Consumer Law & Policy Blog

More on litigation funding disclosure proposals

Following up on yesterday's post on whether Congress will demand disclosure of plaintiffs'-side outside litigation funding in class actions and MDLs, Amanda Bronstad has this piece collecting various opinions from litigators, experts, and the like on the topic more generally.  

Will Congress demand disclosure of litigation-funding sources?

Many of our readers are consumer class-action litigators or interested in litigation more generally. So I thought it was worth mentioning Senator Chuck Grassley's legislation, introduced last week, that would require disclosure of outside litigation funding in multi-district litigation and in class actions generally (that is, in class actions both inside and outside multi-district litigation).

Senator Grassley's bill, entitled the Litigation Funding Transparency Act of 2018, is short and simple. It would require plaintiffs' lawyers to

[1] disclose in writing to the court and all other named parties to the ... action the identity of any commercial enterprise, other than a class member or ... counsel of record, that has a right to receive payment that is contingent on the receipt of monetary relief in the ... action by settlement, judgment, or otherwise; and [2] produce for inspection and copying, except as otherwise stipulated or ordered by the court, any agreement creating the contingent right.

This post provides our readers links to materials that may be helpful in assessing the legislation and analyzing the issue of litigation funding more generally. So read . . .

1. Senator Grassley's legislation (co-sponsored by Senators Tillis and Cornyn) and Senator Grassley's press release
2. A Bloomberg Law piece on the legislation, which includes a critique from a litigation-funding company
3. A 2015 piece more generally discussing litigation funding
4. A comprehensive 2011 American Bar Association white paper on litigation funding. It's chock full of law-review citations, references to studies, etc. 
5. A National Law Journal piece by Ben Hancock published today entitled Study Finds Judges Mostly Reject Discovery Requests for Litigation Funding Documents. This piece notes that "[t]he conclusion of the study—that judges rarely grant discovery into litigation funding documents—helps explain why opponents of the [litigation-funding] industry are pushing for legislative and rule changes to require that funding agreements be disclosed." It's worth noting the study's small sample size. The survey "identified [only] 30 cases across the United States in which a party sought to force disclosure of the other sides’ litigation financing documents."

HT to legal reporter Perry Cooper (@PerryECooper) for pointing me to some of this information.

 

Call for Papers for Symposium on Post-Secondary Education Non-Completion and Student Loan Debt

We've received the following call for papers:

Submission Due Date:  Sunday, June 17, 2018 at midnight

The Rappaport Center for Law and Public Policy, Boston College Law School, and the National Consumer Law Center are pleased to announce a symposium on Post-Secondary Education Non-Completion and Student Loan Debt to take place at Boston College Law School on Friday, November 30, 2018.

The goal of the symposium is to bring together top experts from the nation and the region, including academics, researchers, borrower and consumer advocates, private attorneys, industry representatives, and government officials, to present research and discuss policy on post-secondary education non-completion and its relationship to student loan debt, including impact on communities of color and other protected groups.

We invite paper proposals on the theme of the symposium that are empirical, qualitative, practice-based, theoretical or policy-oriented. Topics of particular interest include:

• Causes of college and other post-secondary education non-completion:
  • Impact of college readiness
  • Financial and social constraints such as childcare
  • Relationship to predatory, proprietary, or low-quality institutions
  • Relationship to online programs
  • Relationship to the availability or lack thereof of student loan and grant sources
  • Factors related to resumption and completion by students who pause their education
• Consequences of non-completion:
  • Impact on household welfare and social mobility, including income, net worth, and household financial stability
  • Relationship to student loan distress and default, and consequences of default
  • Impact on schools
  • Community, economic, and societal impact
• Empirical studies of the relationship between non-completion and student loan default:
  • Relationship between non-completion and student loan distress and default
  • Relationship between non-completion and use of repayment options
  • Demographic variations
  • Variation by school type
  • Variation by certificate or degree type
  • Data regarding enrollment patterns of non-completers
• Equity issues raised by non-completion and student loan default
• Short-term and long-term solutions:
  • How to increase completion rates at quality institutions
  • Impact of institutional support services
  • How to lessen financial distress among borrowers without a degree
  • How to lessen negative equity impacts
  • Successful approaches

"Education Department Unwinds Unit Investigating Fraud at For-Profits"

The New York Times reports that members of a special team at the Education Department that had been investigating widespread abuses by for-profit colleges have been marginalized, reassigned or instructed to focus on other matters, according to current and former employees. The unwinding of the team has effectively killed investigations into possibly fraudulent activities at several large for-profit colleges where top hires of Betsy DeVos, the education secretary, had previously worked.

