Consumer Law & Policy Blog

Senate to take up oil train safety legislation

Two weeks ago, we flagged an NPR piece about the dangers of transporting oil by rail. Very glad to see that we're not the only ones concerned.

Today, Sen. Maria Cantwell of Washington will introduce federal legislation to prevent oil train disasters. From the Public Citizen release on the bill:

The U.S. Department of Transportation proposed safety standards in July 2014, but those rules are being delayed by a U.S. Office of Management and Budget review and by continuing opposition from the oil and railroad industries. . . .

The bill sets a federal safety standard for the more volatile tar sands and shale crude oil. It requires rail cars to be protected by steel shells that are more puncture-resistant as well as thermal jackets that increase fire resistance, and an immediate halt to the transport of oil in any rail car that hasn’t been reinforced.

The bill also mandates more safety inspections of rail carriers and oil producers, heftier penalties for noncompliance and improved spill response plans, and requires that state and local authorities be notified before oil trains move through their communities.

The full Public Citizen statement is here. And here's more coverage (from earlier this month) of Sen. Cantwell's efforts on this issue.

On the decline of unions

Commentator Nicholas Kristof has never been a fan of unions, but in this New York Times op-ed, he explains, he’s changed his mind about them. Why? In Kristof’s words:

I’m as appalled as anyone by silly work rules and $400,000 [salaries for] stagehands [at Carnegie Hall], or teachers’ unions shielding the incompetent. But unions also lobby for programs like universal prekindergarten that help create broad-based prosperity. They are pushing for a higher national minimum wage, even though that would directly benefit mostly nonunionized workers.

I’ve also changed my mind because, in recent years, the worst abuses by far haven’t been in the union shop but in the corporate suite. One of the things you learn as a journalist is that when there’s no accountability, we humans are capable of tremendous avarice and venality. That’s true of union bosses — and of corporate tycoons. Unions, even flawed ones, can provide checks and balances for flawed corporations.

Many Americans think unions drag down the economy over all, but scholars disagree. American auto unions are often mentioned, but Germany’s car workers have a strong union, and so do Toyota’s in Japan and Kia’s in South Korea.

The whole piece is thoughtful and worth a read, here.

HHS to retreat from "lost pleasure" analysis for health regs

Last week the Department of Health and Human Services (which includes the Food and Drug Administration) announced it would curtail the controversial practice of including "lost pleasure" as a "cost" of health regulations when it does a cost/benefit analysis of the regulations. Including "lost pleasure" in the analysis artificially reduced the projected health benefits of regulations regarding, for instance, cigarettes and calorie counts. In one instance, Reuters reports, a "lost pleasure" calculation reduced the projected benefits of an anti-tobacco measure by 70%.

The Reuters story is here. Public Citizen's press release on this development is here.

Another GOP Attack on CFPB

by Jeff Sovern

According to ThinkAdvisor, Georgia Senator David Perdue has introduced an amendment that would subject the CFPB to the congressional appropriations process.  Calling the Bureau "reckless," Perdue added "the CFPB is a rogue agency that dishes out malicious financial policy and creates new rules and regulations without any oversight from Congress. As seems to be the usual Republican practice in these matters, Perdue did not give any examples of reckless, rogue, or malicious conduct. As we have blogged about before, efforts to subject the Bureau to the congressional appropriations process are really attempts to give the industry a veto over the Bureau's activities, so that the regulated control their regulator. If Senator Perdue is genuinely concerned about rogue financial industry regulators, maybe he should look into whether the determinations by the Office of Thrift Supervision (which has since been folded into the Office of the Comptroller of the Currency) and the National Credit Union Administration that his state's statute prohibiting predatory lending practices was preempted contributed to the disastrous lending that led to the Great Recession.

Student-debt strike calls attention to practices of Corinthian Colleges

Last month, we told you about the CFPB's settlement with Corinthian Colleges over its debt-collection practices and advertising practices, among other things.

