Consumer Law & Policy Blog

Is the payday lending rule coming back in some form?

by Jeff Sovern

Yesterday, Acting CFPB Director Dave Uejio posted an item to the CFPPB Blog that suggests that the Bureau may rekindle its former payday lending rule in some form. Here's the post in full:

The CFPB is acutely aware of consumer harms in the small dollar lending market, and is particularly concerned with any lender’s business model that is dependent on consumers’ inability to repay their loans. Years of research by the CFPB found the vast majority of this industry’s revenue came from consumers who could not afford to repay their loans, with most short-term loans in reborrowing chains of 10 or more. One-in-five payday loans, and one-in-three vehicle title loans, ended in default, even including periods of reborrowing. And one-in-five vehicle title loan borrowers ended up having their car or truck seized by the lender. That is real harm to real people.

In 2020, the prior administration issued a rule revoking parts of a 2017 CFPB rule that would have addressed these harms. The later rule was challenged in court and the Bureau had a legal obligation to respond to the lawsuit. Accordingly, yesterday the Bureau filed a brief addressing only the court’s jurisdiction to hear the case. The brief does not address the merits of the underlying rule, and the Bureau’s filing should not be regarded as an indication that the Bureau is satisfied with the status quo in this market. To the contrary, the Bureau believes that the harms identified by the 2017 rule still exist, and will use the authority provided by Congress to address these harms, including through vigorous market monitoring, supervision, enforcement, and, if appropriate, rulemaking.

The Bureau continues to believe that ability to repay is an important underwriting standard. To the extent small dollar lenders’ business models continue to rely on consumers’ inability to repay, those practices cause harm that must be addressed by the CFPB.

It will be interesting to see if Rohit Chopra, the Biden administration's nominee to take over the helm at the CFPB, agrees that the practices must be addressed, and if so, how he will do that, assuming he is confirmed.

Warning to service members and veterans about paycheck advance apps and easy credit

Mike Saunders, director of military and consumer policy at Veterans Education Success, warns in Millitary.com today that service members and veterans need to be wary of new forms of credit-like products that have popped up in recent years, especially "paycheck advance" products and Income Share Agreements. He explains that current legal protections may not cover these products. The article is here.

CFPB submits 2020 report to Congress on the FDCPA

The Consumer Financial Protection Bureau released the 2020 annual report to Congress on administration of the Fair Debt Collection Practices Act. According to the CFPB press release, "the report highlights efforts by the CFPB and the Federal Trade Commission to protect consumers, particularly those who have suffered profound financial impacts due to the COVID-19 pandemic."

The report is here.

The NY Times on the latest in illusory consumer protections: the 12-minute DeVos system to decide student loan forgiveness

by Jeff Sovern

Consumer law is filled with illusory consumer protections, and one form they take is the supposed obligation to give serious consideration to the possiblity that the provider is wrong in its claims. Examples include credit bureaus' obligations to conduct a reasonable investigation of consumer disputes--an obligation which has historically been discharged in only minutes, as discussed more fully in our consumer law casebook at page 381 n. 5, though it would be great news if that is changing; the attorney's obligation to conduct meaningful review of complaints in debt collection lawsuits, which some lawyers may take seriously but to which others devote only four seconds; and the signing of affidavits by those with personal knowledge before a home can be forclosed upon--which resulted in robosigning. Now there's a new item on the list. According to Stacy Cowley writing in the NY Times, former Education Secretary Betsy DeVos created a system that rushed through student loan borrower applications for loan forgiveness. Applications could run hundreds of pages, but workers were supposed to plow through them at a rate of one every twelve minutes. Those who took too long risked loss of their jobs. The article is worth a read and discusses much more than I have written about here. The Biden administration's approach can be seen here. There's a law review article in when systems like these actually provide consumer protection and when they create only the illusion of consumer protection. Or maybe just a saying: Quis custodiet ipsos custodes? Who will guard the guards themselves? Private lawsuits? Regulators? The fourth estate?

LA Times' David Lazarus: AT&T’s new arbitration clause isn’t doing you any favors

Here.  It might be behind a paywall, but you can find it on Lexis. I enjoyed and recommend the whole column, but here's an excerpt:

Jim Kimberly, an AT&T spokesman, told me that "arbitration is a faster, less expensive, easier means of resolving disputes."

* * *

For businesses, arbitration is indeed faster, cheaper and easier than dealing with complex, potentially costly lawsuits, particularly class actions involving numerous plaintiffs.

For consumers, don't be fooled.