The article is here.

Will Trump Replace a Part-Time CFPB Director with One Who is Never at the CFPB?

by Jeff Sovern

Acting CFPB Director Mick Mulvaney doubles as OMB director, meaning that he is doing two full-time jobs, and that therefore the CFPB does not have a full-time director. But the next director may be at the Bureau even less often than Mulvaney.  As Allison has noted, reports indicate that the president intends to nominate J. Mark McWatters as the next CFPB director.  Though McWatters is currently the chairman of the National Credit Union Administration, the Washington Post reports that he chairs the Alexandria, Virginia-based agency from his home--in Dallas, Texas. I don't see how a federal agency can be run by someone who is seldom present. If the president does nominate Mr. McWatters, this seems likely to come up at his confirmation hearings.  Perhaps Mr. McWatters will move.

Tinder's Diabolical RETROACTIVE Arbitration Clause

by Jeff Sovern

One of my students told me about Tinder's new retroactive arbitration clause which, of course, includes a class action waiver. As with many such contracts, consumers accept it by using the service, regardless of whether they have read it or not--and we know few consumers actually read such things.  The arbitration clause, in paragraph 16, provides that it applies to past claims against Tinder, including those which are the subject of pending class actions. The clause refers by name and docket number to four class actions already brought against Tinder, charging various forms of discrimination, and states that Tinder users who accept the contract will lose the ability to participate in those class actions.   It does give existing Tinder users the right to opt out of the arbitration clause, but only if they email Tinder within thirty days, something that we know few consumers have bothered to do in the past, to the extent that consumer opt-out rates have become public (new users apparently don't have a right to opt out). No doubt Tinder concluded that there was no downside in the specificity because consumers won't read or understand the terms anyway.  I wonder how the judges before whom the class actions are pending will react to this. If you will forgive the expression, Tinder is screwing its customers.

This week at the CFPB

Federal consumer watchdog plays down changes to its student protection unit

From the Washington Post: A federal consumer watchdog Thursday played down controversial plans to fold the student arm of the agency into another office, following the leak of a memo outlining the move. Mulvaney sent a memo Wednesday informing staffers of a reorganization that will tuck the student office into the bureau’s office of financial education. ... [A CFPB spokesperson stated:] “The office in question is not being shuttered, its work continues, personnel are all on the job and working on the same material as they were before. There is a very modest organizational chart change to keep the Bureau in line with the statute but the office is still operating within the same division.” ... The office is the only unit in the federal government solely dedicated to protecting student loan borrowers from predatory actors in the financial sector.

Mulvaney to Prioritize Business Costs in CFPB Reorganization

From the Wall Street Journal (subscription required): Mick Mulvaney has tightened his control of the Consumer Financial Protection Bureau with a reorganization that will place more emphasis on evaluating the economic cost of the agency’s actions and bring more of its operations under direct supervision of his handpicked staff. In a memo to CFPB staff sent Wednesday, the Trump-appointed acting director announced he would create an “office of cost benefit analysis” reporting to the director that will help direct the bureau’s supervision and enforcement priorities. Businesses and Republicans have pushed for years for cost reviews of regulations and enforcement, arguing some government actions are too costly to businesses or the economy.

More on Congress's Disapproval of the CFPB's Indirect Auto Guidance

by Jeff Sovern

Alan Kaplinsky and Chris Willis, on the one hand, and Adam Levitin, on the other, have been dueling over the impact of Congress’s use of the Congressional Review Act to disapprove of the CFPB’s Indirect Auto Lending Guidance.  Those of us interested in consumer financial law are lucky to have these titans lay out the arguments for their respective positions.  Regular readers of this blog will not be surprised to learn I agree with Adam, but I wanted to add a couple of minor observations to what Adam said (though if you haven’t read what Adam has said, you would be better off reading that than what I have to say). In brief, Alan and Chris argue that a result of Congress’s action (assuming, as seems inevitable, that the president signs the resolution) is that the CFPB would no longer be able to use its enforcement powers against a lender that gave dealers discretion to mark up the rates on the lender's loans if the result of the dealer discretion was to charge protected groups higher rates.

