Consumer Law & Policy Blog

Senate Banking Committee Expected to Vote on Cordray Nomination Next Thursday

Here.  Reuters says Democrats "have the votes to move Cordray's nomination out of the committee to the Senate floor, but that will likely be as far as it gets for the foreseeable future. . . ."

Surprise, Surprise: Consumers Being Hit With New Debit-Card Fees

Beginning on October 1, a new Federal Reserve rule that drastically limits debit-card swipe fees will go into effect. (Read about the controversial rule here.) A swipe fee is what banks charge merchants each time a merchant swipes a consumer's debit card. Swipe fees have generated billions of dollars in revenue for banks. But with those fees cut, guess what the banks are going to do? They will charge fees directly to consumers. As this article explains, industry giant Bank of America is going to charge debit-card users $5 a month for the privilege of using the bank's card.

Federal Court Issues Preliminary Injunction Against Rule Limiting Credit Card Fees

The 2009 Credit  Card Accountability Responsibility and Disclosure Act (known as the Credit CARD Act) authorized the Federal Reserve to limit credit card fees in various ways including "in the first year during which the account is opened." The Federal Reserve was authorized to issue rules under the Act and initially adopted a rule limiting fees assessed during the first year of the account to 25% of the account's overall credit limit. The Fed later amended the rule to include fees charged before the opening of the account. Under the Dodd-Frank Act,the Consumer Financial Protection Bureau (CFPB) is responsible for enforcing the challenged rule.

Two affiliated banks sued the CFPB to enjoin enforcement of the amended rule on the ground that the Credit CARD Act does not authorize regulation of fees before a credit card account is opened. On September 23, the court granted the banks' motion for a preliminary injunction. In a lengthy opinion,the court held that the banks were likely to succeed on the merits and rejected the CFPB's claim that the rule represented the Fed's reasonable interpretation of the statute and was thus entitled to deference:

The Board did not reasonably define an ambiguous term within the statute to reach [the bank's pre-account] fee, which would have been within its power. Instead it arbitrarily chose to extend a definitive period of time established by Congress to reach a type of fee that is not charged to the account balance and not the sort of deceptive practice Congress meant to extinguish.

This decision may be the first addressing the validity of a rule enforced by the CFPB. No doubt there will be many more, as the banks try to extricate themselves from as many CFPB regs as possible. I wonder whether the CFPB will appeal.

The Health Care Insurance Mandate, the Supreme Court, and Presidential Politics

As the consitutionality of the Affordable Care Act's insurance mandate goes to the Supreme Court, I've read a number of things suggesting that the Obama Administration put politics aside in deciding not to seek en banc review in the Eleventh Circuit. The idea here is that by going straight to the Supreme Court, and not trying to slow down the litigation, the President risked losing his greatest legislative achievement right in the middle of the 2012 reelection campaign.

I don't doubt that, politics aside, the Solicitor General thought it made sense to go right to the Supreme Court. After all, the Eleventh Circuit was unlikely to rehear the case en banc. And, with cases attacking the mandate's constitutionality pending all over the country, and the issues fully developed among litigators, commentators, and judges, it's not plausible to argue that further percolation is needed in the lower courts. So, it seems right to me that, in seeking Supreme Court review, the Solicitor General was acting on general principles, not politics.

But I don't get the assumption that having the issue before the Supreme Court during the campaign, with a decision coming in June 2012, would be a political liability for the President. If, as Reagan Administration Solicitor General Charles Fried believes [go here as well], the case for the mandate's constitutionality is a slam dunk, the President is taking no risk that he will suffer a major political loss in the middle of the campaign. On the other hand, if the Supreme Court were to rule against the mandate's constitutionality, the President might generate significant support for his views on health care reform (and for his campaign) by emphaszing that the Court's conservative, Republican-appointed wing had thwarted the will of the majority. (That's what the President attempted unsuccessfully with the Citizens United decision.)

To be sure, running against a Supreme Court decision throwing out the mandate would turn off some voters (although many of them would never vote for the President anyway). But it's not as if President Obama can run a reelection campaign without trumpeting his signature legislative achievement. On the contrary, he'll need to give his health care reform law a full-throated defense, stressing not only its importance to the public health but its relationship to the country's longterm economic well-being. Linking those themes to one that bashes an "activist" conservative Supreme Court majority might resonate with undecided voters while activitating the Democratic base. So, on balance, it strikes me that having the issue before the Supreme Court in 2012 is a political plus.

Petitions on Constitutionality of Health Care Mandate Arrive at the Supreme Court

The Solicitor General has filed this petition asking the U.S. Supreme Court to review the Eleventh Circuit's ruling that passage of the Affordable Care Act's insurance mandate exceeded Congress's power under the Commerce Clause. The SG's petition also suggests that the Court grant review on a second question not addressed in the Eleventh Circuit's ruling: whether the federal district court lacked jurisdiction over the case because it could not order relief under the Tax (anti-)Injunction Act, 26 U.S.C. 7421(a). The government originally raised that defense in the district court and lost on it, and the government did not raise the point on appeal. The SG now says that section 7421(a) does not bar the suit, but thinks the Court should grant review on that issue and appoint an amicus to make the argument that the government has now abandoned.

