CL&P Blog

Congress passes resolution to overturn OCC's fake lender rule

This afternoon, the House of Representatives voted to overturn the Office of the Comptroller of the Currency’s “fake lender” rule, which allows predatory lenders to evade state interest rate laws by putting a federally-chartered bank’s name on the paperwork. The Senate passed the same resolution on May 11. It now heads to President Biden for signature.

National Consumer Law Center's press release is here.

The OCC put out a statement, here, affirming that "predatory lending has no place in the federal banking system."

Kreiczer-Levy article on the duties of online marketplaces

Shelly Kreiczer-Levy of Ramat Gan College of Law & Business; Global Affiliated Faculty, The Vulnerability and Human Condition Program, Emory Law School has written The Duties of Online Marketplaces 58 San Diego Law Review (2021). Here's the abstract:

Is Amazon a seller for the purpose of product liability law? Is it obligated to stop price gouging by its sellers in the midst of the Covid-19 pandemic? Is Airbnb responsible for discrimination practiced by its users? These legal issues are discussed separately, and courts are typically divided into two camps. Some courts force platforms into unfitting categories such as a seller, a hotel chain or an employer in order to establish liability; others exempt platforms from liability altogether. This Article argues we need to think of these legal duties holistically, and suggests a new legal category: the market-constituting platform. Certain online platforms constitute a market: they create the infrastructure for the activity, the mechanism for closing a deal, the code of acceptable behavior, and the rules of participation in this activity. The challenge to legal thought and practice is to properly conceptualize the legal role of market-constituting actors and the duties that this role entails. This novel legal category has broad implications in different legal areas, including antidiscrimination law, tort law, and consumer protection.

Study reports consumers find courts fairer than arbitration

Farshad Ghodoosi of the David Nazarian School of Business & Economics, California State University, Northridge and Monica Sharif of California State University, Los Angeles have written Justice in Arbitration: The Consumer Perspective, International Journal of Conflict Management (2021). Here is the abstract:

Purpose: Arbitration—a binding private third-party adjudication—has been the primary legal way for resolution of consumer disputes. Consumers, however, rarely use arbitration to resolve their disputes while evidence suggests that their disputes remain unresolved. Contrary to the current prevailing emphasis on who’s winning in arbitration, our study establishes that consumers believe that the court is more just than arbitration, regardless of the outcome. Our study further establishes that consumers’ perceived poor legitimacy and lack of familiarity, not cost calculation, are what drive their justice perception.

Methodology: In three experimental studies, participants were presented with scenarios in which they were to envision themselves amidst a consumer dispute. The scenarios were followed by survey questions that examined individuals’ perceptions of justice. Three mediating variables of legitimacy, cost and familiarity were also examined.

Findings: The results suggest that consumers hold a high perception of justice for court as opposed to arbitration. Even though a favorable outcome increases consumers’ perception of justice, the results suggest that consumers find courts to be fairer regardless of the outcome. Familiarity and legitimacy mediate this relationship, not cost.

Originality: Current research does not provide an adequate explanation for consumers’ underutilization of arbitration nor does it focus on correct factors. Studies in psychology and law primarily focus on ex post feelings of individuals after dispute resolution, ex post favorable outcomes, and ex ante cost-benefit analysis. The present study for the first time analyzes ex ante consumer perception of justice.

Update: WSJ reports Biden to designate Lina Khan to chair FTC

Here (may be behind paywall). As we reported earlier, the Senate confirmed Professor Khan to be an FTC commissioner earlier today. Now that the FTC will have two democratic commissioners, besides Rohit Chopra, the expectation is that the Senate will proceed to vote on Chopra's confirmation to be the CFPB director.

 

Noam Kolt article on computational language models reading contracts

Noam Kolt of the University of Toronto has written Predicting Consumer Contracts, 37 Berkeley Technology Law Journal (2022 Forthcoming). Here is the abstract:

This Article empirically examines whether a computational language model can read and understand consumer contracts. Language models are able to perform a wide range of complex tasks by predicting the next word in a sequence. In the legal domain, language models can summarize laws, draft case documents, and translate legalese into plain English. However, the ability of language models to inform consumers of their contractual rights and obligations has not been explored in detail.

To showcase the opportunities and challenges of using language models to read consumer contracts, this Article studies the performance of GPT-3, a powerful language model released in June 2020. The case study employs a novel dataset comprised of questions relating to the terms of service of popular U.S. websites. Although the results are not definitive, they offer several important insights. First, owing to its immense training data, the model can exploit subtle informational cues embedded in questions. Second, the model performed poorly on contractual provisions that favor the rights and interests of consumers, suggesting that it may contain an anti-consumer bias. Third, the model is brittle in unexpected ways. Performance was highly sensitive to the wording of questions, but surprisingly indifferent to variations in contractual language.

While language models could potentially empower consumers, they could also provide misleading legal advice and entrench harmful biases. Leveraging the benefits of language models in reading consumer contracts and confronting the challenges they pose requires a combination of engineering and governance. Policymakers, together with developers and users of language models, should begin exploring technical and institutional safeguards to ensure that language models are used responsibly and align with broader social values.

