The NY Times on the latest in illusory consumer protections: the 12-minute DeVos system to decide student loan forgiveness

by Jeff Sovern

Consumer law is filled with illusory consumer protections, and one form they take is the supposed obligation to give serious consideration to the possiblity that the provider is wrong in its claims. Examples include credit bureaus' obligations to conduct a reasonable investigation of consumer disputes--an obligation which has historically been discharged in only minutes, as discussed more fully in our consumer law casebook at page 381 n. 5, though it would be great news if that is changing; the attorney's obligation to conduct meaningful review of complaints in debt collection lawsuits, which some lawyers may take seriously but to which others devote only four seconds; and the signing of affidavits by those with personal knowledge before a home can be forclosed upon--which resulted in robosigning. Now there's a new item on the list. According to Stacy Cowley writing in the NY Times, former Education Secretary Betsy DeVos created a system that rushed through student loan borrower applications for loan forgiveness. Applications could run hundreds of pages, but workers were supposed to plow through them at a rate of one every twelve minutes. Those who took too long risked loss of their jobs. The article is worth a read and discusses much more than I have written about here. The Biden administration's approach can be seen here. There's a law review article in when systems like these actually provide consumer protection and when they create only the illusion of consumer protection. Or maybe just a saying: Quis custodiet ipsos custodes? Who will guard the guards themselves? Private lawsuits? Regulators? The fourth estate?

LA Times' David Lazarus: AT&T’s new arbitration clause isn’t doing you any favors

Here.  It might be behind a paywall, but you can find it on Lexis. I enjoyed and recommend the whole column, but here's an excerpt:

Jim Kimberly, an AT&T spokesman, told me that "arbitration is a faster, less expensive, easier means of resolving disputes."

* * *

For businesses, arbitration is indeed faster, cheaper and easier than dealing with complex, potentially costly lawsuits, particularly class actions involving numerous plaintiffs.

For consumers, don't be fooled.

A 2015 study by the Consumer Financial Protection Bureau found that "arbitration clauses restrict consumer relief in disputes with financial companies by limiting class actions that provide millions of dollars in redress each year."

* * *

Study after study has shown that arbitration clauses work against consumer interests. * * *

Researchers at Stanford University and the University of Texas at Austin analyzed almost 9,000 arbitration cases. They found that companies routinely select arbitrators with track records of making industry-friendly decisions.

They also found that arbitrators know that the more they rule in favor of businesses, the greater the likelihood they'll be tapped for future cases -- and future paychecks.

"A company will use the same arbitrator over and over and over again," said Remington Gregg, an attorney with the advocacy group Public Citizen. "Arbitrators know how their bread is buttered."

Department of Education to cancel approx. $1 billion in student-loan debt

Department of Education has announced that it will forgive the student-loan debt of borrowers whose borrower-defense claims have already been approved. The announcement is here.

Under the law, students who attended schools that misled them or engaged in other misconduct in violation of certain state laws are eligible for borrower defense to loan repayment forgiveness, or "borrower defense." Essentially, the law allows defrauded students relief from federal student-loan debt when their schools close suddenly or engaged in illegal or deceptive practices.

The Obama administration had provided broad relief for defrauded students, such as those who attended Corinthian Colleges. Under Trump, however, Secretary of Education Betsy DeVos drastically cut back on the debt forgiveness for defrauded students. Instead, she applied a formula under which many students received little or no relief.

The Department of Education anticipates this change will ultimately help approximately 72,000 borrowers receive $1 billion in loan cancellation. 

Does the bar exam protect the public or just punish would-be lawyers?

Regulation of lawyers is supposed to protect the public. So, then, with the bar exam, which is supposed to protect consumers by keeping unskilled lawyers out of the market. Does it work? That's the topic of Safeguard or Barrier: An Empirical Examination of Bar Exam Cut Scores by Michael Frisby, Sam Erman, and Victor Quintanilla. Here's the abstract:

In 2019 more than forty percent of aspiring law school graduates failed the bar exam. Nearly thirty thousand test-takers otherwise qualified to practice law were, given the score threshold required to pass the exam (the “cut score”), lost to the profession. Had the cut score been lower, many would now be lawyers. This exclusion disproportionately affects members of underrepresented and disadvantaged groups who stand to benefit most from entry into the legal profession. A common defense for retaining or raising cut scores is that doing so prevents lawyer malfeasance. But the bar exam is not designed for these purposes. This paper enters this scholarly and regulatory conversation by testing whether states’ bar exam scores predict lawyer misconduct. If they do not, it would remove one argument against lowering bar exam cut scores to promote diversity and growth of the legal profession. Using data comprising states’ bar exam cut scores and disciplinary records from the American Bar Association between 2013 and 2018, we employ statistical modeling to evaluate the relationship between cut scores and attorney discipline. We find no evidence that higher bar exam cut scores produce fewer complaints, charges, or disciplinary actions.

Recording of Loyola of Chicago Consumer Law Review Symposium on Racial Justice in Consumer Law now available

by Jeff Sovern

The recording is here.  More information here. I have started listening to the recording and am finding it excellent so far. Very instructive.

