"America's hidden epidemic of tropical diseases"

That's the title of this piece in the New Scientist, which reveals another cause of widening economic inequality in the U.S.

CFPB issues preliminary research results on use of pre-dispute mandatory arbitration clauses in consumer financial contracts

The Consumer Financial Protection Bureau today issued this 168-page compendium of preliminary research on the use of pre-dispute binding mandatory arbitration (BMA) clauses in consumer financial contracts. This document was released as part of CFPB's study on the use of BMA required by section 1028 of the Dodd-Frank financial reform law -- the law that gave birth to the CFPB. Section 1028 authorizes the CFPB to limit or prohibit BMA in consumer contracts within its purview if consistent with the agency's Dodd-Frank-mandated study and the agency "finds that such a prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers."

The study indicates that arbitration clauses often prevent injured consumers from obtaining relief, and not generally to resolve disputes outside of court. That is, consumers whose claims are not big enough to justify hiring their own lawyer generally get no relief at all.  According to the CFPB data, between 2010 and 2012, only 900 arbitration claims were filed by consumers involving credit cards, checking accounts, payday loans, and prepaid cards.

The study also indicates that arbitration clauses can shield companies that violate the law. Nine out of 10 arbitration clauses studied prevented consumers from proceeding together (as in a class action) and forbid arbitrators from ordering a company that violated the law from providing relief to all of the victims. Tellingly, in the few arbitration cases that have been settled on a class basis, more than 13 million class members made claims or received payments.

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The agency's comprehensive press release provides much more information. Here it is in full:

CONSUMER FINANCIAL PROTECTION BUREAU FINDS FEW CONSUMERS FILE ARBITRATION CASES

About 9 Out of 10 Arbitration Clauses Prevent Consumers from Participating in Class Actions

 WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau released preliminary research on the use of arbitration clauses in connection with consumer financial products and services. The research indicates that arbitration clauses are commonly used by large banks in credit card and checking account agreements and that roughly 9 out of 10 clauses allow banks to prevent consumers from participating in class actions. The research also shows that while tens of millions of consumers are subject to arbitration clauses in the markets the CFPB studied, on average, consumers filed 300 disputes in these markets each year between 2010 and 2012 with the leading arbitration association.

 “Many contracts for consumer financial products and services contain arbitration clauses,” said CFPB Director Richard Cordray. “Today’s preliminary results help us better understand how these clauses are affecting consumers’ financial lives so that we can ultimately determine whether action should be taken for their greater protection.”

The results of today’s study are available at: http://files.consumerfinance.gov/f/201312_cfpb_arbitration-study-preliminary-results.pdf

Arbitration is a way to resolve disputes outside the court system. Many contracts for consumer financial products and services contain a “pre-dispute arbitration clause” stating that either party can require that disputes about that product or service be resolved through arbitration, rather than through the court system.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) mandates that the CFPB conduct a study on the use of pre-dispute arbitration clauses in consumer financial markets. The Bureau first launched a public inquiry on arbitration clauses in March 2012. The Dodd-Frank Act also gives the Bureau the power to issue regulations on the use of arbitration clauses if the Bureau finds that doing so is in the public interest and for the protection of consumers.

The preliminary results of the study provided by the CFPB are based on a review of hundreds of consumer contracts, as well as on filings from the American Arbitration Association (AAA). Based on the CFPB’s research, the AAA is the predominant administrator of consumer financial arbitrations in the markets covered by the study to date. The CFPB looked at AAA filings about credit cards, checking accounts, payday loans and prepaid cards between 2010 and 2012. The CFPB observed that fewer than 1,250 consumer arbitrations about those four products were filed. Many of these concerned debt collection.

CFPB research indicates that consumers filed around 900 of these disputes. The remaining disputes are filed by companies or submitted by both sides together. In comparison, in that same three-year time period, over 3,000 cases were filed by consumers in federal court about credit card issues alone. More than 400 of these federal court cases were filed as class actions, whereas CFPB’s research found only two class filings in arbitration and neither was about credit cards.

Other preliminary results for the markets the CFPB has studied include:

• Larger institutions are most likely to use arbitration clauses. The CFPB’s preliminary results indicate that larger institutions are more likely than community banks or credit unions to include an arbitration clause in consumer contracts for credit cards or checking accounts. For example, while the CFPB estimates that only 7.7 percent of banks use arbitration clauses for their checking accounts, 62 percent of the top 50 banks have arbitration clauses in their checking account contracts. With respect to prepaid cards, however, arbitration clauses are seen more uniformly across almost every consumer contract.

• Arbitration clauses are more complex than the rest of the contract. The CFPB’s preliminary results indicate that, in credit card contracts, the arbitration clause section of the contract was almost always more complex and written at a higher grade level than the rest of the contract.

 

• Around 9 out of 10 arbitration clauses expressly bar consumers from filing class arbitration. In the contracts the Bureau studied, around 90 percent of the arbitration clauses specifically bar consumers from filing class arbitrations. The few clauses without this provision were in smaller bank contracts. This means that, for the products the CFPB studied, almost all of the market that is subject to arbitration is also subject to terms that effectively preclude class actions in court or in arbitration.

