Consumer Law & Policy Blog

The CFPB and regulation of the "fringe" economy

Christopher Odinet has written Payday Lenders, Vehicle Title Loans, and Small-Value Financing: The CFPB's Proposal to Regulate the Fringe Economy. Here is the abstract:

The market for payday lenders, businesses that provide vehicle title loans, and other small-value financing players is rife with controversy. Some see them as predatory lenders that weave a web of never-ending debt designed to capture the weakest and most economically vulnerable of society. However, advocates of these financial institutions argue that for many Americans who are otherwise shut out of the conventional lending market, these players provide the only viable source of credit in times of economic hardship. Whatever the view, these businesses, their borrowers, and the credit markets that they together comprise are often referred to in legal and economic research and literature as the "fringe economy." And interestingly, aside from a patchwork of state law rules, this area of the financial services sector is fairly unregulated. However, on Thursday, March 26, 2015 the U.S. Consumer Financial Protection Bureau released a report outlining the agency’s long heralded plans to impose nation-wide regulations on the fringe economy. The first part of this article gives an overview of the fringe economy, the types of services and products it provides, and gives a snapshot of existing, state-based regulations. The second part goes into the nuts and bolts of the proposed rules.

Identity theft statistics

Thanks to alert reader Jasmine Henriques for sending us this informative graphic about identity theft, which reflects data about whom it befalls, how much it costs, and how it is most frequently carried out, among other things.

FDA to use patient-generated reports to evaluate drug safety

The Washington Post reports today:

[I]n an effort to get a fuller understanding of side effects of certain medicines, the FDA is partnering with a networking forum called PatientsLikeMe, which allows people with the same disease or condition to connect with others and share their experiences.

The site, among the largest of its kind, has more than 350,000 members reporting on about 2,500 conditions. That translates to a massive amount of data, which can be sold to pharmaceutical companies, regulators and care providers. But rather than sell that information to the government, the group plans to collaborate with the FDA to develop new methods of finding problems with new drugs.

The hope is that "patient-generated data could give a more complete picture on side effects by providing more context."

The full story is here.

Symposium on Nancy Kim's Wrap Contracts . . .

. . .  in the Southwestern Law Review, as reported with links to pdfs by the ContractsProfBlog. 

NYT editorial on abusive car loans

A New York Times editorial yesterday encouraged that the Consumer Financial Protection Bureau use its enforcement powers to put an end to abusive car loans. The editorial begins:

Auto loans have long been a bastion of predatory lending and racial discrimination. Until the federal Consumer Financial Protection Bureau was established, auto lending by banks was only lightly regulated, and lending by nonbank finance companies escaped federal regulation altogether. Greater scrutiny of banks by the bureau since 2013 has resulted in fines totaling $18 million and in payments totaling $136 million to 425,000 black, Hispanic and Asian borrowers who were charged higher auto-loan interest rates than comparable white borrowers.

The editorial concludes: "The consumer agency, having rightly asserted its authority over nonbank auto lending, must now use its enforcement powers to put an end to abusive car loans."

The full editorial is here.

PayPal's new user agreement may violate TCPA

The Federal Communications Commission has warned PayPal that PayPal's new terms of service might violate the Telephone Consumer Protection Act. Under the new terms, which go into effect in July, PayPal customers would be deemed to have consented to receiving robocalls and texts from PayPal on any phone number.

The Hill has the story.

Empirical Study of Arbitration and Repeat Player Effect

David Horton and Andrea Cann Chandrasekher both of California, Davis, have written After the Revolution: An Empirical Study of Consumer Arbitration, 104 Georgetown Law Journal (Forthcoming 2015). Here's the abstract:

For decades, mandatory consumer arbitration has been ground zero in the war between the business community and the plaintiffs’ bar.  Some courts, scholars, and interest groups argue that the speed, informality, and accessibility of private dispute resolution create a conduit for everyday people to pursue claims.  However, others object that arbitration’s loose procedural and evidentiary rules dilute substantive rights, and that arbitrators favor the repeat playing corporations that can influence their livelihood by selecting them in future matters.  Since 2010, the stakes in this debate have soared, as the U.S. Supreme Court has expanded arbitral power and mandated that consumers resolve cases that once would have been class actions in two-party arbitration.  But although the Court’s jurisprudence has received sustained scholarly attention, both its defenders and critics do not know how it has played out behind the black curtain of the extrajudicial tribunal.

This Article offers fresh perspective on this debate by analyzing nearly 5,000 complaints filed by consumers with the American Arbitration Association between 2009 and 2013.  It provides sorely-needed information about filing rates, outcomes, damages, costs, and case length.  It also discovers that the abolition of the consumer class action has changed the dynamic inside the arbitral forum.  Some plaintiffs’ lawyers have tried to fill this void by filing numerous freestanding claims against the same company.  Yet these “arbitration entrepreneurs” are a pale substitute for the traditional class mechanism.  Moreover, by pursuing scores of individual disputes, they have inadvertently transformed some large corporations into “extreme” repeat players.  The Article demonstrates that these frequently-arbitrating entities win more and pay less in damages than one-shot entities.  Thus, the Court’s consumer arbitration revolution not only shields big businesses from class action liability, but gives them a boost in the handful of matters that trickle into the arbitral forum.

Woodward on "Contraps"

William J. Woodward Jr.of Santa Clara has written Contraps, 66 Hastings Law Journal (2015). Here is the abstract:

Forms that purport to govern consumer transactions are a central component of our modern consumer economy. They are routinely enforced because consumers are said to “manifest assent” to them, despite the fact that they are not read and not intended to be read. Recent empirical work shows that virtually no one reads or understands consumer forms. This has cast into substantial doubt the conventional explanation for enforcement — that enough people are reading the forms to cause vendors to worry about lost sales resulting from nasty terms, that “market discipline” will thus limit vendor excess. Given the empirical findings, “assent” (in any common understanding of the word) cannot explain why we enforce terms found in forms; our attempts to reconcile enforcement with some version of knowing, voluntary action characteristic of “contract law” simply confuses the analysis. Policy choices would be substantially clarified if the confounding idea of “assent” were simply removed from the analysis. Removing consumer forms from the assent-based law of contracts — that is, changing how we teach and speak about this area of law — could be a first step towards reform.

Do Opt-Out Clauses Save Arbitration Agreements from Being Unconscionable?

by Jeff Sovern

In Mohamed v. Uber, the federal district court for the Northern District of California said no.  Opt-out clauses appear in contracts and give the contracting parties the right to opt-out of arbitration to resolve disputes within a certain period of time after entering into the contract, often thirty or sixty days (which is frequently before any dispute actually arises). Industry lawyers sometimes claim that because consumers are given the opportunity to opt-out, the arbitration clause cannot be unconscionable and therefor is enforceable.  Here is part of how the court responded to that argument:

 

* * * Drivers’ opt-out right under the 2013 Agreement was illusory because the opt-out provision was buried in the contract. The opt-out provision was printed on the second-to-last page of the 2013 Agreement, and was not in any way set off from the small and densely packed text surrounding it. 2013 Agreement § 14.3(viii). Furthermore, the fact that those drivers who actually discovered the opt-out clause (if any) could only opt-out by a writing either hand-delivered to Uber’s office in San Francisco or delivered there by a “nationally recognized overnight delivery service,” renders the opt-out in the 2013 Agreement additionally meaningless.

 It probably did not help Uber that after claiming at oral argument that some drivers had opted out, Uber failed to present evidence that any had. 

(HT: Dalie Jimenez)

(BREAKING) House rejects package on trade

The NYT story is here. Note that the House actually voted on several measures; the NYT explains the difference.