Consumer Law & Policy Blog

Adam Levitin's American Banker Op-ed: Those seeking to bring down the CFPB should be careful what they wish for

Here. Behind a paywall, but also available on Lexis. Excerpt: 

* * *The Fifth Circuit is claiming the CFPB wields broader regulatory authority than the Fed, a full-fledged bank regulator that engages in rulemaking and enforcement, operates the payment systems that are the backbone of the economy, and regulates monetary policy and employment. This is what is known as "motivated reasoning."   

* * *

Consider a mortgage lender that needs to make disclosures when making a loan. For years that lender has been using the disclosure forms promulgated by the CFPB, knowing that using them shields it from liability. If the agency is unconstitutional, the use of those forms ceases to provide any legal protection.

Likewise, the CFPB's Qualified Mortgage safe harbor from theDodd-Frank Act's ability-to-repay requirement will disappear if the CFPB is unconstitutional, triggering immediate liability on lenders' warranties to investors that the mortgages they sold them were qualified mortgages. Every bank that charges an overdraft fee will suddenly be breaking the law, because overdraft fees are exempted from cost of credit disclosures by virtue of CFPB regulation.

Op-ed: Banks fight for the right to discriminate

by Jeff Sovern

Here, in the NY Daily News. My latest op-ed. Excerpt:

You might not expect that in the year 2022, businesses would go to court asserting a right to discriminate. Yet that is essentially what the Chamber of Commerce and various banking groups did last month when they sued the Consumer Financial Protection Bureau.

The Chamber argues that the CFPB is breaking the law by checking if financial institutions discriminate when they decide whether to allow them to open checking accounts. Under the Chamber’s approach, it appears that the Bureau could not do anything if, for example, a bank told customers that it would not open checking accounts for people of their race.

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At the same time the banking groups argue that they should be free from consequences for discrimination, individual banks proclaim their commitment to diversity. Thus, JPMorgan Chase says it does not tolerate discrimination against customers while Citibank says it will work to “increase representation of people of color on Citi accounts.” The lawsuit undermines these claims.

Fifth Circuit decision creating issues in other CFPB cases

That's the takeaway from Evan Weinberger's Bloomberg Law report, CFPB Funding Decision Is Grist for Agency Enforcement Fights. Excerpt:

At least two companies targeted in CFPB enforcement actions have already pointed to the ruling to ask other courts to dismiss the actions on constitutional grounds. Others will wield the US Court of Appeals for the Fifth Circuit decision in settlement negotiations and battles over civil investigative demands until ruling appeals are exhausted, attorneys who represent companies say.

“Very few companies will settle with the CFPB, except for chump change,” said Alan Kaplinsky, a senior counsel at Ballard Spahr LLP, who represents companies battling the agency.

The CFPB has already signaled that the Fifth Circuit ruling—which isn’t the first such legal threat the agency has faced—won’t slow its efforts. Still, having to grapple with the ruling in enforcement actions will cause delays and stretch the bureau’s resources.

 

Adam Levitin's critique of the Fifth Circuit's CFPB decision

Here. Definitely worth a read.

States lack standing to challenge the Dept of Education's plan to relieve student debt

Yesterday evening, a federal court in Missouri dismissed a challenge by six states (Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina) to the Department of Education's plan to cancel $10,000 (or $20,000 for Pell grant recipients) of federal student-loan debt. The court held that the states lacked standing to bring the case.

The district court opinion is here.

Justice Barrett denies request to block Biden student debt-relief plan

This afternoon, Justice Amy Coney Barrett denied, without comment, a request from a taxpayers’ association in Wisconsin to enjoin the Biden Administration's plan for student debt relief. The lower court had held that the plaintiff lacked standing. The New York Times has the story, here.

Stunning Fifth Circuit decision invalidates CFPB's payday lending rule, holding that the agency is "unconstitutionally structured"

Read the opinion. The court summarized its ruling this way:

Community Financial Services Association of America and Consumer Service Alliance of Texas challenge the validity of the Consumer Financial Protection Bureau’s 2017 Payday Lending Rule. The Plaintiffs contend ... that the Bureau is unconstitutionally structured. [We agree with the Pplaintiffs that] Congress’s decision to abdicate its appropriations power under the Constitution, i.e., to cede its power of the purse to the Bureau, violates the Constitution’s structural separation of powers. We thus reverse the judgment of the district court, render judgment in favor of the Plaintiffs, and vacate the Bureau’s 2017 Payday Lending Rule.

