Consumer Law & Policy Blog

Rule to help federal student loan borrowers finally takes effect

We’ve covered before the Department of Education’s recent attempt to gut a rule adopted under the Obama administration to help student loan borrowers and rein in for-profit colleges. The regulation, commonly referred to as the borrower defense rule, was supposed to take effect on July 1, 2017. The Department issued a series of delays, which a D.C. federal court in September held were unlawful.

This week, that same judge rebuffed an industry request for a preliminary injunction against the rule, paving the way for the rule to take effect on Tuesday. Although the industry challenge remains pending, the agency now has a legal obligation to implement the rule, and because of technical requirements in the Higher Education Act, any replacement rule adopted by Secretary DeVos could not possibly take effect before July 2020.

That means borrowers around the country could benefit from the rule for nearly two years at least. The rule cuts off federal funding to schools that use forced arbitration and class-action waivers with their students. It also adopts a formal process for group-based loan discharges for students who attended predatory schools, and mandates automatic loan discharges for students who attend schools that close while they are enrolled and who do not reenroll in a covered program in the following three years.

The judge’s order is here, and coverage by the Associated Press is here.

Issacharoff & Marotta-Wurgler Paper on Trends Leading to Less State Court Caselaw on Electronic and Shrinkwrap Contracts

Samuel Issacharoff and Florencia Marotta-Wurgler, both of NYU, have written The Hollowed Out Common Law. Here's the abstract:

The electronic marketplace poses novel issues for contract law. Contracts created through browsewrap, clickwrap, and shrinkwrap (contracts whose embedded terms are only available after purchase) poorly fit doctrines that emerged from face-to-face offer and acceptance, the mutual execution of a common set of documents, or the rituals of mass market transactions involving physical fine print. Not surprisingly, these contracts of the new electronic marketplace require doctrinal elaboration.

Our Article asks not about the specific resolution of new doctrinal challenges, but about how the common law of contracts will be elaborated. Specifically, the Article begins with empirical observations about the domain of all electronic and shrinkwrap contract cases and makes four critical findings.

First, we document two shifts: One arises from a steady decline in the number of cases adjudicated in state court relative to federal courts, which by 2015 adjudicate the vast majority of cases. The other stems from a rise in class actions, which is intimately tied to the migration of cases to federal court. The result is that today the vast majority of cases are class actions brought in federal court. The increase in class actions is not surprising given the relatively small stakes of most transactions and the little incentive that creates for individual consumer litigation. The increased dominance of the federal forum is in part likely a reflection of the federalization of class action law under the Class Action Fairness Act (CAFA).

Second, the consequence of the dominance of the federal forum is that the common law is being elaborated in federal court in suits arising under diversity jurisdiction. In turn, those federal courts are largely bereft of any state law moorings as they develop the common law of the electronic marketplace. Erie Railroad v. Tompkins notwithstanding, the common law is driven by federal court decisions, building incrementally on each other rather than state law.

Third, the development of common law in federal court means that there is no apex court that can define conclusively the law of any jurisdiction. Diversity jurisdiction allows federal courts to predict how they believe state common law would develop, but binds no state courts in the affected jurisdiction, and does not even bind federal courts in the same Circuit putatively applying the law of another state. Rather than the law resolving hierarchically, we identify a “tournament effect” in which the law settles on one or a few influential decisions, regardless of the state law that the case may have arisen under. Finally, we conjecture that the use of contractual clauses compelling arbitration and forbidding claim aggregation may have affected the number of cases being adjudicated in court and, consequently, depressed the development of publicly-available law in this area.

Poll finds consumer support for financial regulation

The Philadelphia Tribune report on a new poll that, a decade after the financial crisis, finds that consumers still support financial regulation and related enforcement. Moreover, on payday and car-title lending, "consumer scorn has grown even stronger over the past year for these small-dollar, debt-trap loans that come with triple-digit interest rates."

The full article is here.

CFPB working on regulation to define “abusive” practices

The Dodd-Frank Act prohibits “unfair, deceptive, or abusive” acts and practices by the financial companies regulated under the Act, and gives the Consumer Financial Protection Bureau authority to enforce the prohibition. The Act defines "abusive" as an act or practice that:

(1) Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or

(2) Takes unreasonable advantage of –

(A) a consumer’s lack of understanding of the material risks, costs, or conditions of the product or service;
(B) a consumer’s inability to protect his or her interests in selecting or using a consumer  financial product or service; or
(C) a consumer’s reasonable reliance on a covered person to act in his or her interests.

The Wall Street Journal reports that, CFPB acting director Mick Mulvaney, speaking at a recent conference of mortgage bankers, said that actions that constitute “unfair” and “deceptive” are well established, but that the meaning of “abusive” is not as clear. Therefore, he said, the CFPB is working on a regulation to define “abusive.”

The article continues: “Addressing the bureau’s enforcement approach is the latest step by Mr. Mulvaney to introduce a more industry-friendly approach to policing financial companies.”

The full article is here. (Subscription may be required.)

The CFPB's 2013 bulletin explaining the prohibition against unfair, deceptive, or abusive acts in the context of debt collection is here.

Survey Finds About Half of Surveyed Metastatic Breast Cancer Patients Pursued by Debt Collectors

by Jeff Sovern

A number of sources have reported on a survey of more than one thousand metastatic breast cancer patients presented recently at an American Society of Clinical Oncology (ASCO) symposium that found that debt collectors had contacted about half about cancer care bills. HCP said that 49% had heard from debt collectors while AccountRecovery.net put the percentage at 54. It's unclear how representative the sample is; according to HSN: 

All of the patients who participated were members of the Metastatic Breast Cancer Network advocacy organization. They responded to an email invitation to take the 20-minute online survey. Respondents received a $10 Amazon gift card.

