Consumer Law & Policy Blog

Promising new federal rules to protect needy patients from hospital collections

Last month, we recommended an NPR story discussing the problem of collections against low-income hospital patients.

In response to this problem (as reported by the New York Times), "The Obama administration has adopted sweeping new rules to discourage nonprofit hospitals from using aggressive tactics to collect payments from low-income patients. Under the rules, nonprofit hospitals must now offer discounts, free care or other financial assistance to certain needy patients. Additionally, hospitals must try to determine whether a patient is eligible for assistance before they refer a case to a debt collector, send negative information to a credit agency, place a lien on a patient’s home, file a lawsuit or seek a court order to seize a patient’s earnings."

Read more here.

Amato and Willis op-ed in L.A. Times

Lauren Willis (of Loyola Los Angeles) and Theresa Amato (of the Fair Contracts Project) have a great op-ed in today's Los Angeles Times on what to do about consumer financial illiteracy. "There are dozens of entities devoted to educating you about all things financial," they write, "[b]ut none of it is working very well." Financial literacy education isn't the answer; instead "[t]he financial marketplace must be structured so that ordinary people — people with limited time, math skills, attention and willpower, and an abundance of those wonderful American traits of trust and optimism — can navigate it safely and effectively." This means enforcing existing unfair-and-deceptive-practices laws, banning forced arbitration, and, perhaps most importantly, bringing financial industry incentives "into alignment with the interests of consumers."

Supreme Court: consumer may exercise Truth in Lending Act right to rescind just by giving notice; lawsuit not required

Resolving a split among the federal courts of appeals in favor of consumers, the Supreme Court held today in Jesinoski v. Countrywide Home Loans, Inc., that a consumer may exercise the right to rescind a loan under the federal Truth in Lending Act simply by notifying the creditor rather than (as the creditor contended and as several federal courts had held) by filing a lawsuit. The unanimous opinion by Justice Scalia relied on the plain language of the statute, which provides that a borrower “shall have the right to rescind . . . by notifying the creditor, in accordance with regulations of the Board, of his intention to do so.” Obviously, it's much easier to provide notice than to file a lawsuit, so this is a clear win for consumers (an increasingly rare event at the Supreme Court these days). The full opinion is here.

 

Senator Warner asks regulators to require chip-and-pin debit and credit cards

From The Hill:

On the heels of President Obama’s call for stronger cybersecurity protections on Monday, Sen. Mark Warner, (D-Va.) called on regulators to force banks to issue chip-and-PIN debit and credit cards to better protect American consumers from data breaches. 

“The President’s measure takes strong steps towards ensuring cards used by the federal government have enhanced security authentication measures,” he said in a letter to Janet Yellen, chair of the Federal Reserve System; Martin Gruenberg, chair of the Federal Deposit Insurance Corp.; Thomas Curry, comptroller of the currency; and Richard Cordray, director of the Consumer Financial Bureau on Monday. 

“I have concerns, however, that as merchants spend billions of dollars this year to upgrade their infrastructure to accept chip-and-PIN enabled cards, there is an insufficient emphasis being placed by federal banking regulators on ensuring a meaningful improvement in consumer safety with the corresponding issuance of chip-and-PIN debit and credit cards in the private sector. “

He asked why the financial institutions these regulators oversee continue to issue chip-and-signature cards when better anti-fraud technology and authentication measures exist.

Read the full story.

Jake Halpern's "Bad Paper"

by Jeff Sovern

We've mentioned Jake Halpern's terrific book Bad Paper about the debt collection industry before (see here and here). I finally got around to listening to the audio version. If you teach debt collection law, it's a must-read to help you learn about the industry.  If you practice in the area, you may already know much of what he says (I don't know enough about what practitioners in the field know to say), but it's certainly a very informative book. It's also engagingly written, so if you do already know about the industry, you will at least enjoy hearing it again.  The book describes how Wall Street finances debt collection shops, many of which (at least the ones he describes) seem to be filled with convicted felons.  Some interesting points:

We've heard a lot from critics about how much the CFPB spends. But here's Halpern's take on its funding:

The CFPB's entire budget for 2014 is roughly 10 percent of the Food and Drug Administration's or 6 percent of the Environmental Protection Agency's . . . the CFPB's budget is equivalent to just 2 percent of what JPMorgan Chase set aside in reserves for its litigation expenses in 2013.

