Consumer Law & Policy Blog

Some Thoughts About the Dodd CFPA Compromise

by Jeff Sovern

Reports continue to emerge that Senator Dodd has proposed a compromise on the Consumer Financial Protection Agency.  Here. for example, is an excerpt from a Times report:

Rather than a stand-alone agency, Mr. Dodd proposed creating a Bureau of Financial Protection within the Treasury Department. The bureau would have an independent director, appointed by the president, and a budget financed by fees from large banks and other lenders.

* * *

 * * * [T]he Dodd proposal would require the bureau to consult with other regulators before issuing rules, and to make public any objections raised by those regulators, along with an explanation of how the bureau addressed the concerns or why it went ahead anyway.

The other regulators also could appeal the bureau’s proposed rules to a new interagency council, led by the Treasury secretary, whose job would be to detect risks to the financial system. The council could veto the rule or send it back to the bureau to be rewritten.

The proposal apparently would also reduce the agency's enforcement powers.  The article quotes consumer advocates as opposing the changes from the House bill.

My own view is that an independent agency would be far better than an agency housed within the Treasury Department.  The Treasury Department already houses the Office of the Comptroller of the Currency, an agency that has issued modest consumer protection rules, but that is more noteworthy for running roughshod over stronger consumer protection attempts by others. Thus, when states enacted predatory lending statutes, OCC declared them preempted.  Similarly, last summer the Supreme Court, in the Cuomo case, rejected the OCC's effort to prevent the New York State Attorney General's Office from investigating whether lenders had violated New York's credit discrimination laws. In short, the Treasury Department has not proved hospitable to consumer protection.

Why is that?  Look at the Treasury secretaries themselves. They are far more likely to have a background in banking than in consumer protection.  Treasury seems to be influenced far more by banking interests than consumer protection concerns.  The problem with housing a consumer protection agency within Treasury mirrors the problem of housing consumer protection efforts within the Federal Reserve. In both cases, consumer protection efforts tend to be subordinated to other priorities.  The result was the financial crisis.  Why would we want to repeat the mistakes of the past?

If anything, the structure of this proposal seems intended to emphasize that consumer protection is subordinate to other concerns.  The new interagency council would have the power to veto consumer protection rules.  That council would be headed by the Treasury Secretary.  So we have an agency within a department that has frustrated consumer protection efforts with a structure that gives others a veto over consumer protection efforts. 

Really, how much better is this than what we already have?  Better than nothing perhaps, but what we need is an agency that would have the inclination and ability to prevent the next financial crisis.  Would this new agency have that inclination?  Well, did the Treasury Department try to prevent the last one?

Save the Date for Teaching Consumer Law Conference (May 21-22)

 

Unemployment's Geographical Diversity

by Brian Wolfman

Here at the CLP Blog we worry about consumers, usually with regard to laws about consumer borrowing, unfair debt collection, disclosure of credit terms, arbitration, and the like. But nothing is more worrisome for U.S. consumers than our present-day persistent high unemployment -- particularly if you are in the nearly 10% who are officially unemployed (or among the many others who go uncounted because they have given up looking for work).

To put it mildly, unemployment is not evenly distributed across the country. This interactive map from the Washington Post shows official unemployment rates in every county in the U.S. The rates vary very widely by geography, more so that I had appreciated. In Michigan, a good number of counties have unemployment rates approaching or even above 20%. And some of them are nowhere near Detroit or Flint. Montmorency County, Michigan has an unemployment rate of 24.5% --- that is, a rate similar to what the country experienced at the depth of the Great Depression. On the other hand, in some parts of the rural midwest, unemployment rates are far lower. In some counties in Nebraska, for instance, unemployment rates are below 4%.

