Consumer Law & Policy Blog

The Death of Refund Anticipation Loans?

Refund Anticipation Loans (RALs) are very short-term, high-interest loans provided to people in anticipation of their tax refunds. The interest rates on these loans, if expressed as annual percentage rates, can be 500% or more. The RAL industry depends on borrowers who don't know that they can receive their tax refunds rapidly and/or get lower cost loans elsewhere.

We have blogged about RALs many times, including here, here, here, and here, and noted the pioneering work on RALs done by the National Consumer Law Center (NCLC) and the Consumer Federation of America (CFA). Now, over at Credit Slips, Nathalie Martin explains that

the RAL gravy train may be almost over. The FDIC just ordered one of the last underwriters of the products to stop backing the controversial loans. The FDIC told Kentucky-based Republic Bank & Trust Co. that the loans are unsafe and unsound now that the IRS no longer offers banks its debt indicator, a tool loan providers used to determine whether a taxpayer had outstanding tax liabilities that could be garnished from a tax refund.

NCLC, CFA, and the Community Reivestment Association of North Carolina have applauded the FDIC's move, which they view as the death knell of RALs.

Florida Court Reverses Injunction Against Ripoff Report

by Paul Alan Levy

Late last year, I discussed a Florida trial court ruling holding that although section 230 forbade a lawsuit directly against XCentric Ventures, the operator of Ripoff Report, for allowing a user to post statements about the plaintiff, XCentric could be enjoined from continuing to host the statements once the author had been enjoined and XCentric refused to honor the author's request that XCentric comply with the injunction. 

In a decision issued last week, however, a new trial judge assigned to the case has rescinded that order and dismissed the lawsuit against XCentric entirely.  Perhaps ominously for the plaintiff, the ruling reserves jurisdiction to consider whether to award attorney fees.

The decision makes XCentric's appeal from the original order moot.  In preparing an amicus brief in support of the appeal, however, we had a chance to review the proceedings that led up to the order.  The transcript of the hearing at which the original TRO against the author was adopted is particularly revealing.   The order was not based on any findings of likelihood of success that the author would be found liable on the defamation claims; everybody understood that the only objective was to facilitate an order against XCentric.  The author never conceded that she was even negligent in making her statement that Giordano was a convicted felon, not to speak of acting with actual malice as would be required for a judgment of defamation assuming that Giordano is a public figure.  Indeed, there was some suggestion that Giordano had told the author that he had previously been in trouble with the law.  So, perhaps he was a felon, just not a convicted felon?  The author apparently stood by everything else she had said about Giordano; yet the judge ordered XCentric to take the entire statement down because, the judge said, he didn't want to be involved in editing the statement. 

This background simply serves to support the caution with which web hosts sometimes react when they are asked to take down content based on the fact that the plaintiff has already obtained a court order against the original speaker.

Last-Minute Industry Effort to Derail Consumer Product Safety Commission Consumer Complaint Database

We told you last month that, in March, the Consumer Product Safety Commission will launch a web-based public database containing consumer complaints about products, and we noted that businesses were working behind the scenes to ditch the program. Now, the New York Times explains, the new Republican majority in the House of Representatives may be trying to kill the database and alter other CPSC initiatives, such as those involving lead in kids' toys, arising from the same 2008 reform legislation that gave birth to the database.

Interesting CAFA Decision

When are actions by state attorneys general brought on behalf of their citizens "class actions" or "mass actions" and thus removable to federal court under the Class Action Fairness Act?  Judge Illson of the U.S. District Court for the Northern District of California explains here.

New Empirical Studies on Arbitration

by Deepak Gupta 

Alexander J. S. Colvin of Cornell has just published an interesting and timely new article, An Empirical Study of Employment Arbitration: Case Outcomes and Processes, in the current issue of the Journal of Empirical Legal Studies. The study finds that employees fare worse in arbitration than in court and that employers benefit from a repeat-player effect. Although the study is limited to employment, its findings corroborate persistent fairness criticisms of mandatory arbitration in both the consumer and employment contexts.  Here's the abstract.

Using data from reports filed by the American Arbitration Association (AAA) pursuant to California Code requirements, this article examines outcomes of employment arbitration. The study analyzes 3,945 arbitration cases, of which 1,213 were decided by an award after a hearing, filed and reaching disposition between January 1, 2003 and December 31, 2007. This includes all the employment arbitration cases administered nationally by the AAA during this time period that derived from employer-promulgated arbitration procedures.

