Consumer Law & Policy Blog

Raising the local minimum wage doesn't hurt the local economy

Jared Bernstein and Ben Spielberg explain of the Center on Budget and Policy Priorities explained in the Washington Post on Friday that studies have debunked this argument against raising the minimum wage at the local level. Read the piece here.

CFPB Director Richard Cordray's Near-Term Goals

In a speech February 25 at the CFPB's Consumer Advisory Board meeting, CFPB Director Richard Cordray identified nine "key areas where we hope to make substantial progress over the next two years."  He also noted, however, that "these goals do not capture all of the important work we are doing." The nine goals are:

First, we envision a mortgage market where lenders serve the entire array of credit-worthy borrowers fairly, and where servicers have processes in place that result in fair and efficient outcomes for consumers.

Second, we envision a student loan market where student loans are serviced in a way that is transparent and fair to help students repay their debts.

Third, we envision a consumer reporting market with better data that is more accurate and inclusive of more consumers.

Fourth, we envision a market free from discrimination and where consumers have equal access to small business lending.

Fifth, we envision a market where consumers are savvy about their own finances, and they have reliable places to turn to for the tools and skill building to increase their own financial capability.

Sixth, we envision a market where consumer education and policy decisions about household finances are based on a deep understanding of how households use financial products and make choices about money and the effects on their lives.

Seventh, we envision an open-use credit market where payday and installment lenders rely on business models that succeed when consumers use credit as needed and are able to repay their debts when they come due.

Eighth, we envision a debt collection market where everyone who collects debts substantiates the debts they are collecting and communicates with debtors about their debts in a respectful, lawful, consumer-oriented manner.

Ninth, and finally, we envision an entire consumer financial marketplace where consumers will have the ability to effectuate their rights and hold institutions accountable for unlawful conduct.

It will be interesting to see how the Bureau interprets and implements those goals, including the eighth goal that would require debt collectors to substantiate the debts they collect, the fifth goal that seeks to insure that consumers are savvy about their own finances, and the ninth, which wants consumers to have the ability to effectuate their rights and hold institutions accountable.

 

NY Times: Overdraft Practices Continue to Gut Bank Accounts and Haunt Customers

Here. Excerpt:

In a push for transparency since the 2008 financial crisis, regulators require banks to clearly disclose and explain the terms of just about every financial product, including credit cards and mortgages. But overdraft practices still come with hidden costs and confusing terms, bank customers, lawyers and consumer advocates say.

* * *

It is by no means a new problem. In a series of class-action lawsuits beginning in 2009 against more than a dozen big banks, customers accused banks of hiding a practice known as reordering. The practice, the lawsuits revealed, involved deliberately processing large transactions like mortgage payments first before taking out smaller charges, like a purchase of coffee — even if customers bought the coffee first. By arranging the order of transactions, the banks could maximize the number of overdrafts they charged. At the time, some banks defended the practice, arguing it ensured that large, important bills were covered.

The lawsuits resulted in the banks paying more than $1.1 billion in settlements. Among them was TD Bank, which agreed to pay $62 million.

Today, TD Bank is still reordering transactions and informs customers about the practice in the fine print of its checking account agreements.

“Their position is ‘If we disclose it, we can get away with whatever the hell we want,’ ” said Mark Mangan, a TD Bank customer from Bloomfield, N.J., who has been hit with as much as $140 in overdraft fees in a single day.

When asked about its reordering of customer transactions, TD Bank said in statement that it planned to end the practice as soon as April.

* * *

Regulations, passed in 2010, require banks to give customers a choice of whether to incur overdraft fees or have a transaction declined.

But many customers end up confused by how overdrafts work. In their marketing materials, for example, banks present the choice of whether to sign up for overdraft as an offer of “overdraft protection” — a feature many customers thought would automatically deny transactions and shield them from incurring the fees at all. * * *

The evidence on the failure of disclosure just keeps coming.

More on Hoofnagle's FTC Privacy Law and Policy

by Jeff Sovern

I've gradually been making my way through Chris Hoofnagle's new book, Federal Trade Commission Privacy Law and Policy (more about that below).  For those who want to sample the book before ordering it, Chris has posted the Introduction and an excerpt to SSRN here.  The book opens with an interesting history of the FTC and advertising law generally.  One of the remarkable things about that history, which I had not known, was that well into the Twentieth Century, advertising law was confined to mandating disclosure of ingredients.  An excerpt from the book (footnote omitted):

* * * Arthur Kallet and Frederick J. Schlink shocked the public with the publication of their bestselling 1,000,000 Guinea Pigs in 1933. It illuminated the extent of dangerous products sold, the marketing of those products, and the weakness of federal regulation. The book, which underwent over a dozen printings and was widely read, led directly to the passage of stronger laws in 1938. Throughout the book’s anecdotes, a common theme emerged: individuals could become very affluent by experimenting on the public. When individuals were harmed, the government and victims could do little to remedy the problem because the law primarily was concerned with giving consumers notice of ingredients. If an experiment failed, the entrepreneur could simply move on to some other product. Kallet and Schlink saw the law as a license to kill. Consider these examples:

• Kopp’s Baby Friend, marketed as a soothing agent for babies, secretly contained morphine, and it led to the deaths of nine infants. The government’s remedy at the time was limited to prosecuting mislabeling. Thus, after a $25 fine, Kopp’s reappeared on the market, albeit with a disclosure of morphine as an ingredient.

• Entrepreneurs were free to create “cures” that were crude and dangerous experiments on the consumer. For instance, William J. A. Bailey marketed Radithor, water irradiated with radium, to affluent people. When a prominent patient died, Bailey told the New York Times that “I have drunk more radium water than any man alive and I never have suffered any ill effects.”

