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Monday, March 19, 2018

Does Mulvaney Know There's a Difference Between Not Pushing the Envelope and Turning the CFPB into a Dead Letter?

by Jeff Sovern

CFPB Acting Director Mick Mulvaney famously said that the Bureau should not push the envelope. He also said at the same time:

There will absolutely be times when circumstances require us to take dramatic action to protect consumers. At those times, I expect us to be vigorous in our enforcement of the law. But bringing the full weight of the federal government down on the necks of the people we serve should be something that we do only reluctantly, and only when all other attempts at resolution have failed.

* * *

[W]e will be prioritizing. In 2016, almost a third of the complaints into this office related to debt collection. Only 0.9% related to prepaid cards and 2% to payday lending. Data like that should, and will, guide our actions.

So you might think that he would bring the occasional enforcement action, probably against debt collectors.  But he has been in office for nearly four months now, and still hasn't announced any enforcement actions. Not against anyone, much less debt collectors. Apparently there haven't been any times yet when circumstances absolutely require dramatic enforcement action.

Posted by Jeff Sovern on Monday, March 19, 2018 at 12:34 PM in Consumer Financial Protection Bureau | Permalink | Comments (0)

David Lazarus: 56 years later, Kennedy's call for a consumer bill of rights is forgotten under Trump

by Jeff Sovern

Here in the LA Times.  Excerpt:

[T]he current occupant of the Oval Office, President Trump, a wealthy businessman, is aggressively pursuing policies that undermine each of Kennedy's declared rights.

* * *

Kennedy proposed four basic consumer rights:

The right to safety: "To be protected against the marketing of goods which are hazardous to health or life."

The right to be informed: "To be protected against fraudulent, deceitful or grossly misleading information, advertising, labeling or other practices, and to be given the facts he needs to make an informed choice."

The right to choose: "To be assured, wherever possible, access to a variety of products and services at competitive prices." And if a market lacks competition, regulations to assure "satisfactory quality and service at fair prices."

The right to be heard: "To be assured that consumer interests will receive full and sympathetic consideration in the formulation of government policy."

* * *

Here's my quote:

 

"I could imagine Trump first endorsing a consumer bill of rights, and then walking it back after he spoke to lobbyists and members of his administration, which unfortunately may be the same thing at this point."

Posted by Jeff Sovern on Monday, March 19, 2018 at 12:07 PM | Permalink | Comments (0)

Affordable Care Act insurers have best year yet financially

This interesting article by Paul Demko explains that despite Trump's and the republicans' legislative and regulatory efforts to make the Affordable Care Act economically non-viable, 2017 was the best year yet financially for ACA insurers.

Posted by Brian Wolfman on Monday, March 19, 2018 at 12:01 AM | Permalink | Comments (0)

Sunday, March 18, 2018

Matt Bruckner Article on FinTech and Big Data

Matthew A. Bruckner of Howard has written The Promise and Perils of Algorithmic Lenders' Use of Big Data, 93 Chicago-Kent Law Review (2018). Here's the abstract:

Like many new technologies, algorithmic lenders’ use of Big Data holds great promise but may also be perilous. At the most basic level, Big Data is simply a toolkit for “creating, refining, and scaling financial solutions for consumers.” A company’s decision to use Big Data is “neither inherently good nor bad.” Instead — as with any other tool — it can be used to help or to harm consumers. The Janus-faced nature of emerging financial technology (“fintech”) firms is particularly noteworthy, and lies at the heart of this Article.

Appropriate regulation will likely be key to delivering on Big Data’s promises in the financial services sector. All financial services companies are potentially subject to a significant amount of regulation. But while regulators have paid attention to fintech’s development, regulations “have not kept pace with modern Big Data capabilities.” This presents challenges both for regulators and “for companies looking for firm legal guidelines as they build” their companies. Indeed, the Consumer Financial Protection Bureau (CFPB) noted in a recent Request for Information that it needs to better understand these technologies to “encourage their responsible use and lower unnecessary barriers, including any unnecessary regulatory burden or uncertainty that impedes such use.” Impliedly, it will also seek to prevent fintech’s irresponsible use.

