An Open Letter to John Oliver

Dear Mr Oliver:

Your show, Last Week Tonight, has had several entertaining segments on consumer law issues, including debt buyers, credit reports, and student loans. But you're missing out on a consumer law subject that can be quite entertaining (unfortunately), even without your special touch. I refer to consumer disclosures.  Some of the aspects of disclosure that lend themselves to your style:

• The iTunes contract runs 32 feet when printed out in 8 point font. See here.

• A British game company, for an April fool’s joke, put in its online terms that people agreeing to the contract gave up their soul on demand.  Nearly 90% of the customers assented to losing their souls.  The company never collected. More here. 

• Chicago experimenters had students sign a fake consent form that obliged them to administer electric shocks to people and do pushups upon demand; the contract itself said people shouldn’t sign it. Nearly all signed it. After the experimenters told the students the truth and gave them the real consent form, many signed it without reading it and the average student spent only seconds reading it. You can read about it here. 

• Only one or two consumers in a thousand spends as much as one second reading online forms. See here.

• The people who lost their homes in foreclosure all got federal disclosure forms telling them what they would have to pay. But the forms had several problems.  Millions of the forms were required by law to state the wrong numbers.  Many consumers couldn’t understand the forms anyway.  But maybe it doesn’t matter because few consumers spent much time reading them. I wrote about it here. 

• Consumers can’t understand disclosures and imagine that these "whimsy little contracts" can’t affect their rights anyway—which is absolutely wrong. For more on whimsy little contracts, go here. 

I suspect your lawyers have told you not to use unsolicited ideas for fear of being sued for copyright infringement or some such thing, so I hereby waive any right I have to sue you for use of these ideas (after all, for all I know, such a segment is already in the works for your show).  But my son would be very impressed if you mentioned my name. Better do it soon, because he's getting to the age when he would be more embarrassed if you said my name than impressed.

Yours,

Jeff Sovern

House Passes Appropriations Bill that Would Cripple the CFPB

by Jeff Sovern

Yesterday the House passed the financial services appropriations bill. Here is how the Appropriations Committee describes the bill's provisions pertaining to the CFPB:

The bill includes a provision to increase oversight over the CFPB by bringing funding for the agency under the annual congressional appropriations process, instead of direct funding from the Federal Reserve. This change will allow for increased accountability and transparency of the agency’s activities and use of tax dollars. The legislation also changes the leadership structure of the CFPB from a single Director to a five-member Commission, and requires the CFPB to study the use of pre-dispute arbitration prior to issuing regulations.

If it makes it into law, this structure would make it harder for the CFPB to respond nimbly to consumer financial problems, and risks paralyzing the Bureau, just as has happened to the Federal Election Commission. If the Bureau is subjected to the appropriations process (unlike other financial industry regulators), financial industry lobbyists would be able to lobby members of Congress to reduce appropriations if the Bureau vigorously protected consumers.  And the arbitration provision, coming after the Bureau already issued the most in-depth study ever of consumer arbitration, is obviously a pretext intended to block the proposed arbitration regulation. Each of these provisions is designed to help the financial industry at the expense of consumers while maintaining the illusion of having a neutral reason.

 

 

Paper on the Use of Unenforceable Terms in Consumer Contracts

Harvard Law S.J.D. candidate and John M. Olin Fellow Meirav Furth-Matzkin has written On the Surprising Use of Unenforceable Contract Terms: Evidence from the Residential Rental Market.  Here is the abstract:

This paper explores the prevalence of unenforceable terms in consumer contracts. Taking the residential rental market in the Greater Boston Area as a test case, the study analyzes a sample of 70 leases in terms of Massachusetts Landlord and Tenant Law. The paper’s findings reveal that landlords frequently use legally dubious — as well as clearly invalid — provisions in their contracts. Building on psychological insights and on a survey-based study of 279 tenants, the paper suggests that such clauses may significantly affect tenants’ decisions and behavior. In particular, when a problem or a dispute with the landlord arises, tenants are likely to perceive the terms in the lease contract as enforceable and forgo valid legal rights and claims. In light of this evidence, the paper discusses preliminary policy prescriptions.

My recollection, which may not be accurate, is that ethical issues can arise if a lawyer knowingly advises a client to insert an unenforceable provision in a contract.

"More Than Ever, Banks Play the Role of Government Law-Enforcement Agents"

The Wall Street Journal reports that

More than at any time in their history, banks are being asked to work hand-in-hand with the U.S. government, serving as deputized watchmen for suspicious activity. That has been happening to some extent since legislation passed after the Sept. 11, 2001, terrorist attacks, but banks’ responsibilities have steadily increased. For more than a decade, financial institutions have been required to file “suspicious activity reports” and have been fined billions of dollars for allegedly failing to do so adequately. 

