Consumer Law & Policy Blog

Ratcliffe/Cruz Bill Would Eliminate the CFPB

by Jeff Sovern

Here is the full text of the House bill:

The Consumer Financial Protection Act of 2010 is hereby repealed and the provisions of law amended or repealed by such Act are restored or revived as if such Act had not been enacted.

The Senate bill is here.  At least it has the virtue of brevity.  I wonder what would happen to the CFPB's regs and pending enforcement actions. 

 

 

At Credit Slips, Adam Levitin on Jeb Hensarling's Alternative CFPB Facts

Our regular readers probably also check in with Credit Slips, but in case anyone doesn't, Georgetown's Adam Levitin has a pair of posts that merit attention. First, he fact-checks a recent Jeb Hensarling WSJ op-ed about the CFPB, and then he seeks comment on this question: What Would a CFPB Commission Have Done Differently?

Reuters' Alison Frankel on "House Republicans’ bill to gut class actions"

Here.  Markup on the bills is schedule for tomorrow.  Excerpt from Frankel's piece:

The bill would limit class certification to class actions in which plaintiffs all “suffered the same type and scope of injury” and would bar certification unless courts can ascertain class membership and assure that only injured plaintiffs recover. Class action lawyers would not be able to sue on behalf of relatives and employees – or any other client with whom they have an ongoing contractual or attorney-client relationship. Class certification decisions would be automatically appealable. Attorneys’ fees in class actions resolved through injunctions would be limited to a percentage of the “value of the equitable relief.”

* * *

At least two leading class action law profs - Myriam Gilles of Cardozo and Elizabeth Burch of the University of Georgia – have submitted comments. Gilles, who described the proposed legislation in an email as a “partisan, kill-all-class-actions bill,” focused her submission to the Judiciary Committee Democrats on the vast body of class action precedent, including Supreme Court cases, that guides judges on predominance and ascertainability. She also raised her concerns about the future of issues cases. Burch’s 8-page letter points out that the judiciary is already addressing many of the issues the Goodlatte bill raises * * *

"Lawsuit alleges JPMorgan Chase bilks D.C. jurors with high debit card fees"

The Washington Post reports:

A federal class-action lawsuit alleges that JPMorgan Chase plotted to bilk D.C. jurors of money by forcing them to receive jury service payments on Chase debit cards that come with fees attached.

The suit, filed Tuesday in U.S. District Court for the District of Columbia by D.C. attorney William Mark Scott, says burdensome debit-card fees deprived “those who duly fulfilled their civic duty” of fair compensation.

The full story is here.

Brooklyn's David Reiss in Law360: A "Justice Gorsuch is likely to vote to strongly curtail the independence of the [CFPB]"

Here (behind paywall). Excerpt:

[I]f he hears an appeal from PHH v. CFPB, he will likely be sympathetic to PHH’s positions, both in terms of the unconstitutionality of the CFPB’s structure and in terms of the reach of its enforcement powers.

Michelle Singletary on why you should beware of "no-interest" advanced tax refunds hawked by tax preparers

Go here.

Another Argument Against Free Market Economics in Consumer Protection: James Kwak's Economism

by Jeff Sovern

For years, fans of economics have attempted to convert judges and lawyers to their mode of analyzing legal problems.  For example, George Mason's Scalia Law School's Law & Economics Center has offered programs for judges for nearly four decades, and thus far has attracted more than 4,000 judges to its programs. It also offers programs for state attorneys general, and law professors. It even offers a consumer credit academy for regulators. I have never attended one of these programs, and so can't say what's covered (though I wish they would webcast at least the consumer credit academy), but I imagine that they devote some attention to free market economics. That, of course, is a perfectly appropriate subject for such instruction.  

But those who are interested in the application of economics to law--a group in which I include myself--should also know about critiques of what James Kwak calls "economism" in his valuable book of the same name. In recent years, free market economics has been under attack from at least two directions. One avenue of attack, which has surfaced often on this blog, is behavioral economics. Behavioral economics, spearheaded by Nobel-prize winner Daniel Kahneman and his deceased collaborator Amos Tversky, argues that people consistently make certain errors in thinking with the result that markets reach inefficient outcomes. For example, the optimism bias causes consumers to believe erroneously that they will never make a late payment and so to ignore penalty fees and interest rates for late payments when incurring debts.  Consequently, if we depend solely on markets lenders can charge as much as they wish with late fees and consumers will not avoid loans with excessive late fees because consumers will just assume they will never incur such fees--despite the fact that many do.  My impression is that the CFPB and other Obama-era regulators tend to accept these errors as affecting decision-making and so seek to regulate transactions to protect consumers from them.  So to continue the late fee example, when Congress enacted the Credit CARD Act of 2009, it provided that regulators would cap late fees. 

Though Kwak’s Eonomism discusses behavioral economics, it also mounts another attack on classical economics. Kwak argues that Economics 101 is based on unrealistic assumptions which causes it to make incorrect predictions about the effectiveness of markets. He shows that empirical evidence is often at odds with what classical economics suggests should happen. Among the unrealistic assumptions are that we have perfect competition, all market participants have perfect information, and all products in the same class are identical.  But Kwak argues that the lessons of Economics 101 still have considerable influence among policy-makers and others, and so they overlook those unrealistic assumptions in drawing conclusions about what the law should be (For a recent example of how the free market works, or more precisely doesn't always work to protect consumers see my blog post about the Wells Fargo scandal). 

