Consumer Law & Policy Blog

Consumer Law Events, Including Consumer Financial Services Institute Next Week and Panel on Fair Lending Tomorrow

There are some consumer-law events coming up that readers may find interesting:

• ABA Fair Lending Panel Tomorrow (April 5):  The recent exchange between Jeff Sovern and Chris Willis on disparate impact and fair lending (at this blog and the CFPB Monitor blog) reminds me to mention a panel on the same subject tomorrow at the spring meeting of the American Bar Association's Consumer Financial Services Committee in Washington. Chris Willis and I will be both speaking, along with Bryan Greene of HUD and Roddrick Lynch of TD Bank. The panel -- a discussion of hot topics in fair lending -- takes place tomorrow at 10:30am at the Washington Hilton. 

• Other interesting events at the ABA conference tomorrow include panels on online/tribal lending (including my former colleague Ellie Blume of the CFPB) and a discussion of the consumer finance market as a reflection of the growing income disparity in America. Saturday's program features a panel focused on the nuts-and-bolts implications of Noel Canning for CFPB enforcement litigation and a preemption discussion.

• PLI Consumer Law Institute Next Week (April 8 and 9): There's still time to register for the Annual Consumer Financial Services Institute at PLI, which takes place in New York on April 8th and 9th. I'm a co-chair of the Institute and will be moderating or participating on several panels. Co-blogger Jeff Sovern will be appearing on Tuesday. Other consumer advocates include Mike Donovan, Ira Rheingold, and John Barrett. The program includes a lineup of detailed panels on the CFPB regulations, enforcement, and supervision with key officials, including General Counsel Meredith Fuchs and former head of Regulations Leonard Chanin. There will also be panels on hot topics in arbitration, class actions, and unfair and deceptive acts and practices. Clicking this link will give you a 25% discount on the program.

• And in Chicago in May 2 and 3: For those who can't make it next week but are interested in attending, the PLI Consumer Financial Services Intitute will also take place in Chicago (at the University of Chicago's business school facility downtown) in early May. 

I look forward to seeing some of you at these events.

Another Reply to Chris Willis: This Time on Disparate Impact

by Jeff Sovern

Chris Willis of Ballard Spahr's CFPB Monitor recently blogged about whether disparate impact can properly be termed discrimination and therefore prohibited by ECOA.  For those who don't know, courts generally recognize three ways to prove discrimination in violation of ECOA: direct evidence, disparate treatment (except in the Seventh Circuit) and disparate impact, or as it is sometimes called, disparate effect. Direct evidence would exist, for example, if a lender said we don't lend to old people.  For obvious reasons, that doesn't happen that often.  Disparate treatment requires that the lender have discriminated intentionally.  That turns out to be very difficult to prove, so difficult in fact that it almost doesn't matter that the Seventh Circuit doesn't use the disparate treatment test. That leaves disparate impact. Disparate impact requires the plaintiff to show that using a particular criterion has a disproportionate effect on a particular group.  That can happen even if the lender did not intend to discriminate against anyone.  If the plaintiff carries that burden, the lender has the burden of showing that the criterion has a manifest relationship to creditworthiness.

To take a somewhat fanciful example, but one that I think makes the rule fairly clear, suppose the cattle organization that sued Oprah Winfrey some years back for disparaging beef decides to open a bank and that it will lend only to people who eat meat.  Some religions require their adherents to be vegetarians.  Accordingly, the lender's policy would discriminate against members of those religions, which I believe includes Budhism, at least in some forms.  The lender would not have intended to discriminate against Budhists, but its policy would have a disparate impact upon them. Consequently, the lender would have to show that its criterion enabled it to avoid lending to non-creditworthy borrowers. 

So the disparate impact test prevents unintentional discrimination against members of protected groups.  Why should we use such a test?  I confess I haven't studied the literature on this as much as I would have liked, but I can think of several reasons (I think Chris knows more about this than I do, but I wanted to respond anyway).  First, the legislative history of ECOA supports the use of the disparate impact test.  Some lawyers and judges oppose the use of legislative history, but I don't intend to repeat that debate here; it happens that I believe in using legislative history, at least under some circumstances. Second, the administrative agencies that have interpreted ECOA, such as the Federal Reserve and HUD, have also endorsed using the disparate impact test.  Courts usually defer to administrative agencies in interpreting statutes.

