Here's what the CFPB says about its brand-new arbitration rule

 

We’ve issued a new rule on arbitration to help groups of people take companies to court

July 10, 2017

 

If you have opened a bank or credit card account, it’s likely that your contract included an arbitration clause. Arbitration clauses can limit your options if you have a legal issue with a financial service provider.

Specifically, arbitration clauses can block people from bringing or joining group lawsuits, also known as “class action lawsuits.” No matter how many people are harmed by the same conduct, most arbitration clauses require people to bring claims individually against the company, outside the court system, before a private individual (an arbitrator). Companies know that people almost never spend the time or money to pursue relief when the amounts at stake are small, so few people do this. 

Our new rule will restore the ability of groups of people to file or join group lawsuits. In some cases, not only will companies have to provide relief, they will also have to change their behavior moving forward.

People who would otherwise have to go it alone or give up, will be able to join with others to pursue justice and some remedy for their harm. 

CFPB Issues Arbitration Rule

Here.

Guess How Many Public Complaints to the CFPB Complaint Database About Wells Fargo Unauthorized Accounts in 2015

by Jeff Sovern

As we have reported a number of times, Wells Fargo opened millions of unauthorized accounts over a period of years.  Estimates of how many range from two million to 3.5 million.  So you might expect many complaints about that to the CFPB complaint database.  On the other hand, considerable empirical research shows that consumers rarely complain about problems, see, e.g., Arthur Best & Alan R. Andreasen, Consumer Response to Unsatisfactory Purchases: A Survey of Perceiving Defects, Voicing Complaints, and Obtaining Redress, 11 LAv & Soc'Y REV. 701, (1977), and so there might be far fewer than millions of such complaints.  In addition, the Bureau doesn't post complaints unless consumers have agreed that it can do so, and so it might have received complaints that are not in the public record.  So what's your prediction about how many complaints?

I asked my research assistant, Amanda M. Schafer to read through the CPFB Complaint Database public complaints about Wells Fargo for one recent year, 2015, to see how many were about the unauthorized accounts.  We can't be certain that all the complaints she came up with involved Wells employees opening accounts, because often you can't tell from the narrative whether the account was opened by a Wells Fargo employee, an external identity thief, or an employee of a retailer which offered an affiliated Wells credit card.  But if we assume all of the possible complaints were about accounts opened by Wells employees, she found 19.  We still don't know how many consumers decided to keep their complaints private, but even if we assume that ten or twenty times as many did, that still doesn't seem like many complaints for a scam that snared millions.

What can we tell from this?  It tends to confirm that consumers rarely do anything when they are cheated (which tells us something about why class actions reach more consumers than individual arbitration).  It also suggests that consumers may not read bank statements.  Maybe those who complained communicated only with Wells and not the Bureau.  Any other thoughts? If so, please post them in the comments.

UPDATE: Amanda has calculated that only 26% of the Wells complaints filed in 2015 are public.  If we assume that the number of public complaints on an issue bears the same proportion to the total complaints on that issue as the number of public complaints does to total complaints, that would mean the Bureau received about 76 possible complaints about Wells employees opening unauthorized accounts.  Again, even if we assume that number understates the number of complaints by a factor of ten or twenty, it still seems very low for a scam the resulted in at least two million unauthorized accounts.

 

Critic of CFPB Structure Neomi Rao Nominee to Head OIRA

by Jeff Sovern

OIRA is the Office of Information and Regulatory Affairs (formerly headed by Cass Sunstein). It presides over the issuance of regulations by executive agencies, but not independent agencies (at least, not yet) like the CFPB.  President Trump has nominated for its director George Mason Professor Neomi Rao, a former clerk for Justice Thomas and counsel to the Senate Judiciary Committee under Senator Orrin G. Hatch; she also served in the Bush II administration. The Times has more here.   As for her views on the CFPB, Professor Rao has an article, Administrative Collusion: How Delegation Diminishes the Collective Congress, 90 N.Y.U.L. Rev. 1463 (2015), in which she states that "Reporting about the CFPB reflects the common understanding that the CFPB responds primarily to Senator Elizabeth Warren, who developed and helped to establish the Bureau," and "[A]gency officials and congressional staffers understand that Senator Elizabeth Warren and her staff exercise substantial influence and control over the CFPB, the agency she helped design." I've omitted the cites, but you can click on the linked article to find them if you want. Here's the article's abstract:

