Consumer Law & Policy Blog

Video of CFPB Arbitration Field Hearing Now Available

Here.  (HT: Gregory Gauthier)

Court rejects for-profit colleges' challenge to Department of Education "gainful employment" rule

As the AP reports (via Huffington Post):

A federal court has ruled in favor of tough new regulations aimed at career training programs, dealing a major blow to the for-profit college industry.

In an opinion released Tuesday, the U.S. District Court for the District of Columbia ruled the Education Department has the right to demand that schools show their graduates make enough money to repay their student loans. The Education Department announced its plan last fall as a way of weeding out fraudulent colleges that were targeting low-income students because of their ability to receive federal student loans, grants and military benefits.

Under the new rules, which go into effect July 1, a program has to show that the estimated annual loan payment of a typical graduate does not exceed 20 percent of his or her discretionary income or 8 percent of total earnings. The administration said about 99 percent of the training programs that will be affected come from the for-profit sector, although affected career training programs can come from certificate programs elsewhere in higher education.

The court's opinion is here. Soccer fans will enjoy footnote 4, which offers an extended soccer analogy.

On behalf of 28 interested organizations, Public Citizen filed an amicus brief in the case, which is available here.

DOJ brings criminal charges in payday lending case

The Department of Justice this week charged a payday lender with conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act (RICO), conspiracy to commit mail fraud and wire fraud, and mail fraud, and aiding and abetting mail fraud. Although there is even more, here is the gist of the government's case:

According to the information unsealed today, between 1998 and 2012, Rubin owned, controlled, financed, and/or worked for multiple businesses that issued short-term loans, commonly known as “payday loans.”  Rubin allegedly conspired with other people to evade state usury laws and other restrictions on payday loans by engaging in a series of deceptive business practices that included: (a) paying a federally-insured bank, which was not subject to state laws, to pretend that it was the payday lender; (b) relocating his operations to a state considered “usury friendly;” and (c) paying an Indian tribe to pretend that it was the actual payday lender as part of a scheme to have the tribe claim that “sovereign immunity” prevent application of state usury laws and other regulations.

....

Pennsylvania law makes it a crime to collect interest, fees, and other charges associated with a loan at a rate in excess of 36 percent per year.  Payday loans are short-term loans of relatively small amounts of money, usually a few hundred dollars, which borrowers promise to repay out of their next paycheck or regular income payment, such as a social security check.  Some loans have finance charges or fees of between 10 and 30 percent of the amount borrowed.  Given the short-term nature of these loans, those charges can translate to annual percentage rates of interest (“APR”s) of 260 to 780 percent.

The Department of Justice press release has additional details.

Privacy group complains to FTC about Uber app

The Electronic Privacy Information Center, a privacy rights group, complained to the Federal Trade Commission on Monday about a new Uber new policy that gives it the right to track users when they are not currently using the Uber app.The privacy policy is scheduled to go into effect on July 15.

USA Today explains:

Under the upcoming policy, the Uber app could collect precise location data about a customer's smart phone, even when the app is running in the background or they have turned off their GPS location finder.

If the app isn't on, Uber can figure out the user's approximate location from their Internet address.

If the user permits it, the Uber app can access the user's address book and use the names and contact information it finds there.

The full USA Today story is here.

The EPIC complaint is here.

CFPB reports on illegal practices uncovered in 2015

The Consumer Financial Protection Bureau has released its latest supervision report outlining the illegal practices uncovered by the CFPB in the first four months of 2015. It found problems with

• dual-tracking at mortgage servicers that could mislead consumers to believe their trial modifications were canceled,

• lack of quality control measures at consumer reporting agencies,

• debt collection complaints disregarded, and

• fair lending violations.

The CFPB reports that its actions resulted in the return of $11.6 million to more than 80,000 consumers.

The agency's press release and report are available here.

Amy Schmitz Article on Big Data and Consumer Scores

Amy Schmitz of Colorado has written Secret Consumer Scores and Segmentations: Separating Consumer 'Haves' from 'Have-Nots', Michigan State Law Review, p. 1411 (2014). Here is the abstract:

“Big Data” is big business. Data brokers profit by tracking consumers’ information and behavior both on- and offline and using this collected data to assign consumers evaluative scores and classify consumers into segments. Companies then use these consumer scores and segmentations for marketing and to determine what deals, offers, and remedies they provide to different individuals. These valuations and classifications are based on not only consumers’ financial histories and relevant interests, but also their race, gender, ZIP Code, social status, education, familial ties, and a wide range of additional data. Nonetheless, consumers are largely unaware of these scores and segmentations, and generally have no way to challenge their veracity because they usually fall outside the purview of the Fair Credit Reporting Act (FCRA). Moreover, companies’ use of these data devices may foster discrimination and augment preexisting power imbalances among consumers by funneling the best deals and remedies to the wealthiest and most sophisticated consumers. Use of these scores and segmentations increases the growing gap between powerful “haves” and vulnerable “have-nots.” This Article sheds light on these data devices and aims to spark adoption of data privacy regulations that protect all consumers regardless of their educational, economic, ethnic, or social status.