CFPB rescinds disappointing abusiveness policy statement

by Jeff Sovern

Last year we blogged about the CFPB's disappointing abusiveness policy statement. But things are different this year and the Bureau has wisely rescinded the Policy Statement, saying that it "was inconsistent with the Bureau’s duty to enforce Congress’s standard and rescinding it will better serve the CFPB’s objective to protect consumers from abusive practices . . . [and that] the Policy Statement undermined deterrence and was contrary to the CFPB’s mission of protecting consumers."

Nomination News: Senate Banking Committee split on Chopra; Will Baradaran lead the OCC?

by Jeff Sovern

Yesterday, the Senate Banking Committee split, 12-12 on the vote to confirm FTC Commissioner Rohit Chopra to be the next CFPB director. According to Neil Haggerty's report in the American Banker (behind a paywall but available on Lexis), the Senate can still confirm Chopra but it will first require a motion to discharge the nomination from the Committee. It's very disappointing that a majority of the Commmittee did not vote to confirm Chopra but the Senate still seems likely to confirm him. 

In other nomination news, Irvine banking law professor Mehrsa Baradaran is said by Brendan Pederson and Kate Berry writing in the American Banker to be the top contender to lead the OCC. Given the OCC's history of being captured by the banks it regulates, if Baradaran gets the nod, it would be fascinating to see if she can make the OCC a more effective regulator. Her writings on race and consumer law issues in banking are extraordinary.

CFPB: Discrimination by lenders on the basis of sexual orientation or gender identity is illegal

The Consumer Financial Protection Bureau today issued an interpretive rule clarifying that the prohibition against sex discrimination under the Equal Credit Opportunity Act and Regulation B includes sexual orientation discrimination and gender identity discrimination. This prohibition also covers discrimination based on actual or perceived nonconformity with traditional sex- or gender-based stereotypes, and discrimination based on an applicant’s social or other associations. The rule follows a request for public comment issued by the CFPB last July.

The rule is here. The CFPB's press release is here.

CFPB report: More than 11 million families at risk of losing housing

The Consumer Financial Protection Bureau last week issued a report warning that, without additional action, widespread evictions and foreclosures will occur after federal, state, and local pandemic protections come to an end. The report finds that more than 11 million families are behind on their rent or mortgage payments: 2.1 million families are behind at least three months on mortgage payments, and 8.8 million are behind on rent. Homeowners are estimated to owe almost $90 billion in missed payments. 

The report is here.

Blast from the past: post on Barney Frank's autobiography

by Jeff Sovern

Barney Frank is speaking today at the Berkeley Consumer Law Scholars Conference. Here's something I posted in 2015 on his autobiography:

I just finished listening to the audio version of Barney Frank's autobiography, Frank: A Life in Politics from the Great Society to Same-Sex Marriage, which Frank reads himself. I listened to it to learn more about consumer law--Frank was so involved in creating the CFPB that the statute doing so carries his name--but the book doesn't actually add much to what I have encountered elsewhere on the subject (though it adds a little, as noted below).  Nevertheless, the book is well worth listening to. Frank is an entertaining and informative writer and I loved his volume.  Regular readers of the blog will probably care about many of the issues Frank discusses and will likely enjoy learning more about Frank's insights into Congress and the electoral process. 

Despite what I just wrote, the book has a few interesting items on consumer protection issues.  Critics of the Dodd-Frank Act and other consumer protection laws often charge that government regulation led to the Great Recession in that lenders were forced to make unwise loans by laws supported by Democrats (see below).  This, of course, is hard to reconcile with the fact that at the time the Great Recession hit, we had had a Republican president for nearly eight years, and Congress had been in Republican control for much of that time. Yet somehow, the minority party ruled banking.  In fact, as Frank points out, Republicans opposed efforts to restrain subprime lending.  Here are a couple of memorable quotes Frank includes in an appendix:

In 2007, Jeb Hensarling, now chair of the House Committee on Financial Services, said the following during a Committee hearing to consider a bill to limit subprime lending:

We still have to remember that millions of people have homeownership opportunities due to a subprime market. I am very leery of any legislation that could under cut that market.

And from the Wall Street Journal, a November 6, 2007 editorial about the same bill, titled A Sarbox for Housing: 

Throughout the 1980s and '90s, Congress prodded, even strong-armed, banks into making more mortgage loans to low-income and minority families. Washington enacted anti-discrimination and community lending laws with penalties against lenders for failing to issue riskier mortgages to homebuyers living in poor neighborhoods or with low downpayments and subpar credit ratings. And so it was that the modern subprime mortgage market was born.

* * *

But for all the demonizing [of subprime lenders], about 80% of even subprime loans are being repaid on time and another 10% are only 30 days behind. Most of these new homeowners are low-income families, often minorities, who would otherwise not have qualified for a mortgage. In the name of consumer protection, Mr. Frank's legislation will ensure that far fewer of these loans are issued in the future.

In other words, even though bad government regulation created the subprime market, that market is so wonderful that we shouldn't regulate it. Of course, we all know what happened because that market was insufficiently regulated.  Oh, and just to make clear, I don't agree that bad regulation created the subprime market.