This Article identifies a previously unexplored problem with the delegation of legislative power by focusing not on the discretion given to executive agencies, but instead on how delegations allow individual congressmen to control administration. Delegations create administrative discretion, discretion that members of Congress can influence through a variety of formal and informal mechanisms. Members have persistent incentives for delegation to agencies, because it is often easier to serve their interests through shaping administration than by passing legislation. To understand the particular problem of delegation, I introduce the concept of the “collective Congress.” Collective decisionmaking is a fundamental characteristic of the legislative power. The collective Congress serves an important separation of powers principle by aligning the ambitions of legislators with the power of Congress as an institution. Although members represent distinct interests, the Constitution allows members of Congress to exercise power only collectively and specifically precludes them from exercising any type of individual or executive power. Delegation, however, provides opportunities for individual legislators to influence administration and poses a serious separation of powers concern by fracturing the collective Congress. This insight undermines the conventional view that delegations will be self-correcting because Congress will jealously guard its lawmaking power from the executive. Instead, members of Congress will often prefer to collude and to share administrative power with the executive. As a result, delegation destroys the Madisonian checks and balances against excessive delegation. This structural failure suggests a need to reconsider judicial enforcement of the nondelegation doctrine and to implement political reforms to realign Congress with its collective power.

 

Dadush Article on Identity Harm

Sarah Dadush of Rutgers has written Identity Harm, 89 University of Colorado Law Review (Forthcoming).  Here is the abstract:

In September 2015, the world learned that Volkswagen had rigged millions of its “clean diesel” vehicles with illegal software designed to cheat emissions tests. Contrary to what had been advertised, the vehicles are anything but clean. The fraud, referred to as “Dieselgate,” lasted for over seven years. When affected owners learned that their cars were much more toxic than advertised, what were they upset about? Was it that their cars were now worth fewer dollars? Or that they had been deceived into being bad global citizens, when they thought they were being good?

Coverage of Dieselgate strongly suggests that affected car-owners experienced both kinds of disappointment, economic and non-economic, and in heavy doses at that. But while the first kind of harm is relatively easy to recognize and address, this article shows that our protective regime is ill equipped to shield consumers from the second, a kind of “identity harm.” Identity harm refers to the distress experienced by consumers who learn that the companies they bought from did not honor their environmental or social promises. It arises when consumers realize that they have become unwittingly implicated in commercial arrangements that harm the planet and/or other human beings.

Today, an ever-growing number of consumers and corporations are becoming sensitized to sustainability challenges. They are also becoming more expressive about their commitment to addressing those challenges. As the “market for virtue” expands, so too does exposure to identity harm. This article introduces identity harm and argues for its deeper legal recognition.

Engstrom Article on Class Action History and the Litigation System

David Freeman Engstrom of Stanford has written Jacobins at Justice: The (Failed) Class Action Revolution of 1978 and the Puzzle of American Procedural Political Economy, 165 University of Pennsylvania Law Review (2017).  Here is the abstract:

In 1978, top DOJ officials in the Carter Administration floated a revolutionary proposal that would have remade the consumer class action and, with it, the relationship of litigation and administration within the American regulatory state. At the proposal’s core was a “public action” for widespread small-damages claims that would have replaced Rule 23 with a hybrid public-private enforcement model. Similar to the False Claims Act, this new mechanism would have granted private plaintiffs the power to bring lawsuits and recover a finder’s fee if successful, but it also gave DOJ substantial screening authority and control, including the ability to take over suits or dismiss them outright. Despite months of shuttle diplomacy among interest groups, a pair of bills in Congress, and full-scale committee hearings, this creative blend of private initiative and public oversight soon fizzled. Yet the story of the proposal’s rise and fall nonetheless provides a venue for wider reflection about American civil procedure and the political economy that produces it. Indeed, the failed revolution of 1978 reveals a contingent moment when the American litigation system was splintering into the pluralistic, chaotic one we now take for granted, including hard-charging state attorneys general, a federal administrative state with litigation authority independent of DOJ, and a sophisticated and politically potent plaintiffs’ bar. In retrospect, the proposal may have been the last best chance to counter the centrifugal tendencies of an American state that was progressively empowering ever more institutional actors within the litigation system. More importantly, lurking in the background of the story of 1978 is the bracing possibility that the Rules Enabling Act, for all its virtues in revising technocratic procedural rules, has systematically enervated efforts to address larger procedural design questions in an increasingly dense and interconnected regulatory world.

