Consumer Law & Policy Blog

"As Paperwork Goes Missing, Private Student Loan Debts May Be Wiped Away"

The New York Times reports:

Tens of thousands of people who took out private loans to pay for college but have not been able to keep up payments may get their debts wiped away because critical paperwork is missing.

The troubled loans, which total at least $5 billion, are at the center of a protracted legal dispute between the student borrowers and a group of creditors who have aggressively pursued them in court after they fell behind on payments.

Judges have already dismissed dozens of lawsuits against former students, essentially wiping out their debt, because documents proving who owns the loans are missing. A review of court records by The New York Times shows that many other collection cases are deeply flawed, with incomplete ownership records and mass-produced documentation.

The full article is here.

The Arbitration Empire Strikes Back!

by Jeff Sovern

In keeping with Justice Gorsuch's remark yesterday that  "Democracy depends on our ability to learn from & work with those who hold very different convictions than our own," here is a partial report on the activities of arbitration supporters:

The Chamber of Commerce is holding an event titled CFPB's Anti-Arbitration Rule: Analysis & Implications that appears to be for members of Congress and the press tomorrow.  State bankers' associations from every state have written a letter opposing the arbitration rule.   The WSJ has editorialized about the rule. My favorite part:

In 2015 the CFPB released a 148-page study that is more political than scientific. Like the agency’s enforcement actions, the study engages in misdirection and obfuscation. The bureau avoids apples-to-apples comparisons and has stonewalled requests by the House Financial Services Committee for its raw data. But the evidence still suggests that consumers derive greater benefits from arbitration than they do from class-action lawsuits.      

Except that the study is 728 pages long (maybe they stopped reading at page 148?) and conclusively demonstrates that arbitration clauses suppress consumer claims. It's hard to see how that helps consumers.

Meanwhile, Professor Jeffrey Joseph as another op-ed about arbitration in the Washington Examiner, Congress can and should kill the CFPB's arbitration rule. He writes:

And there are already limitations on corporate power in place. For example, arbitration arguments can be thrown out if the arbitration authority is found to be biased against one side of a dispute.

Of course, that does nothing about the fact that arbitration suppresses claims. Incidentally Professor Joseph apparently still hasn't heard that the PHH panel decision was vacated or that CRL thinks he is not presenting their position correctly.

Then there's the National Review, which seems not to know that the Dodd-Frank Act authorizes the CFPB to regulate arbitration.  Their editors say:

The CFPB and the usual Democratic shakedown artists are making familiar arguments: The proposed CFPB regulation doesn’t violate the Federal Arbitration Act because it is narrowly tailored to cover only financial firms; such agreements are generally found in the “fine print” of contracts; and (though they generally don’t put it quite this way) financial companies are wicked and make lots of money. The first objection is irrelevant in that the Federal Arbitration Act does not contain a carve-out for financial firms; the second objection could be made about practically any contract; the third objection really does not merit a rebuttal, though it will be the most persuasive.

The law says what the law says, and such rule-making authority as the CFPB has does not entitle it to overturn an act of Congress. If the Democrats want to get rid of arbitration agreements for financial companies, then let them repeal the Federal Arbitration Act.

The law does indeed say what it says, and what it says is that the Bureau can regulate arbitration clauses.

Report that CFPB Arbitration Rule to Be Published in Federal Register Tomorrow, Starting Two Clocks

by Jeff Sovern

Under the Congressional Review Act, Congress will have 60 legislative days to overturn the rule.  The rule can also be blocked by the FSOC, and for that to happen, an FSOC member must file a petition within ten days of publication of the rule. Given the opposition of Acting Comptroller of the Currency (and former bank lawyer) Keith Norieka, it would not be surprising, though it would be unfortunate, to see him file such a petition.

Paul Bland Reports on Natural Experiment That Shows Arbitration, Unlike Class Actions, Leaves Consumers Unprotected

In the Daily Kos, Paul has written Settlement Shows Why Congressional Republicans Want to Let Banks Use Forced Arbitration.  Excerpt:

[R]oughly 1/3 of the customers impacted by US Bank’s illegal actions had signed an arbitration clause when they entered into a conditional sale contract with their car dealer. The arbitration clause included a provision that prohibits class actions. The other 2/3 had not. The court excluded those customers who were stuck with an arbitration clause from participating in the case. Despite the illegal conduct, those consumers were left with nothing: No car, millions of dollars in illegal debts still on the books and on their credit reports and no refund of illegally demanded payments.

The contrast couldn’t be starker. Customers whose car purchase contracts did not include an arbitration clause received substantial payments, averaging nearly double what U.S. Bank had collected illegally from them. They had their debt erased and their credit report cleared. * * *

 Paul also had a piece last week in The Hill. Here's an excerpt from that one:

[A]s CNN reported in its coverage of the [Wells Fargo unauthorized account] scandal, forced arbitration clauses “help hide misbehavior by companies in private mediation rather than opening it up to scrutiny in public court documents.” Twice — in 2014 and 2015 — consumers had filed class actions against Wells Fargo that would have stopped the illegal practice, and both times, the bank was able to use its forced arbitration clause to keep the fraud going, unhampered. 

In short, forced arbitration is a win-win for banks: They get to hide their business practices that defraud customers while also denying those customers the right to band together and take them to court.

