Essay on the Supreme Court's Spokeo decision

In this short essay (subscription possibly required), public-interest lawyer Arthur Bryant explains why he thinks the Supreme Court's decision in Spokeo v. Robins is good news for consumers seeking to enforce their rights to statutory damages.

What Should Courts Do About Validation Notices?

by Jeff Sovern

We now have reason to believe that validation notices fail to convey to consumers the information Congress wants consumers to have. If the CFPB addresses validation notices in its regulation, courts can simply follow the Bureau's lead. But it could be years before that regulation takes effect.  What should courts do in the meantime?  As we explain in the new version of our validation article, which went up on SSRN today:

One option would be to continue the existing approach. But that would overlook the problems with validation notices and essentially write the requirement that validation notices be effective out of the law. Another option would be to adopt an approach similar to the Federal Trade Commission’s Advertising Substantiation Policy. That Policy obliges advertisers making claims about their products to have a reasonable basis for the claims before they disseminate the advertisement. Rather than guessing or requiring consumers to demonstrate after the fact that a validation notice has not succeeded, courts should require collectors to have evidence before they use a validation notice that it will achieve Congress’s goals. Otherwise, collectors will continue to receive a free pass for frustrating the legislative goals.

I would be curious to hear any comments people may have about that suggestion. 

 

FCC chair urges phone companies to offer free robocall blocking

The Hill reports that the chairman of the Federal Communications Commission on Friday told phone companies that they should start providing free technology for their customers to block robocalls and spam texts.

Last year, The Hill explains, the FCC told wireless carriers that they could provide robocall-blocking technology said without running afoul of any rules. Wheeler’s letters on Friday puts pressure on the industry to take action on the issue. The companies have 30 days to respond.

The full story is here.

Robertson Article on the First Amendment and Advertising "Off-Label" Drugs

Christopher T. Robertson of Arizona and Harvard's Petrie-Flom Center for Health Law Policy, Biotechnology, and Bioethics has written A Trojan Horse? How Expansion of the First Amendment Threatens Much More than the Regulation of Off-Label Drugs, forthcoming in the Ohio State Law Journal.  Here is the abstract:

Scholars, advocates, and courts have begun to recognize a First Amendment right for drugmakers to promote their products “off-label”, without proving safety and efficacy of new intended uses. Yet, so far, this debate has occurred in a vacuum of peculiar cases, where convoluted commercial speech doctrine underdetermines the outcome. Review of the seven arguments deployed in the off-label domain finds that they cannot be so limited. Instead, if they were valid, they would undermine the FDA’s entire premarket approval regime, reopening the door to a snake oil market where hype replaces science. Even more, if valid, this First Amendment logic would undermine a wide range of statutory regimes that have similar intent-based structures and rely on speech as evidence of intent. Ultimately, with relevance to First Amendment theory, this article reveals a broad and longstanding coherence in the law.

Revisions Coming to the FDCPA Validation Article . . .

by Jeff Sovern

We need to make some revisions to our validation article discussion draft, in Part V A.1., beginning on page 27, and captioned "Did Respondents Understand that The Letter Said They Could Dispute the Validity of the Debt?" Consequently, please don't use that part of the article until the new version is on the web. It should be next week. I apologize for any inconvenience.

"The CFPB Turns 5 Today. Here’s What It’s Done (and What It Hasn’t)"

Time has this article, reporting that the Consumer Financial Protection Bureau "has reshaped the mortgage market and issued hefty penalties. But there is much to be done."

Education Department to implement improved customer service and enhanced protections for student loan borrowers

The U.S. Department of Education yesterday outlined a series of enhanced protections and customer service standards to guide the future of federal student loan servicing practices. The policies were outlined in a memorandum to Federal Student Aid (FSA) and developed in consultation with the Department of the Treasury and the Consumer Financial Protection Bureau.

