Consumer Law & Policy Blog

American Banker: Truth in Lending Litigation Slows But Bankers Remain Wary

by Jeff Sovern

Here (behind paywall).  Excerpt:

 

Court decisions tied to the 1968 law fell 18% year over year during a
12-month period that ended May 31, to 1,037, data from the National Consumer
Law Center shows. That number is down 38% from the peak two years earlier.

The pace of new litigation is also slowing. In May, plaintiffs filed 16
lawsuits in federal courts over alleged Truth in Lending violations, according
to TRAC Records, a research arm of Syracuse University. That was less than half
the lawsuits filed a year earlier and much lower than the 152 civil actions
filed in May 2009.

The article offers several speculations as to the causes of the drop, but doesn't mention arbitration clauses as one possible cause.  I'm not sure why that possibility is omitted, given that a goal of arbitration clauses is to eliminate litigation, even though that goal is not always acknowledged.

Will the Senate Compromise on the Cordray Confirmation?

by Jeff Sovern

From time to time, reports appear that Senator Portman is trying to broker a compromise that would permit confirmation of Richard Cordray as CFPB director.  And some, including Ballard Spahr's Alan Kaplinsky, have predicted that a compromise will be eventually be reached.  I don't have any inside information--it's not as if legislators or their staffers are calling me.  I certainly know less about what is happening in Congress than Senator Portman, and I suspect I know far less than Alan Kaplinsky as well. But here's why I'm skeptical about a compromise:

The Republican opponents of confirmation of Cordray claim that the Bureau's director has too much power. The director, they say, is not part of a commission, but can act based on his own views. He has a five-year term and can be removed only for cause, meaning that he need not fear firing if he angers people.  The Bureau gets its funding outside of the congressional appropriations process, and that frees the Bureau from having its funding reduced by legislators unhappy with its decisions.  But, as I have pointed out before, the Senate has had no difficulty confirming nominees to head the Office of the Comptroller of the Currency, including nominees of both Democratic and Republican presidents, and has even done so on a voice vote (reserved for non-controversial votes) when the Republicans had a majority of the Senate.  Accordingly, I view the Republicans' stated reason for opposition as a pretext.  As they also voted against creation of the Bureau in the first place, it seems inescapable that their real goal is to prevent the Bureau from acting.

That's why I think a compromise is unlikely. If Senator Portman attempts to broker a compromise that adds checks to the director's power, by for example, providing for a commission structure, that addresses only the pretext and not the real objection. Accordingly, I don't see why the Republicans would agree to it.  A commission would make it harder for the Bureau to protect consumers, but not impossible.  If your goal is to paralyze the Bureau, why would you agree to something that won't necessarily do that?  I think Senator Portman is trying to broker a compromise because he feels differently. He is from the same state as Cordray and so may be more receptive to his directorship.

Despite all this, there are a few ways I could see a compromise happening.  A director-less Bureau has power over banks but much less over non-bank lenders. That means the Bureau could insist on banks doing things in ways which rendered them less able to compete with non-banks.  Banks might respond by seeking confirmation of a director so that they can compete with the non-banks.  Or it mght be possible to broker a compromise in which the Republican senators get something they want more than disrupting the Bureau.  And as I say, I'm speculating here, so I could easily be overlooking something.

But still, it doesn't look good for consumers.  Wouldn't it be nice if politics were more honest?

 

Senate Adjourns Without Passing Student Loan Bill So Rates Will Increase Monday

Congress could still act after Monday to reduce rates retroactively, however.  The Wall Street Journal has more here.  An excerpt:

As of Thursday afternoon, Democratic backers of the one-year freeze of current rates said Majority Leader Harry Reid (D., Nev.) had promised there would be a vote on July 10 on their bill. An aide to Mr. Reid said that a vote was likely, but that nothing had been agreed to yet.

Guest post: Even more on payday lending

[Ed note: The following guest post is the third in a series of posts about payday lending or "deposit advance" loans issued by banks. Go here and here for the prior two posts.]

