Consumer Law & Policy Blog

Fnancial Times: Few errors found in ‘robosigning’ review

by Jeff Sovern

Here. But their definition of "few" still seems high.  "Only" 4.2% of the consumers whose homes were foreclosed upon are said to have been "harmed" by robosigning.  That seems to come from a report from the OCC which has historically been captured by the banks, though since the appointment of Thomas Curry as its head, seems to be less so.  And the articles notes that "some auditors" have found much higher error rates.

Ninth Circuit Denies Rehearing in Facebook Settlement Case

The U.S. Court of Appeals for the Ninth Circuit today refused to reconsider its opinion last fall upholding the settlement of a class action asserting claims based on Facebook's "Beacon" program, under which Facebook posted information about purchases and video rentals Facebook users made from companies that participated in the program. The settlement provides for no payments to members of the class other than “incentive” payments to the class representatives. Instead, it provides for a so-called "cy pres" payment of several million dollars to a newly created foundation that supposedly will be dedicated to educating internet users about protecting their privacy. The court of appeals upheld the settlement in an opinion issued last September, rejecting objecting class members' claims that the cy pres payment to the new foundation would not benefit them.

 Today's decision denies a request that the court rehear the case "en banc"—that is, with the participation of many more of the court’s judges than the three-judge panel that originally decided the case by a 2-1 vote. Six active judges of the court filed a dissent from the denial of rehearing; Senior Judge Andrew Kleinfeld, the dissenter on the original panel, also supported granting rehearing. However, because there are 28 active judges on the Ninth Circuit, 15 votes are normally needed to obtain rehearing.

The dissent from the denial of rehearing was written by Judge Milan Smith and joined by the court’s Chief Judge, Alex Kozinski, as well as Judges O’Scannlain, Bybee, Bea, and Ikuta. Although short, it is punchy and to the point. It observes that the decision to uphold the settlement is inconsistent with previous decisions of the court requiring that organizations receiving cy pres distributions have a track record of service supporting interests of the class. The newly formed foundation in this case, by contrast, “has no record of service,” but is “simply a bespoke creation of this settlement” with an extremely vague mission statement that “says absolutely nothing” about whether class members will truly benefit from this settlement; it simply promises that [the foundation] will do some ‘stuff’ regarding some more ‘critical stuff.’”

The dissent also points out that the foundation’s claimed mission is unrelated to the purposes of the laws on which the claims in the case were based. The lawsuit claimed that Facebook had violated its users’ privacy rights by providing unauthorized access to information about them, but the foundation’s stated purpose is to provide education about how privacy can be protected through “user control.” As the dissent points out, the claims in the case “have nothing to do with users’ lack of ‘education’ or ‘control,’” but “relate to misconduct by Internet companies that wrongfully exposes private information in ways that even educated users cannot anticipate, prevent, or direct.”

The court’s denial of rehearing reflects a significant retreat from the Ninth Circuit’s commitment to protecting class members against cy pres settlements that fail to offer them meaningful relief. The judges who would have rejected the settlement come exclusively from relatively conservative Republican appointees on a court that now has a majority of Democratic appointees. That lineup suggests that protection of class members has become something of a partisan issue on the court—ironically, one where protection of consumers is of more concern to the right than to the left.
Perhaps there is a perception that to oppose these settlements is to oppose class actions—which would be an unfortunate idea, to say the least.

 

 

 

CFPB Head Richard Cordray Speaks to State AGs

I thought our readers might be interested in reading this speech given today by Consumer Financial Protection Bureau director Richard Cordray to the National Association of Attorneys General. Among other things, he stressed (1) a need to make mortage lending simpler and more transparent; (2) a preference that more consumer-protective state laws not be preempted; and (3) the agency's concern with preventing racial discrimination in the financial industry. On the latter score, Cordray said

For some consumers, the challenges they face do not come from deceptive materials, debt traps, or dead ends but, rather, are rooted in something even more offensive – discrimination. Unequal, invidious treatment based on characteristics such as race or gender or other bases prohibited by law is a serious roadblock to consumers seeking to make economic progress. The statistics show very clearly that communities of color were hit especially hard during the financial crisis. All Americans saw drops in their household wealth, but African-Americans and Hispanics experienced the steepest drops. This inequity is compounded by unequal access to responsible credit, which makes it difficult or even impossible to achieve their financial goals.

Supreme Court rules unsuccessful FDCPA plaintiffs must pay opponents' costs

The Supreme Court held today that an unsuccessful FDCPA plaintiff in a non-frivolous case must pay the defendant's costs (which could be hundreds or occasionally, as in this case, thousands of dollars), even though the statute's text provides for attorney-fee- and cost-shifting only where "an action under this section was brought in bad faith and for the purpose of harassment." The Court held that this provision speaks only to cases brought in bad faith and/or for harassment and that the statute remains "silent" on whether costs can be assessed in other circumstances. Thus, according to the Court, the bad faith/harassment provision did not displace the usual presumption under Federal Rule of Civil Procedure 54(d) that a losing party is liable for costs, even though Rule 54(d) states that its presumption should yield when a statute "provides otherwise."

