Consumer Law & Policy Blog

WSJ Report on CFPB Response to Norieka's Arbitration Op-Ed

by Jeff Sovern

The Wall Street Journal, in a story headlined Regulator Fight Flares Anew Over Arbitration Rule As GOP Gears Up To Vote, reports on the CFPB response to the Norieka op-ed I wrote about earlier:

The CFPB countered Mr. Noreika’s attack by publishing a new report on the rule’s effect on consumers, arguing there is no statistical evidence it would have a significant impact on credit costs. The bureau also said some of the data it used when designing the rule is confidential information not suitable for publishing.

The CFPB said the OCC’s analysis is “based on flawed statistics and is contradicted by publicly available historical data that the OCC did not consider.”

As best I can tell, the CFPB report is not yet up on its web site.

Two Reasons Comptroller Norieka is Wrong About Arbitration Clauses

by Jeff Sovern

Acting Comptroller of the Currency and former bank lawyer Keith Norieka has an op-ed in The Hill, Senate should vacate the harmful consumer banking arbitration rule, that is seriously flawed.  I'm going to write about two of those flaws here.

First, Norieka concludes by writing:

Instead of mandating only one way to resolve disputes, consumers and banks should continue to have the option to resolve contractual differences in the same manner that they do today, and consumers should exercise their market power to choose among institutions that use such clauses and those that do not. Consumers know for themselves what their best options are, and their regulators need to know that too.

It is all very well to say that consumers should exercise their market power to choose institutions that don't use arbitration clauses, but the fact is, consumers can't do that.  A study I co-authored found that consumers not only did not understand arbitration clauses, many thought they were unenforceable.  Many of our findings were replicated in the CFPB's own study.  Not only has no study found that consumers understand arbitration clauses, but the industry itself has acknowledged that consumers don't read credit card contracts. If consumers don't read contracts, how can we expect them to recognize, let alone act, on whether a contract includes an arbitration clause?  Saying that Congress should block the rule because consumers should act in ways we know they don't is like saying doctors shouldn't treat obesity because people shouldn't overeat. 

Second, Norieka writes:

In September, OCC economists completed their review of the CFPB’s analysis. Their review found the data actually show an 88 percent chance of the total cost of credit increasing, and the expected increase is almost 3.5 percentage points [if the CFPB rule takes effect]. 

Elsewhere, Norieka notes that about half of all credit card issuers don't use arbitration clauses.  If Norieka's economists' findings were correct, that would imply that the half of credit card issuers who don't already use arbitration clauses prefer to charge much higher interest rates over adding an arbitration clause. But how likely is that?  Who are these credit card issuers who charge higher rates because they don't use arbitration clauses?  Why wouldn't they simply add an arbitration clause to their contracts to make their credit cards more competitive? There's no evidence that consumers would punish credit card issuers who use arbitration clauses by closing their accounts (remember that consumers don't read the contracts, so they wouldn't know about the clauses, and wouldn't understand them if they did read them), so just by adding a paragraph to their contracts, credit card issuers could make their cards more attractive, if Norieka's economists are right. This sounds like one of those cases in which economic analysis is at war with reality.

Older Consumers in the Financial Marketplace

Today, my colleagues at U.S. PIRG and the Frontier Group released a new report, "Older Consumers in the Financial Marketplace." From the report's executive summary:

Older consumers are at risk of harm from predatory financial behavior. An analysis of more than 72,000 financial complaints submitted by older consumers (those 62 years of age and older) to the Consumer Financial Protection Bureau (CFPB, or Consumer Bureau) and contained in its Consumer Complaint Database suggests that mistreatment of older consumers by financial companies is widespread.

The stories told in these complaints reinforce the importance of the Consumer Bureau’s work to hold financial companies accountable for wrongdoing, to secure relief for mistreated consumers, and to help older consumers avoid mistreatment in the financial marketplace.

The Consumer Bureau provides a valuable service to older consumers, along with all consumers. Attempts to weaken or eliminate the Consumer Bureau could risk the financial wellbeing of millions of older consumers.

The full report is available here.

NCLC article on CFPB payday lending rule

On October 5, 2017, the Consumer Financial Protection Bureau issued its final rule on payday, vehicle title, and certain high-cost installment loans. The National Consumer Law Center  prepared this article describing the rule's coverage, two main provisions, and effective date. The article also lists ways under current law to challenge abusive payday, auto title, and installment loans.

FTC refunds money to people charged for “free trials” for health products

The Federal Trade Commission announced to day that it is mailing 227,000 refund checks totaling more than $9.8 million to people who bought “fat burning” and “weight loss” products and other dietary supplements, DVDs, or skin creams, including Pure Green Coffee Bean Plus and RKG Extreme, from Health Formulas LLC and related companies. The average refund amount is $43.

The FTC's press release is here.

Want to try to limit your vulnerability to telemarketers, online data miners, and the like?

Allen St. John at Consumer Reports has written 6 Easy Opt-Outs to Protect Your Privacy. This article reviews opt-outs such as the national do-not-call registry and a few industry-specific opt-outs to prevent the spread of personal information (for instance, one that applies to major banks and another that will get you off lists to receive "pre-approved" credit offers). St. John also points his readers to the World Privacy Forum's Top 10 Opt Outs, which he calls "a comprehensive resource of websites and organizations that help consumers reduce the amount of marketing material coming their way." 

