Consumer Law & Policy Blog

Littwin Paper on Repairing Credit Reports Damaged by Domestic Violence

Angela K. Littwin

 of Texas has written Escaping Battered Credit: A Proposal for Repairing Credit Reports Damaged by Domestic Violence, forthcoming in the University of Pennsylsvania Law Review.  Here's the abstract:

Debt and domestic violence are connected in ways not previously imagined. A new type of debt – which I have labeled “coerced debt” – is emerging from abusive relationships. Coerced debt occurs when the abuser in a violent relationship obtains credit in the victim’s name via fraud or coercion. It ranges from secretly taking out credit cards in victims’ names to coercing victims into signing loan documents to tricking victims into relinquishing their rights to the family home. As wide-ranging as these tactics can be, one consequence consistently emerges: ruined credit ratings.

Coerced debt wreaks havoc on credit scores, which is particularly problematic because the use of credit reports is no longer confined to traditional lenders. Employers, landlords, and utility companies all make extensive use of credit scores in screening. Thus, a credit score that has been damaged by coerced debt can make it prohibitively difficult for victims to obtain employment, housing, or basic utilities, all of which are requirements for establishing an independent household.

In this Article, I propose amending the Fair Credit Reporting Act to enable victims of coerced debt to repair their credit reports. My proposal would enable family courts to rule on whether alleged coerced debt is, in fact, coerced. The victim could then submit the court’s certification to the credit reporting agencies, which would block the coerced debt from her credit report to the extent that the block did not unduly harm her creditors. My proposal would build a bridge between the decision-makers already making determinations about issues related to coerced debt and the credit reports victims need reformed in order to move beyond the abuse.

Empirical Study of Predispute Mandatory Arbitration Clauses in Social Media Terms of Service Agreements

Michael L. Rustad,

Richard Buckingham,

Diane D'Angelo, and

Katherine Durlacher, all of Suffolk, have written An Empirical Study of Predispute Mandatory Arbitration Clauses in Social Media Terms of Service Agreements, forthcoming in the University of Arkansas at Little Rock Law Review.  Here's the abstract:

With predispute mandatory arbitration clauses, a large and growing number of social networking sites (SNSs) are depriving users of their consumer rights. SNS users across the globe are required to agree to predispute mandatory arbitration as a condition of accessing content. Consumers that enter into clickwrap or browsewrap agreements waive their right to a jury trial, discovery, and appeal, likely without being aware that they are losing these important rights. The U.S. Supreme Court’s arbitration jurisprudence has made it difficult to challenge these troublesome contractual clauses and practices. The Roberts Court’s recent decisions, including AT & T Mobility, LLC v. Concepcion (2011) and CompuCredit Corp. v. Greenwood (2012), make it clear that the Court favors a broad enforcement of consumer arbitration agreements stripping the state of the ability to police these documents. These decisions are, in effect, a federal takeover of arbitration, preventing state efforts to protect consumers against one-sided and oppressive consumer arbitration clauses. This Article is the first empirical study of the use of predispute mandatory arbitration clauses by SNSs and sheds light on whether SNSs have used arbitration clauses strategically in order to achieve a “liability-free” zone in cyberspace. Our empirical findings reveal that SNS arbitration clauses contravene many of the principles deemed necessary for a fundamentally fair process for consumers to resolve disputes.

Obama signs executive order protecting troops against predatory schools

President Obama today signed an executive order to provide consumer protections for members of the armed forces who are victimized by predatory practices of for-profit educational institutions. Schools have misled vets about the nature of educational benefits under the GI Bill, the amounts of debt they will incur if they finance their education through loans, and the appropriateness and usefulness of the schools' educational programs. The executive order is here, and the White House's statement explaining it is here.

In brief, what the order does is seek to require educational institutions that receive federal funding for education of service members and vets to adhere to "standards of excellence," including:

• providing prospective enrollees with a "Know Before You Owe" form telling them what their education will cost, what financial aid is available, and how much debt they will incur, and providing relevant information about student outcomes;
• requiring schools to tell service members and vets about the possible availability of federal aid before they sign up for costly private loans;
• ending fraudulent and aggressive marketing, misrepresentations, and incentive compensation to marketers;
• obtaining accreditation for new courses and programs before enrolling students in them;
• readmitting students who had to drop programs because of their military service obligations, and accommodating absences due to those obligations;
• adopting refund policies;
• providing educational plans and advisers for students.

