Payday rule will protect, not harm, vulnerable consumers

That's the title of this opinion piece in the American Banker by William D. Gunter, former U.S. congressman and a former Florida state treasurer and insurance commissioner.

Can a standard clause in a settlement agreement be subject to the Consumer Review Fairness Act?

by Paul Alan Levy

After the Freehold Animal Hospital botched the neutering of a consumer’s dog, requiring the consumer to pay thousands of dollars for corrective surgery by a different hospital, the animal hospital agreed to refund the cost of its services as well as covering the expense of the corrective surgery, but only if the consumer agreed to a contract containing nondisclosure and nondisparagement clauses demanding that she keep the payment confidential, refrain from future criticism of the hospital, and remove all of her previous criticisms from social media. The clause was so broad that any action by the consumer that damaged the business (not coming back? not recommending the business to her friends?), could have been deemed a violation, subjecting the consumer to the possibility of litigation and an award of attorney fees.

The consumer was unwilling to do this, but the hospital insisted that this part of the deal was non-negotiable. Indeed, it told the consumer that such clauses are a standard part of its agreements to fix botched procedures, and confirmed that contention when contacted by Karin Price Mueller, consumer reporter for the Newark Star-Ledger. Mueller has the details in this article.   My own effort to reach the business for comment received no response.

Now, it strikes me as a sad commentary on this veterinary business that they apparently have so many problems with their professional work, leading to the need for financial settlements with its customers, that they need to have standard contract clauses for that situation. Be that as it may, my view is that there is a reasonable argument that the contract is subject to scrutiny under the Consumer Review Fairness Act, enacted by Congress late in 2016 and now fully in effect.

Senator Warren presses CFPB for details on freeze of data collection

Senator Elizabeth Warren on Friday sent a letter addressed to Mick Mulvaney, as Director of the Office of Management and Budget, and Leandra English, as Acting Director of the Consumer Financial Protection Bureau, expressing concern about Mulvaney's decision to freeze the collection of consumer data by the CFPB.

On December 4th, citing concerns by the Inspector General on the CFPB's information security controls, Mulvaney announced that he was freezing the collection of all personal information by the CFPB. He directed examiners at the CFPB to stop requesting any information from regulated entities. According to reports, enforcement lawyers may have also been banned from reviewing any new electronic evidence obtained in discovery.

Senator Warren's letter raises concerns about the impact of the data collection freeze on the agency's core functions.

The letter is here.

Nebraska introduces pro-net neutrality legislation

The Hill reports that Nebraska is the first Republican-controlled state to launch its own attempt to save net neutrality rules.

On Friday, state Sen. Adam Morfeld (D) introduced legislation in the state legislature to enshrine net neutrality regulations in law on the state level.

Morfeld’s bill would keep broadband providers like AT&T and Comcast from slowing down or blocking internet content and from cutting deals with content companies to give them faster connection speeds.

California, Washington, New York and Massachusetts are also reportedly considering adoption of net neutrality rules

Report that Mulvaney CFPB Stafffer Lobbied Against CFPB Discrimination Protections Before Joining CFPB

The report comes from Allied Progress. Excerpt:

Just before the holiday break, Consumer Financial Protection Bureau (CFPB) “Acting Director” Mick Mulvaney announced that several of his senior staff from the Office of Management and Budget (OMB) would be taking on leadership roles at the CFPB. That list included his chief of staff Emma Doyle. What he failed to mention is that immediately before working for him at OMB, Doyle worked for Ford Motor Company where she lobbied on multiple bills, which would have nullified CFPB protections against discriminatory auto lending practices.

Looks like the swamp is swallowing the CFPB.

NCLC Establishes Spanogle Institute for Consumer Advocacy

by Jeff Sovern

A fitting honor for John "Andy" Spanogle, whom I have come to know as co-author of our consumer law casebook.

More CFPB News to be Concerned About: Hensarling Aides Move to CFPB

by Jeff Sovern

The new chief of staff for the CFPB will be Kirsten Sutton Mork, a longtime aide for House Financial Services Chair Jeb Hensarling, according to Mr. Hensarling. Chief of staff is the position formerly held by Leandra English, who is locked in a battle with Mulvaney to be acting director of the Bureau.  Hensarling has been a huge critic of the Bureau, and this is the second of his aides to join the CFPB under Mulvaney. Though as someone subject to the optimism bias, I still hope that the new Bureau leadership will understand the value of consumer protection once they learn more about it at the Bureau, this does not bode well for that dream.

 

 

Study Examines Impact of Mortgage Modification Programs

Diana Farrell and Kanav Bhagat, both of JP Morgan Chase, Peter Ganong at the Harris Public Policy School of the University of Chicago, and Pascal Noel of the University of Chicago Booth School of Business have written Mortgage Modifications after the Great Recession: New Evidence and Implications for Policy. Here's the abstract:

In the aftermath of the Great Recession, various mortgage modification programs were introduced to help homeowners struggling to make their monthly mortgage payments remain in their homes. We use mortgage data at the individual borrower level, joined to credit card spending and deposit account data, to investigate the relative importance of changes in monthly mortgage payments and long-term mortgage debt on default and consumption. We first quantify the variation in payment reduction offered by these modification programs and then use the variation in payment and principal reduction experienced by program recipients to estimate the impact of payment and principal reduction on default and consumption.