Guest post by Jim Hawkins, University of Houston Law Center

In reading Gary Kalman's guest post, I wondered why the Center for Responsible Lending (CRL) doesn't take a more nuanced approach to lending issues like payday lending. The report linked to in the post makes categorical statements about the effects of payday lending without acknowledging that many people think the evidence is indeterminate. It says, for instance, that payday loans cause bankruptcy, without mentioning the facts that (1) Tobacman and Skiba's work says payday loans don't increase the chances of people filing for Chapter 7 (only Chapter 13) and that (2) there are serious critiques of their claim. Also, the report cites economic studies that report negative findings about payday lending and none of those that find the opposite. John Caskey's excellent paper echoes Jeff Sovern's point that we just don't know what the net welfare effects of the loan are. To me, I have a harder time taking the CRL work seriously because it does not acknowledge the other side. Maybe it is the difference between academic work and advocacy, but even as a matter of persuasion, I'd be more persuaded if it appeared more objective. (All that said, I love a lot of the work CRL does!)

 

WSJ Op-Ed: Regulators Have Created a Mortgage Minefield

by Jeff Sovern

Former governor, HUD general counsel, and current head of the American Bankers Association Frank Keating has penned an op-ed for the Wall Street Journal (behind paywall) with the headline above.  Keating complains that HUD has adopted the disparate impact test for discrimination; that the CFPB's qualified mortgage rule (QM rule) will restrict lending to borrowers who would otherwise get mortgages; and that banks which comply with the QM rule risk falling afoul of the disparate impact test.

Keating explains: "The QM requirements will result in an immediate tightening of credit, with banks substituting a one-size-fits-all federal mandate for their own good judgment and sound underwriting." That sounds scary, until you remember that the banks' "good judgment and sound underwriting" led to the making of millions of mortgage loans on which borrowers defaulted and were foreclosed upon, which wrecked the economy and led to enormous bailouts to the banks which exercised such good judgment.  Keating never mentions any of that. Personally, I prefer the QM rule to that kind of "good judgment and sound underwriting."

Keating says use of the disparate impact test "represents a radical shift in how the government enforces fair housing law."  Somehow he forgets to note that more than 40 years ago, the Supreme Court approved use of the "radical" disparate impact test, albeit in the employment discrimination context.  Courts have used the disparate impact test in lending discrimination for some time.  To be sure, the Supreme Court has taken the Mount Holly case on the issue, but that was not because of a circuit split on this issue--because there isn't one.  And even if there were, that wouldn't make use of the test "radical." 

 

Guest post: More on so-called "deposit advance" lending

Guest post from Gary Kalman, EVP, Center for Responsible Lending

Earlier this week, Professor Jeff Sovern posted a piece here questioning whether banks should get out of the “deposit advance” lending business—i.e., payday lending.  We appreciate his comments, but loan sharking is loan sharking.  Banks are pushing triple-digit interest loans that are structured to create the same kind of debt trap set by storefront payday lenders.  (See our recent research, “Triple-Digit Danger: Bank Payday Lending Persists")

Borrowers end up worse off, since these loans often trigger overdraft fees, unpaid bills and ultimately bankruptcy.  Payday loans—whether by banks or stores—aren’t analogous to mildly defective toasters.  These loans are toasters that promise a bit of warm bread and then go up in flames.  Giving someone a loan they can’t afford makes no sense, especially when the person is already in a financial hole.

CFPB orders U.S. Bank to stop misleading loan practices aimed at active-duty military and to refund undislosed fees

Our readers may be interested in hearing about what the Consumer Financial Protection Bureau is doing on the enforcement front. Today, the agency issued a press release concerning consent orders against U.S. Bank and one of its affiliates:

Today the Consumer Financial Protection Bureau (CFPB)ordered U.S. Bank and one of its nonbank partner companies, Dealers’ Financial Services (DFS), to end deceptive marketing and lending practices targeting active-duty military. The two companies must return about $6.5 million to servicemembers for failing to properly disclose all the fees charged to participants in the companies’ Military Installment Loans and Educational Services (MILES) auto loans program, and for misrepresenting the true cost and coverage of add-on products financed along with the auto loans.

