Consumer Law & Policy Blog

Jean Sternlight Article: Consumer Arbitration as a Poster Child for Regulation

Jean R. Sternlight of the University of Nevada, Las Vegas has written Hurrah for the Consumer Financial Protection Bureau: Consumer Arbitration As a Poster Child for Regulation, 48 St. Mary's Law Journal 343 (2016).  Here is the abstract:

Drawing on economic, psychological and philosophical considerations, this Essay considers whether consumers should be "free" to "agree" to contractually trade their opportunity to litigate in a class action for the opportunity to bring an arbitration claim against a company. The Essay suggests that by looking at the CFPB's regulation through these three lenses, one sees that the regulation is desirable—even a poster child—for the potential value of regulation when market forces are not sufficient to protect individual or public interests.

Some Think Draining the Swamp Means Reducing Consumer Protection

by Jeff Sovern

According to Politico, President Trump first used the phrase "drain the swamp" in a speech on October 17, 2016, in which he announced an ethics plan to, in fact, drain the swamp. Here's the Washington Post's quote of what he said draining the swamp meant:

First: I am going to re-institute a 5-year ban on all executive branch officials lobbying the government for 5 years after they leave government service. I am going to ask Congress to pass this ban into law so that it cannot be lifted by executive order. Second: I am going to ask Congress to institute its own 5-year ban on lobbying by former members of Congress and their staffs.Third: I am going to expand the definition of lobbyist so we close all the loopholes that former government officials use by labeling themselves consultants and advisors when we all know they are lobbyists. Fourth: I am going to issue a lifetime ban against senior executive branch officials lobbying on behalf of a foreign government. Fifth: I am going to ask Congress to pass a campaign finance reform that prevents registered foreign lobbyists from raising money in American elections.

After reading that, you might think that draining the swamp would be good for consumer protection because according to OpenSecrets.org, in 2016, the Finance, Insurance & Real Estate Industries ranked second in lobbying spending at 486,122,908 (I subtracted the money spent by accountants, who are for some reason included in the total), and reported 2,078 lobbyists (again, dropping the accountants), or nearly four for every member of Congress. Spending last year worked out to more than $900,000 per member of Congress, or more than $1.3 million per day.  But some seem to think the president meant something else when he spoke about draining the swamp. For example, House Financial Services Committee Chair Jeb Hensarling refers to the CFPB as a "bureaucratic swamp," while the Wall Street Journal just published an essay titled Before You Leave The Swamp... about holding CFPB Director Richard Cordray in contempt. 

(By the way, for those wondering, OpenSecrets.org lists lobbying spending for lawyers and law firms as 14,863,270 (about 3% of the number for the finance et al. industry) and the number of their lobbyists as 188 (about 9% of the number for the finance, et al lobbyists). Some of the contributors include entities unlikely to oppose predispute arbitration, such as large law firms that represent financial institutions, but maybe that's fair as the finance et al, industry  lobbies for many things that don't affect people in their role as consumers.

CFPB issues prototype overdraft fee disclosures

Banks and credit unions may give their customers the option of overdraft "protection," which allows the customer to overdraw when (for instance) using a debit card in exchange for paying a overdraft fee. The Consumer Financial Protection Bureau is concerned that the fees can burden consumers and wants to ensure that overdraft fees are adequately disclosed to consumers. The CFPB has therefore issued these prototype disclosures for use by banks and credit unions. The agency also issued a study showing that consumers who opt for overdraft protection often pay considerable fees. The CFPB's comprehensive press release is here.

"Wells Fargo faces lawsuits, angry lawmakers over car lending"

The Washington Post reports:

The heat on Wells Fargo over its auto lending business has intensified, with customers filing at least three lawsuits, politicians calling for hearings and a bank regulator issuing a subpoena for records.

Wells Fargo, still trying to recover from a fake accounts scandal, said last week that roughly 570,000 customers were signed up for and billed for car insurance that they didn’t need or necessarily know about. Many couldn’t afford the extra costs and fell behind in their payments. In about 20,000 cases, cars were repossessed.

The bank has agreed to pay $80 million in refunds and account adjustments to customers, with checks starting to go out this month.

But on Wednesday, the New York Department of Financial Services, a banking regulator with an outsized role in overseeing the industry because of the number of banks based in New York, sent a subpoena to Wells Fargo.

It wants to see copies of loan contracts with borrowers, agreements with its dealer network, and any outside vendors who may have played a role.

That follows two customer lawsuits filed in California and one in New York. One lawsuit said the bank’s “abusive” practices caused “significant stress, hardship and financial losses” for customers.

The full article is here.

