Consumer Law & Policy Blog

Citigroup to pay $7 billion for misleading investors about mortgage-backed bonds

As Bloomberg reports today,

Citigroup Inc. agreed to pay $7 billion in fines and consumer relief to resolve government claims that it misled investors about the quality of mortgage-backed bonds sold before the 2008 financial crisis.

But is it enough? The Bloomberg article goes on to quote Eric Holder praising the agreement:

“The bank’s misconduct was egregious,” U.S. Attorney General Eric Holder said today at a press conference in Washington to discuss the Citigroup settlement. “The size and scope of this resolution goes beyond what could be considered the mere cost of doing business.”

Read a contrary perspective from Public Citizen, which points out (among other things) that no individuals are being held to account.

Ending Class Actions as We Know Them: Rethinking the American Class Action

That's the name of this article by law professor Linda Mullenix. Here is the abstract:

Class actions have been a feature of the American litigation landscape for over 75 years. For most of this period, American-style class litigation was either unknown or resisted around the world. Notwithstanding this chilly reception abroad, American class litigation has always been a central feature of American procedural exceptionalism, nurtured on an idealized historical narrative of the class action device. Although this romantic narrative endures, the experience of the past twenty-five years illuminates a very different chronicle about class litigation. Thus, in the twenty-first century American class action litigation has evolved in ways that are significantly removed from its golden age. The transformation of class action litigation raises legitimate questions concerning the fairness and utility of this procedural mechanism, and whether class litigation actually accomplishes its stated goals and rationales. With the embrace of aggregative non-class settlements as a primary – if not preferred – modality for large scale dispute resolution, the time has come to question whether the American class action in its twenty-first century incarnation has become a disutilitarian artifact of an earlier time. This article explores the evolving dysfunction of the American class action and proposes a return to a more limited, cabined role for class litigation. In so doing, the article eschews alternative non-class aggregate settlement mechanisms that have come to dominate the litigation landscape. The article ultimately asks readers to envision a world without the twenty-first century American damage class action, limiting class procedure to injunctive remedies. In lieu of the damage class action, the article encourages more robust public regulatory enforcement for alleged violation of the laws.

Number/percentage of Americans lacking health insurance plummeting as Affordable Care Act is implemented

As this article by David Nather puts it: "The evidence is piling up now: Obamacare really does seem to be helping the uninsured." For instance, read this study (9.5 million fewer adults lacking health insurance after first ACA open enrollment period); this study (8 million more insured, with number of uninsured dropping in all states including non-Medicaid expansion states); and this study (percentage of uninsured dropping in all age groups; overall drop to 13.4% uninsured from a high of 18% about a year earlier).

Read objections to the proposed NFL concussion class-action settlement filed by former NFL players

On Wednesday, we told you that federal district judge Anita Brody in Philadelphia has preliminarily approved a class-action settlement in a case brought by former NFL football players against the NFL. The suit claims that the NFL is responsible for their serious concussion-related injuries.

Some former players have already told the court that they don't like the deal. Read these objections claiming that the settlement would shortchange many former players while benefitting the NFL and the class-action lawyers. Among other concerns, the objectors say that (1) the procedures for filing claims are so onerous that many deserving former players will be unable to perfect their claims on time and (2) many concussion-related, football-caused afflicitons are not compensated under the settlement (but should be).

CFPB takes action against lender for "pushing payday borrowers into a cycle of debt"

From the CFPB's news release:

Today [July 10], the Consumer Financial Protection Bureau (CFPB) took enforcement action against ACE Cash Express, one of the largest payday lenders in the United States, for pushing payday borrowers into a cycle of debt. The CFPB found that ACE used illegal debt collection tactics – including harassment and false threats of lawsuits or criminal prosecution – to pressure overdue borrowers into taking out additional loans they could not afford. ACE will provide $5 million in refunds and pay a $5 million penalty for these violations.

“ACE used false threats, intimidation, and harassing calls to bully payday borrowers into a cycle of debt,” said CFPB Director Richard Cordray. “This culture of coercion drained millions of dollars from cash-strapped consumers who had few options to fight back. The CFPB was created to stand up for consumers and today we are taking action to put an end to this illegal, predatory behavior.”

