Consumer Law & Policy Blog

Free Webinar on the CFPB's Amicus Program Next Wednesday

Next Wednesday (November 21), at noon, I'll be presenting a free webinar focusing on the Consumer Financial Protection Bureau's amicus program from both consumer and industry perspectives. On the industry side, I'll be joined by Alan Kaplinsky and Christopher Willis of Ballard Spahr's Consumer Financial Services Group. We'll discuss the factors likely to influence the CFPB's selection of cases and the potential impact of the CFPB's decision to participate in a case. We will also analyze the CFPB's amicus briefs thus far, looking at the bureau's positions and the effectiveness of its efforts in shaping the law. Read more at the CFPB Monitor blog.

Those interested in participating are asked to register online two days before the webinar.

Federal Reserve Paper on Industry Reaction to Data Breaches

Julia S. Cheney, Robert M. Hunt, Katy Jacob, Richard D. Porter and Bruce J. Summers, all of the  Federal Reserve, have written The Efficiency and Integrity of Payment Card Systems: Industry Views on the Risks Posed by Data Breaches.  Here is the abstract:

Consumer confidence in payment card systems has been built up over many decades. Cardholders expect to use their cards to execute payment instructions in a reliable and timely manner. Data breaches that degrade the perceived safety and reliability of payment cards may weaken consumer confidence in those systems and potentially cause cardholders to shift to other, and perhaps less efficient, forms of payment. A sizable shift away from payment cards — induced by the consequences of one or more data breaches is unlikely. Even so, the probability of such an outcome is uncertain. In other words, this could be an example of “tail risk” for payment card systems. The authors informally interviewed a number of market participants and several experts to better understand the risks presented by data breaches, the efforts to protect payment card systems against data breaches, and areas where more might be done to secure these systems. In particular, the authors investigated whether existing levels of investment,
coordination, information sharing, and management of incentives in securing payment card systems by firms and organizations in the private and public sectors are adequate to confront the threats arising from modern data breaches. The lessons learned from these conversations are described in this paper. These insights may also be helpful in considering the risks that data breaches may broadly pose to retail payments in the United States.

 

 

Times Report: Retailers Adding Financial Services

On the New Shopping List: Milk, Bread, Eggs and a Mortgage.  Costco offers mortgages, Home Depot provides loans, and Wal-Mart prepaid cards.   

Supreme Court Decides Fair Credit Reporting Act Case

United States v. Bormes is the Supreme Court's first opinion of the term.  It deals with the question of where to look to determine whether the government has waived sovereign immunity in FCRA cases.  SCOTUS Blog coverage can be found here.

Where Was Consumer Protection in the Election Campaigns?

by Jeff Sovern

President Obama has done more for consumer protection than any president in a generation.  His accomplishments include signing the Dodd-Frank Act, which created the Consumer Financial Protection Bureau, anti-predatory lending laws, and limited the power of traditionally pro-bank agencies like the OCC to preempt state laws protective of consumers; signing the Credit CARD Act into law; and appointing or nominating officials interested in protecting consumers at various federal agencies.  And yet, consumer protection was largely absent from the presidential election.  To the best of my knowledge, Governor Romney never even said whether he would support or seek to repeal the CFPB (he said he wanted to repeal some aspects of Dodd-Frank, but did not identify those aspects).  And while both candidates spoke of the president's record, neither said much about his record in consumer protection.

Why is that?  One possibility is that with the enactment of the new laws, consumer protection has receded into the background.  Certainly other pressing national problems remain.  My suspicion is that the campaign's research--focus-groups and the like--persuaded them that they could not win votes by bringing up consumer protection.  But the media largely ignored the issue too.  During the debates, I didn't hear a single question about consumer protection; while the candidates mentioned student loans, the question did not actually ask about them (I should note that I missed portions of the debates, so it is possible I overlooked something on consumer protection).

