Consumer Law & Policy Blog

White House tweaks federal financial aid rules

The Hill reports:

The Obama administration on Monday announced a tweak to the federal financial aid program that one official said would help “literally hundreds of thousands” of students each year.

Obama and Education Secretary Arne Duncan will formally announce the change at a town hall meeting in Iowa, where they will meet with high school juniors and seniors. The announcement is part of a weeklong effort highlighting Obama’s work on higher education.

Starting next year, college applicants and their families will have more time to complete the financial aid form known as the FAFSA, or Free Application for Federal Student Aid. Duncan said the move would help enroll more low-income students, who were previously deterred by the burdensome process, at schools nationwide.

The full story is here.

A Comment on Kaplinsky & Levin's "CFPB Makes Consumer Arbitration a Numbers Game—and the Numbers Overwhelmingly Support Consumer Arbitration"

by Jeff Sovern

The following is the body of an email I sent to the editor of the Consumer Financial Services Law Report (a very useful newsletter on developments in consumer finance):

The August 9, 2015 issue of the Consumer Financial Services Law Report includes an advocacy piece by financial industry lawyers Alan S. Kaplinsky and Mark J. Levin titled CFPB Makes Consumer Arbitration a Numbers Game—and the Numbers Overwhelmingly Support Consumer Arbitration, that comments on an article I co-authored. I write to set the record straight.

Our article reports on an online survey my co-authors and I conducted of 668 consumers approximately reflecting adult Americans in various demographic categories.  We provided consumers with a representative credit card contract that included an arbitration clause printed in bold, italics, and ALLCAPS. The arbitration clause was more readable than most such arbitration clauses. We then asked consumers questions about the arbitration clause as well as about arbitration clauses in general.  The responses indicated that few respondents understood the arbitration clause and that many believed that they could not lose their rights to judicial process, including the rights to litigate in court and to participate in class actions, by agreeing to what one respondent termed a “whimsy little contract.” 

Our findings raise serious questions about whether consumer consent to pre-dispute arbitration clauses is informed and thus whether it can be called consent in any meaningful sense.  The results thus create doubt about arbitration’s legitimacy, because any such legitimacy must be rooted in consent: consumers cannot be forced to arbitrate unless they have agreed to do so.

Messrs. Kaplinsky and Levin do not question our findings. Indeed, it would be difficult for them to do so, given that the CFPB’s telephone survey echoed some of our results, and that an industry group, the American Financial Services Association, has acknowledged both that consumers usually do not read contracts and that it is unlikely they are aware of credit card arbitration clauses.  See Letter from Bill Himpler, American Financial Services Association to CFPB re Telephone Survey Exploring Consumer Awareness of and Perceptions Regarding Dispute Resolution Provisions in Credit Card Agreements (Aug. 6, 2013), http://www.afsaonline.org/library/files/legal/comment_letters/CFPBArbitrationSurvey.pdf.

Instead, Messrs. Kaplinsky and Levin claim that a “methodological flaw” in our study “is the critical fact that the authors did not interview consumers who actually had participated in arbitration and who would likely have positive comments about their experience.” Next we will see tobacco companies charging that studies showing smoking is harmful suffer from a “methodological flaw” because the studies did not ask smokers whether they enjoy smoking.  Our study was intended to shed light on whether consumers understood what they were doing when they surrendered constitutional rights, including the right to have a court decide their disputes and to a jury trial, among other rights.  Perhaps Messrs. Kaplinsky and Levin should focus on what we found, rather than on things they wish we had found.

I will leave to others the task of rebutting other claims Messrs. Kaplinsky and Levin made (I have previously responded to some of them on the Consumer Law and Policy Blog, which can be found at http://pubcit.typepad.com/).  But I want to make one more point.  For some reason, Messrs. Kaplinsky and Levin departed from conventional norms by referring to our article without including the names of the authors, the name of the article, or a link where it can be found. My co-authors are Elayne Greenberg, Paul Kirgis, and Yuxiang Liu and the article is titled “Whimsy Little Contracts” with Unexpected Consequences: An Empirical Analysis of Consumer Understanding of Arbitration Agreements. The article will appear in the Maryland Law Review and can be downloaded from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2516432.   It provides a much fuller accounting of our findings than I can here. 