The full article is here.

Federal government is exempt from TCPA ban on robocalls

The Hill reports:

The entire federal government is exempt from consumer protection laws that limit unwanted robocalls, the Federal Communications Commission decided in a ruling issued Tuesday night. 

While the Telephone Consumer Protection Act bars businesses from making numerous autodialed or prerecorded calls to a person’s cellphone—and similar telemarketing calls to a person’s home phone—the FCC ruled that the 1991 law doesn’t apply to the federal government.

The full story is here. The FCC ruling is here.

CFPB Director Cordray's CNBC Interview: Mortgage Lending, Auto Lending, Credit Card Lending Up

Here.  He also said that the final arbitration and payday lending rules will come out in the next year or so.

NY Times reports on “onerous terms” used by state student loan program

by Julie Murray

On Saturday the New York Times had this article about New Jersey’s student loan program, which has an outstanding loan portfolio of about $2 billion. Here’s an excerpt:

The loans . . . carry higher interest rates than similar federal programs. Most significant, New Jersey’s loans come with a cudgel that even the most predatory for-profit players cannot wield: the power of the state. New Jersey can garnish wages, rescind state income tax refunds, revoke professional licenses, even take away lottery winnings — all without having to get court approval.

“It’s state-sanctioned loan-sharking,” Daniel Frischberg, a bankruptcy lawyer, said. “The New Jersey program is set up so that you fail.”

The article profiled a student borrower whose request for debt deferral was denied by the New Jersey program after the student was diagnosed with cancer and lost his job. Of taking out loans through the state, he said:

 “I felt so comfortable because it was the State of New Jersey,” Mr. Gonzalez said. “It’s the state, my government, trying to help me out and achieve my American dream. It turns out they were the worst ones.”

Dayan's Chain of Title

by Jeff Sovern

I'm listening to the audio version of David Dayan's book Chain of Title: How Three Ordinary Americans Uncovered Wall Street's Great Foreclosure Fraud. A lot of it will be familiar to those who followed media reports of the foreclosure crisis and robo-signing, but having it all pulled together gives it considerable impact, and those who didn't follow the reports and believe in the rule of law will find it particularly alarming. I will probably have more to say about it when I am further along in it.  But for the moment, I thought this was an interesting and disturbing quote:

Servicers turned HAMP into a predatory lending program, squeezing borrowers for every payment they could get and then foreclosing anyway. After keeping people in trial modifications for a year, servicers would suddenly reject permanent relief and demand the difference between the trial and original payment, under threat of eviction. Bank of American employees later testified they were given Target and Best Buy gift cards as bonuses for lying to homeowners, denying HAMP modifications, and pushing people into foreclosure.

Incidentally, so far in my listening, the work of three consumer law professors has been mentioned: Katie Porter, Chris Peterson, and Alan White. It's nice to see members of the consumer law professor community acknowledged.

 

 

Waldman Article: Manipulating Trust on Facebook

Ari Ezra Waldman of New York Law has written Manipulating Trust on Facebook, 29 Loyola Consumer Law Review.  Here is the abstract:

Facebook is built on gathering massive amounts of information from its users. To maximize the data it collects, Facebook relies on the trust we have in our friends to encourage us to share even more, and it designs its platform to reflect and leverage trust. But this strategy also manipulate us into sharing personal information with websites, advertisers, and third party partners we’ve never met or heard of. When it does this, Facebook crosses a line from social space to manipulative force.

Consumer Reports/Revealnews.org Report on Student Loan Debt

by Jeff Sovern

The current issue of Consumer Reports cover reads "I kind of ruined my life by going to college."  Consumer Reports teamed with RevealNews.org to cover student loans.  You can read the RevealNews.org coverage here. Here's the upsetting beginning:

A generation ago, Congress privatized a student loan program intended to give more Americans access to higher education.

In its place, lawmakers created another profit center for Wall Street and a system of college finance that has fed the nation’s cycle of inequality. Step by step, Congress has enacted one law after another to make student debt the worst kind of debt for Americans – and the best kind for banks and debt collectors.

Today, just about everyone involved in the student loan industry makes money off students – the banks, private investors, even the federal government.

College is today's ticket to the middle class--which means that for many, entrance to the middle class comes only by assuming "the worst kind of debt."  I wonder: the community of consumer law professors is so small: are there any law professors who specialize in studying student loans?  There certainly should be; the area is ripe for study.