Consumer Law & Policy Blog

Has Obamacare Brought Down the Size of Health Insurance Rate Hikes?

Sarah Kliff reports here that

Researchers combed through data available from the 15 states that publicly post all requests for rate increases in the individual market. They found that, in 2009, 74 percent of all requests came in above 10 percent. By 2012, that number had fallen to 35 percent. Preliminary data for 2013, which only cover a handful of states, shows 14 percent of rate increases asking for a double-digit bump.

The Obama Administration says that the new health care law should get credit for the drop in rate hikes. Kliff explains that the law's rate review program requires that proposed insurance rate hikes of more than 10% be reviewed for reasonableness by either a state or federal regulator.

The chart below depicts the drop in the percentage of double-digit rate hike requests since 2010 in the 15 states where data is publicly available. In 2010, more than 70% of rate hike requests were 10% or greater. Most recently, only about 10% of rate hike requests were in double digits.

 

The Sequester and the Craziness of Cutting the IRS Budget if You're a Deficit Hawk

by Brian Wolfman

Think about these things:

• The "tax gap." In 2006, the "tax gap" -- the difference between the taxes owed by Americans and the taxes that they pay -- was a stunning $450 billion. The IRS then went out and enforced the tax laws and recovered $65 billion, making the net tax gap $385 billion. We've posted about the tax gap before. In all, the IRS collects only about 83% of what is due. The IRS itself is pretty open about the tax gap. View the IRS's wonderful tax gap map, showing the sources of the tax gap. (For instance, $28 billion comes from folks who just don't file tax returns -- that is, total scofflaws.) The chart below simplifies the map.

• Tax enforcement works. We could never eliminate the gap. Not all cheaters and honest-mistake-makers can be caught. And we don't want to turn the country into a police state trying to close the gap. But tax enforcement works. For every dollar spent on enforcement, four dollars are recovered.

• The sequester will reduce tax revenue. Like most federal agencies, the IRS has been squeezed in recent years. Because of budget cuts, it has lost 10% of its workforce through attrition in just the last two years. That means fewer people to help taxpayers figure out the law and file proper returns and fewer people to promptly process tax refunds. If the sequester goes into effect, it will require the IRS to furlough lots of employees, including those in enforcement. That means more cheaters will go undetected, and it probably means more cheating in the first place. It means, almost without doubt, a bigger tax gap. And that means a bigger federal deficit, exactly what the sequester, in its meat-cleaverish way, is supposed to reduce. That's downright nutty.

Read more about these and related issues in Rachael Bade's article at Politico.

Porat & Strahilevitz Paper: Personalizing Default Rules and Disclosure with Big Data

Ariel Porat of Tel Aviv University and Chicago and Lior Strahilevitz of Chicago have written Personalizing Default Rules and Disclosure with Big Data.  Here's the abstract:

This paper provides the first comprehensive account of personalized default rules and personalized disclosure in the law. Under a personalized approach to default rules, individuals are assigned default terms in contracts or wills that are tailored to their own personalities, characteristics, and past behaviors. Similarly, disclosures by firms or the state can be tailored so that only information likely to be relevant to an individual is disclosed, and information likely to be irrelevant to her is omitted. The paper explains how the rise of Big Data makes the effective personalization of default rules and disclosure far easier than it would have been during earlier eras. The paper then shows how personalization might improve existing approaches to the law of consumer contracts, medical malpratice, inheritance, landlord-tenant relations, and labor law.

The paper makes several contributions to the literature. First, it shows how data mining can be used to identify particular personality traits in individuals, and these traits may in turn predict preferences for particular packages of legal rights. Second, it proposes a regime whereby a subset of the population (“guinea pigs”) is given a lot of information about various contractual terms and plenty of time to evaluate their desirability, with the choices of particular guinea pigs becoming the default choices for those members of the general public who have similar personalities, demographic characterics, and patterns of observed behavior. Third, we assess a lengthy list of drawbacks to the personalization of default rules and disclosure, including cross-susidization, strategic behavior, uncertainty, stereotyping, privacy, and institutional competence concerns. Finally, we explain that the most trenchant critiques of the disclosure strategy for addressing social ills are really criticisms of impersonal disclosure. Personalized disclosure not only offers the potential to cure the ills associated with impersonal disclosure strategies, but it can also ameliorate many of the problems associated with the use of personalized default rules.