Dissenting, Justice Sotomayor contended that, "Far from merely restating a district court’s discretion to award costs, this provision imposes a prerequisite to the exercise of that discretion: a finding by the court that an action was brought in bad faith and for the purpose of harassment." In holding otherwise, "[t]he Court's opinion the Court ignores the plain meaning of both the FDCPA and Rule 54(d)(1) and renders the statutory language at issue in this case meaningless."

The case is Marx v. General Revenue Corp. Public Citizen litigated the case at the Supreme Court level.

Narrow Supreme Court standing decision in surveillance case

In a 5-4 decision today, the Supreme Court held that lawyers, journalists and human-rights workers whose work requires that they communicate with individuals abroad whose communications the federal government is likely to target under its broad new surveillance authority lack standing to challenge the statute granting the government that broad authority. The majority dismisses as the plaintiffs' fears of being monitored as speculative and articulates a stringent standard for getting into court: "threatened injury must be certainly impending to constitute injury in fact, and that allegations of possible future injury are not sufficient" (citations, internal quotation marks, and brackets omitted, and emphasis retained).

Citing cases from a variety of contexts, including environmental and public-health cases, the dissent rightly notes that the Court has never required certainty in order to find standing, and fears that the Supreme Court's decision today could have broad consequences: "Suppose that a federalcourt faced a claim by homeowners that (allegedly) unlawful dam-building practices created a high risk that theirhomes would be flooded. Would the court deny themstanding on the ground that the risk of flood was only 60, rather than 90, percent?"

The case is Clapper v. Amnesty International. (Disclosure: in a former capacity, I helped with the development of this case.)

Sixth Circuit strikes down inadequate robo-signing class action settlement

A number of significant legal opinions were released today on procedural and/or substantive issues affecting consumers. We'll be highlighting each of them in turn today.

First, the Sixth Circuit Court of Appeals struck down a settlement of three class action lawsuits arising out of the fraudulent signing of affidavits without personal knowledge in order to collect debts. Among the major flaws in the settlement was the minimal relief to class members, consisting of less then $20 for each of the 1.4 million members of the class. The defendants agreed to reform their practices going forward, but that's of little use to individuals who have already been harmed.

The case is Vassalle v. Midland Funding.

"Why We Need More Judicial Activism"

That's the title of this article in which law professor Suzanna Sherry argues that criticisms of "judicial activism" are misguided. If anything, Sherry says, the Supreme Court should override federal and state legislative judgments more often than it does. She notes that the Supreme Court's "universally condemned" decisions more often left legislation standing than struck it down (e.g., Plessy v. Ferguson and Buck v. Bell). Sherry says a decision like Citizens United, which is hated by many political liberals and consumer rights proponents, should be debated on its merits, not on the ground that it involved "judicial activism." For a recent opposing point of view, at least with respect to judicial deference to congressional legislation, see this opinion piece, in which Neal Katyal laments the Supreme Court's recent penchant for overriding Congress's handiwork and notes that in the first 70 years of its existence the Supreme Court struck down only two federal laws as unconstitutional.

Here is the abstract of Sherry's article:

Too much of a good thing can be bad, and democracy is no exception. In the United States, the antidote to what the drafters of the Constitution called “the excess of democracy” is judicial review. Lately, however, judicial review has come under fire. Many on both sides of the political aisle accuse the Supreme Court of being overly activist and insufficiently deferential to the elected representatives of the people. I argue in this essay that criticizing the Court for its activism is exactly backwards: We need more judicial activism, not less. Courts engaging in judicial review are bound to err on one side or the other from time to time. It is much better for the health of our constitutional democracy if they err on the side of activism, striking down too many laws rather than too few. An examination of both constitutional theory and our own judicial history shows that too little activism produces worse consequences than does too much. If we cannot assure that the judges tread the perfect middle ground (and we cannot), it is better to have an overly aggressive judiciary than an overly restrained one.

Jim Hawkins, et al. Paper on Title Lending

Vanderbilt Ph.D. student Kathryn Fritzdixon, Jim Hawkins of Houston, & Paige Marta Skiba of Vanderbilt have writtetn Dude, Where's My Car Title?: The Law, Behavior, and Economics of Title Lending Markets. Here's the abstract:

Millions of credit-constrained borrowers turn to title loans to meet their liquidity needs. Legislatures and regulators have debated how to best regulate these transactions, but surprisingly, we still know very little about the customers who use title loans. This Article reports findings from the first large-scale academic study of title lending customers. We surveyed over 400 title lending customers across three states and obtained information about customers’ demographic and behavioral characteristics.

Based on the results of our survey and guided by insights from behavioral economics, this Article seeks to reframe the title lending debate. Instead of focusing on the risks and consequences of borrowers’ cars being repossessed, as the vast bulk of the literature does, we argue that the primary problem that most borrowers face is underestimating the true cost of taking out a title loan. Borrowers’ survey responses demonstrate that many borrowers are overly optimistic and experience self-control problems that affect their ability to make timely loan payments. We argue that these deviations from the assumptions of classical economics do not warrant an outright ban of title lending, but they do provide room for policy interventions. Policymakers can improve efficiency in title lending markets by requiring lenders to disclose to consumers the likely experiences they will have with their title loans rather than merely requiring lenders to communicate pricing information.

