Consumer Law & Policy Blog

Churches creating alternative to payday lenders

The Washington Post reports today on churches in Virginia helping members of their congregations avoid payday lenders. The churches provide collateral so that the member can qaulfy for a loan through a church-affiliated credit union. Read Churches step in with alternative to high-interest, small-dollar lending industry.

Reconceptualizing banking to manage consumer risk and stabilize financial markets

In Safe Banking, law professor Adam Levitin talks about this:

Banking is based on two fundamentally irreconcilable functions: safekeeping of deposits and relending of deposits. Safekeeping is meant to be a risk-free function, but using deposits to fund loans inevitably poses risk to deposits, thereby undermining the safekeeping function. The expensive, inefficient, and unreliable apparatus of bank regulation is an attempt to square the circle between safekeeping and lending: government liquidity and deposit insurance facilities, capital and reserve requirements, investment restrictions, and supervisory examinations are all aimed at keeping the risks of the lending function in check so as to ensure the safety of deposits.

This Article argues for splitting the lending function from the safekeeping function in both traditional and shadow banking markets through what it terms “Pure Reserve Banking.” In a Pure Reserve Banking regime, “safe banks” would offer safekeeping and payment services, and nothing else. Loans would be a function solely of capital markets, which would operate without government facilitation of shadow banking deposit substitutes. Historically, a separation between deposits and lending was not possible, but it is with today’s deep and efficient capital markets, which already provide the funding for much of the borrowing in the economy.

Splitting the lending function from the safekeeping function would protect the money supply from the market, and the market from the money supply. It would enable the government to end its massive support of both formal banking markets and shadow banking markets and thereby remove the moral hazard that encourages asset bubbles through overlending. At the same time, divorcing lending from safekeeping would instill greater market discipline on lending markets because lending institutions could be allowed to fail without endangering the money supply. Delinking deposits and lending would eliminate the root cause of financial market instability and enable truly safe banking that is not dependent upon an increasingly complex, politicized, and untenable regulatory system.

Safeway Effort to Modify Terms of Online Contract Rejected

Good discussion on the Tech and Marketing Law Blog here of Rodman v. Safeway Inc., 2014 WL 6984703 (N.D. Cal. Dec. 10, 2014), where the trial court upheld plaintiffs' contention that Safeway promised to charge in-store prices for products ordered online (even though, in actuality, that is not what it was actually charging) and refused to allow Safeway to change the online contract after suit was brought, thus cutting off damages as of the date of the change without notice to customers.  Safeway relied on language in the contract purporting to allow unilateral changes to contract terms, but the Court refused to allow that "because consumers cannot assent to terms that do not yet exist" and "customers’ assent to the revised Terms cannot be inferred from their continued use of safeway.com when they were never given notice that the Special Terms had been altered."

NYT: State damage caps deterred G.M. ignition switch litigation

This must-read New York Times article tells the powerful cautionary tale of what happens when damage caps depress lawyers' incentives to take meritorious product-defect cases: life-threatening dangers persist, with deadly results. The public might have learned of the G.M. ignition-switch problem through litigation as early as 2007, but given caps on damages, the economics of such cases made them unpalatable for plaintiffs' attorneys. As the Times explains:

Today, at least 42 people are known to have died in crashes linked to the defective ignition switch, and both G.M. and federal safety regulators have come under fire for allowing the danger to linger for more than a decade. But the experience of some accident victims and their families shows that other opportunities to raise public alarm bells — through the legal system — were also lost.

 

Debt collector to pay $1 million in restitution for collections on illegal payday loans

The New York City Department of Consumer Affairs announced this week that it has reached a settlement with collection company National Credit Adjusters (NCA) over collections on illegal payday loans. The Kansas-based company will pay approximately $1 million in restitution and the Department estimates over 4,600 New Yorkers will be eligible for compensation. NCA will also ask credit reporting agencies to delete negative information and pay hundreds of thousands of dollars in fines.

New York is one of 15 states that prohibit high-interest short-term loans, according to the Department.

Read the Department's press release here.

Winners and losers from the likely unbundling of cable

With the news that ESPN will become available through a streaming service, it looks like the cable market will be in for a shakeup, including potentially one that forces cable providers to "unbundle" their channel packages and enable consumers to pay only for the channels they want. This sounds like a good thing, right? Not for everyone, argues this thought-provoking NYT opinion piece, which looks to the airline industry as a model to predict how the cable market could evolve.

Sickler Article on Why Courts Require Filing Suits to Rescind Under TILA

Alexandra Power Everhart Sickler of North Dakota has written The Truth Shall Set You Free: Explaining Judicial Hostility to the Truth in Lending Act’s Right to Rescind a Mortgage Loan, forthcoming in the Rutgers Journal of Law and Urban Policy. Here is the abstract:

The Supreme Court is entertaining a divide among the federal circuits over whether the federal Truth in Lending Act (TILA) requires a consumer borrower to file a lawsuit in order to exercise her statutory right to rescind, or cancel, certain types of mortgage loans where the lender fails to disclose information mandated by the statute. Many have commented on the appropriate interpretation of the statute and its implementing regulation, but there is a gap in the academic literature addressing the circuit divide. This article goes beyond interpretation of the relevant statute and regulation to explore and consider unarticulated explanations for the majority-held view. That view holds that TILA implicitly requires a consumer borrower to file a lawsuit to exercise her right to rescind even though the statute expressly provides that written notice is sufficient. Five circuits have imposed this requirement even though Congress did not, explaining that they are constrained by Supreme Court precedent. That precedent is clearly inapposite, because the Supreme Court is reviewing an Eighth Circuit ruling on this issue. This article posits that some evolving trend, beyond stare decisis, underlies the majority circuits’ rulings. Among the possibilities the article explores are: (1) the federal judiciary’s interest in regulating consumer litigation behavior; (2) a paradigm shift in agency deference doctrine, including the reconsideration of Seminole Rock/Auer deference; and (3) disagreement with Congress’s liberalization of common law rescission by statute.

Can the government intercept your calls and texts in public without a warrant?

That is the question raised by the incoming Chair and Ranking Member of the Senate Judiciary Committee in response to FBI assertions that the agency is entitled to use a device masquerading as a cell-phone tower to intercept your calls and texts in public.

The Daily Dot explains the troubling technology at issue:

The Stingray is a wireless wiretapping device—generically known as an IMSI catcher [international mobile subscriber identity]—which, while masquerading as a cell-phone tower and transmitting intermittent signals, can deceive a mobile device to force a connection. Once this link is established, the data collected by the Stingray can be used to ascertain the identity of cell phone user, along with who, when, and to which numbers a call is placed. Further, the devices can be used to capture content, recording phone conversations, and even snatch SMS text messages.

Read more here about the FBI's use of this technology and the debate over whether it needs a warrant to do so.

ABC News 20/20's CarMax Investigation

 

(HT: Rosemary Shahan).  Might be worth assigning to students learning about fraud and UDAP statutes.

Can You Suggest Skills Exercises for Consumer Law Courses?

by Jeff Sovern

A professor who is new to teaching consumer law has asked about skills exercises (also called active learning exercises) professors could require of students.  I suggested having a student write a demand letter that didn’t violate the Fair Debt Collection Practices Act (or that did), writing a privacy policy, or perhaps one of the many disclosures called for by laws covered in the course.  But probably many readers of this blog can come up with better suggestions.  If you have one, please write it in the comments. Thanks!