David Zaring: Payday Lenders’ Fight Against Regulator Would Be a Long Shot

In the Times's DealBook.  Excerpt:

Conservative lawyers have been muttering about the constitutionality of the Consumer Financial Protection Bureau for years, but their best argument is pretty novel.

It is a “death by a thousand cuts” separation of powers claim. The idea is that if you count up all the ways that the Consumer Financial Protection Bureau has been given unfettered authority to regulate the way that financial services are provided to consumers, you get an agency that is not controlled by Congress or the president.

That, in turn, is inconsistent with our baseline separation of powers principles, where Congress guides agencies by passing laws and appropriating budgets, and the president makes sure that they are executing on their missions.

How Would a Consumer Financial Protection Commission Differ From the CFPB?

by Jeff Sovern

According to a report in HousingWire, a CompassPoint report concludes the following:

“Our channel checks estimate that shifting the CFPB’s governance from a directorship to a commission would double the bureau’s already elongated rulemaking timeline, cut its enforcement activity by 50% to 75%, and result in a far greater importance being placed on supervision,” Compass Point’s analysts noted.

No wonder the industry wants a commission; delays in rulemaking and substantial cuts in the enforcement actions that have already recovered more than $11 billion for more than 25 million consumers.

Recent DOJ Consumer Protection Branch announcements

Below are recent announcements from the Department of Justice about the work of its Consumer Protection Branch, including work related to mass-marketing fraud schemes, adulterated food, and odometer fraud.

Justice Department and Dutch Authorities Announce Simultaneous Enforcement Actions Against International Mass-Mailing Fraud Schemes Targeting the Elderly (June 2, 2016)

District Court Enters Permanent Injunction Against Kansas Food Manufacturer and Company’s Managers to Stop Distribution of Adulterated Food Products (June 1, 2016)

Former Employee of Virginia DMV Contractor Pleads Guilty to Participating in Odometer Fraud Scheme (May 26, 2016)

Braun Medical Inc. Agrees to Resolve Criminal Liability Relating to its Sale of Contaminated Syringes (May 18, 2016)

District Court Enters Permanent Injunction Against Michigan Sandwich Manufacturer and its Owner to Prevent Distribution of Adulterated Sandwiches (May 13, 2016)

Justice Department Permanently Shuts Down International “Psychic” Mail Fraud Scheme (May 9, 2016)

Used Motor Vehicle Dealer and Former State Employee Arrested in Georgia for Odometer Tampering Scheme (May 5, 2016)

District Court Enters Permanent Injunction Against Former Owner and Operator of Compounding Pharmacies to Enjoin Distribution of Certain Sterile Drugs Products  (April 29, 2016)

District Court Enters Permanent Injunction Against San Francisco Rice Noodle Company and Senior Officers to Stop Distribution of Adulterated Products  (April 27, 2016)

Hoofnagle on Privacy and the FTC's Bureau of Economics

Chris Jay Hoofnagle of Berkeley has written Privacy and Security Through the Lens of the Federal Trade Commission's Bureau of Economics.  Here's the abstract:

At the Federal Trade Commission (FTC), all privacy and security matters are assigned to a consumer protection economist from the agency’s Bureau of Economics (BE). The BE is an important yet often ignored element of the FTC. Advocates and others operating before the Commission have been inattentive to the BE, choosing to focus instead on persuading Commissioners and staff attorneys to take privacy and security cases. This article describes the BE, discusses the contours of its consumer protection theories, and discusses how these theories apply to privacy and security. I explain why the FTC, despite having powerful monetary remedy tools, almost never uses them: this is because the BE sees privacy and security injuries as too speculative and because the FTC’s remedies come too late to deter platform-age services. The BE is also skeptical of information privacy rights because of their potential impact on innovation policy and because privacy may starve the market of information. In this, the BE hews to certain interpretations of information economics, ignoring research in traditional and behavioral economics that sometimes finds benefits from regulation of information.

The article concludes with a roadmap for fostering a BE that sees invasions of privacy and security problems as causing harms worthy of monetary remedy. The roadmap includes the consideration of existing markets for privacy as a proxy for the value of personal information. For example, tens of millions of Americans pay money to keep non-sensitive information, such as their home address, secret. Additionally, the FTC’s civil penalty factors, which consider issues such as how to deny a defendant the benefits from illegal activity, could justify interventions to protect privacy and security. Finally, the BE could explore how existing information practices have inhibited the kinds of control that could lead to a functioning market for privacy.