Debt Collection Study of Offer of Representation and Counseling

Dalie Jimenez of Connecticut, James Greiner of Harvard, Lois R. Lupica of Maine, & Rebecca L. Sandefur of the American Bar Foundationand Illinois have written Using a Randomized Control Trial to Accomplish Multiple Goals: An RCT Evaluating What Works for Individuals in Financial Distress, Investigating the Debt Collection System, Exploring Ways to Increase Access to Justice, and Bridging Clinical and Doctrinal Instruction, forthcoming in the Georgetown Journal on Poverty Law Policy.  Here's the abstract:

This article describes a proposed randomized control trial (RCT) involving individuals in financial distress, specifically, individuals sued on a credit card debt collection case by a debt buyer or creditor. The aim of the RCT is to evaluate the effectiveness of two interventions often proposed to help individuals in financial distress improve their financial health. We intend to test, inter alia, whether (1) an offer of legal representation in the debt collection case, (2) an incentive to undergo the same financial counseling required in bankruptcy, or (3) a combination of both treatments have an effect on the financial health of financially distressed consumers. Our primary outcome measure will be credit scores and reports, although we also aim to survey study participants about other outcomes such as changes in health, assets, and general well-being.

We describe in detail not just the methodology of the study, but also the mechanics of how we have gone about executing this complex field experiment so far. The objective in doing so is to demystify the process for scholars, legal aid lawyers, and clinical professors who have not had direct experience with empirical methods, and to encourage them to think about conducting RCT evaluations of their own programs. The article also describes three other goals we seek to advance through the project. The first is a deeper understanding of debt collection in the courts. Allegations of abuse abound about the industry generally and legal collections specifically, but to date, the evidence is largely anecdotal. We will be uniquely positioned to learn about whether the allegations are more than anecdotes. The second is increasing access to justice for unrepresented defendants in collection cases. Along with a team of dedicated law students, the study team is developing an attorney litigation manual and pro se materials, including court forms and scripts, for debt collection litigation. Before making the pro se materials available, they will be field tested with individuals in similar situations to those facing study participants. The third goal is developing an innovative pedagogical approach to legal instruction that combines doctrine and practice. A majority of the law students participating in the project are doing so in the context of a seminar which incorporates both doctrinal instruction about the consumer credit system and clinical experience.

We hope that this article provides our readers both with ideas for future research projects and with ideas about how to incorporate diverse goals in a single study design.  

 

State tax breaks for making movies: A needed boost for local economies, or just a chance for politicians to pose with the stars at taxpayer expense?

by Brian Wolfman

Need another reason to avoid next year's long, self-congratulatory Oscars' awards? How about that the movie industry is the principal lobbyist for, and the prime beneficiary of, government largesse that may be eating away at your kids' school funding or support for your local fire fighters?

We know that tax-paid consumer services -- like roads, emergency services, and schools -- are getting squeezed because many state and local government budgets are very tight. Nonetheless, as discussed in this piece by Glenn Reynolds, the states are trying to out-do each other with tax give-aways to attract movie producers to film on location in their states. Virginia gave $3.5 million in tax breaks -- that is, $3.5 million in taxpayers' money -- to the producers of "Lincoln." The rationale is that the tax breaks will create local jobs and spur the local economy, which, in turn, will fill tax coffers. (And even out-of-staters, like Spielberg when he was making "Lincoln," need places to stay and eat.) But we can't just assume that a tax break for big business will be better for consumers. Here's what Reynolds says about chasing the Hollywood stars with your tax dollars:

Such state incentives are widespread, and often substantial, but they don't do much to attract jobs. About $1.5 billion in tax credits and exemptions, grants, waived fees and other financial inducements went to the film industry in 2010, according to data analyzed by the Center on Budget and Policy Priorities. Politicians like to offer this largess because they get photo-ops with celebrities, but the economic payoff is minuscule. George Mason University's Adam Thierer has called this "a growing cronyism fiasco" and noted that the number of states involved skyrocketed to 45 in 2009 from five in 2002.

Reynolds points to the Center on Budget and Policy Priorities' study State Film Subsidies: Not Much Bang for Too Many Bucks, which concluded that "[l]ike a Hollywood fantasy, claims that tax subsidies for film and TV productions — which nearly every state has adopted in recent years — are cost -effective tools of job and income creation are more fiction than fact. In the harsh light of reality, film subsidies offer little bang for the buck. ... The revenue generated by economic activity induced by film subsidies falls far short of the subsidies’ direct costs to the state. To balance its budget, the state must therefore cut spending or raise revenues elsewhere, dampening the subsidies’ positive economic impact." (emphasis added).

The tax incentives for movie-making were supported by studies. The Center lays into those studies: "The film industry and some state film offices have undertaken or commissioned biased studies concluding that film subsidies are highly cost-effective drivers of economic activity.The most careful, objective studies find just the opposite."

For more on the Center's study go here.