Consumer Law & Policy Blog

Alan Kaplinsky Reports Rumor that CFPB to Issue Arbitration Rule By July 31 and Cordray to Step Down This Year

Here, in the Consumer Finance Monitor.  Alan also notes that the rule can be blocked by congressional invocation of the Congressional Review Act, litigation, or, if Cordray does indeed step down, by a new Trump-appointed director.

Fake Litigation 2.0: Defrauding an Arizona Court to Sanitize Megan Welter’s Reputation

by Paul Alan Levy

Ever since Eugene Volokh and I started writing last year about the phenomenon of “fake defamation litigation” — lawsuits filed to suppress online criticism while ensuring that the person whose speech is to be suppressed never has a chance to persuade the court not to issue an injunction — the greatest attention has been paid to cases in which a complaint is filed along with a consent order: the supposed defendant admits having made false statements and agrees to injunctive relief. But the trick is that the defendant is fictional and the signature of the defendant is a forgery. That was the main model employed by Richart Ruddie in such cases as Patel v. Chan and Smith v. Garcia. In some of these cases, the suits were filed pro se, with the signature of the plaintiff forged as well as that of the defendant; in others, such as Smith v. Levin, the presence of a corporate plaintiff made pro se filing impossible, so Ruddie had to recruit a lawyer who was either clueless and desperate for business, or venal and desperate for business, to file a fake consent decree. This fraudulent scheme was so egregious that Ruddie is facing a possible federal prosecution; his agreement to a humiliating and expensive settlement in Smith v. Garcia was hastened by his effort to gain lenient treatment from the prosecutor.

Today’s post, however, concerns a different variant of fake litigation, in which a suit is filed by lawyers against Doe defendants, but the lawyers scheme, by various forms of deception, to ensure that the actual Doe defendants — that is, the alleged defamers whose speech is to be suppressed – never receive notice of the pendency of the action. After all, fair notice could lead to the filing of a brief telling the court why no injunction is justified. Moreover, the very litigation might produce publicity about the criticisms that the plaintiff is trying to suppress, bringing the Streisand effect into play. This sort of lawsuit was the original tack taken by Ruddie himself, when he was first conniving with Rescue One Financial to suppress criticisms on the Myvesta web site; he secured the services of a Florida law firm to sue Does who, according to the complaint, could not be identified and so had to be served by publication in a newspaper they were sure not to see. Then a default judgment was obtained against them. (This brief, filed on my behalf by Marc Randazza, explains the fraudulent nature of the filing). It was only when Google declined to remove the links identified in the default judgment injunction from its database that Ruddie moved on to forging signatures on court papers.

Megan Welter’s Very Bad Day

The case that we just entered involves Megan Welter, a young woman who achieved a degree of publicity success in the summer of 2013 with the story of how an Iraq war veteran had become a cheerleader for the Arizona Cardinals football team. A few days later, she learned how fickle the media can be: it got its hands on a less flattering situation: in a fit of jealous rage at her boyfriend’s communication with one of his exes, Welter called the police claiming that he was abusing her physically. But when the police arrived, the boyfriend persuaded them, through cellphone video as well as Welter’s own on-the-scene admissions, that it was Welter herself who was the assailant. The upshot was that Welter was arrested and charged, and that story, based in part on the boyfriend’s statements to the police, received national coverage in the print and broadcast media, as well as on various sports-related blogs and web sites. Many of these sites carried bodycam video from the responding police, plus the cell phone video that the boyfriend provided to the police; a few even linked to a detailed police report describing Welter’s own self-incriminating statements.

 

Articles Praising/Explaining Debt Collection

by Jeff Sovern

Our consumer law casebook strives to present a balanced approach, so I am always on the lookout for writings that present debt collectors favorably. In that regard, The Economist recently published In praise of America’s third-party debt collectors.  Here's an excerpt:

A provocative new paper by Julia Fonseca, of Princeton University, and Katherine Strair and Basit Zafar, of the Federal Reserve Bank of New York, reveals that restrictions on debt-collection practices may, perversely, hurt some consumers more than they help. The authors * * * find that, after controlling for external factors, such as unemployment and income levels, borrowers in states where debt-collection practices are more strictly regulated find it moderately harder to access credit, because lenders cut back. Borrowers in states where debt-collection practices are less intense (owing to stricter rules) received on average $213 less in car loans and $136 less in retail and other personal loans than borrowers in states where debt collectors had a freer hand.