Last week, NPR's "Here and Now" reported on a debt strike by fifteen students of Corinthian Colleges who are refusing to pay back their federal student loans because of Corinthian's misleading advertising about the value of the education is provides. Hear the story (including an interview with one of the strikers) here. The students argue that Corinthian or its investors, not the students, should be responsible for paying the loans back.

Meanwhile, as noted in the same story, "This week Senator Elizabeth Warren ... proposed a bill that would allow most students to refinance their debt at government subsidized rates, which are now just under four percent."

An earlier Washington Post story about the strike is here.

More on How Consumers Fare Under Class Actions

The CFPB arbitration report found that class actions can return significant sums to consumers. Adding to the literature on that topic, Brian T. Fitzpatrick of Vanderbilt and Robert C. Gilbert have written An Empirical Look at Compensation in Consumer Class Actions.  Here is the abstract:

Consumer class actions are under broad attack for providing little in compensation to class members.  One response to this charge is the argument that one of us has made elsewhere: consumer class actions should not be measured by their compensatory value but by their deterrence value.  But here we take up this critique of consumer class actions on its own terms: can they serve a meaningful compensatory role?  Scholars have taken up this question before, but they have been stymied by the lack of available data.  In this article, we present original data on the distribution of class action settlements in fifteen related small-stakes consumer class action lawsuits against some of the largest banks in the United States.  We obviously can make no claim that these settlements are representative of most consumer class actions.  Nonetheless, we believe our findings support the notion that, under certain circumstances, consumer class actions can indeed serve a meaningful compensatory role: when they eschew claim forms in favor of automatic distributions and when they rely on direct deposits or standard-sized checks rather than the cheaper, postcard-sized variety to make those distributions.

 

Why Do Republicans Say a Commission Would Be More Accountable Than a Director?

by Jeff Sovern

Here we go again.

The Republicans have repeatedly tried to convert the Consumer Financial Protection Bureau to a commission structure. The latest effort, H.R. 1266, is sponsored by Representative Randy Neugebauer of Texas.  The bill would replace the CFPB's director with a five-member commission, of whom no more than three could be members of the same party.  The commissioners would serve staggered terms.

Representative Neugebauer justifies his bill in these words:

Over the last several years, the Bureau’s actions and record have proven it can’t function in a sustainable manner. Perhaps, more than any other Washington agency, the CFPB has demonstrated a lack of transparency and a lack of accountability. It has proven it is susceptible to political influence – bringing into question its independence.

“This is all the more troubling because the Bureau has an important mission: to protect consumers. I support consumer protection but we must ensure product choice, credit availability and cost of credit are considered before rushing to regulate. To better serve the American people, the Bureau must adopt a more balanced and consultative process to its rulemaking.

Where to begin?  First of all, it would have been nice if the representative had explained why he believes the Bureau is not functioning in a sustainable manner.  The Bureau has returned huge sums to consumers and has adopted numerous rules that protect consumers. Why isn't that sustainable? 

Second, what evidence supports the claim that the Bureau is not transparent and accountable? To mention only one thing, the Bureau holds frequent field hearings--one less than two weeks ago and another scheduled for this week--to keep the country very much informed about its activities.  Director Cordray frequently testifies before Congress about the Bureau's functioning. And what does the Representative mean by political influence?  By the way, according to the Center for Responsive Politics, Representative Neugebauer's biggest contributor is the Bank of New York.  Banks and a banking organization make up three of his five biggest contributors. Is that what he means by accountability?

Third, how does a commission structure improve accountability?  Why would five people running the show instead of one make the Bureau more accountable?  It seems to me that it would actually make the Commission less accountable.  Right now, the buck stops with Director Cordray. He can't duck responsibility. But if the Bureau had five commissioners, wouldn't each one be able to shift responsibility to the other commissioners?  A commission would diffuse responsibility, rather than enhancing accountability. I can see why banks might want a commission structure. Commissions act more slowly. When they lack their full number of commissioners, they may be paralyzed by tie votes, as has happened with some commissions recently.  That is good for those who oppose consumer protection. Not, of course, that Representative Neugebauer opposes consumer protection. Oh no. After all, he said he supports it. That must be why the banks are among his leading contributors. 