ACE is a financial services company headquartered in Irving, Texas. The company offers payday loans, check-cashing services, title loans, installment loans, and other consumer financial products and services. ACE offers the loans online and at many of its 1,500 retail storefronts. The storefronts are located in 36 states and the District of Columbia.

The full release and a copy of the consent order are available here.

FTC sues Amazon for charges incurred through kids' apps

From the FTC’s press release:

Amazon.com, Inc. has billed parents and other account holders for millions of dollars in unauthorized in-app charges incurred by children, according to a Federal Trade Commission complaint filed today [July 10] in federal court.

The FTC’s lawsuit seeks a court order requiring refunds to consumers for the unauthorized charges and permanently banning the company from billing parents and other account holders for in-app charges without their consent. According to the complaint, Amazon keeps 30 percent of all in-app charges.

Amazon offers many children’s apps in its appstore for download to mobile devices such as the Kindle Fire. In its complaint, the FTC alleges that Amazon violated the FTC Act by billing parents and other Amazon account holders for charges incurred by their children without the permission of the parent or other account holder. Amazon’s setup allowed children playing these kids’ games to spend unlimited amounts of money to pay for virtual items within the apps such as “coins,” “stars,” and “acorns” without parental involvement.

“Amazon’s in-app system allowed children to incur unlimited charges on their parents’ accounts without permission,” said FTC Chairwoman Edith Ramirez. “Even Amazon's own employees recognized the serious problem its process created. We are seeking refunds for affected parents and a court order to ensure that Amazon gets parents' consent for in-app purchases."

The complaint alleges that when Amazon introduced in-app charges to the Amazon Appstore in November 2011, there were no password requirements of any kind on in-app charges, including in kids’ games and other apps that appeal to children. According to the complaint, this left parents to foot the bill for charges they didn’t authorize.

The FTC filed the lawsuit in federal district court in Washington state. The full FTC press statement and a link to the complaint are available here.

De Armond on FCRA Preemption and State Regulation of Credit Reports

Elizabeth De Armond of Chicago-Kent has written Preventing Preemption: Finding Space for States to Regulate Consumers’ Credit Reports.  Here is the abstract:

The Great Recession awoke state legislators to the power of individuals’ credit reports to hinder economic opportunities.  Many legislators would like to assuage the effects of bad historical events on the futures of the citizens that they represent.  Among the topics they can address are employers’ use of credit reports, the presence of criminal record information in credit reports, and the toxic effects of identity theft and medical debt on credit reports. However, the federal Fair Credit Reporting Act’s preemptive effects must be acknowledged and negotiated.  This article evaluates potential state legislative efforts against the FCRA’s preemption provisions and current Supreme Court preemption doctrine to identify strategies for states that want to create effective legislation to protect their consumers’ credit reputations and expand their constituents’ opportunities going forward.

Would You Take $50,000 in Return for Promising Never to Sue a Fracking Company?

...is the choice being put to residents of Finleyville, PA (in the southwestern part of the state) by the natural gas company EQT.

The question is also the headline of the Slate story on the proposal.

$50,000 sounds like a big payoff. But as an insurance policy for the company, it may be a good deal. Because what if a well site in southwestern Pennsylvania explodes? Or consider any of a number of other potential health and environmental consequences. (See Public Citizen's summary here.)

Educating for financial literacy

On this blog, we talk sometimes about whether disclosure to consumers as opposed to outright prohibtions or restrictions on business conduct (or doing nothing at all) is the appropriate way, under the circumstances, to protect consumers in the marketplace. In any case, and particularly when disclosure or nothing at all is the choice, consumer protection will only work when consumers have at least some knowledge of how the marketplace works. This concept is often referred to as "financial literacy."

