Consumer Law & Policy Blog

Airbnb and the law

Kevin Davis has written this article reviewing legal issues raised by airbnb, the on-line apartment and home rental site that says it facilitates "[r]ent[als] from people in over 34,000 cities and 192 countries." Among the issues are (1) whether airbnb renters should have business licenses in cities and towns that require them generally, and (2) whether and how the authorities can collect occupancy taxes. Here are some excerpts from Davis's article:

While Airbnb is careful to inform its users that they're responsible for complying with local laws, as well as checking their leases and conferring with condo and co-op boards, that hasn't prevented a host of conflicts.New York Attorney General Eric Schneiderman served Airbnb with a subpoena last October in an effort to investigate whether Airbnb hosts were avoiding occupancy taxes by operating illegal hotels. The subpoena asked for the tax information and addresses of those who rented out their apartments in New York City, which amounts to about 15,000 people. Airbnb sought to quash the subpoena, calling the request "unreasonably broad" and a "government-sponsored fishing expedition." The subpoena also prompted the Electronic Frontier Foundation and the Center for Democracy & Technology to support Airbnb with an amicus brief, taking the view that "legal processes targeting online intermediaries as a means to get to information about their users en masse raises pronounced privacy concerns." * * * [Chicago] police believed [Antoinette Wonsley] was using her home for more than just incidental use based on the number of people seen coming and going from the residence. "There's good money in it," says Wonsey, who rents out three bedrooms, which include bunk beds. Police were tipped off because they saw many of Wonsey's guests wandering in the South Side neighborhood where she lives, an area that doesn't get many outside visitors. Officers cited her for operating a hotel without a business license. ... Wonsey said a lawyer from Airbnb called and they talked, but there wasn't much he could do from [Airbnb's headquarter's in] San Francisco. "I don't know what they could have done. You have to go by the laws of the land where you are," she says. David Staudacher, information coordinator for Chicago's Office of Consumer Protection and Business Affairs, says the city has received complaints about Airbnb and has issued tickets to people renting the spaces without a business license. He did not provide the exact number, however.

Read the Electronic Frontier Foundation brief referred to above.

CFPB wants input on how to disclose the terms of prepaid cards

Some contributors to this blog have expressed general skepticism about the value of disclosure as a means of consumer protection (and have argued that some types of disclosure are more likely to be effective than others).

The Consumer Financial Protection Bureau is interested in improving disclosures for prepaid cards. Here's how the CFPB describes the attributes of a prepaid card:

A prepaid card is a card that you use to access money you have paid in advance. A prepaid card can refer to a number of different types of cards. For example, gift cards are prepaid cards that typically are used up after you deplete the value on the card. But you can also buy a prepaid debit card that you can add money to and continue using over and over. You “load” money on the card by paying in advance, and then you spend that money by using the card. Some types of prepaid cards also allow you to take money out at an ATM.

Last week, the CFPB was on the road in LA "to show people potential disclosures that [it] may propose [for] ...  the packaging of prepaid cards ..., as part of a larger project that will provide a variety of protections for prepaid card users." The agency says it expects to propose a rule on this topic later this spring.

Read all about the goings-on in LA, or just take a look at two disclosure models that the CFPB was testing there:

Does requiring that new cars be bought through car dealers protect consumers (or just car dealers)?

by Brian Wolfman

Tesla wants to sell its electric cars from its own stores directly to consumers.

Some states require consumers to buy new cars from car dealers supposedly on the ground that requiring consumers to go through a dealer promotes competition. Really? Sounds like protectionism for car dealers, doesn't it? Tesla isn't saying that it wants to ban dealers. It's saying that it wants to compete with them and the cars that they sell. Should Apple have to sell its computers through computer dealers?

Tesla's CEO Elon Musk says that New Jersey governor Chris Christie “has gone back on his word” to allow Tesla to sell directly to consumers. According to Musk, the Christie administration acted "under pressure from auto dealers .. [to] shut down Tesla in NJ ... ." Musk was referring to the recent refusal by the New Jersey Motor Vehicle Commission, which includes members of Christie’s cabinet, to allow direct-to-consumer sales. The Christie administration says its hands are tied because of a state law that bans direct new-car sales, but I haven't heard the governor call for the law's repeal.

Read about it here, here, here, and here.

