Consumer Law & Policy Blog

California announces settlement with CashCall over predatory lending practices

California law caps at 30% the interest rate on loans of $2500 or less. So what did lender CashCall do? It made every loan -- no matter how small -- into a loan of $2600 or more, by having low-dollar borrowers "prepay" the amount up to $2600 that they didn't want. And what interest rates did CashCall charge? In the neighborhood of 135% or more, according to California's Department of Business Oversight (DBO), which initiated administrative action against the lender last summer over this practice.

Earlier this month, the state announced a settlement "that requires the lender to provide restitution to thousands of California borrowers, reform its business practices, and pay the DBO $1 million in penalties and cost reimbursement."

Read the press release and get more details here.

Battle over Obamacare contraception coverage continues

That last summer's decision in Hobby Lobby wasn't the end of the legal fight over what health care coverage the government could require businesses asserting religious objections to provide for their employees became clear just three days after the Hobby Lobby was handed down. In a brief order that drew a sharp dissent from three justices, the Court enjoined enforcement of the government's procedure for accommodating colleges with religious objections to contraception coverage -- even though the Court majority had, in Hobby Lobby, appeared to endorse that very procedure. (For our previous coverage of Hobby Lobby, including the work-around the Court seemed to endorse, see here. For the order three days later enjoining the accommodation, in Wheaton College v. Burwell, see here.)

Last week, in Geneva College v. Sec'y of HHS, the Third Circuit addressed on the merits the argument raised in preliminary form before the Supreme Court in Wheaton College: that even filing a form to opt out of contraception coverage is a burden on the rights of an employer with religious objections to contraception coverage. The rationale is that the opt-out form is the "trigger" for employees to obtain coverage that the employer opposes for religious reasons (or, as the religious entities put it at oral argument, that "the accommodation requires them to be 'complicit' in sin"). In a case that drew significant amicus participation from government, religious and civil-liberties organizations, the Third Circuit rejected the religious school's argument, holding that filling out the exemption form simply doesn't burden the rights of the religious.

Although the court did not question the sincerity of the beliefs asserted, it nonetheless found itself obligated to assess objectively the effect of the accommodation procedure on those beliefs. Distinguishing Hobby Lobby, in which the challenged regulations required the plaintiffs to pay for the coverage to which they objected, the court held that filling out a form did not trigger the coverage. Rather, the coverage came about through the operation of federal law. “[S]ubmitting the self-certification form means only that the eligible organization is not providing contraceptive coverage and will not be subjected to penalties," the court explained. You can read the full opinion here.

Giving the court's order last summer in Wheaton College, I doubt this is the last we'll hear of this dispute over the scope of Obamacare. Stay tuned.

FDCPA Surveys

by Jeff Sovern

I'm looking into survey evidence to establish or defend against a claimed violation of the Fair Debt Collection Practices Act for a possible article.  If you have conducted such a survey in one of your cases or know someone who has, please email me at sovernj at stjohns dot edu.

 

Thanks!

 

How Italian Colors Guts Private Antitrust Enforcement by Replacing it with Ineffective Forms of Arbitration

That's the title of this article by law professor Einer Elhauge. Here's his to-the-point abstract:

The recent US Supreme Court decision in American Express v. Italian Colors Restaurant threatens to gut private antitrust enforcement in the United States by replacing it with ineffective forms of arbitration. The Court's logic that the right to pursue a claim does not include a right to prove it is incoherent. The notion that voluntary consent means arbitration provisions must benefit buyers ignores the fact that buyers have collective action problems that are what justify antitrust law in the first place.

Texas Real Estate Firm Cannot Compel Yelp to Identify Anonymous Critic

by Paul Alan Levy

A trial judge in Texas has turned down a motion to compel Yelp to comply with a subpoena seeking identifying information about an unhappy consumer who complained about alleged misconduct by a Texas real estate firm, the Rhodes Team, and its agent, one Jeremy Wages, who allegedly did not stay in touch with the consumer or give good information about how much his or her house was worth; the consumer claims that, as a result, the house was sold for too low a price.  The complete review is on page 3 of this brief.
        