Key findings include: (1) the employee win rate among the cases was 21.4 percent, which is lower than employee win rates reported in employment litigation trials; (2) in cases won by employees, the median award amount was $36,500 and the mean was $109,858, both of which are substantially lower than award amounts reported in employment litigation; (3) mean time to disposition in arbitration was 284.4 days for cases that settled and 361.5 days for cases decided after a hearing, which is substantially shorter than times to disposition in litigation; (4) mean arbitration fees were $6,340 per case overall, $11,070 for cases disposed of by an award following a hearing, and in 97 percent of these cases the employer paid 100 percent of the arbitration fees beyond a small filing fee, pursuant to AAA procedures; (5) in 82.4 percent of the cases, the employees involved made less than $100,000 per year; and (6) the mean amount claimed was $844,814 and 75 percent of all claims were greater than $36,000.

The study also analyzes whether there is a repeat player effect in employer arbitration. The results provide strong evidence of a repeat employer effect in which employee win rates and award amounts are significantly lower where the employer is involved in multiple arbitration cases, which could be explained by various advantages accruing to larger organizations with greater resources and expertise in dispute resolution procedures. The results also indicate the existence of a significant repeat-employer–arbitrator pairing effect in which employees on average have lower win rates and receive smaller damage awards where the same arbitrator is involved in more than one case with the same employer, a finding supporting some of the fairness criticisms directed at mandatory employment arbitration.

You can access the full article here (subscription only).

In another recent study, Punitive Damages in Securities Arbitration: An Empirical Study, in the Journal of Legal Studies, Stephen J. Choi and Ted Eisenberg reported a decline in investor success in securities arbitrations. Investors received a positive award in 53 percent of arbitrations in 1992 but that figure declined to 32 percent in 2006.

16th Annual Consumer Financial Services Institute

by Deepak Gupta

Next week, I'll be speaking on two panels at the Practicing Law Institute's 16th Annual Consumer Financial Services Institute in New York (February 28-March 1) and, a month later, in Chicago (March 31-April 1). The sessions will also be groupcast and webcast by PLI. 

Among other things, this year's two-day program will:

• Explore the impact of the consumer-related provisions of the Dodd Frank Wall Street Reform Act, including:
  •  Title X's creation of the Consumer Financial Protection Bureau
  • Title XIV's impact on mortgage regulation  
• Analyze the Dodd-Frank Act's impact on federal preemption standards and state regulatory perspectives
• Examine the impact of AT&T v. Concepcion on the validity of class action waivers

Other speakers include my co-blogger Professor Jeff Sovern; Peggy Twohig and Leonard Chanin, two key officials responsible for standing up the CFPB; Tim Fernholz of the New America Foundation, who has written extensively on the CFPB; Dennis Cuevas of the National Association of Attorneys General; and representatives of state AG offices. The co-chairs are Alan Kaplinsky, John Roddy, and Julia Strickland.

Read the entire program brochure here. You can view the schedule and register online here.

Will the CFPB Budget Be Cut?

Remember last year when Congress enacted Dodd-Frank and provided that the Consumer Financial Protection Bureau would not be subject to annual appropriations, but would instead be able to claim a portion of the Fed's budget, thus apparently insulating it from the vicissitudes of the political process?  "Apparently" turns out to be the operative word.  Ed Mierzwinski reports here and Politico here that the House budget resolution slashes the CFPB budget.  It's still subject to negotiation with the Senate and the President.  It turns out that all those people who voted for Republican House members were also voting against consumer protection.

Google pushes the panic button on unsealing?

I have discussed here the significant issues of public access to judicial records raised by our motion for unsealing of the Joint Appendix in Rosetta Stone's appeal of the decision upholding Google's policies on keyword advertising.  After we filed our reply brief on the unsealing, Google submitted a ten page brief asking for oral argument, most of which consisted of a response to our reply brief.  Either Google is desperate for delay, or it thought our reply brief was devastating.  Or both? 

Here is our very short response.

Credit Crisis Amnesia - Student Loan Version

In the early 1990s, Republicans and Democrats joined forces to crack down on federal loan backing for abusive for-profit trade schools, who were largely responsible for rapidly escalating student loan defaults in the 80s.  The 1992 Higher Education Act amendments and subsequent regulations tightened eligibilty rules for schools and students, and since then, the Education Department has kept a wary eye on the for-profit school sector. 

Now, having forgotten that history, a new bipartisan group of House members is trying to prevent the Education Department from protecting student borrowers and taxpayer money.  The Department is proposing to impose rather modest standards for graduate employment and loan repayment rates at for-profit schools, and the lawmakers want to block those rules from going into effect.  The for-profit schools and universities are lavishing lawmakers with lucre to persuade them to keep the student loan taps open. 

Historian Stanley Kutler on the Constitutionality of the Affordable Care Act's Insurance Mandate

We have covered the Affordable Care Act in some depth and have posted material on the debate over the constitutionality of its insurance mandate --for instance, here and here. As you know, the constitutionality of the mandate (which, unless struck down, goes into effect in 2014) is the subject of lawsuits all over the country. Go here for a long view on the arguments by historian Stanley Kutler (pictured below).