Consumer Law & Policy Blog

"Senators Urge FTC To Examine Ad Fraud"

The Wall Street Journal reports:

Democrats Mark Warner of Virginia and Chuck Schumer of New York plan to send a letter to the Federal Trade Commission [today] asking the regulatory body to examine the persistent challenge of fraudulent ads in online advertising.

For the past several years, as the buying and selling of digital advertising has grown more automated, the industry has grappled with various forms of fraud. For example, scam artists have built networks of bogus websites, where they sell ads and use computer programs-- or “bots”-- to make it look as though these sites are regularly visited by humans.

In other cases, fraudsters have used software to hijack people’s computers and direct web traffic to suspect sites loaded with ads.

The senators, both members of the Senate Banking Committee, noted that the ad industry has undertaken various efforts to stamp out fraud but questioned whether self-regulation will go far enough.

The full article is here. (Subscription may be required.)

Times Reports on Student Loan Alternatives

This weekend, the Times ran a pair of pieces that laid out other ways to handle student loans.  In America Can Fix Its Student Loan Crisis. Just Ask Australia, Susan Dynarski wrote about how other countries deal with student loans. Here's an excerpt:

[T]here is no student debt crisis in Sweden, because payments are spread out over 25 years. They also start out low, rising slowly over time. In the United States, the typical repayment period is just 10 years.

All the international student loan experts I have spoken with are shocked by how little time American students are given to pay their loans. In Germany, students pay their loans over 20 years; in England, it’s 30 years.

This makes sense. A core principle of finance is that the length of debt payments should align with the life of the asset. We pay for cars over five years and homes over 30 years because homes last a lot longer than cars. An education pays off over a lifetime, so it makes sense that student loans should be paid off over a long term.

* * *

[In Australia,] the system works smoothly because borrowers pay nothing until their earnings reach about $40,000. Above that threshold, borrowers pay 4 percent of their income until the debt is paid off. Payments rise and fall automatically with earnings, just as our Social Security payments do.

And yesterday, Ron Lieber wrote about Governor Jeb Bush's student loan proposal:

[S]tudents get a single line of credit and take what they need each semester. For every $10,000 you borrow, you turn over an additional percentage point of your income each year for 25 years. It’s prorated to the exact amount of what you borrow, so that if you have a debt of $28,000 you would be paying 2.8 percent of your income. The payoff term runs out in less than 25 years if your total payments hit 1.75 times the amount you originally borrowed.

I don't know if these are the solution, but our current system requires scrutiny to make sure it's the best we can do.

 

Robo-Signing and Consumer Disclosures

by Jeff Sovern

As I listen to more of the Chain of Title audiobook, I am struck by how the acts of the robo-signers resemble those of consumers faced with disclosures.  Like the consumers, the robo-signers signed the documents without reading them, trusting that the documents presented for their signature were what they should be.  And maybe that shouldn't be surprising, because many of the robo-signers, despite having the title of bank vice presidents, were just ordinary people.  One such robo-signer, who was identified as a vice president for five different banks (depending on which bank he was signing on behalf of), was paid only $10 an hour.  Perhaps this is too much of a stretch, but I wonder if contemporary society's culture of not reading disclosures contributed to this phenomenon.  But unlike many consumers, the robo-signers were committing fraud.  The robo-signer who was paid $10 an hour wasn't signing his name, but someone else's. And often the documents they signed were affidavits stating that the affiant had personal knowledge of the events described in the affidavit.  One passage that brings this home lists the prices from a catalog for re-creating documents, including affidavits. This might sound only like a technicality, until you realize that these documents were used to foreclose upon people and kick them out of their homes.  And sometimes banks did that to people who had not defaulted on their payments or had not even taken out a mortgage.

In my previous post on the book, I mentioned a few consumer law professors whose names have turned up in the volume; since then, the book has referred to Adam Levitin. And consumer lawyers also make an appearance, including April Charney and Max Gardner, both of whom come across as heroic.

An Open Letter to John Oliver

Dear Mr Oliver:

Your show, Last Week Tonight, has had several entertaining segments on consumer law issues, including debt buyers, credit reports, and student loans. But you're missing out on a consumer law subject that can be quite entertaining (unfortunately), even without your special touch. I refer to consumer disclosures.  Some of the aspects of disclosure that lend themselves to your style:

• The iTunes contract runs 32 feet when printed out in 8 point font. See here.

• A British game company, for an April fool’s joke, put in its online terms that people agreeing to the contract gave up their soul on demand.  Nearly 90% of the customers assented to losing their souls.  The company never collected. More here. 

• Chicago experimenters had students sign a fake consent form that obliged them to administer electric shocks to people and do pushups upon demand; the contract itself said people shouldn’t sign it. Nearly all signed it. After the experimenters told the students the truth and gave them the real consent form, many signed it without reading it and the average student spent only seconds reading it. You can read about it here. 

• Only one or two consumers in a thousand spends as much as one second reading online forms. See here.

• The people who lost their homes in foreclosure all got federal disclosure forms telling them what they would have to pay. But the forms had several problems.  Millions of the forms were required by law to state the wrong numbers.  Many consumers couldn’t understand the forms anyway.  But maybe it doesn’t matter because few consumers spent much time reading them. I wrote about it here. 