• Consumers do not choose arbitration over class action settlements. While its study of class actions remains ongoing, the Bureau has already identified a number of class actions involving credit cards, deposit accounts, or payday loans in which the contract allowed for arbitration before the AAA. More than 13 million class members made claims or received payments under these settlements, while 3,605 individuals opted out of participating in the settlements, which gave them the right to bring their own cases. At most, only a handful of these individuals chose instead to file an arbitration case.

• Consumers do not file arbitrations for small-dollar disputes. In looking at the data, the Bureau observed that almost no consumers filed arbitrations about disputes under $1,000. For arbitration filings involving debt disputes, the average amount of debt at issue was over $13,000. For other arbitration filings, the average consumer claim was for over $38,000.

• Few consumers file small claims court actions. A number of arbitration clauses allow a consumer, and sometimes the company, to use small claims courts rather than arbitration for dispute resolution. The CFPB’s preliminary analysis indicates that not many consumers initiate small claims court cases in credit-card disputes. Rather, the analysis shows that small claims court cases are much more likely to be brought by banks than by consumers. In the states and counties studied, the Bureau was able to identify at most 870 credit card cases brought by consumers in small claims court against large credit card issuers, but more than 41,000 cases brought by these banks against consumers in small claims court. 

For the second phase of the Bureau’s study, the CFPB intends to look at a number of areas, like whether consumers are aware of the terms of arbitration clauses and whether arbitration clauses influence consumers’ decisions about which consumer products to purchase. 

This American Life on the history of fair housing and how where we live affects us

A fascinating piece, particularly for those of us who didn't live through the struggle to pass the Fair Housing Act. As the website explains: "Where you live is important. It can dictate quality of schools and hospitals, as well as things like cancer rates, unemployment, or whether the city repairs roads in your neighborhood. On this week's show, stories about destiny by address."

 

CFPB's updated rulemaking agenda

Last week, the Consumer Financial Protection Bureau issued its semi-annual update to the agency's rulemaking agenda. Go here for a nice explanation of the current agenda. Below is the actual agenda, as published on OMB's website, with clickable links to the regulatory materials themselves.

CFPB	Prerule Stage	Home Mortgage Disclosure Act (Regulation C)	3170-AA10
CFPB	Prerule Stage	Annual Privacy Notice	3170-AA39
CFPB	Prerule Stage	Payday Loans and Deposit Advance Products	3170-AA40
CFPB	Prerule Stage	Debt Collection Rule	3170-AA41
CFPB	Prerule Stage	Overdraft	3170-AA42
CFPB	Prerule Stage	Further Amendments to 2013 Mortgage Rules (Regulations X and Z)	3170-AA43
CFPB	Proposed Rule Stage	Requirements for Prepaid Cards (Regulation E)	3170-AA22
CFPB	Proposed Rule Stage	Supervision of Certain Nonbank Covered Persons--Defining Larger Participants in Certain Consumer Financial Product and Service Markets	3170-AA25
CFPB	Proposed Rule Stage	Amendments to FIRREA Concerning Appraisals	3170-AA44
CFPB	Proposed Rule Stage	Extension of the Temporary Exception for Certain Disclosures Under the Remittance Transfer Rule	3170-AA45
CFPB	Final Rule Stage	Restatement of Federal Consumer Financial Law Regulations	3170-AA06
CFPB	Final Rule Stage	Amendments to TILA Concerning Appraisals	3170-AA11
CFPB	Final Rule Stage	Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z)	3170-AA19
CFPB	Final Rule Stage	Equal Access to Justice Act Implementation Rule	3170-AA27
CFPB	Final Rule Stage	Rules of Practice for Issuance of Temporary Cease-and-Desist Orders	3170-AA29
CFPB	Final Rule Stage	The Expedited Funds Availability Act (Regulation CC)	3170-AA31
CFPB	Final Rule Stage	Defining Larger Participants of the Student Loan Servicing Market	3170-AA35
CFPB	Final Rule Stage	Amendments to 2013 Mortgage Rules (Regulations B, X, and Z)	3170-AA37

Read the National Consumer Law Center's report on the tax preparation industry

Read this new report by the National Consumer Law Center, which maintains that incompetence and fraud in the tax preparation industry harms consumers. Here's how NCLC introduces its report:

Each year, tens of millions of consumers rely upon paid tax preparers to help them file accurate and compliant tax returns, yet the majority of these preparers are not subject to any minimum standards. This National Consumer Law Center report documents how a lack of regulation has allowed incompetence and fraud by tax preparers to flourish and urges states to require paid preparers to demonstrate basic competency and skills as well as to provide upfront fee disclosures.

Read the report's executive summary and NCLC's model state law to regulate the industry.

