Consumer Law & Policy Blog

Van Loo Article: Regulatory Police

Rory Van Loo of BU has written Regulatory Police, forthcoming in the Columbia Law Review.  Here is the abstract:

The front line for business regulation — Environmental Protection Agency (EPA) engineers, Consumer Financial Protection Bureau (CFPB) examiners, and Nuclear Regulatory Commission (NRC) inspectors, among others — guard against toxic air, financial ruin, and deadly explosions. Like police officers patrolling the streets for crime, this federal regulatory front line decides when and how to enforce the law. Yet whereas scholars devote considerable attention to the role of police officers in law enforcement, they have paid limited attention to regulatory police. This Article is the first to chronicle their statutory rise and to situate them empirically at the core of modern administrative power. Since the Civil War, in response to various crises the largest federal regulators have steadily accrued authority to collect documents and enter private space without any suspicion of wrongdoing. Those exercising this monitoring authority within agencies, regulatory police, administer the law at least as much as the groups that are the focus of legal scholarship: enforcement lawyers and rule writers. Regulatory police wield sanctions, influence rulemaking, and create quasi-common law. Yet unlike lawsuits and legal rules, monitoring-based decisions are less observable by the public, largely unreviewable by courts, and explicitly excluded by the Administrative Procedures Act (APA). The regulatory police function can thus be more easily ramped up or deconstructed by the President, interest groups, and other actors. A better understanding of regulatory police is vital to designing democratic accountability not only during times of political transition, but as long as they remain a central pillar of the administrative state.

Study Finds Judicial Foreclosure Reduces Subprime Lending

Brian Feinstein of Penn's Wharton School has written Judging Judicial Foreclosure, 15 Journal of Empirical Legal Studies, 406 (2018).  Here is the abstract:

For the third time in the last several decades, policymakers are contemplating an overhaul of mortgage‐finance regulations. Despite the considerable attention paid to how ex ante regulations affect the availability of credit and the appropriateness of the mortgage products that lenders offer, however, our understanding of how the legal framework governing foreclosures—a form of ex post borrower protection—affects mortgage lending is incomplete. Leveraging data on loan applicants that are geographically proximate and subject to the same federal mortgage‐finance regulations and nearly identical state foreclosure regimes—but for the presence or absence of a judicial foreclosure requirement—this analysis enables the identification of the independent effects of judicial‐foreclosure requirements on loan approval decisions and the share of approved applicants who are offered subprime loans. I find that lenders adopt a more conservative posture in evaluating loan applications in jurisdictions where they must haul delinquent borrowers into court. All else equal, loan applications are less likely to be approved and approved borrowers are less likely to be offered subprime loans in judicial‐foreclosure states. Further, some models indicate that these results may be amplified for borrowers with lower socioeconomic status, suggesting that judicial supervision of foreclosures may have tempered one of the more flagrant practices of the subprime era: providing high‐rate mortgages with a greater likelihood of default to lower‐income and minority borrowers. These results suggest that, in contemplating changes to the regulation of mortgage lenders, policymakers should consider state foreclosure law to be among the tools in their regulatory toolkit.

Noll Article: Public Litigation, Private Arbitration

David L. Noll of Rutgers has written Public Litigation, Private Arbitration? 18 Nev. L.J. 477 (2018).  Here is the abstract:

How should legal disputes be allocated between litigation and arbitration? Given strong incentives for many actors to arbitrate everything, the question turns fundamentally on the scope of arbitration under the applicable law. In "Re-Inventing Arbitration: How Expanding the Scope of Arbitration Is Re-Shaping Its Form and Blurring the Line Between Private and Public Adjudication," Professor Deborah Hensler and Damira Khatam posit that the "public" or "private" nature of a dispute provides the key to whether it belongs in arbitration. While arbitration of private disputes is ok, disputes with "public policy dimensions" belong in the courts. Hensler and Khatam therefore suggest that Congress override Supreme Court decisions mandating arbitration of employment and consumer disputes, which, they contend, would restore domestic arbitration to its proper sphere.

But can disputes really be divided into public and private categories that provide the key to whether they belong in arbitration? This Response suggests that on close examination it is exceedingly difficult to identify a reliable proxy for the public or private nature of a dispute. The absence of such a proxy suggests there is an inescapably political dimension to how disputes are allocated between litigation and arbitration. Whether a category of disputes should be heard in a public court because the disputes impact the public interest turns out to depend on contested judgments about where the public interest lies. This, in turn, suggests a more fundamental reason for Congress to revisit the scope of arbitration under the Federal Arbitration Act. If the allocation of disputes between litigation and arbitration is an inescapably political question, it should ideally be addressed by an institution accountable to democratic politics.

The Pope address financial regulation

The Vatican called for "a new regulation of financial activities" in on Thursday a broad and harsh critique of the international financial system that emphasized the need for higher ethical standards since the housing market crash in the last decade. The new document released by the Vatican, approved by Pope Francis, calls out the post-2008 financial crisis economy for "excluding the common good," citing the need for it to be "more attentive to ethical principles."

The Hill has the story, here.

Republican FTC Commissioners Name Payday Lender Lawyer to Run Consumer Protection Bureau Over Dem Commissioners' Objections

by Jeff Sovern

The NY Times has the story here. Excerpt:

The director, Andrew M. Smith, has recently represented Facebook, Uber and Equifax — all companies with matters before the commission — and plans to recuse himself from dozens of cases now that he has been confirmed for the post.