Apparently trying to draw on the recent decision of the Virginia Court of Appeals in Yelp v. Hadeed Carpet Cleaning, currently pending on appeal before the Virginia Supreme Court, the complaint tried to set forth a cookie-cutter version of Hadeed’s claim, asserting in an exceptionally nonspecific way that plaintiffs had looked through their database of customers and could not identify the anonymous critic as being a real customer, and on that basis claimed that the review must contain false statements.  Representing Yelp, we presented the Dendrite argument, noting both that the plaintiffs had presented no evidence of falsity and that, in any event, they were suing on a criticism that was more than a year old (hence outside the statute of limitations for libel claims).  We also argued that plaintiffs had no right to pursue their subpoena in Texas because Yelp is not resident there and the Texas Rules of Civil Procedure, coupled with the Texas version of the Uniform Interstate Deposition and Discovery Act require subpoenas to an out-of-state witness like Yelp to be pursued in California, where it is based.  It was, indeed, remarkable the number of procedural rules plaintiffs had violated in bringing their motion to compel.

At the hearing, there was a great deal of bluster from the plaintiffs’ lawyer, Robert Wilson, about the proofs he could mount if the Court were to hold an evidentiary hearing on the sufficiency of his evidence supporting the subpoena. I found myself doubting what he said he could prove because his briefs and correspondence had been so full of hot air and misstatements — and besides, if his clients could prove these things, why didn’t they just submit affidavits? Wilson's briefs are here; readers can judge the quality of the lawyering for themselves.

However, the judge never got to the First Amendment anonymity issue, but went off on the jurisdictional issue, and in an unusual way. The judge noticed that the Texas rule on special appearances allows only “parties” or indeed “defendants” to file a special appearance, and he asked for supplemental briefing on whether a “special appearance” was the proper way for Yelp to object to the Court’s jurisdiction.  In the end, the judge went with the literal language of the rule and held that, as a nonparty, Yelp could not use the special appearance process, but at the same time he quashed the subpoena for improper service and denied the motion to compel.

Plaintiffs had the gall to seek sanctions against Yelp for objecting to the subpoena, but it strikes me that it is plaintiffs who ought to be worried, because Wilson made the remarkable claim to me that in Texas, the quashing of a subpoena means that Yelp now has to comply with it and provide evidence.  When I asked it he had supporting authority, he exclaimed that I was wasting his time and hung up the phone.

Jesse Eisenger at Times DealBook Pulls Together Disclosure Debate in One Column

Here.

Dodd-Frank Act Killing Law School Applications

by Jeff Sovern

Congress enacted the Dodd-Frank Act in 2010.  Since then, law school applications have plummeted by more than 40,000. Therefore, the Dodd-Frank Act must have killed law school applications.

At least, that's the conclusion I came to after reading Todd Zywicki's blog post, New study finds that Dodd-Frank has promoted industry consolidation and killed community banks, and Carrie Sheffield's piece at Forbes.com, Dodd-Frank Is Killing Community Banks. 

But maybe I'm not being fair. The study, The State and Fate of Community Banking, by Marshall Lux and Robert Greene at Harvard's Kennedy School, argues that the cost of complying with the Dodd-Frank Act is what's doing in the community banks.  For example, the study notes that in "2012 congressional testimony, William Grant, then chairman of the Community Bankers Council of the American Bankers Association, made a “very conservative” post-Dodd-Frank estimate of total industry compliance costs at $50 billion annually, or 12 percent of operating cost."  After all, financial industry lobbyist estimates about compliance costs are often reliable.  See, for example, this post about how something predicted to cost $5 and be "staggeringly inflationary" cost only 59 cents when implemented.  But here's something else from the Lux-Greene  report:

A 2014 Mercatus Center at George Mason University survey reported that over one-quarter of community banks (defined as those with less than $10 billion in assets) would hire new compliance or legal personnel in the next 12 months, and that another quarter were unsure about whether they would do so. It also found over one-third of banks had already hired new staff in order to meet new CFPB regulations.

Well, that's not so good. Except that the George Mason study also stated "The median number of compliance staff for the small banks participating in the survey increased from one to two employees." Perhaps hiring one extra employee in response to measures designed to prevent another Great Recession isn't such a bad tradeoff.