Dennis D. Hirsch of Capital Law School has written about what privacy law could learn from environmental law; certainly environmental advocates have been much more successful at stimulating public debate and securing favorable legislation than consumer advocates.  To be sure, environmental law raises issues of public health and even existential questions.  But plenty of people are out of a home because of consumer protection failures and many others have suffered unfairness and significant financial setbacks.  Other financial issues, like taxes, seem to come up in every election.  And yet, many consumers have more at stake in consumer law than tax law, like those who lost their homes.  Is it because consumer issues tend to be more important for those at the bottom of the economic ladder whle tax issues are more crucial for those at the top?  Fairness seems relevant to both.

Sometimes I wonder if behavioral economics might explain it.  We all face a risk of encountering consumer protection problems, like identity theft, and the optimisim bias leads us to give less attention to bad outcomes which may not occur.  And many consumer protection issues are complicated or technical (think preemption).  Still, what a shame that something so important received so little attention in the campaigns.  The president's consumer protection initiatives saved a lot of people a great deal of pain and money.  Consumer protection should have received some attention. To be sure, much that needed doing in the area was done over the last four years.  But much still remains. 

 

Article on FTC's Crackdown on Deceptive Advertising

AdWeek has an article this morning about the more aggressive pursuit by the Federal Trade Commission's Bureau of Consumer Protection of large companies engaged in deceptive advertising. The article focuses on the Bureau's leadership under David Vladeck, who after more than three years as the Bureau's director will soon return to Georgetown Law School. As the article notes, David was a litigator at (and then director of) CL&P Blog-host Public Citizen Litigation Group for many years.

Interesting Class-Action Decision from the First Circuit

Last Friday, the U.S. Court of Appeals for the First Circuit affrimed a class-action judgment in favor of the plaintiffs in Matmaros v. Starbucks Corp., Nos. 12-1189 and 12-1207. The plaintiffs were Starbucks baristas who claimed that, under a Massachusetts wage law known as the Tips Act, they did not have to share the cash in tips jars with their supervisors. The district court certified a class and entered a large money judgment for the plaintiffs. On the merits, the First Circuit affirmed, in a long analysis of the text and purpose of the Tips Act. The First Circuit affirmed the class certification, too, and many of our readers may find that worth reading. Here's an excerpt:

We do not gainsay that the class, as certified, is not monolithic; it embodies a potential for conflict. But perfect symmetry of interest is not required and not every discrepancy among the interests of class members renders a putative class action untenable. "Only conflicts that are fundamental to the suit and that go to the heart of the litigation prevent a plaintiff from meeting the Rule 23(a)(4) adequacy requirement." 1 William B. Rubenstein, Newberg on Class Actions § 3:58 (5th ed. 2012). Put another way, to forestall class certification the intra-class conflict must be so substantial as to overbalance the common interests of the class members as a whole. See, e.g., In re NASDAQ Mkt.-Makers Antitrust Litig., 169 F.R.D. 493, 514-15 (S.D.N.Y. 1996). We think that the district court acted within the realm of its discretion in determining that there was no intractable conflict here. A barista-turned-shift supervisor will only be considered a member of the class (and entitled to damages) for the period during which she was a barista. She will share in the awarded class-wide damages for that period. And inasmuch as shift supervisors are not named as defendants, a barista-turned-shift supervisor will not be required to reimburse any funds that she may have received from the tips pools after she was promoted. Last but not least, if a barista-turned-shift supervisor is uncomfortable with the attack launched by the plaintiff class on Starbucks' tips policy, she — like every other class member — has the right to opt out of the class. The availability of this option is an important factor in weighing the effect of a largely hypothetical conflict on a class-certification decision. See Smilow v. Sw. Bell Mobile Sys., Inc., 323 F.3d 32, 43 (1st Cir. 2003).

The plaintiffs were represented by class-action wage-and-hour expert Shannon Liss-Riordan.

Would a Regulated Market in the Sale of Body Parts Promote Consumer Well-Being?

