Consumer Law & Policy Blog

CNN.Money: The CFPB's Top Priorities

Here.

Study Suggests Racial Bias in Bankruptcy Filings

An empirical study by professors Robert M. Lawless, Dov Cohen, and Jean Braucher has found that the U.S. bankruptcy system (in particular, lawyers representing debtors) appears biased against African-American debtors. Last Friday, the New York Times reported on the study in an article entitled "Blacks Face Bias in Bankruptcy, Study Suggests." A particular concern is that whites with certain financial characteristics are directed by lawyers toward chapter 7, while similarly situated African-Americans are directed toward chapter 13. The Times explains:

Blacks are about twice as likely as whites to wind up in the more onerous and costly form of consumer bankruptcy as they try to dig out from their debts, a new study has found. The disparity persisted even when the researchers adjusted for income, homeownership, assets and education. The evidence suggested that lawyers were disproportionately steering blacks into a process that was not as good for them financially, in part because of biases, whether conscious or unconscious.The vast majority of debtors file under Chapter 7 of the bankruptcy code, which typically allows them to erase most debts in a matter of months. It tends to have a higher success rate and is less expensive than the alternative, Chapter 13, which requires debtors to dedicate their disposable income to paying back their debts for several years. ... A survey conducted as part of their research found that bankruptcy lawyers were much more likely to steer black debtors into a Chapter 13 than white filers even when they had identical financial situations. The lawyers, the survey found, were also more likely to view blacks as having “good values” when they expressed a preference for Chapter 13.

One of the study's authors, University of Arizona law professor Jean Braucher, says at Credit Slips that the Times article describes the problem, but doesn't really deal with solutions. Her Credit Slips piece discusses possible solutions, noting that her study suggested

(1) that a question about race of the debtor should be included on the form for a bankruptcy petition to make it possible to confirm (or disprove) the finding that African Americans file in chapter 13 at a much higher rate than debtors of other races (about double in the data we have), and (2) that all actors in the bankruptcy system—judges, trustees, attorneys and clients—be educated about the apparent racial disparity and the possibility that subtle racial bias may be producing it.

Those of you anxious to read the entire Lawless/Cohen/Braucher study -- called "Race, Attorney Influence, and Bankruptcy Chapter Choice" -- should look for it in a forthcoming issue of the Journal of Empirical Legal Studies. The SSRN link for the article is currently broken; I'll post the article, when I get it.

UPDATE: Bob Lawless contacted me and provided the SSRN link to the study. And, while I'm updating, here's the abstract:

We report on racially disparate uses of chapter 13 bankruptcy. Currently, approximately 1,500,000 bankruptcy petitions are filed each year, with about 30% of those petitions being chapter 13 cases. Although chapter 13 can offer some legal advantages for persons seeking to protect valuable assets such as a house or automobile, it generally offers less relief and costs more than the primary alternative available to consumers, chapter 7. The chief feature of a chapter 13 bankruptcy case is a plan under which the debtor must devote all of his or her disposable income to creditor repayment over a 3- to 5-year period. Chapter 7, in contrast, requires only that the debtor turn over all nonexempt assets, with over 90% of chapter 7 debtors having no assets to turn over.  This paper reports on two studies, one using data from actual bankruptcy cases and the other involving an experiment with a national random sample of bankruptcy attorneys. Because the court system does not collect racial data on bankruptcy filers, the first study uses data from the Consumer Bankruptcy Project. Even after controlling for financial, demographic, and legal factors that might favor a chapter 13 filing, African Americans are much more likely to file chapter 13, as compared to debtors of other races. The second study reports on an experimental vignette sent to a random sample of consumer bankruptcy attorneys who represented debtors. The attorneys were more likely to recommend chapter 13 when the hypothetical debtors were a couple named “Reggie & Latisha,” who attended an African Methodist Episcopal Church, as compared to a couple named “Todd & Allison,” who attended a United Methodist Church. Also, attorneys viewed “Reggie & Latisha” as having better values and being more competent when they expressed a preference for chapter 13 as compared to “Todd & Allison,” who were seen as having better values and being more competent when they wanted to file chapter 7, giving them a “fresh start.” Previous research and the results from the present experimental vignette study suggest consumer bankruptcy attorneys may be playing a very important, although likely unintentional, role in creating the racial disparity in chapter choice. Together, the two studies raise questions about the fairness of the bankruptcy system.