Also today, 26 states on the other side of the case filed this petition seeking review of portions of the Eleventh Circuit's ruling that are unfavorable to them, including the Eleventh Circuit's holding that the (assertedly unconstitutional) provision imposing the mandate is severable from the rest of the Affordable Care Act.

 

Employment Discrimination Against the Jobless

Apparently, some employers seeking workers advertise that jobless people need not apply. President Obama's proposed jobs legislation would make it illegal for an employer with 15 or more employees not to hire someone on the ground that he or she is unemployed, and it gives the spurned job applicant a right to sue when the employer violates the law. Read about it here.

Art of Living's Lawyers Brag About Stalking and Identifying Their Clients' Critics Without Notice

by Paul Alan Levy

Earlier this month I blogged about the legal issues raised by a subpoena used by a religious cult, Art of Living, relying on a marginal copyright claim as a basis for identifying one of its former members.  In the course of moving for summary judgment, the Doe has called attention to a perhaps incautious statement on the web site of the cult's lawyers, seeking clients by assuring them that, "Unlike most traditional firms, we relish the challenge of stalking, identifying and bringing Internet actors to justice - often before they even know we're onto them." 

Apparently, their business model depends on evading the notice aspect of the Dendrite test.  Do these lawyers  have so little confidence in the strength of their claims that they can't afford judicial scrutiny in an adversarial posture?  When I was first litigating Dendrite issues, plaintiffs' counsel loved to make provocative statements of this sort while trolling for clients.  More recently, such lawyers have been much more cautious; we can be grateful to the Kronenberger firm for their candor.

Obama Administration Decides Against En Banc Review on Constitutionality of Health Care Mandate

As noted here, the Obama Administration has decided not to seek en banc review of the Eleventh Circuit's 2-to-1 ruling that passage of the Affordable Care Act's health insurance mandate went beyond Congress's Commerce Clause power. That makes it more likely that the Supreme Court will hear the case (or one from another circuit) this Term and that the Court will issue a ruling during the heat of the presidential election campaign.

Citibank CEO Vikram Pandit Says Banks Should Explain Credit Products in "Plain Language"

Here. An excerpt:

I believe that all financial institutions should be required to disclose, in plain language, the essential facts about their products, especially credit offerings. The disclosures currently required by law theoretically tell the customer all he needs to know—provided, of course, that he can get through the fine print. But the information can be complex, confusing and hard to access.

For instance, consumers tend to assume that a credit card with the lowest annual percentage rate is best, but that’s not always true. At Citi we offer a product called the Simplicity Card. Customers are not charged annual fees or late fees and are not assessed penalty rate hikes. The interest rate is higher than the rate for many other cards. But for a customer used to being charged those fees, the actual cost of using the card is lower.

Yet we can’t make that crystal clear because other card issuers are not required to disclose the total potential cost of credit for their products. Hence consumers can’t make direct comparisons. They should be able to—which means that issuers should be required to disclose the full cost of credit for their products, which includes late fees and interest increases, in one clear sum.

Third, we need stronger product regulation to protect consumers against behavioral arbitrage. This is one instance where market mechanisms are inadequate to protect consumers’ interests.

What happens is often similar to the card example I just cited. When buying a car, for instance, a consumer is likely to choose the financing plan with the lowest up-front cost. Yet once every other cost and fee is factored in, the car with the lower monthly payment is often more expensive than the one parked next to it with the higher monthly payment. Think of the pre-crisis explosion of ARMs, Option ARMs, no-down payment loans and the like—they looked cheap but turned out to be very expensive.

Other countries have addressed this problem by setting loan-to-value ratios for mortgages. These countries have clearly decided that it’s not enough to leave things at caveat emptor. Some of the real-life patterns we see in consumer behavior lead to decisions that harm individuals’ balance sheets and threaten systemic safety. As we learned from the credit crisis and housing bubble, bad individual consumer decisions are not necessarily isolated events that hurt only the decision makers. In the aggregate, they can threaten the prosperity of the entire global economy. The point of rules against behavioral arbitrage is less to protect individuals from their own poor decisions than it is to protect the rest of us.

And here's what he says about credit scores:

We in the U.S. have historically relied on credit scores—an imperfect and backward-looking measurement that focuses on past borrowing. But many Asian countries have gone to a forward-looking approach. Credit bureaus and regulators have jointly created databases and regulations that foster information sharing on both sides of borrowers’ balance sheets and their income statements. Lenders then scrutinize this data to make informed assessments of creditworthiness and the affordability of debt.

 

Should President Obama Run Away From Class Warfare?

That's the question posed here by Sally Kohn, and her answer is no. She says that class warfare began at least as early as 1971 with the famed Powell Memorandum, it's being waged by the rich on the middle class (and, presumably, the poor as well),and it's a battle that President Obama should fight openly and that he (and the non-rich) must win.