Consumer Law & Policy Blog

JP Morgan says it will give customers rights against payday lenders

We have blogged recently (here and here) about the role some of the world's largest banks play in facilitating the payday loan industry. The latter article explained that JP Morgan was in the process of re-thinking its practices. Yesterday, JP Morgan announced its new policies, as explained in this article by Jessica Silver-Greenberg. Here's an excerpt:

JP Morgan Chase will make changes to protect consumers who have borrowed money from a rising power on the Internet — payday lenders offering short-term loans with interest rates that can exceed 500 percent. JPMorgan, the nation’s largest bank by assets, will give customers whose bank accounts are tapped by the online payday lenders more power to halt withdrawals and close their accounts. Under changes to be unveiled on Wednesday, JPMorgan will also limit the fees it charges customers when the withdrawals set off penalties for returned payments or insufficient funds. The policy shift is playing out as the nation’s biggest lenders face heightened scrutiny from federal and state regulators for enabling online payday lenders to thwart state law. With 15 states banning payday loans, a growing number of the lenders have set up online operations in more hospitable states or foreign locales like Belize, Malta and the West Indies to more nimbly dodge statewide caps on interest rates. Bank of America and Wells Fargo said that their policies on payday loans remained unchanged.

"The Economic Case Against Arizona's Immigration Laws"

That's the name of this article by Alex Nowrasteh of the Cato Institute. Here's the abstract:

Arizona’s immigration laws have hurt its economy. The 2007 Legal Arizona Workers Act (LAWA) attempts to force unauthorized immigrants out of the workplace with employee regulations and employer sanctions. The 2010 Support Our Law Enforcement and Safe Neighborhoods Act (SB 1070) complements LAWA by granting local police new legal tools to enforce Arizona’s immigration laws outside of the workplace. LAWA’s mandate of E-Verify, a federal electronic employee verification system, and the “business death penalty,” which revokes business licenses for businesses that repeatedly hire unauthorized workers, raise the costs of hiring all employees and create regulatory uncertainty for employers. As a result, employers scale back legal hiring, move out of Arizona, or turn to the informal economy to eliminate a paper trail. SB 1070’s enforcement policies outside of the workplace drove many unauthorized immigrants from the state, lowered the state’s population, hobbled the labor market, accelerated residential property price declines, and exacerbated the Great Recession in Arizona. LAWA, E-Verify, and the business death penalty are constitutional and are unlikely to be overturned; however the Supreme Court recently found that some sections of SB 1070 were preempted by federal power. States now considering Arizona-style immigration laws should realize that the laws also cause significant economic harm. States bear much of the cost of unauthorized immigration, but in Arizona’s rush to find a state solution, it damaged its own economy.

 

 

Supreme Court issues its first CAFA decision

by Brian Wolfman

The Supreme Court held this morning in Standard Fire Insurance v. Knowles that a named plaintiff's stipulation that the plaintiff class is seeking less than the Class Action Fairness Act's minumum jurisdictional amount does not preclude a federal district court from assuming jurisdiction under the Act. Justice Breyer's unanimous opinion is just seven pages. The opinion's first two paragraphs set the stage and sum up the ruling:

The Class Action Fairness Act of 2005 (CAFA) providesthat the federal “district courts shall have original jurisdiction” over a civil “class action” if, among other things,the “matter in controversy exceeds the sum or value of $5,000,000.” 28 U. S. C. §§1332(d)(2), (5). The statute adds that “to determine whether the matter in controversyexceeds the sum or value of $5,000,000,” the “claims of the individual class members shall be aggregated.” §1332(d)(6).

The question presented concerns a class-action plaintiff who stipulates, prior to certification of the class, that he, and the class he seeks to represent, will not seek damages that exceed $5 million in total. Does that stipulation remove the case from CAFA’s scope? In our view, it does not.

CAFA was enacted in 2005. Today's ruling is the Supreme Court's first CAFA decision, and it's a win for defendants. Plaintiffs love to choose the forum, and, with many exceptions, the law generally accords plaintiffs their choice of forum.  But CAFA sought to give defendants a substantial say over the forum in class actions, allowing them to litigate in many instances in their preferred forum: federal court. Today's decision eliminates a potential tool -- the "we-will-seek-no-more-than-$5-million" stipulation -- for a class plaintiff seeking a state-court forum.

Victory for Consumers in Kirtsaeng v. John Wiley & Sons

In a 6-3 ruling today, the Supreme Court held in Kirtsaeng v. John Wiley & Sons that the first sale doctrine, which fosters the creation of a secondary market in used copies of copyrighted works by forbidding infringement claims based on the sale or purchase of copies of copyrighted works, applies even if the copyrighted works were manufactured abroad.  Public Citizen filed an amicus brief supporting application of the first sale doctrine to copies made abroad when the issue was first before the Court in Costco Wholesale Corp. v Omega, which  was affirmed by an equally divided court.  I think all of us came out of the oral argument worried about the outcome.  The defense of the first sale doctrine's applicability was fundamentally and, I thought, brilliantly reconceived by Kirtsaeng's counsel, Joshua Rosenkranz (our involvement this time was limited to hosting a moot court for him), and the results of his creativity are reflected in today's decision.

How Captured is the OCC?

by Jeff Sovern

Here's what the Times's Joe Nocera wrote in his column today:

[The OCC] is a classic captured regulator. As American Banker pointed out recently, the Promontory Financial Group, a prominent banking consulting firm founded by Eugene Ludwig, a former comptroller of the currency, recently hired the O.C.C.’s general counsel, Julie Williams. And where did the O.C.C. find its new general counsel, Amy Friend? From the Promontory Financial Group!

My hope is that the OCC is less captured than it once was.  After all, Julie Williams left after Obama appointee Thomas Curry took over. Time will tell.