The orders against the two targets -- available here and here -- lay out the facts uncovered in the agency's investigation in considerable detail.

The range of remedies agreed to by the two companies are detailed after the jump.

Searching for Relief -- Desperate Borrowers and the Growing Student Loan 'Debt Relief' Industry

That's the name of this new study by Deanne Loonin and Jillian McLaughlin of the National Consumer Law Center. They explain that

A student loan "debt relief" industry has sprung up in response to the demand for student loan borrower assistance and this report documents multiple problems as well as potential violations of consumer federal and state laws. Given the many misrepresentations uncovered, it is unlikely that these companies are providing quality services in return for the money they are charging. Such practices severely compound the pain of vulnerable consumers seeking to find resolutions to difficult student debt problems. The U.S. Department of Education should make it easier for student loan borrowers to access its borrower assistance programs, and federal and state authorities should ensure that these companies comply with the law so that consumers truly understand what services they are buying.

Read the study's executive summary and NCLC's press release. Read the comprehensive list of recommendations here or after the jump.

Politico on the CFPB After Cordray

Here. Cordray's recess appointment expires in December. What happens then?  Under Dodd-Frank, Cordray's deputy takes over as acting director. Right now, Steve Antonakes is the acting deputy. But some of those who argue Cordray's appointment is invalid claim also that his naming Antonakes as acting deputy is invalid.  Of course, the Supreme Court may rule that Cordray's appointment was valid (or rather, the NLRB members whose appointments are at issue in the Noel Canning case) or even if the courts find Cordray's appointment was invalid, they could nevertheless ratify his decisions--but any decision in Noel Canning is unlikely before Cordray's appointment expires.  Another option, according to Politico:

[T]he court could allow the Treasury Secretary Jack Lew to assume the role  former Secretary Timothy Geithner did before Cordray was appointed director and  oversee the CFPB. In that role, Lew could ratify Cordray’s actions and delegate  the day-to-day responsibilities to an adviser — presumably someone within the  bureau, like Antonakes.

Not everyone agrees that’s permissible under Dodd-Frank, and it could lead to  even more legal challenges.

Either way, without a director, the bureau would be stripped of its powers to  oversee nonbanks and be limited to enforcing laws transferred to the bureau from  other agencies.

I'm not clear on which court the article is referring to or what procedural steps would lead to a court coming to such a result, but I hope we don't need to find out.

New Book Describes the Creation of the CFPB

by Jeff Sovern

Here's the blurb I provided:

"Powerful interest groups seldom lose major battles in Congress, but that is exactly what happened when Congress created the Consumer Financial Protection Bureau in 2010. Larry Kirsch and Robert N. Mayer have produced, in Financial Justice: The People's Campaign to Stop Lender Abuse, an eminently readable and yet important account of the fight to establish the CFPB. For those who care about consumer protection, want to learn how laws get passed and new agencies created, or just enjoy a good real-life David-and-Goliath struggle, this book is a must-read."

Back in college I read Eric Redman's book, The Dance of Legislation, which described how Congress enacted a particular law and provided a sort of case study on the legislative process.  This book provides a similar case study--but it's about the Dodd-Frank Act and the CFPB, something likely to be of interest to readers of this blog.  I think this book will be of use for years to come to people interested in the enactment of consumer protection legislation. The book also contains a foreward by former House Financial Services Chair Barney Frank and an afterword by Hofstra professor Norman I. Silber based on his correspondence with Senator Elizabeth Warren  (Disclosure: the book mentions the effort by Norm Silber and me that resulted in numerous law professors joining a letter supporting passage of the Dodd-Frank Act).