CL&P Blog

The CFPB and Payday Lending

What, if anything, should the Consumer Financial Protection Bureau do to regulate payday lending? Nathalie Martin has this post at Credit Slips in which she notes that although the CFPB cannot cap interest rates (which she suggests would be ill-advised anyway), the agency should consider a number of regulatory options, including:

1. A National database for all loans (and if ... [the loan is not in the database, the loan] is not enforceable).
2. A strict limit on rollovers and total loans per year per customers.
3. Disclosures that consumers can read and understand (not typical TILA garbage), given in the store, in huge print on the documents, and pointed out and repeated orally by the clerk.These should be written or vetted by someone who teaches school at the level of the average reader in America.
4. No enforcement of mandatory arbitration clauses.
5. No enforcement of mandatory class action waivers.
6. Rules against certain kinds of advertising.

Failed Gods of Behavioral Law & Economics

At this week’s International Association of Consumer Law conference, scholars from Europe and Brazil, among others, embraced the new orthodoxy of behavioral law and economics.  As I have argued elsewhere, the important insights of behavioral science have important normative implications (and law is about norms) that have been largely ignored.  Behavioralism undermines two key tenets supporting the edifice of neoclassical law and economics:  1) that unregulated markets promote consumer autonomy, i.e. freedom of choice, and 2) that this consumer autonomy happily and simultaneously advances the utilitarian value of maximizing consumer welfare. 

Thoughts on the International Association of Consumer Law conference

This week’s biennial meeting of the IACL was brilliantly organized by Professor Christine Riefa and her colleagues at Brunel University in Uxbridge, West London.  Gathered were consumer law experts from old and new Europe, Latin America, Australia, East and Southeast Asia and Africa, as well as a few of us from North America, to talk about consumer protection after the Global Financial Crisis (GFC).

In his excellent concluding presentation, incoming IACL president Dr. Sothi Rachagan highlighted the importance of consumer protection for emerging economies, especially in South and East Asia, where despite the GFC there has been a dramatic reduction of absolute poverty and continuing economic growth that will soon overtake the so-called advanced countries.  Consumer protection law has not only been a consequence but also a key ingredient in this dramatic growth and human development.

Robin Simpson of Consumers International reported on his organization’s vital work to influence the G20 project coordinating financial regulation, including consumer protection, among the major world governments.  The process so far seems to be taking place among national banks and bank regulators, with little or no participation from either consumer protection regulators or consumer advocates.  THe OECD is expected to release some sort of report on these activities within the next several weeks.  There is a real danger that the post-crisis legal world will be designed by the same bankers and bank regulators whose failings brought us the WFC.

Sixth Circuit Upholds Affordable Care Act Against Constitutional Attack

In today's ruling, the Sixth Circuit held that Congress had the power under the Commerce Clause to pass the Affordable Care Act's insurance mandate -- the Act's requirement that certain people either buy insurance or pay a fine (or tax) if they don't. Judge Jeffrey Sutton's concurring opinion explains why he thought that "inactivity" (that is, the decision not to buy health insurance) is commerce regulatable by Congress:

Inaction is action, sometimes for better, sometimes for worse, when it comes to financial risk. ...[E]ach requires affirmative choices; one is no less active than the other; and both affect commerce.

The New York Times story on the decision is here. Go here, here, and here for extensive analyses posted on the Volokh Conspiracy.

Bank Chief Wants More Power for the CFPB

Here. Arkadi Kuhlmann, president and CEO of ING DIRECT USA, appears to be troubled (correctly, in my view) that some (e.g., car dealers) will escape CFPB jurisdiction while others will be subject to it. His conclusion:

The patchwork regulatory structure we have today is something nobody would design on purpose. The CFPB has the opportunity to establish a regulatory system that holds all lenders equally accountable. No doubt, there will be criticism from industries that would like to protect their privileges, but the CFPB should hold strong against them. The government safety net already has failed us once. We must not let it do so again.

Wal-Mart--Too Big To Nail

Stephen Colbert's brilliant take on the Supreme Court's decision:

The Colbert Report
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Guides to Supreme Court Term

The Washington Post has this interactive guide to the just-completed Supreme Court term, and for a more comprehensive take on all the Court's cases (including therefore all of the key consumer cases), go to Scotusblog's stat pack.

Does Restricting Money in Politics Infringe the Freedom of Speech?

That's been a hot topic of First Amendment debate for more than four decades, with the Supreme Court increasingly answering the question "yes," as in its 5-4 decision earlier this week striking down a key component of an Arizona statute that provided public funding to electoral candidates. Today's Washington Post includes two different views on the Court's recent decision, with the Post itself saying that the ruling turns the First Amendment on its head and George Will saying it was a victory for free speech.

Drug Companies' Influence on Medical Journals and Medical Research

It's not a pretty story, according to "Flacking for Big Pharma," an article by Harriet Washington in the American Scholar. Here's an excerpt:

[D]drugmakers sometimes agree to buy journal advertising only if it is accompanied by favorable editorial mentions of their products. Or their in-house stables of writers or hired pens generate “advertorials,” a Frankensteinian mix of medical content and marketing messages that can be indistinguishable from editorial material. “Pharmaceutical firms also inform journals,” Smith observes, “that they are receptive to buying huge volumes of reprints that favor their wares: The profits for the journal can easily reach $100,000.” Pharma’s journal ads tout not only products but also its hundreds of thousands of subsidized “educational opportunities.” Drug and medical-device makers spend $2 billion annually for more than 300,000 seminars and training opportunities, often held in the Bahamas or the Caribbean. The wolfed-on-the-run free pizza for harried medical residents that the industry has so sanctimoniously forsworn bears little resemblance to the sumptuous feasts, flowing wines, chartered flights, cruises, luxurious lodgings, golfing, snorkeling, and remarkably attractive sales reps that characterize these island educational junkets. “There’s a lot of bribery involved—the kids get pizza, the grownups get trips to Hawaii,” observed Marcia Angell, MD, professor of social medicine at the Harvard Medical School, former editor-in-chief of the New England Journal of Medicine (NEJM), and the author in 2004 of The Truth About the Drug Companies: How They Deceive Us and What to Do About It.

Update on Debtor's Prisons

A bill has been passed in Washington state to curb the practice of issuing arrest warrants for debtors in civil collection cases.  In several states it appears that collectors use this tactic to threaten consumers owing ordinary civil debts with prison.  The consumer is issued court process to appear at a civil hearing, and on failing to appear, is then served with a bench warrant.  Ordinarily the bench warrant is a means to enforce the order to appear, and should be resolved once the debtor is brought before the court.  However some judges seem willing to impose bail once the debtor is arrested and to threaten him or her with jail unless payment is forthcoming.  Conveniently, the bail amount is set to coincide with the civil debt.  The dubious process concludes with the bail money being paid over to the collection attorney.

This is only one of many ways in which debtors are threatened with imprisonment every day in the United States, despite the notion that debtor's prison was abolished before the Civil War.  I wrote previously about an Indiana variant here. Bad check prosecutions and the accompanying "diversion" programs arranged between District Attorneys and collection agencies are another example. These programs have been the subject of some class action litigation.  Nonpayment of two special categories of debt, income taxes and child support payments, is explicitly criminalized.

Beyond these examples, one could cite a variety of contexts in which criminal restitution sentences are imposed in what ought to be civil contract or tort disputes, or more broadly, the phenomenon termed the criminalization of poverty (articles here and here.)  The new debtors' prisons:  a good law review article topic, perhaps . . .