Consumer Law & Policy Blog

FTC settement bans bogus debt collectors from collections

An Atlanta-based debt collection company and its owners will be permanently banned from the debt collection industry under the terms of a settlement with the Federal Trade Commission.

The FTC's press release is here.

CFPB report on consumer complaints finds variations by race and wealth

The Consumer Financial Protection Bureau has released a report analyzing, by U.S. Census tract, patterns in the consumer complaints submitted to the CFPB between 2018 and 2020. The report finds that the complaints from wealthier communities and communities with higher percentages of white, non-Hispanic residents were more frequently about loan origination and performing servicing, while the complaints from communities of color and lower income communities were more frequently about credit reporting, identity theft, and delinquent servicing.

Some of the report’s other findings are:

• Complaints about loan originations increased by nearly 50% over the course of 2020, driven largely by mortgage complaints. This increase was centered in higher-income neighborhoods and neighborhoods with fewer people of color.
• Neighborhoods with the highest share of white, non-Hispanic consumers submit complaints about loan originations at more than twice the rate of neighborhoods with the highest share of Black consumers.
• Consumers from neighborhoods with the highest share of Black residents submit the most complaints per resident. Census tracts with the greatest share of Black residents (95% and over) have estimated complaint rates that are double the rates for tracts with the lowest share (5% and under).
• Lower income census tracts (those at or below 40% of their area’s median income) submit around 30% more complaints per resident than census tracts at around 100% of their area’s median income.
• Lower-income and communities of color are more likely to submit complaints about credit reporting, identity theft, and delinquent servicing, while higher-income and majority white, non-Hispanic communities are more likely to submit complaints about origination and performing servicing.

The CFPB report is here.

 

Harvard Law Review to publish Wilf-Townsend article: Assembly-Line Plaintiffs

Daniel Wilf-Townsend of Chicago has written Assembly-Line Plaintiffs, Forthcoming in the Harvard Law Review. Here is the abstract:

Around the country, state courts are being flooded with the claims of massive repeat filers. These large corporate plaintiffs leverage economies of scale to bring tremendous quantities of low-value claims against largely unrepresented individual defendants. Using recently developed litigation-analytics tools, this article presents the first nationwide study of these “assembly-line plaintiffs,” examining millions of cases across hundreds of jurisdictions. It documents the pervasive nature of this litigation, finding that in many court systems just the top ten private filers account for between one fifth and one third of all civil litigation.

This pattern raises serious concerns. Drawing on existing empirical literature and a sample of 1,000 recent case dockets, the article describes how these cases turn state courts into near-automatic claims processors for large corporations, transferring assets from mostly absent defendants without significant scrutiny of the underlying claims. These defendants, moreover, are often particularly vulnerable low-income consumers or members of other marginalized groups. And although many concerns raised by this litigation overlap with those related to unrepresented litigants more broadly, the structural features of assembly-line litigation—its one-sidedness, high volume, and low claim value—present distinctive challenges. The article concludes by considering a few specific potential reforms designed to meet those challenges: assessing a surcharge on frequent filers as a form of congestion pricing; enabling common defenses to be asserted as affirmative causes of action to facilitate aggregation; and moving courts away from one-case-at-a-time adjudication toward a more investigative, administrative-agency-like model.

(Slow) Progress on nomination of Chopra for CFPB director

In February, President Biden nominated FTC Commissioner Rohit Chopra as director of the Consumer Financial Protection Bureau. Yesterday evening, the Senate voted 49-48 along party lines to advance his nomination to the Senate floor from the Senate Banking Committee. A confirmation vote could come next week.

Hawkins & Penner essay about advertising, racial steering, and lending

Jim Hawkins of Houston and Tiffany Penner have written Advertising Injustices: Marketing Race and Credit in America, 70 Emory Law Journal 1619 (2021). Here is the abstract:

Access to affordable credit played a central role in the Civil Rights Movement. But today, racial and ethnic minorities oversubscribe to high-cost lending products like payday loans and underuse more affordable credit options that traditional banks offer. These trends remain even when controlling for demographic variables like income, credit score, and education. While research verifies that these disparities exist, little work explains why.

This Essay argues that advertising entrenches these racial inequities. Two empirical studies we conducted of advertising by banks and payday lenders suggest that payday lenders steer African Americans and Latinos to their products while banks market to whites. For instance, though African Americans make up only 23% of payday lending customers, 35% of the “model” customers featured in advertising on these lenders’ websites depict African Americans. Meanwhile, almost 30% of mainstream bank websites featured no African American models. Almost 75% featured no Latino models. Only 3% did not feature a white model. Even after the outcry over racial injustice in 2020, banks did not appreciably increase the representation of people of color on their websites.