California Ruling Against Facebook on Right of Publicity Blows Huge Hole in Section 230 Immunity

by Paul Alan Levy

A California Superior Court judge has issued a decision that threatens to blow a gaping hole in the protection that online hosts for critical speech have enjoyed under section 230 of the Communications Decency Act and, therefore, in public’s ability to post critical speech.  In Cross v. Facebook, Judge Donald Ayoob granted only in part Facebook’s demurrer and special motion to dismiss a complaint by a musical performer; the denial part is a doozy.  He held that plaintiff had shown a probability of success on the merits of claims that the placement of advertising on hosted critical pages about the plaintiff makes a commercial use of the plaintiff's name and likeness and hence could both violate his statutory right of publicity and constitute common-law misappropriation under California law.

Coverage of the CFPB's proposed payday-lending rule

Here is a sampling of reaction to the proposed rule on payday pending issued yesterday by the Consumer Financial Protection Bureau.

EDITORIAL: A Lame Response to Predatory Loans (The New York Times)

The Consumer Financial Protection Bureau has been promising for more than a year to rein in the payday lending industry, whose business model relies on luring Americans into ruinously priced loans that can carry interest rates exceeding 400 percent. The proposal that the agency unveiled Thursday represents a down payment on that promise. But the final rule — expected next year — will need stronger, more explicit consumer protections for the new regulatory system to be effective.  …

The best solution would be for Congress to give the public the same protection from predatory lending that members of the military received under the Military Lending Act of 2007. The rules created under that law made it illegal for lenders to charge more than 36 percent for payday loans, vehicle title loans, installment loans and other forms of credit. (That rate is still quite high.)

Loan shark loopholes: New regulation proposal won’t do enough to rein in predatory payday lenders, consumer groups say (Salon)

The Consumer Financial Protection Bureau proposed new regulations on Thursday that could help rein in predatory payday loans, short-term lendings that come with high interest rates that often exceed 300 percent.

Consumer protection groups, however, warn that they may not do enough.

Payday lenders disproportionately target poor Americans who need money fast to pay for costs like late bills. The average payday loan is $375, yet it takes five months and $520 in fees to pay off, frequently trapping borrowers in predatory debt spirals.

Warren wing clashes with Wasserman Schultz on payday lending (Politico)

Federal regulators Thursday unveiled rules that could mean a death sentence for the payday-lending industry, a cause that has already sparked infighting between mainstream Democrats like Debbie Wasserman Schultz and the party’s Elizabeth Warren wing. …

The debate has spawned bipartisan legislation backed by Wasserman Schultz to delay the new rules for two years, a move that she says would give states time to adopt stricter laws. That stance has drawn attack ads by opponents of the industry.

Payday-Lending Curbs: Thumbs Down From Banks, Thumbs Up From Fintech (Wall Street Journal)

In unveiling new rules Thursday to shake up the payday-lending market, federal regulators said they wanted to curb what they consider abusive practices, while encouraging new lenders to enter the market and maintain credit for hard-up, low-income borrowers.

But many conventional lenders—credit unions and community banks—said the new rules were too onerous to encourage them to try to expand in a market that many have abandoned to smaller storefront and online lenders.

Prominent online lenders, on the other hand, said they could step up their business in the small-dollar credit market under the new regulations, seeing opportunity for the rapidly growing sector to expand even further.

MacDonald Article Calls for Judicial Review of CFPB's Non-Legislative Rules

Kevin M. McDonald of VW Credit, Inc. has written Who's Policing the Financial Cop on the Beat? A Call for Judicial Review of the Consumer Financial Protection Bureau's Non-Legislative Rules, 35 Review of Banking and Financial Law, 224 (2015-2016).  Here's the abstract:

This law review article addresses administrative power in the context of financial services. The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB), an independent executive agency, to oversee this space. The CFPB issues interpretations and other guidance documents of consumer financial regulations it administers. This article discusses whether courts should defer to the CFPB's issuances in certain contexts. The claim in this article is that courts should not defer to the Bureau's interpretations and other regulatory guidance documents that seek to interpret regulations the CFPB administers. This article argues that the CFPB has been issuing "legislative," or "substantive" rules while avoiding the notice-and-comment process. This practice by the CFPB has been used to regulate fair lending in the context of automotive finance. Through a case study of Ally Financial, Inc., this article illustrates how the Bureau has enforced its interpretation of fair lending through adjudication of its own interpretations. 

