Consumer Law & Policy Blog

Times Report: Credit Bureaus Willing to Tolerate Errors, Experts Say

by Jeff Sovern

Here.  The article reports on the case on which we previously blogged in which a woman won an $18.6 million verdict under the Fair Credit Reporting Act.  And it provides more support for the reforms Ira Rheingold and I argued for in our recent Times op-ed: requiring credit bureaus to be more careful in matching files; granting consumers the power to seek injunctions; requiring greater accuracy in credit reporting; and requiring better investigations when errors are reported. 

More on Law School Transparency's New "Certification" Process

I posted earlier on Law School Transparency's new program in which it will provide a "certification" to law schools that meet the ABA's standards and other "best practices" for disclosure of their graduates' employment data. For criticism of the program, see these posts from Brian Leiter, using the term "shakedown," and Stephen Diamond, describing the program as follows:

And sure enough, now, LST itself has publicly stated it is starting a new “fee for service” product that extorts, I’m sorry, suggests to shop keepers, oops, Deans, that they might need the protection oh, sorry, “certification” by LST that a law school is meeting the requirements of ABA Standard 509 regarding disclosures to students about financial aid and employment outcomes.

Court Dismisses Big Springs Bank's Constitutional Challenge to CFPB

by Deepak Gupta

As some of us predicted on the day it was filed, Judge Ellen Huvelle of the U.S. District Court in Washington has just dismissed for lack of standing an ideologically-motivated constitutional challenge to the Consumer Financial Protection Bureau's structure and authority, including a challenge to Rich Cordray's recess appointment.

The case was originally brought by the State National Bank of Big Springs, Texas, represented by former White House Counsel C. Boyden Gray, and the Competitive Enterprise Institute. It was later joined by the States of Alabama, Georgia, Kansas, Michigan, Montana, Nebraska, Ohio, Oklahoma, South Carolina, Texas, and West Virginia, which challenged only the Dodd-Frank Act's orderly liquidation authority under Title I and II, not the CFPB's structure under Title IX.  

The court's 62-page opinion explains what should have been apparent all along: that the plaintiffs were all without standing.  None of the plaintiffs are even subject to regulation under Title I and II and the bank's attempts to establish standing on the basis of the potential impact of regulation under Title IX was far too speculative. 

What Paying 25 Cents Less Than Your Credit Card Balance Can Cost You

Jeff Gelles has the story here. Maybe it's just as well that Sovereign Bank is changing its name to Santander; I wouldn't want to be confused with them.

Appellate victory in Eighth Circuit on constitutional standing in consumer statutory-damages cases

by Deepak Gupta

This morning, the Eighth Circuit issued its decision in Charvat v. Mutual First, reversing the dismissal of two consumer class actions on constitutional standing grounds. The district court held that the plaintiff's claims -- for violations of a federal law requiring on-machine notice of ATM fees -- didn't allege an "injury in fact" but only an "injury in law." Today, the Eighth Circuit holds that the plaintiff claimed sufficient informational injury because he alleged that he was personally denied notice. 

I argued these appeals before the Eighth Circuit in May (which gave me the opportunity to visit lovely Omaha for the first time). Our opening brief offered the court three paths to reversal. First, the banks caused the plaintiff an economic injury by charging him an illegal fee -- illegal because the statute prohibited the fees absent notice. Second, he was independently injured because he was denied information to which he was statutorily entitled. And third, the statute is a valid exercise of Congress's authority to define injuries. The Justice Department filed an amicus brief supporting us on the first and second ground (in part because the case implicated CFPB regulations).

The Eighth Circuit's opinion today dodges the first ground because it was unclear to the court whether that argument was waived in the district court. It rests instead on the second ground: informational injury. That means the court wisely avoided the need to address the third, more theoretically ambitious, ground. The opinion also contains a nice discussion of the role of statutory damages and makes clear where the limits are -- that "Article III precludes a plaintiff from asserting a claim for an abstract statutory violation."

