Consumer Law & Policy Blog

Senate Passes CFPB Amendments

The Senate unanimously passed bills, previously passed by the House, pertaining to the confidentiality of information banks provide to the Consumer Financial Protection Bureau and the stickers on ATM terminals about fees.  Bloomberg has the story here.  The president is expected to sign the bills.

Airline Fees

by Brian Wolfman

David Lazarus has written this piece on airline fees, which he doesn't like. He sets out the airlines' position -- that some travelers don't want the add-ons, and shouldn't have to pay for them -- and then rejects it, saying that some things are so basic to the air flight (for instance, the seat and carriage of luggage) that added fees for them are unfair. Most people seem to agree in principle that if there are fees, at least they should be disclosed clearly and in advance. Is disclosure enough (particularly knowing that at least some airlines will do what they can to obscure the disclosures)? Or should the government regulate the kinds and amounts of fees that may be charged? In this regard, look back at an earlier post discussing a recent study showing (1) a rather steep decline in airfares since 1980; and (2) that fees are a small portion of what consumers pay for air travel.

More on Consumer Law and Elderly Victims

We posted yesterday on how the law should deal with consumer scams directed at older people in light of evidence that older people are more susceptible to deception. After the post, Ted Mermin, consumer-law expert and head of the Public Good Law Center, pointed out that some states' consumer protection statutes authorize greater penalties against a perpetrator of consumer deception if the victim is 65 or older (e.g., California, Delaware, and Arkansas). And, stepping beyond consumer law, section 3A1.1(b) of the 2010 federal sentencing guidelines authorize a sentence enhancement "if the defendant knew or should have known that a victim of the offense was a vulnerable victim . . .." The Sentencing Commission's "application notes" go on to say that "'vulnerable victim' means a person . . . who is unusually vulnerable due to age, physical or mental condition, or who is otherwise particularly susceptible to the criminal conduct." (emphasis added) (Taken together, the guideline and application note are similar, though not identical, to section 3A1.1 of the 1987 Sentencing Guidelines.)

All of these provisions authorize greater penalties for people who harm older people. That may satisfy the goal of retribution -- in that we may prefer greater punishment for people who harm the vulnerable -- and it may even deter some deceptive conduct aimed at older people. But greater punishment doesn't address the question raised by the study discussed in yesterday's post: whether the underlying rules against deception should be different for older people because they are particularly susceptible to deception.

American Banker: Lobbying CFPB on Arbitration Intensifies

Here (login required).  An excerpt:

Likewise, there was initially deep skepticism inside the banking industry about the CFPB's arbitration study, and there is still a belief among industry insiders that the agency's research is likely to lead to new regulations. * * *

But over the last few months, industry observers have been relatively pleased
with they have seen from the consumer bureau.

Overseeing the arbitration study for the CFPB is Will Wade-Gery, a former
Morrison Foerster lawyer who used to represent financial institutions. * * *

Ballard Spahr's [Alan] Kaplinsky said: "I must say that before having had some discussions
with people at the CFPB about the project, I was probably very skeptical about
whether this would really be a fair study that they would conduct, whether it
would be based on political data, or whether it would be based more on
political leaning. And so far I've been impressed."

Old Age and Consumer Law's Anti-Deception Policies

According to this article by Elizabeth Norton, the Federal Trade Commission says that up to 80% of the victims of consumer scams are elderly. Why? Older people tend to look at things in a positive light:

One explanation may lie in a brain region that serves as a crook detector. Called the anterior insula, this structure — which fires up in response to the face of an unsavory character — is less active in older people, possibly making them less cagey than younger folks, a new study finds. Both the FTC and the FBI have found that older people are easy marks due in part to their tendency to accentuate the positive. According to social neuroscientist Shelley Taylor of UCLA, research backs up the idea that older people can put a positive spin on things — emotionally charged pictures, for example, and playing virtual games in which they risk the loss of money.

The study referred to by Norton appears here in the Proceedings of  the National Academy of Sciences. The study's findings may mean that government efforts to prevent consumer deception of older people should be tailored differently than efforts targeted at deception of younger people. Should there be different substantive legal rules when an older person is targeted? Different penalties when older people are deceived?

Identity Theft Comic

Here.  They call it an inforgraphic, but it's really a comic, though not comical.  From DirectLendingSolutions.com.

Kiva and Microlending

Over at Credit Slips, Alan White has a great post about what he loves about the microlending non-profit, Kiva. He then discusses microlending more generally. Kiva is "a non-profit organization with a mission to connect people through lending to alleviate poverty." "Leveraging the internet and a worldwide network of microfinance institutions," Kiva says, it "lets individuals lend as little as $25 to help create opportunity around the world." Kiva says that since it was founded in 2005:

• 853,436 people have made micro-loans through Kiva
• $380,763,100 has been lent
• with an astounding 98.98% repayment rate

Go here for more on how the loan system works, and go here or click on the embedded video below to see an animated short on the Kiva lending model.

