Are Consumers Using the New CFPB Mortgage Disclosures to Shop Around?

Not so much, according to this story in the Boston Herald. Excerpt:

[Apparently [buyers are] not [using the disclosures] so much. Bill Emerson, chief executive of Quicken Loans, the country’s second highest volume mortgage lender, says his firm is seeing no surge in shopping by applicants using the Loan Estimate. “I don’t think consumers are changing the way they shop simply because” they have a new tool to do so, Emerson said in an interview. * * *

Paul Skeens, president of Colonial Mortgage Group in Waldorf, Md., says barely 5 percent of his clients are using the Loan Estimate to comparison shop, while 95 percent “are doing it the old way.” Seattle area mortgage banker Charley Murphey told me he has “heard of no borrowers walking away with a Loan Estimate in hand to go shopping for a better deal.’’

Joe Adamaitis, vice president and residential lending manager for Insignia Bank in Sarasota, Fla., says “buyers do not have the time to shop due to the pressures of meeting commitment and closing dates. Most lenders are priced the same and it comes down to which lender the Realtor referred them to.”

* * *

For its part, the CFPB is taking the long view and recognizes that changing consumer behavior takes time. * * *

Coverage of yesterday's Supreme Court decision

Over the past day, we have seen lots of articles on yesterday's decision in Campbell-Ewald v. Gomez. Our own coverage is here. Most simply describe the decision, but here are a few that add some commentary:

A nice editorial in The New York Times.

Coverage in The Wall Street Journal.

Analysis from Howard Wasserman at PrawfsBlawg.

Supreme Court Holds Offer of Judgment Does Not Moot a Class Action

In a much-anticipated ruling, the Supreme Court today held that a class-action defendant cannot moot a plaintiff’s case by making a pre-class-certification offer of judgment that would satisfy the individual plaintiff’s personal claims but not those of the class. The decision in Campbell-Ewald Co. v. Gomez, holds that such an offer does not moot the individual plaintiff’s claim because, if the plaintiff rejects it, the offer is a nullity and does not deprive the court of the ability to grant relief between the parties. In other words, the court can still award whatever damages, injunctive relief, and other relief the plaintiff seeks if the plaintiff proves his claims. Thus, the case does not meet the Supreme Court’s definition of mootness, under which a case is moot “only when it is impossible for a court to grant any effectual relief whatever to the prevailing party.” And if the individual plaintiff’s own claims are not moot, he can pursue class relief as well, because “a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.”

The decision will put an end to one of the most common gambits defendants have used to behead class actions before they are certified, especially actions seeking statutory damages that are readily determinable (such as the TCPA action that gave rise to Campbell-Ewald). After Campbell-Ewald, defendants will no longer be able to argue that an unaccepted offer of judgment or other settlement offer moots a case. A decision the other way would have made class actions very difficult to maintain in statutory damages cases and severely damaged their utility as a means of redressing wrongdoing that inflicts small losses on many people—exactly the kinds of cases to which class actions are most suited.

Defendants no doubt will turn to other tactics to support claims of mootness or otherwise attempt to "pick off" class representatives, but those possible stratagems are of dubious validity and carry greater risks to defendants than simply offering a nominal sum to the named plaintiff. The majority opinion in Campbell-Ewald leaves the possibility that defendants may have other ways of achieving the same goal to another day, in a case that actually presents that issue. For now, though, the opinion definitively rejects the one tactic that defendants have made wide use of over the past several years to moot class actions: the offer of judgment.

The opinion also rejects the claim that a government contractor is entitled to broad “derivative sovereign immunity,” which would have insulated contractors against statutory or common law claims, even when they in fact departed from the government’s instructions and engaged in unauthorized wrongful acts. Although that issue was in some ways the tail wagging the dog in the case, as it would not likely have independently persuaded the Court to grant certiorari had the mootness issue not been in the case, the Court’s opinion on it squelches another argument that defendants have attempted to use in a number of cases to avoid liability.

In sum, it was a good day in the Court for consumer class actions.

 

(Note: The author of this post was co-counsel in the case.)

Homo Lex? Will Law Make the Same Transition Economics Is?

by Jeff Sovern

Bear with me for a moment.  As is well-known, Richard H. Thaler and Cass R. Sunstein,in their important book Nudge, describe how classical microeconomics assumes that all people are rational. They call such rational people "Homo Economicus" or, for short, "Econs." But, as they also describe, and as Thaler elaborates on in his new and also excellent book, Misbehaving, real people are often not rational.  They make predictable errors, and the study of these errors has led to the development of behavioral economics.  Thaler, Sunstein, and many others have argued that economic models should be revised to take into account these discoveries to make the models more accurate in describing human behavior, and thus more useful in predicting that behavior. 

