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    Public Citizen Litigation Group
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    St. John's University School of Law
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    Public Citizen Litigation Group
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    National Association of Consumer Advocates
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    National Consumer Law Center

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The contributors to the Consumer Law & Policy blog are lawyers and law professors who practice, teach, or write about consumer law and policy. The blog is hosted by Public Citizen Litigation Group, but the views expressed here are solely those of the individual contributors (and don't necessarily reflect the views of institutions with which they are affiliated). To view the blog's policies, please click here.

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« February 2015 | Main | April 2015 »

Tuesday, March 31, 2015

Settlement in currency trading case

As the New York Times reported earlier this month,

The Bank of New York Mellon will pay $714 million to settle accusations that it cheated government pension funds and other investors for more than a decade, federal and state authorities announced on Thursday. It is part of a deal requiring the bank to dismiss some employees and make fuller public disclosures of its foreign exchange operation.

Lawsuits were filed in 2011 by both the New York Attorney General and the U.S. Attorney for the Southern District of New York.

More details about who was harmed and how:

The authorities accused the bank of assuring clients that they would receive the best possible rate when executing a currency trade. In reality, the authorities said, the bank did just the opposite: It provided clients “prices that were at or near the worst interbank rates,” enabling the bank to make extra cash during the 2008 financial crisis.

The victims included New York City pension funds and prominent private investors, the authorities said. City investors included teachers and police officers, while the private investment funds belonged to the likes of Duke University and the Walt Disney Company.

The full story is here.

 

Posted by Scott Michelman on Tuesday, March 31, 2015 at 02:35 PM | Permalink | Comments (0)

Groups seek ban on household products with toxic flame retardants

From an EarthJustice press release issued this morning:

Today, a broad coalition of health, firefighter, consumer and science groups filed a petition asking the Consumer Product Safety Commission (CPSC) to ban four categories of consumer products—children’s products, furniture, mattresses and the casings around electronics—if they contain any flame retardant in the chemical class known as organohalogens. Petitioners include the American Academy of Pediatrics, the National Hispanic Medical Association, the International Association of Fire Fighters, the Learning Disabilities Association of America, Consumers Union, Consumer Federation of America, the League of United Latin American Citizens, Worksafe, Dr. Philip J. Landrigan and the Green Science Policy Institute.

This entire class of chemicals has been associated with serious human health problems, including cancer, reduced sperm count, increased time to pregnancy, decreased IQ in children, impaired memory, learning deficits, hyperactivity, hormone disruption and lowered immunity. Nevertheless, the chemicals continue to be used at high levels in consumer products.

These chemicals migrate continuously out from everyday household products into the air and dust, such as when a guest sits on a sofa or a baby is laid down on a crib’s mattress. As a result, more than 97 percent of U.S. residents have measurable quantities of toxic organohalogen flame retardants in their blood. Children are especially at-risk because they come into greater contact with household dust than adults. Studies show that children, whose developing brains and reproductive organs are most vulnerable, have three to five times higher levels than their parents.

The full release is here.

Posted by Allison Zieve on Tuesday, March 31, 2015 at 11:32 AM | Permalink | Comments (0)

CFPB acts against "bad check" debt collector

The Consumer Financial Protection Bureau yesterday announced that has initiated enforcement action against a nationwide debt collector National Corrective Group and its chief executive officer for using deceptive threats of criminal prosecution and jail time to intimidate consumers into paying debts for bounced checks. The company also misled consumers into believing that they must enroll in a costly financial education program to avoid criminal charges.

The CFPB's proposed order, if approved by a federal district court, would require the company to halt its illegal activities, impose a penalty of $50,000, and require new consumer disclosures and stronger oversight of the bounced check program.

The CFPB's press statement is here.

Posted by Allison Zieve on Tuesday, March 31, 2015 at 11:24 AM | Permalink | Comments (3)

Monday, March 30, 2015

Two editorials on CFPB payday lending proposal

Two editorials yesterday about the Consumer Financial Protection Bureau proposal to regulate payday lenders. (Our post about the proposal, with a link to it, is here.)

A New York Times editorial gives strong support for the proposed rule:

The Consumer Financial Protection Bureau took the most important step in its brief four-year history this week when it issued a preliminary proposal aimed at protecting the working poor from the payday lending industry, which bills itself as a source of “easy” short-term loans but earns its profits by luring borrowers into debt traps. If finalized, rules based on this proposal would protect millions of people from deceptive, predatory loans that can wreck their already fragile finances. The bureau could better protect consumers by closing one loophole that would allow some lenders of relatively small amounts to keep making high-cost loans. ...

The full NYT editorial is here.