Celebrate the holidays with Coke (or not)

Go here or click on the embedded video below.

 

FDA issues regulation to bolster food safety

The Food and Drug Administration has released rules that will require U.S. food manufacturers to make detailed plans to identify and prevent possible contamination risks in food production facilities. As the Washington Post reports, "[t]he new regulations, which will apply to the production of both human and animal foods, mark the first step in a broader effort to make the nation's food safety system more proactive, rather than merely reacting to outbreaks after they occur. The rules ... represent a cornerstone of a far-reaching law passed nearly five years ago by Congress, which aimed to overhaul the nation's food safety system for the first time in generations. The FDA said it expects to finalize additional rules regarding the growing and packaging of produce, as well as requirements that imported foods meet U.S. safety standards, in coming months."

In more technical language, the FDA explained:

[FDA] is amending our regulation for Current Good Manufacturing Practice In Manufacturing, Packing, or Holding Human Food in two fundamental ways. First, we are modernizing the long-standing current good manufacturing practice requirements. Second, we are adding requirements for domestic and foreign facilities that are subject to our regulation for Registration of Food Facilities to establish and implement hazard analysis and risk-based preventive controls for human food. We also are revising certain definitions in our regulation for Registration of Food Facilities to clarify the scope of the exemption from registration requirements provided for “farms” and, in so doing, to clarify which domestic and foreign facilities are subject to the requirements for hazard analysis and risk-based preventive controls for human food. We are taking this action as part of our announced initiative to revisit the current good manufacturing practice requirements since they were last revised in 1986 and to implement new statutory provisions in the FDA Food Safety Modernization Act. The rule is intended to build a food safety system for the future that makes modern, science- and risk-based preventive controls the norm across all sectors of the food system.

The final rule is posted here.

Jim Hawkins Asks if Bigger Companies Are Better for Low-Income Consumers

Jim Hawkins of Houston has written Are Bigger Companies Better for Low-Income Borrowers?: Evidence from Payday and Title Loan Advertisements, Forthcoming in the Journal of Law, Economics and Policy. Here is the abstract:

Payday lending and title lending markets are dominated by a small number of large lenders.  Recent policy intervention into these markets in Colorado has increased this dominance as some smaller lenders have closed shop.  The Consumer Financial Protection Bureau is on the verge of regulating payday loans, creating the potential for larger companies to gain an even more prominent place in this market nationally.  But, before we implement regulation that could unintentionally bolster large lenders, we need to ask: Are bigger companies better for low-income borrowers?

This Article attempts to answer this question by presenting evidence from a study of the advertisements on 189 payday and title lending storefronts in Houston, Texas and on 30 lender websites. Accepting on their face the views of payday and title lending opponents about what is “good” for low-income borrowers, I find mixed results.  On some of the metrics I used, large lenders appear better for low-income borrowers, but on others, small lenders perform better.  For instance, more large lenders were in compliance with Texas law at the time of my study, but a larger percentage of big companies charged above average prices for loans.  Additionally, larger companies were also more likely to primarily have pictures of racial minorities on their websites while a smaller percentage of larger companies had websites dominated by pictures of females.

In addition to comparing large and small lenders, I present general information about payday and title lending advertising.  Overall, I found a low level of compliance with Texas disclosure laws.  Additionally, I found that despite consistent claims to the contrary in the literature, there is substantial price differentiation among lenders in Houston.  Finally, the pictures on websites are most likely to be females from a minority group, suggesting that perhaps lenders are targeting these audiences. 

