NYT editorial on banks and "deposit advances" that work like payday loans

"New guidelines issued by the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency for banks they oversee stop short of completely disallowing deposit advances. But the guidelines should reduce the banks’ profits while making the loans less onerous to borrowers." The Times urges the Fed to follow suit in regulating banks' lending practices.

Read the full piece here.

 

 

Save the Date--Teaching Consumer Law Conference – Santa Fe, New Mexico, May 30-31, 2014

The Center for Consumer Law at the University of Houston Law Center, in cooperation with the University of New Mexico School of Law and the National Association of Consumer Advocates, is organizing its seventh semi-annual Teaching Consumer Law Conference. The subject this time is “Teaching Consumer Law in a Digital Borderless World.”  The Conference will be held in Santa Fe, New Mexico, the “City Different,” one of the most interesting cities in the United States.

 The Conference will focus on traditional issues of consumer law, as well as how, if at all, the teaching of consumer law should be affected by changes in the marketplace and the globalization of law. The Conference is directed at those currently teaching or interested in teaching consumer law at the law school or college level.

 The 2014 conference will have close to 25 presenters, discussing numerous issues, such as:

• How should we integrate recent economic developments into a consumer law course?
• What innovations can we bring to the consumer law classroom?
• Does the U.S. need additional consumer regulation, or less? What might be the impact of the Consumer Financial Protection Bureau?
• Are there innovative ways to resolve consumer problems?  What's new with consumer arbitration? What are other countries doing?
• How can we teach the multitude of subjects encompassed within the term “consumer law”?
• International consumer law developments.
• The view from the trenches—what the lawyers are discussing.
• How do we deal with intra-state and intra-national consumer transactions?

 If you are interesting in making a presentation at the Conference, please directly contact me at, alderman@uh.edu. Anyone who simply wants to be kept up-to-date about the conference and is interested in receiving a registration form should register at http://www.uhccl.org, under “Conferences and CLE.”

I look forward to seeing you in Santa Fe next May.

Fifth Circuit Decides D.R. Horton, Overturns NLRB's Ruling that Class-Action Bans are Unfair Labor Practices

by Deepak Gupta

In a much-anticipated decision, the Fifth Circuit held today that the National Labor Relations Board overstepped its authority when it ruled that an employer violated federal labor law by requiring its employees to sign an arbitration agreement containing a class-action ban. Judge Leslie Southwick, joined by Judge King, isssued the opinion for the court. Here's the court's summary:

The National Labor Relations Board held that D.R. Horton, Inc. had violated the National Labor Relations Act by requiring its employees to sign an arbitration agreement that, among other things, prohibited an employee from pursuing claims in a collective or class action. On petition for review, we disagree and conclude that the Board’s decision did not give proper weight to the Federal Arbitration Act. We uphold the Board, though, on requiring Horton to clarify with its employees that the arbitration agreement did not eliminate their rights to pursue claims of unfair labor practices with the Board. 

The court began its decision by deciding that it did not need to decide the validity of the recess appointments to the NLRB--the question now before the Supreme Court in Noel Canning. On a separate quesiton--whether one of the Board member's recess appointments had expired--the court relied to a limited extent on the "de facto officer" doctrine and concluded that no timely challenge to the appointment had been preserved.

As to the FAA question, the court analyzed the issue in terms of two exceptions to the FAA's general rule that arbitration agreements are enforced according to their terms: the Act's savings clause (which preserves generally applicable defenses to a contract) and the rule that other federal statutes may trump the FAA. "The Board clearly relied on the FAA’s saving clause," the court explained, "Less clear is whether the Board also asserted that a contrary congressional command is present." On the first point, the court held that the NLRB's ruling could not be reconciled with the Supreme Court's decision in AT&T Mobility v. Concepcion: "Like the statute in Concepcion, the Board’s interpretation prohibits class- action waivers." As to the second point, the court held that nothing in the text or legislative history of the NLRA "contains a congressional command to override the FAA."

Judge Grave dissented. He would have affirmed the NLRB's decision "in toto." Specifically, he disagreed with the majority's conclusion that the NLRB's ruling conflicts with the FAA. Tracking the NLRB's ruling, he would have reasoned as follows:

• The purpose of the FAA was to prevent courts from treating arbitration agreements less favorably than other private contracts. To find that an arbitration agreement must yield to the NLRA is to treat it no worse than any other private contract that conflicts with federal labor law.

• The Supreme Court’s jurisprudence under the FAA makes clear that the agreement may not require a party to ‘forgo the substantive rights afforded by the statute. The right to engage in collective action – including collective legal action – is the core substantive right protected by the NLRA and is the foundation on which the Act and federal labor policy rest.

• Nothing in the text of the FAA suggests that an arbitration agreement that is inconsistent with the NLRA is nevertheless enforceable. To the contrary, Section 2 of the FAA provides that arbitration agreements may be invalidated in whole or in part upon any ‘grounds as exist at law or in equity for the revocation of any contract.'