Joshua Mitts Experiment on Mandatory Disclosure

Joshua Mitts of Sullivan & Cromwell has written How Effective is Mandatory Disclosure?  Here's the abstract:

Mandatory disclosure lies at the cornerstone of consumer protection law but its efficacy is unclear. I conduct one of the first online experiments on mandatory disclosure by evaluating a recent proposal to warn consumers of unexpected, unfavorable terms. To reduce sampling bias, I developed a "dynamic demographic filter" for Amazon Mechanical Turk, which is freely available to the research community. In stage one of the experiment, participants identify unfavorable terms they would not expect to appear in two types of consumer contracts. In stage two, different participants choose between highly similar providers with identical full-text contracts containing terms empirically found to be unexpected in stage one. One provider is randomly chosen to warn the consumer of a varying quantity of unexpected terms via a popup box. This provider’s products are offered at varying discount levels to identify the cost of the additional disclosure imposed by term substantiation. In a subsequent survey, participants are quizzed on the content of the unexpected terms to estimate the effect of term substantiation on consumer understanding. The results show that term substantiation had a nonlinear effect: three warnings had virtually no impact on contracting decisions but six warnings caused 20-30% fewer participants to choose the warned-of provider with larger discounts having little-to-no effect. In the post-choice quiz, term substantiation improved consumer understanding by 9-10% regardless of the number of warnings, indicating that consumers may be “tuning out” a lengthy list. These findings suggest that mandatory disclosure may be beneficial for a small number of unexpected terms but may excessively drive away consumers from firms subject to many warnings in exchange for little increase in understanding.

"The real issue in financial regulation is politics, not technical regulatory questions."

That's one of the conclusions reached by Adam Levitin in his new essay The Politics of Financial Regulation and the Regulation of Financial Politics. Here is the abstract:

This review essay considers six recent books on the financial crisis (Bernanke, Blinder, Bair, Barofsky, Connaughton, and Admati & Hellwig). The essay discerns two basic narratives of the crisis in these books and in the regulatory response to the crisis: the perfect storm narrative and the regulatory capture narrative. The perfect storm narrative is a story of dynamic financial markets outpacing static regulation, which was then overwhelmed by a perfect storm. In this narrative, no one was at fault for 2008, and financial regulators were the heroes who saved the economy. The regulatory capture narrative, in contrast, is a story of a completely preventable crisis that was enabled by feckless regulators who deserve faint praise for putting out the fire they started. Most of the policy response to the crisis responds to the problems perceived by the perfect storm narrative. Yet, it is hard not to credit the regulatory capture narrative to at least some degree, and most of the books reviewed acknowledge a capture problem. Some post-crisis reforms are in fact responsive to perceived capture problems: the elimination of the Office of Thrift Supervision, the change in federal preemption standards, the creation of the Consumer Financial Protection Bureau, and the Durbin Interchange Amendment. These responses, however, represent very different approaches to capture. The CFPB is a doubling down on agency independence, while the Durbin Interchange Amendment represents an embrace of political contestation of policy that carries on the Glass-Steagal Act's tradition of divide-and-conquer on industrial organization lines. The essay argues that the lesson from the books reviewed is that we are simply having the wrong debate about financial regulation. The real issue in financial regulation is politics, not technical regulatory questions. A focus on the technical details of regulation without addressing the politics of financial regulation will result in unsustainable regulatory reforms. Only by reforming the politics of financial regulation will we achieve lasting financial regulation that achieves the socially optimal balance of stability and growth. To this end, the essay explores the range of approaches to dealing with financial politics illustrated in the Dodd-Frank Act and suggests that rather than doubling down on agency independence, we might do better by trying to harnessing rent-seeking impulses through industrial organization in order to neutralize political influence on the regulatory process.

Illinois Attorney General files (what is likely) the first state lawsuit using new Dodd-Frank powers

Guest post

by Mark Totten, Associate Professor of Law, Michigan State University College of Law

Last week Illinois Attorney General Lisa Madigan filed a lawsuit against a short-term lender for abusive practices, likely making Illinois the first state to exercise its new powers under the Dodd-Frank Act to enforce the law’s ban on “unfair, deceptive, or abusive” acts or practices (UDAAP). (If readers know of other state attorneys general who previously enforced UDAAP, I would welcome hearing from you.)

The case, Illinois v. All Credit Lenders, alleges that the lender sold a financial loan product intended to evade new state laws governing short-term lending. Illinois law places a 36 percent interest-rate cap on such loans. According to Madigan’s complaint, All Credit Lenders sought to circumvent this requirement by imposing a mandatory “account protection fee.” Factoring in this monthly fee, the effective interest rate on the loans soared to more than 500 percent in some cases. 