 

 

 

The Haggler on a Florida Consumer Protection Agency

by Jeff Sovern

Today's Times Haggler column, Calling Out the Robocaller, written by David Segal, and about a troublesome telemarketer, Your Financial Ladder, operated by the Helfenstines, includes an ominous discussion about the effectiveness of a Florida consumer protection agency:

[A] spokesman for the Florida Department of Agriculture and Consumer Services says it recently started an investigation of Your Financial Ladder that ended uneventfully after an inspector was dispatched to the contact address listed on the company’s Web site, 1760 Sundance Drive, in St. Cloud.       

“The inspector noted that the address was a residence and that there was no evidence of a telemarketing operation at the time,” wrote Amanda Bevis, a spokeswoman for the department. “The investigation had reached a dead end.”       

Actually, the investigation had reached the home of Brenda and Tony Helfenstine. Seriously, that address, according to easily accessible public records, is where the Helfenstines seem to live.       

Deep breaths, people. Yes, it’s maddening that our consumer protection agencies are so easily foiled.

I understand Florida has low taxes. Maybe its consumers are getting what they're paying for in terms of consumer protection.

Major Banks Play Key Role in Payday Loans

Read this story by Jessica Silver-Greenberg. She reports that just as 15 U.S. states have banned payday loans, some of the world's biggest banks are playing a key role in facilitating the loans in a way that aims to evade those states' laws. Here's an excerpt:

Major banks have quickly become behind-the-scenes allies of Internet-based payday lenders that offer short-term loans with interest rates sometimes exceeding 500 percent. With 15 states banning payday loans, a growing number of the lenders have set up online operations in more hospitable states or far-flung locales like Belize, Malta and the West Indies to more easily evade statewide caps on interest rates. While the banks, which include giants like JPMorgan Chase, Bank of America and Wells Fargo, do not make the loans, they are a critical link for the lenders, enabling the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely. In some cases, the banks allow lenders to tap checking accounts even after the customers have begged them to stop the withdrawals.

State regulators, the Federal Deposit Insurance Corporation, and the federal Consumer Financial Protection Bureau are all looking into the banks' roles in facilitating the loans (presumably with an eye toward potential regulation).

Call for Papers; Topics Include Some Consumer Law Matters

The University of Connecticut School of Law announces a writing competition for junior legal scholars, called the 2013 Junior Scholars Workshop on Financial Services Law. The competition is open to law faculty with less than six years of teaching experience. The competition is open only to papers that explore topics in financial services law. Appropriate paper topics include, but are not limited to:

- Banking, securities, insurance, and commodities regulation;

- Regulatory issues concerning the shadow banking system;
- Consumer financial services and the regulation of those services;
- Payment systems and other topics of commercial law related to commercial banking;
- Legal implications of bank-based versus capital-markets-based systems of finance; and
- Systemic financial risk.

Authors whose papers are selected will be invited to present their work at a conference with senior legal scholars, which will be held at the University of Connecticut School of Law in Hartford, Connecticut, on Friday June 14, 2013. Submissions must be received in full by Friday, March 8, 2013 at midnight. Either a full paper or a precis of 800 to 1200 words will be accepted for purposes of the March 8, 2013 deadline.

More information here. 

Identity Fraud Continues to Increase

by Jeff Sovern

Javelin Strategy & Research has issued its annual report on identity fraud (a free version is available here). Javelin reports that 12.6 million Americans--or more than 5%--were victims of identity fraud in 2012, an increase of a million from 2011.  It also states that nearly a quarter of consumers who received data breach notices in 2012 were victims of identity fraud. This last may have implications for cases, like Reilly v. Ceridian Corp., 664 F.3d 38 (3d Cir. 2011), that say that consumers who have not yet been victims of identity theft (and may never be) cannot meet the Article III requirements for standing to bring claims against the companies that have experienced security breaches.  Odds of nearly one chance in four of suffering losses sound like a real possibility of experiencing the loss (would courts deny standing to those who had been unintentionally exposed to a chemical that caused nearly a quarter of people exposed to it to suffer a serious disease?).  In any event, this is an area where courts are split; for example, Krottner v. Starbucks Corp., 628 F.3d 1139 (9^th Cir. 2010), finds that the possibility of future identity theft when a laptop containing personal information is stolen is enough for Article III standing.

CFPB Wants Comments on Making Student Loans More Affordable

Here's an excerpt from the announcement:

Today, the Consumer Financial Protection Bureau (CFPB) announced that it is gathering information to develop options for policymakers to make repayment of private student loans more manageable for struggling borrowers. The CFPB has found that private student loan borrowers who wish to pay their loans, but face high payments, lack alternative repayment and refinance options.

 

“Too many private student loan borrowers are struggling with unwieldy debt that prevents them from
climbing the econoic ladder,” said CFPB Director Richard Cordray. “We will be analyzing plans for policymakers to consider that might help avoid a repeat of the mortgage meltdown for today’s student loan borrowers.”

