Consumer Law & Policy Blog

A Comment on the Second Circuit's Arias FDCPA Decision

by Jeff Sovern

I am very late to this particular party, but back in November, the Second Circuit decided ARIAS v. GUTMAN, MINTZ, BAKER & SONNENFELDT LLP, an important FDCPA case dealing with a collector-law firm's attempt to collect funds that were exempt from collection. After the firm froze the money in the consumer's bank account, the consumer twice sent the collector documentation establishing that the funds were exempt, but the firm claimed he had not supplied adequate documentation. At a later hearing, a firm lawyer reviewed the documents the consumer had twice sent, agreed that they showed that the funds were exempt, and released the funds in the account. The Second Circuit held that the complaint stated a claim under both the FDCPA prohibitions on unfair and unconscionable conduct and misrepresentation, saying:

We hold that a debt collector engages in unfair or unconscionable litigation conduct in violation of section 1692f when, as alleged here, it in bad faith unduly prolongs legal proceedings or requires a consumer to appear at an unnecessary hearing.

One comment: a while ago, I wrote an article, Towards a New Model of Consumer Protection: The Problem of Inflated Transaction Costs, 47 William & Mary Law Review 1635 (2006), arguing that one way companies take advantage of consumers is by making it expensive for consumers to assert their rights. Arias provides an example of a company doing just that, and getting in trouble because of it. A recurring phenomenon in debt collection cases is that consumers don't show up to court hearings on their claims. Collectors claim that's because the consumers owe the money and so know they will lose; consumer advocates argue it's because consumers can't afford to take a day off from work. Whatever the merits of such claims, the firm should have accepted the consumer's documentation in Arias the first time the consumer submitted it and has paid a price for not doing so. But probably many consumers in Arias's position would not have attended the hearing, and would have lost. In other words, I suspect that many collectors in the firm's position would have won this case they should have lost simply by increasing the consumer's cost by forcing the consumer to choose between attending an unnecessary hearing or taking a day off from work. I hope now they will think twice before doing so.

How Mulvaney Can Sabotage the CFPB's Payday Lending Rule

by Jeff Sovern

Last month, Interim Director Mulvaney announced that the Bureau may reconsider the Bureau's payday lending rule. But he can't just rescind it. That would require a full notice-and-comment rulemaking, and that would take longer than Mulvaney will be at the CFPB (under the Vacancies Act, he is limited to 210 days). True, Mulvaney could start that process and a successor could finish it.  But even then, the Bureau would have to to meet the requirements of the APA and not appear to be acting arbitrarily and capriciously, which would be hard to do after it already promulgated a rule on the subject. But according to a Kate Berry article in the American Banker, Mulvaney can’t just kill CFPB payday rule, but here’s what he can do, Mulvaney could delay implementation of the existing rule and then a successor could amend the rule to make it less protective of consumers. One scenario would shift the rule from prohibiting a payday lender from making certain loans unless the lender verified that the consumer could repay the loan to a rule that obliged lenders to provide disclosures. The problem with that approach is that consumers all too often ignore disclosures, as Omri Ben-Shahar and Carl E. Schneider demonstrated in their book, More Than You Wanted to Know: The Failure of Mandated Disclosure. For example, a study by Marianne Bertrand and Adair Morse, both of Chicago's Booth School of Business, Information Disclosure, Cognitive Biases and Payday Borrowing and Payday Borrowing, that displayed the image below to payday borrowers, found that it reduced payday borrowing by 11% in later pay cycles and the amount borrowed by 23%. That doesn't seem like much when you look at some of the comparisons below, such as that a three-month credit card loan would cost $15, versus $270 for a payday loan.  So the difference between regulation and disclosure for some--perhaps many--consumers is the difference between being caught in a debt trap, or not.  

FTC Consumer Bureau Acting Director Pahl: FTC Will Continue Going After the "Worst of the Worst"

by Jeff Sovern

AccountsRecovery.Net reports on an interview, largely about debt collection, with the Acting Director of the FTC's Consumer Protection Bureau, Thomas Pahl, at a Receivables Management Association conference this week. Some excerpt:

“It’s difficult to speak about where the agency is headed given the organization is changing,” Pahl said during his session, adding that he expects the FTC to continue going after the most “egregious” actors. That area of the business has been the FTC’s “sweet spot” in the area of enforcement, Pahl said, and he does not see that changing.

“We’re definitely looking at the worst of the worst,” Pahl said. “It’s beneficial to the industry. It allows legitimate players to distinguish themselves. I anticipate it will continue under new leadership.”

And my comment: it's great that the FTC is going after "the worst of the worst." But shouldn't it be bringing case against all the worst?  I can't tell from the report whether the FTC lacks the resources to pursue all the worst, whether that reflects disagreement about whether it's desirable to move against all the worst, or whether Pahl is simply employing a rhetorical device to justify what the Commission is doing, but ideally, the FTC would (you should forgive the expression) cast a pall over all the worst, regardless of where the particular enterprise ranks among the worst. If going after the worst of the worst is good for both consumers and the industry, as Pahl indicates, wouldn't that be true of all the worst as well? 