Moreover, the lender instructed borrowers to make a monthly minimum payment, but did not apply any of that minimum payment toward the principal. The complaint alleges borrowers were led to believe they were on a schedule to pay off their loans when in fact they were stuck in an endless cycle of debt.

Although Congress’s attempt to strengthen consumer protections in the Dodd-Frank Act has mostly focused on creation of the Consumer Financial Protection Bureau, Congress also responded by empowering state attorneys general to enforce federal law, as I have explored elsewhere. At the center of these new powers is the broad prohibition against UDAAP. this provision is similar to the long-existing UDAP-ban under Section 5 of the FTCA and related provisions in state consumer protection laws, but extends further to prohibit “abusive” acts or practices, as well.

 Although this concurrent enforcement power will often overlap with existing state laws, the creation of a dual enforcement regime is important in two ways. First, it covers loopholes in existing state laws.  Madigan’s case is representative. Although her complaint alleges violations of the state consumer protection law, the success of that claim will depend in part on how the court classifies the “account protection fee.” As Madigan recognizes, the financial product at issue appears designed to “thwart” Illinois law.

Second, in a few cases the new federal powers may be the only means for a state attorney general to stop predatory practices. My home state, Michigan, is perhaps the best example. As a co-author and I recently explained, the Michigan Consumer Protection Act was effectively killed several years ago by the state supreme court. With passage of the Dodd-Frank Act in 2010, suddenly the state attorney general has expansive new enforcement tools in the area of consumer financial protection. I suspect a few cases like Madigan’s to prime the pump will bring more actions as the states learn about their new powers.

Are political conservatives trying to weaken popular support for social security by slashing its budget for customer service?

That's the theme of this article by Michael Hiltzik. Here's an excerpt:

[I]f you really want to destroy a business, just hack away at its customer service. ... The principle also holds true for government programs, which is why you should be very suspicious about the relentless budget-cutting at the Social Security Administration. Mark Miller of Reuters brings us up to date on this underhanded campaign, which involves closing field offices by the score, satellite offices by the hundreds and service staff by the thousands. "Visitors to field offices waited more than 30 percent longer in fiscal 2013 than in 2012," Miller reports. "Busy signals on the SSA's toll-free customer assistance line (800-772-1213) doubled in fiscal 2013 over the previous year." As Nancy Altman, co-director of the advocacy group Strengthen Social Security, told Miller, this is part of "a raging fight by conservatives to get rid of the government's footprint wherever possible." And since Social Security has long been in their cross hairs, it's unsurprising that a meat cleaver has been taken to its administrative budget. The budget request has been pared down in 14 of the last 16 years, Miller found.

Making the Fine Print Fair Symposium at Georgetown Law April 4

The Georgetown Consumer Law Society and Citizen Works are hosting a symposium, Making the Fine Print Fair, at Georgetown on April 4 from 8:30 a.m. to 6:30 p.m.  Speakers include FTC Chairwoman Edith Ramirez; Ralph Nader; Georgetown Dean William Treanor; Associate Dean Gregory Klass; Professors David Vladeck, Adam Levitin; CL&P bloggers Deepak Gupta, Scott Michaelman, and Jeff Sovern; NACA Executive Director Ira Rheingold; Citizen Works Executive Director Theresa Amato; Professors Nancy Kim, Omri Ben-Shahar, Margaret Jane Radin, Florencia Marotta-Wurgler, Michael Rustad, and Lauren Willis; former Illinois Attorney General and Justice Neil Hartigan; PIRG's Ed Mierzwinski; Arent Fox's Marc L. Fleischaker, ALICE's Peter Bailon; Public Justice's Matt Wessler; columnist Bob Sullivan; Consumers Untion's George Slover and others.

More information here.

"The FOIA Training Video That the Pentagon Redacted"

by John Cook at Gawker

Privacy challenge to Facebook settlement has new allies

Today, both the FTC and the State of California weighed in regarding the case against Facebook over "Sponsored Stories." (As we've discussed, several objectors are challenging the class settlement in this case because it authorizes Facebook to use minors' images for advertising in violation of seven states' privacy laws.) Although neither the FTC nor California took a position on the case as a whole, both briefs provided support to the challengers by rebutting one of Facebook's key arguments: that state law privacy protections should be disregarded because they are preempted by federal law.

Here's a New York Times story about the briefs.

(Disclosure: five of the objectors are represented by Public Citizen.)