Consumer Law & Policy Blog

CFPB issues rule on prepaid cards

The Consumer Financial Protection Bureau has finalized a set of rules intended to protect prepaid account users. The new rule requires financial institutions to limit consumers’ losses when funds are stolen or cards are lost, investigate and resolve errors, and give consumers free and easy access to account information. The CFPB also finalized new “Know Before You Owe” disclosures for prepaid accounts to give consumers clear, upfront information about fees and other key details. Finally, prepaid companies must now generally offer protections similar to those for credit cards if consumers are allowed to use credit on their accounts to pay for transactions that they lack the money to cover.

The CFPB's detailed press release is here. A short NPR summary is here. The rule is here.

Change in the Law Justifies a Change in the Analysis of Arbitration Waiver.

 

The Third Circuit recently held that title insurers did not waive their ability to compel individual arbitration when attempting to do so earlier would have been futile under then-existing law. In Chassen, et al. v. Fidelity National Financial, Inc., et al., (Sept. 8, 2016), plaintiffs sought to recover hundreds of millions of dollars in claimed damages on behalf of the alleged class from the title insurance companies that issued title insurance coverage for those transactions.

At the time plaintiffs filed their complaint, arbitration provisions that did not permit class arbitration were deemed unconscionable and unenforceable under New Jersey law. Thus, for two and a half years, the parties engaged in broad litigation, including extensive class discovery and dispositive motion practice.

After the decision of the United States Supreme Court, in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), defendants in Chassen demanded that the Plaintiffs individually arbitrate their claims pursuant to the arbitration clauses contained in the title policies. The District Court held that the defendants had not waived their right to seek individual arbitration during the two and a half years of litigation because it would have been futile for the Defendants to have sought to exercise that right prior to Concepcion.

On appeal, the Third Circuit affirmed the district court’s order compelling individual (and not class) arbitration under the title insurance policies. After finding that it would have been futile under then-existing law for the defendants to have sought to compel individual arbitration prior to decision in Concepcion, the court broke from its traditional waiver analysis and determined that the factors concerning delay and resulting prejudice applied differently in a futility context. The court found that the defendants could not be penalized for failing to pursue a right that did not exist under New Jersey law. Because defendants sought individual arbitration shortly after Concepcion, no prejudice had resulted, the defendants had not waived their right to compel individual arbitration. The Third Circuit recognized the material distinction between arbitrating claims individually versus arbitrating a putative class action, holding that “the right to individual arbitration is a distinct right separate from the right to class arbitration” and that “each can be independently waived, thereby requiring that each receive a separate futility analysis.”

Court imposes $1.3 billion judgment against defendants behind AMG payday lending scheme

The Federal Trade Commission announced today that, at the FTC's request, a federal court in Nevada has found that racecar driver Scott A. Tucker and several corporate defendants in a Kansas City-based payday lending scheme violated Section 5 of the FTC Act and has ordered them to pay $1.3 billion for deceiving consumers across the country and illegally charging them undisclosed and inflated fees.

The $1.3 billion order stems from a complaint filed in 2012 by the agency, which alleged that the operators of AMG Services Inc. falsely claimed they would charge borrowers the loan amount plus a one-time finance fee. Instead, the defendants made multiple withdrawals from consumers’ bank accounts and assessed a new finance fee each time, without disclosing the true costs of the loan. The judgment represents the difference between what consumers actually paid on the loans and what they were told they would have to pay.

The FTC's press release, with details and a link to the order, is here.

Food testing and proof of injury in class-action food-related litigation

That's the topic of this article by Jeff Lingwall. Here is the abstract:

This Article examines the emerging use of “food forensics” to discover injury in class action litigation. Based on increased public interest in what goes inside food, plaintiffs have begun relying on statistical and chemical testing to verify label claims. The test results often spur producers to re-examine their products, but may also raise plausibility concerns under the veneer of science and deny consumers data they need to make informed decisions about food. Drawing on examples ranging from olive oil to multivitamins, and canned octopus to pet food, I show how product testing in litigation represents a race between the resolving power of test results and slower-moving interpretation of pleading standards. I then propose a framework for navigating testing claims based on traditional case screening tools and statistical principles.

"How to get justice after the Wells Fargo scandal"

From a Washington Post column today by Katrina vanden Heuvel:

Wells Fargo’s abuse of its customers — its employees opened some 2 million accounts and credit cards for depositors who may not have wanted them — has sparked deserved outrage. Sen. Elizabeth Warren (D.-Mass.) charged Wells Fargo chair and chief executive John Stumpf with “gutless leadership,” calling on him to resign and give back the pay he pocketed, and called on the Justice Department to launch a criminal prosecution. Rep. Maxine Waters (Calif.), the senior Democrat on the House Financial Services Committee said Wells Fargo had committed “the most egregious fraud we’ve seen since the foreclosure crisis.” Criticism, however, is easy. The question is whether there will be real consequences and real reforms coming out of the scandal.