Seventh Circuit Holds That Supreme Court's No-Preemption Holding in Wyeth v. Levine Applies With Full Force in Paxil (SSRI) Case

By Brian Wolfman

In Wyeth v. Levine, the Supreme Court held generally that the FDA's marketing approval of a drug and its labeling does not preempt a state-law personal-injury suit premised on the inadequacy of that labeling. The scope of the Supreme Court's no-preemption ruling may depend on whether, and in what circumstances, the FDA had reviewed and rejected a warning of the kind that the plaintiff claims would have prevented her injuries. An article that I wrote right after Wyeth came down discusses this issue in some detail.

After Wyeth, many observers predicted that most, if not all, state-law prescription drug liability claims would not be preempted, and post-Wyeth decisions in the lower courts have, in fact, rejected preemption. There continues to be significant disagreement, however, over cases involving claims that a family of anti-depressant drugs called selective serotonin re-uptake inhibitors (SSRIs) in some situations cause (or help cause) patients to become suicidal. To oversimplify a bit, the makers of these drugs, even after Wyeth, argue that the regulatory history at the FDA shows that the agency would not have approved a suicide warning on the drugs, thus meeting what they believe is the test for preemption under Wyeth. Yesterday, in Mason v. Smithkline Beecham Corporation, the Seventh Circuit rejected this argument in a case brought by a twenty-three-year-old woman who committed suicide two days after she started taking Paxil, a popular SSRI. In other words, the Seventh Circuit rejected preemption under Wyeth.

Washington Post Reports That the Obama Administration Is Now Willing to Give Up on a Stand-Alone CFPA

The lead story in today's Washington Post reports that the Obama Administration is willing, if necessary, to bargain away an independent, stand-alone Consumer Financial Protection Agency in exchange for prompt enactment of a law that would place a tough new regulator within a pre-existing executive department such as Treasury. As the Post report puts it:

The Obama administration is no longer insisting on the creation of a stand-alone consumer protection agency as a central element of the plan to remake regulation of the financial system. ...  President Obama's economic team is now open to housing the consumer regulator inside another agency, such as the Treasury Department, though they still prefer a stand-alone agency. In either case, they are insisting on a regulator with political autonomy and real teeth so it can effectively enforce rules designed to protect consumers of mortgages, credit cards and other financial products. 

It is not clear how this report jibs with the report yesterday from Washington Post columnist Steven Pearlstein that Senators Dodd and Corker are supposedly close to reaching a compromise on a financial regulation bill. Pearlstein's column could be read to indicate that the Dodd-Corker legislation would grant CFPA-type authority to a new agency or at least to a new sub-agency with an independent source of funding.

Washington Post Columnist Steven Pearlstein Reports Compromise Near in Senate on CFPA

Here.  Here's the paragraph on the CFPA:

The compromise hammered out between Dodd and Corker would establish a single regulator of federally chartered banks with a dual mission and an independent source of funding, based on my conversations with several key players. One division would promulgate and enforce rules to protect consumers; the other would fulfill the traditional role of supervising banks for safety and soundness. Supervisors from both divisions would participate in the periodic reviews of bank operations, and any conflicts between the two would be resolved by the head of the agency.

A Conversation

by Jeff Sovern

Cross-posted from the New Deal 2.0 blog:

Martin: How’d you do this year?

Powell: Low seven figures. You?

Martin: It’d just make you feel bad.

Powell: You got more? This new restraint is just killing me.

Martin: You guys should never have taken the bailout.

Powell: What else could we do? The bank would have gone down.

Martin: Yeah, well, I really need the money. Promised the kid a new Porsche.

Powell: Again? What for?

Martin: Nothing below a B on his report card.

Powell: Well, he deserved it then.

Martin: You know what they say. Money is the mother of all incentives.

Powell: Oh, I’ve been meaning to ask you: did you guys switch your regulator?

Martin: Yeah, of course. The state was demanding all sorts of stuff from us, so we changed. Goodbye state regulator, hello federal regulator.

Powell: I love the federal agencies. They give us a lot of freedom. Plus they kept those crazy state predatory lending laws from applying to us.