 

CLP blog - emails not working

Subscribers to our daily email digest of blog posts will have noticed that the emails have stopped coming. We have not been able to fix the problem but continue to work on it. Until it is fixed, please visit us here, on the website, to read our latest posts about consumer law and policy.

Mark Lemley paper proposes presumption that standard form contracts cannot vary contract law defaults

Mark A. Lemley of Stanford has written The Benefit of the Bargain. Here's the abstract:

Contract law has lost its way. Designed as a way to allow people to agree, it has over time become a means for large businesses to unilaterally impose terms and conditions on others. In large part that is a function of a fundamental change in how we contract. For most of history, for most deals, and even for most written contracts, the rules of the game were not set by the document itself but by the background customs and norms, the expectations of the parties, or the default rules of contract law.

Over time, and for a variety of reasons, contracts have become more fully specified in written documents. Those long, lawyerly documents are increasingly produced not by negotiation between lawyers, but in standard forms written by lawyers for one side that are not subject to change and must be agreed to on a take-it-or-leave-it basis. And even that “agreement” is increasingly itself a fiction, manifested not by signing a piece of paper or even clicking a button but by taking ordinary acts like visiting a website or even continuing to use a product you bought years ago.

The result is that society has lost the “benefit of the bargain” contract law once promised. Informal deals backed by understood legal rules and norms have been replaced by long legal documents written by one side and not subject to negotiation or revision. Not surprisingly, those terms reflect the interests of the parties who wrote them. And the reach of those documents has broadened dramatically, to the point where the average citizen might enter into a dozen or more contracts in a day, binding themselves to hundreds of pages of legalese, often without having any idea they are doing any such thing.

Ironically, courts are more willing than ever to defer to the words of those documents even as the documents are less and less likely to reflect any agreement between the parties. That deference is not justified by the realities of modern contract law. We have a set of default rules for contracts in the Uniform Commercial Code and the common law of contracts. Parties can and should be able to agree to change some (though not all) of those rules. But doing so should require a mutual intention to do so. And in the modern world most contracts don’t involve any actual agreement.

I propose a presumption that standard form contracts are subject to and cannot vary the default rules of contract law. The parties can vary those rules only by express agreement and only when the parties make an informed choice to do so. Except in a negotiated contract setting between sophisticated parties, that informed choice should require the party offering the form contract to offer a choice between their proposed terms and the basic default rules of contract law. Want your customers to agree to terms that vary from the norm? You’ll have to offer them other terms that they like well enough to pick your contract over the default. Requiring that choice will reduce the reflexive use of form contracts and the use of one-sided terms in those contracts. I call this proposed requirement “actual choice.”

CFP: AALS Section of Financial Institutions & Consumer Financial Services' FinReg Conference

We received the following Call for Papers:

The AALS Section of Financial Institutions & Consumer Financial Services will host the first AALS FinReg Conference on November 4, 2022, in person, at the Antonin Scalia Law School, in Arlington, Virginia. This annual workshop brings together scholars focused on financial regulation to present their scholarly works. We welcome scholars working in a variety of methodologies, as well as both completed papers and works in-progress. We solicit submissions from scholars on topics related to financial regulation, in particular, but not exclusively, we welcome papers concerning the following topics (along with related topics):
- Climate finance
- Digital assets
- Bank regulation
- Market infrastructure
- Regulatory design and policies
- International financial regulation
If you are interested in participating, please send the paper you would like to present or an abstract of the paper to Paolo Saguato and David Zaring by October 16. Please include your name, current position, and contact information in the e-mail accompanying the submission. If you have any questions concerning the conference, feel free to email Paolo Saguato (psaguato@gmu.edu). Selected presenters will be notified by October 19. Participants will pay for their own travel, lodging, and other expenses.
Paolo Saguato (Section Chair)
David Zaring (Section Chair Elect)