This Article proceeds as follows. Part I provides a (very brief) overview of Big Data, machine learning/predicative analytics, and their use in making credit determinations. Part II discusses the promising and perilous nature of “algorithmic lending 2.0.” Its major promise is to bring the so-called “credit invisibles” into the credit markets by using non-traditional credit measures. Its primary threat is the possibility that it will exacerbate financial services discrimination. Part III discusses several major pieces of the current regulatory regime, where it fails to adequately address the worst threats, and how we might improve oversight of algorithmic lenders.

Posted by Jeff Sovern on Sunday, March 18, 2018 at 04:16 PM in Consumer Law Scholarship, Privacy | Permalink | Comments (0)

Saturday, March 17, 2018

Empirical Study of Third Party Consumer Litigation Funding

Ronen Avraham of Tel Aviv University - Tel Aviv University, Buchmann Faculty of Law and Texas and Anthony J. Sebok of Cardozo have written An Empirical Investigation of Third Party Consumer Litigation Funding, 104 Cornell Law Review __ (2018).  Here is the abstract:

This is the first large-scale empirical study of consumer third-party litigation funding in the United States. Despite being part of the American legal system for more than two decades there has not been a single real data-driven empirical study to date. We analyzed funding requests from American consumers in over 100,000 cases over a twelve year period. This proprietary data set was provided to us by one of the largest consumer litigation funder in the United States. 

Our results are striking and important. We find that the funder plays an important role in the American legal system by screening cases. Our funder rejected about half the applications, as well as was cautious about investing too much in a single case, thus preserving the incentives of the client and her lawyer to exert optimal effort. We find that the funder suffered losses in 12% of the cases primarily because of complete defaults. Even in the cases the funder made profit we find a surprising gap between the markup that the funder was supposed to receive from consumers based on the contract between them and the markup the funder actually received. This gap stems both from clients’ defaults as well as from haircuts that the funder gave to the clients. 

On the troubling side we find that the funder used controversial techniques to calculate the amount due from the clients. Specifically, the funder used various types of interest compounding, minimum interest periods, interest buckets and fees to add costs to the contract. Accounting for defaults, haircuts, fees, etc., we find that the funder makes about 44% a year on each case. We are also the first to shed light on the role lawyers play in this industry. We find that some law firms are better than others in getting better treatment of their clients both before and after they received funding. 

This study provides important concrete and specific data to policymakers and legal scholars interested in litigation finance. While we cannot assess whether the overall welfare effects from funding is positive or negative, we suggest that consumers should be better protected by reducing the opacity and complexity of the funding contracts as well as by requiring lawyers to do more to protect their clients who seek third party funding.

Posted by Jeff Sovern on Saturday, March 17, 2018 at 04:52 PM in Consumer Law Scholarship, Consumer Litigation | Permalink | Comments (0)

Friday, March 16, 2018

DC Circuit Upends FCC's Robo-Calling Ruling

In an opinion issued this morning, the U.S. Court of Appeals for the District of Columbia Circuit overturned key provisions of a Federal Communiciations Commission ruling addressing the scope of the Telephone Consumer Protection Act's prohibition on the use of automated dialing devices to make unconsented-to calls to cell phones.

In what may prove the most significant aspect of its ruling, the Court struck down parts of the FCC's ruling addressing the definition of "automated dialing equipment," which the FCC had said included equipment that had the potential to be modified to be used to make autodialed calls. The court took the view that the FCC's definition was so broad it could include any smartphone, and it found unreasonable a construction of the TCPA that could impose liability on any use of a smart-phone to make a call or send a text that the recipient had not consented to in advance. The court also found that the order was ambiguous, and hence, in the court's view, arbitrary and capricious, in defining what potential capabilities a device would have to have to make it a piece of automated dialing. Specifically, the court found it unclear whether the FCC required that a device have the capability of generating a list of numbers in order to qualify. Finally, the court flagged but did not decide another issue: whether the FCC's longstanding view that the TCPA's prohibition applies whether or not a device's automated dialing capability is used to make a particular call is correct.

The FCC will have the opportunity, should it choose to exercise it, to respond to the court's calls for greater clarity and a less sweeping definition of the statute's scope. But the court's decision may push the agency to narrow the TCPA's reach so that much more robo-calling will fall outside the Act's coverage. And pending further FCC rulings on the subject, the decision's reasoning may also be used by telemarketers to attempt to escape liability in private lawsuits alleging violations.