Kaplinsky on Why Consumers Don't File Arbitration Claims

by Jeff Sovern

BloombergBusiness columnist Carter Dougherty has a story, Bank Customers May Get Their Day in Court, about the CFPB arbitration report.  Dougherty writes:

In its report, the CFPB noted that there were just 52 arbitration claims under $1,000 in 2010 and 2011, and consumers won relief in just four of them. Says [Deepak] Gupta: “What this report shows is not that claims go to arbitration but that they simply go away.”

Alan Kaplinsky, an attorney with Ballard Spahr who helped pioneer the use of arbitration clauses in financial contracts, counters that consumers resolve claims in other ways. They call the company to complain. They go to the Better Business Bureau. “That’s why you don’t see a heck of a lot of arbitration or litigation when there’s a clause,” he says.

I'm skeptical about Kaplinsky's claim, because a lot of research, beginning with Best and Andreason's seminal article, Consumer Response to Unsatisfactory Purchases: A Survey of Perceiving Defects, Voicing Complaints, and Obtaining Redress, 11 Law & Soc.Rev. 701, 728–29 (1977), shows that dissatisfied consumers mostly do not complain to either the offending business or external agencies like the BBB.  Mostly, they don't do anything.  If Alan has evidence to substantiate his claim, I hope he will make it public.

But even if his claim is true, it's hard to see how it helps to defend arbitration. If consumers benefit so much from arbitration, as Kaplinsky claims, why do consumers with arbitration clauses in their contracts prefer the Better Business Bureau?  Why don't they just use arbitration?  Does the benefit of arbitration derive from the fact that it drives consumers to use something else to resolve disputes?

 

CFPB will share publicly consumer complaints about financial products

The agency announced yesterday that it would enable consumers to share their issues regarding financial products and services directly with the public, via the CFPB's Consumer Complaint Database. The database has accepted complaints for almost three years, but under the new policy, consumers who submit to the database will have the option to share their narrative publicly. As the CFPB's press release explains:

Consumer narratives provide a first-hand account of the consumer’s experience, and adding the option to share them will greatly enhance the utility of the database. The narratives will provide context to complaints, spotlight specific trends, and help consumers make informed decisions. The narratives may encourage companies to improve the overall quality of their products and services, and more vigorously compete over good customer service.

The agency will remove personal information from complaints and also give the company a chance to respond.

Read the whole press release here. Coverage from The Hill is here. The full policy is available here.

Prepaid cards and prison policy

Guest post by Stephen Raher

Each year, over 12 million people are released from jails and prisons in the United States. When this happens, the correctional facility often owes money to the person being released. This could be money that the person earned while incarcerated, gifts from family, or perhaps funds that a person had they were arrested.

Traditionally, jails and prisons would make payments to released prisoners by cash or check. But recently, facilities across the country have started issuing refunds via prepaid debit cards. These cards come with high fees and complex account agreements. For example, cardholders may have to pay $3.50 per week simply to have a card. Per-transaction fees range up to $0.95 per swipe. Balance inquiries can cost up to $3.95. And some card programs charge simply to close the account and receive a refund.

Fee structures like this are troublesome enough in the free world, where consumers have some degree of choice, but in the context of correctional facilities, people should not be coerced into using pre-paid cards or similar financial products simply to access their own money. These cards are growing in popularity for one simple reason: jails and prisons can shift accounting costs from government budgets onto individual ex-prisoners, because program costs are funded entirely through cardholder fees.

As part of the Consumer Financial Protection Bureau's rulemaking on prepaid cards, the Prison Policy Initiative has submitted comments describing widespread problems with jail release cards and urging the Bureau to restrict the mandatory use of these high-fee cards. The CFPB is accepting comments on proposed amendments to Regulation E through March 23.