Consumer Law & Policy Blog

Unfairness and Disparate Effects

by Jeff Sovern

As we wrote about in May, the CFPB takes the position that it can use its unfairness power when consumer financial service companies discriminate. One issue that has arisen is whether when it does so, the Bureau will use the disparate effects test, sometimes called the disparate impact test, to determine if discrimination has occurred. I think the Bureau has answered that question in the negative, though I'm not sure how often it will really matter.

The disparate effects was originally something courts used in employment discrimination cases. When Congress enacted the Equal Credit Opportunity Act, barring discrimination in consumer credit transactions, courts transplanted the disparate effects test they were familiar with to the credit context. Under the disparate effects test (I'm simplifying a bit), a consumer carries the burden of showing discrimination even without proof that the company intended to discriminate, if the company's conduct--such as the criteria it uses to grant loans--has a disparate impact on a protected group. But the company can still avoid liability if it can show that the challenged practice is legitimate, despite the impact on the protected group. So the question is whether that would also constitute unfair conduct, or, to put it another way, whether the Bureau will transplant the disparate effects test again to apply to unfairness.

The clearest answer to that question from the Bureau that I have heard came from CFPB Assistant Director for the Office of Enforcement Eric Halperin at an American University symposium (written summary here). As I understand it, Director Halperin explained that unfairness has its own test and that the Bureau will use that test rather than the disparate effects test when it is using its unfairness power. While Director Halperin did not purport to speak for the Bureau, Director Chopra has made similar statements.

But how much does it matter? As Director Halperin pointed out, unintentional conduct can be unfair under the Consumer Financial Protection Act. While the test of unfairness is worded differently from the disparate impact test, I wonder how often conduct will fail the disparate impact test but not be unfair. Something that produces a disparate impact is also likely to cause substantial injury to consumers that is not outweighed by countervailing benefits and cannot reasonably be avoided by consumers. If you can come up with an example of something that fails the disparate impact test but is not unfair, I hope you will post it in the comments.

CFPB analysis of potential impacts of medical debt credit reporting changes

This week, the Consumer Financial Protection Bureau published an analysis of how actions announced by the three largest national consumer reporting companies – Experian, Equifax, and TransUnion – will affect people who have allegedly unpaid medical debt on their credit reports. "Nearly half of those with medical collections appearing on their credit reports will continue to see them there even after the changes fully go into effect next year. The medical collection tradelines that will remain on credit reports after the changes will likely represent a majority of the dollar amount of all medical collections currently reported," the CFPB explained.

The report finds the changes likely will result in the majority of individual medical collections tradelines being removed from credit reports. However, in terms of dollar amount, a large majority of reported medical collections likely will still remain. The report also highlights the characteristics of consumers with reported medical collections currently, and provides a state-by-state breakout of how the credit reporting changes will impact consumers’ credit reports.

The press release with a link to the report is here.

OCC CFP: THE IMPLICATIONS OF FINANCIAL TECHNOLOGY FOR BANKING

From the CFP:

The Office of the Comptroller of the Currency (OCC) is soliciting academic-and policy-focused research on the impact of financial technology (fintech) entities and nonbanks on banking and the markets for lending, deposit-taking, and payment services through August 21, 2022.

The OCC will invite authors of selected papers to present to OCC staff and invited guests at OCC Headquarters in Washington, D.C., on November 7-8, 2022. These presentations will serve as a platform for interested academic, regulatory, and other experts to discuss research that explores how the banking system, and community banks in particular, leverage technology and respond to the growth of new providers of banking services, whether competitive or cooperative.

More information here.

Dan Solove gives the pending privacy bill a B+ but pans preemption

Here.  Excerpt:

One possible compromise: The ADPPA could contain a preemption provision that would sunset after 5 or 10 years unless Congress would amend the law to renew the preemption term for another 5-10 years. This would force Congress to revisit the law in order to renew the preemption for another period.

Paper responds to Wilf-Townsend's Assembly-Line Plaintiffs

Last year, we published a link to Daniel Wilf-Townsend's Harvard Law Review article  Assembly-Line Plaintiffs. Now Jessica Steinberg of George Washington, Colleen F. Shanahan of Columbia, Anna E. Carpenter of Utah, and Alyx Mark of Wesleyan's Dept. of Government and the American Bar Foundation have written a response to it, The Democratic (Il)legitimacy of Assembly-Line Litigation, 135 Harv. L. Rev. F. 359 (2022). Here is the abstract:

In response to Daniel Wilf-Townsend’s Assembly-Line Plaintiffs we take a panoramic picture of state civil courts, and debt cases in particular, and name specific features of the courts that must be taken into account in crafting reform prescriptions. In doing so, we question both the democratic legitimacy of debt collection courts and the adequacy of incremental reform that targets the structure of litigation. Part I contributes two critical components to Wilf-Townsend’s rich description of consumer debt cases: pervasive intersectional inequality among pro se defendants and a record of fraud among top filers. We add a sharper focus on the racial, gender, and class dynamics of civil courts, which play an outsized role in state civil justice dysfunction and have normative implications for institutional design solutions. In addition, we enhance Wilf-Townsend’s depiction of assembly-line plaintiffs by documenting pervasive fraud on the part of assembly-line plaintiffs as germane to the operation of civil courts. The clustering of corporate entities in state civil courts tells part of the story; the fraudulent conduct of plaintiffs in debt cases also plays a significant role in exacerbating poverty and inequity for marginalized groups in civil courts. Part II positions Wilf-Townsend’s proposal to restructure debt proceedings into agency-style adjudication as a form of problem-solving courts, which have an established history in the U.S. justice system. We place his proposal within the larger literature on active and suggest that Wilf-Townsend sets forth a first step toward reimagining state civil courts. Part III draws on an invest/divest framework to set forth a broader and more aspirational vision of reform. We propose that bold reform would focus on reestablishing the democratic legitimacy of state civil courts by increasing social provision to defendants economically ravished by assembly-line litigation and also by keeping courts squarely in the business of resolving two-party adversarial disputes.

CFP: Berkeley Consumer Law Conference

by Jeff Sovern

Abstracts are due September 16. The conference will be at Berkeley on March 2-3, 2023. More information here. This is always one of the best consumer law conferences of the year so if you have a paper that will be ready to be workshopped next spring, I urge you to submit it.

The National Consumer Law Center is hiring a LITIGATION DIRECTOR

Job is for the Boston or D.C. Office. Here's the announcement:

Director of Litigation opportunity at the National Consumer Law Center

The National Consumer Law Center, the country’s preeminent advocate for low-income consumers, proudly traces its roots to the 1960s “War on Poverty” in its work as a support center for legal services offices. NCLC’s expertise includes policy analysis, high-impact advocacy, litigation, and extensive training for a nationwide network of consumer advocates. It works closely with nonprofit and legal services organizations, private attorneys, civil rights and grassroots organizations, and federal and state policymakers across the nation to stop exploitative practices, help financially stressed families build and retain wealth, and advance economic fairness.

NCLC seeks an experienced professional to lead the organization’s litigation initiative as Director of Litigation. As a member of NCLC’s advocacy staff, the Director will develop and implement litigation strategies that advance the interests of low-income consumers.

This is an exciting opportunity to work for a growing and dynamic national advocacy organization that is fighting to level the economic playing field and ensure greater economic fairness and security, especially as it relates to advancing racial justice. This position will report to the Deputy Director and will play an important leadership role in the organization.

NCLC has partnered with Lindauer, a global executive search firm, to conduct this search. Please see the prospectus to learn more. To apply or nominate someone for this position, contact Terri Rutter, Assistant Vice President at trutter@lindauerglobal.com.

And watch this great video on NCLC's work: https://www.youtube.com/watch?v=oQpgbMuX7w0&t=6s 

WSJ: CFPB working on guidance to force banks to cover more scams on Zelle and similar apps

by Jeff Sovern

Here, behind a pay wall. Excerpt:

At present, banks generally are only required to repay consumers for payments they didn’t authorize. The coming regulatory guidance could change that threshold by maintaining that fraudulently induced transactions, even those approved by the consumer, are considered unauthorized. That could require a bank to conduct more investigations of such transactions—and to compensate more customers for their losses.

* * * 

 * * * A key concern: so-called “me-to-me” fraud, or when a scammer tells the consumer that his or her bank account was compromised, and persuades the person to send money to what appears to be himself or herself using Zelle. In reality, the scammer has linked the consumer’s cellphone to a fraudulent account.

“Scams have become widespread on Zelle, a money-transfer platform owned by the largest banks in the nation,” [Senator] Menendez said at an April 26 hearing with Mr. Chopra, citing media reports. “The banks are well aware of these scams but have done little to enhance Zelle’s security or reimburse defrauded consumers.”

One advantage to putting the burden on the bank is that it gives the bank an incentive to adopt safeguards against such frauds. That is exactly what happened when Citibank was held liable for ATM frauds. Citibank and other banks responded by changing the architecture of their ATMs to prevent such frauds. Consumers can't do that but banks can.

Consumer law and the "major questions" doctrine

In response to the Supreme Court's recent ruling in West Virginia v. EPA, the National Consumer Law Center has written Impact of Supreme Court’s “Major Question Doctrine” on Consumer Litigation. Read it here.:  

Will Congress pass an online privacy bill?

by Jeff Sovern

The House Energy and Commerce Subcommittee on Consumer Protection and Commerce has forwarded to the full committee a bipartisan bill (draft here, though perhaps not the version the subcommittee approved; section-by-section commentary here). The last I heard, Senator Cantwell, the Senate Commerce Committee chair, had not signed on, putting the bill's future in doubt. The bill would give consumers the right to see what companies know about them, whom the information has been shared with, correct errors, and direct the business to delete the data. On the positive side, the bill also provides for a private claim for injured consumers and in addition provides that arbitration clauses are ineffective to block such claims. On the negative side, the bill preempts the state online privacy laws, including those passed in California, Virginia, Utah, etc., and limits the amount injured consumers can recover to actual damages, injunctive relief, and attorney's fees. That raises questions about whether consumer injuries will be sufficient to cause them to sue. Cases can be brought as class actions but I wonder about the impact of TransUnion's standing requirements on class members. The bill has a lot more in it that will be of interest to consumer law folks.