Riddled Returns

How Errors and Fraud by Paid Tax Preparers Put Consumers at Risk and What States Can Do

- See more at: http://www.nclc.org/issues/riddled-returns.html#sthash.w1sqtXSb.dpuf

"Walmart to Offer Payday Loans to Employees"

That is the headline for one of today's lead stories in the satirical journal The Daily Currant. The story is untrue, but sometimes satire drives home a point because what is satirical also seems plausible. After all, here, we know that Wal-Mart often doesn't pay enough for its employees to support themselves, let alone their families. And the payday loan industry exists because many U.S. workers sometimes are unable to survive even from pay check to pay check. So, why wouldn't Wal-Mart create a spin-off that offers payday loans to its own employees if that would benefit the company's shareholders?

Wal-Mart doesn't offer its employees payday loans, and the issues raised by The Daily Currant piece are anything but funny. But, again, the piece underscores the extreme difficulties faced by U.S. low-wage workers.

Here's an excerpt from The Daily Currant piece:

In a press release posted on its website, the nation's largest retailer said that it decided to launch the service after hearing complaints that workers often have trouble paying their monthly bills. ...  "That's why we're creating Walmart CashNow, a payday lender available exclusively to Walmart's 1 million hourly employees. CashNow will help our associates get cash when they need it most at a competitive interest rate. Finally they can borrow money to pay for things like rent, gasoline, food, medical bills and child care. Economic studies have consistently shown that access to credit is one of the driving forces in allowing the working poor to escape poverty. By providing these loans, Walmart is helping our associates reach the next level of success."

Pomeranz Paper on Food Marketing

Jennifer L. Pomeranz of Temple's Department of Public Health has written Extending the Fantasy in the Supermarket: Where Unhealthy Food Promotions Meet Children and How the Government Can Intervene, 12 Indiana Health Law Review 117 (2012).  Here's the abstract:

This paper summarizes research concerning the extent of in-store marketing of foods to children and the effects of such marketing. It identifies several strategies that the federal and state or local governments might use to regulate in-store and package-based marketing and assesses the food industry's expected arguments against such regulations. The paper analyzes how courts would likely scrutinize the constitutionality of such regulations to identify which approaches are most likely to make a positive impact on public health and succeed if challenged in court.

Potential Liability for Recording Conversations by Google Glass

by Paul Alan Levy

Scott Cleland’s weekly anti-Google rant raises the question whether Google’s recording of conversations through Google Glass, and Google’s use of those recordings as a source of data for its commercial operations, might run afoul of federal wire-tapping laws that require consent for the interception of communications, but it seems to me that he has missed an even more serious issue.  Many states  require the consent of all parties to a conversation—at least, conversations not occurring in public situations—and provide both criminal penalties and a civil cause of action for damages and injunctive relief when communications are recorded without consent by all participants.  

Even apart from Google itself, which could be liable for its storage and use of the recordings, wouldn’t each individual wearing Google Glass be liable for the interception as well?

Los Angeles sues Wells Fargo, Citigroup, and BofA for predatory lending

The LA Times reports:

The city of Los Angeles accused banking giants Wells Fargo & Co. and Citigroup Inc. of a “continuous pattern and practice” of mortgage discrimination that led to a wave of foreclosures, reduced property tax revenue and increased costs for city services.

In twin lawsuits filed in U.S. District Court, the city alleged that both banks engaged in predatory lending practices and redlining that saddled minorities with loans they couldn’t afford and resulted in a disproportionately high number of foreclosures in their neighborhoods compared with white neighborhoods.

The cases are City of Los Angeles v. Wells Fargo, No. 13-cv-09007, and City of Los Angeles v. Citigroup Inc., 13-cv-09009, both in the U.S. District Court for the Central District of California.

The suits were filed last Thursday. Then on Friday, Los Angeles sued Bank of America, also for mortgage discrimination.

 

 

More on the tax lien/foreclosure industry

In a follow-up to its three-part series on the tax-lien/foreclosure machine in Washington, D.C., the Washington Post has just published this investigative report on Aeon Financial, a secretive organization that bought up tax liens in D.C. (and elsewhere) and is making millions off of fees and foreclosures. Here's an excerpt:

The firm that threatened to foreclose on hundreds of struggling D.C. homeowners is a mystery: It lists no owners, no local office, no Web site. Aeon Financial is incorporated in Delaware, operates from mail-drop boxes in Chicago and is represented by a law firm with an address at a 7,200-square-foot estate on a mountainside near Vail, Colo. Yet no other tax lien purchaser in the District has been more aggressive in recent years, buying the liens placed on properties when owners fell behind on their taxes, then charging families thousands in fees to save their homes from foreclosure. Aeon has been accused by the city’s attorney general of predatory and unlawful practices and has been harshly criticized by local judges for overbilling. All along, the firm has remained shrouded in corporate secrecy as it pushed to foreclose on more than 700 houses in every ward of the District. ... Aeon’s story underscores how an obscure tax lien company — backed by large banks and savvy lawyers — can move from city to city with little government scrutiny, taking in millions from distressed homeowners. The firm came into the District eight years ago with hardball tactics, sending families threatening letters and demanding $5,000 or more in legal fees and other costs, often more than three times the tax debt. At the same time, the company was moving across the country, buying up liens in Maryland, Ohio, Kentucky and Iowa.