Consumer Law & Policy Blog

Did the Court have any Concepcion of what it unleashed last year?

An illuminating (and alarming) report by Public Citizen and NACA, on the one year anniversary of Concepcion. The takeaway:

The Supreme Court’s holding in AT&T Mobility v. Concepcion has had far-reaching consequences for millions of consumers who are forced to sign away their rights to get a loan, a credit card, a cell phone, and other everyday consumer products and services. Under Concepcion, companies can insert in forced arbitration clauses provisions that block consumers from banding together to pursue their claims in collective or class actions.

Forced arbitration is bad enough on its own terms, as it offers a consumer wronged by corporate misconduct no avenue for relief except a private, secretive tribunal chosen by the company. For millions of consumers in countless instances of corporate wrongdoing, class action bans sweep away even that weak chance for justice. Many consumer claims aren’t feasible as individual actions, and therefore class action bans stop them from proceeding at all. In addition to leaving consumers without remedies for harms done to them, class action bans shield law-breaking companies from accountability. For the companies, this is precisely the point.

Potential solutions rest with Congress and certain federal agencies. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Consumer Financial Protection Bureau can eliminate forced arbitration in consumer financial services contracts, and the Securities and Exchange Commission can do the same in investor contracts with brokerdealers and investment advisers. The Arbitration Fairness Act (AFA), now pending in Congress, would eliminate forced arbitration in consumer and non-union employment contracts.

Until regulatory agencies and Congress enact these fixes, millions of consumers will remain without a vital tool to protect their rights and hold wrongdoers accountable.

More on Social Security

On the eve of the annual report on the health of the Social Security trust fund -- which was sure to prompt claims of future crisis by media and politicians -- we noted the many benefits that the program provides. The report has issued, and the media is in fact highlighting the program's supposed path toward insolvency. To get another perspective, read Michael Hiltzik's column in the LA Times, which argues that the program's fiscal problems are exaggerated and that some of its benefits should be expanded.

Working Poor Will Lose Big If The Supreme Court Totally Scraps the Affordable Care Act

It's worth remembering that if the Supreme Court strikes down the whole Affordable Care Act (that is, if the Court doesn't sever the "bad" from the good), the Act's provisions extending health care coverage to millions of poor people will be gone. As this article explains, that involves 720,000 people in California alone.

Warning: Hospital Emergency Room Personnel May Be Debt Collectors

Read this eye-popping story in today's New York Times. A debt collection company, Accretive Health, allegedly staffs hospitals and then uses its staff's proximity to patients and patients' health records to collect patients' debts for the hospitals. Here's an excerpt:

Hospital patients waiting in the emergency room or convalescing after surgery could find themselves confronted by an unexpected visitor: a debt collector at bedside. One of the nation’s largest medical debt-collection companies is under fire in Minnesota for having placed its employees in emergency rooms and other departments at two hospitals and demanding that patients pay before receiving treatment ... .  The documents say the company also used patient health records to wrangle for more money on overdue bills. ...[Minnesota Attorney General Lori] Swanson, though not bringing further charges on Tuesday, said she was in discussions with state and federal regulators to prompt a widespread crackdown on Accretive Health’s practices in other states. “I have every reason to believe that what they are doing in Minnesota is simply company practice[.]”

More on the CFPB's request for info about arbitration

Readers of this blog may be interested in knowing a little bit more about what the Consumer Financial Protection Bureau is asking for in its request for information, which Allison Zieve mentioned in a post earlier today. To put it in a nutshell, the CFPB is not now asking what it should do about arbitration, nor is it yet asking people to provide it with facts or opinions about arbitration. Rather, it is just asking people to tell it what it should ask about arbitration, and where it should look for answers to those questions.

The Dodd-Frank Act gave the CFPB some regulatory authority with respect to the use of arbitration agreements in consumer financial transactions, but first required the agency to conduct a study of the use of arbitration agreements in consumer transactions, and to report the results to Congress. The agency is now asking for comment on what specific issues about arbitration it should study, and how it should go about studying them.

For example, just on the subject of how often arbitration agreements are used, the CFPB wants to know where to turn for information. Credit card agreements are subject to regulatory filing requirements, so it is relatively easy for the agency to determine how often they contain arbitration clauses. But with respect to other types of agreements, it's not obvious how to get a comprehensive view of how often they require arbitration. CFPB is looking for ideas.