Charvat happens to involve ATM fees, but the appeal was closely watched by industry and consumer lawyers alike because it appeared to be the first case to raise far broader questions about Article III standing left unanswered in the wake of the Supreme Court's anticlimactic dismissal in First American Financial Corporation v. Edwards.

When it was granted by the Supreme Court, Edwards appeared to be a major test of the limits of Article III standing in consumer cases -- cases in which the plaintiffs' alleged injury is supposedly just an "injury in law" rather than an "injury in fact."  But it became apparent at oral argument that the distinction between those two things is either entirely illusory or very difficult to draw, and the case fizzled out: The Court dismissed the writ of certiorari as improvidently granted on the same day that it issued the landmark Obamacare ruling. (When I was at the CFPB, we joined the Solicitor General's brief supporting the plaintiff; the brief in Charvat was a continuation of the administration's position on these issues.)

What does this all mean?  Some saw the grant in Edwards as a signal to the lower courts to push the envelope on standing in statutory-damages class actions. Today's decision casts doubt on defendants' hopes that courts will radically rewrite the law of standing. The Eighth Circuit is the most conservative federal appellate court in the nation (a majority of its judges were appointed by George W. Bush) and this was an all-conservative panel.

Non-profit group offers to certify that law schools' marketing materials are truthful

It's not a secret that the market for law school graduates is not nearly as strong as it used to be. Nine months after graduation, the majority of the graduates of a startling number of law schools does not have full-time employment that requires a J.D. degree. In this market, concerns have been raised about the way some law schools advertise the value of their degrees and whether they are being candid about  how their graduates are faring in the job market.

Now, the advocacy group Law School Transparency says that it will review a law school's marketing materials to see if the school is complying with ABA's disclosure practices and best practices. If the school complies, LST will "certify" the school. This article by Karen Sloan explains. Here's an excerpt:

Law schools grappling with the American Bar Association’s new rules governing the reporting of graduate job-placement statistics have been offered some help—for a price. Law School Transparency, the nonprofit organization that helped push the ABA into beefing up the consumer information law schools must report each year, has unveiled a new “LST Certification Program.” The group said it would review a law school’s marketing materials to ensure that the job placement statistics provided comply with the ABA’s rules and adhere to LST’s own best practices. It promises “compelling graphics that appeal to today’s applicants” and to bestow an “LST Certified” mark for schools’ promotional materials—evidence to prospective students, alumni and others that they are “open, honest, and fair.” The idea is as old as the organization itself, said executive director Kyle McEntee, who co-founded the group in 2009 while a student at Vanderbilt University Law School. “We put it on the backburner for years, but we rekindled the idea when we put together the Transparency Index.”

Going door-to-door to implement the Affordable Care Act

by Brian Wolfman

Some parts of the Affordable Care Act are already in place, such as the requirement that uninsured kids up to age 26 be offered insurance on their parents' health insurane policies. But key provisions of the Affordable Care Act, including the so-called individual mandate, don't go into effect until January 2014. The mandate is not really a mandate; uninsured people can either sign up or pay a small tax instead. But backers of the law, who favor universal coverage, want uninsured people to sign up. The millions of uninsured individuals can begin applying for coverage in October of this year. Depending on the individual's state of residence, there will be various insurance options, and people deemed unable to afford full coverage (but not poor enough to be Medicaid-eligible) will receive subsidies to help with the premiums.

This article by Sandya Somashekhar describes an unprecedented effort by a non-profit group called Enroll America to encourage uninsured individuals to sign up for coverage under the Affordable Care Act. Enroll America is going door-to-door to try to make that happen. The article describes in particular the group's effort in Florida in which potential enrollees are being visited in-person by Enroll Ameria volunteers as many as 7 or 8 times. Worth reading.

Not All Soverns to Become Santanders

by Jeff Sovern

Sovereign Bank is changing its name to Santander, but I have decided not to change my name to Jeff Santander.  I'm rather attached to my last name, which family lore claims came about when my grandfather and his three brothers decided to anglicize the family name. Previously, we had been the Smiths.

