Why Do Republicans Say a Commission Would Be More Accountable Than a Director?

by Jeff Sovern

Here we go again.

The Republicans have repeatedly tried to convert the Consumer Financial Protection Bureau to a commission structure. The latest effort, H.R. 1266, is sponsored by Representative Randy Neugebauer of Texas.  The bill would replace the CFPB's director with a five-member commission, of whom no more than three could be members of the same party.  The commissioners would serve staggered terms.

Representative Neugebauer justifies his bill in these words:

Over the last several years, the Bureau’s actions and record have proven it can’t function in a sustainable manner. Perhaps, more than any other Washington agency, the CFPB has demonstrated a lack of transparency and a lack of accountability. It has proven it is susceptible to political influence – bringing into question its independence.

“This is all the more troubling because the Bureau has an important mission: to protect consumers. I support consumer protection but we must ensure product choice, credit availability and cost of credit are considered before rushing to regulate. To better serve the American people, the Bureau must adopt a more balanced and consultative process to its rulemaking.

Where to begin?  First of all, it would have been nice if the representative had explained why he believes the Bureau is not functioning in a sustainable manner.  The Bureau has returned huge sums to consumers and has adopted numerous rules that protect consumers. Why isn't that sustainable? 

Second, what evidence supports the claim that the Bureau is not transparent and accountable? To mention only one thing, the Bureau holds frequent field hearings--one less than two weeks ago and another scheduled for this week--to keep the country very much informed about its activities.  Director Cordray frequently testifies before Congress about the Bureau's functioning. And what does the Representative mean by political influence?  By the way, according to the Center for Responsive Politics, Representative Neugebauer's biggest contributor is the Bank of New York.  Banks and a banking organization make up three of his five biggest contributors. Is that what he means by accountability?

Third, how does a commission structure improve accountability?  Why would five people running the show instead of one make the Bureau more accountable?  It seems to me that it would actually make the Commission less accountable.  Right now, the buck stops with Director Cordray. He can't duck responsibility. But if the Bureau had five commissioners, wouldn't each one be able to shift responsibility to the other commissioners?  A commission would diffuse responsibility, rather than enhancing accountability. I can see why banks might want a commission structure. Commissions act more slowly. When they lack their full number of commissioners, they may be paralyzed by tie votes, as has happened with some commissions recently.  That is good for those who oppose consumer protection. Not, of course, that Representative Neugebauer opposes consumer protection. Oh no. After all, he said he supports it. That must be why the banks are among his leading contributors. 

Kaplinsky on Why Consumers Don't File Arbitration Claims

by Jeff Sovern

BloombergBusiness columnist Carter Dougherty has a story, Bank Customers May Get Their Day in Court, about the CFPB arbitration report.  Dougherty writes:

In its report, the CFPB noted that there were just 52 arbitration claims under $1,000 in 2010 and 2011, and consumers won relief in just four of them. Says [Deepak] Gupta: “What this report shows is not that claims go to arbitration but that they simply go away.”

Alan Kaplinsky, an attorney with Ballard Spahr who helped pioneer the use of arbitration clauses in financial contracts, counters that consumers resolve claims in other ways. They call the company to complain. They go to the Better Business Bureau. “That’s why you don’t see a heck of a lot of arbitration or litigation when there’s a clause,” he says.

I'm skeptical about Kaplinsky's claim, because a lot of research, beginning with Best and Andreason's seminal article, Consumer Response to Unsatisfactory Purchases: A Survey of Perceiving Defects, Voicing Complaints, and Obtaining Redress, 11 Law & Soc.Rev. 701, 728–29 (1977), shows that dissatisfied consumers mostly do not complain to either the offending business or external agencies like the BBB.  Mostly, they don't do anything.  If Alan has evidence to substantiate his claim, I hope he will make it public.

