Court imposes $1.3 billion judgment against defendants behind AMG payday lending scheme

The Federal Trade Commission announced today that, at the FTC's request, a federal court in Nevada has found that racecar driver Scott A. Tucker and several corporate defendants in a Kansas City-based payday lending scheme violated Section 5 of the FTC Act and has ordered them to pay $1.3 billion for deceiving consumers across the country and illegally charging them undisclosed and inflated fees.

The $1.3 billion order stems from a complaint filed in 2012 by the agency, which alleged that the operators of AMG Services Inc. falsely claimed they would charge borrowers the loan amount plus a one-time finance fee. Instead, the defendants made multiple withdrawals from consumers’ bank accounts and assessed a new finance fee each time, without disclosing the true costs of the loan. The judgment represents the difference between what consumers actually paid on the loans and what they were told they would have to pay.

The FTC's press release, with details and a link to the order, is here.

Food testing and proof of injury in class-action food-related litigation

That's the topic of this article by Jeff Lingwall. Here is the abstract:

This Article examines the emerging use of “food forensics” to discover injury in class action litigation. Based on increased public interest in what goes inside food, plaintiffs have begun relying on statistical and chemical testing to verify label claims. The test results often spur producers to re-examine their products, but may also raise plausibility concerns under the veneer of science and deny consumers data they need to make informed decisions about food. Drawing on examples ranging from olive oil to multivitamins, and canned octopus to pet food, I show how product testing in litigation represents a race between the resolving power of test results and slower-moving interpretation of pleading standards. I then propose a framework for navigating testing claims based on traditional case screening tools and statistical principles.

"How to get justice after the Wells Fargo scandal"

From a Washington Post column today by Katrina vanden Heuvel:

Wells Fargo’s abuse of its customers — its employees opened some 2 million accounts and credit cards for depositors who may not have wanted them — has sparked deserved outrage. Sen. Elizabeth Warren (D.-Mass.) charged Wells Fargo chair and chief executive John Stumpf with “gutless leadership,” calling on him to resign and give back the pay he pocketed, and called on the Justice Department to launch a criminal prosecution. Rep. Maxine Waters (Calif.), the senior Democrat on the House Financial Services Committee said Wells Fargo had committed “the most egregious fraud we’ve seen since the foreclosure crisis.” Criticism, however, is easy. The question is whether there will be real consequences and real reforms coming out of the scandal.

The column goes on to suggest four steps "needed for real deterrence," including criminal prosecutions, breaking up Wells Fargo, and encouraging consumers to bank at smaller institutions.

The full column is here.

Wells Fargo Debacle Increases Visibility of Arbitration Clauses in National Politics

Hillary Clinton gave a speech today in which she hit Wells Fargo's use of arbitration clauses, among other things.  Some excerpts:

[T]he Wells Fargo scandal shed light on another threat to consumers that we have to address. When the scams victims, people like you and me who had accounts there tried to sue, they were shocked to learn there was a provision in the very fine print of their contracts that kept them from going to court to sue the bank for being cheated. Instead, they are forced into a closed-door arbitration process without the important protections that you get in a court of law.

We are not going to let corporations like Wells Fargo use these fine-print gotchas to escape accountability.

 

And in fact, this is now common practice across a lot of industries, from nursing homes — nursing homes that mistreat seniors, to for-profit colleges that defraud students. You know, who reads all that fine print? I don’t. And you get defrauded or you get mistreated and then all the sudden they, well you can’t sue us. So we’re going to rein in that abuse across everybody.

More on the speech from USA Today and Reuters. Text here.  (nice to see another prominent official admit to not reading fine print). Meanwhile, Senator Sherrod Brown, ranking member of the Senate Banking Committee, plans to introduce a bill that would enable consumers for whom Wells opened unauthorized accounts to sue in court, notwithstanding arbitration clauses. More on that from The Hill

Department of Education in Hot Water over Continued Efforts to Collect Debts Held by Corinthian Students

Last week, Senator Warren sent a letter to the Department of Education drawing attention to some “unsettling” data:  Nearly 80,000 former Corinthian students who attended the now-defunct school at a time when the Department found the school was engaged in fraud—and who are therefore eligible to apply for federal debt relief—are currently in some form of debt collection with the Department. The government is even seizing benefits, including tax refunds and the Earned Income Tax Credit, to collect from more than 30,000 of those borrowers. The Senator called on the Department to “stand up for these students as it has promised to do for more than a year and immediately halt all collections on this debt.”

Perhaps a good place to start would be with Darnell Williams, a former Corinthian student in Massachusetts who sued the Department last week after the government seized his tax refund to collect on his student loan debt. The complaint alleges that at the time of the seizure, the Department was sitting on an application by the Massachusetts Attorney General asking the Department to discharge Mr. Williams’s loans and those of his peers.

Nursing Home Pre-Dispute Arbitration Agreements to be Prohibited.

The Department of Health and Human Services final rule overhauling skilled nursing facility prohibits all arbitration agreements at the time of admission. According to the Centers for Medicare and Medicaid Services, such pre-dispute agreements are "fundamentally unfair" because "it is almost impossible for residents or their decision-makers to give fully informed and voluntary consent to arbitration before a dispute has arisen." Once a dispute arises, a facility and a resident may enter into a binding arbitration agreement so long as several requirements are met including voluntary participation by the resident/decision-maker and resident/decision-maker acknowledgment of understanding of the agreement after the facility fully explains it. For providers with existing pre-dispute arbitration agreements, those agreements will not be impacted by this final rule.

