Consumer Law & Policy Blog

Mehrsa Baradaran's Terrific Podcast for Who Makes Cents?

by Jeff Sovern

I only just found out about Mehrsa Baradaran's terrific interview for the Who Makes Cents podcast. If you haven't made time to read her book, How the Other Half Banks, this will give you a brief introduction. For those who are unfamiliar with podcasts, it is easy to download them to a smartphone and then listen to them while driving or performing other standard chores. Here is an excerpt from the book's blurb, which also could serve as a blurb for the interview:

[I]t is easy to forget that America’s banking system was originally created as a public service. Banks have always relied on credit from the federal government, provided on favorable terms so that they could issue low-interest loans. But as banks grew in size and political influence, they shed their social contract with the American people, demanding to be treated as a private industry free from any public-serving responsibility. They abandoned less profitable, low-income customers in favor of wealthier clients and high-yield investments. Fringe lenders stepped in to fill the void. This two-tier banking system has become even more unequal since the 2008 financial crisis.

Baradaran proposes a solution: reenlisting the U.S. Post Office in its historic function of providing bank services. The post office played an important but largely forgotten role in the creation of American democracy, and it could be deployed again to level the field of financial opportunity.

ABA Announces Paid Consumer Protection Fellowship for Law Students to Work in AG's Offices Over the Summer

From the announcement:

The Janet D. Steiger Fellowship Project provides law students the extraordinary opportunity to work in the consumer protection departments of state and territorial Offices of Attorneys General and other consumer protection agencies throughout the United States. The eight to ten week paid Fellowships were initiated in 2004 by the ABA Section of Antitrust Law, in cooperation with the National Association of Attorneys General, as a consumer protection outreach initiative to introduce law students to the rewards of legal careers in public service.  A total of 325 Steiger Fellowships have been awarded through the summer of 2017.

* * * 

The Council of the Section approved funding for states to participate in the 2018 Steiger Fellowship Project. Each selected student will receive a $6,000 stipend (subject to certain federal taxes and administered through the offices of the state attorneys general). This Project continues to be a tribute to the memory of the late Janet D. Steiger, one of America's great public servants who, during her remarkable tenure as FTC Chairman, dramatically improved cooperation, communication and coordination between state and federal consumer protection and antitrust enforcement agencies.

More information here.

Another Name, McWatters, NCUA Head, Said to be on Shortlist to Direct CFPB

So says Victoria Finkle in the American Banker. Other names reportedly on the list are House Financial Services Chair Jeb Hensarling, GMU professor Todd Zwyicki, and Keith Norieka, the former acting head of the OCC who threw a monkey wrench into the CFPB's doomed arbitration rule.  McWatters currently helms the National Credit Union Administration, and was confirmed by the Senate for that position.  When it comes to regulatory capture, the article contains a particularly interesting paragraph:

[McWatters's] nomination may draw opposition from banking groups, however, which are concerned with how close the NCUA is to the industry it regulates. Bankers frequently complain that the agency is not tough enough on credit unions.

As for McWatters's interactions with the CFPB, the article explains:

He asked the consumer agency in May to exempt credit unions from expanded data collection and reporting requirements issued under the Home Mortgage Disclosure Act and to clarify the agency’s authority to oversee unfair, deceptive and abusive acts. In July, he requested that the consumer agency drop examination and enforcement for the largest credit unions.

Economic Inquiry: Call for Papers for Consumer Protection Economics Symposium

We've received the following Call for Papers:

Economic Inquiry is excited to announce a Symposium on the Economics of Consumer Protection. The goal of this symposium is to create a unique reference on consumer protection economics topics that would (a) synthesize what is known about the current state of economic analyses of consumer protection law enforcement and policy, (b) identify open consumer protection policy questions in need of more refined economic analysis, and (c) advance the application of economics to consumer protection policy analysis and law enforcement. The symposium will also celebrate the 40th anniversary of the 1978 founding of a division of economists devoted to consumer protection at the Federal Trade Commission. Papers related to the Federal Trade Commission’s dual mission to protect consumers and promote competition are particularly welcome.

