Consumer Law & Policy Blog

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Thursday, August 16, 2018

Speaking of wealth inequality . . .

The Economic Policy Institute has issued a report that looks at trends in chief executive officer (CEO) compensation. It looked at stock options realized, plus salary, bonuses, restricted stock grants, and long-term incentive payouts. It found:

In 2017 the average CEO of the 350 largest firms in the U.S. received $18.9 million in compensation, a 17.6 percent increase over 2016. The typical worker’s compensation remained flat, rising a mere 0.3 percent. The 2017 CEO-to-worker compensation ratio of 312-to-1 was far greater than the 20-to-1 ratio in 1965 and more than five times greater than the 58-to-1 ratio in 1989 (although it was lower than the peak ratio of 344-to-1, reached in 2000).

Posted by Brian Wolfman on Thursday, August 16, 2018 at 04:55 PM | Permalink | Comments (1)

Tuesday, August 14, 2018

De Geest Book Argues Marketing Causes Inequality

Gerrit De Geest of Washington University in St. Louis has written Rents: How Marketing Causes Inequality. Chapter One is available here.  Here is the abstract:

This working paper contains the introduction and first chapter of a forthcoming book on the relationship between marketing and inequality. I argue that the dramatic rise of income inequality since 1970 has largely been caused by advances in marketing. Marketers have become better at creating and exploiting market distortions in legal ways. The legal system, in principle, prevents the deliberate creation of market failures, but it has not evolved at the same speed. Business schools have outsmarted law schools. This chapter offers an introduction to a new, general theory of marketing. Although marketing is meant to improve markets by bringing products to the right customers, it often does the opposite—creating “value” to businesses by making prices less transparent, splitting informed and uninformed consumers, making products incomparable, locking in consumers, exploiting psychological biases, creating network externality effects, or preventing price wars. Over the time span 1970–2015, the impact of marketing on the economy has steadily increased. Few markets have not been turned into less competitive ones by marketers, trained at modern business schools. This has significantly increased the amount of artificial profits (“rents”) in the economy.

Posted by Jeff Sovern on Tuesday, August 14, 2018 at 09:08 AM in Advertising, Consumer Law Scholarship | Permalink | Comments (0)

Monday, August 13, 2018

NPR: Trump Administration proposing to weaken Military Lending Act

The Military Lending Act (MLA) is aimed at protecting service members from predatory loans and unfair financial products and services. (For instance, the MLA prohibits the use of arbitration agreements in most consumer credit contracts entered into by service members and their dependents.)

But it appears that the Trump Administration wants to undermine the MLA.

At the behest of the National Automobile Dealers Association, the Trump Administration has been planning to propose that car dealers be allowed to tack on "gap insurance" when they sell cars to service members. But when sold by car dealers, that type of insurance is typically a rip off imposed on unsuspecting customers. And so, current MLA regulations prohibit the practice.

NPR reporter Chris Arnold explains:

Here's how [gap insurance] works: Cars lose some of their value the moment they are driven off the lot. Dealers often tell customers that if their car gets wrecked in a crash they could be financially harmed because regular insurance may not pay out the entire amount owed on the loan. [Univ. of Utah law professor Chris] Peterson says some car dealers push this insurance product really hard. "They convince people they've got to have this gap insurance," he says. That kind of insurance can actually be inexpensive. Peterson ... says it often costs as little as $20 to $30 a year and is available from a car buyer's regular insurance company. "But if you buy it from your car dealer, they may mark it up. ... I've seen gap insurance policies being sold for $1,500" over the course of the loan, he says.

So, the Trump Administration, it appears, wants to give service members the option of paying $1,500 for something that the market values at about $30 when customers are well-informed. 

Listen to (or read) Arnold's story here. You'll learn about other ways in which the Trump Administration may weaken the MLA.

Posted by Brian Wolfman on Monday, August 13, 2018 at 10:10 AM | Permalink | Comments (0)

A tale of forced arbitration in the wake of the Supreme Court's decision in Epic Systems

Remember last May's decision in Epic Systems v. Lewis? There, the Supreme Court held that the Federal Arbitration Act demands enforcement of arbitration clauses against workers, including class-action and collective-action waivers contained in arbitration clauses, notwithstanding the Act's savings clause and the National Labor Relations Act's protection for workers to engage in "concerted activities."

This article by Dave Jamieson tells a predictable tale (predictable, that is, in the wake of Epic Systems) of 2,800 low-wage workers who were tossed from a collective suit against Chipotle -- which allegedly has not paid the workers their lawful wages. The federal judge handling the case said that, in light of Epic Systems,  he was “compelled to find that the class and collective action waiver in Chipotle’s Arbitration Agreement does not violate [the NRLA] or render the Agreement unenforceable.” 

Epic Systems and other Federal Arbitration Act precedents that make it nearly impossible for workers and ordinary consumers to vindicate their rights are premised on fictional consent -- the notion that by signing take-it-or-leave-it contracts to buy goods and services, or to work at low-wage jobs, they have agreed to give up their rights to go to court or to enforce their rights collectively (in court or in arbitration). Jamieson quotes the deposition of Chipotle's director of compliance, David Gottlieb, who gives you an idea of what Chipotle means by consent:

If you [a prospective Chipotle employee] choose not to agree to the arbitration agreement, for example, once you have been given notice and an opportunity to look at it, read it, ask any questions, download it, save it, whatever you want to do ― if you don’t, then you don’t have to be an employee.

The workers' lawyer stressed a different aspect of the "agreement" with Chipotle: that “virtually none of the” the workers even remembered signing it.