 

Dallas Pet-Sitting Firm Raises the Ante, Seeks Up to a Million Dollars in Damages for Yelp Review

by Paul Alan Levy

I blogged back in February about a small-claims act proceeding that a Dallas pet-sitting company called “Prestigious Pets” had filed against a couple named Michelle and Robert Duchouquette over the fact  that Michelle Duchouquette had posted a Yelp  review presenting some fairly mild criticisms of the company’s policies.  The company claimed that the review was both defamatory and a violation of the non-disparagement clause (interestingly, in an email to a TV reporter, the company’s spokesman blamed “assistance from [unnamed]  professionals” for the fact that this clause is in its service agreement).  The couple had found counsel to file a motion to dismiss under the state’s anti-SLAPP statute, and first the local media, and then some national outlets, reported on the story because it relates to the controversy about whether companies should be able to use non-disparagement clauses to quash honest online criticism and hence skew the data available to consumers in choosing the companies with which they do business.  It seemed likely at the time that, wholly apart from whether a non-disparagement clause could be sustained,  the defendants would prevail on their anti-SLAPP motion because, as their anti-SLAPP motion explained, only Robert Duchouquette had signed the contract but only Michelle Duchouquette had posted the review, and the review, in turn, was pretty milquetoast and unlikely to be found defamatory.

Soon thereafter, the case took another turn: Prestigious Pets itself retained counsel (presumably, to respond to the anti-SLAPP motion), but instead of just arguing the merits of the lawsuit, it raised the ante by dismissing its small claims proceeding ten days before the scheduled anti-SLAPP hearing and refiling the suit as a claim for up to a million dollars in damages in addition to attorney fees.  (The Texas Justice Court then declined to hold a hearing on the anti-SLAPP motion, apparently concluding that the motion had been mooted out by the voluntary dismissal). 

Study finds students at nonprofit colleges have 50-50 chance of graduating

The Hill reports today:

Students who start at four-year, nonprofit colleges only have about a 50-50 chance of graduating, according to a new report released Wednesday.

Third Way, a centrist think tank in Washington, studied students with loans at the colleges and found what it called “stunning levels of institutional failure.”

The report said private schools graduate only 55 percent of full-time freshmen with federal student loans within six years of enrollment, and students who fail to earn a degree within six years are unlikely to finish at all.

While colleges tout their programs as a path to a brighter future and a bigger paycheck, the report found just 63 percent of students earned yearly salaries and wages that exceeded $25,000 six years after graduating.

The full article is here.

CFPB inquiry into potentially high-risk loan products and practices

Separate from its new proposed rule on payday lending, the Consumer Financial Protection Bureau today issued a "request for information" concerning potentially high-risk loan products and practices that are not specifically covered by the proposed rule.

The request for information is focused on:

• Concerns about risky products not covered: The Bureau is seeking information about forms of non-covered loans such as high-cost, longer-duration installment loans and open-end lines of credit where the lender does not take a vehicle title as collateral or gain account access. The CFPB’s inquiry seeks information about the range and volume of installment and open-end credit products that are offered in this market, their pricing structures, and lenders’ practices with regard to underwriting. The Bureau is also interested in learning whether these loans keep borrowers in long-term debt with a structure where borrowers pay down little to no principal for an extraordinarily long period.
• Concerns about risky practices not covered: The Bureau seeks to learn more about practices that can impact borrowers’ ability to pay back their debt. This includes methods lenders may use to seize borrowers’ wages, funds, vehicles, or other forms of personal property in a way that could pose consumer protection concerns. The Bureau is also interested in learning more about the sales and marketing practices of credit insurance, debt suspension or debt cancellation agreements, and other add-on products. Other practices subject to the inquiry include loan churning, default interest rates, teaser rates, prepayment penalties, and late-payment penalties.

Comments are due on October 14, 2016.

The request for information is here.