Consumer Law & Policy Blog

Should consumer-protection law protect "consumers" when they are sellers (not just when they are buyers)?

Law prof Jim Hawkins has written Protecting Consumers as Sellers. Here's the abstract (with a few words added at the end by me):

When the majority of modern contract and consumer protection laws were written in the 1950s, 60s, and 70s, consumers almost always acted as buyers, and businesses almost always acted as sellers. As a result, these laws reflect a model of strong sellers and weak buyers. But paradigms are shifting. Advances in technology and constraints on consumers’ financial lives have pushed consumers into new roles. Consumers today often act as sellers — hawking gold to make ends meet, peddling durable goods on eBay, or offering services in the sharing economy to make a profit. Consumers and business models have changed, but the laws have not. This Article uncovers the new role that consumers play as sellers and argues that lawmakers should reform outdated laws to protect them [and proposes specific ideas for new laws].

 

NY Times op-ed by G'town law prof John Brooks about why the Obama-era student-loan reforms are good and shouldn't be ditched

Read this NY Times op-ed by Georgetown Law's John Brooks entitled Don’t Let the G.O.P. Dismantle Obama’s Student Loan Reforms. Here's an excerpt (but read the whole thing):

One of the most important — but least known — achievements of the Obama administration was the expansion of the income-driven repayment program for federal student loans. The program aims to make student loan payments affordable for everyone, regardless of their income. But Republicans, in their endless quest to undo everything Mr. Obama did, are now trying to dismantle the program under the guise of reform, citing misleading claims of high costs and low effectiveness. In fact, the program’s costs are low, and the student loan system as a whole is financially self-sustaining. More important, we should be increasing investment in higher education and support for students, not the reverse.

 

Study Finds Widespread Sexual Orientation and Intersectionality Discrimination in Mortgage Lending

Shahar Dillbary of Alabama and Griffin Sims Edwards of the University of Alabama at Birmingham - Department of Marketing, Industrial Distribution & Economics have written An Empirical Analysis of Sexual Orientation Discrimination, University of Chicago Law Review, 2018 Forthcoming. Here's the abstract:

This study is the first to empirically demonstrate widespread discrimination across the United States based on perceived sexual orientation, sex and race in the mortgage lending process. Our analysis of over five million mortgage applications reveals that any FHA loan application filed by same-sex male co-applicants is significantly less likely to be approved compared to the white heterosexual baseline (holding lending risk constant). The most likely explanation for this pattern is sexual orientation based discrimination — despite the fact that FHA loans are the only type of loan in which discrimination on the basis of sexual orientation is prohibited. 

Moreover, we find compelling evidence to support the intersectionality theory. According to this theory when sex and race unite, a new form of discrimination emerges that cannot be explained by sexism and racism alone. The data unequivocally indicates that the race and sex of same-sex applicants play a role and result in a unique and previously unobserved pattern. This discriminatory pattern plagues every region in the U.S., and it transcends party lines (i.e., it is present in red, blue and swing states). Furthermore, upending conventional wisdom, the data reveals that big banks discriminate at the same rate as small banks, and lenders in urban environments are as discriminatory as rural lenders. Prior studies failed to reveal this phenomenon due to data constraints and design flaws. These studies relied on testers posing as applicants, and none could investigate how intersectionality influences lending practices. 

Despite the grim results, a silver lining exists. We find that the pattern of discrimination diminishes or disappears in states and localities that pass anti-sexual orientation discrimination laws. These findings have important and timely implications. In 2017 a new bill offering nationwide protection from sexual orientation credit discrimination was introduced. The same year has experienced tectonic changes in Title VII jurisprudence. Our study can reinvigorate the debate and help policy makers tailor remedies that would correct the discriminatory pattern this study unravels.

Some Questions I Hope Members of Congress Ask Mulvaney

by Jeff Sovern

On Wednesday, the House Financial Services Committee will hear from CFPB Interim Chief Mick Mulvaney about the CFPB. Here are some questions I hope get asked of Mulvaney, in no particular order:

Wells Fargo. You have said that complaints to the CFPB should guide your actions.  It appears from the public database that the Bureau received relatively few complaints about the Wells Fargo unauthorized account scandal in which Wells opened 3.5 million accounts and in which the Bureau imposed a $100 million fine. Would you have brought that case? Would you bring a similar case today? If so, then when will you not prioritize according to the complaints you receive.