• Consumers can’t understand disclosures and imagine that these "whimsy little contracts" can’t affect their rights anyway—which is absolutely wrong. For more on whimsy little contracts, go here. 

I suspect your lawyers have told you not to use unsolicited ideas for fear of being sued for copyright infringement or some such thing, so I hereby waive any right I have to sue you for use of these ideas (after all, for all I know, such a segment is already in the works for your show).  But my son would be very impressed if you mentioned my name. Better do it soon, because he's getting to the age when he would be more embarrassed if you said my name than impressed.

Yours,

Jeff Sovern

House Passes Appropriations Bill that Would Cripple the CFPB

by Jeff Sovern

Yesterday the House passed the financial services appropriations bill. Here is how the Appropriations Committee describes the bill's provisions pertaining to the CFPB:

The bill includes a provision to increase oversight over the CFPB by bringing funding for the agency under the annual congressional appropriations process, instead of direct funding from the Federal Reserve. This change will allow for increased accountability and transparency of the agency’s activities and use of tax dollars. The legislation also changes the leadership structure of the CFPB from a single Director to a five-member Commission, and requires the CFPB to study the use of pre-dispute arbitration prior to issuing regulations.

If it makes it into law, this structure would make it harder for the CFPB to respond nimbly to consumer financial problems, and risks paralyzing the Bureau, just as has happened to the Federal Election Commission. If the Bureau is subjected to the appropriations process (unlike other financial industry regulators), financial industry lobbyists would be able to lobby members of Congress to reduce appropriations if the Bureau vigorously protected consumers.  And the arbitration provision, coming after the Bureau already issued the most in-depth study ever of consumer arbitration, is obviously a pretext intended to block the proposed arbitration regulation. Each of these provisions is designed to help the financial industry at the expense of consumers while maintaining the illusion of having a neutral reason.

 

 

Paper on the Use of Unenforceable Terms in Consumer Contracts

Harvard Law S.J.D. candidate and John M. Olin Fellow Meirav Furth-Matzkin has written On the Surprising Use of Unenforceable Contract Terms: Evidence from the Residential Rental Market.  Here is the abstract:

This paper explores the prevalence of unenforceable terms in consumer contracts. Taking the residential rental market in the Greater Boston Area as a test case, the study analyzes a sample of 70 leases in terms of Massachusetts Landlord and Tenant Law. The paper’s findings reveal that landlords frequently use legally dubious — as well as clearly invalid — provisions in their contracts. Building on psychological insights and on a survey-based study of 279 tenants, the paper suggests that such clauses may significantly affect tenants’ decisions and behavior. In particular, when a problem or a dispute with the landlord arises, tenants are likely to perceive the terms in the lease contract as enforceable and forgo valid legal rights and claims. In light of this evidence, the paper discusses preliminary policy prescriptions.

My recollection, which may not be accurate, is that ethical issues can arise if a lawyer knowingly advises a client to insert an unenforceable provision in a contract.

"More Than Ever, Banks Play the Role of Government Law-Enforcement Agents"

The Wall Street Journal reports that

More than at any time in their history, banks are being asked to work hand-in-hand with the U.S. government, serving as deputized watchmen for suspicious activity. That has been happening to some extent since legislation passed after the Sept. 11, 2001, terrorist attacks, but banks’ responsibilities have steadily increased. For more than a decade, financial institutions have been required to file “suspicious activity reports” and have been fined billions of dollars for allegedly failing to do so adequately. 

The full article is here.

Federal government is exempt from TCPA ban on robocalls

The Hill reports:

The entire federal government is exempt from consumer protection laws that limit unwanted robocalls, the Federal Communications Commission decided in a ruling issued Tuesday night. 

While the Telephone Consumer Protection Act bars businesses from making numerous autodialed or prerecorded calls to a person’s cellphone—and similar telemarketing calls to a person’s home phone—the FCC ruled that the 1991 law doesn’t apply to the federal government.

The full story is here. The FCC ruling is here.

CFPB Director Cordray's CNBC Interview: Mortgage Lending, Auto Lending, Credit Card Lending Up

Here.  He also said that the final arbitration and payday lending rules will come out in the next year or so.

NY Times reports on “onerous terms” used by state student loan program

by Julie Murray

On Saturday the New York Times had this article about New Jersey’s student loan program, which has an outstanding loan portfolio of about $2 billion. Here’s an excerpt:

The loans . . . carry higher interest rates than similar federal programs. Most significant, New Jersey’s loans come with a cudgel that even the most predatory for-profit players cannot wield: the power of the state. New Jersey can garnish wages, rescind state income tax refunds, revoke professional licenses, even take away lottery winnings — all without having to get court approval.

“It’s state-sanctioned loan-sharking,” Daniel Frischberg, a bankruptcy lawyer, said. “The New Jersey program is set up so that you fail.”

The article profiled a student borrower whose request for debt deferral was denied by the New Jersey program after the student was diagnosed with cancer and lost his job. Of taking out loans through the state, he said:

 “I felt so comfortable because it was the State of New Jersey,” Mr. Gonzalez said. “It’s the state, my government, trying to help me out and achieve my American dream. It turns out they were the worst ones.”