Consumer Law & Policy Blog

"Consumer debt is at a record high. Haven’t we learned?"

That's the name of this article by consumer reporter Michelle Singletary. Here are excepts:

Outstanding consumer revolving debt — mostly credit card debt — hit an all-time peak of $1.021 trillion in June, according to the Federal Reserve. This should be a scary statistic. The last time the debt level was nearly this high was in 2008, when the U.S. economy was mired in a recession.* * * Here’s what we learned during the Great Recession. People had what they thought was a reasonable amount of obligations. They were making their auto and mortgage payments. They used credit to buy stuff to fill up those homes, eat out more or take vacations. It all seemed manageable — until life happened: The housing market imploded, and unemployment spiked. The illusion that people could get whatever they wanted — on credit — was shattered.

Who knew? Trump is on the side of ordinary consumers regarding "RIPOFF DRUG PRICES."

So, you didn't predict that Trump would turn his sickening response to the white nationalist terror attack in Charlottesville into a faux pro-consumer attack on high prescription-drug prices? Me neither. Here goes:

As this article by Glenn Thrush explains, "Merck’s chief executive, Kenneth C. Frazier, resigned from the president’s American Manufacturing Council on Monday, saying he objected to the president’s statement on Saturday blaming violence that left one woman dead on 'many sides.'" Thrush notes that "Mr. Frazier is one of just a handful of black chief executives of a Fortune 500 company."

Trump's response to Frazier's resignation on Twitter:

Now that Ken Frazier of Merck Pharma has resigned from President's Manufacturing Council,he will have more time to LOWER RIPOFF DRUG PRICES!                5:54 AM - 14 Aug 2017

So, Trump throws more red meat to his white nationalist supporters while pretending that he cares about consumers struggling with high drug prices, something that I doubt he has any intention of addressing seriously. (If any reader has evidence that the Trump Administration has made any genuine effort to reduce high drug prices, please let me know, and I'll be happy to post it.)

Study on contingent-fee recoveries and contingent fees

Eric Helland, Daniel Klerman, Brenda Dowling, and Alexander Kappner have written Contingent Fee Litigation in New York City. The authors were able to conduct this study because, by court rule, lawyers practicing in parts of New York City must file data about contingent-fee settlements. (I wonder why other courts don't require the same.) One thing I found interesting is that almost all lawyers charged a one-third contingency -- the statutory maximum. That is, there was almost no competition among lawyers below the cap. Here is the abstract:

Since 1957, New York courts have required contingent fee lawyers to file “closing statements” that disclose settlement amounts, lawyers’ fees, an accounting of expenses, and other information. This article provides preliminary analysis of these data for the period 2004-2013. Among this article’s findings are that settlement rates in New York state courts are very high (85%), that very few cases are resolved by dispositive motions, that litigated cases and settled cases have almost exactly the same average recovery, that median litigation expenses are 3% of gross recovery, that claims are disproportionately from poor neighborhoods, and that attorneys’ fees are almost always one third of net recovery, which is the maximum allowed by law.

Hoofnagle on FTC Regulation of Cybersecurity and Surveillance

Chris Jay Hoofnagle of Berkeley has written FTC Regulation of Cybersecurity and Surveillance, in The Cambridge Handbook of Surveillance Law (David Gray and Stephen Henderson, eds)(Cambridge University Press 2017). Here's the abstract:

The Federal Trade Commission (FTC) is the United States’ chief consumer protection agency. Through its mandate to prevent unfair and deceptive trade practices, it both regulates surveillance and creates cybersecurity law. This chapter details how the FTC regulates private-sector surveillance and elucidates several emergent properties of the agency’s activities. First, private-sector surveillance shapes individuals’ reasonable expectations of privacy, and thus regulation of the private-sector has effects on the government as surveillant. The FTC’s activities not only serve dignity interests in avoiding commercial inference in one’s life, they also affect citizens’ civil liberties posture with the state. Second, surveillance can make companies directly liable (for intrusive web monitoring, for tracking people offline, and for installing malware) or indirectly liable (for creating insecure systems, for using deception to investigate, and for mediating the surveillance of others) under the FTC Act. Third, the FTC’s actions substitute plaintiffs’ litigation for privacy, as the class action is burdened in novel ways. Fourth, the FTC’s actions increase the quality of consent necessary to engage in surveillance, and in so doing, the FTC has made some kinds of surveillance practically impossible to implement legally. Finally, the FTC’s actions make companies more responsible for their surveillance technologies in several ways—by making software vendors liable for users’ activities, by imposing substantive security duties, and by narrowing internet intermediary immunity.

 

Edwards Article: Arbitration's Dark Shadow

Benjamin P. Edwards of Nevada has written Arbitration's Dark Shadow, Nevada Law Journal, Forthcoming.  Here's the abstract:

Arbitration has expanded broadly, removing disputes involving entire industries from judicial review. The absence of judicial review plunges these disputes and industries into shadow. This shadow causes the public to lose sight of vital information about industry practices and arbitrators to gradually lose sight of the law. Federal intervention may be necessary to restore consumer protections, including customer choice, to bring these disputes out of the shadows.

