Consumer Law & Policy Blog

More on the FTC's Study of the Credit Reporting Industry

We've posted ( here, here, and here) several times on the new FTC study on the credit reporting industry showing that millions of Americans' credit reports are wrong, many seriously wrong. Now, take a look at this piece by David Lazarus. It provides a couple examples of how faulty credit reports harm consumers. He also suggests a reform:

Under the [Fair Credit Reporting Act], which was amended in 1996 with additional privacy safeguards, consumers were given the right to find out what's in their files and to dispute any inaccurate information. The act also limited access to a credit file to those with a "permissible purpose," such as lenders, other credit issuers or insurers. It's clear, though, that not enough has been done to level the playing field. Although consumers have a right to a free copy of their credit file annually from each of the big agencies — available at AnnualCreditReport.com — those files can be unclear or difficult to understand. Worse, because each agency uses its own system, consumers have to monitor all three to ensure that their files are accurate. If a problem is found, you have to jump through each company's hoops to make changes — a time-consuming and often frustrating process. Here's my proposal: Create an online clearinghouse, run by the federal government's Consumer Financial Protection Bureau, that would allow people to fix all their files at one time.

 

Do Car Rental Companies Charge Customers for Vehicle Damage that the Customers Didn't Cause?

That's the topic of this article by consumer journalist and advocate Christopher Elliot. The article caught my eye for two reasons. First, it's fairly in-depth consumer journalism that used to be commonplace. The writer investigates and reports on a possible consumer rip-off, suggesting what might be done about it and, in the meantime, warning consumers about how to avoid the problem. Second, the topic struck me as worth knowing about. Here's one possible rip-off, according to Elliot's article. It seems there is some evidence that major car rental companies rent cars that already have some body damage, perhaps damage that can only be detected on close inspection and the car rental company apparently didn't notice when it occurred. The companies don't disclose the damage at the time of the rental. Then, the consumer returns the car in the same condition as when it was rented, but, lo and behold, the consumer is charged for the damage. The British Columbia attorney general is investigating. Elliot would like to see the FTC investigate as well.

A Journalist Writes About His Experiences as a Debt Collector

by Jeff Sovern

Back in 2008, Fred Williams, a reporter for the Buffalo News who had written stories about debt collectors, worked as a debt collector for an upstate New York debt collection firm.  Williams was not exactly undercover--he disclosed that he had written the stories--but it sounds as if he was treated as any other employee: he went through training and later had to prove himself to advance to a permanent position.  In 2011, Williams published a book about the experience.  Though the title of the book makes it sound like a primer for consumers being pursued by debt collectors--Fight Back Against Unfair Debt Collection Practices--and the book does include advice for consumers, what makes the book special is Williams's account of his experiences. I read the book to learn more about the industry for the debt collection materials to appear in the next edition of our casebook, and I thought I would say a bit about it here as well.

While some have portrayed debt collectors who cross legal lines as sadists who enjoy abusing others (see, e.g., the testimony of Richard Bell in the third edition of our casebook), Williams offers a different take.  Williams reports that he met few collectors who enjoyed threatening consumers but nevertheless describes numerous interactions in which collectors approached or stepped over the line demarcating improper behavior.  According to Williams, debt collectors face incentives to employ inappropriate tactics because of the need to collect enough debts to retain their jobs and earn the approval of other debt collectors. Williams argued that collectors employed illegal tactics because they work.  He also claimes that collectors are hardened by frequent interactions with dishonest consumers who leave the collectors jaded and cynical.