 

In October 2012, the CFPB Student Loan Ombudsman released a report noting that consumers had trouble negotiating affordable repayment plans with their lenders and servicers for private student
loans – loans that are not designed with income-based payment options. This report to the Secretary of the Treasury, the Secretary of Education, the CFPB Director, and Congress recommended that policymakers explore options to spur the availability of alternative repayment and refinance options. 

 

In July 2012, Director Cordray and Secretary of Education Arne Duncan submitted a report to Congress on the private student loan market. The study indicates there are more than $8 billion in defaulted private student loan balances, representing 850,000 distinct loans, with even more in delinquency.
Unlike distressed borrowers with federal student loans, private student loan borrowers generally do not have long-term forbearance, income-based repayment, or rehabilitation options if they default. The study concluded that many borrowers are struggling to pay off private student loans, especially in tough economic times.  

Today, the CFPB released a Notice and Request for Information in the Federal Register. With the
information gathered from that notice, the CFPB plans to explore more detailed recommendations to policymakers in order to facilitate greater repayment affordability of private student loans.

 

The Bureau is looking for ways that private student loan borrowers can have more flexible repayment options and is seeking input on a variety of issues related to repayment affordability, including:

 

• How student loan burdens might impact the broader economy and hinder access to mortgage credit and automobile loans;
• How distressed borrowers manage their student loan obligations;
• What options currently exist for borrowers to lower their monthly payments on private student
  loans;
• Examples of successful alternate payment programs in other markets and which features could
  apply to this market; and
• The most effective mechanisms for communicating with distressed borrowers.

 

Members of the public, including financial institutions, colleges and universities, professional associations representing health professionals and educators, housing finance experts, students, and families are encouraged to submit comments. The notice, along with information on how the public will be able to electronically submit comments, is located on the CFPB’s website. Comments will
be accepted until April 8, 2013.

More information here. And the American Banker opines here that the Bureau's plan may have a "narrow impact" because 85% of student loans are government loans, and the Bureau is looking at private loans.

Injunction Against Facebook Poster for Criticizing McDonald's Non-Halal Meat Settlement

by Paul Alan Levy

Our experience at Public Citizen has been that objectors to proposed class action settlements can often expect a hostile reception.  Both named plaintiffs and defendants – and their lawyers — generally have a common stake in getting the settlement approved, and they have developed a relationship with the judge already.  The judge, too, has already given conditional approval (class members generally don’t hear about the settlement otherwise) and beyond that a judge can have a personal stake in approving the settlement – if the settlement fails, the judge might have  a mess of a case that remains to be tried, and dockets are too large as they are.  The judge’s sense of personal stake is heightened if the settlement was developed through a mediation process encouraged by the judge.   So the frequent reaction to opponents of a proposed settlement is bullying, threats of sanctions and damages and the like; when the settlement is otherwise dicey, everybody with a stake has extra incentives to drive off objectors without having to discuss the merits.

So, when a reporter who often covers Internet-related cases asked for my reaction to a story in the Detroit Free Press about an injunction that had been issued in a Dearborn, Michigan case to stop a local activist named Majed Moughni from fomenting opposition to the proposed settlement of a class action over McDonald’s having sold non-halal chicken mcnuggets that had been advertised as halal, I approached the case with hackles raised. 

FINRA agrees Schwab can use customer agreements to bar class actions

Last year, Charles Schwab modified its customer account agreements to prohibit class-action suits and bar consolidation of individual arbitrations. FINRA -- the financial industry regulatory authority -- then charged Schwab with violating FINRA's rules. As we previously reported, Schwab challenged FINRA's action in district court, but the court dismissed the suit for failure to exhaust administrative remedies. Schwab then filed a complaint through FINRA's internal process.

On Thursday, ruling on Schwab's complaint, a FINRA hearing panel held that FINRA's rules are invalid insofar as they would preclude the class-action ban. According to FINRA's press statement, "[t]he panel concluded that the amended language used in Schwab's customer agreements to prohibit participation in judicial class actions does violate FINRA rules, but that FINRA may not enforce those rules because they are in conflict with the Federal Arbitration Act."

On other issues, however, the panel ruled against Schwab. The hearing panel found that Schwab violated FINRA rules by attempting to limit the powers of FINRA arbitrators to consolidate individual claims in arbitration. In addition, the panel held that the FAA does not bar enforcement of FINRA's rules regarding the powers of arbitrators.

FINRA describes itself as "the largest independent regulator for all securities firms doing business in the United States. Our chief role is to protect investors by maintaining the fairness of the U.S. capital markets."