Consumer Law & Policy Blog

Times Reports on Attempts to Postpone Mortgage Disclosure Rules

Here.  An excerpt:

The American Bankers Association, however, says its members aren’t ready. And it blames the vendors who supply the software and system upgrades needed for regulatory compliance.

In a survey released earlier this month, 79 percent of responding banks said their vendors either had not verified a delivery date for the software updates or had said the systems wouldn’t arrive before June.

“When the systems are received late, there’s not time for training, installation, debugging,” said Bob Davis, the association’s executive vice president for mortgage markets. “With that occurring, there will be a lot of uncertainty about performance of the systems and staff.”

Study Shows Disclosures Can Boomerang and Produce Unintended Consequences

by Jeff Sovern

Some years ago, I wrote an article in which I speculated that disclosing to consumers that consumers rarely redeem rebates might cause consumers to disregard rebate offers.  Better-known scholars, like Ian Ayres and Oren Bar-Gill, have expressed similar thoughts.  Well, a new study suggests that the contrary is true. Molly Mercer of DePaul's Business School and Ahmed E. Taha of Pepperdine have written Unintended Consequences: An Experimental Investigation of the (In)Effectiveness of Mandatory Disclosures, 55 Santa Clara Law Review (2015 Forthcoming).  Here's the abstract:

Nearly everyone who purchases a product that offers a mail-in rebate intends to redeem the rebate.  Yet most consumers, including those who purchased the product because of the mail-in rebate, never submit the materials required to receive their rebates.  Thus, prominent legal scholars propose requiring rebate offers to disclose actual redemption rates. The idea, of course, is that such disclosures will improve consumers’ purchase decisions by causing consumers to realize that they too are unlikely to redeem rebates.  But is this what would really happen?  We report the results of a controlled experiment that examines the effects of such disclosures on U.S. consumers.  Surprisingly, we find that these disclosures backfire, increasing rather than decreasing consumers’ willingness to purchase rebated products.  We discuss how our experimental results inform both the rebate debate and the more general debate about the likely success of other non-restrictive legal interventions.

Quoting now from the conclusion:

[M]any lawmakers mistakenly believe that even if disclosure-based solutions do not help, they cannot hurt. That is, unlike other regulatory approaches, mandatory disclosures do not restrict consumer behavior because consumers are free to ignore the disclosures. Consequently, many lawmakers and academics assume that such disclosures will have either, (a) a positive effect, if consumers are influenced by the disclosures, or (b) no effect, if consumers are not influenced by the disclosures. Our results provide support for a third alternative – that disclosures can harm consumers– and highlight the potential danger of using mandatory disclosures to improve consumer decision-making.

* * *

[The] disclosures were not only ineffective, they were harmful: the disclosures generally increased, rather than decreased, consumer optimism and the percentage of consumers who chose the rebated product.

Senator proposals panel that would scuttle regulations

The Hill reports on a proposal in the Senate to create a committee to go after "regulatory overreach." (Read the story here.) But as Public Citizen explains, in the wake of the Amtrak crash, oil train derailments, and massive auto safety recalls, "The last thing Congress should be doing is creating more delays for new health, safety, consumer and environmental rules by holding up new rules and forcing agencies to move even slower." (Read our press release here.)

FBI will investigate IRS data breach

On Tuesday, the IRS announced that hackers had breached the agency's website and gained access to old tax returns of more than 100,000 taxpayers. Hackers apparently used personal information obtained elsewhere to access old returns contained on the IRS website. The activity occurred from February through mid-May. (Story here.)

On Wednesday, the Senate Finance Committee announced a hearing next Tuesday, June 2, to examine how the theft occurred. (Story here.)

On Thursday, the FBI announced that it is launching an investigation.

Lender agrees to pay $9 million to settle mortgage lending discrimination charges

The Justice Department and Consumer Financial Protection Bureau have filed a consent order to resolve allegations that Provident Funding Associates engaged in a pattern or practice of discrimination. The consent order resolves allegations that Provident increased loan prices for African-American and Hispanic borrowers who obtained residential mortgages between 2006 and 2011 from Provident’s nationwide network of mortgage brokers.

Under the proposed settlement, which requires court approval, Provident will pay $9 million dollars into a fund for the benefit of victims of the mortgage lending discrimination. 

The Department of Justice press release has the details.

Man named God settles lawsuit with credit agency

Here. 

Washington's Unusual SLAPP Statute Struck Down Under Washington Constitution

by Paul Alan Levy

In a ruling issued this morning in Davis v. Cox, the Washington Supreme Court unanimously struck down that state's anti-SLAPP statute because of a provision, not contained in most other state anti-SLAPP statutes, under which once a case is found to over a matter of free speech or petition within the law's coverage, the trial judge must weigh the evidence and decide whether the plaintiff can "establish by clear and convincing evidence a probability of prevailing on the claim."  By giving a judge the power to weigh evidence and dismiss the lawsuit with prejudice if the plaintiff cannot meet this high standard, the court held, the statute violated the right to a jury trial under the state constitution.

Department of Labor proposes new protections for employees of federal contractors

Yesterday, DOL proposed guidance and regulations that would protect workers in two important ways. First, corporations would be prevented from receiving federal contracts if they have bad worker safety records or histories of wage theft. Second, federal contractors would not be permitted to use employment contracts that impose forced arbitration on their workers.

In a piece in the Huffington Post, our friend and co-CL&PBlogger Paul Bland of Public Justice applauds the proposals and notes that these changes could affect 26 million workers. Read his whole analysis here.

A proposal to reshape the financial regulatory system

The Volcker Alliance, a nonprofit public policy organization headed by Mr. Volcker, has released a report proposing broad changes to the U.S. financial regulatory system. The Alliance suggests a three-pronged approach to reform, calling for updated oversight and surveillance, streamlined supervision and regulation, and stronger market integrity and investor protection.

The report is here.

Just want a summary? The University of Pennsylvania's Regblog has this post.

 

Second Circuit: Nat'l Bank Act doesn't preempt application of N.Y. usury law

The State of New York prohibits charging more than 25% interest. You'd think that would be plenty of profit for any lender, but Saliha Madden's creditors (Midland Funding and a sister entity) wanted more. When they sought to collect a higher rate of interest from her, she sued under state and federal law and sought certification of a class action. All of her claims were premised on the 25% cap under New York's usury law. The district court dismissed, holding that law preempted by the National Bank Act.

Last week, the Second Circuit reversed, holding that "[b]ecause neither defendant is a national bank nor a subsidiary or agent of a national bank, or is otherwise acting on behalf of a national bank, and because application of the state law on which Madden’s claim relies would not significantly interfere with any national bank’s ability to exercise its powers under the NBA," there is no preemption here. The reasoning points to an important limitation on this pro-consumer decision: the absence of preemptive effect depends on what type of entity is the creditor. In other words, as the Second Circuit put it, "there is no such thing as a state‐law claim of usury against a national bank" (citation and internal quotation marks omitted), or its subsidiary or agent. Still, it's good to see that state usury laws retain force against some entities.

The Second Circuit's decision in Madden v. Midland Funding is here.