In Misbehaving, Thaler reports on how behavioral economics' model of the irrational person is winning the battle against classical microeconomics' Econs. Law has a similar war going on.  Classical legal rules also make assumptions about people that have been proved not to describe human behavior accurately. For example, contract law's duty to read--which usually holds people to their contract whether they have read the contract or understand it or not--assumes that people read contracts. Another example: in evaluating the 1692g validation notice debt collectors are obliged to provide to consumers, courts assume that the consumer has read that notice, and uphold the validity of the notice whether or not consumers have actually read it, as long as the notice is not overshadowed (by, for example, larger print demanding payment) or is not contradicted (by, for example,  demands for payment before the thirty days allotted for validation have expired.

But extensive literature, often referred to on this blog, makes clear that few people read contracts, and that many don't understand them when they do (I'll have more to say about consumer understanding of validation notices another time).  The law thus employs rules which appear to be designed for people who don't actually exist, rather than the people who do, just as the economics models did.  I've been trying to come up with a name for the imaginary humans the law assumes. Home Lex?  Lexons for short?  (Yes, I know "lexon" is not consistent with Latin, but "leges" doesn't have the right sound. And Lexis is taken.) If you have a better idea, please mention it in the comments.

This is a bit of an overstatement, but it seems to me that most common law consumer law rules are made for Lexons, while some statutes (but far from all) recognize that people are not always rational. The CFPB's rules partake of both. To the extent that the Bureau attempts to use disclosures to solve problems (e.g., the TILA/RESPA disclosures--and yes, I know the Bureau was commanded to do so by Congress), it is making rules for Lexons. To the extent that it prohibits self-destructive decisions (likely to be true of the forthcoming payday lending rules), it is making rules for real, fallible people.  We probably won't see a clear victory for either side across the board, but I predict one side or the other wins a victory in one area or another. I would love to see any comments people care to post on this.

Ben-Shahar & Chilton Study Finds Simplifying Privacy Disclosures Doesn't Help

Omri Ben-Shahar and Adam S. Chilton both of Chicago have written Simplification of Privacy Disclosures: An Experimental Test. Here's the abstract:

Simplification of disclosures is widely regarded as an important goal and is increasingly mandated by regulations in a variety of areas of the law. In privacy law, simplification of disclosures is near universally supported. To guide this simplification, various “Best Practices” presentation techniques have been recommended, aimed at transforming privacy notices into clear and accessible information aids for consumers. In addition, some have proposed “Warning Labels” designed to familiarize consumers with only a short list the least expected privacy practices. But do such simplifications actually inform consumers and prevent unwise behavior? Since this question has not been rigorously studied, we conducted a survey experiment designed to test whether simplifying privacy disclosures affects respondents: (1) comprehension of the disclosure; (2) willingness to disclose personal information; and (3) expectations about their privacy rights. Our results reveal that none of the simplification techniques help inform respondents or affect their behavior. They call into further question the wisdom of focusing much regulatory effort on improved disclosures.

Drahozal Article on Confidentiality in Arbitration

Christopher R. Drahozal of Kansas has written Confidentiality in Consumer and Employment Arbitration, 7 Yearbook on Arbitration & Mediation ___ (forthcoming 2015). Here is the abstract:

This article examines an apparent misperception among some commentators about the confidentiality of consumer and employment arbitration in the U.S. Arbitration is a private process—i.e., the public cannot attend an arbitration hearing—and arbitrators and arbitration administrators are (with some exceptions) required to keep information about arbitrations confidential. But the parties to the arbitration agreement are not subject to an obligation of confidentiality. Either party can disclose the existence of the dispute and any underlying facts, the existence of any arbitration proceeding, and any information about or provided in the arbitration proceeding, including the arbitral award. Only if the arbitration clause also includes a confidentiality provision are the parties subject to a confidentiality obligation, as set out in their agreement.

Accordingly, criticisms of the confidentiality of arbitration, and in particular that arbitration clauses enable businesses to hide wrongdoing, are at best overstated and at worst misguided. They are overstated because information about disputes remains available, not from the court system but from the parties themselves. When a dispute is subject to arbitration, interested persons are not able to obtain filings and other information from the court clerk like they could if the case was in court. In the rare case that would have gone to trial, the public is not able to watch. But the parties continue to be able to disclose the same information they can disclose without an arbitration clause. The criticisms are misguided because they direct attention toward arbitration clauses and away from confidentiality provisions, which seem to be the real source of many commentators’ complaints.

(HT: Gregory Gauthier)

"Goldman Sachs to pay $5 billion in mortgage settlement"

The Washington Post reports:

Goldman Sachs said Thursday it will pay roughly $5 billion to settle federal and state probes of its role in the sale of shoddy mortgages in the years leading to the housing bubble and subsequent financial crisis.

