Consumer Law & Policy Blog

Nebraska introduces pro-net neutrality legislation

The Hill reports that Nebraska is the first Republican-controlled state to launch its own attempt to save net neutrality rules.

On Friday, state Sen. Adam Morfeld (D) introduced legislation in the state legislature to enshrine net neutrality regulations in law on the state level.

Morfeld’s bill would keep broadband providers like AT&T and Comcast from slowing down or blocking internet content and from cutting deals with content companies to give them faster connection speeds.

California, Washington, New York and Massachusetts are also reportedly considering adoption of net neutrality rules

Report that Mulvaney CFPB Stafffer Lobbied Against CFPB Discrimination Protections Before Joining CFPB

The report comes from Allied Progress. Excerpt:

Just before the holiday break, Consumer Financial Protection Bureau (CFPB) “Acting Director” Mick Mulvaney announced that several of his senior staff from the Office of Management and Budget (OMB) would be taking on leadership roles at the CFPB. That list included his chief of staff Emma Doyle. What he failed to mention is that immediately before working for him at OMB, Doyle worked for Ford Motor Company where she lobbied on multiple bills, which would have nullified CFPB protections against discriminatory auto lending practices.

Looks like the swamp is swallowing the CFPB.

NCLC Establishes Spanogle Institute for Consumer Advocacy

by Jeff Sovern

A fitting honor for John "Andy" Spanogle, whom I have come to know as co-author of our consumer law casebook.

More CFPB News to be Concerned About: Hensarling Aides Move to CFPB

by Jeff Sovern

The new chief of staff for the CFPB will be Kirsten Sutton Mork, a longtime aide for House Financial Services Chair Jeb Hensarling, according to Mr. Hensarling. Chief of staff is the position formerly held by Leandra English, who is locked in a battle with Mulvaney to be acting director of the Bureau.  Hensarling has been a huge critic of the Bureau, and this is the second of his aides to join the CFPB under Mulvaney. Though as someone subject to the optimism bias, I still hope that the new Bureau leadership will understand the value of consumer protection once they learn more about it at the Bureau, this does not bode well for that dream.

 

 

Study Examines Impact of Mortgage Modification Programs

Diana Farrell and Kanav Bhagat, both of JP Morgan Chase, Peter Ganong at the Harris Public Policy School of the University of Chicago, and Pascal Noel of the University of Chicago Booth School of Business have written Mortgage Modifications after the Great Recession: New Evidence and Implications for Policy. Here's the abstract:

In the aftermath of the Great Recession, various mortgage modification programs were introduced to help homeowners struggling to make their monthly mortgage payments remain in their homes. We use mortgage data at the individual borrower level, joined to credit card spending and deposit account data, to investigate the relative importance of changes in monthly mortgage payments and long-term mortgage debt on default and consumption. We first quantify the variation in payment reduction offered by these modification programs and then use the variation in payment and principal reduction experienced by program recipients to estimate the impact of payment and principal reduction on default and consumption.

First, we find that payment reduction for borrowers with similar payment burdens varied by two to three times across different modification programs. Borrowers with a high mortgage payment to- income (PTI) ratio received more than twice the payment reduction from HAMP compared to the GSE program. Borrowers with a low mortgage PTI ratio received three times the payment reduction from the GSE program compared to HAMP. Second, a 10 percent mortgage payment reduction reduced default rates by 22 percent. Third, for borrowers who remained underwater, mortgage principal reduction had no effect on default. This suggests that “strategic default” was not the primary driver of default decisions for these underwater borrowers. Fourth, for borrowers who remained underwater, mortgage principal reduction had no effect on consumption. Finally, default was correlated with income loss, regardless of debt-to-income ratio or home equity. Mortgage default closely followed a substantial drop in income. This pattern held regardless of pre-modification mortgage PTI or loan-to-value ratio, suggesting that it was an income shock rather than a high payment burden or negative home equity that triggered default.

These findings suggest that mortgage modification programs that are designed to target substantial payment reduction will be most effective at reducing mortgage default rates. Modification programs designed to reach affordability targets based on debt-to-income measures without regard to payment reduction or target a specific LTV ratio while leaving borrowers underwater may be less effective at reducing defaults. Furthermore, policies that help borrowers establish and maintain a suitable cash buffer that can be used to offset an income shock could be an effective tool to prevent mortgage default. Both high and low mortgage PTI borrowers experienced a similar income drop just prior to default, suggesting that even among those borrowers with “unaffordable” mortgages, it was a drop in income rather than a high level of payment burden that triggered default.

Bank Trade Group Fears Industry Will Capture CFPB

by Jeff Sovern

Camden R. Fine is the president and CEO of the Independent Community Bankers of America, a trade group for community bankers. The American Banker recently published his op-ed, Don’t let a credit union regulator run the CFPB, opposing the candidacy of National Credit Union Administration Chairman J. Mark McWatters to head the CFPB. Here's an excerpt:

[A]mid concerns that the CFPB lacks sufficient checks on its regulatory authority, the NCUA’s willingness to flout Congress in its rulemakings makes its chairman suspect for leading the bureau. McWatters and others at the NCUA have been strident advocates for expanding the credit union charter far beyond what Congress intended when it established the industry in the 1930s.

