Consumer Law & Policy Blog

CFPB announces new CAB members; former members comment

by Jeff Sovern

The CFPB has announced the new members of its Consumer Advisory Board: the new board has fewer members than the old one--meaning fewer viewpoints are represented--and the members will serve for shorter terms, making it harder for them to accumulate relevant experience with board service. I wonder if this is just an attempt to comply with the letter of the statute rather than to have an entity that provides advice that is actually useful and followed.  Some of the former members commented on the CFPB action, and here is the first paragraph of the comment:

“We are disappointed that the current administration of the Consumer Financial Protection Bureau (CFPB) chose to only appoint nine members to this new CAB. While each of the individual members is qualified in her or his own right, the fact that there are so few of them means that Acting Director Mulvaney’s CAB lacks sufficient diversity and depth of perspective. There are only 2 consumer advocates, whereas there were at least 8 advocates on the former 25 member CAB. Ironically, there are no large financial institutions, major credit card providers, or debt collectors on this new CAB. While these sectors probably have other opportunities for access with the CFPB, one of the most valuable aspects of the recently disbanded CAB was that it provided a forum for fruitful and productive conversations among a variety of stakeholders in consumer finance, which often generated valuable insights for the Bureau and the CAB members. This will be missing from the new CAB. The lack of a multitude of perspectives is ironic given that a stated reason for disbanding the former CAB was to increase the diversity of viewpoints on the Board.

Trump Administration's Student Loan Policy

Student loan debt has jumped from $1 trillion to $1.5 trillion in the last 5 years. The Education Department's official default rates

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seriously understate the share of young borrowers who default, or are not able to repay their loans. In the face of the growing student loan debt crisis, the Administration's corrupt policy is to undo the Obama administration's gainful employment rule for colleges, grease the wheels for fraudulent for-profit schools, curb loan relief to victims of school fraud, and sabotage consumer protection enforcement by the CFPB and state regulators (by asserting preemption) against student loan servicers who mislead and abuse borrowers. This article sums it up nicely.

Chandrasekher & Horton Article Proposes Solution to Arbitration Problem: Arbitration Multiplier

Andrea Chandrasekher and David Horton, both of California, Davis, have written Arbitration Nation: Data from Four Providers, 109 California Law Review. Here's the abstract:

Forced arbitration has long been controversial. In the 1980s, the Supreme Court expanded the Federal Arbitration Act (FAA), sparking debate about whether private dispute resolution is an elegant alternative to litigation or a rigged system that favors repeat-playing corporations. Recently, these issues have resurfaced, as the Court has decided a rash of cases mandating that lower courts enforce class arbitration waivers in almost all circumstances. Critics argue that abolishing the class action insulates companies from wrongdoing, but businesses have predicted that pro se plaintiffs will flood the arbitral forum with their own low-value claims. The Obama administration responded to the Court’s FAA jurisprudence by regulating arbitration clauses in the employment, financial services, and healthcare fields. However, after the balance of power shifted in 2017, Republicans have repealed many of these rules. 

Despite this policymaking frenzy, we know little about what happens inside the confidential world of arbitration. This Article sharpens our understanding of this pervasive and polarizing institution by reporting the results of an empirical study of 40,775 cases filed in four major arbitration providers between 2010 and 2016. It highlights three main points. First, a wave of reforms has made arbitration surprisingly affordable for consumers, employees, and medical patients. Indeed, in leading arbitration providers such as the American Arbitration Association, JAMS, and the Kaiser Office of the Independent Administrator, a majority of plaintiffs pay no arbitration fees. Second, enterprising plaintiffs’ lawyers — not pro se litigants — have taken advantage of arbitration’s open doors. In fact, some attorneys have filed class action-style cases, bringing dozens or even hundreds of related arbitrations against the same company. Third, although arbitration does indeed favor repeat playing businesses, that is just half of the repeat player story. Repeat playing plaintiff’s law firms also fare well. In fact, in a variety of settings, no variable affects win rates as dramatically as whether a plaintiff hires attorneys with arbitration experience. 

The Article then uses these findings to propose reform. For decades, state lawmakers have tried to protect substantive rights by exempting claims from arbitration. Yet because the FAA prohibits state law from discriminating against arbitration, these efforts have failed. Accordingly, this Article urges policymakers to reverse course and create incentives for plaintiffs’ lawyers to arbitrate. Specifically, jurisdictions should create an “arbitration multiplier”: a bounty for winning a case in arbitration. By encouraging skilled plaintiffs’ lawyers to capitalize on arbitration’s accessibility, this approach would counteract the corporate repeat player advantage. In addition, because the multiplier actually encourages arbitration, it would not be preempted.

"After Scaling Back Student Loan Regulations, Administration Tries to Stop State Efforts"

The New York Times reports:

After the education secretary, Betsy DeVos, started scaling back consumer protections for student borrowers last year, six states and the District of Columbia sped up their own efforts to crack down on abusive lending practices by companies that administer federal loan programs. Now Ms. DeVos is trying to stop them. Trump administration lawyers filed a “statement of interest” last month supporting a lawsuit from the Student Loan Servicing Alliance, an industry trade group, against the District of Columbia for creating a student loan ombudsman office. Under a new city law, the companies would be required to apply for licenses and could lose their right to operate if officials determine that they have engaged in fraudulent or irresponsible practices. Administration lawyers accused the District of Columbia of trying “to second-guess” department officials in the selection of loan servicers, violating the supremacy clause in the Constitution in a case that could determine the future role of states in consumer protection.