As for the rules imposed on collectors by the federal Fair Debt Collection Practices Act, Williams's experiences are not always consistent.  The agency where he worked seemingly followed some of the FDCPA's strictures faithfully; for example, collectors were not permitted to call consumers more than once a day. But other rules seemed to go by the wayside.  Collectors largely omit the so-called "Miranda warning of FDCPA § 1692e(11). Alternatively, he reports that some collectors leaving messages for consumers hang up in the middle of the Miranda warning: “I am legally required to inform you that this is an attempt [click]” and then claim that the call was cut off. Some collectors claim that they are calling from the fraud department, a false statement which violates § 1692e.  Still another collector creates the impression that a collection matter will end up in litigation by asking for the consumer's lawyer's phone number. If the consumer denies having a lawyer, the collector replies "Don't you think you're going to need one.?" Though the agency had a compliance department, Williams reports that collectors are told when Compliance is monitoring their calls so they know when to avoid violating the FDCPA.  The result, according to Williams, was that the compliance department was a sham.  So why are some rules followed slavishly and others ignored?  My speculation is that excessive calling can be proved by obtaining phone records while the proving the contents of unrecorded phone conversations devolves into a credibility contest.

Williams's book reads fast and is entertaining.  For those who want a better understanding of the debt collection industry, it is a must-read. 

 

Senator Warren Petition: Senators, Give Richard Cordray an Up-or-Down Vote

You can sign the petition here.  GoLocalWorcester.com has more here. 

The Affordable Care Act's Medical Loss Ratio Rule's Application to Medicare Advantage and Prescription Drug Plans

One of the key components of the new Affordable Care Act is its medical loss ratio rule. The rule seeks to control health care costs by requiring medical insurers who don't spend at least 80 to 85 percent of their premium earnings on health care — rather than on marketing and administrative expenses — to rebate the excess non-health care spending to their consumers. (Sometimes those consumers will be individuals; other times, they will be employers who purchased health care for their employees.) Last year, insurers rebated about $1.2 billion under the rule. We have blogged about the rule several times, including here and here. As this article by Ben Goad explains, the feds have proposed a regulation, currently being reviewed by the Office of Management and Budget's Office of Information and Regulatory Affairs, that will extend the rule to prescription drug plans and Medicare Advantage plans beginning next January.

An astonishing arbitration decision in an age of astonishing arbitration decisions

Why do courts enforce mandatory arbitration clauses? Because the contracting parties agreed to them, the courts tell us.

Not this time. A Florida intermediate appellate court held earlier this month that an arbitration clause was enforceable in a wrongful death suit against a rehabilitation center even though Jessie Holloway, the 92-year-old woman who signed the arbitration agreement, "could not possibly have understood what she was signing." Specifically:

When she entered the facility, she executed a standard resident admission and financial agreement and a separate arbitration agreement. At the time, she was 92 years old and had a fourth-grade education. She could not spell well and often had to sound out words while reading. She had memory problems and was increasingly confused.

Even though the court had no trouble accepting the trial court's finding that Ms. Holloway couldn't have understood the agreement, the court nonetheless held that "[f]or better or worse, her limited abilities are not a basis to prevent the enforceability of this contract," because "[o]ur modern economy simply could not function if a 'meeting of the minds' required individualized understanding of all aspects of the typical standardized contract."

The court is thus abandoning any pretense that arbitration must be based on consent and a knowing waiver of rights. Instead, this rule permits forced arbitration to be imposed unilaterally by the more sophisticated party to any contract. And if "[t]he agreements are sufficiently complex that many able-bodied adults would not fully understand the agreements," well, so much the better for the company imposing the terms, and so much the worse for the elderly patient who forgot to bring her lawyer when she checked in to the rehab center.

The case is Spring Lake v. Holloway, decided by Florida's Second District Court of Appeals.

$35 million fraud settlement in Florida

From a DOJ press release: "Lender Processing Services Inc. (LPS), a publicly traded mortgage servicing company based in Jacksonville, Fla., has agreed to pay $35 million in criminal penalties and forfeiture to address its participation in a six-year scheme to prepare and file more than 1 million fraudulently signed and notarized mortgage-related documents with property recorders’ offices throughout the United States."

The CEO of a subsudiary, DocX, pled guilty to criminal charges. You can read the whole release here.