A 2015 study by the Consumer Financial Protection Bureau found that "arbitration clauses restrict consumer relief in disputes with financial companies by limiting class actions that provide millions of dollars in redress each year."

* * *

Study after study has shown that arbitration clauses work against consumer interests. * * *

Researchers at Stanford University and the University of Texas at Austin analyzed almost 9,000 arbitration cases. They found that companies routinely select arbitrators with track records of making industry-friendly decisions.

They also found that arbitrators know that the more they rule in favor of businesses, the greater the likelihood they'll be tapped for future cases -- and future paychecks.

"A company will use the same arbitrator over and over and over again," said Remington Gregg, an attorney with the advocacy group Public Citizen. "Arbitrators know how their bread is buttered."

Department of Education to cancel approx. $1 billion in student-loan debt

Department of Education has announced that it will forgive the student-loan debt of borrowers whose borrower-defense claims have already been approved. The announcement is here.

Under the law, students who attended schools that misled them or engaged in other misconduct in violation of certain state laws are eligible for borrower defense to loan repayment forgiveness, or "borrower defense." Essentially, the law allows defrauded students relief from federal student-loan debt when their schools close suddenly or engaged in illegal or deceptive practices.

The Obama administration had provided broad relief for defrauded students, such as those who attended Corinthian Colleges. Under Trump, however, Secretary of Education Betsy DeVos drastically cut back on the debt forgiveness for defrauded students. Instead, she applied a formula under which many students received little or no relief.

The Department of Education anticipates this change will ultimately help approximately 72,000 borrowers receive $1 billion in loan cancellation. 

Does the bar exam protect the public or just punish would-be lawyers?

Regulation of lawyers is supposed to protect the public. So, then, with the bar exam, which is supposed to protect consumers by keeping unskilled lawyers out of the market. Does it work? That's the topic of Safeguard or Barrier: An Empirical Examination of Bar Exam Cut Scores by Michael Frisby, Sam Erman, and Victor Quintanilla. Here's the abstract:

In 2019 more than forty percent of aspiring law school graduates failed the bar exam. Nearly thirty thousand test-takers otherwise qualified to practice law were, given the score threshold required to pass the exam (the “cut score”), lost to the profession. Had the cut score been lower, many would now be lawyers. This exclusion disproportionately affects members of underrepresented and disadvantaged groups who stand to benefit most from entry into the legal profession. A common defense for retaining or raising cut scores is that doing so prevents lawyer malfeasance. But the bar exam is not designed for these purposes. This paper enters this scholarly and regulatory conversation by testing whether states’ bar exam scores predict lawyer misconduct. If they do not, it would remove one argument against lowering bar exam cut scores to promote diversity and growth of the legal profession. Using data comprising states’ bar exam cut scores and disciplinary records from the American Bar Association between 2013 and 2018, we employ statistical modeling to evaluate the relationship between cut scores and attorney discipline. We find no evidence that higher bar exam cut scores produce fewer complaints, charges, or disciplinary actions.

Recording of Loyola of Chicago Consumer Law Review Symposium on Racial Justice in Consumer Law now available

by Jeff Sovern

The recording is here.  More information here. I have started listening to the recording and am finding it excellent so far. Very instructive.

CFPB rescinds disappointing abusiveness policy statement

by Jeff Sovern

Last year we blogged about the CFPB's disappointing abusiveness policy statement. But things are different this year and the Bureau has wisely rescinded the Policy Statement, saying that it "was inconsistent with the Bureau’s duty to enforce Congress’s standard and rescinding it will better serve the CFPB’s objective to protect consumers from abusive practices . . . [and that] the Policy Statement undermined deterrence and was contrary to the CFPB’s mission of protecting consumers."

Nomination News: Senate Banking Committee split on Chopra; Will Baradaran lead the OCC?

by Jeff Sovern

Yesterday, the Senate Banking Committee split, 12-12 on the vote to confirm FTC Commissioner Rohit Chopra to be the next CFPB director. According to Neil Haggerty's report in the American Banker (behind a paywall but available on Lexis), the Senate can still confirm Chopra but it will first require a motion to discharge the nomination from the Committee. It's very disappointing that a majority of the Commmittee did not vote to confirm Chopra but the Senate still seems likely to confirm him. 

In other nomination news, Irvine banking law professor Mehrsa Baradaran is said by Brendan Pederson and Kate Berry writing in the American Banker to be the top contender to lead the OCC. Given the OCC's history of being captured by the banks it regulates, if Baradaran gets the nod, it would be fascinating to see if she can make the OCC a more effective regulator. Her writings on race and consumer law issues in banking are extraordinary.