Ira Rheingold Op-Ed on Wells Fargo and a Different Arbitration Dispute

by Jeff Sovern

Different, that is, from arbitrations over the unauthorized accounts, about which we have reported (Wells has agreed to set aside its arbitration clause in the unauthorized account dispute and settle the claims in a class action; court approval is pending but seems likely). Ira's piece, titled Courts, Regulators Must Stop Wells Fargo’s Rigged Arbitration System appears in the Morning Consult. Excerpt:

The 11th Circuit Court of Appeals is scheduled to hear arguments in August over Wells Fargo’s abusive overdraft fee practices. Not content to rake in the profits at up to $35 per fee, banks like Wells Fargo began a deeply cynical and abusive practice: By re-ordering a customers’ transactions, banks could ensure the largest-dollar items were charged to your account first, resulting in additional fees when lower-dollar transactions, which had been completed earlier, hit your empty bank account. Instead of being charged one overdraft fee, you would be hit with several * * *

* * *

Wells Fargo, on the other hand, refuses to reimburse its customers. Instead, the bank has spent years trying to force its customers into a complicated arbitration process, which would in reality provide little chance of recovering the money that was stolen through these overdraft fees.

 

 

 

Who Is Jeffrey Joseph, CFPB Critic?

by Jeff Sovern

Last month, Jeffrey Joseph posted Tyrannical CFPB tarnishes July 4th holiday in The Hill. Well, ok; others have so claimed, including House Financial Services Chair Jeb Hensarling. Joseph is described at the end of the op-ed only as "a business professor at the George Washington University School of Business."  I was curious to see what Professor Joseph's background was, so I went to the GW web site. But I couldn't find his bio there.  It seems that GW posts only the bios of full-time professors, and not adjuncts.  Adjuncts provide valuable instruction, but often an adjunct professor has another affiliation which is full-time and considered of greater significance than a part-time teaching gig, and so more worthy of listing in an op-ed.  Perhaps Professor Joseph doesn't (he could be retired or independently wealthy, for example). In most cases, this wouldn't matter, because if Professor Joseph's arguments are well-taken, his background is irrelevant; it's the argument that counts, after all.  But the text of Professor Joseph's op-ed has been challenged.  For example, after Professor Joseph described the Center for Responsible Lending as having "expressed concern about the {CFPB's] dictatorial leadership structure," CRL head Michael Calhoun posted his own op-ed in The Hill, CFPB protects Americans from predatory loan sharks, accusing Joseph as having taken Calhoun's words out of context and mischaracterizing them.  Calhoun also pointed out that Joseph discussed the PHH panel decision without noting that it has been vacated by the D.C. Circuit. Along the way, Calhoun effectively defends the CFPB from the current attacks on it.

As Joseph's title implies, much of his piece is taken up by the CFPB's structure, but he also uses the CFPB's payday regulation as his only example, of, as he puts it "the CFPB’s judicious rulemaking which has carried billions of dollars in costs. Take payday loans: The CFPB now requires payday lenders—the issuers of short-term loans to low-income borrowers—to verify a borrower’s income, major financial obligations, and borrowing history before issuing any loan." Except that, unless I have missed something, the CFPB has not actually issued a payday rule.  True, it has proposed one, but until the Bureau issues its rule, we won't know what its effect will be.

I still wonder what Joseph's background is. 

Recent FTC consumer protection efforts

Yesterday, the Federal Trade Commission announced two actions potentially of interest to readers:

The FTC announced that it halted an operation that unlawfully shared and sold consumers' sensitive data. The operators of a lead generation business agreed to settle charges brought by the FTC that the company misled consumers into filling out loan applications and sold those applications – including consumers’ sensitive data – to virtually anyone willing to pay for the leads. The press release is here.

The FTC also announced that it was starting to mail 173,000 refund checks totaling more than $49 million to students in compensation for DeVry University’s allegedly misleading ads, which the FTC alleged deceived students about their likelihood of finding jobs in their field of study and the income level they could achieve upon graduation. The FTC's press release is here.

USA Today: Millions of student loans could be headed for a shakeup in coming months

Here. Excerpt:

Some changes by the Trump administration are already unfolding. The Education Department plans to consolidate the number of federal loan servicing companies from nine to one. Administration officials also have discussed moving the federal loan program from the Education Department to the Treasury Department. Meanwhile, the Trump administration announced plans to roll back two federal regulations aimed at helping borrowers who say they were misled by for-profit colleges. 

With other legislative agendas, such as health care, keeping the White House busy for the moment, many of the proposed changes in students loans likely will not be enacted until next year, if ever. But the industry anticipates the role of the private sector — which now accounts for only about 10% of the student loan volume — will increase as Trump asserts his agenda, said Stephen Dash, CEO of Credible.com, a loan-rate shopping site.

The article reports various pending proposals for student loans.