Now that the OCC Head is Not a Bank Lobbyist, Republicans Want a Commission There Too

by Jeff Sovern

The Office of the Comptroller of the Currency is a bank regulator that, like the CFPB, has a single head rather than a commission structure and gets its funding outside the appropriations process.  I have pointed out before two things about this: first, that unlike with the CFPB, Republicans have been happy to confirm OCC directors. And second, that the OCC has historically been very protective of banks, even going to court to block the New York Attorney General from trying to enforce fair lending laws against the banks the OCC regulates, and declaring state anti-predatory lending laws inapplicable to the OCC's clients--subjects of the OCC's regulation.  But now that the OCC has a new leader appointed by the president, Thomas Curry, Senator Mike Crapo, the ranking Republican on the Senate Finance Committee, has called for a commission structure for the OCC too. 

What is behind this shift?  It could be an honestly-held view.  But another possibility is that commissions suddenly look more attractive than directors when a banking agency is not led by a former bank lobbyist, as was true for much of the Bush administration.  Another possibility is that pushing for a commission undermines arguments that the Republicans are leaving the OCC alone while tackling the CFPB structure because they want to protect banks rather than consumers.  And unlike with the CFPB, Republicans won't have to make good on the argument for years by blocking confirmation of the head of the OCC because they just confirmed a new one last year. 

And as for the merits of commission versus director, the SEC is a commission. How's that working out?

The relationship, if any, between economic deregulation and consumer benefit

by Brian Wolfman

We have posted before on the large decline in airfares in light of the 1978 Airline Deregulation Act. (See also the chart to the right, and click on it to enlarge.)

But, in this piece, David Lazarus questions whether economic deregulation ever brings consumers lasting benefit. He worries about the just-announced U.S. Airways-American merger:

Experts were buzzing after the announcement with dire warnings of higher fares, more crowded planes and fewer options for travelers — and they're probably right. Once the merger is completed, four airlines — American, United, Delta and Southwest — will control about 75% of the U.S. market. . . . Richard H.K. Vietor, a professor of business administration at Harvard Business School, said there have been numerous examples of deregulation bringing prices down for varying amounts of time. In the case of airlines, he said, we've enjoyed decades of lower fares since the industry was deregulated in 1978. "That's the good thing," Vietor said. "The bad thing is that, as we've seen, competition erodes and you get back to oligopolies." The U.S. airline industry now resembles how it looked in the 1930s, he said, with just a handful of carriers controlling most air traffic. As a result, the primary benefit of deregulation — lower fares — could disappear as fewer airlines duke it out for business.

I'm not sure Lazarus has it right here. Nearly 35 years of lower airfares through deregulation shouldn't be sneezed at. Perhaps with greater regulation service would be better and those dreaded "fees" would be gone. (Although note the chart, which shows that fees are a quite small percentage of the cost of flying.) And perhaps the coming oligopoly will be so bad that the many years of deregulation will be deemed not worth it. Maybe additional economic regulation will be needed. Maybe regulators or Congress should take a skeptical view of future air industry mergers. But the chart is no lie. Stay tuned.

Senator Warren Gets Tough With Regulators, Says Banks Should Not Be Seen as "Too Big for Trial"

by Brian Wolfman

This article by the Consumerist's Chris Morran explains that, in her first Senate Banking Committee hearing, senior Massachusetts Senator Elizabeth Warren "grilled a panel of regulators on their tendency to settle with law-breaking banks rather than go to trial. ... Sen. Warren explained her stance that if banks reap billions of profits while breaking the law, then later settle and pay that settlement money out of those same profits, 'they don’t have much incentive to follow the law.' She also pointed out that when a trial is avoided, so is all the important, possibly revealing testimony that would have come out of that trial." The hearing witnesses included the FDIC chair, the SEC chair, the Comptroller of the Currency, and Richard Cordray, the director of the new Consumer Financial Protection Bureau, Senator Warren's brain child.

To view the entire hearing go here, and then click on the small link about a third of the way down on the left that says "view archive webcast." Senator Warren's questioning begins at about 1 hour and 52 minutes. The senator presiding over the hearing introduced her as "Senator Warden." It's definitely worth watching. She can't get any regulator to say when his or her agency had last taken a Wall Street firm to trial, and she notes that assistant U.S. attorneys around the country are "squeezing" ordinary citizens in court every day.