Consumer Law & Policy Blog

Issacharoff Book Chapter on Class Actions

Samuel Issacharoff of NYU has written Collective Action and Class Action, in THE CLASS ACTION EFFECT: FROM THE LEGISLATOR’S IMAGINATION TO TODAY’S USES AND PRACTICES, (Catherine Piché, ed., Éditions Yvon Blais, 2018 Forthcoming).  Here is the abstract:

Over the past 25 years, class actions have emerged as a central feature of Canadian law. The conceptual heart of these class actions comes from the Ontario Law Reform Commission’s 1982 Report on Class Actions, particularly in common law Canada. Drawing on the experiences of the early-adopter provinces of Québec, Ontario and British Columbia, the Report set out the objectives of the modern class action: judicial economy, access to justice, and behavior modification.

The reasoning in the Ontario Report is insufficient to explain the need for class actions. The stated premises are all classic accounts of the lack of individual redress that require collective action. As such they form the classic argument for the state. Class actions are private sources of collective authority, even if formed pursuant to legal rules governing class certification. Put simply, if it is public goods we seek, why not use public authority to obtain them?

This chapter addresses the question of the relation of private aggregation in relation to public authority. The discussion is illuminated by looking to the U.S. experience in this light, an experience that looms large in the Canadian debate.

Paper: Consumer Access to Credit Decreases in States Whose Senators Become Powerful

Pat Akey of the University of Toronto - Rotman School of Management, Rawley Heimer of the Boston College - Department of Finance, and Stefan Lewellen of the London Business School have written Politicizing Consumer Credit. Here's the abstract:

Using proprietary credit bureau data, we find that consumers’ access to credit decreases by 4.5 percent–8 percent when the borrower’s home-state U.S. senator becomes the chair of a powerful Senate committee. The reduction in credit access mostly affects historically credit-constrained consumers (low income and nonwhite and borrowers with poor credit scores), and is stronger in areas with less politically engaged constituents and more politically connected lenders. Additional evidence supports a “political protection” hypothesis—banks that are connected to powerful politicians consider fair-lending regulatory guidelines to be less binding. The results highlight the distinction between political power and legislative outcomes, and contrast recent findings that governments expand credit access to firms and consumers.

Here is an excerpt from the conclusion:

Moreover, the reduction in credit access mostly affects borrowers that have historically been credit constrained: consumers with low incomes and poor credit scores, and racial minorities. The results are robust to increasingly stringent geographic fixed effects as well as individual fixed effects, which account for unobserved heterogeneity in borrower quality across political constituencies.

Our results are consistent with a “political protection” hypothesis whereby banks tighten screening standards on disadvantaged borrowers once they are “protected” by a powerful homestate Senator. Consistent with this explanation, we find that the largest reductions in credit access occur in Census tracts where regulatory guidelines, such as the Community Reinvestment Act, are most likely to cause additional lending. We also find that the largest contractions in credit to disadvantaged borrowers occur in areas that are politically unengaged, while the effects are amplified in regions with a large proportion of politically-connected banks. Additionally, we find that the applicants who receive credit following political power shocks tend to be of higher observable credit quality than the applicants who receive credit prior to political power shocks. Finally, we find that banks become more profitable following these shocks. Collectively, these results suggest that increased political power causes lenders to tighten screening standards in a manner that reduces credit provision to disadvantaged borrowers.

 

 

Industry sues to challenge CFPB arbitration rule

Today, the U.S. Chamber of Commerce, American Bankers Association, American Financial Services Association, Consumer Bankers Association, Financial Services Roundtable, and a coalition of associations located throughout Texas filed a legal challenge to the Consumer Financial Protection Bureau’s anti-arbitration rule. The complaint alleges that the rule violates the requirements of the Dodd-Frank Act because the CFPB study was flawed and based on biased data, and because the rule is harmful to consumers.

The lawsuit was filed in the Northern District of Texas, Dallas Division. It is assigned to Sidney Fitzwater,who has been on the bench since the 1980s.

The complaint is available here. (It is 422 pages, but the bulk of it is the rule itself.

Though CFPB Found Credit Card Issuers That Dropped Arb Clauses Didn't Raise Prices, OCC's Norieka Claims CFPB Arb Rule Will Raise Cost of Lending 25%

by Jeff Sovern

The ABA Banking Journal (that's the banking ABA, not the lawyers' ABA) has the story here.  Except:

The OCC has conducted a study finding that the Consumer Financial Protection Bureau’s arbitration rule is likely to increase the cost of credit by about 25 percent once lenders factor in the cost of class action litigation, Acting Comptroller Keith Noreika said today at a fintech conference hosted by the Federal Reserve Bank of Philadelphia.

* * * 

 He said the OCC conducted the study because it wanted to review the effects of the CFPB’s rule — which virtually bans mandatory arbitration agreements in contracts for financial products and services — on banks and the customers they serve. “What originally caught my eye…was the potential impact that may have on small institutions…that really may face a massive litigation exposure,” he said.

 

That study, which I couldn't find on the OCC web site, conflicts with the CFPB study, which reported that banks that dropped arbitration clauses did not raise their prices.  It is also hard to reconcile the statement in the second paragraph quoted above about the impact on small institutions, with the fact that many small institutions, such as credit unions, have not added arbitration clauses to their contracts.  Norieka, a former bank lawyer, is temporarily serving as Comptroller.  It will be interesting to see if, when he leaves the OCC, he represents banks that would benefit if Congress blocks the CFPB rule from going into effect.   A new comptroller may soon be confirmed, as earlier this month the Senate Banking Committee voted to confirm the nominee, Joseph Otting. I look forward to seeing the OCC study when it becomes available.

