Consumer Law & Policy Blog

Study Finds Default Counseling Helpful

J. Michael Collins of the University of Wisconsin - Madison - Center for Financial Security, Maximilian D. Schmeiser of the Federal Reserve Board, and Carly Urban of the University of Wisconsin - Madison - Department of Economics have written Protecting Homeowners: Foreclosure Counseling Policies and Modifications of Mortgage Terms. Here's the abstract:

Millions of homeowners are at risk of losing their homes as a result of being delinquent on their mortgage payments and/or owing more than their home is worth. One consumer-oriented policy response to this crisis is financial counseling for mortgage borrowers. This study examines which borrowers seek default counseling, and the relationship between counseling and the modification of mortgage terms. The results suggest that borrowers most exposed to financial distress are more likely to take-up counseling. They further show that counseled borrowers are more likely to obtain modifications with better loan terms than uncounseled homeowners. These results support the current emphasis by policy makers on default counseling as a means of mitigating the housing crisis and promoting consumer financial well-being.

Interesting Case in the Preemption Wars

In the Airline Deregulation Act of 1978 and the Federal Aviation Administration Authorization Act of 1994 Congress expressly preempted some state laws and regulations that would set the economic rules for the commerical airline and trucking industries. Congress had partially deregulated those industries, and, to an extent, it didn't want the states to disturb the regulatory vacuum that it had created. But do Congress's express preemption provisions apply to generally applicable state laws -- such as state laws that regulate workers' meal and rest breaks -- that apply to all industries? Not surprisingly, defendants say yes, and plaintiffs--who want state wage and hour laws to be honored--say no.

With that issue in mind, consider the questions presented in Dilts v. Penske Logistics, No. 12-55705, which is pending in the U.S. Court of Appeals for the Ninth Circuit:

The Federal Aviation Administration Authorization Act of 1994 (FAAAA) provides, as a “[g]eneral rule,” that “a State … may not enact or enforce a law … related to a price, route, or service of any motor carrier … with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1). The Act further provides that this general rule “shall not restrict the safety regulatory authority of a State with respect to motor vehicles.” 49 U.S.C. § 14501(c)(2)(A). The issues presented are:

1. Does the FAAAA preempt California’s generally applicable requirements, embodied in the California Labor Code and Industrial Welfare Commission orders, that employers provide their workers with meal and rest breaks?

2. Are California’s meal-and-rest-break requirements, as applied to motor carriers, saved from preemption because they fall within “the safety regulatory authority of [the] State”?

Read the plaintiffs' appellate brief and the defendants' appellate brief. [CL&P contributors Deepak Gupta, Brian Wolfman, and Greg Beck represent the plaintiffs on appeal.]

 

Supreme Court Grants Review in Arbitration Case

The Supreme Court granted review on Friday in American Express Co. v. Italian Colors Restaurant. Here is the question presented in the petition:

Whether the Federal Arbitration Act permits courts, invoking the “federal substantive law of arbitrability,” to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal law claim.

The respondents in the case stated the issue differently:

This Court has repeatedly recognized that federal statutory claims may be appropriately resolved through arbitration “so long as the prospective litigant effectively may vindicate [its] statutory cause of action in the arbitral forum.” Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 90 (2000). The question presented—on which there is no disagreement in the circuits—is whether an arbitration clause should be enforced when there is no dispute that a litigant has shown that it would be unable effectively to vindicate its federal statutory rights in the arbitral forum.

All of the certiorari stage briefs can be found here. The respondents' lead counsel is Gupta/Beck, the two principals of which are CL&P contributors.

Creola Johnson on the CFPB and Payday Lending

Creola Johnson of Ohio State has written America's First Consumer Financial Watchdog Is on a Leash: Can the CFPB Use Its Authority to Declare Payday-Loan Practices Unfair, Abusive, and Deceptive? 61 Catholic University Law Review (2012). Here's the abstract:

To stop payday lenders from skirting state laws, this Article asserts that the CFPB should exercise its rulemaking authority to declare many payday loan practices as unfair, deceptive, abusive, and, consequently, unlawful.