Here’s a thought experiment: suppose Mick Mulvaney issued a guidance saying that the CFPB was going to enforce consumer financial law (I did say it’s only a thought experiment) and Congress then invalidated that guidance using the CRA.  Would we then say that the CFPB could not enforce consumer law? Of course not; the statutes giving the CFPB the power to do so would still be in effect and Congress cannot use the CRA to repeal statutes giving the CFPB power to enforce the laws Congress has enacted.  So it is here (as Adam points out); at most, the CFPB can’t issue a new guidance or rule or one that is substantially the same as the Indirect Auto Guidance, and even that is in question for the reasons Adam notes.  The CRA says nothing about enforcement of existing statutes and regulations that have not been disapproved.

One thing that illustrates the problem with the CRA as applied to the Guidance is that the Guidance says many things.  I’m going to insert a quote from the Guidance and as you read it, ask yourself which of these things Congress disapproved of in its resolution:

In our most recent Supervisory Highlights, we set out the following features of a strong fair lending compliance program, which are applicable in the indirect auto lending context:

• an up-to-date fair lending policy statement;
• regular fair lending training for all employees involved with any aspect of the institution’s credit transactions, as well as all officers and Board members;
• ongoing monitoring for compliance with fair lending policies and procedures;
• ongoing monitoring for compliance with other policies and procedures that are intended to reduce fair lending risk (such as controls on dealer discretion);
• review of lending policies for potential fair lending violations, including potential disparate impact;
• depending on the size and complexity of the financial institution, regular analysis of loan data in all product areas for potential disparities on a prohibited basis in pricing, underwriting, or other aspects of the credit transaction;
• regular assessment of the marketing of loan products; and
• meaningful oversight of fair lending compliance by management and, where appropriate, the financial institution’s board of directors.

Is the answer all of them?  CRA resolutions don’t permit Congress to pick and choose among parts of the regulation, so it appears that Congress disapproved of all of those items, and more. If so, if the CFPB has lost its enforcement power with respect to the Guidance, does that mean the CFPB can no longer require lenders to do anything on that list? Does that make sense?  The CFPB can no longer oblige lenders to maintain an up-to-date fair lending policy? Alan and Chris try to deal with this particular paradox (those who like to think about paradoxes might also speculate about what would happen if Congress used the CRA to disapprove the GAO’s determination that the Indirect Auto Guidance is a rule subject to the CRA—but I digress) by limiting application of the resolution to what they call the “substantive centerpiece” of the Bulletin. But the CRA says nothing about centerpieces, substantive or otherwise. What it says is that the disapproved rule “shall have no force or effect.” What would give the CFPB the power to enforce some of the Bulletin but not the rest of it?  And if that result strikes you as absurd, doesn’t it mean that the CRA resolution has no impact on enforcement but only on what it says it has an impact on: the ability of the Bureau to fashion rules?

Is Mulvaney Changing the CFPB's Structure to Downgrade Student Loan Enforcement?

by Jeff Sovern

Glen Thrush has an article in the Times headlined Mulvaney Demotes Unit That Polices Student Loans in Consumer Bureau Reshuffle. Excerpt:

The change comes at a critical moment in the agency’s effort to rein in abuses in the student loan industry. The program, started under the Obama administration, has clawed back about $750 million from lenders since 2011. At the center of the bureau’s effort is its case against Navient, a spinoff of Sallie Mae, which the agency accused in 2017 of steering low-income borrowers into higher payments than they needed to make, misallocating payments and failing to provide customers with clear information about cost-saving options.

* * *

Navient has denied wrongdoing and deployed a team of Washington-based lobbyists to fight what they believe is an unfair investigation.

 “The size of the student loan portfolio is massive, and it’s growing — second only to home mortgages — and now we are gutting oversight,” said Chris Peterson, a University of Utah law professor who was a top staff member at the bureau.

 

“It’s appalling,” he said. “They are trying to take the teeth out of enforcement, and it’s going to have a big impact on the most vulnerable student borrowers, who are being misled and bankrupted.”

Here's an odd TCPA (junk fax) case from the Sixth Circuit

The Sixth Circuit today decided Health One Medical Center v. Mohawk, a mighty strange case under the  Telephone Consumer Protection Act (the federal anti-junk-fax statute). The first paragraph of Judge Kethledge's opinion sums it up:

Some questions seem to arise only in class-action lawsuits. Here, a seller of prescription drugs sent junk faxes to various medical providers,advertising the seller’s prices on various drugs. The question presented is whether—for purposes of the Telephone Consumer Protection Act, which makes it unlawful “to send . . . an unsolicited advertisement” to a fax machine—the manufacturers of those drugs “sent” those faxes even though they knew nothing about them. The district court answered no, and so do we.