Kwak argues that Econonism has become a religion-like ideology. In the academy, among economists, according to Richard Thaler’s book, Misbehaving, behavioral economics is winning the battle over classical economics. Similarly, most law professors writing about these issues these days use behavioral economics, though some professors at George Mason and elsewhere are fighting on behalf of classical economics.  It remains to be seen what happens with policy-makers. Free market economics suffered a setback in the election of 2008, but it appears to be in the ascendency at present.  Maybe those who argue that law should take account of real people rather than the econs of free market economics should consider their own educational programs. 

House Bill Would Have Helped Wells Fargo Get Away With Its Scam: Make Wells Safe Again

by Jeff Sovern

As we have discussed extensively, Wells Fargo opened millions of sham accounts in its customers' names. The CFPB responded by fining Wells $100 million.  But under Financial Services Chair Jeb Hensarling's proposed Financial Choice Act 2 bill, the CFPB would have been powerless to do anything about Wells's scam. That's because, according to the memo outlining new provisions in the bill, the bill would repeal the Bureau's ability to prevent or punish financial institutions from engaging in unfair, deceptive, or abusive powers.  The Bureau brought the proceeding against Wells using those powers, commonly abbreviated UDAAP powers.  Even if the Bureau could have found some other basis for bringing an action against Wells, it appears that it could not have fined Wells because the Hensarling bill would also limit the Bureau's enforcement power to cease and desist orders and CID/Subpoena powers.  

That doesn't mean other agencies couldn't act. The federal Office of the Comptroller of the Currency levied a $35 million fine against Wells, and Los Angeles collected another $50 million.  But I'm sure Wells would have appreciated its fine being knocked down by more than half (assuming the other fines would have stayed the same).

If you're thinking that private enforcement will make up the gap, think again. Wells used arbitration clauses to block customers from bringing class actions, and under the version of the bill the House Financial Services passed last year, the Bureau would lose its ability to eliminate class action waivers in arbitration clauses.  I am not aware of any reason to think that won't be in the new version.

And of course, we're not just talking about Wells.  Under the bill as described in the memo, the Bureau would lose its ability to block financial institutions from committing other deceptive, unfair or abusive acts as well. As to many of those institutions, the OCC and Los Angeles won't have jurisdiction. That means that in some circumstances, financial institutions will face few impediments to hurting consumers. Last time that was true, we ended up with the Great Recession.

Why would Mr. Hensarling do this?  Maybe because he believes in markets--even when those markets don't function. Maybe he should call his bill the "Make Wells Fargo Safe Again Act."

 

Dallas Morning News: Agency That Protects Consumers from Financial Scamers in Trouble Under Trump

by Jeff Sovern

Here. Excerpt:

I talked to [Jim] Purcell [of State National Bank in Big Spring] this week. He says the bureau spreads its tentacles too far. He complains that there's no appeal for the bureau's decisions, that it's too independent of Congress and the president (by design, and for obvious reasons, I might add) and "It needs controls."

"As far as protecting consumers, I think consumers need some protection. But I also think consumers have some culpability on their part," he says. "And they shouldn't be bailed out for bad decisions all the time either."

A problem with this argument is that financial institutions, which know so much more than consumers, have steered consumers to make bad decisions that profit the banks and hurt consumers.

Will Congress Silence Complaining Consumers?

by Jeff Sovern

On Tuesday, as widely reported, the Senate silenced Senator Elizabeth Warren.  Now House Financial Services Chair Jeb Hensarling wants to silence complaining consumers by eliminating the ability of Senator Warren's creation, the Consumer Financial Protection Bureau, to operate a consumer complaint database.

The Dodd-Frank Act, in 12 U.S.C. § 5511, provides that: "The primary functions of the Bureau are— . . . collecting, investigating, and responding to consumer complaints." Pursuant to that provision, the Bureau has created a complaint database which thus far has received more than one million complaints.  The Bureau forwards the complaints to the companies involved.  The Times's Gretchen Morgenson explains what happens after that:

Cody Hounanian, digital director at Student Debt Crisis, a nonprofit organization aiming to reform the nation’s student debt policies * * *said in an interview that servicers of these debts don’t typically respond to consumer complaints — but they do snap to when the C.F.P.B. gets involved.

“If you reach out to C.P.F.B. with a complaint, not only does it get saved in this transparent database for others to look at,” Mr. Hounanian said, “you will receive a response within a couple of days, and within weeks should have a response from your student loan servicer.”

So the Bureau's complaint process increases the likelihood that consumers will obtain a response.  Indeed, the Bureau has received more than 700,000 responses to complaints it forwarded to companies. And the database serves other purposes.  The Bureau uses its database in making enforcement decisions. Because some of the complaints are made pubic on the CFPB website, consumers can use them to guide judgments about which providers to deal with.  The database also aids people in determining what's happening in the consumer financial marketplace, which can be a boon for researchers and policy-makers.

But now Representative Hensarling wants to put an end to all that.  In a memo describing changes he plans to make in last year's Financial Choice Act, he lists repeal of the consumer complaint database as a goal.  The memo does not explain why, but Gretchen Morgenson offers a rationale: the CFPB may have "been a little too effective in pursuing wrongdoing by banks, consumer credit reporting companies, credit card issuers and student loan collectors . . . . the bureau has also made powerful enemies among financial institutions whose executives have the ear of Mr. Trump and other Republicans."

It would be a shame if President Trump and his congressional allies silenced the ordinary Americans the president pledged to protect so that they instead protect the financial institutions he attacked during his campaign. But it would be consistent with a different campaign: the one that tries to mute different points of view.