Halpern also complains that the CFPB is supervising only about the 175 largest debt collectors, but that there are 9,599 debt collection outfits throughout the country, and much of the misconduct occurs in the smaller shops: "the CFPB's toe in the water remained at quite some distance from the industry's self-proclaimed bottom-feeders . . . ."

As co-author of a consumer law casebook, I always look for things that might be worth adding to the casebook.  Here's one such takeaway, on one attorney's attempt to meet the requirement imposed by courts under the FDCPA that before an attorney's name is signed to a debt collection document sent to the consumer, the attorney must be "meaningfully involved" in the process:

[Dennis] was to review and sign every single lawsuit that the firm filed. He claims that he worked twelve-to-fourteen-hour shifts and signed roughly five hundred lawsuits a day. In theory, he was providing his lawyer's eye and making sure that everything was exactly as it should be. But it proved impossible. "There's no way that you could effectively double-check all that stuff," he told me.  "No possible way."  . . . . in the end, Dennis was fired from the firm . . . .When I asked Dennis about the size of the profits that his old firm made, he offered only one word: astronomical.

An interesting interpretation of the FDCPA rules governing communicating with third parties:

According to the Brandon Wilson school of skip tracing, you started by identifying and then calling the neighbor.  [Under the FDCPA], a collector is allowed to call a neighbor only to verify a debtor's contact information. . . ."But if the neighbor volunteers to pass along a nessage, you can say: 'Gee, do you think you can leave my name and number on the mailbox?" insisted Brandon. . . .The trick was simply prompting the neighbor to help out. "I will say things like : 'They don't have my number--and I am calling all the way from Bangor, Maine--I don't know what I am going to do.'  When the debtor gets the message, nine times out of ten they will call us. . . . And that's what we want. We want that chance to get them on the phone . . . .

Federal court rejects First Premier Bank’s bid for a gag order against credit-card-comparison site Cardhub.com; subprime credit-card issuer surrenders

Just two days after a federal judge in South Dakota rejected a bid by First Premier Bank for a gag order against the credit-card-comparison site CardHub.com, the subprime credit card issuer abandoned its controversial lawsuit in a one-sentence document filed late on Friday.

First Premier’s surrender comes after a backlash of criticism over its litigation tactics. The bank’s lawsuit, first filed last April, claimed that CardHub had violated trademark law by providing consumers with basic information about First Premier’s cards. The company asked the court to award it more than $5 million in damages and an injunction against CardHub’s listings, which allow consumers to compare First Premier’s products with other cards.            

Branded by Consumer Reports as offering “America’s worst credit card,” the South Dakota bank is infamous for subprime cards with low credit limits, high annual interest rates, and high up-front fees--practices that drew the scrutiny of Congress, federal regulators, and consumer groups. It has charged consumers interest rates as high as 79% and as much as $170 in up-front fees for $250 worth of credit. “First Premier is one of the worst credit-card issuers out there,” said Chi Chi Wu, an attorney at the National Consumer Law Center. “It wouldn’t surprise me at all if First Premier” was “just trying to silence CardHub.”

Responding to media inquiries, First Premier said it filed the lawsuit to “retain control of its product.” At least one other credit-card-comparison website admitted to removing information about First Premier’s cards at the company’s request, and others do not list any First Premier cards. CardHub, however, decided to fight back, arguing that it has a First Amendment right to post truthful information about First Premier’s products.

On Wednesday, federal judge Lawrence Piersol of South Dakota rejected First Premier’s request for an order barring CardHub from linking to First Premier’s website. First Premier said such links were causing “consumer confusion” about the relationship between the two companies. The court, however, concluded that First Premier had not shown “any evidence of confusion.” Rather than provide such evidence, First Premier gave notice to the court late on Friday that it was abandoning the suit.

Odysseas Papadimitriou, the CEO and Founder of Evolution Finance, which runs CardHub, said, “We are gratified by this victory, and are glad that the court saw through First Premier’s attempt to use the trademark laws to silence us. Now we can go back to giving consumers all the information they need to intelligently navigate the credit-card marketplace.” (For more on CardHub's perspective, go here.)

CardHub’s lawyer, Deepak Gupta, described First Premier’s retreat as “a victory for credit-card customers everywhere,” and said the case “shows that bullying tactics to keep consumers in the dark won’t be tolerated in the court of public opinion or a court of law.” He emphasized that “the First Amendment protects the right of websites like CardHub to post truthful information, and lets consumers decide for themselves whether they want questionable products like First Premier’s.”