Martin: Well, the feds want the fees we pay, and they know if they fuss at us, we might as well stay with the states. And when things don’t work out so well, bailout city. But you think Congress will mess it up?

Powell: Can you believe the nerve? They want a new agency to protect borrowers? What, they think there’s an agency that protects banks?

Martin: You know, we’re lucky all these issues go over people’s heads. No soundbite for the Consumer Financial Protection Agency. It’s not like when Congress passed that credit card bill last summer. People got that one. The senators we give contributions to didn’t dare vote against it. But when the issues are complicated, the old scare tactics work.

Powell:  Can you say it with me:  “Pass this bill and people will get less credit and it’ll cost more.”

Martin: Hey, have you been paying attention to this proposal to change the disclosure forms? You know, the forms the borrowers get when they take out the loans to tell ‘em what they’re going to have to pay? The ones that said the subprime borrowers? Monthly payments would be lower than they really were?

Powell: I sure hope they’ll leave them alone. The old ones worked for twenty years. Why switch now?

Martin: Yeah, I mean, who even reads those things? Well, gotta go spend some money.

Powell: Go prop up the economy. But be discreet.

Excerpted from the Consumer Credit Chronicles, a play about people and credit

Guest Blogger Timothy Froehle on Marketing Credit Cards to Students

By Brian Wolfman

Responding to my post earlier today concerning the Credit CARD Act (which goes into effect tomorrow), Timothy Froehle, a second-year student at the University of Iowa Law School, explains his support for the new restrictions on marketing credit cards to young adults:

As a fairly recent college graduate (2002), it shocked me how many credit card companies were set up along the corridor from the freshmen dorms to the quad, where most freshmen classes were, during orientation and the first weeks of school. For students just out of high school and drunk on new freedom (and maybe beer), the allure of credit is obvious. I guess what I'm saying is that credit cards are more like alcohol, and having a "cooling-off" period before allowing student[s] to rack up crippling debt before they fully understand the ramifications may be a good thing.

Mr. Froehle may have been responding to my skepticism of a law that that treats adults as if they are not adults. Well argued, Mr. Froehle.

New Credit Card Law Effective Tomorrow (Monday, February 22)

The Credit CARD Act -- which stands for the Credit Card Accountability, Responsibility and Disclosure Act of 20009 -- goes into effect tomorrow, Monday, February 22, 2010, one year after its enactment. Among other
things, it enacts these key changes (call them "reforms" if you like them, and "deforms" if you don't):

1 - It generally bans "universal default" -- that is, companies cannot raise rates on one credit card account (or all of a consumer's other accounts) just because the consumer was late or missed a payment on another, separate account.

2 - Generally, promotional (so-called "teaser") rates must last at least 6 months.

3 - Generally, credit card companies cannot charge fees for charging over the card's credit limit.  (Of course, watch for increases in rates or other fees to make up for this loss of revenue.)

4 - Billing statements will disclose penalties for late payments and warn about other ramifications of delinquency (such as higher interest rates).

5 - Significant new restrictions on credit card companies' right to market to and contract with people under age 21 (including adults between ages 18 and 21).

Today's Washington Post has a series of articles on the new law, all linkable from here.

Judge Jails Litigant for Provoking Supportive Emails to the Judge

by Paul Alan Levy

One hates to defend huckster Kevin Trudeau, a notorious infomercial scam artist whose efforts have been subject to extensive consumer complaints as well as FTC proceedings, but sadly a federal judge in Chicago has given Trudeau the opportunity to mount a real First Amendment defense by holding him in criminal contempt for having urged his supporters to communicate their support to the judge.

In the course of proceedings before Judge Robert Gettleman in the North District of Illinois, Trudeau posted a statement on his blog imploring supporters to send Judge Gettleman (and the FTC) emails telling them how great Trudeau's products are.  Trudeau has apparently removed the message from his blog, but it was quoted at the contempt hearing: