Consumer Law & Policy Blog

Hunt Paper: Promoting the Purposes of Student Loans by Tempering Bankruptcy Nondischargeability

John P. Hunt of California, Davis has written Promoting the Purposes of Student Loans by Tempering Bankruptcy Nondischargeability. Here's the abstract:

Student loans, unlike other debts, are not dischargeable in bankruptcy unless the debtor starts a special proceeding and proves that repayment would cause “undue hardship.” This requirement probably accounts for the fact that only a tiny fraction of bankrupt debtors succeed in discharging their student loans. This Article is the first to make the case that student-loan nondischargeability interferes with achieving the programs’ goals and to propose solutions that courts and the Department of Education (“Department”) can employ under current law.

The Article draws on the legislative history of the student-loan programs to establish that they serve at least four distinct purposes: providing equality of access to higher education, educating the population for the benefit of the country, enabling students’ free choice of career, and providing a benefit to students.

The Article then looks to the empirical literature and to fundamental precepts of bankruptcy law to show that nondischargeability can thwart the purposes of the student-loan programs through four different effects: deterring students from starting or completing higher education, distorting career choice, discouraging borrowers from economic and social participation, and rendering student loans harmful to borrowers.

The Article offers suggestions for tempering each of these effects. To avoid deterrence of education, the fact that bankruptcy relief often is available if requested should be made more salient. To combat distortion of career choice, bankruptcy courts should stop ruling that debtors should abandon jobs for which their education has prepared and find others that pay more. To remedy borrower discouragement, courts and the Department should take account of the likelihood that borrowers will be discouraged in deciding whether to grant or consent to discharge. The debt-income ratio is a promising proxy for likelihood of discouragement. Finally, courts and the Department should consider whether student loans harmed the borrower. 

FTC investigates YouTube for violations of kids' privacy

The Federal Trade Commission has reportedly launched an investigation into YouTube after complaints from consumer groups and privacy advocates alleging that YouTube violates kids' privacy. The complaints contend that YouTube failed to protect kids who used the streaming-video service and improperly collected their data in violation of the Children’s Online Privacy Protection Act, a 1998 law that forbids tracking and targeting of people under age 13.

The Washington Post has the story, here.

Are state attorneys general enforcing Dodd-Frank in a fair, non-partisan way?

Professors Brian Feinstein, Chen Meng, and Manisha Padi took a look at that question from one angle in State Attorneys General & Lender Behavior. Here is the abstract:

The Dodd-Frank Act empowers state attorneys general to enforce, with limited exception, both state and federal laws concerning predatory lending, unfair and deceptive practices, information disclosure, and mortgage servicing. During the debate over Dodd-Frank’s passage, the Act’s drafters argued that these dual-enforcement provisions provided a safeguard: should the federal government scale back its consumer-protection activity, the states could help fill the void. Dodd-Frank’s critics, however, warned that the placement of this substantial enforcement authority in the hands of partisan attorneys general could subject lenders to inconsistent law-on-the-ground within a given state, as successive attorneys general — each with his or her own party-driven priorities — enter office.

This Article puts this critique to the test. Viewing lenders’ observed behavior as a window into their expectations about enforcement levels, we utilize a dataset of every residential mortgage originated between 2004 and 2013 to examine whether lender activity changes following a switch in the partisan identification of a state’s attorney general.

We find no evidence that the attorney general’s party has an impact on mortgage markets. When one controls for other factors, lenders’ behavior is not materially different in states with a Republican versus a Democratic serving as attorney general. Essentially, dual enforcement does not mean inconsistent enforcement. 

"How Payday Lenders Spent $1 Million at a Trump Resort — and Cashed In"

That's the title of this ProPublica piece by Anjali Tsui and Alice Wilder. Among other things, this article explains that the payday loan industry's trade group has held its last two annual conventions at a Trump property while at the same time that the Trump Administration's regulatory stance has been decidedly pro-payday lending. The article ends like this:

[T]the payment to the president’s business [for holding the trade group's convention] ... is a stark reminder that the Trump administration is like none before it. If the industry had written a $1 million check directly to the president’s campaign, both the [trade group] and campaign could have faced fines or even criminal charges — and Trump couldn’t have used the money to enrich himself. But paying $1 million directly to the president’s business? That’s perfectly legal.

Company to cancel and repay $40 million in payday loans that violated state rate caps

The Dallas Morning News reports that Think Finance Inc., a Fort Worth financial firm, will cancel its outstanding loans and pay nearly $40 million to consumers after engaging in an alleged payday lending operation that used Native American tribes as shields from state laws. Think Finance serviced loans that charged interest rates over 375% and locked borrowers into plans in which paying off the loan was nearly impossible, according to a 2016 complaint. The loans were originated by Plain Green LLC, an online lending business purportedly owned by the Chippewa Cree Tribe of Montana.

The full article is here.

Supreme Court: Virginia law banning uranium mining is not preempted by federal law

In yesterday's opinion in Virginia Uranium, Inc. v. Warren, the Supreme Court held that a Virginia law banning uranium mining is not preempted by the Atomic Energy Act. The vote was 6 to 3, with the six Justices in the majority divided between two separate opinions—the first announcing the judgment of the Court, written by Justice Gorsuch (joined by Justices Thomas and Kavanaugh), and the second concurring in the judgment, written by Justice Ginsburg (joined by Justices Sotomayor and Kagan). 

Some readers of this blog follow the Court's preemption decisions, and so I thought I'd mention a couple things about Justice Gorsuch's opinion:

1. The opinion begins by explaining what the federal government does and does not regulate:

We begin with the company’s claim that the text and structure of the [Atomic Energy Act (AEA)] reserve the regulation of uranium mining for the purpose of addressing nuclear safety concerns to the NRC alone—and almost immediately problems emerge. Unlike many federal statutes, the AEA contains no provision preempting state law in so many words. Even more pointedly, the statute grants the NRC extensive and sometimes exclusive authority to regulate nearly every aspect of the nuclear fuel life cycle except mining. Companies like Virginia Uranium must abide the NRC’s rules and regulations if they wish to handle enriched uranium, to mill uranium ore or store tailings, or to build or run a nuclear power plant. See 42 U. S. C. §§2111(a), 2113(a), 2073. But when it comes to mining, the statute speaks very differently, expressly stating that the NRC’s regulatory powers arise only “after [uranium’s] removal from its place of deposit in nature.” §2092 (emphasis added [by Justice Gorsuch]).

Virginia Uranium, slip op. at 4. Justice Gorsuch then goes on to address other contextual hints and statutory amendments, all indicating, in his view, that Congress plays no role in deciding whether private actors should or should not get involved in uranium mining.

One way to look at this decision, then, is that Congress has left it open to the states to regulate whether folks get into the business at all, but once they are in the business, they have to follow a whole bunch of federal rules that may (or may not) be preemptive. We could view a lot of other federal regulatory programs that way too. Many of them extensively regulate products and services that private companies put into commerce, but those programs don't (of course) demand market entry in the first place. I wonder, then, whether a similar analysis would free states to ban or restrict marketing of other federally regulated products and services, even though when those products or services are on the market, federal rules play a significant (and possibly preemptive) role. Cf. Wyeth v. Levine, 555 U.S. 555, 592 (2009) (Thomas, J., concurring in the judgment). See also VIrginia Uranium, slip op. at 11 (Ginsburg, J., concurring in the judgment) ("A state law regulating an upstream activity within the State’s authority is not preempted simply because a down-stream activity falls within a federally occupied field.")

2. Justice Gorsuch's opinion roundly condemns freewheeling application of the species of implied conflict preemption known as "obstacle preemption." Under that doctrine, the question in Virginia Uranium was whether Virginia's ban on uranium mining would "stand[] as an impermissible 'obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" Slip. op. at 14 (citation omitted). Justice Gorsuch rejected this use of the Supremacy Clause "to elevate abstract and unenacted legislative desires above state law." Id. "[O]nly federal laws 'made in pursuance of' the Constitution,through its prescribed processes of bicameralism and presentment, are entitled to preemptive effect." Id. (quoting Art. VI, cl. 2). "Any evidence of pre-emptive purpose, whether express or implied, must therefore be sought in the text and structure of the statute at issue."  Slip. op. 14-15 (citations and quotation marks omitted). Otherwise, Justice Gorsuch went on, "we may only wind up displacing perfectly legitimate state laws on the strength of “purposes” that only we can see, that may seem perfectly logical to us, but that lack the democratic provenance the Constitution demands before a federal law may be declared supreme." Slip op. at 15.

Justice Gorsuch's critique of obstacle preemption in Virginia Uranium is highly reminiscent of Justice Thomas's separate opinion in Wyeth v. Levine, which makes the same points. Justice Thomas maintained there that obstacle preemption is, first, at odds with the interlocking constitutional commands of the Supremacy Clause, which makes ‘‘supreme’’ only those laws ‘‘‘made in Pursuance’ of the Constitution,’’and the Bicameral and Presentment Clauses, which demand that the ‘‘passage of legislation’’ follow ‘‘‘a step-by-step, deliberate and deliberative process,’’’ 555 U.S. at 586 (Thomas, J., concurring in the judgment) (citations omitted), and, second, ‘‘problematic because it encourages an overly expansive reading of statutory text,’’ in a misguided and error-producing search for a statute's purposes, id. at 587-88, 595-96.

Another survey of consumer law professors fails to find any who always reads consumer contracts before signing them

by Jeff Sovern

Regular blog subscribers may recall that last year, at Richard Alderman's Teaching Consumer Law Conference, I asked two questions of attendees about whether they read contracts or required disclosures (those results are available here). James Nehf generously allowed me to ask the same questions at his IACL conference last week.  The IACL conference has more attendees from overseas and fewer US law professors, so the responses offer a look at a somewhat different population. The number of the respondents to the questions was small: thirteen for one and fifteen for the other, so take this with some salt, but here are the results:

How often do you read contracts before agreeing to them (e.g., before clicking "I agree" on a web site or to obtain wifi access, a rental car contract, a credit card contract)?

Response options	Count	Percentage
Always	0	0%
Usually	0	0%
Sometimes	3	23%
Rarely	8	62%
Never	2	15%

N = 13

 

Do you read required disclosures before entering into consumer transactions?

Response options	Count	Percentage
Always	0	0%
Usually	4	27%
Sometimes	2	13%
Rarely	8	53%
Never	1	7%

N = 15

Now here are the responses combined with the responses from last year:

How often do you read contracts before agreeing to them (e.g., before clicking "I agree" on a web site or to obtain wifi access, a rental car contract, a credit card contract)?

 

Response options	Count	Percentage
Always	0	0%
Usually	3	9%
Sometimes	9	26%
Rarely	16	47%
Never	6	18%

N = 34

Do you read required disclosures before entering into consumer transactions?

 

Response options	Count	Percentage
Always	0	0%
Usually	8	21%
Sometimes	10	26%
Rarely	17	45%
Never	3	8%

N = 38

Not one respondent always reads the contracts or disclosures; in contrast, more than half said they rarely or never read the contracts or disclosures (nearly two thirds reported that they rarely or never read contracts).  And yet courts act as if everyone reads contracts.  

 

 

Essay on common characteristics and problems in aggregated litigation

In The Continuum of Aggregation, law prof Alexi Lahav discusses the commonalities in various types of aggregated litigation. Here is the abstract:

This essay, written for a conference marking the fiftieth anniversary of the multidistrict litigation statute, 28 U.S.C. § 1407, traces the evolution in thinking about aggregation, analyzes the forms of aggregate litigation — the class action, multidistrict litigation (MDL), and bankruptcy — and describes how while they were at first understood to be separate phenomena, they are now understood to comprise a continuum for resolving large-scale disputes. Mass litigation is like water: the cases will move to the form of litigation that is the most likely to lead to closure, be it the class action, a consolidation of individual cases under the auspices of the MDL, or bankruptcy. All forms of aggregation raise the same three problems: (i) horizontal equity between claimants, (ii) the agent-principal problem between claimants and their lawyers, and (iii) the defendants’ and the system’s need for global resolution of litigation.

 

A Terrific Conference and a Terrific Talk

by Jeff Sovern

I've spent the last few days at a terrific International Association of Consumer Law conference at the of Indiana University's Robert H. McKinney Law School (my second great conference in five months, the other being Ted Mermin's Berkeley Consumer Law Scholars Conference). Indiana's James Nehf clearly had worked very hard to put on the conference.  The IACL brings together consumer law scholars from all over the world every other year so this was an opportunity to hear how other countries solve the same kinds of problems we have while at the same time getting helpful comments on our own work.  One lesson from the conference is that other countries are also struggling with the challenges of how to regulate electronic commerce.

I will probably have more to say about the conference in future posts but I wanted to say something in this post about the talk Shmuel ("Samuel") I. Becher of Victoria University of Wellington in New Zeeland gave about a paper he co-authored with Uri Benoliel of Ramat Gan Law School, The Duty to Read the Unreadable, 60 Boston College Law Review (Forthcoming).

One of the useful things about conferences is that they allow you to hear a brief talk about a paper the significance of which you might have overlooked. I had previously posted the article's abstract to the blog (I'll paste it in again below), but I hadn't read it, a mistake I will now correct.  The article surveys many online wrap contracts and finds that they are beyond the reading level of many consumers.  This doesn't seem unusual; according to the CFPB, the average credit card contract requires a reading level well into eleventh grade while credit card arbitration clauses are on average at a reading level of someone who has nearly completed college. Yet, the paper points out, courts hold consumers to a duty to read these contracts--even though many consumers can't.  That hardly seems either fair or consistent.  The paper argues that policy-makers should oblige consumer contract drafters to write contracts that consumers should be able to understand. Indeed, if policy-makers do not impose such a duty, contract drafters have an incentive to make the contracts unreadable so they can impose their terms on consumers but consumers can't read them and so won't shop elsewhere (though perhaps that incentive is reduced slightly by the unlikely possibility of an unconscionabilty defense). If only courts would say that unreadable contracts are likewise unenforceable.

There were other excellent talks but many were about papers that have not yet been published or posted on the web, and I won't discuss those until they are.

Anyway, here's the abstract:

The duty to read doctrine is a well-recognized building block of U.S. contract law. Under this doctrine, contracting parties are held responsible for the written terms of their contract, whether or not they actually read them. The application of the duty to read is especially interesting in the context of consumer contracts, which consumers generally do not read. 

Under U.S. law, courts routinely impose this doctrine on consumers. However, the application of this doctrine to consumer contracts is unilateral. While consumers are expected and presumed to read their contracts, suppliers are generally not required to offer readable contracts. This asymmetry creates a serious public policy challenge. Put simply, consumers might be expected to read contracts that are, in fact, rather unreadable. This, in turn, undermines market efficiency and raises fairness concerns. 

Many scholars have suggested that consumer contracts are indeed written in a way that dissuades consumers from reading them. This Article aims to empirically test whether this concern is justified. The Article focuses on the readability of an important and prevalent type of consumer agreement: the sign-in-wrap contract. Such contracts, which have already been the focal point of many legal battles, are routinely accepted by consumers when signing up for popular websites such as Facebook, Amazon, Uber, and Airbnb. 

The Article applies well-established linguistic readability tests to the 500 most popular websites in the U.S. that use sign-in-wrap agreements. The results of this Article indicate, inter alia, that the average readability level of these agreements is comparable to the usual score of articles in academic journals, which typically do not target the general public. These disturbing empirical findings hence have significant implications on the design of consumer contract law.

Ninth Circuit: TCPA Survives Constitutional Challenge After Minor Cosmetic Surgery

The U.S. Court of Appeals for the Ninth Circuit yesterday rejected Facebook's effort to avoid a Telephone Consumer Protection Act lawsuit on First Amendment grounds. Facebook had argued that a recent amendment to the law, which excepted calls seeking to collect debts owed to or guaranteed by the federal government from the TCPA's ban on robocalls to cell phones, made the statute an unconstitutional content-based restriction on speech. The court agreed with Facebook but held that the argument didn't do Facebook any good: The remedy the court gave was to sever and invalidate the government-debt exception while leaving the rest of the statute intact. In so doing, the court followed a Fourth Circuit decision from earlier this year.

If this approach is followed by other courts, consumers will benefit twice over: They'll still have the benefit of the TCPA's protections, plus be relieved of the provision that allows student debt collectors and others to do what most callers can't do: pester cell-phone users with unwanted, autodialed calls.

One can disagree with the courts' view that the government debt-collection exception is unconstitutional while still not mourning its loss. Unfortunately, the issue probably will need to be litigated in other circuits before it is ultimately resolved. Congress could solve the problem once and for all by just excising the government-debt exception, which wasn't part of the original TCPA and shouldn't ever have been added.