The order contemplates implementing these changes through agreements with educational institutions that receive federal funds and other means, and provides for enhanced enforcement and compliance measures. And it directs the government to explore trademarking the term "GI Bill" to prevent its misuse by educational institutions to mislead students about their benefits.

Who could be against providing such basic consumer protections for service members and vets? The Association of Private Sector Colleges and Universities, that's who.  Through their president, former Republican congressman Steve Gunderson, they said they were "disappointed" with this "deeply unfortunate development." 

The Supreme Court Arguments on the Affordable Care Act and the Future of Women's Health Rights

Marcia Greenberger of the National Women's Law Center has reviewed the oral arguments on the constitutionality of the Affordable Care Act and has penned this article on what she views as the terrible consequences on women's health of a Supreme Court decision striking down all or part of the law. Here's the intro and an illustrative example of her concerns:

Women have a tremendous stake in the cases before the U.S. Supreme Court challenging the Affordable Care Act. Both the ACA's particular provisions and the established legal principles they rest on are of critical importance to women. The three days of Supreme Court ACA arguments thus were riveting for women's health advocates. They were also riveting for those who take seriously decades of precedent permitting the federal government to craft national solutions to national problems. *** Is it illegitimate to require maternity coverage to be covered in all insurance plans? During the argument on the constitutionality of the individual-responsibility provision, Chief Justice John Roberts Jr. suggested that perhaps it was illegitimate to require all insurance policies to cover maternity care. "[T]he policies that you're requiring people to purchase…must contain provision for maternity and newborn care," Roberts noted. "You're requiring people who are…never going to need pediatric or maternity services to participate in that market." Currently, 88 percent of individual market insurance plans do not cover maternity care, but under the ACA maternity care is an "essential health benefit" that plans must cover beginning in 2014 — a major advance for women. Roberts' observation suggested that it might somehow be constitutionally problematic to require individuals to maintain insurance that includes this essential coverage — a dangerous and unprecedented notion.

The Affordable Care Act, $1.3 Billion in Medical Insurance Rebates, and the U.S. Supreme Court

Under the Affordable Care Act's medical loss ratio rule, if medical insurers don't spend at least 80 to 85 percent of their premium earnings on health care — rather than on marketing and administrative expenses — they must rebate the excess non-health care spending to their consumers. (Sometimes those consumers will be individuals; other times, they will be employers who purchased health care for their employees.) According to this analysis by the Kaiser Family Foundation, the ACA will require health insurers no later than August 1 to rebate about $1.3 million in excess premiums -- $541 million to large employers, $377 million to small businesses, and $426 million to individuals who buy their own health insurance. Some rebates will take the form of premium reductions, while others will be direct cash payments. But if the Supreme Court strikes down the whole Act -- that is, if it finds some of it unconsitutional and then refuses to save the rest of it -- presumably the rebates will stay in the insurers' pockets. Read more about the issue here and here.

Alan White on the Federal Government's "Dirty Secret" Regarding Student Loans

At Credit Slips, Alan explains that the government makes a tidy profit on student loans. Here's a key excerpt:

As student loan debt passed the $1 trillion mark, President Obama, speaking at Chapel Hill yesterday, called the upcoming interest rate hike on student loans a tax.  He didn’t tell the half of it.  Congress’ dirty secret is that the government makes a huge annual profit on student loans.   According to the scrupulously nonpartisan Congressional Budget Office, $37 billion will flow IN to Treasury from student loans made this fiscal year at the 3.4% rate (on a net present value basis and net of about $1.5 billion to administer them.)   The President’s current dispute with Congressional Republicans is about whether to increase this annual profit next year.  The interest rate that students pay on the basic “subsidized” loan is slated to rise from 3.4% this year to 6.8% next year, unless the lower rate is extended by Congress. How does the government profit from student loans?  In two words, yield spread. Treasury can borrow money at 0.5% or less, and lends it to students at 3.4%.   Administrative costs are well below 1%. Prepayment risk is minimal; repayment stretches over many, many years, and the yield spread just keeps on coming.  Interest rate risk is also minimal, given that Treasury can issue debt in a range of maturities.