The Washington Post supports regulation of the industry but has concerns about the CFPB's proposal:

.... Basically, it mandates the kind of underwriting that payday lending characteristically avoids. This could go a long way toward ending, or at least reducing, payday-lending horror stories. But this benefit will probably come at the cost of precluding some mutually advantageous transactions that would otherwise have occurred. Lenders will exit the business. Here and there families will curtail consumption — which is a plus, insofar as it encourages them to live within their means, or a minus, if they have to skip meals. Just as inevitably some high-interest, short-term lending that now occurs legally will be driven into the underground economy.

The full WP editorial is here.

Posted by Allison Zieve on Monday, March 30, 2015 at 12:02 PM | Permalink | Comments (0)

Saturday, March 28, 2015

Helveston Paper on Courts and Consumer Protection

Max N. Helveston of DePaul has written Judicial Deregulation of Consumer Markets, forthcoming in the Cardozo Law Review. Here's the abstract:

 

The dangers posed by insufficiently regulated consumer markets are both real and monumental. While the rights of consumers expanded drastically in the mid-to-late twentieth century, these protections have weakened in the new millennium. One of the forces driving this change has been the judiciary, where an anti-consumer jurisprudence has taken root. This is surprising, given the courts’ history of defending individuals’ commercial rights and combating unfair market practices.

Despite the significant ramifications that the removal of consumer protections have for every individual, the evolution of anti-consumerism in the courts has received scarce attention from the academy.

This Article fills this gap by collecting and analyzing the decisions underlying the judiciary’s shift on consumer law issues. It describes how changes in courts’ views about contractual interpretation, the propriety of judicial intervention in private relationships, and deference to alternative means of regulation have stripped consumers of their rights. It goes on to discuss the normative goals of consumer protection law and develops a framework for future pro-consumer governmental efforts. This framework challenges the pragmatic viability of doctrinal solutions to consumer law issues and describes why legislative and administrative measures are better suited to protecting consumers.

Posted by Jeff Sovern on Saturday, March 28, 2015 at 08:11 PM in Consumer Law Scholarship | Permalink | Comments (0)

Thursday, March 26, 2015

Replying to Alan Kaplinsky

by Jeff Sovern

Last Friday, I posted a comment on Alan Kaplinsky’s remarks, quoted in the Bloomberg Business story, Bank Customers May Get Their Day in Court, about the CFPB arbitration report.  Alan replied in a post captioned “Sovern v. Kaplinsky.” Here I offer a rebuttal.

In my original post, I expressed the view that consumers mostly don’t do anything when they have a problem with a company.  Alan noted in response that the Consumer Financial Protection Bureau reports having received more than 558,800 consumer complaints.  But that statistic, by itself, says little about the likelihood that consumers will complain when they have an issue because it talks about the absolute number of complaints rather than what percentage of consumers with problems complain.  To see what I mean, let’s focus just on credit cards.  The CFPB reports that 12% of the complaints are about credit cards, meaning that roughly 67,056 of the complaints involve credit cards.  As we reported in our arbitration study, “[e]stimates of the number of Americans with credit cards in recent years vary from 156 million to 226 million.” If we use the smaller figure and assume that only 156 million Americans have credit cards (and if I’ve done the math right and haven’t dropped a decimal point), that means that out of every million Americans with a credit card, about four have complained to the CFPB.  Suddenly, the number of complaints doesn’t seem so large. And even that probably overstates the percentage of complaining consumers, first, because it uses a low estimate of the number of credit card holders, and second, it also assumes that no consumer filed more than one complaint.  It seems likely that some consumers file multiple complaints, if only because the same issue may trigger complaints against a lender, credit bureaus , debt collectors, and so on. But even the four out of a million number doesn’t tell us much because we don’t know how many consumers have a problem with their credit card issuers. Maybe every unhappy consumer complains or maybe only a fraction of dissatisfied consumers complains. Without knowing how many consumers have an issue, we can’t determine the percentage who complain, but the research I’ve seen says it’s tiny. In that regard, here’s an excerpt from Director Cordray’s speech about the arbitration report:

In [a] survey, we asked consumers what they would do if they were charged a fee by their credit card issuer that they knew to be wrong and they had already exhausted all possible efforts to obtain relief from the company.  Only two percent of consumers said they would consider bringing formal legal proceedings or would consult a lawyer.  That is almost the same percentage of consumers who said they would simply accept responsibility for the fee.  Most people, in fact, say they would simply cancel their card.  The research thus indicates that consumers are very unlikely, acting alone, to even consider bringing formal claims against their card issuers – either through arbitration or through the courts.

In other words, consumers mostly don’t do anything—other than cutting off ties with the offending company--when they have a problem with a company.

