options that do exist - such as the mediation services that insurance regulators offer or the existing variants of insurance arbitration - are generally either ineffective or unavailable for most disputes. This Article proposes a new way forward by looking to the United Kingdom's innovative Financial Ombudsman Service, which operates in parallel to the British regulator and is solely devoted to resolving consumer financial disputes. It argues that the comparative success of the Financial Ombudsman Service is primarily attributable to the ways in which it blends elements of the individual, uncoordinated insurance ADR schemes that are used in America. As such, the Article concludes that American lawmakers can significantly improve insurance compensation merely by strategically rethinking the institutional architecture of insurance dispute resolution.

Consumer Product Safety Bill Passes Congress

The Washington Post reports that the Senate yesterday passed landmark consumer product safety legislation by a vote of 89 to 3. This follows House passage of the bill Wednesday by an even more lopsided vote: 424 to 1. The legislation now goes to President Bush who is expected to sign the bill.

The Post story explains that the "historic legislation . . . would remove toxic chemicals from toys and put a more powerful and better-funded cop on the beat to police the safety of consumer goods is on the verge of becoming law. . . . [The bill] represents the most significant expansion of the Consumer Product Safety Commission since it was created in 1973. It also marks a fundamental shift in the federal government's approach to protecting consumers from dangerous products: transforming a reactive stance to a preventive one by dealing with hazards before goods reach the marketplace, including products manufactured overseas."  Senator Mark Pryor's website has a useful synopsis of the legislation.