Consumer Law & Policy Blog

Even More on the FTC Report on the Debt Buying Industry (and the Industry's Effect on Real People)

We've already blogged twice on this subject today (here and here). But there's something else you may want to check out. Jen Lavellee, a senior lawyer at the D.C. Legal Aid Society, posted this piece on a client who experienced some of the serious problems discussed in the FTC Report on the debt buying industry and the need for systemic reform.

Today's Recess Appointment News

by Deepak Gupta

• The Arbitration Wars Meet the Recess Appointment Wars: Since its beginning, this blog has closely covered controversies over mandatory arbitration in consumer and employment contracts. More recently, we've been covering the constitutional controversy over the President's recess appointments to the CFPB and NLRB. On Tuesday, those two worlds officially collided when lawyers for the D.R. Horton company sent a letter to the Fifth Circuit invoking the D.C. Circuit's recent decision in Noel Canning. As observers of the arbitration wars know, D.R. Horton has been fighting the NLRB's year-old decision holding that federal labor law precludes employers from forcing their workers to waive collective-action rights through arbitration clauses. Now, D.R. Horton argues that the March 2010 recess appointment of NLRB member Craig Becker is invalid and therefore nullifies the board's decision. "Just like the situation in Noel Canning," the letter asserts, "the vacancy Mr. Becker filled did not arise during the Senate's recess, nor did the president appoint him during that recess. When the NLRB issued the D.R. Horton decision, it therefore had only two properly appointed members and no quorum to act."

• A New Court Challenge to the Cordray Appointment? Carter Dougherty of Bloomberg reports on the possibility that a CFPB enforcement action now pending before the U.S. District Court in Los Angeles could provide a new forum for a court challenge to Rich Cordray's status as the Bureau's director. The defendants in the action are a law firm and its principals that operated a network of mortgage loan modification businesses. On Tuesday, their lawyer sent the Bureau a letter "asking for a negotiated settlement of the six-month-old case in light of" the D.C. Circuit decision in Noel Canning. The lawyer appears to be trying to use the prospect of a recess appointment challenge to obtain leverage in settlement negotiations: “I want to give them an opportunity to resolve this without court intervention,” he says. (The case that's received the most attention -- C. Boyden Gray's Big Spring case filed in district court here in Washington -- is likely to be thrown out on standing grounds, so the big question is where and when a fresh court challenge will appear. My guess is that the Los Angeles case won't become the next vehicle.)

• Free Webinar on Monday: Our friends at Ballard Spahr, a law firm that represents banks in consumer finance matters, are convening a free webinar on Monday at noon entitled "The Impact of the D.C. Circuit Court NLRB Ruling on the CFPB." I won't be able to participate in Monday's webinar, but I recently co-hosted a webinar with Ballard Spahr and can attest to the quality of their programming. This is a good opportunity to hear some of the banking industry perspective on the recess appointment controversy. The banks -- despite what they may say -- are quite worried about the CFPB's fate. The webinar will discus the holding and reasoning of the court and the possibility of a further en banc review by the D.C. Circuit or review by the U.S. Supreme Court; the status of other cases dealing with the recess appointments; how the CFPB will react to the ruling; the impact on ongoing investigations and consent orders; the impact on supervision of non-banks; and the political impact of the ruling.

More on FTC Study on the Debt Buying Industry and Prospects for Reform

This morning, Allison posted this informative piece on the FTC's new report on the debt buying industry. The Consumerist has done a nice overview of the report, explaining in some detail what it sees as the report's eight key takeaways: (1) Debt-Buyers Only Pay About $.04 Per Dollar On The Accounts They Buy; (2) Debt-Buyers Have Information That Alleged Debtors Might Need, But Tend Not To Share It; (3)  Debt-Buyers Aren’t Being Told If Debt Has Been Challenged; (4) Debt-Sellers Rarely Provide Supporting Documents; (5) Sellers Make No Guarantees About The Accuracy Of The Info & Documents Provided; (6) No Guarantee On The Availability Of Documents [Showing the Legitimacy of the Debt]; (7) Debt-Buyers May Need To Spend Extra Money To Get Those Documents; and (last but certainly not least) (8) At least 500,000 Disputed Debts Go Unverified Each Year.

Consumers Union has responded to the report with specific ideas for reform of the industry. They are --

• End robo-signing and attempts to collect without proper documentation: Debt collectors should be required to document that they are attempting to collect from the right person, for the right amount, and on a debt that they can lawfully recover.

• Establish a sell by date for all debt: It should be illegal to sell or attempt to collect debt that is more than seven years old, which is too old to be reported on a credit report under the federal Fair Credit Reporting Act.