 

Michelle Singletary (and Richard Cordray) on Mandatory Consumer Arbitration

In yesterday's Washington Post, Michelle Singletary uses the Supreme Court's recent decision in Compucredit v. Greenwood (which we mentioned and linked to here) as a springboard to discuss the debate over pre-dispute mandatory arbitration clauses in consumer contracts. She reminds us that the Dodd-Frank financial reform legislation requires the new Consumer Financial Protection Bureau to study arbitration. Based on that study, the CFPB can, by regulation, ban or limit arbitration in matters within the CFPB's authority. Singletary quotes Richard Cordray, the new recess-appointed head of the CFPB, who says that “[w]e understand the importance of this issue, and we’ll be moving forward as required by Congress.”

Health Care in the United States

104 professors of health care law have filed this Supreme Court amicus brief in the case challenging the constitutionality of the Affordable Care Act now before the Court. Former Reagan Administration Solicitor General Charles Fried, who thinks the Commerce Clause challenge to the individual mandate is nonsense, is lead counsel on the brief. The 104 professors have differing views on health care reform (and presumably differing views on the wisdom of the Act). Some favor significant government involvement, while others favor market-based solutions. What is interesting about the brief is that it compiles in one place a great deal of information on the enormity of the health care economy, the near ubiquity of the health care system in the lives of Americans, and the huge costs imposed on others by those who are not insured. When you get done with the brief, you tend to think that the mandate involves "commerce," even though the brief does not directly address that question. The brief is very well done and worth a look.

News Article on Debt Buyers

Here, from the Frederick News-Post.  An excerpt:

Debt buyers bank on the likelihood that some people will pay up without a fight or fail to defend themselves in court, Holland said. And because the debt is so cheap, the agencies risk little by purchasing it.

Companies buy massive spreadsheets of names, account numbers and alleged debt amounts, he said. Often, no supporting documentation exists to show the person owes the money, and the thread of ownership tangles until even attorneys have trouble making sense of it.

Many consumers have no memory or record of the original debt, so the calls from creditors hit them out of the blue.

This can be dangerous. In the chaos of the industry, the same debt can be sold to several people, [Maryland law professor Peter A.] Holland said.

"They don't realize that proof is lacking, and the danger there is that they end up paying it to the wrong person. And then they have no protection if the right person comes forward and sues them," he said.

Times Article on Disclosure Generally, Including Consumer Disclosures

You can read it at http://www.nytimes.com/2012/01/22/sunday-review/hard-truths-about-disclosure.html?pagewanted=1

Adam Zimmerman on the "Privatized Attorney General" as Replacement for the Class Action

Here. I should note that Adam is a colleague of mine.

Ron Paul Should Know Better Than to Sue Anonymous Speakers for Political Speech

by Paul Alan Levy

In a remarkably dishonest filing yesterday in support of a new lawsuit, Republican presidential candidate Ron Paul has asked the federal district court in San Francisco to order expedited discovery to identify an anonymous videographer who advocated his election through a video pillorying opposing candidate Jon Huntsman for his connections to China.

In a complaint filed a few days ago, Paul alleged that the video both infringed his trademark and defamed him by improperly implying that he was behind the campaign video.  The complaint seeks damages and injunctive relief, not just compelling removal of the video, but preventing the defendants from ever using Paul’s name in any material in the future, regardless of whether the use implies Paul’s endorsement (relief paragraph 6).  This complaint is utter nonsense, in several respects.

Radio's Academic Minute: 100 Seconds on Mortgage Disclosures

Here.

The National Highway Transportation Safety Administration Unable to Properly Assess Safety of New, High-Tech Vehicles

As explained in this LA Times article, a study done by the National Research Council at the request of the National Highway Traffic Safety Administrator (NHTSA, the federal agency in charge of passenger car safety) has concluded that NHTSA does not currently have the technical know-how to properly review the safety of today's high-tech vehicles. Here's the beginning of the article:

The nation's top auto safety regulator is ill-equipped to detect problems with high-tech electronics that are increasingly commonplace in today's cars, a new government study has concluded. Calling such shortcomings "troubling," the report called on the National Highway Traffic Safety Administration to review its technical capabilities and appoint an advisory panel to help it evaluate potentially serious risks associated with systems such as adaptive cruise control. Despite those findings, the National Research Council found in a 162-page report that NHTSA's decision to close its investigation of sudden acceleration in Toyota Motor Corp. vehicles was appropriate, and backed its conclusion that there was no evidence that an electronic defect caused the dangerous problem. Nonetheless, the proliferation of computerized devices poses new challenges for NHTSA, and "the agency needs to plan for the future of electronics in vehicles," said Louis J. Lanzerotti, a physics professor at the New Jersey Institute of Technology and chairman of the committee that authored the report.