* * *

The CFPB should not be led by the head of an agency that has acted as a cheerleader for the industry under its oversight.

* * * 

if Washington is willing to settle for single-director governance at the CFPB, then let’s advance a director with meaningful experience in the full range of regulations for which the CFPB is responsible. And let’s choose a leader not with a track record of cheerleading for the industry he is charged with overseeing and regulating, but rather a commitment to the laws by which our agencies are established by Congress.

Mr. Fine should be commended for pointing out that regulatory capture is a problem, especially when it comes to the CFPB (Mr. Fine's position appears to be rooted in the fact that credit unions compete with community banks). Regulatory capture has been endemic among banking regulators, most notably at the OCC. Indeed, it was the fear of regulatory capture that prompted Congress to structure the CFPB the way it did. It would be great if the next CFPB director, whomever that person may be, avoids regulatory capture, not only by credit unions, but also by banks and other financial institutions. One place the president could look for a director who would be unlikely to be captured by the industry, of course, would be among consumer advocates. Yes, I know, but a person's reach should exceed his grasp, or what's a heaven for?

Article on Designing Platforms--Like Uber, Airbnb--to Prevent Discrimination

Karen Levy and Solon Barocas of Cornell have written Designing Against Discrimination in Online Markets, 32 Berkeley Technology Law Journal (2018).  Here is the abstract:

Platforms that connect users to one another have flourished online in domains as diverse as transportation, employment, dating, and housing. When users interact on these platforms, their behavior may be influenced by preexisting biases, including tendencies to discriminate along the lines of race, gender, and other protected characteristics. In aggregate, such user behavior may result in systematic inequities in the treatment of different groups. While there is uncertainty about whether platforms bear legal liability for the discriminatory conduct of their users, platforms necessarily exercise a great deal of control over how users’ encounters are structured—including who is matched with whom for various forms of exchange, what information users have about one another during their interactions, and how indicators of reliability and reputation are made salient, among many other features. Platforms cannot divest themselves of this power; even choices made without explicit regard for discrimination can affect how vulnerable users are to bias. This Article analyzes ten categories of design and policy choices through which platforms may make themselves more or less conducive to discrimination by users. In so doing, it offers a comprehensive account of the complex ways platforms’ design choices might perpetuate, exacerbate, or alleviate discrimination in the contemporary economy.

"States pursue net neutrality rules after FCC rollback"

The Hill has this short article about states efforts to adopt net neutrality rules in light of the FCC's decision to drop its rule.

Law360: Consumer Protection Cases To Watch In 2018

Here, by Sophia Morris. Among the cases is the possible return of Spokeo to SCOTUS. Standing is also an issue in another case mentioned in the report, but in the second case the issue arises in connection with a data breach.

Wiped Out

Wastewater systems nationwide have for some time been urging people not to flush anything except human waste and toilet paper down the toilet to avoid clogs that damage sewer lines. Kimberly-Clark and other manufacturers, however, market some of their moistened wipes as "flushable," a claim that has given rise to litigation from consumers as well as consternation from local governments. Last year, DC adopted a law establishing a standard of "flushability" and prohibiting manufacturers of wipes from calling them "flushable" if they don't meet that standard. Just before Christmas, however, Judge James Boasberg of the U.S. District Court for the District of Columbia issued a preliminary injunction preventing enforcement of the law against Kimberly-Clark's "flushable" wipes, on the ground that the company had shown a likelihood that the law violated the First Amendment.

Judge Boasberg's order focused on a provision in the law requiring manufacturers whose wipes don't meet the standard to label them with a statement that they "should not be flushed." That statement, he concluded, was a controversial statement of opinion rather than fact, and thus not subject to the very relaxed constitutional scrutiny applied to commercial-speech disclosure requirements. The prohibition on labeling noncompliant wipes "flushable," he went on, was just the flip-side of the statement of opinion. And neither requirement, he concluded, could be salvaged by the District's adoption of an objective standard of "flushability" because a "statutory definition [can] not save a disputed term." Finally, applying "intermediate" First Amendment scrutiny to the law, Judge Boasberg found that the company was likely to succeed in establishing that the law was not narrowly tailored because the District had not considered alternatives that might be equally effective in meeting its objectives of protecting its sewer lines.

The decision is only a preliminary injunction, and Judge Boasberg stressed that regulations implementing the law might ultimately avoid First Amendment problems by providing for a disclosure that would be more narrowly factual in character. (For example, a requirement that a manufacturer disclose that the product did not meet DC's standard, without requiring expression of the "should not be flushed" conclusion.) Still, some of the order's reasoning is troubling, particularly the suggestion that the government may not establish a standard for employing some term and then preclude a product that does not meet the standard from using it. For example, the FDA generally prevents food manufacturers from calling their products "low fat" if they contain more than three grams of fat per serving. Under the opinion's reasoning, a manufacturer that held a different "opinion" about what level of fat is low might argue that the FDA's definition can't "salvage" its prohibition on the manufacturer's expression of opinion.

It's doubtful that this opinion will be the last word on the issue, either from the district court or from higher courts, but the case definitely bears watching.