Consumer protection economics draws from various fields of applied microeconomics, including the economics of information, labor economics, economics of the household, industrial organization, experimental economics, behavioral economics, law and economics, regulatory economics, and welfare economics, as well as applied statistics, and econometrics. We invite submissions from a broad range of fields using a variety of techniques, including new theoretical models, targeted literature reviews or meta-analyses, and empirical research, including econometric analysis, surveys, and experiments.

Potential topics include, but are not limited to, the following:

Why Did the CFPB Eliminate Fair Enforcement of the Rules From Its Description of Itself?

by Jeff Sovern

As others, including Adam Levitin and David Lazarus have pointed out, the CFPB recently modified its description of itself at the bottom of its press releases.  Here is the old version:

The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.

And here is the new version:

The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by regularly identifying and addressing outdated, unnecessary or unduly burdensome regulations, by making rules more effective, by consistently enforcing federal consumer financial law and by empowering consumers to take more control over their economic lives.

The motivation for some of the change seems clear.  The Trump administration is anti-regulation, and "addressing" regulations is consistent with that. But why the change from "consistently and fairly enforcing [consumer protection] rules" to "consistently enforcing federal consumer financial law" (emphasis added)?  What's wrong with fairness?  Here's what David Lazarus had to say:

Because the rules that banks and credit card companies had to follow were unfair to begin with? Because consumers shouldn’t expect fairness when dealing with financial firms? 

For what it's worth, I wonder if it has something to do with the use of the phrase "fair lending laws" to refer to laws, like the Equal Credit Opportunity Act, that prohibit discrimination in lending. Or maybe it's because the use of the word fair implies some exercise of discretion, as in the laws won't be enforced when that would produce an unfair result.  Or maybe the Trump administration believes the CFPP should not have the authority to declare practices unfair.  Recall that the House of Representatives has passed the Financial Choice Act, which would eliminate the Bureau's power to outlaw practices as unfair, deceptive, or abusive (the UDAAP powers).  

And why the change from "rules" to "federal consumer financial law"?  Is it simply a stylistic change? Or is it intended to reflect a substantive shift from making rules to focusing on enforcement of statutes?

What about using a 20th century saying for dealing with this 21st century statement: if it ain't broke, don't fix it.

LA Times Report on Hearing on PI Motion in English v. Mulvaney, the CFPB Leadership Case

The story is headlined Trump's Wells Fargo tweet cited in court hearing as reason to remove Mulvaney as CFPB acting chief.  The tweet said

Fines and penalties against Wells Fargo Bank for their bad acts against their customers and others will not be dropped, as has incorrectly been reported, but will be pursued and, if anything, substantially increased. I will cut Regs but make penalties severe when caught cheating!

Here's an excerpt from the story:

The attorney for Leandra English — the bureau’s deputy director who has said she is the rightful acting head — said Trump’s tweet showed he was trying to exercise improper influence over the independent consumer watchdog.

“I think that [tweet] shows you this isn’t just some hypothetical concern,” the attorney, Deepak Gupta, told Judge Timothy J. Kelly of the U.S. District Court for the District of Columbia during a nearly two-hour hearing.

* * * 

Gupta argued Friday that English was suffering irreparable harm by not being acting director and that harm also extended to Americans because Mulvaney is taking a different approach to consumer protection than she would have.

“You cannot unscramble the egg of having the wrong person running the Consumer Financial Protection Bureau,” Gupta told Kelly. “This is not a garden-variety employment case.”

Gupta said that Congress established the succession provision in Dodd-Frank to ensure that the bureau would not be subject to presidential influence. Mulvaney should be removed as acting director because he also serves in the White House at the pleasure of the president, Gupta said.