First, we find that payment reduction for borrowers with similar payment burdens varied by two to three times across different modification programs. Borrowers with a high mortgage payment to- income (PTI) ratio received more than twice the payment reduction from HAMP compared to the GSE program. Borrowers with a low mortgage PTI ratio received three times the payment reduction from the GSE program compared to HAMP. Second, a 10 percent mortgage payment reduction reduced default rates by 22 percent. Third, for borrowers who remained underwater, mortgage principal reduction had no effect on default. This suggests that “strategic default” was not the primary driver of default decisions for these underwater borrowers. Fourth, for borrowers who remained underwater, mortgage principal reduction had no effect on consumption. Finally, default was correlated with income loss, regardless of debt-to-income ratio or home equity. Mortgage default closely followed a substantial drop in income. This pattern held regardless of pre-modification mortgage PTI or loan-to-value ratio, suggesting that it was an income shock rather than a high payment burden or negative home equity that triggered default.

These findings suggest that mortgage modification programs that are designed to target substantial payment reduction will be most effective at reducing mortgage default rates. Modification programs designed to reach affordability targets based on debt-to-income measures without regard to payment reduction or target a specific LTV ratio while leaving borrowers underwater may be less effective at reducing defaults. Furthermore, policies that help borrowers establish and maintain a suitable cash buffer that can be used to offset an income shock could be an effective tool to prevent mortgage default. Both high and low mortgage PTI borrowers experienced a similar income drop just prior to default, suggesting that even among those borrowers with “unaffordable” mortgages, it was a drop in income rather than a high level of payment burden that triggered default.

Bank Trade Group Fears Industry Will Capture CFPB

by Jeff Sovern

Camden R. Fine is the president and CEO of the Independent Community Bankers of America, a trade group for community bankers. The American Banker recently published his op-ed, Don’t let a credit union regulator run the CFPB, opposing the candidacy of National Credit Union Administration Chairman J. Mark McWatters to head the CFPB. Here's an excerpt:

[A]mid concerns that the CFPB lacks sufficient checks on its regulatory authority, the NCUA’s willingness to flout Congress in its rulemakings makes its chairman suspect for leading the bureau. McWatters and others at the NCUA have been strident advocates for expanding the credit union charter far beyond what Congress intended when it established the industry in the 1930s.

* * *

The CFPB should not be led by the head of an agency that has acted as a cheerleader for the industry under its oversight.

* * * 

if Washington is willing to settle for single-director governance at the CFPB, then let’s advance a director with meaningful experience in the full range of regulations for which the CFPB is responsible. And let’s choose a leader not with a track record of cheerleading for the industry he is charged with overseeing and regulating, but rather a commitment to the laws by which our agencies are established by Congress.

Mr. Fine should be commended for pointing out that regulatory capture is a problem, especially when it comes to the CFPB (Mr. Fine's position appears to be rooted in the fact that credit unions compete with community banks). Regulatory capture has been endemic among banking regulators, most notably at the OCC. Indeed, it was the fear of regulatory capture that prompted Congress to structure the CFPB the way it did. It would be great if the next CFPB director, whomever that person may be, avoids regulatory capture, not only by credit unions, but also by banks and other financial institutions. One place the president could look for a director who would be unlikely to be captured by the industry, of course, would be among consumer advocates. Yes, I know, but a person's reach should exceed his grasp, or what's a heaven for?

Article on Designing Platforms--Like Uber, Airbnb--to Prevent Discrimination

Karen Levy and Solon Barocas of Cornell have written Designing Against Discrimination in Online Markets, 32 Berkeley Technology Law Journal (2018).  Here is the abstract:

Platforms that connect users to one another have flourished online in domains as diverse as transportation, employment, dating, and housing. When users interact on these platforms, their behavior may be influenced by preexisting biases, including tendencies to discriminate along the lines of race, gender, and other protected characteristics. In aggregate, such user behavior may result in systematic inequities in the treatment of different groups. While there is uncertainty about whether platforms bear legal liability for the discriminatory conduct of their users, platforms necessarily exercise a great deal of control over how users’ encounters are structured—including who is matched with whom for various forms of exchange, what information users have about one another during their interactions, and how indicators of reliability and reputation are made salient, among many other features. Platforms cannot divest themselves of this power; even choices made without explicit regard for discrimination can affect how vulnerable users are to bias. This Article analyzes ten categories of design and policy choices through which platforms may make themselves more or less conducive to discrimination by users. In so doing, it offers a comprehensive account of the complex ways platforms’ design choices might perpetuate, exacerbate, or alleviate discrimination in the contemporary economy.