• Even if there were a direct conflict between the NLRA and the FAA, there are strong indications that the FAA would have to yield under the terms of the Norris-LaGuardia Act.

Judge Graves would also have agreed with the Board that D.R. Horton violated the NLRA. "The Board made it clear that it was not mandating class arbitration in order to protect employees’ rights under the NLRA," he explained, "but rather was holding that employers may not compel employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums, judicial and arbitral." 

KB Home Sues for Trademark Violations, but Isn’t IT the Real Cybersquatter?

by Paul Alan Levy

KB Home has built new homes in several major markets throughout the United States, but its construction projects have left a trail of unhappy homeowners complaining about shoddy construction in several of those locations, such as here, here, here, and here.  The problem is broadly portrayed by a number of links from a web site at thekbhome.com.  This site was created by Tampa-area resident Andrew Smith after he and his neighbors found so many problems in their own development, the Willowbrook subdivision of Lakewood Ranch, that they decided to work together to find mutual solutions.  KB Home eventually admitted that the problems were serious enough to require an extensive repair problem, but Smith and many of his neighbors decided that having to live in an ongoing construction site was not what they bargained for, and that rather than simply paying for repairs, KB Home should accept responsibility by buying back their homes for the full purchase price plus interest.   Smith and his neighbors conducted a letter-writing campaign to this end, and Smith advocated this result on the web site itself.  State officials have been investigating the problems, and several lawsuits over the construction defects are pending already.

It is not unusual for companies facing strong public criticism to try to make a statement by filing suit against their detractors.  KB Home recently tried this tactic, filing suit in federal court in Tampa, and apparently alerting the press about the litigation.  The suit did not include a claim for libel, mind you, because to be libelous the criticisms would have to include false factual statements.  Instead, KB Home is invoking the trademark laws, and particularly the cybersquatting amendment to the Lanham Act, which forbids the use of domain names that are “confusingly similar” to a trademark with a “bad faith intent to profit.”  KB Home’s argument appears to be that, by using the web site to campaign for a buyback agreement that would benefit himself personally, along with the rest of his community, Smith’s use of its trademark was tantamount to extortionate use of the domain name.

Barely living on minimum wage

This article by Alan Feuer explains the difficulty of living on the minimum wage and follows a worker who must work two low-wage jobs to barely keep afloat. Here is an excerpt:

On a recent Friday evening, Eduardo Shoy left work at 6 p.m. Mr. Shoy, a deliveryman for KFC and Pizza Hut, was coming off an eight-hour shift of driving three-cheese pies and crispy chicken fingers, in an automotive blur, to private homes and businesses in central Queens. * * * If Mr. Shoy were differently employed, he might have remained that way till morning. But as a fast-food worker paid the minimum wage — $7.25 an hour in New York — he didn’t have the luxury. At 10 p.m., he was up again and back in his car, this time driving to his second job, as a forklift operator at Kennedy International Airport, where he makes $13 an hour. Having worked all day, he was about to work all night: from 11 p.m. until 7:30 a.m. At 3 that afternoon, he would return to his deliveries at the restaurant. Then, at 11, he would once again drive to the airport. Altogether, on the weekend before Thanksgiving, Mr. Shoy would sleep for 13 hours and work for 44. “Tired?” he asked, sounding puzzled by the question. “I’m too busy to be tired.”

Be extra careful with dietary supplements because there's little consumer protection

As we have previously noted (go here, for instance), dietary supplements are like drugs--that is, they are claimed to treat or prevent disease and have a physiological effect on the human body. And they are marketed like drugs--that is, they are marketed for their claimed beneficial physiological effects on the human body.

But because they are made from "natural" substances, they are not regulated as drugs. The most imporant loophole is that the manufacturer doesn't have to show that a dietary supplement is safe and effective for its intended use before it can be mass marketed (as is generally the case for a drug). So, it is useful for consumers to remember that dietary supplements can be harmful and that they can't rely on the government for protection from those harms.

This article by Dr. Janani Rangaswam provides some consumer-protection information. Here's an excerpt:

I recently cared for a patient with worsening kidney failure. After a full investigation, I could find no cause but a coincidence that he had used "Kangaroo," a sex-enhancing supplement, around the time he got sick. While there is no way to prove or disprove the link between the pill and the ailment, it made me consider how little we know about the toxicity of supplements despite how common they are, and the significant number of deaths and life-threatening events they cause each year. Americans today spend about $30 billion directly on supplements such as vitamins, minerals, amino acids, and herbal remedies. The Food and Drug Administration received more than 6,000 adverse-event reports involving supplements from 2008 to 2011, with about 2 to 3 percent linked to deaths. In the same period, poison control centers nationally received 145,000 supplements-related queries, of which about 4,800 were believed to be major adverse events.