 

Posted by Brian Wolfman on Monday, August 13, 2018 at 12:24 AM | Permalink | Comments (2)

Saturday, August 11, 2018

Treasury Dept Cuts Bank Taxes by Announcing "Financial Services" Don't Include Banking: Who Knew?

by Jeff Sovern

This isn't consumer law, strictly speaking, but I thought readers of the blog might be interested to know that the Trump administration's Treasury Department thinks banking is not a financial service.  That interpretation has the effect of cutting taxes paid by banks.  David Sirota has the story, The Trump Administration Just Found a New Way to Hand Big Banks Even More Money, at splinternews.com.  The Treasury Department proposed rule is here.  Here is a relevant passage:

Commenters requested guidance as to whether financial services includes banking. These commenters noted that section 1202(e)(3)(A) includes the term financial services, but that banking in separately listed in section 1202(e)(3)(B) which suggests that banking is not included as part of financial services in section 1202(e)(3)(A). The Treasury Department and the IRS agree with such commenters that this suggests that financial services should be more narrowly interpreted here. Therefore, proposed §1.199A-5(b)(2)(ix) limits the definition of financial services to services typically performed by financial advisors and investment bankers and provides that the field of financial services includes the provision of financial services to clients including managing wealth, advising clients with respect to finances, developing retirement plans, developing wealth transition plans, the provision of advisory and other similar services regarding valuations, mergers, acquisitions, dispositions, restructurings (including in title 11 or similar cases), and raising financial capital by underwriting, or acting as the client’s agent in the issuance of securities, and similar services. This includes services provided by financial advisors, investment bankers, wealth planners,and retirement advisors and other similar professionals, but does not include taking deposits or making loans.

Posted by Jeff Sovern on Saturday, August 11, 2018 at 02:29 PM | Permalink | Comments (0)

Friday, August 10, 2018

Study warns of harm to consumers from fragmented regulation of financial products

Pew Charitable Trusts reports that consumers are exposed to potentially harmful financial products from the nation’s fragmented regulatory system. "Innovation can spur growth and competition in financial markets and provide new and better options for customers. But without careful, balanced regulation, it can also present serious risks to consumers,” the report contends.

The report also warns that the plan of the Office of the Comptroller of the Currency, a major bank regulator, plan to provide a national charter to nonbank firms may increase consumer harm by exempting the new companies to some state regulations and usury laws.

The full report is here. A short summary from Forbes is here.

Posted by Allison Zieve on Friday, August 10, 2018 at 11:17 AM | Permalink | Comments (0)

Thursday, August 09, 2018

National poll finds consumers support financial regulation

The Los Angeles Sentinel reports on a new poll that finds consumers still support financial regulation and related enforcement. Moreover, consumer concern about payday and car-title lending has increased over the past year.

Roughly three-fourths of likely 2018 voters support the existence of the Consumer Financial Protection Bureau and more than half are concerned about Republican efforts to restrain it, according to a survey of 1,000 registered voters by Americans for Financial Reform and the Center for Responsible Lending.

The article is here. The Hill also reported on the survey, here.

Posted by Allison Zieve on Thursday, August 09, 2018 at 01:02 PM | Permalink | Comments (0)

USAToday Editorial: CFPB no place for Donald Trump's neophyte nominee

The bottom line: "Presidents deserve wide latitude in choosing agency heads to carry out their mission in line with the administration's priorities. And USA TODAY has a long history of supporting those choices even when we disagree with the views of particular nominees. But the public should be able to demand, at a minimum, that the leaders of powerful regulators charged with vital government functions have a passing acquaintance with the industry that is their agency's focus. Kathy Kraninger doesn't meet even such a low standard. That is reason enough for the Senate to reject her."

The full editorial is here.

Posted by Allison Zieve on Thursday, August 09, 2018 at 12:59 PM | Permalink | Comments (0)

Wednesday, August 08, 2018

Elderly savers left vulnerable by Administration's abandonment of broker-conflict rule

Politico reports on continuing debate over rules to protect people from financial advisors' who put their own interests above those of the clients that they are advising.

Older savers are often the targets of brokers’ self-enriching sales that saddle them with expensive products or investments they can’t easily exchange for cash, interviews with financial advisers and their clients show. And the problem is probably being underreported since seniors are usually reluctant to disclose questionable conduct, they say. Fourteen days after his inauguration, Trump heeded pleas from the business community and ordered the conflict-of-interest rule to be reconsidered. The so-called fiduciary rule required brokers to put their clients’ interests ahead of their own compensation when offering retirement advice. They also had to disclose fees and commissions more directly to customers. Earlier this year, the Justice Department declined to defend the rule after it was vacated by an appeals court .... Now, the focus is on the SEC, which offered its own version of an investment advice regulation in April. The proposal — whose comment period ended on Tuesday — has broader support in the industry than did the fiduciary rule. Yet some Wall Street analysts and consumer advocates say it would be softer on brokerage businesses and insurance companies than the Obama-era measure and wouldn’t allow for investor lawsuits.

The full article is here.

Posted by Allison Zieve on Wednesday, August 08, 2018 at 10:44 AM | Permalink | Comments (0)

Tech companies are racing to get your banking data

The Washington Post reports that "Facebook’s push to gain access to users' banking data and other sensitive financial information could help make online banking more efficient — or it could backfire among those skeptical that the world’s biggest social network can reliably safeguard personal data. The site has joined a growing race among big technology companies seeking private information once regarded as off-limits: users' checking-account balances, recent credit card transactions and other facts of their personal finances and everyday lives."

The article is here.

Posted by Allison Zieve on Wednesday, August 08, 2018 at 10:36 AM | Permalink | Comments (0)

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