Vijay Raghavan article on Consumer Law's Equity Gap

Vijay Raghavan of Brooklyn has written Consumer Law's Equity Gap, Utah Law Review (forthcoming 2022). Here is the abstract:

This article is about the views that shape and constrain the development of consumer law. Consider the market for short-term, high-cost loans. Policymakers tend to justify intervening in these markets on inefficiency grounds (consumers exhibit present bias) and rarely on equitable grounds (these loans cost too much). Why? One recent explanation suggests that policymakers may focus on inefficiency because they believe access to credit is essential for social and economic development. In this article, I offer an alternative explanation. The lack of equity in consumer law is not a function of narrow conceptions internal to consumer law but the external view that the law should prioritize efficiency and ignore equity. The dominant rationale for this view is that redistribution through legal rules distorts economic behavior more than redistribution through an income tax. Here, I discuss the longstanding and recent critiques of this rationale and build on these critiques to show why it is a fundamental mistake to ignore distribution in consumer law. In particular, background legal rules shape consumer demand in particular markets. These background conditions may mean that seemingly irrational exchanges are, in fact, rational. An approach tethered to consumer preferences may struggle to justify altering the terms of rational exchanges. In order to overcome this problem, I suggest that we center distribution in the way we justify interventions and conceptualize solutions to problems in consumer financial markets. I detail what centering distribution in consumer law might look like and conclude by considering some objections to redistributive policies in consumer law.

Teaching Consumer Law Conference

SAVE THE DATE!

Teaching Consumer Law Conference

With a Full Day Devoted to Clinical Education

May 19, 20 & 21, 2022

Santa Fe, New Mexico

Presented by the Center for Consumer Law, University of Houston,

and the Center for Consumer Law & Economic Justice, UC Berkeley

It may seem like forever since there has been an in-person conference... but the Center for Consumer Law at the University of Houston Law Center and the Center for Consumer Law & Economic Justice at the UC Berkeley School of Law are proud to present the twelfth biennial international Teaching Consumer Law Conference. We are doubly proud to announce that the Teaching Conference has combined forces with the Law School Consumer Clinics Conference – so the program will begin with a full day devoted exclusively to consumer clinical education.

The Conference will be held at the Hilton Hotel in Santa Fe, New Mexico, the “City Different,” one of the oldest and most fascinating cities in the United States. The Conference will focus on all aspects of teaching consumer law, as well as on traditional substantive issues of consumer protection and economic justice. There will be presentations and discussions on US and international pedagogical techniques – from integrating technology and virtual teaching into the classroom, to bringing the classroom to local businesses, to providing additional information to students in advance of class discussion and collaborating with students to build curriculum. We also will discuss developing consumer law programs at law schools around the world – and a plan to create a network of consumer law students around your home country. And, of course, there will be presentations on current and cutting-edge substantive issues in consumer law – everything from how the pandemic has affected consumer law, to arbitration and class actions, false advertising, credit reporting, debt collection, small-dollar lending, student loans and financial technology. Although most of the focus of the conference will be on private enforcement, public enforcement entities like the CFPB and the FTC will also be on the table.

The conference is directed toward those currently teaching or interested in teaching consumer law or a consumer clinic, full-time or as an adjunct. Proposals are welcome from all jurisdictions, but presentations must be in English. Information regarding the process for designing and submitting proposals will be distributed this fall.

For more information contact Professor Emeritus Richard Alderman, alderman@uh.edu.

We look forward to seeing you in Santa Fe, May 2022!

 

Second Circuit holds that private student loans may be discharged in bankruptcy

As you may know, most student loans are notoriously difficult to discharge in bankruptcy.

But not all loans, according to In re Hilal K. Homaidan (CA2 July 15, 2021). In that decision, the Second Circuit has joined the Fifth and Tenth Circuits and held that private student loans are dischargeable in bankruptcy. The exceptions to discharge for certain student educational benefits contained in 11 U.S.C. § 523(a)(8)(A)(ii), the Court held, do not include private educational loans. Thus, private students loans are dischargeable, period, so the debtor need not show "undue hardship"--the generally applicable and very-hard-to-prove standard. A private student loan is one that is not "made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution." See 11 U.S.C. § 523(a)(8)(A)(i).

Our readers may enjoy the Second Circuit's detailed statutory analysis.

Am. Banker: What to expect from Chopra's CFPB

Here (behind paywall but available on Lexis), by Kate Berry. The headline has the summary: "Harsher rules, more enforcement." Excerpt:

"The CFPB has been extraordinarily active under acting Director Dave Uejio, who is not acting like a typical acting director," said Jeff Naimon, a partner at the Buckley law firm. "He knows how things work and how the administration wants him to work. He's very effective."

* * *

"The CFPB is going to have a singular focus on racial equity looking at issues from redlining to appraiser discrimination," said Richard Horn, co-managing partner at the law firm Garris Horn and a former CFPB senior counsel and special advisor. "There's going to be a lot more fair-lending enforcement and more enforcement against executive owners of companies. That's the new mindset."

Meanwhile, GOP senators who voted against Chopra's confirmation on the Senate Banking Committee are reportedly complaining that he has not answered questions they posed in a letter sent well after the confirmation hearing. Law360 has the story (possible paywall).

The CFPB is turning 10; celebrate and hear Elizabeth Warren

Americans for Financial Reform, the Public Interest Research Group, the Center for Responsible Lending, the National Consumer Law Center, the Consumer Federation of America, National Association of Consumer Advocates, New Jersey Citizen Action, the Woodstock Institute and the Leadership Conference on Civil & Human Rights is commemorating the 10th anniversary of the creation of the Consumer Financial Protection Bureau (CFPB). Everyone is invited. Elizabeth Warren is speaking.

