Consumer Law & Policy Blog

NCLC mortgage training conference in Dallas on June 23

The National Consumer Law Center is putting on a mortgage training conference in Dallas on June 23. This conference will focus on issues raised by the new privately enforceable mortgage servicing regulations issued by the Consumer Financial Protection Bureau in January 2014. Go here for the conference brochure.

Why the FDA is moving to expand its tobacco-control authority to e-cigarettes and other non-traditional products

By now, you may have read about the FDA's proposed regulations that would, if finalized, extend the agency's tobacco-control authority to additional, non-traditional tobacco-related products (such as e-cigarettes). By legitimizing some of these products, the FDA may boost the industries that sell them. FDA Commissioner Margaret Hamburg wrote this short blog post explaining why the agency wants to regulate in this area. Go here for the full range of FDA information on the topic, including the agency's press release.

The Federal Arbitration Act as Procedural Reform

That's the name of this article by law professor Hiro Aragaki. Here's the abstract:

Recent, game-changing Supreme Court decisions on arbitration such as American Express v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), and AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), have had far reaching implications for civil procedure and the future of class actions. These decisions are a product of what the author refers to as the “contract model” of the Federal Arbitration Act (FAA). Heretofore largely unquestioned, the contract model posits the FAA’s original purpose as the promotion of private ordering in dispute resolution free from state regulation. The model has accordingly enabled courts and commentators to claim that the FAA requires arbitration agreements to be enforced strictly “according to their terms,” in willful blindness to the way those agreements might compromise procedural fairness (for example, by precluding class-wide relief). This paper argues that the contract model is historically inaccurate. It will show that the FAA’s intent was never to elevate freedom of contract and commercial expediency over concerns about procedural integrity and justice; to the contrary, the FAA was intended to provide a better procedure compared to what the courts could offer circa 1925. It was in this way a natural outgrowth of then-prevailing efforts at procedural law reform spearheaded by figures such as Roscoe Pound and Yale Law School Dean Charles E. Clark — efforts that eventually culminated in the Federal Rules of Civil Procedure in 1938. Like the Federal Rules, therefore, the FAA lays claim to an important yet widely overlooked procedural reform pedigree. hese insights lead the author to propose a “procedural reform” model of the FAA, one that is both more consistent with the statute’s original intent and more adept at answering the difficult questions that confront arbitration law in the age of “contract procedure.” The author considers two recent examples from the Court’s 2012 Term to illustrate.

So much for net neutrality

As the Wall Street Journal reports, "[r]egulators are proposing new rules on Internet traffic that would allow broadband providers to charge companies a premium for access to their fastest lanes."

What does this mean? As Tim Wu at the New Yorker explains, it's a zero-sum game, so the big, rich content providers will win out and everyone else will lose:

The new rule gives broadband providers what they’ve wanted for about a decade now: the right to speed up some traffic and degrade others. (With broadband, there is no such thing as accelerating some traffic without degrading other traffic.) We take it for granted that bloggers, start-ups, or nonprofits on an open Internet reach their audiences roughly the same way as everyone else. Now they won’t. They’ll be behind in the queue, watching as companies that can pay tolls to the cable companies speed ahead.

Read the full New Yorker analysis here.

For some history, and to read about the fate of the FCC's last rule on net neutrality, see our previous guest post here.

Why are you stuck with [fill in name of your cable company, whom you probably hate]?

What happened to good ol' American free-market competition when it comes to cable and internet service? Why do the Brits have choices while most Americans are stuck with our single local provider, which accordingly has little incentive to improve price or service?

In an illuminating podcast from earlier this month, including interviews with key U.S. and U.K. regulators, NPR's Planet Money explains.

George Mason Policy Conference on the Future of Privacy and Data Security

The Law & Economics Center's Henry G. Manne Program in Law & Economics Studies will present its Public Policy Conference on the Future of Privacy and Data Security Regulation at George Mason University School of Law, Wednesday, May 14, 2014 from 8:30 am to 5:00 pm.

PANEL 1: Section 5 and the FTC's Proper Role in Privacy and Data Security Regulation

PANEL 2: Government and Commercial Surveillance: Spillovers and Constitutional Issues

LUNCHEON KEYNOTE: A Conversation with Maureen K. Ohlhausen

The luncheon keynote will consist of a "living room" conversation between FTC Commissioner Maureen Ohlhausen and Christopher Wolf, partner at Hogan Lovells LLP and co-chair of the Future of Privacy Forum.

