CFPB Announces Arbitration Field Hearing

Here.  Because the Bureau usually combines field hearings with announcements of related developments, it is likely to announce its proposed arbitration rules that day. 

More on health and poverty (and geography)

Following up on Brian's illuminating post earlier this week about the widening gap in life expectancy between the rich and the poor, two other articles discussing health and the economic divide are worth a read.

First, the New York Times, drawing on the same research that Brian flagged, concludes: "The Rich Live Longer Everywhere. For the Poor, Geography Matters." Read details on the dynamics of that difference, including an interactive map, here.

Second, the Washington Post explains how the death rate for rural white women has surprisingly spiked, or as the Post puts it, an "urban-rural mortality gap emerges among whites as risky behaviors work to defy modern trends." What risky behaviors? "[W]hite women . . . are far more likely than their grandmothers to be smokers, suffer from obesity or drink themselves to death." Read that story here.

The racial effects of pre-employment credit screening

Bartik and Nelson have written Credit Reports as Résumés: The Incidence of Pre-Employment Credit Screening. Here is the abstract:

We study recent bans on employers' use of credit reports to screen job applicants – a practice that has been popular among employers, but controversial for its perceived disparate impact on racial minorities. Exploiting geographic, temporal, and job-level variation in which workers are covered by these bans, we analyze these bans' effects in two datasets: the panel dimension of the Current Population Survey (CPS); and data aggregated from state unemployment insurance records. We find that the bans reduced job-finding rates for blacks by 7 to 16 log points, and increased subsequent separation rates for black new hires by 3 percentage points, arguably contrary to the bans' intended effects. Results for Hispanics and whites are less conclusive. We interpret these findings in a statistical discrimination model in which credit report data, more so for blacks than for other groups, send a high-precision signal relative to the precision of employers' priors.

 

CFPB finds half of online payday borrowers rack up an average of $185 in bank penalties

The Consumer Financial Protection Bureau today issued a report that found that attempts by online lenders to debit payments from a consumer’s checking account add a steep, hidden cost to online payday loans. Half of online borrowers rack up an average of $185 in bank penalties because at least one debit attempt overdrafts or fails. And one third of those borrowers who get hit with a bank penalty wind up having their account closed involuntarily. The study also found that despite this high cost to consumers, lenders’ repeated debit attempts typically fail to collect payments.

The report is here.

More on the Senate Banking Committee Hearing

by Jeff Sovern

Yesterday I posted about Senator Elizabeth Warren's takedown of Leonard Chanin, formerly of the Fed and the CFPB, now of MoFo, at a Senate Banking Committee hearing. I have since finished listening to the hearing and wanted to say a few more things.

First, at the conclusion of the hearing. the Committee's chair, Republican Senator Richard Shelby, praised Mr. Chanin for his service to the country and said that he wished Mr. Chanin still worked for the government. Quite a contrast with Senator Warren's view that Mr. Chanin "played a key role in blowing up the economy."

Senator Shelby and several others at the hearing spoke of how they saw cost-benefit analysis as critical to effective regulation. One point that speakers made was that a possible cost of regulations is that they might reduce access to credit.  It was almost as if they didn't know that the Dodd-Frank Act (which also came in for criticism) commands the CFPB to consider cost-benefit analysis in formulating regulations, and that as part of doing so, the Bureau has to take into account any possible reduction in access to credit. See 12 U.S.C. § 5512(b)(2). Nor did Dodd-Frank's injunction to the CFPB not to declare acts unfair unless the acts cause substantial injury which are not outweighed by corresponding benefits draw praise.  See 12 U.S.C. § 5531(c). 

So why the focus on cost-benefit analysis?  CBA is often a pretext for opposition to regulation.  It sounds neutral--who could be against comparing the costs and benefits of a law?--but can be used to derail consumer protection laws.  At best it delays laws, sometimes for lengthy periods, during which consumers can be taken advantage of. But it can also serve to block needed protections, by, for example, giving industry the ability to argue that a regulator's CBA was insufficient and so a regulation should be invalidated. See Bus. Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011).  Part of the problem is that it is often difficult to value benefits.  How are regulators to value giving consumers the ability to determine their mortgage costs, for example, as the TRID rule is intended to do? Or the ability to prevent the disclosure of information about their financial transactions, as Gramm-Leach-Bliley is supposed to accomplish?  CBA may be a great idea in theory, but when someone calls for its use, ask whether they really mean that they oppose the proposal under discussion.  I have written more about CBA here. 

 

 

Maryland becomes second state to ban non-disparagement clauses

Earlier this year, we flagged Maryland's pending legislation (H.B. 131) to protect the rights of consumers to speak up -- critically, if they like -- about the businesses they have done business with. California passed a similar bill in 2014. So did the U.S. Senate in 2015; the federal bill now awaits action in the House.

Last week, Maryland's effort became law when the legislation was signed by the governor. Here's a link to the final bill, which authorizes private enforcement via Maryland's Consumer Protection Act. A nice win for consumer speech.

Shining a light on hospital decisions to credential doctors with troubled records

Patients of Dr. Allen Sossan of South Dakota claim that he performed unnecessary medical procedures or performed procedures improperly on them. They sued Dr. Sossan and the hospitals that credentialed him. One of the claims is that the hospitals wrongfully credentialed Dr. Sossan to practice medicine at their institutions despite knowing that he had lost privileges to practice at his prior hospital in Nebraska and that questions had arisen regarding his fitness to practice medicine.

