Sign up to attend a CFPB hearing on mandatory pre-dispute arbitration

As many of our readers know, as required by the Dodd-Frank financial reform legislation, the Consumer Financial Protection Bureau is conducting a study of arbitration as a dispute-resolution mechanism for matters with the Bureau's regulatory reach. After the study, the CFPB is authorized to take regulatory action consistent with its study's results. (We addressed the study many times, including here and here.)

The CFPB is holding a public hearing, and you can attend if you sign up now. Here's the agency's announcement:

You are invited to a field hearing on arbitration hosted by the Consumer Financial Protection Bureau (CFPB). The field hearing will take place on Tuesday, March 10, 2015 at 11:00 a.m. EST in Newark, NJ.

 The event will feature remarks from CFPB Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public.

This field hearing is open to the public and requires an RSVP.  To RSVP, email your full name and your organizational affiliation (if any) to cfpb.events@cfpb.gov.  If you need an accommodation to participate, you can make a request here: http://www.consumerfinance.gov/accessibility/.

EPA To Tighten Rules for Auto Fuel Economy Ratings

From the New York Times:

After two years of imposing increasingly stiff penalties on automakers that overstate their fuel economy ratings, federal regulators on Monday said they would tighten guidelines used in determining the mileage advertised to consumers.

Next year, automakers will face stricter rules for conducting a crucial test or face an audit by the Environmental Protection Agency and potential penalties. The rules for the test had not been updated in over 10 years.

Read the full article here.

In escalating standoff, airbag manufacturer to be fined for noncompliance with safety regulators

We've discussed before the fight between federal regulators and airbag manufacturer Takata over whether the company would issue a nationwide recall on defective airbags. The confrontation is escalating.

As the New York Times reported Friday:

federal regulators said on Friday that they would begin to fine the Japanese auto supplier $14,000 a day, saying it had not fully cooperated in an investigation into defective airbags.

Takata has failed to respond “fully or truthfully” to two orders that it turn over documents and information related to the defect, the National Highway Traffic Safety Administration wrote in a letter to the company.

Read the Times story here.

As a reminder what's at stake here, we're talking about air bags that deploy with so much force they can hurl shrapnel into the passenger compartment. "At least five deaths and dozens of injuries have been linked to the problem worldwide," according to an Associated Press story from December.

CFPB Chair's speech to National Association of Attorneys General

Consumer Financial Protection Bureau Chairman Richard Cordray spoke yesterday at a meeting of the National Association of Attorneys General. His remarks are posted here. Chairman Cordray discussed CFPB's efforts to address deceptive marketing, debt traps, "dead ends" (a discussion of credit scores and debt collection), and discrimination.

The effect of patent trolls on innovation

Though the definition varies (go here), a patent troll generally is thought of as a person or entity that buys patents and then enforces the patents through litigation against accused infringers to collect licensing fees. The troll has no intent to exploit the patent for itself -- that is, no plan to use the patent to make or sell a product or supply a service. Many people, including many politicians, think that litigation brought by trolls improperly drives up costs to innovating businesses and, ultimately, consumers.

Professor Stephen Haber and grad student Seth Werbel have recently published this study that questions the prevailing view. Read this article on their research, an earlier piece in the Wall Street Journal, and the study abstract:

Why do individual patent holders assign their patents to "trolls" rather than license their technologies directly to manufacturers or assert them through litigation? We explore the hypothesis that an asymmetry in financial resources between individual patent holders and manufacturers prevents individuals from making a credible threat to litigate against infringement. First, individuals may not be able to cover the upfront costs associated with litigation. Second, unsuccessful litigation can result in legal fees so large as to bankrupt the individual. Therefore, a primary reason why individual patent holders sell to PAEs is that they offer insurance and liquidity. We test this hypothesis by experimentally manipulating these financial constraints on a representative sample of inventors and entrepreneurs affiliated with academic institutions that are particularly known for their innovative activity: Stanford University and the University of California, Berkeley. We find that in the absence of these constraints, subjects were significantly less likely to sell their patent to a PAE in a hypothetical scenario. Furthermore, treatment effects were significant only for subjects who were hypothesized to be most sensitive to these constraints.