Paper on the Right to Be Forgotten in the US

Patrick O'Callaghan of University College Cork has written The Chance 'to Melt into the Shadows of Obscurity': Developing a Right to Be Forgotten in the United States, A. Cudd & M. Navin (eds) Privacy: Core Concepts and Contemporary Issues (New York: Springer, 2018) (Forthcoming). Here is the abstract:

This chapter argues that there is some (limited) evidence of a right to be forgotten in the jurisprudence of U.S. courts. For the purposes of this argument, the right exists whenever interests in being forgotten and/or forgetting are understood as weighty enough to impose a duty on government and/or fellow citizens to respect those interests. Most of the relevant cases belong to the pre-digital era but nevertheless provide some doctrinal support for a right to be forgotten in the digital era. In particular, the chapter pays close attention to the privacy challenges associated with search engines and argues that it may be possible to implement a Google Spain-inspired right to be forgotten (in the sense of delisting or deindexing search results) in the United States.

Arbel Article Proposes that Administrative Agencies Sanction Filing of Baseless Claims Filed Against Consumers

Yonathan A. Arbel of Alabama has written Adminization: Gatekeeping Consumer Contracts, Vanderbilt Law Review, Forthcoming.  Here's the abstract:

Large companies and debt collectors frequently file unmeritorious claims against consumers. Recent high-profile actions brought by the Consumer Financial Protection Bureau (CFPB) against JP Morgan, Citibank, and large debt collectors illustrate the breadth and importance of this phenomenon. Due to the limited financial power of individuals, consumers often do not defend against such baseless claims, which results in the entry of millions of default judgments every year. To combat this problem, policymakers and scholars have explored a variety of solutions that would make it easier for consumers to defend in court, but these prove ineffectual.

To solve the problem of unmeritorious claiming, this Article proposes a budget-neutral solution called “Adminization.” This novel approach uses an administrative agency, potentially the CFPB, as a gatekeeper to civil litigation which detects and sanctions the filing of baseless claims. The main task of the agency is to select a sample of cases, audit them, and—where needed—issue fines. To effectively focus the agency’s attention, the sampling of cases for audit could rely on machine-learning algorithms—the same ones used by credit card companies to monitor fraud today. The audit will use agency investigators to gather and corroborate information relevant to the debt claim, and where wrongdoing is found, the agency will use its powers to levy fines against abusive plaintiffs. Unlike the current system, Adminization will subject every plaintiff to the risk of thorough investigation and large fines, thus undercutting the financial incentive to engage in wrongful behavior. The importance of Adminization lies in its cost-effectiveness, practicality, and political feasibility relative to “participation-based” approaches that dominate the discussion today.

Can law bloggers be subjected to Bar discipline for misstating facts or law?

by Paul Alan Levy

On Friday morning, a panel at the annual meeting in New York of the Association of Professional Responsibility Lawyers will be discussing an issue dear to the heart of blawgers who discuss subjects that make powerful figures in their own areas uncomfortable – to what extent should lawyers be subject to professional  discipline for speech that they make not in their representational capacity, and to what extent does the First Amendment bear on that question?

David Dayen on Foreclosure Victims and Playing Politics

by Jeff Sovern

The title of the piece, in The New Republic, is The Left’s Misguided Debate Over Kamala Harris. Perhaps non-Californians will be less interested in the parts about Kamala Harris and more interested in the parts about foreclosure victims (recall that Dayen wrote the excellent book Chain of Title about the foreclosure crisis). Here is an excerpt:

[I]f you were to rank the performance of law enforcement officials during this period, everyone would be tied for last. They all deserve criticism for their inability to hold the perpetrators of the biggest incidence of consumer fraud in American history to account. They all displayed shocking cowardice and let down millions of vulnerable people, when they had reams of documentary evidence revealing the crime, enough to extract much more justice and far better outcomes for the victimized. They all ushered in the two-tiered system of justice that sapped people’s faith in democracy * * *

* * *

Homeowner victims have spent the past decade largely invisible from public debate. The only time their plight gets highlighted is when somebody has an axe to grind against a particular public official. Only then do homeowners get trotted out for sympathy, as if the country didn’t ignore them for years. This is the problem with a politics of personality, which is consumed more with doling out praise and blame for high-profile politicians than demanding justice for broad social problems. It’s time the left put the issues back at the center of public debate.

Fed Study of Fintech Lending and Consumers

Julapa Jagtiani and Catharine Lemieux of the Fed have written Fintech Lending: Financial Inclusion, Risk Pricing, and Alternative Information. Here's the abstract:

Fintech has been playing an increasing role in shaping financial and banking landscapes. Banks have been concerned about the uneven playing field because fintech lenders are not subject to the same rigorous oversight. There have also been concerns about the use of alternative data sources by fintech lenders and the impact on financial inclusion. In this paper, we explore the advantages/disadvantages of loans made by a large fintech lender and similar loans that were originated through traditional banking channels. Specifically, we use account-level data from the Lending Club and Y-14M bank stress test data. We find that Lending Club’s consumer lending activities have penetrated areas that could benefit from additional credit supply, such as areas that lose bank branches and those in highly concentrated banking markets. We also find a high correlation with interest rate spreads, Lending Club rating grades, and loan performance. However, the rating grades have a decreasing correlation with FICO scores and debt-to income ratios, indicating that alternative data is being used and performing well so far. Lending Club borrowers are, on average, more risky than traditional borrowers given the same FICO scores. The use of alternative information sources has allowed some borrowers who would be classified as subprime by traditional criteria to be slotted into “better” loan grades and therefore get lower priced credit. Also, for the same risk of default, consumers pay smaller spreads on loans from the Lending Club than from traditional lending channels.

(HT: Matt Bruckner, Consumer Finance Monitor)