AFR/CRL Poll Shows Strong, Bipartisan Support for CFPB

Here.  Excerpt from their statement:

• The mission of the CFPB, created in 2010 to shield consumers from shady industry practices, is extremely popular, with 74 percent of voters backing its work. The poll shows majority support from Democrats (85 percent), Republicans (66 percent), and Independents (77 percent). The Dodd Frank reforms writ large are supported by very similar portions of voters.
•        The public also supports key CFPB initiatives: a ban on forced arbitration, the practice of denying consumers their day in     court; regulation of high-interest payday lending; and rules on debt collection.

OCC Returns to Practice of Protecting Banks Against Consumers--This Time on Arbitration

by Jeff Sovern

The Office of the Comptroller of the Currency has a long history of being captured by the banks it regulates, interrupted briefly during the Obama administration. But now that it is headed by Acting Comptroller and former bank lawyer Keith Noreika, it is once more protecting banks from predatory consumers.  First Norieka sent CFPB Director Richard Cordray a letter expressing safety and soundness concerns over the CFPB's arbitration rule. Cordray wrote back noting his surprise at Norieka's letter in light of the Bureau's extensive consultation with the OCC and other prudential regulators on just that matter. Cordray noted that no one from the OCC had ever raised such concerns. The director also pointed out that a "majority of depository institutions today operate without arbitration agreements," and that no evidence exists that they are less safe or sound than institutions that use arbitration. But now the WSJ is reporting that Norieka has asked that the rule be delayed because "The OCC should be granted the opportunity to conduct an independent review of the CFPB data to determine the safety and soundness implications of the Final Rule.”  Never mind that the OCC has already had years to conduct a review and waived its chance to do so. This is surely just politics in the worst sense, in that Norieka is either hoping to delay the rule until a new CFPB director is in place, or (as the WSJ implies) help congressional Republicans looking to use the Congressional Review Act against the arbitration rule.

Study Finds Consumers Have Harder Time Avoiding Native Ads

Anocha Aribarg and Eric M. Schwartz, both of Michigan's Business School, have written Consumer Responses to Native Advertising.  Here's the abstract:

Native advertising is a type of online advertising that matches the form and function of the platform on which it appears. The U.S. Federal Trade Commission (FTC) monitors this form of advertising and has established guidelines requiring advertisers to clearly mark their native ads to assure that consumers do not confuse them with content. Our research aims to understand how consumers respond to native ads compared to traditional display ads and different styles of native ad disclosures. We explore the process that drives different consumer responses through a series of randomized experiments in the lab and the field. To examine the role of attention, we use eye-tracking data to show that native ads are more effective than display ads because consumers have a harder time avoiding native ads. In addition, we show that even if consumers do not click on the native ads, they better recognize the advertised brands when more prominent disclosures appear. Our results suggest that complying with the FTC guidelines, advertisers can benefit from generating brand awareness through prominently disclosed native advertising.

House Appropriations Committee Passes Bill To Gut Consumer Financial Protection and Repeal CFPB's Authority to Regulate Arbitration

by Jeff Sovern

On a party line vote of 31-21, the House Appropriations Committee passed the Financial Services Appropriation bill.  Section 930 of the bill repeals the CFPB's authority to regulate arbitration.  Section 926 would subject the CFPB to the congressional appropriations process, thereby making it more accountable to lobbyists. Section 927 would gut the Bureau's power to supervise financial institutions. Section 928 would eliminate the Bureau's jurisdiction over payday lenders, including if they committed outright fraud, the Bureau would be unable to intervene. Section 929 would take away the Bureau's UDAAP powers, which would have meant it could do nothing about the Wells Fargo phony account scandal. (HT: Adam Zimmerman)

Disclosures Trap More Consumers: Guardian: Thousands sign up to clean sewage because they didn't read the small print

Here. Seems like there's another one of these kinds of stories every year.  Here's an excerpt:

22,000 people have now found themselves legally bound to 1000 hours of community service, including, but not limited to, cleaning toilets at festivals, scraping chewing gum off the streets and “manually relieving sewer blockages”. The (hopefully) joke clause was inserted in the terms and conditions of Manchester-based wifi company Purple for a period of two weeks, “to illustrate the lack of consumer awareness of what they are signing up to when they access free wifi”. The company operates wifi hotspots for a number of brands, including Legoland, Outback Steakhouse and Pizza Express.

Purple also offered a prize for anyone who actually read the terms and conditions, and flagged up the “community service clause”. Just one person claimed it. * * *

(HT: Gregory Gauthier)

House Subcommittee Hearing on Debt Collection Bills, Including One to Extend FDCPA to Debt Buyers

The hearing was held by the House Financial Services Committee Subcommittee on Financial Services and Consumer Credit. The ACA has a report here.  Nine bills were under discussion. Excerpt:

“Just to give everyone an idea, H.R. 864, the Stop Debt Collection Abuse Act, was a bipartisan effort on behalf of myself, [U.S. Reps. Keith Ellison, D-Minn., Emanuel Cleaver, D-Texas and French Hill, R-Ark.] to make sure that the federal government uses the same practices that the private [debt collection] sector uses,” [Representative Mia] Love said.

* * *

H.R. 864 would amend the FDCPA, including classifying debt buyers as “debt collectors” and subjecting debt collectors for federal agencies to FDCPA requirements.