Enforcement. You have said that in some circumstances the Bureau will act vigorously to enforce the law.  You have not announced any new enforcement actions.  If the Bureau had kept up the pace of bringing new enforcement actions it set in 2016, the Bureau would have brought 15 or more enforcement cases during your tenure. Do you believe that you are vigorously enforcing the law? When, if ever, should we expect you to bring an enforcement case?

Golden Valley. You dismissed the Golden Valley payday lending case. Your spokesperson initially announced that that decision was made by "professional career staff.” Is that true or were you involved in that decision? If it is not true, why was it announced?  Is it true, as reported, that "the entire career enforcement staff wanted to press ahead?” According to the CFPB announcement about the case, Golden Valley charged up to 950% interest. Media reports indicate that consumers were not aware that they would be charged that much. Do you believe lenders should be able to charge consumers 950% interest without consumers understanding that they will be charged that much? Recently, organized crime members were arrested for charging 200% interest. How can you reconcile that with your decision to drop the Golden Valley case?

Quantitative Data. You have said "quantitative analysis should drive our decisions." You have also limited Bureau access to data and withdrawn a request to OMB--essentially, you--to survey consumers. Are there any data-gathering efforts that you have curtailed that have not been reported in the media? Are there any new data-gathering efforts that you have approved? How can the Bureau decisions be guided by quantitative analysis if the Bureau doesn't have access to data?

Complaint Database. Will you reduce public access to the complaint database?

Announcement Tagline. The Bureau's tagline on announcements used to say that the Bureau enforced rules fairly.  Why did you eliminate the word "fairly?"

Payday Lending Rule. You have said you may reconsider the payday lending rule.  What is the status of that potential reconsideration?  Will you make any changes in the rule?

Debt Collection Rule. What is the status of the potential debt collection rule? 

Time. You also serve as head of OMB. How many hours are you at the Bureau's offices or otherwise working on Bureau matters? 

UDAAP. The Dodd-Frank Act, in section 1021, lists as an objective for the Bureau that "consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination." What have you done to further that objective?

Independence. Section 1011 of the Dodd-Frank Act describes the Bureau as "independent." You report to the president in your job as chief of OMB, and you have said the CFPB director should answer to the president. In your role as CFPB interim director, are you acting independently of the president and do you answer to the president? The president has tweeted about the Wells Fargo case. Has he given you any orders concerning that case or any other matter before the CFPB?

Guidance. Will you rescind any Bureau guidance bulletins? If you find a company acting in violation of a guidance document, will you enforce the guidance document? 

Public Availability. Former Director Cordray regularly held public events at which members of the public could hear his views on Bureau matters and could address statements to him. Will you hold such events?

Consumer and Industry Advocates. How often do you meet with consumer advocates? With representatives of the industry?

UPDATE: An additional question: how many times have CFPB staff brought you a potential enforcement case that you refused to pursue?

Mulvaney hikes pay of political appointees at CFPB

Mick Mulvaney, the director of Office of Management and Budget whom President Donald Trump’s has running the Consumer Financial Protection Bureau sinxe CFPB director Richard Cordray stepped down, has given big pay raises to the deputies he has hired to help him run the CFPB, according to salary records obtained by The Associated Press.

Mulvaney has hired at least eight political appointees since he took over in late November. Four of them are making $259,500 a year, and one is making $239,595 -- more than the salaries of members of Congress, cabinet secretaries, and nearly all federal judge.

The full story is here.

Results of Philly soda tax

We've blogged many times on the idea of taxing sugary drinks to stem the obesity/diabetes epidemic. Go, for instance, here and here. Critics claimed that these so-called soda taxes would do little to improve health while hurting grocers, particularly small grocers, who would get pummeled by consumers cutting back on purchases of sugary drinks. Nonetheless some cities enacted soda taxes. One was Philadelphia. Preliminary research from last fall on the effect of the tax shows that sugary-drink consumption is down considerably without discernible impact on store sales. Read about it in this article by Philadelphia's health commissioner, Dr. Thomas Farley.

Planet Money Podcast: Mulvaney Vs The CFPB

Here. Listen to it while driving. It  explores people involved in the CFPB's dismissal of the Golden Valley payday lending case and quotes Chris Peterson.

Post by Steve Schultze on PACER fees decision

In a detailed and informative post entitled Judge Declares Some PACER Fees Illegal but Does Not Go Far Enough, open-courts activist Steve Schultze says explains that

Five years ago, in a post called “Making Excuses for Fees on Electronic Public Records,” I described my attempts to persuade the federal Judiciary to stop charging for access to their web-based system, PACER (“Public Access to Court Electronic Records”). Nearly every search, page view, and PDF download from the system incurs a fee ranging from 10 cents to $3 (or, in some cases, much more). I chronicled the many excuses that the [federal] courts have provided for charging what amounts to $150 million in fees every year for something that should—by all reasonable accounts—not cost much to provide.