To help establish their claims, plaintiffs are seeking information about the process by which the hospitals credentialed Dr. Sossan (known in general as a “peer review” process). The defendants are claiming that the process is confidential, because South Dakota law recognizes an evidentiary privilege for peer-review discussions. The trial court recognized that the privilege exists but applied an exception for abuses of the process to facilitate criminal or fraudulent conduct (the “crime-fraud exception” -- an exception that also applies to other privileges, such as attorney-client privilege). Therefore the trial court held that plaintiffs would be allowed discovery about the process that led hospitals to permit Dr. Sossan to practice despite his troubling record.

The defendants have appealed to the South Dakota Supreme Court, which will decide whether to affirm the crime-fraud exception to the peer-review privilege. Yesterday, Public Citizen weighed in with an amicus brief in support of plaintiffs, arguing based on the work of Public Citizen’s Health Research Group that the medical peer-review system is not performing adequately to protect patients, and that transparency in the peer review process in instances of criminal or fraudulent conduct will improve the system by deterring decisionmaking that is adverse to patient safety and by enhancing accountability for wrongdoing.

Read our brief here.

Elizabeth Warren's Devastating Cross-Examination of Leonard Chanin at the Senate Banking Committee Hearing

by Jeff Sovern

On April 5, the Senate Banking Committee held a hearing titled Assessing the Effects of Consumer Finance Regulations.  I've been listening to the hearing, which has three witnesses--selected by the GOP majority--who spent much of their time attacking the CFPB, and one witness- chosen by the Democratic minority-- who supported the CFPB.  One of the witnesses critical of the CFPB was Leonard Chanin, currently of Morrison and Foerster LLP.  When it was her turn to question the witnesses, Senator Warren conducted an extraordinary takedown of Chanin.  I recommend watching the Q&A.  It's available at various places, including here on Youtube. Those who don't have time to watch the video and want to read a transcript can find one here, but the transcript might not have the same impact. Really, to have the full impact, you have to listen to the entire hearing, because like the thirteenth stroke of a clock, the exchange calls into question all that came before it, including the criticism of the CFPB.  But that's a big time commitment, so just give the Q&A a listen.

A couple of comments on Chanin's defense for the Fed's failure to act from 1994, when Congress gave the Fed the power to act, until 2008, when the economy tanked: Chanin said that no statistical evidence existed to show a meltdown in the mortgage market. Even assuming that to be true, shouldn't the Fed have conducted its own information-gathering?  And does Chanin believe that regulators should not prevent predatory lending until there is statistical evidence of a mortgage meltdown? How is it that the investors portrayed in The Big Short figured out that there was a problem when they didn't have access to the Fed's information-gathering resources but the Fed didn't?  Should the Fed really take nearly a decade and a half to figure out that something is wrong with predatory lending?  And isn't the fact that it didn't another argument for the CFPB?

Seventh Circuit will determine meaning of FCRA reinvestigation requirement

Recently, we flagged an excellent segment from John Oliver on credit reporting. In light of that piece, consider this case, now on appeal to the Seventh Circuit:

Toyota Motor Credit Corp. believed Jeffrey Brill owed Toyota an outstanding debt on a car lease. Toyota reported that debt to Trans Union. In fact, Brill’s name on the lease paper had been forged and Brill himself did not authorize the lease. Brill disputed the debt with Trans Union and provided a sample of his real signature (from a prior lease with Toyota that no one disputed) to back up his claim about the forgery. Trans Union did no more than send an automated query to Toyota asking it for confirmation of the debt. Toyota provided the confirmation, and Trans Union refused to remove the debt from Brill’s file. As a result, Brill struggled with the fallout from his damaged credit for more than a year.

Brill sued Trans Union for failing to conduct a reasonable reinvestigation of his dispute as required by the Fair Credit Reporting Act. For that requirement to be meaningful, several courts have held, a reinvestigation generally must mean more than parroting the creditor’s information. Here, however, the district court dismissed the case at the pleading stage, holding that Trans Union need not have done more than it did because Trans Union had no power to cancel Brill’s debt and expert handwriting analysis would have been too expensive.

On Brill’s behalf, Public Citizen filed the opening brief today. Our brief argues that the power to modify a debt is irrelevant to Trans Union’s statutory duty to reinvestigate and that, when Congress imposed a duty to reinvestigate, it meant for that reinvestigation to be meaningful, not pro forma. We point out that there is no categorical rule against requiring expert analysis, but in any event Trans Union could have taken a number of other steps, including asking Toyota about its identity-verification procedures, speaking with the employees involved in executing the disputed lease, or even just looking at the documents itself. (The genuine and phony signatures are obviously different.) Additionally, the question of a reinvestigation's "reasonableness" is a question for the jury, so the district court erred in resolving that question as a matter of law on a motion to dismiss.

Here's our brief. Here's our press release.

The gap between rich and poor, life expectancy, and social security benefits

The gap between rich and poor, life expectancy, and social security benefits are discussed in this article by Josh Zumbrun, which in turn discusses recent studies by a Stanford University economist and the U.S. Government Accountability Office. Here is an excerpt of Zumbrun's article:

A growing body of research in recent years points to the striking fact that wealthier people are living significantly longer than less wealthy people, and the gap appears to be widening. Just this week, a study led by Stanford University economist Raj Chetty, showed that life expectancy differed for the top 1% and bottom 1% of the income distribution by 15 years for men and by 10 years for women. Now, a new study from the Government Accountability Office shows the dramatic effect this is having on Social Security. To show the effect of changing U.S. life expectancy, the GAO studied the benefits that men earning $20,000 or $80,000 could expect to receive from the Social Security system over the course of their lives. * * * An income of $20,000 is roughly the 25th percentile. At age 62, the average U.S. man will live another 21 years. The benefits he would expect to earn over the rest of his life would be about $156,000. But as the research of Mr. Chetty and others has shown, the average man at this income range won’t live quite that long. Based on the average life expectancy of low-income men, they should expect to collect only $138,000 from Social Security.