Can States Impose Sales Tax on Internet Commerce?

We blogged earlier on the fight in California over whether to subject Internet-based commerce to sales tax. It seems downright nutty, as a policy matter, to subject sales at bricks-and-mortar stores to sales tax, but to let Amazon sell its products without having to collect sales tax. Nowadays, does Amazon really need a competitive advantage over Mary & Joe's Five and Dime? There's an effort to get Congress to free the states to impose sales tax on Internet commerce. Meanwhile, some states have acted on their own. In Illinois, however, a Cook County judge has just held that Illinois's law is unconstitutional and preempted by the federal Internet Tax Freedom Act. Read about it here.

Another Major Decision on the Class Action Cy Pres Doctrine

Last November, we discussed two major class action rulings from the Fifth and Ninth Circuits on the cy pres doctrine in class actions. Under that doctrine, courts may approve distribution of leftover class action settlement funds to charities, sometimes after an initial distribution to class members and other times before (and in lieu of) any distribution to class members. The Fifth Circuit had held a cy pres distribution impermissible because the money should have gone to the class members (who had received some money, but had not been fully compensated). The Ninth Circuit had rejected a cy pres distribution because there was insufficient subject-matter nexus between the underlying lawsuit and the chosen cy pres recipients. Now, In Rohn v. Dana Farber, the First Circuit has affirmed a cy pres award to charities largely because the circumstances there were different from those in the Fifth and Ninth Circuit cases -- the class members who made claims, the court said, had been fully compensated, and the charitable receipients' interests "reasonably approximated" the interests being pursued in the underlying lawsuit. Rohn rejects the suggestion in Judge Jones' concurring opinion in the Fifth Circuit that leftover money should presumptively revert to the defendant (though the First Circuit's ruling in this regard is arguably dicta because the settlement agreement in Rohn expressly provided that leftover money would go to charity). Although the result in Rohn is unlikely to spark controversy, its wide ranging discussion of the cy pres doctrine is worth a look.

More on "Taxmaggedon"

We have discussed critically the claim of impending "taxmageddon" -- the idea that recent tax cuts are set to expire at the end of 2012 and, that, therefore, if Congress doesn't do something after the election, taxpayers will be hit with a signficant tax increase all at once, harming taxpayers with modest incomes and possibly slowing economic recovery. Former Obama Administration OMB Director Peter Orszah weighs in here. 

CFPB Monitor Report of Cordray Meeting

Here.  A CFPB Monitor reader provided the account of CFPB Director Richard Cordray's meeting with South Dakota community banks and credit unions. Among other things, the industry folks expressed concerns about the cost of complying with regulations and the proliferation of disclosure rules.  A couple of excerpts:

The CEO of one bank talked first. He held up a copy of a mortgage that it was using back in 1979. The document was 2 pages long and contained 8 signatures. He then held up an example of the mortgage disclosures they are providing today. They are about an inch thick and he stopped counting at 92 signatures. He said he was dismayed to read that the CFPB has introduced yet another set of new disclosures for mortgage servicers. He believes consumers have become numb to all the disclosures and the CFPB needs to take a fresh look at all of the requirements and simplify the process for consumers and banks alike.

* * *

Another member of the audience asked Director Cordray how he thought the pricing of products factored into the “abusive” standard, if at all. He acknowledged the CFPB has no authority to regulate interest rates or fees or otherwise engage in price fixing. He said where he sees the abusive standard intersecting with pricing is the manner in which the pricing is disclosed. He said pricing disclosures should be clear, there shouldn’t be any backend pricing and consumers should be allowed to make informed decisions. He said he understands that consumers are willing to pay a higher price for certain products because they like how the product works or the convenience of a product. However, the concern with the CFPB would be when a consumer gets a product thinking it costs less than it does because the pricing isn’t properly disclosed.