The column goes on to suggest four steps "needed for real deterrence," including criminal prosecutions, breaking up Wells Fargo, and encouraging consumers to bank at smaller institutions.

The full column is here.

Wells Fargo Debacle Increases Visibility of Arbitration Clauses in National Politics

Hillary Clinton gave a speech today in which she hit Wells Fargo's use of arbitration clauses, among other things.  Some excerpts:

[T]he Wells Fargo scandal shed light on another threat to consumers that we have to address. When the scams victims, people like you and me who had accounts there tried to sue, they were shocked to learn there was a provision in the very fine print of their contracts that kept them from going to court to sue the bank for being cheated. Instead, they are forced into a closed-door arbitration process without the important protections that you get in a court of law.

We are not going to let corporations like Wells Fargo use these fine-print gotchas to escape accountability.

 

And in fact, this is now common practice across a lot of industries, from nursing homes — nursing homes that mistreat seniors, to for-profit colleges that defraud students. You know, who reads all that fine print? I don’t. And you get defrauded or you get mistreated and then all the sudden they, well you can’t sue us. So we’re going to rein in that abuse across everybody.

More on the speech from USA Today and Reuters. Text here.  (nice to see another prominent official admit to not reading fine print). Meanwhile, Senator Sherrod Brown, ranking member of the Senate Banking Committee, plans to introduce a bill that would enable consumers for whom Wells opened unauthorized accounts to sue in court, notwithstanding arbitration clauses. More on that from The Hill

Department of Education in Hot Water over Continued Efforts to Collect Debts Held by Corinthian Students

Last week, Senator Warren sent a letter to the Department of Education drawing attention to some “unsettling” data:  Nearly 80,000 former Corinthian students who attended the now-defunct school at a time when the Department found the school was engaged in fraud—and who are therefore eligible to apply for federal debt relief—are currently in some form of debt collection with the Department. The government is even seizing benefits, including tax refunds and the Earned Income Tax Credit, to collect from more than 30,000 of those borrowers. The Senator called on the Department to “stand up for these students as it has promised to do for more than a year and immediately halt all collections on this debt.”

Perhaps a good place to start would be with Darnell Williams, a former Corinthian student in Massachusetts who sued the Department last week after the government seized his tax refund to collect on his student loan debt. The complaint alleges that at the time of the seizure, the Department was sitting on an application by the Massachusetts Attorney General asking the Department to discharge Mr. Williams’s loans and those of his peers.

Nursing Home Pre-Dispute Arbitration Agreements to be Prohibited.

The Department of Health and Human Services final rule overhauling skilled nursing facility prohibits all arbitration agreements at the time of admission. According to the Centers for Medicare and Medicaid Services, such pre-dispute agreements are "fundamentally unfair" because "it is almost impossible for residents or their decision-makers to give fully informed and voluntary consent to arbitration before a dispute has arisen." Once a dispute arises, a facility and a resident may enter into a binding arbitration agreement so long as several requirements are met including voluntary participation by the resident/decision-maker and resident/decision-maker acknowledgment of understanding of the agreement after the facility fully explains it. For providers with existing pre-dispute arbitration agreements, those agreements will not be impacted by this final rule.

The arbitration portion of the final rule takes effect on November 28, 2016. The complete 712-page rule can be found here, https://s3.amazonaws.com/public-inspection.federalregister.gov/2016-23503.pdf

 

CNBC Nightly Business Report Segment on Arbitration

Here, about 7:30 in, starring the blog's own Brian Wolfman

LA Times: Republicans say there's another villain in the Wells Fargo scandal

by Jeff Sovern

Here.  The article reports GOP criticism of the CFPB in connection with the Wells scandal. Excerpt:

“Why does it take the L.A. Times to break this story, when we’re paying federal investigators to investigate?” [House Financial Services Committee Chair Jeb] Hensarling recently told Fox Business Network.

“Where was the CFPB? Why did they come in so late to the game?” he continued. “They have immense powers and this is their job to enforce these basic consumer laws and it appears they were asleep at the switch.”

Hensarling also has criticized regulators for the $185-million settlement with the bank, which allowed Wells Fargo to avoid admitting any wrongdoing.

 * * *

Democrats and consumer advocates said that the recent settlement Wells Fargo agreed to pay  — including a $100-million fine by the CFPB, the agency’s biggest ever — shows the value of the bureau in holding banks accountable for abusing consumers.

And for that reason, those supporters say Republicans, and Hensarling in particular, are hypocrites for trying to use the Wells Fargo scandal to reduce the bureau’s power.

“Hensarling reminds me of the kid who kills his parents and then wants to collect orphan benefits,” said Sen. Sherrod Brown (D-Ohio), one of the CFPB’s biggest backers. “He’s tried to underfund it. He’s tried to undercut. He’s done all he could to  block bank regulations.”

Never mind that the CFPB knew about the problem before the LA Times story.  Will Hensarling also attack law enforcement for the fact that we still have bank robberies and murders despite centuries of efforts to stop them?  Does he also blame the Bush administration for 9/11?