If you detect sarcasm in my post, maybe that's because I've seen other times when people claimed compliance costs were crippling.  For example, critics of the Community Reinvestment Act used to claim that it imposed significant compliance costs on institutions and also charged that it forced lenders to make loans they might otherwise not be able to justify making.  See Jonathan R. Macey & Geoffrey P. Miler, The Community Reinvestment Act: An Economic Analysis, 79 Va.L. Rev. 291 (1993). Then we learned that many lenders that weren't even subject to the CRA were making CRA-style loans--meaning that the CRA was not driving the making of those loans--and that a study conducted by the community bankers themselves found that small banks spent an average of only $84,445 annually to comply with CRA while larger banks spent $115,270.  Grant Thornton, Independent Community Bankers of America, The High Cost of Community Bank CRA Compliance: Comparison of “Large” and “Small” Community Banks vi (2002). It's enough to make you wonder whether every time Congress passes a law regulating banks, and the number of community banks declines, someone will blame Congress for the decline.  Oh and  by the way, according to the Lux-Greene report, community bank market share was already declining (though at a slower rate than since 2010).  But then, nothing else has relevant has happened in the country in the last five years.  The economy has been booming, right?

And what remedy do Lux and Greene suggest?  How about subjecting the CFPB to non-binding cost-benefit analysis from the Office of Information and Regulatory Affairs?  Never mind that the Dodd-Frank Act already directs the CFPB to consider costs and benefits when adopting rules or that rules have been known to languish at OIRA for more than a year.  They also recommend that Congress create a "bipartisan commission aimed at streamlining existing financial regulations."  Because we need another financial crisis and Great Recession that financial regulations were put in place to prevent.

Look, no one supports rules for the sake of rules. But sometimes, rules are needed, like to prevent a Great Recession. And sometimes, especially in times of transition, rules generate compliance costs.  Those costs sometimes go down after the new systems are fully in place.  If hiring one new employee prevents another Great Recession, isn't that a cost worth incurring, especially since the cost may be temporary--and exaggerated?

 

More on privacy and technology: good news from California, bad news from Samsung

California is considering enacting a new law protecting its citizens from warrantless spying. The proposed California Electronic Communications Privacy Act has bipartisan backing, along with support from major tech companies and civil liberties groups. Read more here from Top Tech News.

Meanwhile, Samsung's SmartTVs can spy on you, reports CNN Money. Read more here.

Senator Ed Markey issues report detailing automobile security and privacy concerns

Last year, 16 car manufacturers responded to questions from Senator Edward Markey (D-Mass.), pictured to the right, concerning whether their vehicles are vulnerable to hackers and how the companies collect and protect driver information.

Senator Markey's office has now reviewed the information received from the manufacturers and issued this report.

Here's Senator Markey's synopsis of the report's findings:

Vulnerability to hackers

--Nearly 100 percent of vehicles on the market include wireless technologies that could pose vulnerabilities to hacking or privacy intrusions.

--Most automobile manufacturers were unaware of or unable to report on past hacking incidents.

--Security measures to prevent remote access to vehicle electronics are inconsistent and haphazard across the different manufacturers.

--Only two automobile manufacturers were able to describe any capabilities to diagnose or meaningfully respond to an infiltration in real-time, and most said they rely on technologies that cannot be used for this purpose at all.

Data collection by manufacturers and privacy concerns

--Automobile manufacturers collect large amounts of data on driving history and vehicle performance.

--A majority of automakers offer technologies that collect and wirelessly transmit driving history information to data centers, including third-party data centers, and most did not describe effective means to secure the information.

--Manufacturers use personal vehicle data in various ways, often vaguely to “improve the customer experience” and usually involving third parties, and retention policies – how long they store information about drivers – vary considerably among manufacturers.

--Customers are often not explicitly made aware of data collection and, when they are, they often cannot opt out without disabling valuable features, such as navigation.

Read Senator Markey's press release.

Sen. Warren says big banks using little banks to roll back financial reform

Read Warren: Wall Street using small banks to weaken rules in today's The Hill.