Consumer Financial Regulation Scholars' Amicus Brief in CPFB Leadership Case

Adam J. Levitin of Georgetown, Patricia A. McCoy of Boston College Law School, Kathleen C. Engel of Suffolk, and Dalié Jiménez of California-Irvine, Connecticut School of Law; and Harvard's Center on the Legal Profession have authored Brief of Amici Curiae Consumer Financial Regulation Scholars in Support of Plaintiff-Appellant Leandra English, English v. Trump, No. 18-5007 (D.C. Cir.). Here's the abstract:

In November 2017, a successorship controversy ensued over the rightful Acting Director of the Consumer Financial Protection Bureau (CFPB or the Bureau) following the resignation of the Bureau’s first Senate-confirmed Director. President Donald Trump appointed the Director of Office of Management and Budget (OMB), Appellee John Michael Mulvaney, as Acting CFPB Director, despite the Dodd-Frank Act’s command that the Deputy Director of the CFPB “shall . . . serve as acting Director in the absence or unavailability of the Director.” 12 U.S.C. § 5491(b)(5)(B). The White House countered that the Federal Vacancies Reform Act of 1998 (FVRA), 5 U.S.C. § 3345(a), authorized Mulvaney’s appointment. 

In this amicus brief, Amici Curiae Consumer Financial Regulation Scholars asserted that upon the Director’s resignation, the CFPB’s Deputy Director, Leandra English, became Acting Director and was entitled to serve in that role until a new Director was confirmed by the Senate or recess appointed. Amici contend that Deputy Director English’s claim is correct because the Dodd-Frank Act is the only statute that governs this succession dispute. In Dodd-Frank, Congress expressly decreed a mandatory line of succession for an Acting CFPB Director, stating that the Deputy Director “shall” serve as the Acting Director in the event of the Director’s vacancy. Congress enacted this provision after considering and rejecting the FVRA during the drafting of the Dodd-Frank Act. Further, Congress’s choice of this succession provision is intrinsic to the CFPB’s design as an agency with unique independence from policy control by the White House. The appointment of any White House official, but particularly the OMB Director, as Acting CFPB Director is repugnant to the statutory CFPB independence that Congress ordained. Nor does the FVRA apply to this case because it yields to subsequently enacted statutes with express mandatory provisions for filling vacancies at federal agencies. This is apparent from the text of the FVRA, from the FVRA’s legislative history, and from the basic constitutional principle that an earlier Congress cannot bind a subsequent Congress.

(Disclosure: I joined in the brief).   Barbara S. Mishkin describes the other amicus briefs in support of Ms. English at the Consumer Finance Monitor Blog.

NACA Survey Finds CFPB Fully Immersed as Key Resource and Partner for Distressed Consumers in Financial Marketplace

Quoting from the announcement:

In its six-year existence, the Consumer Financial Protection Bureau (CFPB) has proved itself integral to curbing predatory lending and other practices that harm American consumers every day, a survey from the National Association of Consumer Advocates (NACA) shows.  The survey found that consumers and their advocates enforce and rely on the CFPB to help resolve private disputes with financial institutions, and that they regularly provide the agency with evidence of improper practices in communities across the country – information that furthers CFPB research and investigations. 

The survey, conducted in December 2017, documents how advocates who represent consumers with financial disputes interact with the bureau. Of the respondents, 96 percent reported that the CFPB has been “very helpful” (76 percent) or “somewhat helpful” (20 percent) in their representation of their consumer-clients. Every responding legal services attorney – that is, advocates who provide free, civil legal assistance to low-income people – reported that the CFPB has been helpful (86 percent said “very helpful”) in their work.

“The bureau’s work over the past six years – protecting homeowners, student loan borrowers, payday loan victims, older adults, servicemembers, and other American consumers from harmful financial practices – was deeply felt in communities across the country,” said Christine Hines, NACA’s legislative director.

Consumers are biggest losers of Trump’s ongoing war on regulations

by Jeff Sovern

My latest op-ed. Excerpt:

It seems unlikely that the bureau would take on a bank like Wells Fargo for [opening unauthorized accounts] or pursue many of Cordray’s other actions now that Mulvaney is in charge. His boss has even praised a bill passed by the House that would strip the CFPB of the authority to go after banks for doing what Wells Fargo did, while Mulvaney himself has co-sponsored legislation aimed at killing the bureau.

* * *

In January, Mulvaney told his staff that the bureau’s actions should be guided by how many complaints it receives on a particular matter.

By that measure, the CFPB wouldn’t have gone after Wells Fargo because few consumers seem to have complained to the bureau about the unauthorized Wells accounts. That may be because consumers often don’t bother to complain when they have suffered only a small loss. And yet collectively the Wells customers had much at stake, as demonstrated by the fact that Wells has agreed to settle the case for $142 million, a number that may yet grow.

