Consumer Law & Policy Blog

Will the Supreme Court's Rescission Decision Lead to More Litigation?

by Jeff Sovern

Two weeks ago, as Scott posted, the Supreme Court decided Jesinoski v. Countrywide Home Loans, Inc., holding that consumers may rescind under the Truth in Lending Act by so notifying the lender, and that the statute does not require the consumer to file a lawsuit to rescind. So you might think that the decision will cut down on the amount of litigation.  But no, suggest some lawyers quoted in an American Banker article, Legal Battles Only Beginning After Key Rescission Ruling. They argue that by making it easier for consumers to rescind, the Court's decision will lead to more consumers rescinding, producing an increase in frivolous rescissions.  The result will be that more lenders sue to declare the rescission invalid.  Maybe.  But will consumers who are not advised by counsel even know of the right to rescind?  Some evidence suggests that consumers are often not aware of that right. Yes, some consumers do have lawyers, but how likely is it that those lawyers will advise their clients to rescind when rescission is not justified?  The article notes that the CFPB has rule-making power in the area, but I hope that the Bureau will hold off on promulgating rules until it is demonstrated that a problem actually exists.

FTC sues Texas debt collector for false threats of legal action, wage garnishment

Last week, the FTC filed a complaint in a Texas federal court against Commercial Recovery Systems for threatening consumers that unless they paid their debts, they would be sued or have their wages garnished. The problem? These representations weren't true. As the FTC's press release details:

According to the complaint, since at least 2010, CRS’s debt collectors have deceptively told consumers that unless they pay a debt CRS claims they owe, a debt collection lawsuit will be filed against them. In some cases, consumers are told that such a case has already been filed and will lead to adverse consequences unless the debt is paid.

In addition, the FTC alleges that in many cases, when CRS calls consumers to collect on a debt, its representatives falsely claim or imply that they are lawyers or are calling on behalf of a lawyer, or that they are judicial employees. The complaint alleges in other cases, CRS falsely tells consumers that they will garnish their wages, levy their bank accounts, or seize their property unless they pay the debt. In truth, CRS lacks the authority and intent to take any of these actions.

You can read the entire release here and the complaint here.

Rare opportunity to challenge warrantless government spying proceeds in criminal case

We've discussed before the threats to privacy posed by secret government data collection programs of various kinds (see, for instance, here and here). Challenges to such programs are hard to bring because of the difficulty of establishing standing -- i.e., the challenger must show (to a very high likelihood or certainty) that his or her own data has been intercepted.

Two challenges to the government's program of collecting metadata of Verizon customers are pending in the D.C. and Second Circuits (see here and here).

Now a federal judge in New York will consider a new challenge to a different aspect of the government's surveillance regime -- warrantless eavesdropping on the content of calls between an American and an non-American who is abroad. The challenge arises in the context of a criminal case in which the government wishes to rely on such evidence in prosecuting Agron Hasbajrami, a U.S. permanent resident, on terrorism charges. Reuters has the story.

Read the federal government's brief in King v. Burwell (the Affordable Care Act subsidies case)

King v. Burwell is the case currently before the Supreme Court that asks whether the Affordable Care Act (ACA) authorizes health-care insurance subsidies for all otherwise qualified people nationwide or only for people who live in states that run their own health care "exchanges."  Exchanges are ACA-defined marketplaces in which people buy health insurance. Under the ACA, states can run their own exchanges or have the federal government run their exchanges for them. About a third of the states have set up their own exchanges; in the others, the federal government runs the exchange for the state.

Under the ACA, subsidies, in the form of tax credits, help pay for premiums. Other costs, such as deductibles, may be subsidized as well. Subsidies are available in differing amounts to people with incomes between 100% and 400% of the federal poverty level. The subsidies are important to the ACA's goals of expanding access to affordable health care and reducing the number of people without health insurance. Because millions of Americans receive insurance through exchanges facilitated for states by the federal government, and about 4.5 million of them received subsidies last year, many people believe that a Supreme Court ruling that subsidies are available only in states with state-run exchanges would severely weaken the ACA.

The U.S. Treasury Department has issued a rule authorizing subsidies in all states, so the U.S. Solicitor General, who is defending the rule in the Supreme Court, has posed the question in the case this way:

Whether the Treasury Department permissibly interprets 28 U.S.C. 36B to make the Affordable Care Act’s federal [tax-credit subsidies] available to eligible taxpayers through the Exchanges in every State.

Read the Solicitor General's brief in King v. Burwell. If you don't have time to read the whole thing, then read only the first 12 pages. It reviews efforts in the states at health care reform that led to the ACA and why, in the government's view, a nationwide system of health-care subsidies was a critical component of what Congress was trying to achieve.

Read all the briefs here.

Taxing wealthy people

President Obama has proposed increasing taxes on high-income people as part of the package of tax code changes rolled out in his State of the Union address. Which efforts to obtain more revenue from wealthy and/or high-income people are practical and politically feasible? Those issues are taken up by law professor David Kamin in How to Tax the Rich. Here's the abstract:

 

This article reviews the menu of major options for increasing tax liabilities for the richest Americans. It concludes that a number of options that have received considerable attention and support are not viable as a practical matter — looking at actual amounts of revenue raised and taking into account administrative considerations. This includes such options as taxing capital gains as ordinary income, which according to the official budget offices would raise little revenue due to the effect on realization behavior, and annual wealth taxes or broad mark-to-market accounting, which would be extraordinarily challenging to administer. The article then goes on to identify more viable options, the most promising of which may be taxing — at least partially — unrealized gains at death or gift, but also include a number of other policies like substantially expanding transfer taxes or increasing the tax rate on ordinary income.