District Court Hearing on Friday on English PI Motion for Control of CFPB as White House and Treasury are Said to Fight Over the Bureau's Role

The American Banker''s Kate Berry has a report on the hearing here; it is not optimistic about English's chances. Meanwhile, the WSJ has a story headlined The Internal Divide Behind Trump’s Takeover of Consumer Watchdog about how White House conservatives want to dismantle the Bureau while the Treasury sees a role for the Bureau. Mulvaney's appointment is seen as a victory for those who oppose the Bureau.

"DeVos to reduce loan forgiveness for some defrauded students"

I should have posted this story yesterday:

The Department of Education on Wednesday announced new rules for providing aid to students claiming they were defrauded by their colleges that limits some student loan refunds according to income. Education Secretary Betsy DeVos said the new system "protects taxpayers from being forced to shoulder massive costs that may be unjustified." Under the new process, students’ loan forgiveness will be determined by their income. Those making less than half of what their peers earn will receive full relief, the department said. The new policy is a departure from Obama-era rules, which provided full loan forgiveness to defrauded students.

The full article form The Hill is here.

Advocates for students and state attorneys general are reportedly already gearing up to challenge the new rules, which were adopted without notice-and-comment rulemaking.

California Supreme Court decision on manufacturers' responsibility for adequate labeling of Rx drugs

The Supreme Court of California today issued a decision on an important question for many consumers. In T.H. v. Novartis Pharmaceuticals Corp., the question before the court was whether brand-name drug manufacturers can be held liable for injuries caused by inadequately labeled generic drugs.

The question arose primarily because, under regulations of the Food and Drug Administration, manufacturers of generic drugs cannot initiate labeling updates to provide new warnings; instead, the labeling of generic drugs generally must mirror that of the brand-name products. For this reason, the U.S. Supreme Court held in 2011, in a case called PLIVA v. Mensing, that, in most circumstances, generic drug manufacturers cannot be sued by injured patients for failure to warn.

In today's decision, the California court held that the court held that “[b]ecause the same warning label must appear on the brand-name drug as well as its generic bioequivalent, a brand-name drug manufacturer owes a duty of reasonable care in ensuring that the label includes appropriate warnings, regardless of whether the end user has been dispensed the brand-name drug or its generic bioequivalent.” 

Because the question is a matter of state tort law, the answer may differ from state to state. And, indeed, several states have reached the opposite conclusion. Until the FDA revises its regulations to allow generic-drug manufacturers to take responsibility for maintaining labeling that provides adequate warnings, the decision today is helpful not only to the plaintiff here, but for all of us, and it reinforces the need for brand-name manufacturers to keep patients and physicians apprised of up-to-date safety information.

The decision is here.

Age-discrimination class action filed against defendant class of major companies alleged to have used Facebook recruitment ads to discriminate against older potential job applicants

Take a look at the complaint in Communications Workers of America v. T-Mobile US, Inc., et al., No. 17-cv-07232 (N.D. Cal.). It's a plaintiffs' class action naming a defendant class of hundreds of companies that have allegedly used recruitment ads on Facebook to target young people and thus discriminate against older potential job applicants. Here's the first paragraph of the complaint (edited to eliminate parentheticals and names):

The Communications Workers of America [and individual plaintiffs] seek to vindicate the rights of older workers to be free of age discrimination in employment advertising, recruitment, and hiring. They bring this action against T-Mobile US, Inc., Amazon.com, Inc., Cox Communications, Inc., Cox Media Group, LLC, and a Defendant Class of hundreds of major American employers and employment agencies that, upon information and belief, routinely exclude older workers from receiving their employment and recruiting ads on Facebook, and thus deny older workers job opportunities. These companies eliminate older workers from receiving job ads by specifically targeting their employment ads to younger workers via Facebook’s ad platform. 

The complaint seeks relief under state anti-discrimination laws, but it promises to add claims under the federal Age Discrimination in Employment Act once the individual named plaintiffs have exhausted their administrative remedies under that law.