PANEL 3: Big Data and Privacy

PANEL 4: Issues in Data Security Regulation

CONFIRMED PANELISTS (as of April 16, 2014) listed below the fold:

The Department of Justice's Operation Choke Point

Daniel Colbert has published Operation Choke Point: Using an Old Tool in a New Way in the American Criminal Law Review. The piece discusses a program of the U.S. Department of Justice aimed, among other things, at stopping fraud by on-line payday lenders. Here's the piece:

By Daniel Colbert, ACLR Featured Blogger

           Prosecuting financial scams is incredibly difficult. By the time prosecutors identify fraudsters and gather enough evidence to bring a case, the fraudsters pack up shop and disappear, only to pop up again somewhere else. This leaves agencies like the Department of Justice wasting resources playing a perpetual game of whack-a-mole while consumers are constantly exposed to scams. Seeking a solution to this problem, the Justice Department created Operation Choke Point, which sought to identify fraudsters by requiring banks and payment processors to report evidence that their customers are committing fraud.[1]

            DOJ’s approach has come under fire from—among others—Darrell Issa, the Republican Chairman of the House Committee on Oversight and Government Reform.[2] Issa alleges that Operation Choke Point is an abuse of DOJ’s power and that its true goal is “to target online lenders and the payment processors who serve them.”[3] For evidence, Issa relies on a slide from a DOJ attorney’s presentation that states “Cutting off the scammers’ access to the payment systems is relatively efficient and fast, and protects consumers proactively as we investigate.”[4]

            Issa may be correct that Operation Check Point might make it more difficult for online payday lenders to do business, but only to the extent that online lenders’ activities raise suspicions of fraud. Payday lenders moved online in recent years as some states increased regulation to a level that essentially banned the loans.[5] By operating online, lenders can make illegal loans to borrowers in those states, and it is difficult for state regulators to do anything about it.[6]

California bill takes aim at restrictions on consumer speech

Seeking to protect California consumers from the type of "non-disparagement clause" infamously wielded against John and Jen Palmer in the KlearGear case, California Assembly Speaker John A. Pérez has introduced a bill to ban contractual fine print that restricts consumers' ability to share feedback about the companies with whom they do business. Good stuff.

Meanwhile, what has become of KlearGear? The company failed to show up in court to defend itself from the Palmers' lawsuit for violations of the Fair Credit Reporting Act and Utah tort law, so we've filed a motion for default judgment, which is currently pending. Astonishingly, in spite of the negative publicity the company has received (see, for instance, here, here, and here), KlearGear has put its non-disparagement clause -- which threatens users of its website with a $3500 penalty for speaking ill of the company -- back in its terms of use. This development underscores the importance of obtaining and collecting a judgment in the case to deter other bad actors and the importance of bills like that in California to ban non-disparagement clauses and other attempts to punish consumers for their speech. Let's hope legislators in other states follow the lead of Speaker Pérez.

A small business owner's argument in favor of raising the minimum wage

Worth reading, in Slate. An excerpt:

A higher minimum wage helps reduce the structural advantages large corporations have over small businesses, and that in turn helps create a context where high-quality independent businesses can thrive by overdelivering compared to our better-capitalized, but mediocre, big competitors. . . . If the minimum wage were raised high enough, the cost of human resources would have to be borne in full by their employers, large and small. In turn, everyone will have to raise prices—and the prices the big guys charge for their products will be closer to their true costs.

See the whole article here.

CFPB issues mid-year update on student-loan complaints

The Consumer Financial Protection Bureau receives and reviews complaints about student-loan practices. Yesterday, it issued this mid-year update on those complaints. The biggest concern identified by the agency is borrowers complaining about "auto-default"-- borrowers reporting that lenders demand immediate full repayment of the loan after the death or bankruptcy of their loan co-signer, even when the loan is current and being paid on time. Here is the report's executive summary:

The CFPB received more than 2,300 private student loan complaints

and more than 1,300 debt collection complaints related to student loans

between October 1, 2013,and March 31, 2014.

 

This mid-year update discusses specific co-signer issues reported by

borrowers. Approximately 90% of private student loan s were

co-signed in 2011. Many private student lenders advertise an

option to release a borrower’s co-signer after a certain period of

time of on-time payments. Complaints from private student loan

borrowers describe the obstacles they face when seeking to obtain

these releases. In addition, complaints indicate that borrowers often

have to apply for a release, but lenders and servicers generally

do not make the criteria for co-signer release clear and transparent.

 

Many private student loan contracts include an option for lenders to

demand the full balance of a loan when a borrower’s co-signer has

died or filed for bankruptcy. Complaints from private student loan

borrowers suggest that industry participants are automatically placing

loans in default – even when a borrower is paying as agreed.

 

The report describes potential alternatives to “auto-defaults” upon

co-signer death and bankruptcy, including assessing the borrower

for co-signer release and maintaining the existing payment schedule,

providing the opportunity to identify a new co-signer (such as the

spouse of the deceased parent), or providing time to refinance the loan.