So, you may want to read a speech given today by Consumer Financial Protection Bureau director Richard Cordray (pictured above), in which he stresses that the U.S. educational system must do a better job teaching kids financial literacy. Here are some excerpts:

The economist John Maynard Keynes was once asked what interest is. He replied simply and directly: “If I let you have a halfpenny and you kept it for a very long time, you would have to give me back that halfpenny and another too. That’s interest.” Of course, that is not Keynes’s most insightful comment on economics, but it may be his earliest: He was four-and-a-half years old at the time. ... Today’s results from the Programme for International Student Assessment show that much works need to be done and can be done when it comes to financial literacy for young people. Young Americans struggle to solve financial problems, have trouble with financial decisions, and lack understanding of larger financial concepts. The United States ranked in the middle among the 18 education systems that participated in the tests. Youth in Shanghai, Australia, and New Zealand did better than we did in demonstrating strong financial education skills. What this means is that we have an opportunity to learn from others. The goal here should be a collaborative one, not a competitive one. What are they doing differently? How can we replicate their successes? ... Last year, we published a report that assembled and synthesized all the best thinking we could find on ways to promote youth financial capability. We concluded that every state must include financial instruction in our schools – where the benefits of compound interest are understood in math class; where economic costs and risks are taught in social studies class; and where essays in English class include topics involving money. Young people should learn about money − what it is, how it has evolved, how we use it, how we keep it safe.

Federal district judge in Philadelphia preliminarily approves class-action settlement in NFL players concussion-injury litigation

by Brian Wolfman

Federal district judge Anita Brody in Philadelphia has preliminarily approved a class-action settlement in a case brought by former NFL football players against the NFL. The players claim that the NFL is responsible for their serious concussion-related injuries (and concussion-related injuries that they will suffer in the future).

Judge Brody's 21-page preliminary approval memorandum is accompanied by the proposed settlement notice, which describes the settlement's terms, and other interesting information. At the beginning of her memorandum, Judge Brody briefly describes the litigation:

In July 2011, the first retired players filed lawsuits against the NFL Parties alleging, inter alia, that the NFL Parties breached their duties to the players by failing to take reasonable actions to protect players from the chronic risks created by concussive and sub-concussive head injuries and that the NFL Parties concealed those risks from the players. Since that time, more than 5,000 former players have filed substantially similar lawsuits. These lawsuits have been consolidated before me as a multidistrict litigation (“MDL”), pursuant to 28 U.S.C. § 1407. See MDL Panel Transfer Order, Jan. 31, 2012, ECF No. 1. 

For a compelling history of the NFL concussion crisis and the NFL's alleged cover-up, read League of Denial by Mark Fainaru-Wada and Steve Fainaru or watch the Frontline version of the book. (The Frontline webpage includes a 113-minute comprehensive movie and various follow-up clips from players and others.)

To oversimplify, the settlement, if finally approved, will provide compensation to class members who can show that they suffer from certain compensable diseases. Age of diagnosis is an important variable. Thus, a class member with Parkinson's disease diagnosed at age 57 will receive $1.3 million; a class member disagnosed with Parkinson's disease at age 51 will receive $1.9 million. A class member with Alzheimer's disease diagnosed at age 61 will receive $950,000; a class member with Alzheimer's disease diagnosed at age 46 will receive $2.3 million. No showing of causation -- that is, that playing football caused the compensable injury -- is required. Future awards will be adjusted upward to account for inflation (but the upward adjustment is capped at 2.5% per year, even if actual inflation exceeds 2.5% in a particular year).

The settlement will also provide $75 million for baseline testing of class members and $10 million for medical research into cognitive impairment and injury prevention for football players.

The class members will have approximately 90 days from the date they are formally notified of the proposed settlement to opt out. A class member who opts out may sue the NFL individually.

Earlier this year, Judge Brody had refused to preliminarily approve a settlement because the total amount going to the players was capped at $675 million. Under the settlement now before the court, the total amount awardable to players is uncapped (although the parties still believe the actual amount awarded will not exceed $675 million).

Some former players are objecting to the settlement. Objectors claim, among other things, that some concussion-related diseases are not compensable under the settlement and that the procedures for showing eligibility for compensation are too onerous.

The final approval hearing will be held in Judge Brody's Philadelphia courtroom on November 19, 2014 at 10 am. We will try to provide more information on the settlement and the objections later.

For other articles on the preliminary approval, go here, here, and here.