Why it's nearly impossible to sue your credit card company

"Why it's nearly impossible to sue your credit card company" is the title of an article in today's Washington Post about the mandatory arbitration provisions that are now standard in credit card agreements and the Consumer Financial Protection Board's report, expected to be released next week, about mandatory arbitration in consumer financial agreements. The full article is here.

Can your car's brakes be hacked?

Read this article from Wired.com about automakers’ lack of attention to the security of their cars’ systems, and the investigation of Sen. Edward Markey of Massachusetts into the problem.

Article on payday lending by Native Americans

The Washington Post has a lengthy article today on payday lending by American Indian tribes.

With some two-dozen tribes now offering installment and payday loans, Native Americans have found themselves wrestling with the merits of this lifeline. Following the formula used in casino gambling, tribes capitalize on their right to govern themselves in an otherwise tightly regulated industry. Only in this case, revenue is earned from borrowers who are charged interest rates that sometimes are double what they’d find in a brick-and-mortar payday store. Some Castle Payday borrowers can find themselves facing $8,000 in financing fees on a $1,000 loan, even if they make payments on time. The lending is conducted exclusively online.

The full article is here.

A Proposal to Ban the Sale of Junk Debt

By guest blogger Peter A. Holland

 I have covered the NCLC's excellent proposal to ban the sale of time-barred debt here.

The NCLC recommendations point to the larger problem that some banks sell off their worst, most unreliable, least collectible, most dubious accounts for literally pennies on the dollar (sometimes less), pursuant to broad disclaimers of accuracy and reliability.  I have written about this here.  The problem, in the words of Jeff Horwitz in an American Banker article is that, "Bank of America Sold Card Debts to Collectors Despite Faulty Records."  You can read what some of the typical disclaimers of accuracy in Forward Flow Agreements are here, including the revelations that the accounts being sold may not be legally enforceable (see page 4), and that (page 26, Schedule 1), the balance of each account is only "approximate." 

Banks should not be allowed to sell their worst, most unreliable accounts as junk debt for junk prices to junk purchasers who will then file junk lawsuits.  If one reads the broad disclaimers of warranty in any of the Forward Flow Agreements, one has to wonder, why is this not already explicitly banned?  In her excellent article, "Dirty Debts Sold Dirt Cheap" UConn Law Professor (and former CFPB staffer) Dalie Jimenez has rightly called for the CFPB to declare that the selling such accounts under such circumstances is an unfair or deceptive trade practice.  (A sampling of over 80 Forward Flow Agreements is available from Dalie Jimenez, here ).  I have written about the lack of proof in these junk lawsuits here, and about the "junk justice" effect of these lawsuits here.

While banning the sale of time-barred debt as recommended by the NCLC, and declaring the sale of junk debt to be a UDAP violation as recommended by Dalie Jimenez are both excellent and realistic proposals, the CFPB should also consider going further and calling for an outright ban on the sale of any debt which is not accompanied by affirmative representations and warranties of completeness, accuracy, reliability and enforceability.  Further, the Forward Flow Agreements should be made publicly available on a website, so that consumers, consumer attorneys and judges can decide for themselves just how reliable accurate and reliable are the claims of the debt buyers. 

Currently, we are living under a system where banks are knowingly selling inaccurate, unreliable junk accounts which are then used to extract money from consumers, some of whom do not owe any amount at all, and many of whom owe considerably less than the "approximate" amount being sued on.  We need to move from a business model where it is perfectly acceptable to sell false, incomplete and unreliable accounts, to a model where the only accounts which may legally be sold are those accounts which are true, complete and accurate.  Banning the sale of time-barred debt is an excellent start, as is declaring the sale of such junk debt to be a UDAP.  Perhaps in the current political climate, that is all we can hope for.  But the only way to stop these practices altogether is to invert the current model: mandate that banks sell only legitimate accounts, and institute an outright ban on the sale of the bogus, "dirty" accounts.

Sen. Warren's terrific plain-English explanation of the dangers of the Trans-Pacific Partnership

Sen. Warren's op-ed in the Post this week is a must-read, and a must-share: it explains how our country's consumer, worker, and environmental protection laws could be undermined by a dispute-resolution clause in the TPP, currently being negotiated. More generally, the danger Sen. Warren describes is a potent illustration of how trade deals that may sound benign in terms of their general aims can contain some pretty radical giveaways to corporate interests.

Here's a flavor:

[The Investor-State Dispute Settlement clause, or ISDS] would allow foreign companies to challenge U.S. laws — and potentially to pick up huge payouts from taxpayers — without ever stepping foot in a U.S. court. Here’s how it would work. Imagine that the United States bans a toxic chemical that is often added to gasoline because of its health and environmental consequences. If a foreign company that makes the toxic chemical opposes the law, it would normally have to challenge it in a U.S. court. But with ISDS, the company could skip the U.S. courts and go before an international panel of arbitrators. If the company won, the ruling couldn’t be challenged in U.S. courts, and the arbitration panel could require American taxpayers to cough up millions — and even billions — of dollars in damages.