  

Be Careful Buying a Used Car in the Wake of Hurricane Sandy

Bad floods damage a lot of cars, and then some used car sellers want to sell those damaged cars to unsuspecting customers without disclosing the damage. This happened after Katrina (go, for instance, go here and here). Holly Petreaus, the head of Servicemember Affairs at the Consumer Financial Protection Bureau, has posted this warning about used car puchases in the wake of Sandy. Here are some of Petraeus's tips:

See: if there are any high-water or mud marks on the engine, the wheel wells, the trunk or even the glove box. Get a flashlight and take a look in those hard-to-reach places that might not have been cleaned. Lift up the carpet and look underneath for mud, rust or dirt.

Smell: the upholstery and the carpeting. Do they smell funky? Also, turn on the heat and see if there’s an electric/burning smell that might come from damaged wires. And turn on the AC and see if you get a blast of mildew-scented air.

Feel: the wires under the dashboard and in the engine (obviously when the car is turned off!). Do they feel brittle? That may be the result of immersion in water.

Listen: to the sound system/radio. If it sounds bad or isn’t working at all, that could be a sign of water damage. Ask why it’s not working.

Ask: the seller outright if the car was ever in a flood. While they may not have volunteered the information, they may be reluctant to lie when asked directly.

Consider: buying a vehicle history report that should tell you if the car’s been in a flood or issued a salvage title.

 

Disclosure vs. Regulation

by Jeff Sovern

Last week I had a very interesting conversation with a Ph.D candidate from the University of Amsterdam, Frederik J. Zuiderveen Borgesius, who is researching privacy regulation and behavioral targeting. He asked me if I could refer him to a book that explores when disclosure is an appropriate response to consumer protection problems as opposed to regulation of conduct, such as a prohibition on troublesome behavior.  I realized that I don't know of such a book, or even an article on the issue--something I had never realized before.  Does anyone out there know of such a work?

What makes this particularly embarrassing for me is that it connects to one of the themes of our casebook. The first two chapters focus on information remedies, including disclosure, while the remaining chapters look at conduct regulation.  We ask students to consider why the law takes one approach for some problems and the other in different contexts.  It seems like a natural thing for consumer protection folks to write about, and yet if any of us have, I don't know about it.

My own view is that since the sixties or so, the law has tried to use disclosure in consumer markets and conduct regulation in non-market matters. For example, Truth in Lending tries to make lending markets work better while Magnuson-Moss tries to fix warranty markets.  But when there is no relevant market--such as when consumers try to get credit reports fixed or debt collectors to back off, Congress relies on regulation, in the form of the Fair Credit Reporting Act and the Fair Debt Collection Practices Act, respectively.  But as behavioral economics has made clearer that consumers do not always act rationally, Congress is moving toward regulation even where markets operate.  That latter point is made by my co-author, Dee Pridgen, in her recent paper. 

And another thought: Mr. Borgesius's primary interest was in disclosure vs. regulation in the privacy context.  It appears that disclosure has not worked very well in privacy, in that consumers seem not to read privacy disclosures.  On the other hand, regulation seems paternalistic and risks regulate something consumers don't want.  What to do?  I wondered whether a middle-ground might work, in which government provides that if businesses want to collect, use, and disclose information about consumers, they should be obliged to give consumers something in return: money, discounts, or something else. Government could establish a floor for what that something could be, and companies and consumers would be free to contract for more than the floor if they wanted.  That way, consumers could continue paying little attention to their privacy, but would still receive something for yielding it. It's just a half-baked idea, and may not taste so good upon more reflection, but maybe it is worth contemplating. 

All of this is another lesson, for me at least, that you can think about something for a quarter-century and still miss the basics. I think we will be hearing more from Mr. Borgesius.

 

Arbitration cert grant

In addition to the exciting cert grants from the Supreme Court today in the gay marriage cases out of New York and California, don't overlook Oxford Health Plans v. Sutter, a case also taken today raising a question about the availability of class arbitration.

The case is a followup to the decision in Stolt-Nielsen v. AnimalFeeds, where the Supreme Court held that arbitrators exceeded their powers in ordering class arbitration on public policy grounds even though it was acknowledged that the contract did not reflect agreement by the parties to class proceedings. Here, by contrast, following Stolt-Nielsen, the arbitrator applied conventional rules of contract construction and concluded that the contract was properly interpreted to permit class proceedings although it does not expressly refer to “class arbitration.” The petitioner in the case (an insurance company facing claims from a class of doctors that it wrongfully limited payments to them) argues that even though the arbitrator’s decision was based on a construction of the contract, the decision was somehow so erroneous that it can be overturned by a court despite the strict limits the Federal Arbitration Act imposes on review of arbitrators’ contract interpretations and other legal and factual rulings.

Accepting the petitioner’s argument would place even heavier obstacles in the way of class arbitration and perhaps even amount to a holding that an arbitration agreement can never authorize class arbitration unless it explicitly mentions class proceedings — a position the Court declined to take in Stolt-Nielsen and that would be inconsistent with the Court’s own insistence that the scope of arbitration agreements is a matter of contract.

You can find the case documents on SCOTUSBlog here.

(Public Citizen attorney and CL&P Blog contributor Scott Nelson has been assisting the legal team for the respondent in the case and co-authored this post.)