The figures probably say more about the state of health insurance in this country than debt collection.  Nearly all of those surveyed who lacked insurance said they had foregone medical care because of cost.

NerdWallet Report on Disturbing Gaps in CFPB Public Complaint Database

Here, by Brad Wolverton & Alex Richards. I don't want to quote too much, so here is an incomplete excerpt:

The federal watchdog agency created to protect consumers is not regulating two of the country’s fastest-growing financial institutions despite receiving voluminous complaints about them, NerdWallet has found.

Escaping scrutiny are Green Dot Corp. — which partners with Walmart, Apple, Intuit and more than 100,000 retailers — and Credit One Bank, which issues NASCAR credit cards.

A NerdWallet investigation found that many other businesses also are not subject to oversight by the Consumer Financial Protection Bureau despite being the subjects of many complaints.

The lack of supervision means that consumer grievances about the companies do not appear on a public complaint database the bureau set up to help guide consumer decisions.

The absence prevents the CFPB from defending consumers in tens of thousands of disputes and gives the companies an advantage over competitors that are subject to bureau oversight. It also falsely assures consumers about the integrity and service the companies provide.

* * * 

[T]hose disputes are kept on what amounts to a shadow list of complaints that aren’t on the public portal. NerdWallet obtained the list through a Freedom of Information Act request to the government. * * * 

California-based Green Dot Corp. has at least 1,580 complaints across its products. Out of the roughly 5,000 businesses that appear on the public portal, this would place it among the top 2% of companies consumers have complained about the most, NerdWallet’s analysis found.

* * * 

But only five complaints that mention Green Dot show up on the CFPB’s public complaint portal, all filed under different companies’ names.

 

Bloomberg: CFPB Enforcement Actions Down Sharply Under Mulvaney

Here.  Excerpt from Jeff Bater's report:

The Consumer Financial Protection Bureau took only three enforcement actions in the third quarter of 2018 and is on pace for the lowest yearly total in its seven years of existence.

The bureau levied $1.6 million in penalties in the three-month period ending in September, compared to $7.3 million on eight actions during the third quarter of 2017, according to Bloomberg Law’s CFPB Enforcement Tracker.

Is Mulvaney Pushing the Envelope to Aid Fintech Providers?

by Jeff Sovern

Acting CFPB director Mick Mulvaney famously wrote that he would not push the envelope. He explained:

That entire governing philosophy of pushing the envelope frightens me a little. We are government employees, and we work for the people. That means everyone: those who use credit cards and those who provide the credit; those who take out loans and those who make them * * * 

* * *

It is not appropriate for any government entity to “push the envelope” when it comes into conflict with our citizens. We have the power to do damage to people that could linger for years and cost them their jobs, their savings and their homes.

But if you look at what 50 public interest groups say, it seems as if Mulvaney is indeed pushing the envelope, and not to help consumers.  Here's an excerpt from their statement:

A coalition of 50 public interest groups today sharply criticized the Consumer Financial Protection Bureau’s proposal to gut important consumer protection rules, especially for fintech companies, arguing the agency does not have the authority to create potentially unlimited exemptions from the very regulations that the CFPB is obligated to enforce.

The CFPB is exceeding its authority under the law that created the agency and would set a dangerous precedent with its “disclosure sandbox” policy, its label for granting companies exemptions from disclosure rules. Instead of conducting limited, carefully drawn trials of model disclosures that could improve consumer understanding, the CFPB would allow firms to obfuscate or eliminate important information in the name of “financial innovation,” a label that was often applied to defend practices in mortgage lending that led to the 2008 crisis.

“The reckless and unlawful scope of the CFPB's proposal is breathtaking,” said Lauren Saunders, associate director of the National Consumer Law Center. “The CFPB has no authority to allow ‘trials’ that go on for years and years and that allow entire industries to skip important consumer disclosures, such as the total cost of a loan or the required notice that the loan price was marked up due to information on the consumer's credit report. The CFPB’s proposal would not be confined to consumer testing, which recruits consumers to review and react to sample disclosures as if they were entering into a transaction. Instead, it would allow companies to experiment with or dispense with disclosures in real transactions with real consumers.”

 

Citigroup may face fair lending penalty

Reuters reports that the Office of the Comptroller of the Currency is considering sanctions against Citigroup for denying minority customers the kinds of mortgage discounts that the bank offered to many other borrowers. Citigroup, while performing a review to ensure it adhered to fair lending standards, reportedly found that some minority borrowers were not getting the discounts they were due under a program that gives a break on mortgage rates to customers who have large deposits or wealth in the hands of the bank. According to the article, Citigroup flagged the "relationship pricing" problems last year to the OCC.

The article is here.

Trump's mutually reinforcing wars on science and regulation

Law prof Albert Lin has written President Trump's War on Regulatory Science. Here is the abstract:

The Trump administration has taken numerous actions that appear hostile to scientists, scientific research, and scientific data, leading some observers to assert that a war on science is underway. A more precise characterization is that the Trump administration is engaging in a war on regulatory science, as these actions take aim specifically at regulatory science — i.e., knowledge production and synthesis carried out by the Environmental Protection Agency and other government agencies in the course of developing government regulations. The Administrative Procedure Act and other laws may constrain some aspects of the war on regulatory science, provided that they are subject to judicial review. Internal administrative law and agency norms also can promote rule of law values, but their success depends largely on the good faith of executive branch actors and the willingness of Congress and the public to push back when norms of administrative legality are ignored. Absent such pushback, the Trump administration’s war on regulatory science could lead to irrational policies and threaten democratic governance.