Consumer Law & Policy Blog

Two Revealing Quotes from the Times Arbitration Report

by Jeff Sovern

 Deepak posted earlier about the extraordinary Times story on arbitration.  I have been studying arbitration for some time, and yet some items in the story were new to me. Though the entire article demands to be read, here are two especially revealing quotes:

Since no government agency tracks class actions, The Times examined federal cases filed between 2010 and 2014. Of 1,179 class actions that companies sought to push into arbitration, judges ruled in their favor in four out of every five cases.

[B]y assembling records from arbitration firms across the country, The Times found that between 2010 and 2014, only 505 consumers went to arbitration over a dispute of $2,500 or less.

Putting those quotes together yields the conclusion that businesses are able to use arbitration clauses to defeat claims where individual consumers have lost small amounts--meaning businesses are free to cheat consumers out of small amounts, unless regulators stop them.

New York Times does a deep dive into the rise of forced arbitration

Jessica Silver-Greenberg and Robert Gebeloff of the New York Times have a must-read story today, the first of several, on the rise of forced arbitration: "Arbitration Everywhere, Stacking the Deck of Justice." The piece weaves together the history of the silent legal coup achieved by the Chamber and the Roberts Court with stories of the real people whose lives it has changed. And, unlike some previous reporting, it focuses firmly on the principal effect of forced arbitration: the suppression of class-action claims. 

Having worked extensively with Silver-Greenberg on this series over the past several months, I can attest that these reporters understand and have explored the issue in greater depth than any previous journalists. I can only hope that this depth and skill of the reporting, and the unique platform of the Times, will translate into a lasting impression on the body politic. This coverage comes at a particularly relevant moment, as the Consumer Financial Protection Bureau prepares to roll out a proposed rulemaking on arbitration that could actually fix the problem--at least in the realm of consumer financial contracts. We'll need all the help we can get to prevent Wall Street's friends in Congress from scuttling the new rule.

Federal Judge Enjoins Roca Labs from Imposing or Enforcing a Nondisparagement Clause That Facilitates Deception in Violation of the FTC Act

by Paul Alan Levy

On the eve of a Senate Commerce Committee hearing on the Senate version of the Issa-Swalwell bill, (the latter is endorsed by Public Citizen) that would ban non-disparagement clauses in consumer contracts, the United States District Court for the Middle District of Florida has become the first federal court to recognize the ways in which a company can use non-disparagement clauses to help deceive customers about the quality of its products, enjoining a Florida supplement company from using such clauses.  

The Federal Trade Commission had sued Roca a seller of supposed miracle supplements, for misrepresenting the quality of its products and for misusing non-disparagement clauses, to which consumers supposedly agreed by accepting a “discounted” price for Roca’s useless products.  The FTC sought a preliminary injunction against both Roca’s deceptive ads and against the use of the nondisparagement clause, and Roca consented to the proposed preliminary injunction respects except one – it fought to hold onto its nondisparagement clause.  Although Marc Randazza filed an excellent amicus brief presenting broad arguments about how unfair nondisparagement clauses are as a general matter, the FTC’s arguments were largely focused more narrowly on deceptive use of the pseudo-discount to obtain agreement and on the argument that the clause aids other aspects of Roca’s pattern of deceptive behavior.  The judge’s findings were limited to those aspects of the situation, leaving for another day a more general assault on nondisparagement clauses in consumer contracts.

ABA Journal In-Depth Report: Debt-buying industry and lax court review are burying defendants in defaults

Here.

CFPB acts against two large employment background screening providers for inaccurate reports

The Consumer Financial Protection Bureau had a busy week.

In addition to the actions described in the two posts below, yesterday, the CFPB announced action against the two largest providers of background screening reports to employers for failing to verify the accuracy of reports sold to employers about job applicants.

[T]he Consumer Financial Protection Bureau (CFPB) took action against two of the largest employment background screening report providers for failing take basic steps to assure the information reported about job applicants was accurate. The serious inaccuracies reported by General Information Services and its affiliate, e-Background-checks.com, Inc. (BGC), potentially affected consumers’ eligibility for employment and caused reputational harm. The CFPB is ordering the companies to correct their practices, provide $10.5 million in relief to harmed consumers, and pay a $2.5 million civil penalty.