* * *

Without the deterrent effect of third-party collectors, consumers are likely to assume more risk and to overborrow. Default is perceived to come with lower costs. This is likely to lead to higher default rates, forcing lenders to reduce the supply of credit to mitigate losses. Those with low credit scores will bear the brunt, as they become even less likely to qualify for loans. * * *

Meanwhile, the Worcester Telegram ran an interview with debt collector John Tammaro, who explains:

Many of my clients have a default rate of approximately 5 percent. It doesn’t sound like a lot of money, but when their margins are only 10 (percent) to 15 percent, if they’re losing a third to a half of that money to defaults, that cuts right into their bottom line. When we get involved, we help recoup that lost money.

WSJ Editorial Hits CFPB Director Cordray Again

The headline reads Trump to Cordray: You’re Not Fired. It argues that the Treasury Report has made a strong case for firing the CFPB director.

USPIRG's Ed M: US Treasury Report a Gift to Wall Street. A Threat to CFPB and Everyone Else

Here. 

Record-Breaking $60 Million FCRA Jury Verdict Against TransUnion

So Law360 reports here. The jury apparently found that Transunion did not follow reasonable procedures to assure maximum possible accuracy, as required under FCRA 1681e, when it reported that consumers' names matched those on a government watch list for terrorists and criminals.

ABI Podcast: What Concerns Do Experts Have for Future Debt Collection Practices after the Supreme Court's Decision in Henson v. Santander?

by Jeff Sovern

Here.  Disclosure: I was one of the podcast speakers. 

SCOTUS Personal Jurisdiction Case Likely to Limit Nationwide Mass/Class Actions in State Courts

by Jeff Sovern

Yesterday, SCOTUS decided the Bristol-Meyers case, limiting the power of state courts to exercise specific personal jurisdiction over out-of-state defendants in cases brought by out-of-state plaintiffs.  State courts can still hear cases, including nationwide class actions, through their general jurisdiction over defendants, as long as the defendant is essentially at home in the forum state, meaning that it is incorporated or has its principal place of business in the forum state.  The Court also made clear that it was not addressing the specific jurisdiction of federal courts, though as federal courts in most cases exercise the same amount of personal jurisdiction as the states in which they sit, the case is likely to have an impact on federal court personal jurisdiction as a practical matter. What about nationwide mass or class actions against defendants that are not at home in the same states?  Will the case end nationwide class or mass actions in state courts using specific jurisdiction? Here's an excerpt from Alison Frankel's column titled Class action fallout from SCOTUS specific jurisdiction opinion?:

[A]ccording to Loyola Law School professor Adam Zimmerman, we should expect defendants in nationwide or multistate class actions in federal court to cite the Bristol-Myers Squibb decision to try to squelch claims by out-of-state plaintiffs. It may be that class action plaintiffs will be forced to file statewide cases instead of nationwide or even multistate class actions, Zimmerman said.

"I wouldn't say the opinion is definitive but you can't help but think that's where we're going," said Zimmerman, who signed an amicus brief by civil procedures professors backing the plaintiffs suing Bristol-Myers.

Venable Lawyers Predict Forthcoming CFPB Third-Party Debt Collection Rulemaking

Here.

David Reiss: Americans are better off with consumer protection in place

Brooklyn's David Reiss has written an op-ed for The Hill, Americans are better off with consumer protection in place. Excerpt:

[T]he [Treasury] report argues that the bureau’s jurisdiction overlaps with that of other regulators. That is a red herring. The fact is that abusive lending practices were rampant in the years leading up to the financial crisis. The CFPB has dramatically reduced those practices where the previous regulators like the Federal Reserve turned a blind eye to them. Safety and soundness regulators like the Fed and the Office of the Comptroller of the Currency have typically placed consumer protection at the bottom of their list of concerns. * * *

The fact is that many of the Treasury’s criticisms can be addressed by the next CFPB director. The next director will be appointed by the president after the term of the current director, Richard Cordray, ends next year. There is little need for legislative action that will likely provide the bureau’s opponents with cover to gut [an] effective consumer protection regime * * *