CCFL and GMU Webinar on the CFPB Taskforce Report

The Conference on Consumer Finance Law and the Program on Financial Regulation & Technology at George Mason University’s Scalia Law School held a webinar recently titled  “New Directions for Consumer Finance Law. An Insider’s Look at the Report of the CFPB’s Taskforce.” The speakers included Taskforce members Jean Noonan, Todd Zywicki and William McLeod.  

Read comprehensive study of appellate decisions on class certification, with discussion of impact of FRCP 23(f)

Law profs Stephen Burbank and Sean Farhang have written Class Certification in the U.S. Courts of Appeals: A Longitudinal Study. Here is the abstract:

There is a vast literature on the modern class action, but little of it is informed by systematic empirical data. Mindful both that there have been few Supreme Court class certification decisions and that they may not provide an accurate picture of class action jurisprudence, let alone class action activity, over time, we created a comprehensive data set of class certification decisions in the United States Courts of Appeals consisting of all precedential panel decisions addressing whether a class should be certified from 1966 through 2017, and of nonprecedential panel decisions from 2002 through 2017.

In Section I, through a literature review, we identify both prior empirical scholarship and commonly asserted claims concerning federal class action activity and jurisprudence over time. In Section II we present our data and explore the light they shed on questions that have been raised, and assertions that have been made, about class action certification decisions in the U.S. Courts of Appeals. Our findings show that, contrary to conventional expectations, in the period since Wal-Mart and Comcast, plaintiffs have been winning certification appeals more frequently than they were formerly, and Rule 23(f) contributed to this recent success. This growth in pro-certification outcomes occurred on both Democratic- and Republican-Majority panels.

Weak Maryland anti-SLAPP law enables noisy bar to preserve its liquor license

by Paul Alan Levy

Last month, a Fells Point restaurant was able to use an apparently baseless threat of defamation litigation to secure a vote renewing its liquor license by the liquor control board despite considerable neighborhood complaints. Baltimore attorney Scott Marder apparently a demand letter to every one of the 15 neighbors who objected, alleging that they had made false statements, stating Choptank’s intention to sue them, and threatening them with spoliation sanctions if they failed to preserve all evidence of their statements about his client

The neighbors’ lawyer, Becky Witt, told me that her clients were intimidated, but that, when she called Marder and asked just that the alleged falsities where, Marder couldn’t remember any specifics. Marder denied Witt’s account of their conversation, but he refused say just what Witt had recounted incorrectly, just as he declined to tell me what alleged false statements had been made about his client. I conclude that his demand letters to the neighbors were baseless.

But Marder’s exercise in baseless intimidation appears to have been effective representation of his client: only three neighbors showed up at the license renewal hearing, and the objections were rejected for lack of substantial evidence.

CFPB's Durbin & Romeo article on the economics of debt collection, taking into account consumers' optimism about whether they will default

Erik Durbin and Charles J. Romeo, both of the Consumer Financial Protection Bureau, have written The Economics of Debt Collection, with Attention to the Issue of Salience of Collections at the Time Credit Is Granted, 16 Journal of Credit Risk (2020). Here is the abstract:

This paper considers the role of policies that protect consumers from aggressive debt collection tactics. In general, rational consumers will select credit contracts based not only on price but also on the lender’s practices in the case of default and might prefer a contract that offers higher interest rates but more lenient collection tactics. We consider a model in which consumers can be optimistic in that they underestimate, at the time they borrow, the chance of a negative income shock that could cause them to default. This mindset induces consumers to perceive the welfare associated with borrowing to be greater than it is and to place less weight on the lender’s collection practices, which may cause them to prefer lower interest rate contracts even if they are accompanied by high collection effort in the event of default. We report supporting evidence that is consistent with consumers being optimistic when they borrow. We develop a two-period model of consumer borrowing that incorporates debt collection: consumers borrow in the first period, and repay, settle or default in the second. We show in both partial and general equilibrium settings that a restriction on debt collection effort can be welfare improving under some conditions. The restriction operates by reducing the gap between perceived and actual consumer welfare for optimistic consumers.

NY Times interviews a scam caller

by Jeff Sovern

Here. Both written and audio versions of the article are available. The article also reports on scam call centers overseas. I hope this is something the Biden administration moves on aggressively in its foreign policy.

My new article: Six Scandals: Why We Need Consumer Protection Laws Instead of Just Markets

by Jeff Sovern

My new article is now up on SSRN: Six Scandals: Why We Need Consumer Protection Laws Instead of Just Markets. Here' is the 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 tests the claim that the market provides consumer protection by examining several recent incidents in which companies mistreated consumers and then exploring how the companies’ sales to consumers fared. The issue also has normative implications because if markets consistently protected consumers, society would need fewer regulations and regulators, as Friedman suggested.

The article finds a more nuanced situation than Friedman and other critics theorized. In three--possibly four--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. In two or perhaps three cases discussed in the article, companies suffered declines in sales after their misbehavior became public, and it seems likely that a scandal was at least partly the cause. In those latter cases, the scandal 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. In other words, laws helped the market achieve a better outcome by enabling consumers to learn of information that they wished to take into account in making purchasing decisions. 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. Indeed, in five of the six scandals discussed in the paper, the strong likelihood is that in the absence of rules, regulators, and consumer attorneys, injured consumers would not have been compensated and the troublesome conduct would not have elicited a response that deterred future misconduct. It thus appears that rules and those who enforce them are sometimes the only source of consumer protection.