 

I'm filing this one under identify theft.

Is outside litigation funding good for consumers and others who need court access?

As many of our readers know, there's controversy over whether third parties (that is, non-lawyers and non-clients) should fund large, complex litigation. Two new articles address the question, in part asking whether outside funding benefits plaintiffs, particularly in class and other representative litigation.

First, there's "Litigation Finance: What Do Judges Need to Know?" by law professor Bert Huang. Here is the abstract:

The growth of “litigation finance” — the funding of lawsuits by outside investors who are neither parties nor counsel — is being closely watched by academics, the press, and the bar. The practice poses risks of conflicting interests and improper influence; and yet if carefully managed it may in fact enhance party autonomy. What questions, then, should judges be asking when dealing with a case with outside funding? This symposium essay offers judges a starting point: a menu of questions to ask parties who receive such financing. These inquiries aim to pierce simplistic labels such as “loan” or “investment,” in order to help judges grasp the true nature of the funder’s stake, incentives, and control. For instance: Is the investor taking interest payments, a share of the recovery, or both? Does the investor’s return depend on whether the outcome is a judgment or a settlement? Or on whether the remedy is injunctive or monetary? Has the investor in effect chosen the party’s counsel? Can it exert de facto influence over litigation decisions by threatening to withdraw funding? Does the arrangement limit investments by other funders? How does it affect the amount or timing of the party’s or counsel’s compensation? Further questions are raised here to prompt judges to consider new ways not only to uncover, but also to respond to — or even to harness — such third-party involvement. Special emphasis is given to the context of mass litigation. For instance: Should opposing counsel be allowed to pose questions about the financing? Should the court direct that financing details be included in motions for class certification and in notices to class members? How might the court take the funding structure into account in assigning attorneys’ fees, say, or in approving settlements?

Next, there's "Litigation Funding and the Problem of Agency Cost in Representative Actions" by law professor Sam Issacharoff. Here is the abstract:

Alternative sources of litigation funding are complicating the already difficult world of complex litigation. While still in its infancy in the United States, the role of equity financing of contingent litigation is now well rooted in Australia, and establishing itself in Canada and the United Kingdom as well. This Article examines the market gaps filled by litigation funders in Australia and then the potential role to be played in the United States. In particular, the Article looks to litigation funding as a way to potentially protect absent class members in class actions and other representative proceedings.

More on federal district court's debit card ruling

by Brian Wolfman

Yesterday, we told you about federal judge Richard Leon's ruling invalidating the Federal Reserve's rule on debit card swipe fees. As explained in this article by Katerina Sokou, if Judge Leon's decision holds, swipe fees likely will drop substantially, which should benefit consumers in the form of lower retail prices. Lower swipe fees will of course directly benefit the merchants who pay the swipe fees. The banking industry -- which lobbied the Fed for the current high-swipe-fee rule -- claims that merchants will keep the savings from lower swipe fees and not pass much if any of the savings on to consumers as they compete for those consumers in the marketplace. Hmmm.

Here's an excerpt from Sokou's article:

The judge ruled that the Federal Reserve improperly set the caps too high after an extensive lobbying campaign by the banking industry. Under the rule, banks can charge retailers as much as 21 cents a transaction. ... The banking industry immediately expressed disappointment with the decision and urged the Federal Reserve to appeal. The industry has said that merchants are unlikely to pass on this “windfall” to consumers and instead will increase their profit margins. ... Even though the Fed had initially proposed a cap of about 12 cents, the final rule was expanded to cover more items, including the cost of equipment and fraud-prevention technology. That was improper, the court ruled. ...The court decision could result in debit fees being cut by more than 50 percent, Guggenheim Partners said in a note to investors. Fees probably will revert to the 7 cents to 12 cents per transaction that the Fed had initially proposed, the note said. Fees will not be lowered, however, until the Fed adopts new standards. In the decision, Leon said it should take “months, not years” to develop new rules. But Guggenheim Partners predicted that the current fees will remain in place through 2014 or even longer, because the Fed may appeal the ruling.