David Dayen in The Intercept: IN NEW LAWSUIT, CORPORATIONS BAND TOGETHER TO STOP CONSUMERS FROM BANDING TOGETHER

by Jeff Sovern

Here.  Lots of irony in this one, as you can tell from the headline.  A sample:

Eighteen groups representing thousands of corporations and banks filed the lawsuit against the Consumer Financial Protection Bureau last Friday in federal court in Dallas. Oddly, they did not attempt to individually resolve the dispute through an arbitration process, which they’ve consistently said yields speedier and better results for those wronged. “Arbitration gives consumers the ability to bring claims that they could not realistically assert in court,” the lawsuit reads.

But for corporations, banding together in courts apparently presents a better option.

* * *

[T]he arbitration rule harms the public interest, they claim, because “it precludes the use of a dispute resolution mechanism that generally benefits consumers (i.e., arbitration) in favor of one that typically does not (i.e., class-action litigation).”

So, really, they’re doing it for the consumers.

But the dispute resolution mechanism that allegedly doesn’t help ripped-off consumers is effectively the one they’re using.

A little harsh, perhaps, because as Ted Frank has pointed out, the Chamber might very well be happy to arbitrate its claim rather than having it heard in court. But still worth a read, even if only because of how well Dayen has written the essay. 

CFPB payday loan rule is good for the states

That's what Georgetown law prof. Anne Fleming has to say in her Washington Post op-ed Federal regulation of payday loans is actually a win for states’ rights. It includes this defense of federal regulation:

Critics of the CFPB rule, such as House Financial Services Committee Chairman Jeb Hensarling (R-Tex.), argue that federal regulation of these loans infringes on state sovereignty. But the current system of state-level regulation, without any federal floor, imposes its  burdens on states that seek to protect their residents from payday loans. Lenders often operate across state lines, lending from states where payday loans are permitted to borrowers in states where such loans are illegal. This makes it incredibly difficult for these “restrictive” states to protect their residents from being saddled with unaffordable debts.

Former Equifax CEO Pledges to "Make it Right" for Consumers--But Won't Promise Compensation

by Jeff Sovern

I've been listening to the several hearings in Washington this week at which former Equifax CEO Richard Smith testified. I haven't finished yet, and may have more to say, but here's a quick observation.  Mr. Smith testified at various points that Equifax planned to make things right for consumers.  For example, here is a quote from his written testimony before the Senate Banking Committee: 

Upon learning of suspicious activity, I and many others at Equifax worked with outside experts to understand what had occurred and do everything possible to make this right.

* * *

[W]e struggled to understand what had gone wrong and to make it right. This has been a devastating experience for the men and women of Equifax. But I know that under the leadership of Paulino and Mark they will work tirelessly, as we have in the past two months, to making things right.

Mr. Smith also described various steps Equifax is taking to make things right, including rolling out a new product in January 2018 which will be free and enable consumers to control access to their credit report. But in response to questioning, Mr. Smith testified before the Senate Banking Committee that Equifax was not offering compensation to injured consumers.

What kind of injuries might there be?  Well, the other two big credit bureaus, TransUnion and Experian, can charge for their credit freeze services and many consumers have undoubtedly availed themselves of those services since the breach came to light.  Thern there's the risk of identity theft.  How likely is it that the hackers will have gone to all the trouble of hacking into Equifax but have no plans to use the data thus disclosed?  Consumers whose identities are stolen may suffer significant damages from the harm that Equifax made possible.  That's why consumers need the ability to bring class actions against Equifax. 

One other note: Senator Warren's questions elicited statements from Mr. Smith to the effect that Equifax might ultimately profit from the breach. For example, according to Mr. Smith, the identify theft protection service Lifelock uses Equifax for some of its services, and so Equfax makes money when people use Lifelock.  The Senator observed that Lifelock had increased its customers by a factor of ten since the breach.  Equifax stock has lost a lot of value, but its value may go up again after the crisis recedes in the headlines.  Consumers have little ability to punish Equifax and so Equifax is unlikely to pay a big price at the hands of consumers.  I doubt Equifax will do well as a result of this breach, but it remains to be seen what the long term effect is. 

If proved, would the alleged Trump "University" scam make Trump impeachable?

That's the topic of Trump University and Presidential Impeachment by law prof Chris Peterson. Here's the abstract:

In the final weeks of the 2016 Presidential campaign Donald J. Trump faced three lawsuits accusing him of fraud and racketeering. These ongoing cases focus on a series of wealth seminars called “Trump University” which collected over $40 million from consumers seeking to learn Trump’s real estate investing strategies. Although these consumer protection cases are civil proceedings, the underlying legal elements in several counts that plaintiffs seek to prove run parallel to the legal elements of serious crimes under both state and federal law. This Article provides a legal analysis of whether Trump’s alleged behavior would, if proven, rise to the level of impeachable offenses under the presidential impeachment clause of the United States Constitution. This Article begins with a summary of the evidence assembled in the three pending Trump University civil lawsuits. Next, it describes the legal claims involved in each matter. Then, this Article summarizes the applicable law of presidential impeachment under the United States Constitution and analyzes whether Trump’s actions in connection with Trump University are impeachable offenses. Finally, I offer concluding thoughts, considering in particular the policy implications of a Presidency with unresolved accusations of fraud and racketeering.