$1.4 billion settlement over inaccurate credit ratings

Today, major credit rating agency Standard and Poor's agreed to pay almost $1.4 billion to settle a suit filed by the Justice Department accusing the agency of giving inaccurately high credit ratings for risky financial products in the lead-up to the 2008 financial crisis.

Read more about it here. You can also read a DOJ press statement touting the settlement here, and a statement arguing that the settlement wasn't tough enough here.

CFPB announces $480 million student-loan debt-relief settlement with operator of private, for-profit colleges

To quote the Consumer Financial Protection Bureau's press release:

[T]he Consumer Financial Protection Bureau and the U.S. Department of Education announced more than $480 million in forgiveness for borrowers who took out Corinthian College’s high-cost private student loans. ECMC Group, the new owner of a number of Corinthian schools, will not operate a private student loan program for seven years and agreed to a series of new consumer protections.

Read the entire press release. The settlement documents are here. Note in these documents that the settlement amends, but does not eliminate, the schools' mandatory arbitration clauses.

The settlement's injunctive-like relief addresses many topics. It includes instructions to credit-reporting agencies to cleanse the students' credit reports and an independent monitor (acceptable to the Department of Education) for up to three years who will, among other things, review the schools' advertising and recruiting materials for fairness and compliance with state and federal law. A list of many of the settlement's key components appears after the jump.

NY threatens retailers with legal action for selling fraudulent dietary supplements

The New York Times reports today:

The New York State attorney general’s office accused four major retailers on Monday of selling fraudulent and potentially dangerous herbal supplements and demanded that they remove the products from their shelves.

The authorities said they had conducted tests on top-selling store brands of herbal supplements at four national retailers — GNC, Target, Walgreens and Walmart — and found that four out of five of the products did not contain any of the herbs on their labels. The tests showed that pills labeled medicinal herbs often contained little more than cheap fillers like powdered rice, asparagus and houseplants, and in some cases substances that could be dangerous to those with allergies.

Read the full story (with links to cease-and-desist letters sent by the NY attorney general to GNC, Target, Walgreens, and Walmart).

The Fate of Early Disclosure Regulation

by Jeff Sovern

In their book, More Than You Wanted to Know: The Failure of Mandated Disclosure, Omri Ben-Shahar & Carl E. Schneider mention the "Spanish Requirement," a rule that obliged sixteenth century Spaniards to deliver a speech in Spanish demanding surrender from New World audiences that did not understand Spanish.  My research assistant, Eric Levine, dug up a book that discusses the Spanish Requirement, LEWIS HANKE, SPANISH STRUGGLE FOR JUSTICE IN THE CONQUEST OF AMERICA 35 (2nd ed. 1949).  According to Hanke:

[T]he Requirement was read to trees and empty huts when no Indians were to be found. Captains muttered its theological phrases into their beards on the-edge of sleeping Indian settlements, or even a league away before starting the formal attack, and at times some leather-lunged Spanish notary hurled its sonorous phrases after the Indians as they fled into the mountains. Once it was read in camp before the soldiers to the beat of the drum. Ship captains would sometimes have the document read from the deck as they approached an island . . . .

And Hanke observes:

Spaniards themselves, when describing this document, have often shared the dilemma of Las Casas, who confessed on reading it he could not decide whether to laugh or to weep. He roundly denounced it on practical as well as theoretical grounds, pointing out the manifest injustice of the whole business. Others found it infinitely ridiculous and even its author, Palacios Rubios, "laughed often" when Oviedo recounted his own experiences and instances of how some captains had put the Requirement into practice, though the learned doctor still believed that it satisfied the demands of the Christian conscience when executed in the manner originally intended.

What's the Mark Twain quote? History doesn't repeat but it rhymes? 

 

Article on upcoming CFPB rule on payday loans

"Troubled by consumer complaints and loopholes in state laws, federal regulators are putting together the first rules on payday loans aimed at helping cash-strapped borrowers avoid falling into a cycle of high-rate debt," the New York Times reports this morning. Read "Rules Are Coming on Payday Loans to Shield Borrowers," here.

FTC acts against two car title lenders

car title loans are marketed as small emergency loans, but in reality these loans trap borrowers in a cycle of debt. A typical car title loan has a triple-digit annual interest rate, requires repayment within one month, and is made for much less than the value of the car. - See more at: http://www.responsiblelending.org/other-consumer-loans/car-title-loans/tools-resources/what-are-car-title-loans.html#sthash.iYj0Yw6y.dpuf

car title loans are marketed as small emergency loans, but in reality these loans trap borrowers in a cycle of debt. A typical car title loan has a triple-digit annual interest rate, requires repayment within one month, and is made for much less than the value of the car. - See more at: http://www.responsiblelending.org/other-consumer-loans/car-title-loans/tools-resources/what-are-car-title-loans.html#sthash.iYj0Yw6y.dpuf

car title loans are marketed as small emergency loans, but in reality these loans trap borrowers in a cycle of debt. A typical car title loan has a triple-digit annual interest rate, requires repayment within one month, and is made for much less than the value of the car. - See more at: http://www.responsiblelending.org/other-consumer-loans/car-title-loans/tools-resources/what-are-car-title-loans.html#sthash.iYj0Yw6y.dpuf

"Car title loans," the Center for Responsible Lending explains, "are marketed as small emergency loans, but in reality these loans trap borrowers in a cycle of debt. A typical car title loan has a triple-digit annual interest rate, requires repayment within one month, and is made for much less than the value of the car."