“General Information Services and its affiliate failed to take basic steps to provide accurate background screening reports to employers about job applicants,” said CFPB Director Richard Cordray. “Today, we are holding two of the largest companies in this market accountable for cleaning up the quality of their reports.”

Under the terms of a consent order, the two companies will provide $10.5 million in relief to harmed consumers,revise their compliance procedures,retain an independent consultant, develop a comprehensive audit program, and pay a civil monetary penalty of $2.5 million.

A link to the consent order is provided in the CFPB press release.

CFPB acts against student financial aid scam

The Consumer Financial Protection Bureau has filed a complaint seeking to halt a nationwide student financial aid scam that allegedly ripped off tens of thousands of students and families across the country by illegally charging millions of dollars in fees for sham financial services. The complaint names as defendants Student Financial Resource Center and College Financial Advisory, as well as the individual who owns and operates the scheme. The CFPB is seeking to halt illegal practices and obtain relief for harmed consumers.

The CFPB's complaint alleges violations of the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition against deceptive acts and practices by misleading consumers about their services. The complaint also alleges that the defendants violated federal privacy law for failing to provide a required privacy notice.

Details are provided in the CFPB's press release. The complaint is here.

Default judgment entered against Corinthian Colleges for engaging in predatory lending scheme

In September 2014, the Consumer Financial Protection Bureau sued Corinthian Colleges, Inc., alleging that Corinthian engaged in a predatory lending scheme. This week, a federal court entered a final default judgment against Corinthian. The CFPB's press release explains:

The Bureau’s lawsuit against Corinthian alleged that the company lured tens of thousands of students into taking out private loans to cover expensive tuition costs by advertising bogus job prospects and career services. Corinthian then used illegal debt collection tactics to strong-arm students into paying back those loans while still in school. The court ordered that Corinthian was liable for more than $530 million and prohibited the company from engaging in future misconduct.

The full CFPB release is here.

OMB agrees regulations are a good deal

We told you yesterday about a story documenting the source of many regulatory delays: OIRA.

OIRA is a component of the Office of Management and Budget (OMB). OMB now says (in a draft report) that regulations are cost-effective and produce billions of dollars in net benefits.

As the Coalition for Sensible Safeguards (of which Public Citizen is a member) explains:

The report estimates the total benefits and costs for major rules over the past decade. Over the past 10 years, regulatory protections have generated as much as $812 billion in annual benefits compared to as little as $57 billion in costs. That’s equivalent to $755 billion in annual net benefits, with benefits outweighing costs by more than 14 times.

In FY 2014 alone, the report finds as much as $18.9 billion in annual benefits for major rules compared to as little as $2.5 billion in annual costs. That’s equivalent to more than $16 billion in annual net benefits or seven times the costs.

Read the full Coalition press statement here.

It's time for OMB to listen to its own assessment and get out of the way of safety regulations, which benefit the public and save lives.

Reuters expose on OIRA and the costs of "braking the rules"

In an illuminating piece today entitled "How a small White House agency stalls life-saving regulations," Reuters explains how regulatory delay -- chiefly on the part of the White House Office of Information and Regulatory Affairs -- costs lives. The examples cited, including worker-safety, environmental protection, and auto-safety rules, are poignant and powerful. (One example highlighted is the six-year delay in requiring back-up cameras in all new cars, which the agency finally did the day before a Public Citizen unreasonable-delay lawsuit was to be argued in the Second Circuit Court of Appeals.)

Read the Reuters story here.

"Payday Loans Cost the Poor Billions, and There’s an Easy Fix"

In an op-ed in today's New York Times, Yale sociology professor Frederick Wherry argues that "[t]he United States government could put billions of dollars back into the pockets of [pay-day loan borrowers] by fixing a small regulatory problem and allowing banks to get into the business of small loans."

The op-ed it here.