There also are policy justifications for using the disparate impact test.  if Budhists can't borrow from a particular lender because of their religion, does it really matter that the lender didn't intend to discriminate against Budhists but just insists on lending to meat-eaters?  Whether the lender intended to discriminate or not, the Budhists who refuse to eat meat can't borrow from that lender because of their religion.  They are being treated as second-class citizens by that lender.  And, again, if the lender can demonstrate that meat eaters are less likely to default, then the lender could continue insisting that its borrowers eat meat.

Another reason to recognize the disparate impact test is because the other tests have not been very effective. If courts don't block disparate impact, ECOA won't have very much impact at all.  In other words, lenders could continue to treat people differently based on criteria that don't relate to creditworthiness, but that produce different effects on protected and non-protected groups.  And just suppose the lender really did want to discriminate against Budhists, and is willing to accept as the price of doing so that it also discriminate against non-Budhist vegetarians, to avoid creating evidence of disparate treatment. If the lender managed to avoid providing direct evidence of animus towards Budhists, disparate impact would be the only avenue for stopping the lender.  Take that away, and the lender could discriminate with impunity. 

Chris provides an engaging example about two car loans he and his wife took out.  I think his example is beside the point because, unless I am misinformed, disparate impact cases are not based on one or two examples, but on enough examples to create statistical evidence that different groups are being treated differently.  If a car dealer systematically charges one group higher rates than another, it becomes much more difficult to say that the explanation is innocent (but maybe I'm not understanding Chris's example properly, because I don't see why the car price, as opposed to the loan terms, are relevant).  Similarly, Chris's point that the different treatment is not that different also misses the mark, in my view.  If the differences are not that great, then maybe there hasn't been a disparate impact.  But that doesn't mean that in other cases, in which the differences between the treatment of two groups are statistically significant, we should ignore those differences. 

I agree with Chris that unintentional discrimination doesn't carry the same moral objection as intentional discrimination.  But treating people differently because of race or religion, etc. is still deeply troubling. In any event, I agree with the courts and administrative agencies that have concluded the disparate impact test is an appropriate test of whether ECOA has been violated.

Online data brokers may be subject to the Federal Credit Reporting Act

The Federal Trade Commission has warned operators of six websites that share information about consumers’ rental histories with landlords that they may be subject to the requirements of the Fair Credit Reporting Act (FCRA).

The letters inform the six operators that, if they collect information on tenants and their rental history and provide that information to landlords to use in deciding whether to rent to those tenants, they are considered credit reporting agencies and are subject to certain legal requirements. The FTC has not determined whether the six have violated the FCRA, but the letters encourage them to review their business practices to ensure compliance.

The FTC 's press release identifies the companies as The BlueChip Group LLC (www.donotrentto.com), M & R Rental Properties (www.badtenantlistings.com), The Landlord Protection Agency (www.thelpa.com), National Tenant Network (ntnonline.com), 123 Rent Inc. (therentersblacklist.com), and Tenancy Bureau Inc. (www.tenancybureau.us).

FTC announces winners of robocall challenge

The Federal Trade Commission (FTC) yesterday announced two winners of its contest seeking ideas to block illegal robocalls. The two winners will receive $25,000 each. Both of their solutions "focus on intercepting and filtering out illegal prerecorded calls using technology to 'blacklist' robocaller phone numbers and 'whitelist" numbers associated with acceptable incoming calls. Both proposals also would filter out unapproved robocallers using a CAPTCHA-style test to prevent illegal calls from ringing through to a user," according to the FTC's press release. The FTC stated that "the challenge, designed to help solve this problem by spurring innovation in the marketplace, garnered nearly 800 eligible submissions."

Obama Administration wants to loosen home loan availability for people with weak credit

It is widely believed that a major cause of the financial crisis and economic collapse that began in 2008 was the extension of home loans to people who could not afford them. The Clinton and Bush Administrations have been criticized for promoting policies of loose home lending backed by federal guarantees. Today, it's harder for people with weak credit to get a home loan. But according to this article by Zachary Goldberg the Obama Administration wants to change course, at least to some degree. It wants home loan credit loosened to spur the economy and allow lower-income people and home buyers without a credit history to share in the (now weak) economic recovery. Here's an excerpt:

The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place. ... [A]dministration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default. [Federal] Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.