• Require debt collectors to provide more information to consumers: All debt collectors, including debt buyers, should be required to identify the name of the original creditor and to provide an itemized record of the total principal, interest, fees, and other charges that have been added to the debt, and to provide detailed records about the debt to consumers within five days after the first notification.

• Require debt collectors to submit more detailed information when filing suit: Debt collectors should be required to submit basic information about the debt, including the name of the original creditor and an itemized record of the total principal, interest, fees, and other charges that have been added to the debt, when they sue over a debt, so that the consumer can see if it is his or her debt, and in the right amount.

• Increase oversight to ensure consumers are properly notified of lawsuits: Courts should be required to provide supplemental notice of all filed debt collection lawsuits to debtors and default judgments should be prohibited if the notice is returned to the court as undeliverable.

American Banker Slideshow on Financial Institution Spending on Lobbying

Here.  The lead: "Many of the nation's largest financial institutions lowered their spending on lobbying the federal government in 2012, according to data compiled by the Center for Responsive Politics."

Still, as the slideshow makes clears, many of the largest financial institutions individually spent millions on lobbying last year.  I wonder if all the consumer organizations put together spent as much as, for example, Wells Fargo's $5.3 million.  And that was in a down year. 

Are "Out of Network" Medical Charges Unfairly Increasing Health Insurance Costs?

If you have health insurance, you probably know that the charges for "out of network" services are more than services provided by doctors and hospitals that are "in network." This article by Chad Terhune explains just how much the differential can be and whether the system is in need of reform. Here's an excerpt:

A Southern California surgery center charged teacher Lynne Nielsen $87,500 for a routine, 20-minute knee operation that normally costs about $3,000. Despite the huge markup, the Long Beach Unified School District and its insurer, Blue Shield of California, paid virtually all of the bill from Advanced Surgical Partners in Costa Mesa. Blue Shield mailed the $84,800 check to the high school Spanish teacher last month and told her to sign it over to the surgery center. Nielsen ... refused to send the check. Instead, she asked the California attorney general's office to investigate the matter. ... [Nielsen is] caught up in a growing battle nationwide over billing by outpatient surgery centers. Industry experts say some of these surgery centers seek out well-insured patients such as Nielsen, sometimes by waiving their copays and deductibles, and then bill their insurers exorbitant amounts for out-of-network care. All too often, critics say, insurers pay these large sums and then cite high medical bills for why insurance premiums keep rising for businesses and consumers.

 

FTC Study on the Debt Buying Industry

The Federal Trade Commission yesterday announced the results of an empirical study of companies that are in the business of buying consumer debts and trying to collect on them. The study looked at more than 5,000 portfolios containing nearly 90 million consumer accounts with a face value of $143 billion. In its report, The Structure and Practices of the Debt Buying Industry, the FTC noted problems due to incomplete information and poor communication. As a result, debt collectors may approach the wrong consumers or try to collect the wrong amount. Debt buyers verified only about half of the disputed debts--meaning that buyers either could not or did not attempt to verify about 500,000 debts each year. The FTC’s press statement offers this overview:

The report also found that at the time of purchase, creditors provided debt buyers with some important information concerning debts, including the name, address, and telephone number, and social security number of the debtor; the creditor’s account number; the outstanding balance on the account; and the dates of account opening and last payment.  Buyers, however, did not receive some key information about debts purchased, such as whether consumers previously disputed the debts or whether collectors previously verified the debts.  Creditors also imposed limitations on the ability of debt buyers to obtain information and documents about accounts after sale.  Most contracts between creditors and debt buyers stated that the creditors did not warrant that the information they provided to buyers about debts was accurate.

The FTC also notes that debt buying plays an important role in consumer credit: "Debt buyers paid pennies on the dollar (an average of about 4 cents, with older debt selling for less than newer debt) for the billions of dollars in debts they bought from creditors. The proceeds from these sales have helped to reduce creditors’ losses from lending money, allowing them to provide more credit at lower prices."

"Unemployment and Regulatory Policy"

That's the name of this article by University of Chicago law profs Jonathan Masur and Eric Posner. When a federal regulatory agency proposes a rule--say, a rule seeking to promote product safety or environmental quality--the agency generally does an cost-benefit analysis. It often does a separate analysis of the the rule's effect on employment. In this article, Masur and Posner say that the employment analysis should be part of the cost-benefit analysis, and they attempt to refute the counter-arguments that have been lodged against their proposal. Here's the abstract:

In an earlier article, Regulation, Unemployment, and Cost-Benefit Analysis, we argued that regulatory agencies should incorporate the costs of unemployment into cost-benefit analyses of proposed regulations. We argued that alternatives to including unemployment costs in cost-benefit analysis — including feasibility analysis and job loss analysis — make little sense because they do not specify the threshold at which job loss is excessive and do not explicitly make tradeoffs between unemployment effects and social gains. Our paper was cited in a 2012 draft OMB report that sought advice from commentators as to whether cost-benefit analysis should incorporate unemployment costs and, if so, how it should do so. This chapter, prepared for a volume on the treatment of unemployment costs within cost-benefit analysis, builds and expands upon that earlier work. We first respond to some important questions and critiques that commentators have raised regarding our paper in the intervening years since we published it. We then discuss some broader issues raised by the debate about the incorporation of unemployment costs into cost-benefit analysis, including the role of “second-order” or remote costs and benefits and the treatment of the ex ante incentives of regulation.

Todd Zywicki on Network Branded Prepaid Cards

Todd J. Zywicki of George Mason has written The Economics and Regulation of Network Branded Prepaid Cards. Here is the abstract:

General-purpose reloadable prepaid cards have been one of the fastest-growing sectors of the consumer payments marketplace in recent years. Their importance has accelerated as a consequence of new regulations enacted in the wake of the 2008 financial crisis. This increased use of prepaid cards has also increased angst among regulators, especially regarding the number and size of fees on prepaid cards. State and federal regulators as well as Congress are interested in imposing new regulations on prepaid cards. These calls for regulation, however, have proceeded in a largely fact-free environment. This paper describes the current economic and regulatory landscape for prepaid cards. The market appears to be robustly competitive, as recent years have seen declining costs and increasing functionality as well as entry of major players such as American Express and several large banks. Nor is there any evidence that consumers systematically err in the cards that they choose. Absent a demonstrable competitive market failure or systematic consumer abuse, prescriptive regulation of the terms and substance of prepaid cards would likely have unintended consequences that would exceed the benefits to consumers. On the other hand, there are some regulations that might be enacted that could promote competition and consumer welfare in this rapidly evolving market.

Threatening and Suing Consumers for Criticisms the "Right Way"

by Paul Alan Levy

Here at the Consumer Law and Policy blog, we worry about the chilling impact of both lawsuits against consumers’ speech and heavy-handed cease-and-desist letters demanding the cessation of such speech,  on consumers’ ability to use the comment on business.  We regularly discuss these situations, and at Public Citizen we often represent consumers (and the hosting sites as well) with a view to furthering the Internet’s promise of a balanced forum where both businesses and consumers can promote their respective points of view. The out-of-pocket expense of a legal defense, even with a free lawyer, can be prohibitively high.

But consumers sometimes get it wrong in their posts; sometimes they even say false things intentionally, and even, perhaps, to get revenge for undisclosed ulterior reasons, or to achieve financial leverage for undisclosed negotiations.  Libel law can be an effective counterweight that not only protects a plaintiff’s reputation from an undeserved smear but helps preserve the utility of review forums for all concerned.  Yet there are often disincentives to filing suit even when the suit would be meritorious — not just the cost, but the danger that news about the litigation will spread the criticism even further (the Streisand effect) and can, by itself, cost the plaintiff more customers (when there are many alternatives, for example, who wants to hire a litigious doctor who sues over criticism?).  Taking the legal course, and even threatening litigation, certainly ought to be a last resort, whether from the perspective of the business (I recently praised an article about this by Neg Norton) or from the perspective of public policy in a culture that values the marketplace of ideas as a means of reaching truth.

More on Coke and the NAACP's Brief Against New York City's Ban on the Sale of Large Sugary Drinks

Last week, Paul Levy posted about the NAACP's amicus brief supporting the soft-drink industry in its opposition to the New York City rules barring the sale of large sugary drinks. Paul thought that there was a link between the NAACP's position and the large amounts of money it takes from the Coca-Cola Company. Hazel Dukes, President of the NAACP New York State Conference, came out against the [then-proposed] soda ban back in July on the ground that it would not help in the fight against obesity. The NAACP's amicus brief makes this argument and also argues that the ban on large sugary drinks would hurt small businesses owned by members of minority groups.

Since then, the New York Times published an opinion piece called "When Jim Crow Drank Coke," by University of Virginia history professor Grace Hale, arguing that, historically, Coke discriminated against African-Americans (but noting that, in recent years, the soft-drink industry is "on good terms" with the African-American community). Coke's "chief historian" responded yesterday, saying that Hale's effort "to try to link the history of America’s favorite and most inclusive drink – Coca-Cola – to racism are both absurd and appalling." Note that the night before Dr. Martin Luther King, Jr., was murdered in Memphis, Dr. King called for a boycott of Coke in his famous "I've Been to the Mountaintop" speech. Click here or on the embedded vido below.