Consumer Law & Policy Blog

CFPB probing financial relationships between colleges and sellers of credit cards and other financial products

The Consumer Financial Protection Bureau is demanding information about what it terms "secret contracts" between banks and colleges under which the banks pay the colleges to steer students to their products, particularly credit cards. Here is an excerpt of an article on the topic by the CFPB's Rohit Chopra:

If you’re a student preparing to head back to campus, you may encounter offers from banks and other companies that promote debit cards, prepaid cards, bank accounts, and other products branded with your school’s name or logo. When your school makes a deal with a company to market a financial product, it’s important for you to have basic information about this agreement and to understand what this means for your options. Last year, we launched an inquiry into financial products marketed to college and university students to determine whether the market is working for students and families. We called on financial institutions to publicly disclose agreements with institutions of higher education to market financial products to students. Information about these arrangements is already required to be disclosed when marketing credit cards and private student loans to students—these requirements were put in place after companies were found to have paid schools and school officials in order to steer students into these products. Making these agreements available for all financial products shows schools’ and companies’ commitment to transparency, helping students and their families understand basic information about these products before you sign up. We decided to take a look at the financial institution partners of a group of some of the largest universities in America – members of the Big Ten conference – to see if they’ve disclosed agreements on their websites. Together, these schools enroll more than a half a million students.

 

Emily Bazelon on President Obama's executive order on forced arbitration

Here.

The CFPB at Three: A Child Prodigy

On July 21, we noted the Consumer Financial Protection Bureau's 3-year anniversary. If you want some detail on what the CFPB has been up to, over a wide-range of topics, read Ed Mierzwinski's The CFPB at Three: A Child Prodigy.

Federal workers' shutdown-based wage claims to proceed

A judge on the U.S. Court of Federal Claims has ruled that the government violated the Fair Labor Standards Act by waiting until after the fall 2013 government shutdown was over to pay federal workers. Plaintiffs' counsel estimates that up to 1.3 million workers could be affected, the Post reports. Read the opinion, largely denying the government's motion to dismiss, here.

Anne Fleming: The Rise and Fall of Unconscionability as the 'Law of the Poor'

Anne Fleming of Georgetown has written The Rise and Fall of Unconscionability as the 'Law of the Poor,' 102 Georgetown Law Journal No. 5 (2014). Here's the abstract:

What happened to unconscionability? Here’s one version of the story: The doctrine of unconscionability experienced a brief resurgence in the mid-1960s at the hands of naive, left-liberal, activist judges, who used it to rewrite private consumer contracts according to their own sense of justice. These folks meant well, no doubt, much like present-day consumer protection crusaders who seek to ensure the “fairness” of financial products and services. But courts’ refusal to enforce terms they deemed "unconscionable” served only to increase the cost of doing business with low-income households. Judges ended up hurting the very people they were trying to help. In the face of incisive criticism, judicial enthusiasm for the doctrine of unconscionability quickly faded. A new consensus emerged in favor of legislation requiring better disclosure of consumer contract terms ex ante, rather than ex post judicial review.

This Article presents a different narrative, one that is informed by extensive research in previously untapped archival sources. In this story, the wise legislature does not overrule the misguided courts. On the contrary, it reveals that lawmakers laid the groundwork for the judicial revival of unconscionability, and then rewrote statutory rules to codify the ensuing court decisions. In the District of Columbia, home to the famous Williams v. Walker-Thomas Furniture Co. litigation, the legislature revived unconscionability through the enactment of the Uniform Commercial Code (U.C.C.), which reintroduced the once-archaic doctrine into the legal vernacular. Just as the U.C.C. drafters intended, unconscionability review allowed courts to do openly what they had been doing covertly for years — refuse to enforce harsh, one-sided bargains as written. In 1965, the D.C. Circuit seized the opportunity unconscionability offered to prevent the loss of a poor woman’s furniture. But the Williams litigation also did something more. It drew public attention to the controversy before the court and alerted D.C. lawmakers to a recurring problem in need of a legislative fix. In response, local leaders set to work drafting consumer credit reform legislation. Lawmakers eventually adopted a firm set of rules to govern “installment” sales contracts in the District of Columbia, including a ban on the objectionable contract term at issue in Williams.

In this narrative, judges and legislators did not advance competing regulatory visions. They agreed on the need for substantive limits on installment sales to poor borrowers. Moreover, contrary to what some scholars might predict, litigation did not divert scarce resources down a dead-end path. Rather, it catalyzed the process of legislative change, raising public consciousness of problems in the low-income marketplace and fueling the drive for substantive reforms on the local level.

Appendix A provides the full text of the Walker Thomas Furniture Company contract.