The court also struck down the FCC's ruling that a telemarketer cannot rely on the consent of the former owner of a reassigned cell phone number for more than one call to the new subscriber. The court accepted that the FCC could reasonably view the TCPA's use of the term "called party" to refer to the current owner of a number rather than a former owner who had consented to receive robo-calls, but it held that it was arbitrary for the agency to provide callers relying on a former subscriber's consent with a safe harbor to make only one call to that number. The court suggested that the agency may have ways to avoid the problem by creating a registry of reassigned numbers, but meanwhile defendants in TCPA actions will continue to argue that they can rely on a former subscriber's consent to avoid liability for making unconsented-to calls to current owners of a phone number. With the FCC's ruling vacated, courts may reach varying views on how the statute's language applies, even though the most logical reading of "called party" is that it refers to the person who was actually called.

The court ruled for the FCC in two respects, the most important of which was its holding that the FCC acted lawfully in ruling that telephone owners can revoke consent to receive robo-calls through any reasonable means. However, the respects in which the court overturned the FCC will likely have more far-reaching consequences and continuing reverberations both in further proceedings before the agency and in private TCPA lawsuits.

Posted by Scott Nelson on Friday, March 16, 2018 at 04:54 PM | Permalink | Comments (0)

OCC's Otting Wants to Change Community Reinvestment Act

by Jeff Sovern

So Banking Exchange reports.  Excerpt:

Otting believes a flaw of how CRA has evolved is its strong emphasis on low-to-moderate income mortgage lending and lending for low-to-moderate income multifamily housing. He thinks more types of activities should count toward meeting CRA’s intention. For example, he says, small business lending in low-to-moderate income areas should count. Likewise, he believes that building community centers that can be used in inner cities to provide job training, financial literacy, and related skills also should count. In addition, he thinks more donations that support the community should be counted; this category has narrowed substantially over the years.

Beyond this, Otting thinks student loans should qualify for CRA credit. “You’re taking a person from an underprivileged area of the community and you’re helping them reach outside that community to gain skills and be successful people,” he explains.

* * *

Yet another change that the new Comptroller would make to CRA regulation is the concept of the assessment area. “I think assessment areas are a little archaic, frankly,” says Otting. “If banks are operating in a particular state, they should be making investments in that state. But the old days of drawing a circle around one county and saying that’s your assessment area and the only place you can make qualified CRA investments, I think that time has come to an end.”

One comment about the last paragraph: if he means that you satisfy the CRA by making loans anywhere in your home state, that seems a far cry from the CRA goal of making sure that some money deposited in banks in low-income communities is used to finance loans in that community.

Posted by Jeff Sovern on Friday, March 16, 2018 at 12:47 PM in Credit Reporting & Discrimination | Permalink | Comments (0)

Thursday, March 15, 2018

Will the Bill to Revise Dodd-Frank Fail Because the House and Senate Can't Agree?

The HIll is reporting that the House insists on going to conference to resolve differences between the House-passed Financial Choice Act and the Senate bill, while the Senate Democrats who supported the bill say they would oppose major changes in it. The House bill makes major changes in the CFPB.

Posted by Jeff Sovern on Thursday, March 15, 2018 at 08:41 PM in Consumer Financial Protection Bureau | Permalink | Comments (0)

House bill would replace CFPB director with a 5-person commission

A bipartisan group of House members on Wednesday released a bill that would replace the director of the controversial Consumer Financial Protection Bureau with a five-person commission. The bill would also rename the CFPB the Financial Product Safety Commission.

The Hill has the story.

Posted by Allison Zieve on Thursday, March 15, 2018 at 04:03 PM | Permalink | Comments (0)

Politico's Victoria Guida: Congress rides to the rescue of thriving bankers

Here.  Excerpt:

President Donald Trump and other supporters of the major banking bill that cleared the Senate on Wednesday say they want to rescue the nation’s lenders from a crush of regulations.

But far from being crushed, the industry looks more like it's booming.

Banks have hauled in record profits for the last three years and will be among the biggest winners under the new tax-reform law. Their loans are growing by 4 to 5 percent a year, well within historical norms. And even community banks, which the bill’s backers say they’re most concerned about, are making money.

With all the problems facing the country, this kind of makes me wonder why the Senate thought banks needed the most attention this week.

Posted by Jeff Sovern on Thursday, March 15, 2018 at 11:38 AM in Consumer Legislative Policy | Permalink | Comments (1)

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