The CFPB's imposition of restrictions on payday loans will not end short-term, small-dollar loans in America, but will cause an increased prevalence of responsible lending practices. The results of a recent pilot program implemented by the Federal Deposit Insurance Corporation (FDIC) demonstrate that lenders can issue small-dollar loans subject to the types of restrictions proposed above and still achieve long-term profitability. Therefore, the CFPB's regulatory intervention will correct the continuing market failure by promoting profitable, yet fair loans by responsible lenders.

Marotta-Wurgler & Taylor on Changes in Consumer Standard Form Contracts

Florencia Marotta-Wurgler of NYU and Robert Brendan Taylor of Kirkland & Ellis have written Set in Stone? Change and Innovation in Consumer Standard Form Contracts for the Seventh Annual Conference on Empirical Studies.  Here's the abstract:

This article studies the rate, direction, and determinants of change in consumer standard form contracting. We examine what changed between 2003 and 2010 in the terms of 264 mass-market consumer software license agreements. Thirty-nine percent of contracts materially changed at least one term, and some changed as many as fourteen terms. The average contract became more pro-seller as well as several hundred words longer. The increase in length is not due to the use of simpler language: contract readability has been constant: the average contract is as readable as an article in a scientific journal. Younger, larger, growing firms, and firms with in-house counsel were more likely to change existing terms and to introduce new terms to take advantage of technological and market developments. Contracts appeared to respond to litigation outcomes: Terms that were increasingly enforced by courts were more frequently used in contracts, and vice-versa. The results indicate that software license agreements are relatively dynamic and shaped by multiple factors over time. We discuss potential consumer protection implications as a result of the increased length and complexity of contracts over time.

Senator-Elect Warren May Be Headed for the Banking Committee

Appointment to the Senate Banking Committee is a plum usually reserved for Senators with more seniority than Senator-Elect Elizabeth Warren -- that is, Senators with at least some seniority -- but it appears that Senate Majority Leader Harry Reid may make it happen because of Warren's expertise on banking and finance issues. Read about it here. But go here for some contrary speculation.

David Horton Paper on the Federal Arbitration Act Preemption

David Horton of UC Davis has written Federal Arbitration Act Preemption, Purposivism, and State Public Policy, 101 Georgetown law Journal (2013).  Here's the abstract:

The relationship between the Federal Arbitration Act (“FAA”) and state public policy has long been unsettled. According to some judges, scholars, and litigants, the FAA precludes courts from invalidating arbitration clauses under the contract defense of violation of public policy. However, in a practice that is impossible to square with that understanding of FAA preemption, courts have traditionally nullified arbitration clauses when necessary to preserve substantive rights or remedies under state law. Nevertheless, in its recent decision in AT&T Mobility LLC v. Concepcion, the U.S. Supreme Court held that the FAA eclipses a rule that deemed class arbitration waivers to be unconscionable when they prevented plaintiffs from pursuing numerous, low-value state law claims. Both Justice Scalia’s majority opinion and Justice Thomas’s decisive concurrence strongly implied that state public policy is not a permissible basis for striking down an arbitration clause. As a result, lower courts are now compelling arbitration — often through gritted teeth — of lawsuits that are destined to fail.

Counter-intuitively, I argue that Concepcion holds the seeds of an approach to FAA preemption that gives judges greater freedom to strike down arbitration provisions to further state interests. FAA preemption stems from its centerpiece, section 2, which makes agreements to arbitrate specifically enforceable “save upon such grounds as exist at law or in equity for the revocation of any contract.” Under the leading account of FAA preemption, the plain language of this “savings clause” immunizes arbitration clauses from state public policy: few state regulations apply across-the-board to “any contract.” Yet the courts and commentators who embrace this view have not explained why its rigid textualism is appropriate in the context of the FAA, which displaces state law through the purposivist mechanism of obstacle preemption. And indeed, Concepcion relied not on section 2’s text, but on Congress’ “purposes and objectives” when it enacted the FAA. I show that the purposivism that animates Concepcion is superior to the textualism that dominates FAA preemption cases. The incoherence of the literalistic “any contract” test and the centrality of context and legislative history to “purposes and objectives” preemption suggest that purposivism should be the primary technique for mapping the FAA’s dominion over state law. However, this path leads to a starkly different end-point than the one Concepcion reached. A faithful, full-bore examination of Congress’ intent reveals that section 2 allows courts to strike down arbitration clauses under any traditional contract doctrine, including some strands of the venerable defense of violation of public policy. I conclude by proposing a test for when the FAA preempts state public policy and applying it to controversial issues now pending in courts, including class arbitration, the unconscionability doctrine, and judicial or legislative rules that prohibit that arbitration of particular claims.