Smoking bans and housing

Following up on Brian's post yesterday about employment discimination against smokers, consider California's proposed ban on smoking in apartment buildings and other attached dwellings, discussed here by the Huffington Post (with a headline framing the ban critically) and here by the San Francisco Chronicle (with a more positive take). Public health measure? Unfair punishment for addicts? Either way you come down, issues of class and poverty loom large. Is a ban fair to non-wealthy smokers who cannot afford detached housing? Is the status quo fair to non-wealthy non-smokers, who are now subject to whatever smoke their neighbors want to blow, and may not be able to afford to move to a healthier living arrangement?

Fourth Edition of Our Casebook To Be Released In July

by Jeff Sovern

This is completely self-serving, but law professor readers of this blog may be interested to learn that the fourth edition of our casebook, Consumer Law, Cases and Materials, Fourth Edition is expected to be released in July, in time for fall classes.  Our goal was to continue comprehensive coverage of core consumer law subjects (like deceptive advertising, Truth in Lending, bait and switch, credit reporting and discrimination, credit card laws, lemon laws and other warranty rules, debt collection, and enforcement) while also updating the book to reflect new developments in the dynamic field of consumer law, including:  

• Internet marketing and social networks, such as Facebook

• The consumer protection issues that contributed to the subprime mortgage foreclosure crisis, as well as the legal fallout from that crisis, including the new Consumer Financial Protection Bureau  

• The Credit CARD Act of 2009 

• Online marketing and tracking as well as other privacy issues 

• Emerging payment systems – e.g., credit, debit and stored value cards  

• The latest U.S. Supreme Court developments on consumer arbitration  

• Predatory lending 

• Ad substantiation, celebrity and other testimonials 

• The debt buying industry and debt collection practices employed in that industry.

We added a new co-author, Chris Peterson of Utah and currently at the Consumer Financial Protection Bureau, to our lineup of Andy Spanogle of GW, Ralph Rohner of Catholic, and Dee Pridgen of Wyoming. Chris is known for scholarship on predatory lending, among other things, and he revitalized the predatory lending chapter, and made other significant contributions.  As in past editions, this text contains a balance of cases, problems that reflect modern situations, and notes with discussion questions and references to the latest consumer protection scholarship, including behavioral economic research that sheds light on how consumers actually behave. We wil also produce an updated teacher's manual and a new edition of Selected Consumer Statutes. I am quite excited about this new volume and I am confident that when people see it, they will share that excitement. 

Is employment discrimination against smokers ethical (and should it be legal)?

by Brian Wolfman

At this blog, we have covered issues of employment discrimination. Our posts have mainly concerned employment discrimination on the basis of someone's characteristic or status. But employers sometimes discriminate against prospective or current employees based on behavior, such as whether the prospective or current employee is a tobacco user. Apparently, an increasing number of employers are discriminating against smokers to lower their costs, among other reasons. Is that type of discrimination ethical? Should it be legal?

Those issues are the topic of a debate just published in the New England Journal of Medicine. One  article, entitled "The Ethics of Not Hiring Smokers," by Harald Schmidt, Kristin Voigt, and Ezekiel J. Emanuel, maintains that employer smoker bans are unethical. Here's the opening:

Finding employment is becoming increasingly difficult for smokers. Twenty-nine U.S. states have passed legislation prohibiting employers from refusing to hire job candidates because they smoke, but 21 states have no such restrictions. Many health care organizations, such as the Cleveland Clinic and Baylor Health Care System, and some large non–health care employers, including Scotts Miracle-Gro, Union Pacific Railroad, and Alaska Airlines, now have a policy of not hiring smokers — a practice opposed by 65% of Americans, according to a 2012 poll by Harris International. We agree with those polled, believing that categorically refusing to hire smokers is unethical: it results in a failure to care for people, places an additional burden on already-disadvantaged populations, and preempts interventions that more effectively promote smoking cessation.