I also took issue with Alan’s original statement that you don’t see a lot of arbitrations because consumers use other means to assert their grievances. I wrote “Does the benefit of arbitration derive from the fact that it drives consumers to use something else to resolve disputes?”  Alan responded to my critique by saying—correctly, I believe—that consumers  may prefer informal means of resolving disputes to arbitration or litigation because those means may be “faster, cheaper and more efficient for consumers than either arbitration or litigation.” I was less clear than I should have been and I appreciate that Alan's comment made that apparent.  What I should have said is that those informal means of dispute resolution are available for litigation just as they are with arbitration.  Consequently, we would expect that the availability of informal means would have the same effect on the amount of litigation as it has on the amount of arbitration.    But the CFPB found that individual consumers were more likely to file cases in court than bring arbitrations, suggesting that something other than the availability of informal dispute mechanisms is suppressing the number of arbitrations. Put another way, if Alan’s statement means that consumers subject to arbitration clauses use informal means to resolve disputes more than is true of litigation, that would suggest arbitration drives consumers to use informal means more than litigation does.

My favorite part of Alan’s post is that one “reason[] why “consumers don’t file arbitration claims” (Professor  Sovern’s words) are that . . . Professor Sovern and consumer advocates have railed against arbitration for almost two decades, thereby fostering a negative public perception of arbitration . . . .” Alan is very kind to say that consumers are listening to me--though he is also wrong on this score, of course. And I should add that while I often disagree with Alan, I think his blog is terrific. His clients are lucky to have him. 

Posted by Jeff Sovern on Thursday, March 26, 2015 at 10:06 PM in Arbitration, Consumer Financial Protection Bureau | Permalink | Comments (3)

Senate Republicans' proposed budget would threaten autonomy of CFPB

The Hill reports that on a party-line vote, "[t]he Senate Budget Committee added an amendment to the GOP budget that would subject the agency’s budget to the congressional appropriations process. Currently, the CFPB receives its funding directly from the Federal Reserve, and bureau advocates argue that giving appropriators control would allow Republicans to starve the agency of funds."

Leading the opposition to this measure are Democratic Sens. Warren, Merkley, and Franken. The Hill quotes Sen. Warren: “The Republicans are doing everything they can to weaken financial regulation. To find ways to give Wall Street the permission to take everything they can from the American people.”

Read the full story here.

Posted by Scott Michelman on Thursday, March 26, 2015 at 02:00 PM | Permalink | Comments (0)

CFPB considering rules to protect payday borrowers

Seeking to help consumers avoid becoming trapped in a cycle of debt, the CFPB announced today that it is considering new rules that would require payday lenders to take steps to make sure that borrowers can repay their loans. The Bureau's press release explains the problem:

For consumers living paycheck to paycheck, the short timeframe of these loans can make it difficult to accumulate the necessary funds to pay off the loan principal and fees before the due date. Borrowers who cannot repay are often encouraged to roll over the loan – pay more fees to delay the due date or take out a new loan to replace the old one. The Bureau’s research has found that four out of five payday loans are rolled over or renewed within two weeks. For many borrowers, what starts out as a short-term, emergency loan turns into an unaffordable, long-term debt trap.

The proposed regulations would seek to help by requiring lenders "to verify the consumer’s income, major financial obligations, and borrowing history to determine whether there is enough money left to repay the loan after covering other major financial obligations and living expenses" and to avoid making consecutive loans to the same borrower in a two-month window.

The Bureau is also proposing to restrict harmful collection practices, including limiting direct-withdrawal attempts against a consumer's bank account and requiring advance notice of such requests, so that consumers aren't blindsided by bank fees or low account balances.

Read the whole release, including additional proposed details, here.

Posted by Scott Michelman on Thursday, March 26, 2015 at 01:51 PM | Permalink | Comments (0)

Watch the CFPB's Payday Lending Hearing

The CFPB's field hearing on payday lending is underway, and is being livestreamed at the Bureau's website. Watch it here.

Posted by Public Citizen Litigation Group on Thursday, March 26, 2015 at 12:45 PM in Consumer Financial Protection Bureau, Predatory Lending, Unfair & Deceptive Acts & Practices (UDAP) | Permalink | Comments (0)

Where Are the Loan Sharks?

by Jeff Sovern

Not that I need one, but my question is prompted by my expectation that during the Consumer Financial Protection Bureaus's field hearing today on payday lending, the Bureau will propose new restrictions on payday lending.  Critics may claim that the restrictions will drive consumers to loan sharks.  For a past example of such views, see Todd Zywicki's Wall Street Journal op-ed, Dodd-Frank and the Return of the Loan Shark,  But here's the thing: some states, like New York, already effectively block payday lending. If restrictions on payday lending led to loan sharking, we would expect to see loan sharks operating in New York.  So where are they? 

Posted by Jeff Sovern on Thursday, March 26, 2015 at 08:27 AM in Consumer Financial Protection Bureau, Predatory Lending | Permalink | Comments (1)

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