CL&P Blog Special Report: Under-the-Radar Votes in the Senate on Consumer Protection

by Jeff Sovern

Yesterday I blogged about senatorial votes on consumer protection (a more succinct version of the special report can be found in the American Banker).  During the period we studied--2009 to 2012--Congress voted on two major consumer protection bills, the Credit CARD Act of 2009 and the Dodd-Frank Act.  But other votes were much less high-profile.  They included, for example, procedural votes and a vote on overturning the exportation doctrine, which enables lenders to use the less-restrictive usury laws of the state in which they are based rather than the more-limiting usury law of the state in which the consumer resides.  Not exactly the stuff typical consumers monitor.  Conceivably, senators who wanted to impress their constituents as protective of consumers would have voted for consumers on the higher-profile bills and for financial institutions on votes that would have escaped attention from consumers.  Voting for financial institutions might elicit larger campaign contributions so that senators could simultaneously claim the mantle of consumer protector while also generating campaign contributions. If that were so, we would expect to see consumer protection voting scores would change when the votes on the Credit CARD Act and Dodd-Frank Act are excluded.  In fact, we do see some change in the voting patterns, but not much. Democrats still voted for consumers on under-the-radar votes 88% of the time (an increase from 86% when all votes are counted) while GOP senators had an average score of 9% (down from 12% when all votes are included).  That suggests that the Democrats are voting not to obtain campaign contributions but because of ideology or other factors and that Republicans are, by and large, not voting differently when consumers might be watching. 

But we do see one change: on the under-the-radar votes, every Democratic senator is more protective of consumers than every Republican senator.  On the table that includes all the votes, posted yesterday, now-defeated Senator Scott Brown of Massachussetts voted more often for consumers than two Democatic senators. 

The under-the-radar voting table appears below.

Download Consumer_Law_Votes_-_Minus_Credit CARD and Dodd--Frank Acts]

 

CL&P Blog Special Report: Which Senators Protect Consumers and Which Protect Banks?

by Jeff Sovern Now that the election is over, the post is back!  Read the American Banker op-ed on the study here.  My student, Andrew Lipkowitz, and I recently reviewed the votes of the members of the United States Senate going back to 2009 on consumer issues.  I'm reporting some of the findings today and I plan to report others in future posts.  We found 21 votes on which, in our view, consumers and financial institutions were on opposite sides (a table identifying the 21 votes and the position we concluded were pro-consumer appears below the fold).  One of the remarkable things about the votes is the degree of partisanship.  All but two Democrats took more pro-consumer positions than any of the Republicans, and only one Republican, the now-defeated Scott Brown of Massachusetts, was more pro-consumer than any of the Democrats--and then it was only two of the Democrats (I wonder if the fact that his opponent is Elizabeth Warren has had an effect on his votes).  For those who voted at least 16 times on consumer protection issues, we scored Senators as "consumer protectors" if they voted for consumers 65% or more of the time, and "bank protectors" if they voted for consumers 35% or less of the time (not all the votes involved banks, as opposed to other financial institutions or lenders, but it seems easier to use the phrase "bank protectors" than "financial institution protectors").  The lists appear below.  Only three senators who voted at least 16 times on these issues fell in the middle range of more than 35% and less than 65%, offering further evidence of the polarization of the Senate on consumer protection/financial institution protection.  And now, the Consumer Protectors: Sherrod Brown Robert Casey Dianne Feinstein Carl Levin Charles Schumer Benjamin Cardin Richard Durbin Tom Harkin Jack Reed Bernard Sanders Mark Udall Tom Udall Ron Wyden Kirsten Gillibrand Frank Lautenberg Patrick Leahy Robert Menendez Jeff Merkley Sheldon Whitehouse Al Franken Mark Begich Barbara Boxer Daniel Inouye Harry Reid John Kerry Herb Kohl Jim Webb Barbara Mikulski John Rockefeller Michael Bennet Amy Klobuchar Claire McCaskill Debbie Stabenow Daniel Akaka Jeff Bingaman Maria Cantwell Kent Conrad Patty Murray Jeanne Shaheen Bill Nelson Joseph Lieberman Ray Hagan Mark Pryor Mark Warner Max Baucus Jon Tester Thomas Carper Mary Landrieu Tim Johnson Here are the Bank Protectors: Olympia Snowe Susan Collins John Barrasso Lindsey Graham Richard Lugar Saxby Chambliss Johnny Isakson Richard Burr Mike Crapo Michael Enzi James Risch David Vitter Roger Wicker Thad Cochran Orrin Hatch John McCain Richard Shelby Kay Bailey Hutchison Mike Johanns Tom Coburn Lisa Murkowski Pat Roberts Lamar Alexander Bob Corker John Cornyn Jim DeMint James Inhofe Mitch McConnell Jeff Sessions Jon Kyl John Thune  Below the fold: the senators, their votes and scores; and the votes and how we scored them: 