The Article also offers hypotheses for when consumers will and will not avoid a company that has misbehaved. Factors that may affect consumer response to misconduct include how the choice to patronize the company is presented to consumers; how difficult it is to switch to other providers (e.g., the cost of switching from one bank to another); whether the company has presented itself as catering to consumer values but failed to deliver; and how many consumers are affected.

Arbel & Becher paper: Contracts in the Age of Smart Readers

Yonathan A. Arbel of Alabama and Shmuel I. Becher of Victoria University of Wellington have written Contracts in the Age of Smart Readers. Here's the abstract:

What does it mean to have machines that can read, explain, and evaluate contracts? Recent advances in machine learning have led to a fundamental breakthrough in machine language models, auguring a profound shift in the ability of machines to process text. Such a shift has far-reaching consequences for contract and consumer law, where information barriers have long been the driving force behind a large body of regulation. Our object here is to provide a general framework for evaluating the legal and policy implications of using language models as ‘Smart Readers’—tools that read, analyze, and assess contracts.

Synthesizing state of the art developments, we identify four core capabilities of smart readers. Based on real-world examples produced by new machine-learning models, we demonstrate that smart readers can: (1) simplify complex legal language; (2) personalize the contractual presentation to the user’s specific socio-cultural identity; (3) interpret the meaning of contractual terms; and (4) benchmark and rank contracts based on their quality.

Nevertheless, the implications of smart readers are more complex than initially meets the eye. While smart readers can overcome traditional information barriers and empower parties, they rely on black-box models that sophisticated parties can exploit. Smart readers can close some of the gaps in access to justice, but they also introduce concerns about contractual bias and discrimination. While smart readers can also improve term transparency, they might also lead judges and policymakers to relax their guard prematurely.

The current body of contract doctrine and scholarship is ill-equipped to deal with both the prospects and risks of smart reader technology. This Article narrows this gap. It maps the necessary theoretical, policy, and doctrinal adaptations to the age when machines can automate the reading of contracts.

 

Biden Extends Federal Student Loan Moratorium

On Wednesday, just hours after being sworn in, President Biden ordered the Education Department to extend the current COVID-19 suspension of all federal student loan payments and interest until at least October 1st.

The CARES Act — Congress' third coronavirus relief bill, which passed in March 2020 — directed the Education Department to suspend payments, stop collections, and set interest rates to 0% on all federally held loans. Former President Trump later extended those measures until January 31, 2021. Biden's order will automatically extend these measures for at least eight months. Borrowers will have no obligation to make payments, loans will not accrue interest, and the Education Department will stop collections on the one in five student borrowers who were in default even before the COVID-19 crisis. The student loan suspension applies to federally-held student loans which, according to CNN, include about 85% of total federal student loans, including direct federal loans and PLUS loans.

The move comes as Biden faces heavy pressure to cancel student loan debt altogether. Although Biden called for cancelling $10,000 in loans per borrower on the campaign trails, student loans were not included in the $1.9 trillion relief plan which the Biden team released last week. 

You can read the Education Department's announcement here and more about Biden's student loan suspension here.

FTC Commissioner and CFPB Director-Nominee Rohit Chopra Discussing the FTC's Remedial Authority

by Jeff Sovern

If you are curious to learn more about FTC Commissioner and CFPB Director-Nominee Rohit Chopra, here is a video of him discussing the FTC's remedial authority a couple days before the Supreme Court heard oral argument earlier this month in AMG v. FTC. The event was hosted by Truth-in-Advertising.org (TINA.org).

District Court Denies Request for Injunction Compelling Amazon to Host Parler

by Paul Alan Levy

In a decision issued his afternoon, Judge Barbara Rothstein has denied a motion by the infamous web site Parler seeking a preliminary injunction compelling Amazon to reverse its decision to terminate its hosting of Parler's web site. The judge agreed with Amazon that, under its hosting contract, Parler was subject to suspension, and to termination without notice, if it allowed contents that are “illegal, that violate the rights of others, or that may be harmful to others,” including “content that is defamatory, obscene, abusive, invasive of privacy, or otherwise objectionable.” The judge noted further that Parler had never denied that content on its platform violated the terms to which it had agreed, and that, regardless of Parler’s claimed effort to improve its content moderation system, both at the time of its suspension, and during the litigation, Parler was demonstrably unable to implement moderation sufficient to protect the public from the dire consequences of its users’ violent rhetoric.

The judge rejected, on the merits, the conclusory allegation that Amazon was engaged in some sort of antitrust conspiracy with Twitter to disadvantage Parler as a competitor to Twitter. She thus did not reach (or even discuss) some of the broader (and disturbing) arguments in Amazon’s brief suggesting that section 230 could be a basis for denying antitrust claims based on the deliberate removal or obscuring of content with the (alleged) objective of harming competition.