• Pebeco Toothpaste contained potassium chlorate (a poisonous, combustible chemical originally used to ignite bullets), so much that, “[i]n 1910, a German army officer committed suicide by eating the contents of a tube of Pebeco.”

While we have come a long way, it is interesting that the debate over disclosure versus other forms of regulation continues today.

 

Reuters: Republican Marco Rubio winning Wall Street fundraising race

Here.  Excerpt:

 

The U.S. senator from Florida has received more than $4 million from the employees of banks and investment firms like Bank of America Corp (BAC.N), Deutsche Bank (DBKGn.DE) and Goldman Sachs Group Inc (GS.N) since launching his bid for the presidency last year, according to the analysis of individual donations totaling more than $200 each. * * *

* * * Democratic hopeful Hillary Clinton took third place with $723,361 * * *

* * *

Democrat Bernie Sanders and Republican Donald Trump have received some of the smallest totals from Wall Street. 

Johnson on Payment Cards

D. Bruce Johnsen of George Mason has written A Closer Look at Payment Cards. Here is the abstract:

This essay takes a closer look at the U.S. payment card system, primarily debit cards. I examine the bundle of transactional services this and other types of payment cards provide. My goal, in large part, is to assess the competitive effects of the debit card interchange fee cap under the Durbin Amendment to the Dodd-Frank Act (2011). In addition to a binding fee cap, it mandated a change in the way the fee is metered. A maximum per transaction fee of 20 cents, binding for most transactions, replaced a typical two-percent negotiated fee. I test hypothesis that the cap caused or contributed to a decline in the willingness of payment card intermediaries to invest in security, possibly increasing the system’s vulnerabilities to the kind of data breaches that have become ever more commonplace.

Self-help against non-disparagement clauses?

by Paul Alan Levy
A comment to my recent blog post about Prestigious Pets, a Dallas pet care company that recently sued two of its customers for negative reviews, suggested an interesting approach for dealing with businesses that use non-disparagement clauses to block customers from posting accurate but unflattering reviews.  Although consumer advocates place hope that the possible passage of the Consumer Review Freedom Act might prove an exception to an otherwise dysfunctional Congress, “Rob D” suggests that, in the meantime, review sites engage in self-help by posting a warning label on the page of any business that is known to have included non-disparagement clauses in its contracts.  That way, he (or she) argues, consumers will know that they cannot be confident based on the presence of several four and five star ratings that other consumers have not had negative experiences; they will also learn that they can place little confidence in a high average rating because negative ratings have been unfairly excluded.

Second Circuit: First Amendment access to judicial documents applies to civil complaints

The court of appeals this week affirmed a district court's decision to unseal a complaint even though the case settled within two weeks after it was filed. Of note, the Second Circuit held that the public is entitled to access civil complaints not just under the common law right of access but also under the First Amendment, which imposes a heavy burden on those seeking judicial secrecy.

The Second Circuit also reiterated the rule, which I think is correct but not necessarily intuitive, that a court, when analyzing the status of a document under the constitutional and common law rights of access, should consider the role of this type of document in the judicial process generally, not whether this particular judge relied on this particular document in this particular case. Accordingly, the public is no less entitled to see a complaint in a case that settled than in a case in which the court granted judgment on the pleadings. And judges need not wait until the end of a case to evaluate the role each document actually played so that they can determine the strength of the public's right to access it.

Read the decision here.

FTC acts against debt-relief operation that targeted financially distressed homeowners and student loan borrowers

The Federal Trade Commission has charged a debt relief operation with falsely representing to financially distressed homeowners and student loan borrowers that it would help get their mortgages and student loans modified. At the FTC’s request, a federal court has temporarily halted the operation. The agency seeks to permanently stop the alleged illegal practices and obtain refunds for affected consumers.

According to the FTC’s complaint, Good EBusiness LLC, using the name The AAP Firm, and Tobias West deceptively marketed home loan modification services and illegally charged an advance fee of between $1,000 to $5,000. The agency alleges that the defendants falsely claim that they can lower consumers’ monthly mortgage payments, often quoting a specific amount, and reduce their mortgage interest rates, usually within a few months, and falsely promise full refunds if they fail. They told consumers, many of whom were current on their mortgage payments, to stop making payments to, and communicating with, their lenders during the purported loan restructure process, without providing required disclosures, according to the complaint.

The FTC’s complaint also alleges that Good EBusiness, using the names Student Loan Help Direct and Select Student Loan; Select Student Loan Help LLC; Select Document Preparation Inc.; and Tobias West and Komal West illegally charged an advance fee of $500 to $800 for purported student loan relief services. According to the complaint, the defendants falsely told financially distressed borrowers – including some who were at risk of delinquency or default and already subject to seizure of their tax refunds or wage garnishment – that they would renegotiate, settle or alter payment terms on their student loan debt, and remove tax liens and wage garnishments, or they would fully refund the fees if they failed.

Good Ebusiness and Tobias West are charged with violating the FTC Act, the Mortgage Assistance Relief Services Rule, and Regulation O. All of the defendants are charged with violating the FTC Act and the Telemarketing Sales Rule.

The U.S. District Court for the Central District of California entered a temporary restraining order against the defendants on February 16, 2016.

Pasquale on Student Loan IBR

Frank A. Pasquale III of Maryland has written Democratizing Higher Education: Defending and Extending Income-Based Repayment Programs, Loyola Consumer Law Review (Forthcoming). Here is the abstract:

This article addresses many critiques of income-based repayment programs for student loan debt. These programs are not helping many of the students they were designed to aid. Their terms are too harsh, especially given repeated failures by relevant authorities to fully account for the benefits of higher education. If reformers fail to substantially improve the terms and accessibility of IBR programs, they will lose popularity and credibility.