The new system includes:

• Department of Education-branded communication that is standard–eliminating differences that now exist among multiple servicers that co-brand borrower communications–and that will help borrowers stay on top of their debt and avoid confusion about who is servicing their loan.
• A streamlined borrower experience via a single web portal through which all borrowers can find the latest information about their loans, make payments and apply for benefits–eliminating the need to know the name of their servicer.
• Better customer service practices that will be common for all borrowers and that meet high standards to ensure borrowers’ needs are met consistently, regardless of what contractor is providing that customer service.
• Reduced, and, to the extent practical, eliminated loan transfers and other borrower disruptions that can make it hard for borrowers to keep current with their loan payments and seek help when they need it.
• Enhanced oversight and accountability that will ensure that borrowers are treated fairly and given clear, actionable information at every step of the repayment process, including enhanced customer service practices and a new complaint system to empower borrowers when something is not right.
• A single platform for all Federal student loans allowing for a more seamless connection for future customer service centers.

The Department is also launching an FSA Feedback System for borrowers with complaints about student loans or institutions of higher education.

The Department's press release is here, and its blog post is here. The Hill covered the announcement, here.

NCLC Report: Misaligned Incentives: Why High-Rate Installment Lenders Want Borrowerrs Who Will Default

Here.  Here's the beginning of the Executive Summary:

Lenders normally want borrowers who will pay back their loans in full. This seems obvious—otherwise, won’t the lender lose money?

Yet in the high-rate installment loan market, the normal incentive to make affordable loans does not work. When loans have high interest rates, lenders may seek out and can profit from borrowers who will default in significant numbers. The gap between lender and borrower success can encourage business models that harm numerous consumers.

This report analyzes the inherently dysfunctional and harmful dynamics of high-rate installment loans. In a responsible loan market, the lenders’ profits are closely aligned to the successful repayment of the credit. Borrowers and lenders have parallel incentives and share the same goals of successful repayment. But high-rate lending can lead to asymmetrical incentives:

As long as the borrower pays long enough before defaulting, a high-rate installment loan will be profitable. If the borrower makes even half the payments on a longer-term highrate installment loan, the lender may receive sufficient cash flow to recover the amount loaned and another 50% or more, likely more than enough to turn a profit.

* * *

While the lender may have a successful experience, default causes a cascade of devastating consequences that are likely to plague the consumer for a lifetime.

 

 

 

Can Mathematical Modeling Help Create Payday Lending Regulations?

Daria Roithmayr of USC, Justin Chin, a USC law student, and Bruce Levin, an Emory biology professor, have written Cat and Mouse: A Dynamic Analysis of Predatory Payday Lending.  Here's the abstract:

Legal actors and the regulators who pursue them often engage in a co-evolutionary game of cat and mouse, as each innovates to out-compete the other. Predatory payday lenders are a prime example of this co-evolutionary arms race. Lenders have discovered increasingly creative ways to escape state regulation, like partnering with Indian tribes to claim immunity from state jurisdiction. In turn, regulators continually adapt their regulation to retarget the latest innovation. A regulator trying to keep pace with legal actors faces a tradeoff: adapting more frequently reduces the prohibited behavior, but increases wasteful innovation for both regulator and lenders, as each innovates in response to the other. In this paper, we draw from dynamic mathematical models of drug resistance to map this process and to advise regulators on how to optimize their regulatory approach. We construct a simple mathematical model using coupled differential equations to describe the arms race of innovation between regulatory strategy and the strategy of the regulated, in the context of payday lending. We conduct numerical approximations, to analyze the evolutionary pathways of regulator and lender strategy over time, and to map the tradeoff between the benefit from reducing predatory lending and the harm from having to return again and again to the drawing board to generate new regulation. We show that, contrary to intuition, a regulator should delay responding to an innovative payday lender strategy: we calculate an optimal response time that balances the need to respond slowly in order to minimize triggering repeated innovation, and the need to respond quickly to minimize the number of predatory payday lenders. We also show that a regulator that is unable to adapt quickly should weaken the strength of its innovation, in order to minimize further innovation by predatory lenders.

American Banker: The CFPB's Impact, Five Years On

Here (behind paywall). The article consists mostly of quotes and statistics.  Some excerpts (for some reason, I couldn't get the paragraph breaks to work correctly):

* * * Republican lawmakers continue to gun for the CFPB. More than 50 bills pending in Congress have sought to defund, change or somehow restrict the agency. * * * Beyond promulgating rules, the CFPB has issued more than 120 enforcement actions against a wide range of companies, including credit card issuers, banks, payday lenders and debt collectors. Banks have paid roughly 65% of the more than $11 billion in relief that has gone to consumers.