Internet shames New York hotel into removing non-disparagement clause fining wedding couple for their guests' reviews

We all know weddings can get expensive, but here's something most couples do not budget for: fines charged by the hotel if a wedding guest leaves a negative review online. Astonishingly, that's what the website of the Union Street Guest House in Hudson, N.Y., promised guests the hotel would do, according to this story in Business Insider (and many, many other internet sources: Google this story and you'll get an eyeful). This would not be the first time a business has tried to silence critical customers with this type of nasty fine print (remember KlearGear? or the Accessories Store?), but punishing a customer for the actions of a different customer is a new one on me.

That a hotel would try such a thing is story enough.

Equally interesting is what appears to have happened next: the hotel, responding promptly to the wave of critical news stories in the past 24 hours, appears to have taken this clause out of its terms. (Compare the current version here with the one archived here courtesy of the Internet Archive; the old version, which was archived as of April of this year, has an extra paragraph -- search for the sentence that includes the word "Marriott" and read the paragraph that follows in the April version.) Smart move for the hotel. I haven't gone through the Internet Archive to see how long the non-disparagement clause was up on the hotel's site but it's impressive how fast it's come down. (ABC News reported on the story at around noon today, by which time, as the story noted, the hotel had already removed the noxious clause.) It's a testament to the power of the internet -- informed consumers and savvy bloggers communicating with each other actually can improve the marketplace.

I wonder if this is the end to the story, though. Will the hotel put that clause back in when no one is looking at it anymore? Worth checking their site in a month or two to see. (You'll recall that KlearGear felt no shame in reinstating its non-disparagement clause in spite of widespread criticism.)

By the way, if you have been subject to terms like this (even if you have not actually written a negative review for fear of being fined), we here at Public Citizen would love to hear about it -- write us at litigation@citizen.org.

 

How to design a mass-disaster compensation fund

Law prof Linda Mullenix addresses that issue in Designing Compensatory Funds: In Search of First Principles. Here is the abstract:

The World Trade Center Victims’ Compensation Fund of 2001 ushered in a new age of fund approaches to resolving claims for mass disasters in the United States. Since then, numerous funds have been created following several mass events injuring large numbers of claimants. The Gulf Coast Claims Facility, created in the immediate aftermath of the BP Deepwater Horizon oil platform explosion, represented a further expansion of fund design and operation. The funds that have been implemented since 2001, including the World Trade Center Fund, have been the object of both praise as well as criticism. Notably, all these funds have been designed and implemented after the events giving rise to a universe of mass claimants. This article suggests that the policy recommendations for future fund design largely fail to address antecedent threshold questions about the nature of the events giving rise to possible recourse to a fund for compensation of claims. Although such compensation funds have been intended to provide an alternative to the tort compensation system and to operate largely outside the purview of the judicial system, instead most fund designs have relied on tort notions of corrective justice that mimic the tort system. However, many funds have in practice entailed mixed theories of corrective and distributive justice, confusing the purpose, utility, and goals of such funds. This article asks fundamental questions about the goals of such funds and whether and to what extent disaster compensation funds comport with theories of justice. It suggests that certain types of mass disaster events ought not to be resolved through fund auspices at all, while only a limited universe of communitarian harms should give rise to such a response. Finally, a communitarian fund designed ex-ante might more fairly be based on theories of distributive justice based on an egalitarian social welfare norm.

Complaints to the CFPB About Payday Lending

by Jeff Sovern

An American Banker article this week (behind paywall) noted that payday lending has been the subject of only one percent of the complaints to the CFPB complaint database.  According to the article:

"The 1% figure for payday is very low... I think the CFPB is probably surprised, or at least disappointed," said Alan Kaplinsky, who heads the consumer financial services group at Ballard Spahr. "I think the CFPB would like to see a much higher percentage to support their upcoming payday loan rulemaking."

But I'm not sure how signicant the percentage of complaints is.  I'm out of the office at the moment and so can't confirm this, but my recollection is that research into consumer complaints has shown that less-educated and lower-income consumers are less likely to complain than others.  Thus, what we may be seeing is merely a function of that effect, as payday borrowers are more likely to have lower incomes, and, I suspect, have less education.  It would be interesting to know what percentage of the complaints from low-income consumers concern payday lending. It would also be useful to know whether the types of transactions garnering more complaints are engaged in by more consumers. If it is true, for example, that many more consumers have credit cards than borrow from payday lenders, we would expect to see more complaints about credit cards. 

One-Third of Americans Had Debts in Collection Last Year

Here.

CFP By International Journal on Consumer Law and Practice

The "INTERNATIONAL JOURNAL ON CONSUMER LAW AND PRACTICE, published by the  National Law School of India University (NLSIU), Bangalore, has issued a call for papers.  The deadline is September 1.  More information below the fold.