This needs to change. We argue that lenders themselves are the first and simplest source for racial justice in advertising credit. Both payday lenders and banks can easily ensure that their advertising reflects the communities they serve. Congress and the Consumer Financial Protection Bureau also have a role to play. Amendments we propose to the Equal Credit Opportunity Act, the Community Reinvestment Act, and the regulations that implement them call for advertising that welcomes people of color to affordable credit sources.

In consumer class action against Walmart, Eighth Circuit holds that right to enforce arbitration agreement was waived by Walmart's litigation conduct

Here's how the Eighth Circuit, in its brand-new decision, McCoy v. Walmart, described the merits of the consumer class action before it: "Debbie McCoy purchased Walmart gift cards as Christmas presents. The cards turned out to be worthless, however, because one had been deactivated and the other had no balance remaining. McCoy, seeking to represent a nationwide class of disgruntled gift-card purchasers, sued Walmart."

After many months of defending the case on its merits, Walmart then invoked an arbitration agreement, saying that, under the Federal Arbitration Act, the case didn't belong in court at all. The question was whether by “substantially invok[ing] the litigation machinery rather than promptly seeking arbitration," Walmart had waived any right it had to arbitrate. The answer, according to the Eighth Circuit, was "yes."

Our readership may find the opinion worth reading, as it contains a compact discussion of the considerations for determining waiver by litigation conduct. Note also that the Eighth Circuit's opinion cements that court's earlier rulings that the waiver question should be decided by the court not an arbitrator.

Finance Professor McNulty paper on consumer protection settlements

James E. McNulty a finance professor at Florida Atlantic University has written Consumer Protection Settlements: Theory and Policy. Here's the abstract:

Lawsuits have a deterrent effect, but this is mitigated if settlements are routine. Regulators and judges should consider that a firm contemplating predatory activity directed at financially unsophisticated individuals might have built an estimate of settlement costs into their analysis of the net present value of the “project.” This suggests that choosing not to settle to establish a precedent would be an appropriate regulatory policy, especially in cases involving egregious behavior. Hence, while private settlements may be Pareto optimal, this notion does not apply to public consumer protection class action settlements. Asymmetric information is a major factor in consumer protection litigation, but the consumer protection regulator has an information advantage; this can allow regulators to represent the class effectively. We develop these issues by considering theories of the settlement process in the context of a pivotal case. We provide suggestions for theoretical research on consumer protection class actions, an underdeveloped area of the literature.

John Oliver on Housing Discrimination

Here. As usual, he reports the facts in an engaging way.

New Ninth Circuit ruling on Federal Arbitration Act preemption

The Ninth Circuit issued a decision today in Chamber of Commerce v. Bonta. The Ninth Circuit write summaries of its opinions for public consumption. As the Ninth Circuit puts it, a summary "constitutes no part of the opinion of the court. It [is] prepared by court staff for the convenience of the reader." The following summary provides a synopsis of the majority opinion authored by Judge Charles Lucero (a Tenth Circuit judge sitting by designation) and a partial dissent authored by Judge Sandra Ikuta:

The panel reversed, in part, the district court’s conclusion that California Assembly Bill 51 is preempted by the Federal Arbitration Act; affirmed the district court’s determination that the civil and criminal penalties associated with AB 51 were preempted; vacated the district court’s preliminary injunction enjoining AB 51’s enforcement; and remanded for further proceedings.

AB 51, which added § 432.6 to the California Labor Code, was enacted with the purpose of ensuring that individuals are not retaliated against for refusing to consent to the waiver of rights and procedures established in the California Fair Employment and Housing Act and the California Labor Code; and to ensure that any contract relating to those rights and procedures be entered into as a matter of voluntary consent, not coercion. Other provisions of the California Code, specifically Labor Code § 433 and Government Code § 12953, render violations of § 432.6 a misdemeanor offense and open an employer to potential civil sanctions. The district court concluded that AB 51 placed agreements to arbitrate on unequal footing with other contracts and also that AB 51 stood as an obstacle to the purposes and objectives of the Federal Arbitration Act (“FAA”). The district court preliminarily enjoined enforcement of § 432.6(a)–(c) as to arbitration agreements covered by the FAA.

More on Alavaro Bedoya's nomination as an FTC commissioner

Following up on Jeff's post from yesterday about my colleague Alvaro Bedoya's nomination to the FTC, for more information go here and here.