Sen. Warren goes on to explain why these arbitration panels have built-in incentives to favor corporations, and how ISDS has been used in the past overseas to undermine health and safety regulations and minimum wage laws.

Read the full piece here here.

(BREAKING) FCC approves net neutrality rules

NPR reports:

The Federal Communications Commission approved the policy known as net neutrality by a 3-2 vote at its Thursday meeting, with FCC Chairman Tom Wheeler saying the policy will ensure "that no one — whether government or corporate — should control free open access to the Internet."

The policy helps to decide an essential question about how the Internet works, requiring service providers to be a neutral gateway instead of handling different types of Internet traffic in different ways — and at different costs.

Read the whole story here. (For some background in our prior discussions on the blog -- as well as a sense of how the FCC has evolved on the issue -- see here, here, and here.)

Study finds Dodd-Frank law helped big banks, hurt community banks

From the website Main St.:

A newly released Harvard study indicates that the Dodd-Frank Wall Street Reform and Consumer Protection Act has given Wall Street an advantage over Main Street - the opposite of what was intended.

Two researchers at the Mossavar-Rahmani Center for Business and Government of the John F. Kennedy School of Government at Harvard University have just published their findings in a report called "The State and Fate of Community Banking" that concludes Dodd-Frank has helped to speed up the decline of America’s community banks.

The full article is here.

California bill aims to make Rx drug pricing transparent

The Wall Street Journal's "Pharmalot" reporter Ed Silverman reports on a bill introduced in the California legislature that is aimed at elucidating the mysteries of prescription drug pricing:

As the prices of prescription medicines strain budgets, one California lawmaker wants to force drug makers to reveal their costs in a bid to provide some transparency to the pricing process.

Specifically, the bill would require drug makers to report profits and various operational costs for any medicine that has a price tag of more than $10,000 a year. And these costs would have to be reported to the California Office of Statewide Health Planning and Development, which would then compile an annual report that would be submitted to the state legislature and posted publicly online.

The full article is here.

Trial court strikes down Maine drug import law

From the Bangor Daily News:

A federal judge has overturned Maine’s first-in-the-nation law allowing residents to purchase medication by mail from other countries.

U.S. Chief District Judge Nancy Torresen’s ruling Monday comes more than a year after several Maine pharmacy groups filed suit against the state over the 2013 law, arguing it jeopardizes the safety of the nation’s prescription drug supply and opens the door to counterfeit and tainted medications.

Federal law strictly limits the importing of prescription drugs from foreign countries for personal use. Torresen ruled that Maine infringed on the federal government’s established regulatory authority by allowing drug importation at the state level. Her decision nullifies the law, though the state could potentially appeal.

The full article is here.

Effective Disclosure of Arbitration Clauses and the CFPB's Power to Regulate Them

by Jeff Sovern

Brian posted earlier that the CFPB has announced a field hearing on arbitration for March 10.  Because the CFPB often schedules such hearings when it announces something, it is probably going to release the next installment in its arbitration report (maybe the final installment) in conjunction with the hearing.  As Brian also noted, the Bureau can regulate or ban arbitration in consumer financial contracts after issuing the report, under the authority of 12 U.S.C. § 5518.  But that is not the only provision in Dodd-Frank that would enable the Bureau to regulate arbitration. For example, 12 U.S.C. § 5532 provides (emphasis added):

(a) In general. The Bureau may prescribe rules to ensure that the features of any consumer financial product or service, both initially and over the term of the product or service, are fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with the product or service, in light of the facts and circumstances.

* * *

(c) Basis for rulemaking. In prescribing rules under this section, the Bureau shall consider available evidence about consumer awareness, understanding of, and responses to disclosures or communications about the risks, costs, and benefits of consumer financial products or services.

The St. John's Arbitration Study raised serious questions about whether the arbitration feature in contracts is "fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with the product or service, in light of the facts and circumstances." Not only did the respondents not understand what agreeing to the arbitration clause in the contract we showed them meant, but many had agreed to arbitrate in other contracts without realizing it.  We asked the respondents about three different types of contracts:  cell phones (Verizon Wireless, AT&T Mobility, and Sprint), PayPal, and Skype.  Not one of those contracts produced a greater level of consumer awareness of the arbitration clause than the others.  Put another way, the differences in respondents' answers to the questions about whether they had agreed to an arbitration clause were not statistically significant regardless of which one of those contracts they had entered into (I should note that there was overlap among the respondents, meaning that some had entered into two such contracts, and some had entered into all three types). Adding in our credit card contract, we have reason to think that not one of the four contracts fully and effectively disclosed to consumers what they were agreeing to.

Perhaps the Bureau will use be § 5518 to determine that arbitration clauses should be banned or regulated.  But another option would be for the Bureau to use § 5532 (or both sections) to prescribe a rule that the clauses cannot bind consumers unless companies can fully, accurately and effectively disclose to consumers the features of an arbitration clause in a way consumers can understand. Given the CFPB's findings that the average credit card contract arbitration clause requires two years of college to understand, I wonder if arbitration clauses can even be written in a way that meets the § 5532 standard.