What about the merits of PHH Corp. v. CFPB?

There's been a lot of interest in the constitutional ruling in PHH Corporation v. CFPB (D.C. Cir.) -- that it's not constitutionally okay for an independent agency to be directed by just one person who may only be removed for cause.

But I haven't seen much about the merits of the parties' dispute under the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA). The CFPB lost thoroughly before the D.C. Circuit on the RESPA issues as well. (It was a tough day in court for the CPPB.) But if you're interested in the topic of RESPA enforcement, take a look at Kenneth Harney's Washington Post article, which raises concerns about whether the decision in PHH will hamper the CFPB's enforcement efforts.

The D.C. Circuit in PHH rejected the CFPB's key interpretation of RESPA, which was the basis for a $109 million disgorgement order against PHH for allegedly unlawful referral fees (or, put pejoratively, kickbacks). The court held as well that because the CFPB's RESPA interpretation ran headlong into a contrary longstanding interpretation of the Department of Housing and Urban Development, the switcheroo violated PHH's due process rights. (Because the D.C. Circuit rejected the CFPB's interpretation of RESPA in the first place, I don't see why the D.C. Circuit needed to reach the due process issue. But maybe I'm missing something.)

The RESPA  issues are complicated, and I'm not going to go into them here, but read the D.C. Circuit's opinion if you are interested. (The discussion of the RESPA issues doesn't start in earnest until page 70 of the D.C. Circuit's opinion, and so you can begin there!).

Study Finds Consumers Think Fast Foods Have More Calories Than They Do; Calorie Disclosures May Make Such Foods Appear Healthier

Simon Hedlin has written Calorie Overestimation Bias and Fast Food Products: The Effects of Calorie Labels on Perceived Healthiness and Intent to Purchase.  Here's the abstract:

In 2014, the United States Food and Drug Administration announced that chain restaurants with 20 or more locations would be required to put calorie labels on the menu. The merits of the policy depend in large part on three empirical issues: 1) if calorie labels help correct calorie under- or overestimation biases; 2) if the labels lead to changes in consumer behavior, which may improve physical health; and 3) if they have an impact on psychological health. This paper presents data from an online experiment (N = 1,323) in which participants were randomly presented with pictures of food and drink items from major fast-food companies either with or without calorie labels.

The following findings are reported. First, there was calorie overestimation bias among participants, and the respondents thought, on average, that products contained more calories than was actually the case. Second, calorie labels both made participants perceive the products as healthier, and made them more likely to intend to purchase said items. Third, calorie labels did not have any discernible effects either on the expected utility from consuming the products, or on the participants’ experienced well-being.

Thus, while calorie labels did not appear to have any negative effects on psychological health, they did seem to correct a calorie overestimation bias, which may inadvertently improve the perceived healthiness of foods and beverages high in calories, and could also potentially lead consumers to buy more, rather than fewer, such products.

 

Proposal to tighten cybersecurity requirements for banks

The Washington Post reports today:

Banking regulators outlined a new set of rules Wednesday aimed at tightening cybersecurity requirements to protect financial markets and customers from online attacks.

A proposal from the Federal Reserve Board, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation suggests minimum standards and requirements for how the nation’s largest financial institutions are supposed to prepare for, track and respond to potentially catastrophic hacks.

The proposals do not spell out what fines or other consequences would be meted out should banks not meet the “binding requirements.” The notice of proposal rulemaking serves as a starting point for the industry and others to begin offering feedback; the deadline for comments is Jan. 17.

The full article is here.

Prepaid cards play bigger role for ‘unbanked’ households

The Wall Street Journal reports today:

More households that don’t have bank accounts are using prepaid cards for basic financial services, such as making purchases, receiving deposits and saving for the future, a government survey found.

Among U.S. households that have no access to the regular banking system, 27% reported using prepaid cards in the 12 months prior to June 2015, when the survey was taken, up from 22% in 2013. The Federal Deposit Insurance Corp. survey, released Thursday, found that 9.8% of all households reported using prepaid cards, up from 7.9% in 2013.

The sharp increase in prepaid-card usage was among the findings of the FDIC’s latest financial inclusion survey, which looks broadly at the behaviors and attitudes of households that have limited or no access to the mainstream banking system. The survey, done in partnership with the U.S. Census Bureau, collected responses from more than 36,000 households.

The full article is here. (Subscription required.)

Nothing in Debates on Consumer Law--or Banking: Sad!

by Jeff Sovern

Some reactions from Politico's Morning Money:

TOP EMAIL from Richard Hunt, President & CEO of the Consumer Bankers Association: “Four debates and no Wall Street or bank bashing. Didn't see that coming.”