But even if his claim is true, it's hard to see how it helps to defend arbitration. If consumers benefit so much from arbitration, as Kaplinsky claims, why do consumers with arbitration clauses in their contracts prefer the Better Business Bureau?  Why don't they just use arbitration?  Does the benefit of arbitration derive from the fact that it drives consumers to use something else to resolve disputes?

 

CFPB will share publicly consumer complaints about financial products

The agency announced yesterday that it would enable consumers to share their issues regarding financial products and services directly with the public, via the CFPB's Consumer Complaint Database. The database has accepted complaints for almost three years, but under the new policy, consumers who submit to the database will have the option to share their narrative publicly. As the CFPB's press release explains:

Consumer narratives provide a first-hand account of the consumer’s experience, and adding the option to share them will greatly enhance the utility of the database. The narratives will provide context to complaints, spotlight specific trends, and help consumers make informed decisions. The narratives may encourage companies to improve the overall quality of their products and services, and more vigorously compete over good customer service.

The agency will remove personal information from complaints and also give the company a chance to respond.

Read the whole press release here. Coverage from The Hill is here. The full policy is available here.

Prepaid cards and prison policy

Guest post by Stephen Raher

Each year, over 12 million people are released from jails and prisons in the United States. When this happens, the correctional facility often owes money to the person being released. This could be money that the person earned while incarcerated, gifts from family, or perhaps funds that a person had they were arrested.

Traditionally, jails and prisons would make payments to released prisoners by cash or check. But recently, facilities across the country have started issuing refunds via prepaid debit cards. These cards come with high fees and complex account agreements. For example, cardholders may have to pay $3.50 per week simply to have a card. Per-transaction fees range up to $0.95 per swipe. Balance inquiries can cost up to $3.95. And some card programs charge simply to close the account and receive a refund.

Fee structures like this are troublesome enough in the free world, where consumers have some degree of choice, but in the context of correctional facilities, people should not be coerced into using pre-paid cards or similar financial products simply to access their own money. These cards are growing in popularity for one simple reason: jails and prisons can shift accounting costs from government budgets onto individual ex-prisoners, because program costs are funded entirely through cardholder fees.

As part of the Consumer Financial Protection Bureau's rulemaking on prepaid cards, the Prison Policy Initiative has submitted comments describing widespread problems with jail release cards and urging the Bureau to restrict the mandatory use of these high-fee cards. The CFPB is accepting comments on proposed amendments to Regulation E through March 23.

On economic inequality

Two interesting pieces on this ever-pressing subject, one short and one long.

The short one is from Nate Silver's incisive fivethirtyeight.com, where an article invites you in its title to "Meet The 80 People Who Are As Rich As Half The World." More interesting than the people on the list (some of whom you've surely heard of and many you probably haven't) is just the sheer incongruity of the comparison: 80 people vs. 3.6 billion.

The long piece is from this week's New Yorker, where Jill Lepore reviews several recent accounts of rising economic inequality in America and discusses both the problem itself and the problems with how the problem is discussed. Well worth a read, here.

Kim & Telman on Internet Giants as Quasi-Governmental Actors and Contractual Consent

Nancy S. Kim of California Western and D. A. Jeremy Telman of Valparaiso have written Internet Giants as Quasi-Governmental Actors and the Limits of Contractual Consent, Forthcoming in the Missouri Law Review. Here is the abstract:

Although the government’s data-mining program relied heavily on information and technology that the government received from private companies, relatively little of the public outrage generated by Edward Snowden’s revelations was directed at those private companies.  We argue that the myth of contractual consent muted criticisms that otherwise might be directed at the real data-mining masterminds.  By clicking “agree,” consumers are deemed to have consented to the use of their private information in ways that they would not agree to had they known the purposes to which their information would be put and the entities (including the federal government) with whom their information would be shared.  We also question the distinction between governmental actors and private actors in this realm, as the Internet giants increasingly exploit contractual mechanisms to operate with quasi-governmental powers in their relations with consumers. We propose that, in their efforts to better protect consumer data, regulators and policymakers should demand more than mere contractual consent as an indicator of consumers’ grant of permission for the use of their data. 