The second article, entitled "Conflicts and Compromises in Not Hiring Smokers," by David A. Asch, Ralph W. Muller, and Kevin G. Volpp, takes a different approach. Here are some excerpts:

Tobacco use is responsible for approximately 440,000 deaths in the United States each year — about one death out of every five. This number is more than the annual number of deaths caused by HIV infection, illegal drug use, alcohol use, motor vehicle injuries, suicides, and murders combined1 and more than the number of American servicemen who died during World War II. A small but increasing number of employers — including health care systems such as the Cleveland Clinic, Geisinger, Baylor, and the University of Pennsylvania Health System — have established policies of no longer hiring tobacco users. ... These policies engender controversy, and we recognize that they risk creating or perpetuating injustices. One set of concerns arises from the fact that tobacco use is more concentrated in groups with lower socioeconomic status. ... However, these policies may also save lives, directly and through their potential effects on social norms, and these same disadvantaged populations are at greatest risk for smoking-related harms and ensuing disparities in health. ... These policies also increased the stigma against smoking, so although there's debate over whether stigma can be used as a tool for good, ultimately these policies almost certainly contributed to the decrease in the prevalence of smoking, not just the limits on where it occurs. For example, the Cleveland Clinic moved to a smoke-free campus in 2005 and stopped hiring smokers in 2007. Reportedly, smoking rates decreased in Cuyahoga County (where the Cleveland Clinic is located) from 20.7% in 2005 to 15% in 2009, whereas the overall rate in the state decreased only from 22.4% to 20.3%. ... Do hospitals' anti-tobacco hiring policies denormalize smoking and help communities escape tobacco's burden? Critics may argue that these claims are disingenuous, akin to a human resource director's saying to tobacco-using applicants, “Believe me, it's for your own good that I'm not hiring you.” But in the long run, such policies may indeed be for their own good. We recognize that these hiring practices are controversial, reflecting a mix of intentions and offering a set of outcomes that may blend the bad with the good. We know that many companies will want merely to continue their current level of anti-tobacco efforts, but given the threats that tobacco presents to our communities and institutions, we believe it's time to climb another rung on the ladder.

Interest rates for new student loans to double if Congress doesn't act

It's not Groundhog Day, but, yes, you've heard this story before. During the presidential election campaign, student loan interest rates were going to double unless Congress acted to keep them low (3.4%), and Congress acted. And, now if Congress doesn't act by July 1, rates will double. Read about it here, or check out this excerpt:

The rate for subsidized Stafford loans is set to increase from 3.4 percent to 6.8 percent on July 1, just as millions of new college students start signing up for fall courses. The difference between the two rates adds up to $6 billion. ... “What is definitely clear, this time around, there doesn’t seem to be as much outcry,” said Justin Draeger, president of the National Association of Student Financial Aid Administrators. “We’re advising our members to tell students that the interest rates are going to double on new student loans, to 6.8 percent.” The new rates apply only to those who take new subsidized loans. Students with outstanding subsidized loans are not expected to see their loan rates increase unless they take out a new subsidized Stafford loan. Students’ nonsubsidized loans are not expected to change, nor are loans from commercial lenders. But it translates to real money for incoming college freshmen who could end up paying back $5,000 more for the same maxed-out student loans their older siblings have.

Supreme Court sends Whirlpool class action back to the 6th Circuit for reconsideration in light of Comcast ruling

A few days ago, we posted about the cert petition pending in the Supreme Court in Whirlpool Corp. v. Glazer. In that case, the plaintiffs allege that their Whirlpool washing machines have a design defect that makes them prone to mold and noxious odors. The Sixth Circuit decision had affirmed class certification. Whirlpool's cert petition posed the following question (among others):

Whether a class may be certified under [Federal] Rule [of Civil Procedure] 23(b)(3) even though most class members have not been harmed and could not sue on their own behalf.

Whirlpool maintains that unless the absent class members prove, at the class-certification stage, that they have suffered the alleged harm, they do not have standing to pursue the class action in a federal court. If that view were accepted, plaintiffs would have a harder time litigating consumer class actions.

The Supreme Court did not deny cert this morning. Rather, it granted the petition, vacated the 6th circuit's ruling, and remanded in light of the Court's recent decision in Comcast Corp. v. Behrend. Comcast reversed a class certification in an antitrust class action on the ground that the plaintiffs' theory of damages liability could not be measured across the entire class and, therefore, did not meet Rule 23(b)(3)'s requirement that common questions "predominate" over individual questions.

Defendants are trying to defang the class action by forcing plaintiffs to prove as much of their cases as possible at the class-certification stage. Keep you eyes on the Whirlpool case with that in mind.