Senate Banking Committee to Vote on Cordray Nomination Tuesday

So says The Hill.  Of course, that doesn't mean the Republicans will allow the full Senate to vote on the nomination. As for the merits of his nomination (not that that matters to the Republicans), The Hill states:

There really haven't been any questions about Cordray's ability to do the job. In fact, he's gotten decent reviews from banks and credit unions in how he is proceeding with the burdensome task of rule-making, especially under the Dodd-Frank financial reform law.

Report on County Clerks and Qui Tam Suits Against MERS

Dustin A. Zacks of King, Nieves & Zacks PLLC has written Revenge of the Clerks: MERS Confronts County Clerk and Qui Tam Lawsuits, 32 Banking & Financial Services Policy Report No. 1 (2013).  Here's the abstract:

Mortgage Electronic Registration Systems, Inc. (MERS) has faced unceasing controversy from litigators and scholars for its role in foreclosures, its effect on public records transparency, and its role in the housing bubble. While scholarly accounts have described the challenges MERS has faced in foreclosure and bankruptcy courts, this essay seeks to examine the most recent burgeoning challenge to MERS' manner of business: county clerk and qui tam lawsuits.

 All around the nation, county clerks and qui tam litigants have begun to file lawsuits against MERS, alleging a number of claims, including that (1) MERS violated state laws requiring assignments to be recorded; (2) MERS used deceptive language to avoid recording laws; and (3) MERS has been unjustfully enriched by depriving county clerks of recording fee revenue. Ultimately, the essay finds that most courts have rejected these claims against MERS, but that such lawsuits remain an expensive risk to MERS.

 

Antitrust enforcement through regulatory pressure rather than through litigation

Douglas Ginsburg and Joshua Wright have just written this article on the topic. Here's the abstract:

The beginning of a shift toward a more regulatory and less litigation-oriented regime of antitrust enforcement was observable by the mid-1990s, if not earlier. The transition toward this more bureaucratic approach by antitrust enforcement agencies is the subject of our analysis. Consent decrees create potential for an enforcement agency to extract from parties under investigation commitments well beyond what the agency could obtain in litigation — commitments that may impair rather than improve competition and thereby harm consumers. The consequences of such consent decrees, that is, are borne not only by the parties that are subject to them, but also by consumers and by non-parties who glean the agency’s enforcement position from the terms of those decrees. Moreover, consent decrees signal to foreign competition authorities that such commitments are appropriate and, consequently, the FTC and the Division lose the ability they might otherwise have to convince other agencies to minimize their own departures from the appropriate standard. We proffer that the culture of consent at antitrust agencies both in the United States and abroad has had an untoward effect upon the agencies’ selection of cases to bring and, more certainly, upon the remedies the agencies obtain in settlement agreements.

Marc Roark Paper on Payment Systems

Marc Lane Roark of Missouri has written Payment Systems, Consumer Tragedy, and Ineffective Remedies, forthcoming in 86 St. John's Law Review (2013).  Here's the abstract:

Payment methods like the Starbucks Rewards Card, while imitating liquidity, are challenged by confidence-detracting barriers of too little consumer knowledge and a lack of appropriate remedies. Starbucks operates as a non-banking firm performing an essential banking function – the storage of money for consumers to later use. Consumers are rarely well informed of the nature of this transaction and the relief that may be available when contracting for a future sale. Recent congressional action (CAFA) limiting class action lawsuits to Federal Court significantly limits traditional consumer relief while the bankruptcy code provides little relief should the merchant find itself insolvent. All the while, consumers continue to entrust more than $1 billion each year for merchants to hold with no guarantee that the credits will be honored, few enforcement mechanisms to force merchants to do so, and little relief if the company files bankruptcy. Using the metaphor of consumption gentrification, this Article re-conceptualizes the stored value cards problem as a confluence between fair dealing and risk allocation. In doing so, the Article suggests several avenues of relief, but proposes comprehensive reform that incorporates commercial policy, regulatory oversight, and social consumer awareness.

 

 

Interesting Column by The Nation's Rick Perlstein on Fine Print Contracts

Here.  And here's the beginning:

Imagine you’ve clicked on your computer screen to accept a contract to purchase a good or service—a contract, you only realize later, that’s straight out of Kafka. The widget you’ve bought turns out to be a nightmare. You take to Yelp.com to complain about your experience—but lo, according to the contract you have given up your free speech rights to criticize the product. Let’s also say, in a fit of responsibility, (a bit fantastic, I know) you happened to have printed out this contract before you “signed” it, though you certainly hadn’t read through the thing, which is written, literally, on a “twenty-seventh grade” reading level. Well, you read it now (perhaps with the help of a friend who’s completed the twenty-seventh grade). And you see that there was nothing in the contract limiting your right to free speech at the moment you signed it. That part was added later. Your friend with the twenty-seventh-grade education points to the clause in the contract in which you’ve granted this vendor-from-hell the right to modify the terms of the contract, unilaterally, at any time into the vast limitless future.

Others, you realize, must have had the same problem with this lemon of a product. You begin canvassing the possibility of a class action suit. But you guessed it: the contract you agreed to waived your right to class action as well.

You study this gorgon of a text to figure out what other monstrosities lie within—and discover this: you’ve waived away your right to the privacy of certain information, too. Shocked, you resolve: never again. You realize that when you buy a product or service, you’re also buying the contract that goes with it. So you’ll comparison shop. You think about how, when you rent a car, you have to sign and initial all that contract language you have no time to read with eight people behind you in line at the airport. So you call all the big rental car companies to get copies of their standard boilerplate contracts to read at your leisure—but not one would e-mail you the contract. You’re told it just isn’t done.