Consumer Law & Policy Blog

Vijay Raghavan Essay: Shifting Burdens at the Fringe

Vijay Raghavan of Brooklyn has written Shifting Burdens at the Fringe, 102 Boston University Law Review (2022). Here's the abstract:

Scholars are increasingly arguing that consumer law can be a site of distribution. This raises at least two concerns: the classic argument associated with Louis Kaplow & Steven Shavell against redistributing income through legal rules, and a more recent concern that additional equity in consumer law will mean less equity in other important domains. In this Essay, I defend the pivot toward distribution by largely sidestepping these issues. Rather than arguing that consumer law is a good site for distribution and that it will not crowd out other options, I suggest that the pivot toward distribution is justified by the structure of consumer credit markets.

Leveraging insights from the recent literature on the legal design of money, I argue that consumer credit is best understood as new money, and price and access in consumer credit markets are best understood as ways to finance the private disbursement of public obligations. The upshot of this framing is it offers a new way to think about the function and potential of consumer law and consumer credit regulation. Consumer credit regulation is best understood as a way to shift the incidence of financing the creation of new money and not as an intervention in purely private exchange. As such, it has the potential to unwind some of the regressivity of money creation in our system by progressively redistributing burdens in credit markets. In this Essay, I consider how these ideas can change the way we justify consumer law and regulate consumer credit markets.

FTC sues Walmart for facilitating money transfer fraud

The Federal Trade Commission yesterday sued Walmart for allowing its money transfer services to be used by fraudsters, who fleeced consumers out of hundreds of millions of dollars. In its lawsuit, the FTC alleges that for years, the company turned a blind eye while scammers took advantage of its failure to properly secure the money transfer services offered at Walmart stores. The company did not properly train its employees, failed to warn customers, and used procedures that allowed fraudsters to cash out at its stores, according to the FTC’s complaint. The FTC is asking the court to order Walmart to return money to consumers and to impose civil penalties for Walmart’s violations.

The FTC's press release is here.

CFPB affirms states' ability to police credit reporting markets

Today, the Consumer Financial Protection Bureau issued an interpretive rule affirming states’ abilities to protect their residents through their own fair credit reporting laws. The CFPB rule explains that, with limited preemption exceptions, states have the flexibility to preserve fair and competitive credit reporting markets by enacting state-level laws that are stricter than the federal Fair Credit Reporting Act. The agency writes that the Act does not stop states from enacting laws to tackle credit reporting problems related to medical debt, tenant screening, and other consumer risks.

The interpretive rule states that --

• States retain broad authority to protect people from harm due to credit reporting issues: For example, a state could forbid a credit reporting company from including information about a person’s medical debt for a certain period of time after the debt was incurred.
• State laws are not preempted unless they conflict with the Fair Credit Reporting Act or fall within narrow preemption categories enumerated within the statute: Preemption under the Fair Credit Reporting Act is narrow and targeted. Nothing in the statute generally preempts state laws relating to the content or information contained in credit reports. It does not preempt, for instance, state laws governing whether eviction information or rental arrears appears in the content of credit reports.

The CFPB rule is here.

Can you solve the mystery of why the Credit CARD Act treats penalty fees differently from penalty interest rates and other fees?

by Jeff Sovern

When Congress enacted the Credit CARD Act of 2009, it provided that credit card penalty fees, like late fees, “shall be reasonable and proportional” and gave the Fed the power--later transferred to the CFPB--to set safe harbor amounts which would presumptively be reasonable and proportional. But it didn't limit fees for credit cards, like cash advance fees, that are not assessed because of bad behavior by the consumer, and it didn't limit the amounts of penalty rates (e.g., a higher interest rate charged because of late payments). Congress did say that credit card issuers could charge penalty rates for late payments only if the consumer missed 60 days of payments and it also limited the duration of penalty rates for late payments if the consumer made the minimum payment for six months, but it didn't say, for example, that penalty rates had to be reasonable and proportional to the greater risk of lending money to those who have paid late. Nor did it impose limits on penalty rates for other events that trigger a penalty, such as exceeding the credit limit, though it did limit the amounts of penalty fees that could be imposed for exceeding the credit limit. I'm trying to understand why Congress treated these items differently. My research assistant and I are still working our way through the legislative history, but I'm hoping someone can point us to something that sheds light on this question.

What we've come up with so far is largely speculation. Congress had heard a lot more about excessive penalty fees than other fees, see, e.g., US GAO, Credit Cards: Increased Complexity in Rates and Fees Heightens Need for More Effective Disclosures to Consumers (2006); Examining the Billing, Marketing and Disclosure Practices of the Credit Card Industry and Their Impact on Consumers: Hearing on S.414, Sen. Comm. on Banking, Housing & Urban Affairs, 2007 WL 184875 (Jan. 25, 2007) (Testimony of Elizabeth Warren, Professor, Harvard Law School), so maybe it concluded other fees could be left alone. But it chose to treat penalty rates and penalty fees differently even though they are triggered by the same event.

What is prompting my curiosity is an article I'm working on with Nahal Heydari. We surveyed 659 consumers about their understanding of credit card disclosures and one of our findings is that consumers understand the penalty fee disclosures significantly better than they understand non-penalty fee disclosures and penalty rate disclosures. In other words, Congress limited the amounts consumers could be charged for things more consumers could understand than for the items fewer consumers could understand--which seems exactly backward if that's all you consider. There may have been reasons for doing so, such as Congress may have thought consumers would pay less attention to penalty fees than other fees, on the theory that consumers would optimistically assume they wouldn't make payments late, but that doesn't explain why they didn't limit penalty rates because, again, they are triggered by the same events as the penalty fees. I'm wondering if anyone knows. If you do know something about this, please let us know in the comments or email me at sovernj@stjohns.edu.