Yes, according to Richard Posner. Posner says that people needing a kidney have to wait about six months on average. Meanwhile, they are often on expensive dialysis, which greatly diminishes the quality of their ilves. Here are some exceprts from Posner's piece:

If kidneys were salable, the waiting time for a transplant would drop precipitately, probably to zero (which is why it’s unnecessary to guarantee a donor that he’ll go to the head of the queue if his
remaining kidney fails—there will be no queue), because demand is fixed at the number of people who have advanced kidney disease, while the supply would be highly elastic since many of the world’s poor, who are in the billions, would regard giving up a “spare” kidney as a low-cost way of earning some badly needed money. The market would be worldwide because the cost of shipping kidneys long distances is negligible. * * * I imagine that the equilibrium price of a kidney would be low, and the overall cost of treating kidney disease lower than today because there be so much less dialysis. Hence moving to a market would not increase overall U.S. health costs, and would in fact reduce them. Moreover, there would be attractive income-redistributive effects. The market solution would cause a modest shift of income from physicians and other personnel of dialysis centers to poor people, assuming realistically that the poor would be the principal sellers of kidneys. * * * [T]here is an important distinction between the fallacy (associated particularly with Alan Greenspan) that markets are self-regulating and a general skepticism about the efficiency of markets. Markets are self-regulating only in the Darwinian sense; competition weeds out losers, but the winners may be imposing heavy costs on society that they do not bear (pollution, for example, or the kind of macroeconomic damage that the highly competitive financial sector has caused because of its competition-driven risk taking). A market in kidneys would have to be regulated, but the regulatory challenge would be slight, given all the experience we have in the regulation of physicians, hospitals, drugs, medical devices, and surgical and other medical procedures.

Financial Literacy for Law Students

Many of the readers of this blog are advocates for consumers' welfare. Many of them are lawyers. But did they become financially literate in law school? Do they know enough about financial transcations to promote useful systemic reform?

NYU law school has decided to require all of its students to take a course in financial literacy. Georgetown law professor Adam Levitin applauds NYU's move in this thoughtful post at Credit Slips and then follows up with this post containing a non-exclusive list of topics that might be included in a financial literacy course.

Constitutional Challenge to Fair Credit Reporting Act Rejected

In the wake of the Supreme Court's decision last year in Sorrell v. IMS Health, there's been a lot of speculation about the extent to which previously accepted commercial speech regulation may now be subject to "heightened" or strict scrutiny under the First Amendment. Sensing an opportunity, lawyers who regularly represent consumer reporting agencies invoked Sorrell in their defense of a suit under the Fair Credit Reporting Act, arguing that a provision of that 40-year-old statute violates the First Amendment.

In King v. General Information Services, plaintiff Shamara King claims that when she applied for a job with the U.S. Postal Service, defendant GIS prepared a background-check report in connection with her employment application that included details about a past car theft arrest. Including that information in the report violated the FCRA, which forbids consumer reporting agencies from reporting adverse information (except for a criminal conviction) that “antedates the report by more than seven years.” 15 U.S.C. 1681c.

GIS's brief argued that the FCRA provision is a “content- and speaker-based restriction on speech,” because it prohibits only credit reporting agencies, and nobody else, from reporting this type of truthful, public information. "Sorrell," according to GIS, "marks a dramatic shift in the protection afforded to content- and speaker-based restrictions on truthful commercial information. ... [I]ts holding has sweeping effects on many other laws restricting disclosure of commercial information, including FCRA."

Not so fast. Last week, Judge Petrese Tucker of the U.S. District Court in Philadelphia soundly rejected this constitutional challenge and, with it, the notion that Sorrell marks a sea change in the law of commercial speech. The appropriate standard, she concluded, is not strict scrutiny but rather the intermediate scrutiny ordinarily applied to commercial speech regulation under the Central Hudson test. Applying that test, she concluded that the chalenged FCRA provision directly advances Congress's goal of balancing consumer privacy with the need for credit reporting in a way that is no more extensive than necessary. The court's analysis closely tracks arguments made in the brief filed by the United States. Congratulations to my former CFPB colleagues Kristin Bateman and David Gossett, who worked on the government's brief along with lawyers from the Justice Department and the FTC, and to consumer advocate Jim Francis, who represents Ms. King in this case.