Papers on Privacy

Ira Rubinstein of NYU's Information Law Institut has written Big Data: The End of Privacy or a New Beginning?  Here's the abstract:

“Big data” refers to novel ways in which organizations, including government and businesses, combine diverse digital data sets and then use statistics and other data mining techniques to extract from them both hidden information and surprising correlations. While big data promises significant economic and social benefits, it also raises serious privacy concerns. In particular, big data challenges the Fair Information Practices (FIPs) as embodied in various privacy laws including the EU Data Protection Directive. This past January, the European Commission released a proposal to reform and replace the Directive by adopting a new Regulation. In this paper, I argue that this Regulation relies too heavily on the discredited informed choice model, and therefore fails to fully engage with the coming big data tsunami. My contention is that when this advancing wave arrives, it will so overwhelm the core privacy principles of informed choice and data minimization on which the Directive rests that reform efforts alone will prove inadequate. Rather, an adequate response must combine legal reform with encouragement of new business models premised on consumer empowerment and supported by a personal data ecosystem. This new business model is important for two reasons: first, existing business models have proven time and again that privacy regulation is no match for them. Businesses inevitably collect and use more and more personal data, and while consumers realize many benefits in exchange, there is little doubt that businesses, not consumers, control the market in personal data with their own interests in mind. Second, a new business model, which I describe in this paper, promises to stand processing of personal data on its head by shifting control over both the collection and use of data from firms to individuals. This “control shift” — and this alone — stands a chance of making the FIPs efficacious by giving individuals the capacity to benefit from big data and hence the motivation to learn about and control how their data is collected and used, while also enabling businesses to profit from a new breed of services that are both data-intensive and imbued with privacy values.

Meanwhile, Chris Jay Hoofnagle and of Jennifer M. Urban, both of  Berkeley, and Su Li of Berkely's Center for the Study of Law and Society have produced Privacy and Modern Advertising: Most US Internet Users Want 'Do Not Track' to Stop Collection of Data about their Online Activities for the 2012 Amsterdam Privacy Conference. Here's the abstract:

Most Americans have not heard of 'Do Not Track,' a proposal to allow Internet users to exercise more control over online advertising. However, when probed, most prefer that Do Not Track block advertisers from collecting data about their online activities. This is a much more privacy-protective approach for Do Not Track than what has been proposed by the advertising industry.

In previous studies, we have found that Americans think they are protected by strong online privacy laws. Here, we probed beliefs about tracking on medical websites and 'free' websites, with most not able to answer true/false questions correctly about tracking. This result brings into question notice-and-choice models that depend on consumer understanding of the terms for their legitimacy.

We also probed Internet users' attitudes towards advertising. Most Internet users say that they do not find utility in online advertising, with half claiming that they never click on ads.

Advertisers and consumers are at an impasse on privacy. Advertisers seem to be seeking a kind of total information awareness for behavioral advertising, and have proposed self-regulatory guidelines with little bite. At the same time, both our survey evidence and media reports show consumer opposition to tracking.

Do Not Track has emerged from the current skirmish between consumers and advertisers, but it is a relatively modest intervention that does little to shift the underlying incentives that have driven increasing tracking and aggregation of information about consumers. It is foreseeable that regardless of the form Do Not Track takes, websites will simply require consumers to disable it in order to access content. A fundamental change in incentives may be necessary to relieve this impasse and find an approach for advertising that is not so dependent upon third-party tracking and aggregation of information, both online and off.