"Congress should crack down on predatory ‘pyramid schemes,’ not look away"

Lots of editorials and op-eds on consumer issues lately. In The Hill today:

Congress this summer is considering whether to pass legislation that would fundamentally damage the ability of the Federal Trade Commission to protect consumers from pyramid schemes. As one of the commissioners of the FTC, I have a much different view. Americans lose millions of dollars to certain deceptive, unfair, and illegal multi-level marketing (MLM) opportunities each year. These deceptive and unfair schemes have affected people across America and, in many tragic cases, have ripped away a family’s entire life savings.

The FTC’s 40-year enforcement history shows that deceptive companies act illegally and cause enormous economic harm. In some cases, companies’ deceptive and misleading advertisements entice consumers with promises of high salaries, flexible working hours, and the chance to sell attractive products or services to customers.

The full op-ed is here.

The Hill: 3 big lies bank lobbyists peddle to protect corporate scoundrels

Here.  Excerpt:

Big Lie No. 1: Bank lobbyists claim that people recover more in arbitration than in class actions: $32 per person in class actions versus $5,400 per person in arbitration, citing the CFPB’s study. 

* * *

The very few people who take the time and expense to pursue an individual arbitration — only 16 people a year on average in the entire country got those $5,400 “average” arbitration awards — had quite large claims, averaging $27,000. The CFPB’s study found that, nationwide, only 25 people file arbitrations each year seeking less than $1,000. 

But several million people each year get relief in class actions, which are an efficient way of resolving smaller claims by many people. For example, Kaylee Heffelfinger, one of the lead plaintiffs in the class action against Wells Fargo, alleged $210 in unauthorized fees. Her claim did not make sense to pursue by herself. 

* * *

Big Lie No. 2: Class actions only benefit the attorneys.

The CFPB studied 419 consumer financial class actions and found $2.7 billion in relief for consumers, with only 18 percent of that going to attorneys. That is, $2.2 billion went to consumers.

Editorial: Congress should jump at chance to side with consumers

The Chicago Sun-Times urges "Congress should side with consumers, not with what it says in the fine print, and abandon its efforts to repeal the rule."

Fine print has never been the friend of consumers, and in recent years the perils have escalated as financial institutions have drawn up clauses that deny customers effective redress in disputes.

To counteract that, the Consumer Finance Protection Bureau drew up a rule to prevent banks and other financial companies from forcing customers with disputes to go to arbitration, a one-sided process that often costs more than the amount in dispute. But the U.S. House has voted along party lines to repeal the rule, and it is unclear whether Senate Republicans will follow suit.

They shouldn’t. Too many people have been victims of financial schemes. They need more protection, not less.

The full editorial is here.

Morning Consult: Prospects Dim for Senate Vote on CFPB Arbitration Rule This Month

Here. Excerpt:

A Senate GOP aide said that supporters of the resolution do not have the votes needed to proceed on the floor, given the absence of Sen. John McCain (R-Ariz.), who has returned to Arizona to receive medical treatment for brain cancer.

A July 28 statement from McCain’s office said he does not plan to return to Washington until Sept. 5, when the rest of the Senate is scheduled to reconvene after its August recess.

* * *

Some GOP senators are either undecided or opposed to the resolution, according to Tuesday interviews with the lawmakers. Sen. Lindsey Graham (S.C.) said he would not vote in favor of the resolution if it were brought before the Senate today.

* * *

Sen. John Kennedy (R-La.), who last week said he was undecided because of his focus on health care legislation, told Morning Consult he hasn’t decided on whether he would support the resolution, and Sen. Susan Collins of Maine said she is also still undecided  * * *

Poll: Consumers Overwhelmingly Think Their Bank, Credit Card Issuers Treat Them Better Than 10 Years Ago. What's Changed? Hint: CFPB

by Jeff Sovern

Results from WalletHub. Some other findings:

More than half think banks and credit bureaus need more regulation while 71% think consumers need more financial protection

92% know CFPB stands for Consumer Financial Protection Bureau and 49% would turn to the CFPB if they had a serious complaint about a bank, compared to 9% for the FTC.

Four in every ten think Republicans want to cut the Bureau's funding to get favors from bank lobbyists. Nine in ten would rather cut a different agency's funding.

 

FDA has 6 inspectors for 3 million shipments of cosmetics

The New York Times reports that the Food and Drug Administration has warned Congress that it is frequently finding contamination, illegal ingredients and other problems in the soaring quantities of imported cosmetics, and that it has limited resources to inspect the shipments. The warning was part of a letter sent in late June to a House Democrat who is pushing Congress to enact legislation giving the FDA more power to regulate cosmetics.

The FDA said that it has the equivalent of just six full-time inspectors to monitor three million shipments of cosmetics coming in each year — lipsticks, eyeliners, nail polish, face powders, tattoo inks and other products — an amount that has doubled in the last decade. These products came from 181 countries last year, sent by 29,000 foreign companies.

The full article is here.