 

UPDATE: While I still cannot find the OCC report on the OCC web site, it has now surfaced on a Ballard Spahr web site.  The report spans five pages. It takes issue with the CFPB's finding that the companies which abandoned arbitration clauses did not raise their prices, and so I am changing my headline above. I'm afraid I am not sufficiently comfortable with my understanding of statistics to offer a useful comment about the report.

Use of Search Warrants to Create Trump Enemies List Continues

by Paul Alan Levy

In a motion to quash filed today, three Facebook users are challenging search warrants issued by federal prosecutors seeking to rummage through accounts in which they supported protests against the inauguration of Donald Trump on the weekend of January 20. One of the accounts may be the Facebook analogue of the DisruptJ20.org web site that has been the subject of the heavily-litigated search warrant to DreamHost; two others are the personal accounts of the individuals, Lacy MacAuley and Legba Carrefour, who were identified on the DisruptJ20.org web site as media contacts for that web site. The demand for a search of the DisruptJ20 Facebook page is troublesome for the same reason that the demand for the search of the DisruptJ20.org web site threatens First Amendment values — even if we assume that some member of the grouping that called itself DisruptJ20 organizers was at the same time secretly plotting a riot, that not should be a basis for subjecting everybody who was in touch with the DisruptJ20 Facebook page to investigation by Trump Administration prosecutors.

The demand to search the Facebook accounts of MacAuley and Carrefour is even more troubling. Individual Facebook accounts often contain highly personal matters, and if political opponents of the Trump Administration know that they can too easily have their entire Facebook accounts searched just because it turns out that some coalition of which they were a part included somebody who was secretly planning a riot, the chilling effect on future participation in anti-Trump political activity could be substantial.

Survey finds more than one-quarter of cars at CarMax have unrepaired safety recalls

In a survey of nearly 1,700 vehicles for sale at eight CarMax locations – four in Massachusetts, two in California, and two in Connecticut – more than one in four vehicles (27 percent) were found to contain unrepaired safety recalls. The survey is described in a report released today by Consumers for Auto Reliability and Safety Foundation, Frontier Group, and MASSPIRG Education Fund.

The report is here. FairWarning covers the report's highlights, here.

Will Trump Advocate That Consumers Receive Less Protection in His Speech About Rolling Regulations Back?

by Jeff Sovern

The Hill has a story about the forthcoming speech.  Excerpt from the story:

President Trump plans to give a speech at the White House next week on his efforts to roll back federal regulations.    

“The President will be making remarks in the morning highlighting his administration’s efforts to eliminate excessive, job-killing regulations to an audience of about 250-300 regulatory experts from think tanks, industry groups, universities, companies, and state governments,” a White House official said. 

* * *

Following his speech scheduled for Monday, a White House official said 10 agencies will hold break-out sessions with some of the groups in attendance and talk about “how they can make regulation smarter, more efficient and less burdensome on our economy.”

Participating agencies include the departments of Agriculture, Commerce, Education, Energy, Health and Human Services, Interior, Labor, Transportation and Treasury * * *

Some of those agencies have issued regs that affect consumers.

New report shows widespread use of forced arbitration by large companies

A new report examines the use of arbitration agreements in the workplace by the top 100 largest domestic United States companies, as ranked by Fortune magazine. The key finding:

• 80 of the top 100 largest companies in America, including subsidiaries or related affiliates, have used arbitration agreements in connection with workplace-related disputes since 2010.
• Of the 80 companies with arbitration agreements in the workplace, 39 use arbitration clauses containing class waivers.

The report, prepared by Professor Imre Szalai of Loyola University New Orleans College of Law for the Employee Rights Advocacy Institute For Law & Policy is here.

Credit ratings agencies to get "embedded" regulators

Consumer Financial Protection Bureau Director Richard Cordray said today that the three credit ratings agencies -- Equifax, Trans Union, and Experian -- are going to be getting embedded regulators to prevent future breaches of private information.

CNBC has the story, here.

Consumer Financial Protection Bureau's first national survey on financial well-being claims more than 40% of U.S. adults have trouble making ends meet

Quoting from the CFPB's press release issued yesterday: 

The Consumer Financial Protection Bureau released the results of a first-of-its-kind national survey on the financial well-being of U.S. consumers that showed that more than 40 percent of U.S. adults struggle to make ends meet. The survey provides measurements and insights on the financial well-being of specific groups of consumers as well as the population as a whole. ... “These survey results are beginning to measure and examine the financial well-being of consumers,” said CFPB Director Richard Cordray. “And the new tool we are releasing allows consumers to measure their own financial well-being and helps them take better control of their financial futures.” [The new tool is here.]

The full report includes a range of findings, most prominently that

• More than 40 percent of adults report struggling to make ends meet: Of the nationally representative sample of consumers surveyed, 43 percent of consumers report struggling to pay bills. Additionally, over one third—34 percent—of all consumers surveyed reported experiencing material hardships in the past year. For the survey, examples of material hardships include running out of food, not being able to afford a place to live, or lacking the money to seek medical treatment.  
• Certain financial and demographic characteristics are associated with financial well-being: Educational attainment, income, and employment status all appear to have a strong relationship with financial well-being. Additionally, the survey showed that financial well-being is higher for older adults, especially those aged 65 and older, whose average score was 61. On the other end of the spectrum, younger adults, those 34 and younger, tended to have the lowest financial well-being score with an average of 51. 

American Banker has a behind-a-paywall story on the report here.