He then explains why, in  his view, federal district judge Ellen Huvelle's recent opinion holding some PACER fees impermissible "is good, but not good enough."

Schultze also has written a law-review article arguing that "free access to electronic court records is a constitutionally necessary element of the structure of our modern Judiciary."

Mulvaney Cites Own Conduct as Prime Reason to Limit CFPB Powers

In case you missed the punchline of Jeff Sovern's post on the CFPB's annual report, the news is not the report itself (which conscientiously recites the CFPB's actions between February and September 2017, before Mick Mulvaney was appointed Acting Director following Richard Cordray's departure), but the cover letter, in which Mulvaney proposes that Congress gut the agency.

Perhaps Mulvaney's most dramatic proposal is to "require legislative approval of major Bureau rules." That one is truly breathtaking. It would really mean that the CFPB couldn't issue major rules at all: Anything it wanted to do would require legislation enacted by both Houses of Congress and signed by the President (or passed by a majority sufficient to override a presidential veto). None of the major regulatory agencies is subject to that kind of limitation; if it were, it wouldn't be a regulatory agency, just a proposer of legislation, a particularly futile role in an era of partisan gridlock in Congress.

Mulvaney's proposal to ensure that the CFPB Director "answers to the President" is code for eliminating the CFPB director's protection against being fired without cause by the President, the constitutionality of which was recently affirmed by the D.C. Circuit. The proposal would turn the CFPB from an independent agency into one whose director must do the President's bidding, whether that advances the agency's purpose of protecting consumers or not. 

The proposal that the Bureau be funded by congressional appropriations would eliminate the significant financial independence it now enjoys by receiving its funding through the Federal Reserve System.

Next to these, the suggestion that the CFPB get an inspector general seems pretty innocuous. The first three, however, would ensure that the inspector general would probably have plenty to do investigating improper political pressures on the agency and failure to carry out statutory mandates.

The icing on the cake is Mulvaney's argument that those who disagree with his own actions as Acting Director should support his proposals to make the agency's director more "accountable." Mulvaney's determination to hamstring the agency hardly seems like a sufficient reason for Congress to step in and complete the job.

 

Mulvaney in Bureau's Semi-Annual Report Calls for Limiting CFPB Independence

by Jeff Sovern

The report is here. Here's an excerpt from Mulvaney's statement at the beginning of the report:

As has been evident since the enactment of the Dodd-Frank Act, the Bureau is far too powerful, and with precious little oversight of its activities. Per the statute, in the normal course the Bureau’s Director simultaneously serves in three roles: as a one-man legislature empowered to write rules to bind parties in new ways; as an executive officer subject to limited control by the President; and as an appellate judge presiding over the Bureau’s in-house court-like adjudications. In Federalist No. 47, James Madison famously wrote that “[t]he accumulation of all powers, legislative, executive, and judiciary, in the same hands … may justly be pronounced the very definition of tyranny.” Constitutional separation of powers and related checks and balances protect us from government overreach. And while Congress may not have transgressed any constraints established by the Supreme Court, the structure and powers of this agency are not something the Founders and Framers would recognize. By structuring the Bureau the way it has, Congress established an agency primed to ignore due process and abandon the rule of law in favor of bureaucratic fiat and administrative absolutism. 

The best that any Bureau Director can do on his own is to fulfill his responsibilities with humility and prudence, and to temper his decisions with the knowledge that the power he wields could all too easily be used to harm consumers, destroy businesses, or arbitrarily remake American financial markets. But all human beings are imperfect, and history shows that the temptation of power is strong. Our laws should be written to restrain that human weakness, not empower it.

I have no doubt that many Members of Congress disagree with my actions as the Acting Director of the Bureau, just as many Members disagreed with the actions of my predecessor. Such continued frustration with the Bureau’s lack of accountability to any representative branch of government should be a warning sign that a lapse in democratic structure and republican
principles has occurred. This cycle will repeat ad infinitum unless Congress acts to make it accountable to the American people.

Accordingly, I request that Congress make four changes to the law to establish meaningful accountability for the Bureau:

1. Fund the Bureau through Congressional appropriations;
2. Require legislative approval of major Bureau rules;
3. Ensure that the Director answers to the President in the exercise of executive authority; and4. Create an independent Inspector General for the Bureau.