Some of the previous coverage on the case can be found here and here. The Wall Street Journal's take on the latest developments is here.

NYT Report: Obama to Call for Laws Covering Data Hacking and Student Privacy

Here.

Krauthammer: raise the gas tax

This pro-environment proposal seems to be attracting support across the political spectrum. Read a prominent conservative's argument for it here. He's got a lot of arguments that don't concern the environment, and he notes that "even for global warming skeptics, there’s no reason not to welcome a benign measure that induces prudential reductions in CO2 emissions."

California Supreme Court: guards entitled to pay for all on-call hours at worksite

In a victory for workers, last week the California Supreme Court held that when a security guard is required to be at his or her worksite on call, the worker is entitled to be compensated, no matter what percent of the time on call is spent actually responding to disturbances. As discussed in this L.A. Times article about the ruling, this unanimous decision could have implications for additional types of workers as well, such as domestic workers.

Troubling sale of Corinthian Colleges set to close soon

by Maura Dundon (Senior Policy Counsel, Center for Responsible Lending)

The sale of Corinthian Colleges (the for-profit college chain that operates Everest, WyoTech, and Heald) to the student loan debt collector ECMC is poised to close today. The deal has raised serious concerns about the fate of Corinthian students and whether the new entity represents a true reform for student borrowers. [Update: It's being reported that the closing has been postponed through February 2.]

Corinthian has been the subject of numerous accusations of abusive conduct and law enforcement investigations into consumer fraud allegations. With Corinthian suffering severe financial instability, the Department of Education is midwifing the sale to ECMC -- which itself has a record of consumer abuse allegations against it—instead of allowing Corinthian to fail. Despite serious concerns raised by consumer, education, civil rights, and student groups, and by legislators, the Department of Education is set on seeing the deal through.

As part of the deal, which must be approved by the Department of Education and other regulators, Corinthian will be transformed from a for-profit into a non-profit, evading the bulk of regulations that apply to career college programs. This includes the “gainful employment” rule that the Obama administration has worked so hard to put into place.

Among the many troubling aspects of the deal, ECMC plans to perpetuate Corinthian’s use of forced arbitration agreements with students, suppressing their rights to bring their legitimate complaints to court and hindering important information that would otherwise reach regulators. Arbitration agreements are common at for-profit colleges, but they are essentially unheard of in private non-profit and public colleges. The deal would already limit ECMC’s successor liability for Corinthian’s conduct – so the arbitration agreements are clearly intended to reduce ECMC’s liability for its own conduct.

The Department of Education says that ECMC is “committed to giving students a new start and more opportunities for success,” but the insistence on arbitration suggests that ECMC expects to be the subject of a high volume of strong consumer and whistleblower complaints. The fact that ECMC still expects such a consumer litigation risk after it takes over belies ECMC and the Department’s claims that the deal represents a real sea change in conduct towards students.

The fate of Corinthian students’ $500 million dollars in private student loans remains a mystery. The CFPB filed suit against Corinthian this fall for predatory lending practices related to its Genesis private student loan product, but Corinthian sold the loans to a debt buyer for pennies on the dollar on the eve of the CFPB’s complaint filing. During that time period, Corinthian was also under close scrutiny and oversight by the Department of Education – but nobody seems to have taken action to stop the sale. This is a shame. Although borrowers may have some residual FTC Holder Rule claims and defenses against the debt buyer derived from Corinthian’s conduct, the best result would have been for the Department to require that Corinthian forgive the loans as part of the sale to ECMC, or forgiveness pursuant to the CFPB action. Those chances have been lost, since most of the loans are no longer held by Corinthian. Only a small fraction of the loans, those which are still held by Corinthian, will be forgiven under the deal.

By keeping Corinthian on life support, the Department of Education has also effectively blocked students from having their federal student loans discharged. The deal with ECMC would provide some relief for a subset of students, but if Corinthian closed, all current and recent students would have the option to have their loans discharged. But instead, Corinthian remains open and enrolling new students who are incurring new debts pending the sale. Some students certainly may prefer their school to remain open, but one can’t help but wish that this deal let all the indebted students have the option for a fresh start.  ECMC is poised to enter this new endeavor free and clear of liability and with significant insulation against future claims. Why not the students, too?