The CFPB also wants to know whether people think it should study a variety of subtopics, including the following:

• How often do arbitration agreements contain particular types of provisions?
• How often do consumers initiate arbitrations? How often do they do so voluntarily, as opposed to being compelled to do so?
• What types of cases are commonly brought in arbitration? What are the outcomes? Are consumers satisfied with them?
• How often to companies initiate arbitration against consumers, in what types of cases, and with what results?
• And the $40,000 question: What effects have arbitration agreements, and such features as class action bans, had on consumers? Do they harm consumers by inhibiting the enforcement of laws regulating consumer finance or benefit them by lowering prices for consumer services?

Again, the CFPB doesn't want to know the answers to any of these questions yet. It just wants to know whether it should ask them, and, if so, how to go about looking for the answers.

If you have any thoughts, the agency wants them by June 23, 2012!

The SEC and FINRA Strike a Blow for Class Actions

The Securities and Exchange Commission (SEC) has approved a rule that effectively precludes securities firms from demanding that their employees sign arbitration agreements that waive the right to participate in “collective actions” under federal worker-protection statutes. The rule was proposed by the Financial Industry Regulatory Agency, Inc. (FINRA), the industry self-regulatory authority that governs the conduct of securities firms. On April 13, the SEC published a Federal Register notice approving the rule and accelerating its effective date to May 4, 2012 (while also allowing further public comments on a provision that has been changed from what FINRA initially proposed).

FINRA rules have long provided that arbitration agreements between securities firms and their customers and employees must permit participation in class actions in court. FINRA’s rules provide that class actions can’t be arbitrated and that any matter that is the subject of a class action pending in a court must stay in court. But confusion arose when a federal district court held that these rules didn’t apply to “collective actions” under the Fair Labor Standards Act, the Age Discrimination in Employment Act, and the Equal Pay Act, which differ from class actions—mainly in that plaintiffs have to opt in to a collective action, unlike a class action, where class members are part of the case unless they opt out.

FINRA’s rule change is designed to protect employees’ ability to proceed in a collective action in court in the same way that securities firms’ customers can participate in class actions against securities firms. (One caveat is in order: The new FINRA rule only prohibits securities firms from using FINRA-sponsored arbitration to prevent employees from participating in collective actions. After first proposing a broader rule, FINRA amended the rule to provide that it doesn’t affect whether a securities firm can require its employees to engage in non-FINRA arbitration and include collective-action waivers in such non-FINRA arbitration agreements.)

While the new rule is a victory for opponents of the use of arbitration agreements to choke off class actions and other types of collective proceedings, FINRA’s longstanding protection of the right of investors to pursue class actions against securities firms in court rather than being relegated to individual arbitration is under attack by the brokerage firm Charles Schwab & Co. Schwab sued FINRA in the U.S. District Court for the Northern District of California in February, arguing that the longstanding rule precluding enforcement of class-action bans in FINRA arbitration agreements violates the Federal Arbitration Act. Schwab has moved for a preliminary injunction; FINRA has moved to dismiss and to stay the motion for a preliminary injunction. A motions hearing is currently scheduled for May 24.

A win for Schwab would roll back protection for investors and also call into question FINRA’s new rule extending that protection to employees of securities firms who seek to recover full compensation for their work under federal law. See also Brian's recent post on academic support for the notion that the Federal Arbitration Act as construed in Concepcion should override SEC protections for class actions in the securities world.

A troubling tale of bedside debt collection, from today's NYT

Here. More here.

What Should Be Done About Student Loan Debt?

We have blogged many times (go, for example, here, here, here, and here). "[N]oting how little scholarship there is on student loans compared with say mortgages or credit cards," Adam Levitin has posted a preliminary review of six issues that he thinks can get a discussion rolling. Among other things, he addresses the cost of education, the relatively low interest rates on student loan debt (compared to other consumer debt), and the possibility of using equity (rather than debt) financing of education.

CFPB seeks information on how arbitration affects consumers

The Consumer Financial Protection Bureau (CFPB) today issued a Request for Information on Arbitration to gather information on how arbitration clauses affect consumers and how effective arbitration is in resolving consumers’ issues. The Request is an early step in assessing whether rules are needed to protect consumers. The comment period is open until June 23, 2012. 

Arnold Relman on a Single-Payer Health Care Program

Arnold Relman, former editor of the New England Journal of Medicine, penned this essay a few months ago in favor of a government-sponsored single-payer health care system.