The article is here.

Chamber of Commerce calls for Congress to block state privacy laws

The Hill reports that the U.S. Chamber of Commerce is calling on Congress to come up with a federal privacy standard in order to preempt states from passing their own laws governing data collection. The article is here.

A Year After the Equifax Breach, Little Has Changed

by Jeff Sovern

Remember all the posturing in the congressional hearings and elsewhere after the Equifax breach that affected more than 140 million consumers?  But a year later, little has changed, at least in Washington (litigation is still pending).  Wouldn't it be nice if the members of Congress who expressed outrage actually did something to protect their constituents? Congress did pass a bill making credit freezes free, but as consumers still have to communicate to credit bureaus that they want to freeze their credit reports, and consumers usually stay with the default, I bet the vast majority of consumers still have not frozen their credit reports.  Bills to do something more significant about data breaches are still pending in Congress, and you never know what will happen there, but I wouldn't hold my breath. The American Banker has an article summarizing where things stand. Here's my favorite excerpt:

[Consumer Data Industry Association president Francis] Creighton said there is already enough pressure on the credit bureaus to avoid data breaches.

"Credit bureaus are already heavily incentivized to not have breaches," Creighton said. "The market consequence is the most important discipline on them."

Before the data breach was disclosed, Equifax's stock traded above $140 a share. Shares dropped below $100 in the days following the announcement of the breach, though they have recovered since. Equifax shares are currently trading above $130.

I'm sorry [actually, I'm not], but I don't think that kind of stock price fall is a sufficient deterrent.  Especially as we know it wasn't enough to cause Equifax to take adequate precautions before the breach.  And obviously a stock market response would have no relevance whatsoever for a company that is privately held. 

For more, take a look at this report by USPIRG.

 

 

Exciting CFP: Berkeley Consumer Law Scholars Conference

We have received the following call for papers appearing below. This one looks especially exciting for consumer law scholars: it's at an elite law school and has an impressive roster of organizers. 

The Berkeley Center for Consumer Law and Economic Justice, its director Ted Mermin, and co-organizers Abbye Atkinson, Kathleen Engel, Rory Van Loo, and Lauren Willis are pleased to announce the inaugural Consumer Law Scholars Conference (CLSC), which will be held the afternoon and evening of February 21 and all day February 22, 2019, in Berkeley, CA.

The conference will support in-progress scholarship, foster a community of consumer law scholars, and build bridges with scholars in other disciplines who focus on consumer issues. The bulk of the conference will consist of paper workshop sessions at which discussants, rather than authors, introduce and lead discussions of the papers. Everyone who attends a session will be expected to have read the paper; everyone is a participant. The conference will also feature keynotes by leading practitioners and prominent policymakers, as well as time to discuss ideas and collaborate informally.

If you would like to workshop an unpublished paper, please submit: (1) a title, (2) a short abstract that grounds your work in relevant literature, and (3) an outline to Ted Mermin (mermin@ law.berkeley.edu) by October 5, 2018. We will announce accepted abstracts in early November.

Potential topics may range across the full breadth of issues involving consumers in the marketplace, including, e.g.: student loan servicing and debt cancellation; online product endorsement; racial, ethnic and other disparities in treatment by lenders and by merchants; debt collection; public health disclosures; credit reporting; commercial speech and the First Amendment; the proposed Restatement of Consumer Contracts; the CFPB in theory and practice; issues of federalism, preemption, and sovereign immunity in small-dollar lending regulation; UDA(A)P and disclosure laws; consumer behavior; fintech; and the application of consumer law to abuses in the criminal justice system.

Workshop versions of the papers will be due January 21, 2019. There is no commitment (or opportunity) to publish, though editors of the California Law Review will be in attendance. We reserve the right to cancel workshops if the paper draft is not provided sufficiently in advance for meaningful review by participants.

Conference participants will be expected to read the papers in advance. Thus, please calendar at least two days of preparation time in advance of the conference.

LOGISTICS

The Berkeley Center for Consumer Law and Economic Justice will provide dinner on Thursday and breakfast and lunch on Friday. Participants will cover their own travel and lodging expenses. (Berkeley Law has a very small amount available for those who could not otherwise attend.)

We have reserved a block of rooms at the newly renovated Graduate Berkeley hotel, around the corner from the law school.

Should there be a discovery tax (mainly but not exclusively) on plaintiffs?

In a new article, The Discovery Tax, law prof Brian Fitzpatrick proposes a litigation discovery tax. Generally, the scheme would impose more tax on consumer, civil-rights, and other plaintiffs (because plaintiffs tend to have more to discover from defendants than the other way around). Here is the abstract:

The American civil discovery regime is what is known as producer-pays: one side requests information and the other side has to pay whatever it costs to produce it. The 2015 amendments to the Federal Rules of Civil Procedure have not changed this much and are not likely to in the future. But producer-pays leads to two big problems: requesters have an incentive to request too much, and, because defendants tend to have more to discover than plaintiffs, the parties’ mutually-beneficial settlement range ends up skewed against defendants, leading cases to settle for more than they are worth. No one has proposed a realistic alternative to producer-pays that solves both of these problems. In this Article, I propose such an alternative: a discovery tax. If the government taxes requesters an amount equal to whatever producers have to pay to respond to their requests, both sides in litigation fully internalize the costs of discovery. Moreover, the mutually-beneficial settlement range stays symmetric, helping cases settle for the same price they would be resolved at trial. The government could use the tax revenue for any socially useful purpose, including offsetting the cost of the court system.