And in 2012, Mr. Smith was also part of the legal team that defended AMG Services, the payday lender founded by the convicted racketeer Scott Tucker, whose predatory practices against impoverished borrowers eventually led to a $1.3 billion court-ordered settlement, the biggest in the commission’s history.

I hope that the theory of "set a thief to catch a thief" that was famously used to justify the appointment of Joseph Kennedy as head of the SEC works here, but in the realm of consumer protection, that theory has not worked very well (I don't know enough about Kennedy's brief tenure to know if it worked there either; and just to be clear, I do not mean that Mr. Smith is a thief). The divided vote does not bode well for the functioning of the newly-reconstituted FTC on consumer protection matters, but I hope that as the commissioners continue to work together, things will shift towards giving the minority a louder voice on consumer protection matters.

 

Industry Lawyer Concedes Arbitration Clauses Suppress Claims and Reduce Payments to Consumers

by Jeff Sovern

Industry lawyer Thomas B. Hudson of Hudson Cook has authored Arbitration Agreements: Not Always Good All the Time for AutoDealer Today, in which he writes:

An arbitration agreement is the dealer’s first and best line of defense against class-action lawsuits. If you think that isn’t reason enough, have a word with the many South Carolina dealers sued in class actions over allegedly improper doc fees who were able to have the class actions dismissed, with individual plaintiffs left with claims in arbitration. Dealers who did not use arbitration agreements paid millions of dollars to their customers and the customers’ class action lawyers.

* * *

Lawyers for consumers, when confronted with documents signed by their clients and containing arbitration agreements, tend to lose interest in pursuing the consumer’s claim. Perhaps these lawyers are unfamiliar with how to handle an arbitration proceeding, or perhaps they are of the view that they can’t get a decent award of attorneys’ fees from an arbitrator.

Whatever the reason, consumers have historically not initiated arbitration proceedings with much frequency. * * *

He also advocates:

In order to make sure arbitration agreements between dealers and consumers will be enforced by courts, and even by those courts that bend over backward to rule for consumers, lawyers for dealers who draft the agreements make them as consumer-friendly as possible. One of the consumer-friendly provisions that you’ll often see is one by which the business undertakes to pay some or all of the consumer’s costs in arbitration. 

Pound Civil Justice Institute Announces $10,000 Award for Civil Justice Scholarship

We have received the following announcement:

The Pound Civil Justice Institute will make a Civil Justice Scholarship Award, bi-annually as possible, to recognize current scholarly legal research and writing focused on topics in civil justice, including access to justice and the benefits of the U.S. civil justice system, as well as the right to trial by jury in civil cases.  Nomination deadline is September 17, 2018. More information here.

Piché Paper on the Effectiveness of Class Action e-Notices

Catherine Piché of the University of Montreal has written The Coming Revolution in Class Action Notices: Reaching the Universe of Claimants Through Technologies. Here's the abstract:

This paper will address whether a correlation may be drawn between the types and modalities of notices sent to class action members and the rate of compensation of these members, based on data collected in 854 class action court files in Quebec superior court over a twenty year period (1997-2017). Notices are essential to fair procedure in all class action regimes, but it is difficult to know whether these notices have reached their intended addressee in such a way as to make them aware of the case and its potential distributions, and eventually allow for this distribution to be completed. If a collective approach to compensation is favored, class notices should aim to compensate at least 50% of the members. My hypothesis is that technologies will help doing just that. In this paper, I ask whether this hypothesis is supported by the data, and which forms of technological notices are actually most effective at reaching and compensating members. I argue that we have come to a revolution in class action noticing, a digital revolution. In traditional forms of notice, reduced cost has almost always meant reduced probability of achieving actual notice. By contrast, properly designed e-notices are potentially transformative because they serve to lower the cost of notice while increasing reach rates in time and space. With the support of empirical data, I demonstrate that cases making use of technological noticing serve to compensate members more efficaciously than those who rely upon traditional noticing (mail, newspaper notices), with a distribution (or take-up) rate of 69%.

Senate votes to overturn FCC's repeal of net neutrality rule

The Senate today approved a resolution to nullify the Federal Communications Commission's decision to undo the net neutrality rule.The House, however, is not expected to take up the resolution.

NPR has the story, here.

“The surprising return of the repo man”

The Washington Post has a story today about the growing problem of car repossessions in the United States and the ways that technology is being used to make repossessions “ruthlessly efficient.” The full article is here and is worth the read, but here are some highlights:

“No longer tethered to a tow truck and able to use big data to find targets, the repossession industry is booming at an unexpected time. Although the U.S. economy recently entered its second-longest-ever period of expansion, the auto loan delinquency rate last year reached its highest point since 2012, driven by souring subprime auto loans. It’s evidence of how the economic recovery has not been evenly felt, with some of Americans’ biggest purchases — automobiles — being fueled by unsustainable borrowing rather than rising wages.”

“The company’s goal is to capture every plate in Ohio and use that information to reveal patterns. A plate shot outside an apartment at 5 a.m. tells you that’s probably where the driver spends the night, no matter their listed home address. So when a repo order comes in for a car, the agent already knows where to look. ‘It’s kind of scary, but it’s amazing,’ said Alana Ferrante, chief executive of Relentless.”

“Although there are no national auto repossession statistics, other measures point to a growing problem. More than 4 percent of auto loans were at least 90 days late at the end of 2017 — the highest rate in five years. That number jumps to almost 10 percent for subprime auto loans alone, according to a report by the Federal Reserve Bank of New York.”