The arbitration portion of the final rule takes effect on November 28, 2016. The complete 712-page rule can be found here, https://s3.amazonaws.com/public-inspection.federalregister.gov/2016-23503.pdf

 

CNBC Nightly Business Report Segment on Arbitration

Here, about 7:30 in, starring the blog's own Brian Wolfman

LA Times: Republicans say there's another villain in the Wells Fargo scandal

by Jeff Sovern

Here.  The article reports GOP criticism of the CFPB in connection with the Wells scandal. Excerpt:

“Why does it take the L.A. Times to break this story, when we’re paying federal investigators to investigate?” [House Financial Services Committee Chair Jeb] Hensarling recently told Fox Business Network.

“Where was the CFPB? Why did they come in so late to the game?” he continued. “They have immense powers and this is their job to enforce these basic consumer laws and it appears they were asleep at the switch.”

Hensarling also has criticized regulators for the $185-million settlement with the bank, which allowed Wells Fargo to avoid admitting any wrongdoing.

 * * *

Democrats and consumer advocates said that the recent settlement Wells Fargo agreed to pay  — including a $100-million fine by the CFPB, the agency’s biggest ever — shows the value of the bureau in holding banks accountable for abusing consumers.

And for that reason, those supporters say Republicans, and Hensarling in particular, are hypocrites for trying to use the Wells Fargo scandal to reduce the bureau’s power.

“Hensarling reminds me of the kid who kills his parents and then wants to collect orphan benefits,” said Sen. Sherrod Brown (D-Ohio), one of the CFPB’s biggest backers. “He’s tried to underfund it. He’s tried to undercut. He’s done all he could to  block bank regulations.”

Never mind that the CFPB knew about the problem before the LA Times story.  Will Hensarling also attack law enforcement for the fact that we still have bank robberies and murders despite centuries of efforts to stop them?  Does he also blame the Bush administration for 9/11?

DOJ Consumer Protection Branch - September Announcements

Below are announcement from the Department of Justice's Consumer Protection Branch about its work in September:

Dual Jamaican-U.S. Citizen Pleads Guilty in Connection with Jamaica-Based Lottery Fraud Scheme (9/28/16)

Woman Sentenced for Impersonating FBI Agent in Connection with Lottery Fraud Scheme Based in Jamaica (9/27/16)

Justice Department and Law Enforcement Partners Announce Civil and Criminal Actions to Dismantle Global Network of Mass Mailing Fraud Schemes Targeting Elderly and Vulnerable Victims (9/22/16)

District Court Awards Civil Penalties and Enters Permanent Injunction Against Former Vice President of Texas Debt Collection Company to Stop Deceptive Practices (9/21/16)

Goodman Company L.P. Agrees to Pay $5.55 Million for Delay and Misrepresentation in Reporting Fire Hazard (9/8/16)

Media Reports on How Wells Fargo's Arbitration Clauses Might Block Consumers from Obtaining Compensation

Here is the Consumer Reports story.  Excerpt:

If a bank employee opens fake accounts and credit cards in your name, as recently happened at Wells Fargo, you may be charged fees for those fake accounts, which you didn't pay because you didn't know the accounts existed. And since you didn't pay those fees, your credit report and your credit score could be hurt. 

And there may not be a whole lot you can do about it.

That's the problem now facing many Wells Fargo customers. Over the course of five years, Wells Fargo employees opened as many as 2 million fake accounts in the names of Wells Fargo customers and made millions in profits for the company by charging customers overdraft fees, monthly service fees, annual fees, finance charges, interest charges, and late fees on those phony accounts. 

But customers lose their right to a trial in court over the creation of those phony accounts and the damage done to their credit if a pre-dispute mandatory arbitration clause was included in their customer agreement.  

Wells may end up being the poster child for the CFPB's arbitration rule. WaPo weighs in with an article headlined Why Wells Fargo customers won’t be able to sue the bank over fake accounts.  An excerpt:

One major group directly affected by the Wells Fargo scandal — the customers who had fraudulent accounts opened in their names — may have their hands tied.

As lawmakers pointed out at congressional hearings Thursday and last week, many Wells Fargo customers are blocked from suing the company because of arbitration clauses, little-known contracts that often ban customers from taking part in class action lawsuits. They are regularly included in the fine print for checking accounts, credit cards and other consumer products. 

In the case of Wells Fargo, the arbitration clauses that customers agreed to when they opened their real accounts are being used to keep them from suing about the fake accounts opened in their names.

In a terse exchange during Thursday’s hearing, Rep. Brad Sherman (D.-Calif.) pushed John Stumpf, the chief executive, on whether the bank would waive the clause for affected customers.

Stumpf defended the arbitration process, calling it “fair” and saying that consumers would be directed to mediators.

But Sherman asked the executive to be more direct about whether customers have the ability to challenge the company in court.

“If they want to go to court are you going to let them go to court? Yes or no?” Sherman asked.

“No, but …” Stumpf responded before being interrupted by Sherman, who said he understood that the answer was no.