* * *

Cowen’s Jaret Seiberg: “Sec. Hillary Clinton and Donald Trump have now faced off in three presidential debates without a material discussion of banks or housing. This tells us that Congress will likely shape banking policy with either Sen. Elizabeth Warren or Rep. Jeb Hensarling taking lead depending on the winner.

“For housing, we see both candidates as a positive though Trump may be better for Fannie and Freddie. … To us, the most important takeaway from the three debates is that neither Clinton nor Trump have emphasized any policies for banks or for housing. It is just not at the top of their agendas. That means there is not an election mandate to address either issue.”

Personally, I'm skeptical about the mandate idea.  The new president will pursue his or her agenda, and the members of Congress will pursue theirs. I doubt many participants will change their behavior based on a perceived mandate--which is not to say that they won't claim a mandate to accomplish their goals.  But the candidates have voiced policies in the area, though not in the debates.  For example, Clinton has applauded the CFPB and its proposed arbitration rule, while Trump has criticized Dodd-Frank, though without being very specific about which parts of Dodd-Frank he would repeal.

CFPB projects that 1-in-3 rehabilitated student loan borrowers will re-default within 2 years

Earlier this week, the Consumer Financial Protection Bureau Student Loan Ombudsman released a report projecting that "over the next two years, one-in-three rehabilitated student loan borrowers could be driven back into default due to gaps between student loan programs. The report examines debt collection and servicing problems plaguing the federal programs designed to help millions of defaulted student loan borrowers get on track and into affordable repayment plans. The Bureau estimates that the breakdowns along the path out of default will cost borrowers hundreds of millions of dollars, including over $125 million in unnecessary interest charges over the next two years. The Bureau is calling for an overhaul of these programs in order to help improve the recovery process for distressed consumers." The press release, with a link to the Ombudsman's report, is here.

New proposals to protect airline customers

The Associated Press reports:

Saying they want to boost competition in the airline industry, Obama administration officials issued new regulations Tuesday aimed at providing passengers with more information to compare the performance of air carriers and the cost of flights.

The Department of Transportation also said it was proposing that airlines be required to refund fees when checked bags are "substantially delayed." The government already requires airlines to refund fees for bags that are lost, but the proposal would go a step further by including delayed bags.

The AP story is here.

A Department of Transportation press release has the details.

T-Mobile to Pay FCC $48 million over misleading data plans

The Federal Communications Commission announced that T-Mobile will pay a fine and provide benefits to consumers totaling at least $48 million as part of a settlement resolving an investigation into whether the company adequately disclosed speed and data restrictions for its “unlimited” data plan subscribers. The FCC’s investigation found that company policy allows it to slow down data speeds when T-Mobile or MetroPCS customers on so-called “unlimited” plans exceed a monthly data threshold. Company advertisements and other disclosures may have led unlimited data plan customers to expect that they were buying better and faster service than what they received.

The FCC's press release and a copy of the consent order are available here.

To Users of Our Casebook Who Assign the CAN-SPAM Materials: Facebook Case Reversed in Part

by Jeff Sovern

The Ninth Circuit reversed the portion of the Facebook, Inc. v. Power Ventures, Inc., case at page 510 of our consumer law casebook, dealing with the CAN-SPAM Act, on the issue of whether the spam was materially misleading.  Other portions of the decision, not reprinted in the casebook, were affirmed in part.   The decision is reported at 828 F.3d 1068. (HT: James P. Nehf)

CFPB dings D.C. Circuit's decision in PHH Corporation v. CFPB

In a case in federal district court in North Dakota, the Consumer Financial Protection Bureau has filed this brief about the D.C. Circuit's decision in PHH Corporation v. CFPB and said this:

In considering a separation-of-powers challenge to the Bureau’s structure, the PHH panel announced a new constitutional rule that agencies must be structured as multimember commissions if their heads are removable only “for cause” rather than at the will of the president. This principle has no basis in the text of the Constitution or in Supreme Court case law. Instead, the panel based its decision on (a) the lack of sufficient historical precedent for the Bureau’s structure, and (b) a policy judgment that multimember commissions are superior to single agency heads. The panel did not—and could not—conclude that the Bureau’s structure either aggrandizes the legislative branch or diminishes the president’s ability to direct the operations of the executive branch, beyond what the Supreme Court approved in Humphrey’s Executor v. United States, 295 U.S. 602 (1935) (approving “for cause” removal protections for FTC heads). Slip op. at 55–59. The panel decision was wrongly decided and is not likely to withstand further review. (emphasis added)

For more on the PHH decision, go here, here, here, and here.