 

When should finanical institutions be bailed out?

Law professors Anthony Casey and Eric Posner attempt to answer that question in A Framework for Bailout Regulation. Here is the abstract:

During the height of the financial crisis in 2008 and 2009, the government bailed out numerous corporations, including banks, investment banks, and automobile manufacturers. While the bailouts helped end the financial crisis, they were intensely controversial at the time, and were marred by the ad hoc, politicized quality of the government intervention. We examine the bailouts from the financial crisis as well as earlier bailouts to determine what policy considerations best justify them, and how they are best designed. The major considerations in bailing out and structuring the bailout of a firm are the macroeconomic impact of failure; the moral hazard effect of the bailout; the discriminatory effect of the bailout; and procedural fairness. Future bailouts should be guided by principles that ensure that the decisionmaker properly takes into account these factors.

Joint Enforcement Action: Maryland Attorney General and CFPB Act On Illegal Mortgage Kickbacks

By guest blogger Peter A. Holland

In a time of limited resources, perhaps a new model is emerging of joint CFPB/State Attorney General enforcement actions.  The recent joint action by the Bureau and Maryland Attorney General Brian Frosh provides a nice case study.

Recently, Maryland Attorney General Brian Frosh and the Consumer Financial Protection Bureau took an action against a mortgage kickback scheme involving former Maryland title company Genuine Title, LLC and employees at national banks Wells Fargo and JPMorgan Chase. “Homeowners were steered toward this title company, not because they were the best or most affordable, but because they were providing kickbacks to loan officers . . . this type of quid pro quo is illegal, and it's unfair to other businesses." Said Maryland Attorney General Brian Frosh. The complaint in the case is available here.

Between 2009 and 2013, Genuine Title swapped marketing services and cash payments for referrals of business by loan officers to Genuine Title.

Loan officers typically are paid by commission. Through the Marketing Services Scheme, Genuine Title offered loan officers valuable services to increase the amount of business they generated, and thus the commissions they would earn. The scheme was also intended to increase the amount of business generated by the participating loan officers and, through referrals, to increase Genuine Title’s profits.

In some cases Genuine Title:

not only analyzed and purchased leads from a third-party vendor, it also paid for marketing letters directed to the consumer leads to be printed, folded, stuffed into envelopes, and mailed.

Genuine Title even attempted to conceal its involvement by having the company which printed the marketing materials provide “fake” invoices to the loan officers, so that it could pretend that the loan officers had paid for the materials themselves. Genuine Title went out of business in April 2014, which is why they are not named in the joint enforcement action.

Over 100 loan officers at Wells Fargo were involved in the scheme, along with 6 at the JPMorgan Chase, and an unknown number at other, unnamed banks. The enforcement action led to consent orders with Wells Fargo and JPMorgan Chase. Wells Fargo will pay over $10 million in redress to affected consumers, $21 million in penalties to the CFPB and $3 million to the Maryland Attorney General’s office. Chase will pay less than $1 million in redress and penalties.

Maryland’s First Co-Operative Action with the CFPB

This is the first case in which the Maryland Attorney General’s office and the CFPB have acted jointly to enforce the law. The investigation seems to have started in Maryland, with the Office of the Attorney General stating:

The case was referred to the Consumer Protection Division by the Maryland Insurance Administration and the investigation was conducted jointly with the Consumer Financial Protection Bureau.

The CFPB made a similar statement in its press release. The CFPB takes most of the responsibility for monitoring compliance with the consent orders and handling the payments to affected consumers. CFPB will also receive most of the penalties to be paid – which may reflect the degree of the CFPB’s involvement in the investigation and enforcement action. This case appears to be an excellent example of state-federal co-operation making a major enforcement action possible. The CFPB can only examine so many businesses and follow up on so many reports of wrongdoing on its own. Likewise, state attorneys-general may not always have the resources to take on huge market players like Wells Fargo and Chase on their own.

