New York Prosecution Against Payday Lending Syndicate

The Manhattan District Attorney has brought criminal charges against a payday lending syndicate, alleging that an intricate corporate structure was established to to make payday loans with interest rates in violation of the state's usury cap and to shield its principals from detection by law enforcement. Those charged include the owner, the chief operating officer, and the syndicate's counsel.The indictment is described as a "harbinger" of others that may be brought against payday lenders.

The CFPB warns consumers about bitcoin and other virtual currencies

The Consumer Financial Protection Bureau has just issued this consumer advisory about the risks of bitcoin and other virtual currencies. The agency has also begun accepting consumer complaints on the topic.

Today’s advisory warns that virtual currencies carry significant risks, including:

·      Exchange rates are volatile and costs unclear: The exchange rate of Bitcoins to U.S. dollars in 2013 fell as much as 61 percent in a single day. In 2014, the value of Bitcoins has dropped by as much as 80 percent in a single day. The advisory explains that consumers who buy virtual currencies should be prepared to weather this kind of volatility. Consumers should also consider whether there are mark-ups or other fees when using an exchange or digital wallet provider. Companies may be charging consumers to buy, spend, or accept virtual currencies.

 

·      Hackers and scammers pose serious security threats: Virtual currencies are targets for highly sophisticated hackers and scammers. Individuals, digital wallet providers, and exchanges are all at risk. For example, if a hacker gains access to a consumer’s Bitcoin “private keys,” which are 64-character codes that unlock the consumer’s funds, the consumer can lose all their virtual currency. Fraudsters are also taking advantage of the hype surrounding virtual currencies to pose as Bitcoin exchanges, Bitcoin intermediaries, and Bitcoin traders in an effort to lure consumers to send money, which is then stolen.

 

·      Companies may not offer help or refunds for lost or stolen funds: Some virtual currency companies do not identify their owners, provide phone numbers and addresses, or even specify the country in which they are located. Before using a company’s products or services, consumers should carefully consider if they know how to contact the company in question, and if they know their contractual rights. If a consumer trusts a company to hold their virtual currencies and something goes wrong, the company may not offer the kind of help the consumer would expect from a bank, debit card, or credit card provider. In fact, some virtual currency companies disclaim responsibility for consumer losses if funds are lost or stolen.

 

 

John Oliver on Payday Loans

John Oliver's comedy news-in-review show on HBO, "Last Week Tonight," had an excellent segment on payday loans last night. The show was well researched and probably exposed many people to these issues for the first time. Among other things, it covers the payday industry's reliance on recidivism (citing Center for Responsible Lending research and an exhibit from a recent CFPB enforcement action), its ability to skirt state-level regulation (citing a clip of oral argument in the Ohio Supreme Court), and its attempt to hide behind tribal sovereign immunity. Great stuff. Comedian Sarah Silverman also makes an appearance with a mock public-service ad about payday loans. Watch here:

 

 

NYT's consumer advocate "The Haggler" speaks with Ira Glass on This American Life

Worth a listen (about 7 minutes), here.

Radin Essay on Ben-Shahar's & Schneider's Book on Disclosure

Last year, we posted a link to Omri Ben-Shahar's review of Margaret Jane Radin's Boilerplate. Now she returns the favor by comenting on More Than You Wanted to Know: The Failure of Mandated Disclosure, the book he co-authored with Carl Schneider in her essay, Dismissing Disclosure?  Here is the abstract:

This essay responds to a new book by Omri Ben Shahar and Carl E. Schneider, entitled MORE THAN YOU WANTED TO KNOW: THE FAILURE OF MANDATED DISCLOSURE (Princeton, 2014).  The book is an elaborate disclosure of why disclosure fails. It is hard to disagree with the fact that widespread deficits in consumer reading, understanding and decisionmaking undermine the efficacy of disclosures, and the book provides plenty of data to show this. But the authors do not much confront the fact that many mandates for disclosures are a response to what happens when firms are free to design their own fine print. The same consumer decisionmaking deficits the authors here elaborate exist when the disclosure (allegedly contractual) is created by private firms; and firms take advantage of those deficits. If mandated disclosure is abandoned, as the authors recommend, do the authors think recipients of bad boilerplate should just be on their own?  The authors did not consider that question as part of their project in this book.

Times Coverage of Predatory Subprime Auto Lending

The New York Times has run several troubling pieces recently on predatory subprime car lending, most notably here.  Today's Times includes an editorial that states:

 Dealers who can offload loans to banks before the loans fail take the same rapacious approach that mortgage lenders took in the run-up to the recession. They prey on less sophisticated borrowers, falsifying the borrower’s income information and writing loans with astronomical interest rates and hidden fees that deliver a quick profit to the dealers.

* * *

The government also must require that auto dealers, like mortgage lenders, verify that borrowers have the ability to repay their loans and meet their other expenses. In addition, regulators should bar the dealers from gaining additional profit by manipulating interest rates. Beyond this, banks that buy auto loans should be held strictly accountable for any irregularities.

Ching Paper: What We Consent to When We Consent to Form Contracts: Market Price

Kenneth K. Ching of Regent has written What We Consent to When We Consent to Form Contracts: Market Price. Here is the abstract:

Contracts require consent, yet no one reads form contracts. So what do we consent to when we consent to form contracts? Scholarly answers to this question range from “we consent to everything but the radically unexpected” to “we consent to nothing but the specifically negotiated.” This essay offers a new answer: when we consent to form contracts we consent to pay market price.

Part I of this essay discusses Randy Barnett’s argument that consent to form contracts is consent to be legally bound, which raises the question of whether there are any limits on what can be consented to via form contract. Part II discusses Carnival Cruise Lines v. Shute as illustrative of Barnett’s theory and argues that Carnival’s approach should be rejected. Part III of this essay argues that consent to form contracts should be construed as consent to pay market price.

CFPB probing financial relationships between colleges and sellers of credit cards and other financial products

The Consumer Financial Protection Bureau is demanding information about what it terms "secret contracts" between banks and colleges under which the banks pay the colleges to steer students to their products, particularly credit cards. Here is an excerpt of an article on the topic by the CFPB's Rohit Chopra:

If you’re a student preparing to head back to campus, you may encounter offers from banks and other companies that promote debit cards, prepaid cards, bank accounts, and other products branded with your school’s name or logo. When your school makes a deal with a company to market a financial product, it’s important for you to have basic information about this agreement and to understand what this means for your options. Last year, we launched an inquiry into financial products marketed to college and university students to determine whether the market is working for students and families. We called on financial institutions to publicly disclose agreements with institutions of higher education to market financial products to students. Information about these arrangements is already required to be disclosed when marketing credit cards and private student loans to students—these requirements were put in place after companies were found to have paid schools and school officials in order to steer students into these products. Making these agreements available for all financial products shows schools’ and companies’ commitment to transparency, helping students and their families understand basic information about these products before you sign up. We decided to take a look at the financial institution partners of a group of some of the largest universities in America – members of the Big Ten conference – to see if they’ve disclosed agreements on their websites. Together, these schools enroll more than a half a million students.

 

Emily Bazelon on President Obama's executive order on forced arbitration

Here.

The CFPB at Three: A Child Prodigy

On July 21, we noted the Consumer Financial Protection Bureau's 3-year anniversary. If you want some detail on what the CFPB has been up to, over a wide-range of topics, read Ed Mierzwinski's The CFPB at Three: A Child Prodigy.