Neighborhood pollution in court

In an encouraging sign that courts are taking health and safety seriously in the neighborhood context, the D.C. Superior Court has issued an injunction against a man whose smoking fills his neighbors’ home with smoke, which has woken them up at night coughing and subjects their 18-month-old daughter to secondhand smoke, according to the nuisance claim the neighbors filed against the smoker. The Washington Post notes that the suit is part of a growing trend pitting smoking and non-smoking neighbors against each other, and the story cites cases from California and New York that resulted in relief for the victims of smoke pollution.

It’s hard not to sympathize a bit with the defendant, who wants to be left alone to do what he chooses in his home. But, according to the story, he has ignored the neighbors’ pleas to fix cracks in the common wall that create the smoke seepage. The argument that your home is your castle loses its force when what happens in your castle harms those beyond its walls.

You can read the story here.

CFPB wants to know how credit-card reform is working

In the Credit CARD Act of 2009 Congress sought to tame what it viewed as excesses of the credit-card industry. Go here to view the Act's basic reforms.

Since the law went into effect about five years ago, commentators and researchers have tried to assess its effectiveness. Read our prior posts on the topic here, here, here, here, here,  here, and here.

Now, the Consumer Financial Protection Bureau has issued this notice calling on the public to provide information so that it can review the law's effectiveness, as required by the Act. The review will culminate in a report.

Here is the agency's statement about the review (in part after the jump):

Today, the Consumer Financial Protection Bureau (CFPB) announced it is seeking public comment on how the credit card market is functioning and the impact of credit card protections on consumers and issuers. This public inquiry will focus on issues including credit card terms, the use of consumer disclosures, credit card debt collection practices, and rewards programs, among others.

“With today’s inquiry, the Bureau is seeking to further understand how the credit card market is working in practice and how credit card protections affect consumers and credit card issuers,” said CFPB Director Richard Cordray. “As we undertake this review, the Bureau wants to ensure it understands the information that consumers, industry, advocates, and other stakeholders believe is most relevant.”

LA Times's David Lazarus on Credit Bureau--NY Attorney General Settlement

Here.  An excerpt:

The reality is that credit-reporting firms have been required for decades to ensure the accuracy of consumers' files.

They're not doing us a favor. They're just finally saying that they'll follow the law.

"For years, the credit-reporting agencies have scoffed at the law," said Scott Maurer, a law professor at Santa Clara University. "What's different now is that someone has said they're going to enforce it."

Payday lending, lobbying, and Super PACs

The Huffington Post reports today:

Facing the prospect of imminent oversight by a newly created government regulator, the much-reviled payday loan industry’s lobbying machine surged into action.

The campaign to blunt the power of the Consumer Financial Protection Bureau included the usual monetary contributions to key lawmakers and hiring of well-connected lobbyists. But one little-known nonprofit connected to a network of online payday loan companies also leaped into the new world of influence-peddling post-Citizens United.

The Supreme Court's 2010 ruling led to the creation of super PACs and nonprofit groups so closely tied to congressional leaders that they regularly receive large contributions from those seeking a foot in the door. Online Consumers Network, an arm of the online payday loan empire run out of Missouri and Colorado by brothers Cole and Del Kimball, was one who came knocking.

In 2012, at the height of the payday loan industry’s lobbying campaign to push back the Consumer Financial Protection Bureau, Online Consumers Network contributed $100,000 each to American Action Network, a nonprofit closely connected to House Speaker John Boehner (R-Ohio), and YG Network, a nonprofit linked to then-House Majority Leader Eric Cantor (R-Va.). Both of these dark money groups spent millions on the 2012 election without disclosing their donors.

Read Online Payday Lender Pumped Dark Money Into Effort To Beat Back Regulation.