"Important cases still pending before the Supreme Court (and the decisions so far)"

David Savage at the LA Times has this article quickly summarizing the big Supreme Court cases still pending this Term, as well as those recently decided.

Taha Paper on Advertising Atypical Results

Ahmed E. Taha of Pepperdine has written Selling the Outlier, forthcoming in the Journal of Corporation Law.  Here is the abstract:

 

Advertisements for products ranging from weight-loss programs to mutual funds regularly feature the results of people who have used the product.  However, these advertisements often present the results only of people who had an atypically positive experience.  These advertisements harm consumers and investors, who greatly underestimate the advertised results’ atypicality.  Because advertisements of past results are used in a wide range of products, they are regulated by a number of federal agencies.  These agencies have taken different regulatory approaches to advertisements of atypical results, primarily requiring them to include additional disclosures.  This article presents evidence that these and other disclosures cannot prevent advertisements of atypical results from deceiving consumers and investors.  Indeed, the very purpose of these advertisements is to mislead people regarding their own likely results.  Thus, in light of the harm these advertisements cause and the minimal useful information they provide, the prohibition of advertisements of atypical results should be seriously considered

Gag Orders That Protect Grand Jury Subpoenas to Identify Anonymous Speakers

by Paul Alan Levy

Now that a federal court gag order against it has been lifted, Reason Magazine has now published its own comments, and a number of other bloggers have been writing as well, about Reason’s experience with a grand jury subpoena seeking to identify anonymous online commenters.  In response to an article about the sentencing of a criminal defendant, some commenters took their venting about a trial judge on the United States District Court for the Southern District to the extreme of the general statements “judges like her should be taken out back and shot” or “[shot] on the steps of the courthouse.”  Like teenagers egging each other on, other bloggers suggested “feeding her through a wood chipper”; still others said that she would have her own special place in hell.  Considering that federal judges and their spouses have been attacked and even assassinated within recent memory, and that, so far as I know, some federal judges and their staff are genuinely concerned about their security as a result of public reactions not to speak of the craziness of some extremist segments of the population, it is hard to fault federal prosecutors from taking such comments seriously even if the comments themselves did not amount to “true threats” that could properly be punished under the First Amendment.

In addition to discussing the subpoena itself, Reason's article describes in some detail the communications between the Assistant United States Attorney (AUSA) and its attorney about the issuance and pursuit of the subpoena.  The AUSA's overbearing conduct, as reported there (I would welcome any rebuttal from the AUSA or his press office) recalls for me the experience of defending Room Eight, a New York politics blog, against a subpoena seeking to identify a co-blogger who had attacked a Republican ally of the Bronx District Attorney whose office had secured the subpoena. 

Illinois Supreme Court Orders Identification of Anonymous Critic

by Paul Alan Levy

In a decision issued yesterday in Hadley v. Subscriber Doe a/k/a Fuboy, the Illinois Supreme Court affirmed lower court rulings that an anonymous commenter who responded to a local newspaper article by calling a local politician a “Sandusky waiting to be exposed,” making particular reference to the fact that he could see a local elementary school from his front door, had to be identified in response to a verified petition for disclosure under a state court rule (Rule 224).  The case stands as a useful reminder that there are legal limits to online accusations, even those found in the wild comment sections of some newspapers.

The court mentioned the Dendrite / Cahill approach to this issue only in passing in the course of describing the reasoning of the lower courts, which had pointed to an earlier case, Stone v. Paddock Publications and Maxon v. Ottawa Publishing Co., which had, in turn, said the First Amendment interests protected in other states using a constitutional analysis could be protected in Illinois because Illinois is a fact pleading state, requiring more detail than the traditional rule of Rule 8 of the Federal Rules of Civil Procedure, and because the Illinois Court Rule 224 requires a verified petition.  On this theory, these courts decided that once a verified petition has been found to pass a motion to dismiss standard, the protections are equivalent to the summary judgment standard articulated in Cahill.  The Illinois Supreme Court decided that the lower courts' reasoning was correct.