The FTC has taken against two car title lenders for deceptive advertising. In administrative complaints, the FTC charged that lenders First American Title Lending of Georgia, LLC, and Finance Select, Inc. advertised zero percent interest rates for a 30-day car title loan without disclosing important loan conditions or the increased finance charge imposed after the introductory period ended, the FTC explained in its press release.

The FTC charged that First American Title Lending, which operates over 30 locations in Georgia, advertised a zero percent offer (in English and Spanish) and failed to disclose that the borrower had to meet specific conditions to receive that rate. The borrower had to be a new customer, repay the loan within 30 days, and pay with a money order or certified funds, not cash or a personal check. If a borrower failed to meet those conditions, the offer did not apply, and he or she would be required to pay a finance charge from the start of the loan. The company’s advertisements also failed to disclose the amount of the finance charge after the introductory period ended.

The FTC alleged Finance Select, doing business as Fast Cash Title Pawn, failed to disclose that unless a loan was paid in full in 30 days, the zero percent offer did not apply, and that a borrower would have to pay a finance charge for the initial 30 days of the loan in addition to any finance charges incurred going forward. Fast Cash, which has five locations across Georgia and two in Alabama, also failed to disclose how much the finance charge would cost a borrower after the 30-day introductory period was over.

Last July, The FTC cautioned consumers against using car title loans in a document called "Caution: Car Title Loans Can Leave You Stranded."

The Center for Responsible Lending has more on car title loans, including this video.

car title loans are marketed as small emergency loans, but in reality these loans trap borrowers in a cycle of debt. A typical car title loan has a triple-digit annual interest rate, requires repayment within one month, and is made for much less than the value of the car. - See more at: http://www.responsiblelending.org/other-consumer-loans/car-title-loans/tools-resources/what-are-car-title-loans.html#sthash.iYj0Yw6y.dpuf

Check out CFPB's interactive tool for estimating market mortgage interest rates

The Consumer Financial Protection Bureau has this on-line interactive tool for estimating what a consumer should pay for a home mortgage. Plug in loan type, amount, length, down payment, FICO credit score, location, etc., and the tool spits out the approximate market interest rate in the relevant location and the total cost of credit. The CFPB says it is basing the tool's answers on "data [that] comes from actual lenders [which] is updated every day." (emphasis added)

And go here for the agency's explanation of "the 7 factors that determine your mortgage interest rate": credit score, home location, home price and and loan amount, down payment, loan term, interest rate type, and loan type.

Guest Post From Peter Holland: Forced Arbitration is the Silver Bullet to Kill Consumer Lawsuits, Says Prominent Corporate Attorney

by Peter Holland

In anticipation of the CFPB’s forthcoming study on forced arbitration in consumer contracts, we can expect lots of rhetoric from industry about how arbitration is more consumer friendly than litigation, and that it results in better outcomes (i.e. more money) for consumers.  (If this were really so, then how could a company justify these added losses to their shareholders)?

 It is not often that the general public gets a peek behind industry messaging, so this article and related podcast (especially starting at 8:44) are a particular treat.  Although industry may describe forced arbitration as a consumer protection measure, when talking amongst themselves, they describe it as “silver bullet” which can magically kill consumer claims.  Judge for yourself:

 “What if there existed a single argument that could be made in many consumer cases that would successfully remove the matter from Court and likely end the case in its entirety? 

Surprisingly, such an argument exists, though it is often overlooked in the defense of debt collectors and debt buyers.” 

The answer, according to the author, is to force the case out of court and into arbitration, where the claims will never be pursued because of the cost.  The lawyer in the podcast says that once a court orders arbitration, it is “very rare” a case actually goes to arbitration, and he can only think of 2 cases over the past several years that went to arbitration after the case was stayed or dismissed in court.  One of the reasons he offers is that plaintiff’s attorneys don’t want to spend their own money on arbitration.

So, in the words of one prominent lawyer, industry has a “silver bullet” which kills almost all disputes because of economic barriers and an inability to find lawyers.  Nice system. 

GW Consumer Protection Conference

George Washington is having what looks like a terrific Consumer Protection Conference under the auspices of the  ABA Antitrust Section on February 12.  More information available here.  Among the panels is a debate between my co-author Dee Pridgen and Howard Beales on advertising substantiation. As for how timely that is, see Steve Gardner's post on Friday about the DC Circuits POM opinion. 

Times Dealbook Piece on St. John's Arbitration Study

Here.