AALS call for submissions on climate science and banking regulation

We received the following call for submissions:

The AALS Section on Financial Institutions and Consumer Financial Services invites submissions of no more than five pages for its session at the 2022 annual meeting of the AALS. Next year’s annual meeting will be held virtually from January 5-9, 2022, with the date and time of the Section’s session yet to be announced. The submission can be the abstract and/or introduction from a longer paper, and it should relate to the following session description:

Climate Finance and Banking Regulation: Beyond Disclosure?

In the United States, banking regulation has been slower than other forms of financial regulation (and slower than its European counterparts) to address climate-related financial risks. This panel explores the proper role of banking regulation in addressing the physical and transition risks from climate change. Possible measures include: standardized, mandatory climate risk disclosures by banks; supervisory assessments of climate-related financial risk; capital and liquidity regulation; climate risk scenario tests; determination of the appropriate role of banks in mitigating climate risk; financial stability oversight of climate risk; and action (through the Community Reinvestment Act and otherwise) to deter harms to disadvantaged communities and communities of color from climate change.

Please email your anonymized materials by Friday, July 16, 2021, to Joe Graham, jgraham@bu.edu<mailto:jgraham@bu.edu>. Please also indicate, in addition to the proposal submission of up to five pages: (a) whether you are tenured, pre-tenure, or other; (b) whether you are in your first five years as a law professor (including any years spent as a fellow or visiting assistant professor); (c) how far along the full article is and when you expect to complete the discussion draft; and (d) optionally, how you would contribute to diverse perspectives in our field or on the panel.

The Section will announce the author(s) selected to present by no later than early September, 2021.

On behalf of the Section on Financial Institutions and Consumer Financial Services

Chair: Patricia A. McCoy (Boston College)
Chair-Elect: Paolo Saguato (George Mason University)

Executive Committee Members:
Hilary Allen (American University)
Abbye Atkinson (University of California, Berkeley)
Felix Chang (University of Cincinnati)
Gina-Gail S. Fletcher (Duke University)
Pamela Foohey (Indiana University)
Kathryn Judge (Columbia University)
Michael Malloy (University of the Pacific)
Christopher Odinet (University of Iowa)
Jennifer Taub (Western New England University)
Rory Van Loo (Boston University)
David Zaring (The Wharton School)

Consumer Reports study reports errors in a third of the credit reports examined by participating consumers

by Jeff Sovern

The report, by Syed Ejaz, is titled A Broken System: How The Credit Reporting System Fails Consumers And What To Do About It. Here are excerpts from the Executive Summary:

Consumers are finding errors on their credit reports. More than one-third (34 percent) of consumers who participated in CR’s Credit Checkup survey reported that they found at least one error on their report, with 29 percent saying that they found errors in personal information and 11 percent finding account information errors.

Consumers, through no fault of their own, are struggling to access their credit reports. One in 10 consumers who completed the survey found accessing their credit reports to be “difficult” or “very difficult.” Many consumers gave accounts of being locked out of their credit reports because of identity verification questions that they could not answer.

I've been wondering if supervision by the CFPB and the settlement between the credit bureaus and the Attorneys General have fixed credit reports. I guess we have the answer.

Bar-Gill & Ben-Shahar paper on manipulation of consumers

Oren Bar-Gill of Harvard and Omri Ben-Shahar of Chicago have written Manipulation by Mislaid Priorities. Here is the abstract:

This paper lays a foundation for a new theory of manipulation, based on the misprioritization of (truthful) information. Since consumers review only a subset of all available information, firms can harm consumers by prioritizing information that maximizes firms’ profits but has a smaller impact on the utility that consumers stand to gain from the purchase. Moreover, the distortions due to misprioritized information can arise not only from firms’ boastful disclosures, but also from the warnings and disclosures mandated by lawmakers. The paper identifies the product and market characteristics that determine the optimal prioritization of information and, correspondingly, the incidence of harm when the wrong information is prioritized for disclosure—either voluntarily by sellers or by legal mandate. It provides a framework for optimal legal intervention.

Study on beneficiaries and benefits of student-loan forgiveness

Countering assertions that student-loan forgiveness would primarily benefit wealthy people, a new study from the Roosevelt Institute determined that "student debt cancellation would provide more benefits to those with fewer economic resources and could play a critical role in addressing the racial wealth gap and building the Black middle class." The study, titled “Student Debt Cancellation IS Progressive: Correcting Empirical and Conceptual Errors,” is available here.

AAJ report indicates arbitration has a diversity problem

by Jeff Sovern

The report is titled Where White Men Rule: How the Secretive System of Forced Arbitration Hurts Women and Minorities. CNBC has a story here. Here's an excerpt from the report:

Arbitrators in consumer and employment cases are mostly male and overwhelmingly white. At AAA and JAMS, the two largest consumer and employment arbitration providers in the country, 88% of arbitrators are white and 77% are male.

* * *

Trust in the civil justice system is enhanced when the public sees that the judges deciding their cases reflect the diverse racial, ethnic, and cultural background of American society. As such, there have been, and continue to be, significant efforts to increase diversity in the federal judiciary. But the arbitration world is far behind even the judiciary. * * *

Federal and state courts face similar issues with regard to diversity but there is one major difference in arbitration. In the courts, whatever the race of the judge, a plaintiff can still face a jury. In arbitration, the arbitrator is judge and jury.

[Disclosure: AAJ gave St. John's University a grant to fund some of my research about half a dozen years ago.]