* * *

For the next five months – or until the Senate confirms a permanent director – the CFPB is led by someone who once called it a “sad, sick” joke.

What is sad and sick, in my view, is that an agency established to protect consumers may be more eager to protect predatory lenders than consumers. And that is no joke.

Addressing Income Inequality Through Consumer Law: the Van Loo Argument

by Jeff Sovern

Income inequality causes numerous problems for the United States, including lower economic growth. Probably the most widely-mentioned solution to income inequality is taxation, But Rory Van Loo of Boston University argues that consumer law also poses a potent weapon against income inequality in his paper, Consumer Law As Tax Alternative. One intriguing aspect of this creative paper is that it offers consumer advocates another argument for some consumer law interventions, in that some consumer laws can now be justified on the ground that they combat income inequality, as well as with more traditional arguments.  The paper attempts to quantify the amount that some consumer laws could contribute to reducing income inequality, finding that they could reduce income inequality by more than a trillion dollars. Here is the abstract:

The law and economics paradigm has traditionally emphasized tax and transfer as the best way to achieve distributional goals. This Article explores an alternative. Well-designed consumer laws—defined as the set of consumer protection, antitrust, and entry barrier laws that govern consumer transactions—can make markets more efficient and lessen inequality. Policymakers and scholars have traditionally ignored consumer laws in redistribution conversations in part because consumer laws examine narrow and siloed contexts—deceptive fees by Visa or a proposed merger between Comcast and Time Warner Cable. Those are different microeconomic fields, whereas redistribution is dominated by macroeconomics. Even millions of dollars in reduced credit card fees seem trivial compared to the trillion-dollar growth in income inequality that has sparked concern in recent decades. This Article synthesizes the fragmented empirical literature quantifying inefficiently higher prices across diverse markets—called overcharge. To my knowledge, it is the first to conclude that consumer law-related inefficiencies plausibly overcharge more than a trillion dollars, or over ten percent of all that consumers spend. It also analyzes which households pay and earn income from that overcharge. Consumers outside the top one percent likely pay significantly more of their expenditures toward overcharge. A static simulation also indicates that removing consumer overcharge could bring the share of income earned by the top one percent of households from its current level—twenty percent of all income—to about where it was in 1980, when the top one percent earned ten percent of all income. Moreover, this massive redistribution would be driven by laws making markets more competitive, rather than tax increases that distort markets. If the empirical literature currently available is right, consumer law merits serious consideration as an alternative to tax.

Maybe It DOES Matter if the CFPB Looks into the Equifax Breach--and the CFPB Says It Is Doing So

by Jeff Sovern

Yesterday I expressed doubt about whether it matters if the CFPB backs off on investigating Equifax. Now I'm wondering if I was wrong to do so.  I hadn't given enough thought to the CFPB's supervisory responsibilities over collection bureaus. Vox has an article which reports:

A CFPB spokesperson said in an email to Vox that the bureau is authorized to take “supervisory and enforcement action against certain institutions engaged in unfair, deceptive, or abusive acts or practices, or that otherwise violate federal consumer financial laws,” including the failure of institutions to engage in “reasonable data security practices” in connection with consumer report information. “As noted previously, the bureau is looking into Equifax’s data breach and response,” the spokesperson said. “Reports to the contrary are incorrect. The bureau cannot comment further at this time.”

I believe the CFPB is the only federal agency with supervisory responsibility over credit bureaus (the FTC, which is also investigating, has enforcement powers), so a CFPB investigation may make sense in terms of, among other things, helping the Bureau figure out how to supervise credit bureaus going forward. But now it appears that the CFPB is denying that it has stopped investigating the Equifax breach; the statement just quoted above says that the Bureau is looking into the breach.  Kate Berry at the American Banker has suggested that the Bureau is simply taking a backseat to the FTC, the lead investigator, and that it may in fact be coordinating with the FTC rather than abandoning its investigation. Unfortunately, because Interim Director Mulvaney has backed off of protecting consumers in other matters, claims that he has done so here as well are completely plausible.

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Does the CFPB's Putting the Equifax Probe on Ice Matter?

by Jeff Sovern

The answer to the question is that I'm not sure it does. Brian reported earlier today that Reuters is saying that the CFPB has put its Equifax probe on ice. But Reuters also reports that Equifax says it is under investigation by every state AG, that the FTC is investigating, and that in excess of 240 class actions have been filed against Equifax. In addition, as we previously reported, the CFPB has very limited jurisdiction over the Equifax data breach, if it has any jurisdiction at all.  All that suggests that the CFPB would not have been a big player in an investigation anyway, and that others are on the job. But one thought makes me hesitate to say it doesn't matter at all: I don't think former director Cordray would have opened an investigation unless the Bureau had jurisdiction over some aspect of the matter and there was at least a possibility that the Bureau could have contributed something useful.  For now though, I'm more inclined to worry about the other damaging changes Mulvaney is making at the CFPB. And sadly, there are far too many of those.