Consumer Law & Policy Blog

CFPB to Settle Auto Finance Claims Against Santander

Reuters is reporting that the CFPB and Santander have reached a settlement regarding allegations that the auto finance lender misled borrowers about the cost of auto loans and related GAP insurance policies. According to the story, Santander has “agreed to pay a fine and strengthen its consumer protections,” but the size of the fine is unknown. The full story is available here.

Three editorials

The Washington Post, addressing the current work of the CFPB and the Department of Education, had editorials yesterday and today pertinent to student loans and higher education: Read "The Trump administration’s scandalous handling of student loans," here. Read "How Betsy DeVos could trigger another financial meltdown," here.

The New York Times, addressing proposed changes by the Office of the Comptroller of the Currency to the rules for banks compliance with the Community Reinvestment Act, writes "A Green Light for Banks to Start ‘Redlining’ Again," here.

Consumers cannot longer rely on USDA organic seal, group says

Cornucopia Institute, a Wisconsin-based farm policy group, said consumers cannot rely only on the organic seal from the USDA. The group says that the USDA is failing to protect ethical industry participants and consumers from fraud.

Food Safety News has the story, here.

Paper on Poor Consumers, High-Cost Credit, and Payday Loans

Shmuel I. Becher of Victoria University of Wellington, Yuval Feldman of Bar-Ilan University and Orly Lobel of San Diego have written Poor Consumer(s) Law: The Case of High-Cost Credit and Payday Loans in Legal Applications of Marketing Theory, Jacob Gersen & Joel Steckel, eds., Cambridge University Press (2019, Forthcoming). Here's the abstract:

Consumers in general, and poor consumers in particular, often make counter-productive financial decisions that undermine their welfare. One key example is that poor people frequently use high-cost credit and loans with onerous interest rates. They are also disproportionally engaged in other types of sub-optimal borrowing, such as rent-to-own transactions and insufficient savings for the future. Although lenders and service providers are obliged to disclose interest rates and other key information in a clear and conspicuous way, disclosures have been at best only partly effective to prevent exploitation and protect consumers. This chapter seeks to examine how consumer law can, and at times should, respond to this reality. While focusing on borrowing practices, we begin by pointing to the main behavioral patterns that impact financial decision making. We first address biases that are relevant to all consumers: over-optimism, the present bias, and the behavioral economics of information. We then discuss the psychology of poverty and scarcity, which demonstrates that the state of poverty depletes cognitive resources and undermines the consumer’s capacity to overcome temptations, choose the uneasy paths and exercise long-term planning. Against this background, we discuss a variety of policy recommendations. We focus on protections that are better-suited to treat the root causes that lead poor people to make dubious financial decisions. We conclude by succinctly noting some of the challenges entailed in our recommendations and discussing ways to expand our proposed framework.

CFPB Student Loan Ombudsman Resigns in Protest, Slams Mulvaney for Undercutting Enforcement of the Law, Shielding Bad Actors from Scrutiny

by Jeff Sovern

NPR has a report, including Seth Frotman's resignation letter, here.  The letter deserves to be read.

Severance and the Federal Arbitration Act

That's the topic of A New Legal Framework for Employee and Consumer Arbitration Agreements by law prof Imre Szalai. Here's the abstract:

If an arbitration clause in an employment or consumer agreement contains a harsh term, such as an abbreviated statute of limitations or a provision requiring arbitration in a distant location, judges will sometimes sever the harsh term and enforce the rest of the arbitration clause. In fact, some judges believe the Federal Arbitration Act and its strong federal policy favoring arbitration require severance of any harsh provisions so that arbitration will still occur minus the oppressive terms. This severance approach may encourage drafting parties to overreach and include harsh terms in an arbitration clause if the only penalty at the end of the day is mere severance of such terms. This Article demonstrates that the Federal Arbitration Act embodies a simple, binary approach to the enforcement of arbitration agreements: either an arbitration agreement is fully enforceable, or it is not enforceable at all. As a matter of federal law, the text, history, and policy of the Federal Arbitration Act require courts to invalidate an arbitration clause in its entirety if it contains any harsh provisions. Severance of harsh terms should not be permitted under the FAA in order to rescue parties who draft arbitration clauses with oppressive terms.

Blogger Found Liable for Copyright Infringement Nevertheless Maintains Anonymity

by Paul Alan Levy

A few months ago, I blogged about an important Sixth Circuit ruling on the issue of online anonymity. Signature Management Team v. Doe, 876 F.3d 831 (2017), came close to endorsing the Dendrite approach to deciding whether a defendant who has been sued for allegedly inappropriate behavior should be denied the right to remain anonymous while the issue of his liability is being determined. This case presented the further question of whether anonymity could be preserved even after a finding of liability. The case was remanded to the district court in Michigan to decide whether a defendant whose violation waas purely technical, but who faced a serious risk of significant harassment and retaliation, could remain anonymous.

In a decision issued today, won by Joshua Koltun, a Bay Area lawyer who has maintained a remarkable track record in such cases, the district court applied the factors enumerated by the appellate majority, also addressing some of the concerns articulated by the Sixth Circuit dissenting judge.  The Court decided that the Doe's interest in keeping his speech anonymous outweighed the plaintiff's interest in learning who it was that had, however briefly, been guilty of infringing its copyright in an outdated version of an instructional manual that is sold online for $1.98, for which plaintiff had chosen not to seek damages.

 

Total U.S. Household Debt Rises for the 16th Straight Quarter

Last week, the Federal Reserve Bank of New York issued its quarterly report on U.S. household debt and credit. It found that—for the 16th straight quarter—aggregate household debt balances increased in the second quarter of 2018. Debt from mortgage loans, auto loans, and credit cards increased, while outstanding student loan debt decreased. On the bright side, aggregate delinquency rates improved, and, for student loan debt specifically, transition rates into delinquency have “fallen noticeably” over the past year. The accompanying press release is available here.

Sen. Elizabeth Warren's new reform bill would ban members of Congress from owning individual stocks

That's the headline of this article by Kevin Breuninger's piece. Here are the key take-aways of Breuninger's piece:

• Sen Warren proposes a new bill that would ban members of Congress and the White House staff from owning individual stocks.
• As an apparent alternative, the legislation would create "conflict-free investment opportunities for federal officials with new investment accounts."
• While the measure is unlikely to pass the Senate as long as Republicans hold majority control of the chamber, it comes amid speculation that Warren could run for president in 2020.

 

A growing financial crisis for older people

Michael Hiltzik's column, titled Bankruptcy is hitting more older Americans, pointing to a retirement crisis in the making, surveys a new report about the growing number of bankruptcies filed by older people. One reason for this trend is that retired workers generally no longer have company-paid pensions. He notes that

a sizable percentage of American workers were [in the past] covered by corporate defined-benefit pensions, producing what retirement experts have called “a brief golden age” when many American workers could retire with confidence. Over the last few decades, however, confidence in that safety net has ebbed. Defined-benefit plans have given way to defined contribution plans such as 401(k)s, which saddle workers with all the risk of investment market downturns — and in which wealthier workers are overrepresented, both in enrollment rates and balances.