In a time of contracting state budgets, joint federal/state actions of consumer protection laws seems to make good sense, and seems to be an excellent way to use the Dodd Frank act to pursue both local and national actors when they engage in fraud and abuse in the area of consumer financial services.

Study of Public Participation in Rulemaking and Plain Language

Cynthia R. Farina, Mary Newhart, and Cheryl L. Blake, all of Cornell, have written The Problem with Words: Plain Language and Public Participation in Rulemaking, George Washington Law Review (2015 Forthcoming). Here's the abstract:

The connection between more understandable rulemaking materials and broader, better public participation seems obvious, Yet the series of Presidential and statutory plain-language directives issues over the last 5 decades have not even mentioned the relationship of comprehensibility to participation — until very recently. In 2012, the Office of Information and Regulatory Affairs (OIRA) issued “guidance” instructing that “straightforward executive summaries” be included in “lengthy or complex rules.” OIRA reasoned that “[p]ublic participation cannot occur … if members of the public are unable to obtain a clear sense of the content of [regulatory] requirements.”

Using a novel dataset of proposed and final rule documents from 2010-2014, we examine the effect of the executive summary requirement. We find that the use of executive summaries increased substantially compared to the modest executive-summary practice pre-Guidance. We also find that agencies have done fairly well in providing summaries for “lengthy” rules. Success in providing the summary in “complex” rules and in following the standard template included with the Guidance is mixed. Our most significant finding is the stunning failure of the new executive summary requirement to produce more comprehensible rulemaking information. Standard readability measures place the executive summaries at a level of difficulty that would challenge even college graduates. Moreover, executive summaries are, on average, even less readable than the remainder of the rule preambles that they are supposed to make accessible to a broader audience.

This article is part of the symposium commemorating the 50th anniversary of the Administrative Conference of the United States

Does Pre-Submission Media Coverage Increase the Odds of a Good Article Placement?

by Jeff Sovern

As law students, law professors, and lawyers know, most law reviews are edited by law students, which means that law students select the articles that appear in their journals.  The prime submission season is just underway, and so newly-minted law review editors—most in their second year of law school—are choosing among the flood of articles submitted by lawyers and law professors.

Most second year students have been exposed to only a limited range of legal doctrines and a limited number of articles.  That surely must make it harder to assess the quality of an article.  Consequently, it is only natural that some rely upon signals of quality.  For example, some observers claim that law review editors are subject to letterhead bias; that is, the tendency to give excessive weight to the affiliation of the author, with the result that prestigious journals publish weaker articles by professors at top law schools over better articles by scholars at schools that are ranked lower. 

I am wondering about the effectiveness of a different signal to suggest that an article is significant: media attention for the research reported in the article (Warning: self-serving statements ahead). My co-authors and I are in the process of submitting to law reviews an article (which will be familiar to regular readers of this blog), “Whimsy Little Contracts” with Unexpected Consequences: An Empirical Analysis of Consumer Understanding of Arbitration Agreements.  It’s been the subject of coverage in The New York Times DealBook, the Cleveland Plain Dealer, American Banker (here, here, and here),  and a couple more places have stated their intention to run things on it.  While I wrote most of those pieces (but not all), the various outlets undoubtedly would not have used my pieces if they did not deem them newsworthy. So will all that signal to law review editors that the article is significant?  Of course, one article is a miniscule sample, but if the article gets a good placement, law review article writers might be well advised in the future to seek more media attention for their writings (I should note that media attention is valuable for reasons other than obtaining good placements, including that it can lead to useful comments on the underlying article and also help promote the ideas expressed in the article).

New York Decision Denying Discovery of Doe Critics Casts Broad Doubts on Libel Suits over Consumer Reviews

by Paul Alan Levy

The Appellate Division in New York has today affirmed the denial of a pre-litigation petition brought by Woodbridge Structured Funding seeking to compel Opinion Corp. to provide identifying information about the authors of two critical consumer reviews on its Pissed Consumer site.