CFPB Spring Regulatory Agenda is up and arbitration isn't on it

by Jeff Sovern

As the American Banker's Kate Berry reported (behind a paywall but available on Lexis), the CFPB's Spring Regulatory Agenda has been posted to the OMB's web site, rather than, as has been the Bureau's practice, the CFPB web site. Here it is:

Prerule stage – Consumer Access to Financial Records, 3170-AA78

Proposed rule stage – Amendments to FIRREA Concerning Automated Valuation Models, 3170-AA57

Proposed rule stage – Property Assessed Clean Energy Financing, 3170-AA84

Final rule stage – Small Business Lending Data Collection Under the Equal Credit Opportunity Act, 3170-AA09

Final rule stage – Adverse Information in Cases of Human Trafficking Under the Debt Bondage Repair Act, 3170-AB12

Nothing on arbitration or payday lending. While the regs on the list are all important, so far it looks as if Director Rohit Chopra will make much of his mark in ways other than by promulgating regulations. That means many of his initiatives may not last much longer than his service as director.

CFP: CFPB consumer finance research conference

The submission deadline is August 22 and the conference is December 15-16. More here.

My Daughter’s @Delta Disaster Story: The Last Chapter (I hope)

by Jeff Sovern

When last we left our intrepid adventurer’s story, she had arrived home, even if her bag had not. But one week after her original flight to Atlanta, she received a text from Delta indicating that her bag was about to be delivered—to the hotel she had left four days before. While she was trying to reach Delta, the bag was left in the hotel lobby without anyone speaking to the hotel staff to explain why it had been brought there. You would think an airline would understand that when someone flies somewhere and stays in a hotel, they may not still be there a week later. Indeed, Delta should have known she was no longer at the hotel because they had flown her to Detroit, and eventually back to New York. To make matters worse, my daughter had replaced most of the items in the bag during its week-long absence and so now was facing the possibility of having bought many of the same items twice and not receiving full compensation from Delta, which had, after all, returned the bag, albeit to a place where my daughter no longer was.

Fortunately, my daughter’s friend was driving from Atlanta to New York and brought the bag to her yesterday, two weeks after the original flight. My daughter eagerly opened the suitcase to discover that her shoes and underwear were missing. The missing underwear is creepy. But not to worry: someone else’s clothing and shoes had mysteriously replaced them and were sandwiched in with my daughter’s remaining clothing!

Sadly, this chapter ends with another Delta cliffhanger. My son was scheduled to fly back from Detroit this afternoon on Delta. Naturally he learned this morning that his flight had been cancelled. Delta found him a later flight, which has in turn been delayed. The good news: he won’t check a bag.

Mystery company fails to identify Twitter critic who used “its” photos

by Paul Alan Levy

Judge Vincent Chabbria ruled that an anonymous Twitter user using the pseudonym “Mr. Money Bags” could not be identified pursuant to a DMCA subpoena, both because her display of copyrighted photographs to taunt a venture capitalist for allegedly spending money on the company of nubile young women was fair use, and because, in any event, applying the well-known Dendrite standard,the Twitter user’s First Amendment right to speak anonymously outweighs the mysterious copyright owner’s possible interest in pursuing judicial remedies for the alleged infringement.  His  opinion joins several other recent decisions refusing to recognize a broad "copyright exception" to the Dendrite standard.

Judge Chhabria Agrees That Standard Dendrite Analysis Applies

The case had aroused substantial interest, and amicus involvement from Public Citizen as well as from EFF and ACLU of Northern California, because Bayside Advisory, the owner of the copyright in the photographs, argued, with avid amicus support from copyright owners’ trade associations, that the First Amendment right to speak anonymously could not be invoked to oppose a DMCA subpoena, or, at the very most, that a highly permissive standard (the “Sony Music” standard)  for identifying alleged infringers in cases involving the misuse of peer-to-peer software to obtain and disseminate copyrighted musical recordings and movies was the right one for assessing DMCA subpoena cases.

Judge Chhabria cursorily rejected these contentions, holding simply that Dendrite is the governing standard without even mentioning Sony Music as an alternate approach. He elaborated only that, to the extent that Bayside was arguing that the text of the DMCA precluded any invocation of the First Amendment as limiting enforcement of a subpoena sought in furtherance of an alleged copyright claim, that raised serious First Amendment concerns that militated against such a construction of the statute. He also squarely rejected Bayside’s argument that a platform hosting allegedly infringing content lacks either standing or statutory power to assert the First Amendment or fair use rights of its users.

Senators ask FTC to protect communities of color from discriminatory online practices

Seven Democratic and Democratic-caucusing senators sent a letter to the Federal Trade Commission on Wednesday calling on it to use its authority to protect communities of color and immigrant communities in the United States from discriminatory online practices, biometric surveillance, consumer predation, and anti-competitive behavior. The letter focuses on the impact of facial recognition and location data collection technologies.

The letter is here.

NCLC releases 50-state survey on predatory lending laws

From NCLC's press release:

"A new report from the National Consumer Law Center finds progress toward a 36% APR cap for common short-term and longer-term loans in some states. In states that allow high-cost loans, exorbitant interest rates can trap borrowers in a cycle of debt. Two states – New Mexico and North Dakota – enacted new laws that dramatically reduce the APRs and fees allowed for a $500 six-month and $2,000 two-year installment loan. On the other hand, several states went in the opposite direction, allowing predatory loans to carry even higher APRs."

The report, titled, Predatory Installment in the States, includes maps and tables for annual percentage rate caps in every state and the District of Columbia, tracks installment loan changes in the states since mid-2021, and provides recommendations for states to protect residents from predatory high-cost lending.