Why the [Federally Mandated] Nutrition Label Fails to Inform Consumers

That's the title of this article by Sherzod Abdukadirov. Here is the abstract:

As it becomes clear that the Nutrition Facts panel (NFP) and other information disclosure policies have failed to improve consumers’ dietary choices, many health advocates have declared information-based policies ineffective and instead advocate measures that would manipulate consumers’ choices. In contrast, this paper argues that health advocates are too quick to blame consumers for the ineffectiveness of information disclosure policies. Using the NFP as an example, the paper shows that information disclosures are often poorly designed and fail to actually inform consumers. They often fail to account for how consumers perceive and interpret information or for the differences in their socioeconomic backgrounds. Thus, it may not be consumers’ behavioral biases but rather poor policy design and implementation that is be responsible for the NFP’s ineffectiveness. Consequently, the paper argues that nutrition labels should follow smart disclosure principles, which emphasize information salience and usability.

Column praising CFPB data collection

Law prof Adam Levitin has written this article in The American Banker called The CFPB's Data Collection Is to Be Applauded. At his blog, Credit Slips, Levitin explains that "the CFPB's data collection ... has become the latest inside-the-Beltway attack on the CFPB."

Article on deficiencies in dietary supplement regulation

Law professor Diana Sax has written Dietary Supplements Are Not All Safe and Not All Food: How the Low Cost of Dietary Supplements Preys on the Consumer. Here is the abstract:

Dietary supplements are regulated as food, even though the safety and efficacy of some supplements are unknown. These products are often promoted as ‘natural’. This leads many consumers to fail to question the supplements’ safety, and some consumers even equate ‘natural’ with safe. But, ‘natural’ does not mean safe. For example, many wild berries and mushrooms are dangerous although they are natural. Another example is tobacco — a key ingredient in cigarettes — it is natural, but overwhelming studies have established the harm of cigarette smoke. The Food and Drug Administration (FDA) requires safety and efficacy testing prior to market entry for drugs. In contrast, the FDA only has limited ability to regulate the entry of new dietary supplements into the marketplace because supplements are treated as food. Two main arguments support the current regulatory structure of dietary supplements: (1) cost and (2) access. Lower cost and increased access to dietary supplements do not necessary have any relationship to safety and efficacy. Manufacturers’ marketing techniques tout the health benefits of their supplements. Meanwhile, consumers are ingesting supplements without scientific studies indicating whether or not they are harmful. The Food Safety and Modernization Act, signed into law on January 4, 2011, did not address the safety concerns regarding dietary supplements. This article discusses the regulatory deficiencies concerning dietary supplements and proposes novel solutions to address this specific sector of the food supply. This article advocates for the use of scientific data to support a multi-tiered classification system to ensure that dietary supplements on the market are safe.

Can Grocery Carts Steer Consumers To Healthier Purchases?

...is the title of an NPR report this morning discussing what happens what experimenters taped off a portion of consumers' grocery carts and labeled it "fruits and vegetables." The results tell us as much about marketing and the power of suggestion as they do about how health-conscious grocery stores might try to nudge their consumers.

Listen here.

CFPB acts against deceptive tactics by large debt buyers

The Consumer Financial Protection Bureau announced yesterday:

Today the Consumer Financial Protection Bureau (CFPB) took action against the nation’s two largest debt buyers and collectors for using deceptive tactics to collect bad debts. The Bureau found that Encore Capital Group and Portfolio Recovery Associates bought debts that were potentially inaccurate, lacking documentation, or unenforceable. Without verifying the debt, the companies collected payments by pressuring consumers with false statements and churning out lawsuits using robo-signed court documents. The CFPB has ordered the companies to overhaul their debt collection and litigation practices and to stop reselling debts to third parties. Encore must pay up to $42 million in consumer refunds and a $10 million penalty, and stop collection on over $125 million worth of debts. Portfolio Recovery Associates must pay $19 million in consumer refunds and an $8 million penalty, and stop collecting on over $3 million worth of debts.

The CFPB's full press release is here.