Coming nearly eight years after the crisis, the settlement is by far the largest the investment bank has reached related to its role in the meltdown. But the payment is dwarfed by those made by some of its Wall Street counterparts.

Goldman will pay $2.39 billion in civil monetary penalties, $875 million in cash payments and provide $1.8 billion in consumer relief in the form of mortgage forgiveness and refinancing.

The full article is here.

Georgia Dentist's Quest to Out YouTube User For Preserving Unflattering Newscast

by Paul Alan Levy

A few years ago, Gordon Austin, a Georgia dentist from the small town of Carrollton, about 50 miles west of Atlanta, was indicted on multiple charges stemming in part from Medicare fraud and in part for a series of incidents in which he beat patients with a dental instrument. According to several witnesses, he sometimes did not sufficiently anesthetize his patients, which led them to cry out while he was operating on them. He would them tell the patients to be quiet so they would not disturb others in his waiting room.  And when patients were not quiet, it was charged, he would hit them, even children, with a dental instrument.   In the end, Austin was allowed to plead guilty to the Medicare fraud charges while the charges of assault and cruelty to children were dismissed. Austin was placed on five years’ probation which forbade him from practicing dentistry for a period of years, except in the federal service; and paid roughly $15,000 in fines, fees and reimbursements to Medicaid. Georgia's dental board pulled his dental license; and he was pushed out of the Naval Reserves.

Back in 2009, there were a spate of news stories about Austin, including a two-part newscast on the Atlanta local Fox station, which had two of Austin’s victims, as well as a former employee, on camera relating their experiences.  Most of the news stories can now be accessed only on the Wayback Machine, and the TV program can no longer be found on the Fox station’s own web site.  However, back in 2009, an anonymous individual using the pseudonym GordonAustinsaCoward posted the TV series to YouTube, where it can be viewed today.   Here is a transcript of the video.

This fall, out of the blue, Austin, represented by a pair of lawyers from the firm of Coles Barton, filed a defamation against the anonymous poster. It is not at all clear why Austin suddenly revived his interest in the adverse story; a Carrollton lawyer to whom I spoke speculated that Austin might have retained that same firm to help him get his license back.  Perhaps the suit might have been intended to exercise the “right to be forgotten” by pushing a compelling account of the previous charges against him out of the public eye.  Apparently, Austin and his lawyers have no understanding of the Streisand effect. 

Braucher & Litwin Article on Examination as a Method of Consumer Protection

The late Jean Braucher of Arizona and Angela K. Littwin of Texas have written Examination as a Method of Consumer Protection, 87 Temple Law Review, 807 (2015).  Here is the abstract:

Lack of compliance with consumer protection law has been a crucial problem in the field for as long as such law has existed. The Consumer Financial Protection Bureau (CFPB) has the potential to change this state of affairs, especially with its supervision powers, which provide for dedicated consumer protection examination, a new development in the law. Although examination commands resources both from the agency and regulated entities, it is far less resource-consuming than litigation. It thus provides a relatively cost-effective way for an agency to obtain both changes in company practices and compensation for victims.

For a symposium honoring the scholarship of Professor William C. Whitford, we apply to the CFPB’s supervision program a framework Whitford developed for predicting whether a consumer protection law will produce compliance. Our answer to this question is a tentative yes. The CFPB’s statutory structure enables a strong commitment to consumer protection, especially with respect to supervision. In practice, the CFPB relies heavily on this robust regulatory tool, and there is evidence the CFPB is using this power to the fullest. If the CFPB maintains this level of commitment, its supervision program has the potential to radically reshape the market for consumer financial services. Reading the Bureau’s reports on its supervision activities is like stepping into an alternate universe in which consumer protection is the norm. Major problems that academics, advocacy groups, and the news media have been documenting for the past several years are now being written up as official government findings and followed with corrective action. But supervision is necessarily a confidential process, which makes it susceptible to agency capture. The CFPB, however, is currently implementing two strategies that may mitigate this risk in the future — so long as political forces do not eliminate the agency outright.

A dramatic graphic on gerrymandering

Gerrymandering -- the drawing of district lines for the purpose of giving one candidate or party an electoral advantage -- dates back to the Founding. (It was named for Elbridge Gerry, a signer of the Declaration of Independence and later Vice President under James Madison.) It's alive and well today, and as President Obama pointed out in this week's State of the Union, it distorts democracy by letting "politicians . . . pick their voters, and not the other way around." The problem goes both ways -- Democratic state legislatures draw the lines to maximize Democratic congressional representation; Republicans do the same for their party.

How rigged are the districts? A story in today's Washington Post gives us an idea by comparing the actual congressional map with a map drawn by a computer using an algorithm to maximize compactness (rather than one party's political advantage). It's a revealing comparison -- check it out after the jump.