CFPB proposes new banking protections for college students

The Hill reports:

College students would be protected from dubious credit card, debit card and checking account offers under new recommendations from the Obama administration’s top consumer watchdog.

The Consumer Financial Protection Bureau (CFPB) is considering new guidelines to help colleges in selecting banks to partner with and offer financial services to their students.

The CFPB will publish a draft edition of the Safe Student Account Scorecard in Tuesday’s edition of the Federal Register, kicking off a public comment period.

Consumer Law Tweets

by Jeff Sovern

The Faculty Lounge Blog recently posted a census of law professors who post on Twitter. I was disappointed to see that consumer law professors were not really represented on the list (I tweet, but rarely, and then not always about consumer law; indeed my most recent tweet said something like "This just in: the NFL will punish Belichick for Deflationgate by making him coach the NY Jets next year.").  I have not done a good job of finding people who tweet about consumer law to follow. I follow a few journalists, like Jeff Gelles and Sheryl Harris; a few government folks, like Elizabeth Warren and people at the FTC; the FTC itself and the CFPB; but perhaps only a few true consumer lawyers who aren't in government (Ed Mierzwinski, Paul Bland, Deepak Gupta), and only one law professor who occasionally writes about consumer law issues (Ian Ayres, who was included in the Faculty Lounge census but also writes about many other things). I'm curious: readers, what consumer law people do you follow on Twitter? You can post answers in the comments.

Federal forfeiture reform

We're written before about the problem of civil asset forfeiture -- the law enforcement practice, disproportionately affecting low income people and people of color, of taking property from people on the suspicion that it had something to do with a crime.

This month, following on the heels of forfeiture reform in D.C., Attorney General Holder has implemented reforms at the federal level also. As the Post reports, Holder's new policy

bar[s] local and state police from using federal law to seize cash, cars and other property without warrants or criminal charges. Holder’s action represents the most sweeping check on police power to confiscate personal property since the seizures began three decades ago as part of the war on drugs.

The change takes effect immediately and contains a few exceptions, but would effectively eliminate all cash and vehicle seizures from the federal program, known as "Equitable Sharing." One of the most troubling aspects of that program was that it enabled the state and local authorities to keep most of the money they seized -- thereby providing an incentive for overly aggressive enforcement.

After Holder's announcement, state and local police may still carry out seizures under their own state laws.

At Reason.com, Jacob Sullum fears that an important loophole will undermine the effectiveness of reform: forfeiture is still permitted through joint state-federal task forces, of which there are many in operation.

An Uncertain Future for Dodd-Frank

"There have been powerful reminders in recent days that the financial system needs more regulatory vigilance, not less. But they come just as Republicans are setting their agenda in Congress, complete with vows to weaken the Dodd-Frank reform law."

So begins a New York Times editorial entitled "An Uncertain Future for Dodd Frank." As the editorial notes, the Consumer Financial Protection Board, created by the Dodd-Frank law, is among the targets.

CFPB Report: Nearly Half of Borrowers Do Not Shop for a Mortgage

by Jeff Sovern

As previously reported in The New York Times and CFPB Monitor, a CFPB report based on data in the National Survey of Mortgage Borrowers has found that nearly half of borrowers don't shop for a mortgage. The new report,taken together with my earlier survey of mortgage brokers finding that consumers virtually never back out of mortgages upon learning their actual rates in the final TILA disclosures and don't use thoses disclosures to comparison shop for mortgages, raises concerns about whether consumers are obtaining the best possible deals on mortgages. As Ryan J. Richardson and Richard J. Andreano, Jr. wrote on the CFPB Monitor "the data and their attendant conclusions suggest that the new TILA/RESPA integrated disclosures, set to be implemented in August 2015, may not, by themselves, sufficiently address consumers’ failure to shop the mortgage market."  The Bureau has also created a web tool for checking mortgage rates which may help consumers savvy enough to use it.   The Times article notes about that:

Both NAMB and the Mortgage Bankers Association, another professional group, have been critical of the bureau’s focus on interest rates alone. Mr. Councilman called the rate-checking tool “probably one of the worst things you can do for consumers,” because it might cause borrowers to make a decision without considering factors like closing costs and other fees.

In response to the criticism, the bureau released a statement saying there were plans to expand and improve the online tools to “help orient consumers to the overall mortgage process.” 

I hope the Bureau is able to do that because I fear that if consumers use the tool, mortgage lenders will respond to the extent they can by increasing fees that are not taken into account in the rate checker and so the tool will not enable consumers to discover the true cost of their loan (think of how airlines now charge fees for such things as boarding earlier, checking bags, extra legroom, and in some cases, using the overhead compartments, and so airline passengers shopping only on the basis of ticket price may not realize the full cost of flying with some carriers).  It may be, however, that lenders have only a limited capacity to shift expenses in that way because of regulation of the APR in TILA. It will be interesting to see what additional steps the Bureau takes to protect mortgage borrowers.