Go here to RSVP. 

 

  

Colorado becomes third state to enact major consumer privacy law; will Congress react?

by Jeff Sovern

Bloomberg Law has the story here (possibly behind pay wall). The first was California, and the second was Virginia. Others are likely to follow. The more states that enact privacy laws, the more businesses are likely to complain that they are encountering compliance difficulties and expense complying with the different laws. They will probably push Congress harder to enact a national privacy law that would preempt state privacy laws. Thus far, the negotiations in Congress over enacting a privacy law have foundered over disagreement on two main issues: whether such a law should provide for a private claim and whether it should preempt state laws. My own view, for what it's worth, is that this is an instance where we should let Justice Brandeis's view of the states as laboratories operate for at least a while longer. As technology advances, the law's response should also keep pace, and if Congress acts enacts a law now, it will freeze the law's response as of now, so that the law will lose the ability to adapt to the new technology. And if you think Congress will pass a new law as technology evolves, just think about the fact that the Fair Debt Collection Practices Act still regulates the use of telegrams in debt collection.

CFPB reports that companies' spotty responses undermine COVID-19 consumer relief

Last week, the Consumer Financial Protection Bureau issued a report on "several areas of concern related to relief provided in response to the COVID-19 pandemic, including the Centers for Disease Control and Prevention (CDC) eviction moratorium. Some consumers reported facing homelessness because of the negative impact of an eviction on their credit history reported by debt collectors. Consumers were also deprived of the full benefit of the economic impact payments as a result of overdraft practices at some financial institutions, and not all student loan borrowers were able to get the timely information and assistance they needed from their student loan servicer to get the full benefit of the variety of federal loan forgiveness, cancellation, and discharge programs offered through the CARES Act."

The report, which the CFPB calls a "complaint bulletin," is here.

Executive order on antitrust scheduled for today

Politico reports that President Biden is scheduled to to issue an executive order today "to promote competition throughout the U.S. economy in the most ambitious effort in generations to reduce the stranglehold of monopolies and concentrated markets in major industries." The order is part of an effort "to focus on competition as part of the economic recovery from the pandemic" and responds to "criticisms that the federal government has focused too much on supporting banks and other corporations without concern about the effect on consumers, who have watched their choices dwindle over the years."

The article is here.

Revised version of Six Scandals article available

by Jeff Sovern

I have revised my article, Six Scandals: Why We Need Consumer Protection Laws Instead of Just Markets, to take into account the many helpful comments I received at the Berkeley Consumer Law Scholars Conference.  Here is the updated abstract:

Markets are powerful mechanisms for serving consumers. Some critics of regulation have suggested that markets also provide consumer protection: for example, Nobel Prize-winning economist Milton Friedman said “Consumers don’t have to be hemmed in by rules and regulations. They’re protected by the market itself.” This article’s first goal is to test the claim that the market provides consumer protection by examining several recent incidents in which companies mistreated consumers and then exploring whether consumers stopped patronizing the companies, which would deter misconduct. The issue also has normative implications because if markets consistently protected consumers, society would need fewer regulations and regulators, as Friedman suggested. The article’s second goal is to begin construction of a theory on when the market does or does not protect consumers.

The article finds a more nuanced situation than Friedman and other critics theorized. In some instances, businesses’ sales actually increased after their misconduct became public, despite the fact that, in at least two cases, consumers had told pollsters they would avoid patronizing the company. Even when companies suffered declines in sales after their misbehavior became public, the scandals became known only because of laws and those who enforce them, suggesting that it is the very rules that Friedman decried that led to a market response. Though it is impossible to know what would have happened if the problematic conduct had not occurred, the evidence suggests that markets alone are often not enough to protect consumers, or at least that markets are not a reliable consumer protection mechanism.

 

Rep. McHenry opposes government-run credit bureau on ground that government suffers cyberattacks. Equifax, anyone?

by Jeff Sovern

Last week, the House Financial Services Committee held a hearing on credit reporting. I haven't yet watched the recording, but the American Banker's Neil Haggerty has a story here (the story is behind a paywall, but is available on Lexis). Among the topics addressed during the hearing was President Biden's proposal for a government-run credit bureau. Ranking member Patrick McHenry opposed a government-run credit bureau, commenting, according to the article:

"Cyberattacks are also a major issue with federal databases," McHenry said. "The idea that the government agency doing this will be a better steward of our data is quite questionable, given the track record the federal government."

The article continues:

But Chi Chi Wu, a staff attorney at the National Consumer Law Center, cited the 2017 Equifax data breach of more than 148 million consumers' data as a reason to be skeptical of the private sector's ability to protect consumers' data better than the government.

"Are we forgetting four years ago about the Equifax data breach, how one of these credit bureaus let hackers take the personal information of half the American adult population?" Wu said. "In terms of privacy, our data is with three private corporations that monetize and exploit it and don't do a very good job of making sure it's accurate."

A government-run credit bureau conflicts with conservative ideology. Conservatives tend to trust the free-market, oppose government intervention, and dislike government possession of information.  But the free-market does not operate with credit bureaus because consumers don't get to choose which bureau will report their information. Consequently, credit bureaus have little reason to fear consumer displeasure. And studies often indicate that credit reports contain errors. The FCRA has not been up to the task of protecting consumers. If we don't try something else, we are doomed to have a system in which many consumers are denied credit or charged higher prices for it through no fault of their own.