Neil Sobol Article on Zombie-Debt Collectors

Neil L. Sobol of Texas A&M has written Protecting Consumers from Zombie-Debt Collectors, forthcoming in the New Mexico Law Review.  Here is the abstract:

The debt-collection business is booming, led by a dramatic increase in the sale and collection of defaulted debts. Currently, debt buyers annually purchase more than $100 billion in the face value of debts. In the typical purchase, buyers pay only a small fraction of the face value of the debts; in return, they receive extremely limited, often inaccurate information. Many of the debts that buyers seek to recover never existed or are no longer enforceable by operation of law. Consumers who receive communications from debt buyers often complain about mistaken-identity and identity-theft cases where the individuals contacted never incurred the alleged debts. Additionally, buyers may seek recovery of debts that have been paid, settled, discharged in bankruptcy, or have become time-barred because the collection period under the statute of limitations has expired.

By obtaining judgments or persuading consumers to pay a portion of these debts, acknowledge these debts, or enter into new agreements, collectors can transform these debts thought to be “dead” or non-existent, into “living” and enforceable debts. The media have labeled these resurrected debts as “zombie debts.” Just as the zombies in movies come back from the dead to terrorize individuals, dead debts may resurface to cause havoc for consumers. Even if a consumer successfully defeats one zombie-debt collector, the process may restart when the debt is resold.

Legal scholarship has only begun to address the issue. The scholarship has primarily focused on the collection of zombie debts through the court system; however, the abuses are not limited to litigation. Collectors are often successful in persuading consumers to pay dead debts without filing lawsuits. Moreover, efforts to make it harder for collectors to sue on unenforceable debts may increase pre-litigation abuses. Accordingly, this Article addresses zombie-debt issues before the onset of litigation. It identifies the failure of traditional methods to deal with this growing problem and proposes amendments to the federal Fair Debt Collection Practices Act to establish uniform standards for the transfer of information and documentation to debt buyers and consumers. Furthermore, penalties and limitation periods should be set to deter debt buyers from violating the Act. Finally, the Article emphasizes the importance of providing assistance and education to consumers and suggests that the recently formed Consumer Financial Protection Bureau coordinate a federal, state, and local attack to combat zombie debt.

Your homemade thanksgiving dinner was a good deal for consumers, historically speaking

At least according to this fun article by Laura Northrup. She explains in considerable detail that, in inflation-adjusted dollars, the traditional thanksgiving dinner (turkey, stuffing, a cranberry-based item, mashed potatoes, etc.) cost considerably more in 1929 than it would today.

Times Evaluations of the TILA/RESPA Disclosure Rules and the QRM-QM Proposal

The Times today published an editorial,What You Don’t Know About Mortgages, about the CFPB's new mortgage TILA/RESPA disclosures.  Though the editorial praised some aspects of the disclosure rules, it also called them disappointing, stating

[T]he forms fall short in the crucial task of helping consumers assess and compare the total cost of various loans. Without that information, it is difficult for borrowers to know whether they are getting the best deal.       

What’s needed, as the National Consumer Law Center has pointed out, is prominent display of the loan’s full annual percentage rate, a single measure of the cost of credit that incorporates the interest rate, closing costs and other fees. On the new forms, that number is not reported until Page 3. Worse, it is calculated in a way that understates the loan’s cost, because it omits the cost of title insurance and some other closing charges.

Yesterday, Floyd Norris had a column, Mortgages Without Risk, at Least for the Banks, on qualified residential mortgages, qualified mortgages, and other mortgages, how the rules governing them were intended to avoid a repeat of the subprime meltdown, and the take of Barney Frank and others on the pending proposal. Unless you already are well acquainted with the issues, the column is definitely worth reading.

Todd Zywicki's Remarks at the NARCA Debt Collection Symposium

by Jeff Sovern

I've just been listening to the National Associate of Retail Collection Attorneys' (NARCA) symposium on debt collection held at GW on October 15 (the recordings are available here).  I was particularly struck by Todd Zywicki's remarks in the third panel; the panel was titled "Legal Collections - The Essential Link to a Successful Credit-Based Economy."  (Regular readers may recall a previous blog post on Zywicki's receipt of financial support from the credit industry in an article in The Nation headlined "Scholars Who Shill for Wall Street.").  Zywicki stated that his presentation was based on a chapter he authored in a forthcoming book about credit regulation; the chapter promises to be interesting reading. 

Zywicki's presentation could almost have come from an alternate universe from many of the academic presentations I hear.  While many of us embrace behavioral law and economics, Zywicki dismissed it as voodoo based on just-so stories and lacking much empirical support (my own view is that some of its findings, such as the endowment effect and the tendency of consumers to be overly optimistic, are indeed empirically supported, and I cite some of the relevant literature here and here. I gather that the people who award the Nobel prize for economics have been similarly impressed by the quality of the research).  I look forward to seeing the chapter in part because I'm curious if it will provide more support for Zywicki's claims than he supplied in his talk. 

Zywicki repeated the industry claim that consumer credit regulation--in particular, restricting remedies for defaults--increases the cost of credit and reduces its availability.  He mentioned a recent study by the Philadelphia Fed that found that the Credit CARD Act had reduced the availability of credit.  He didn't mention other studies finding that it reduced the cost of credit (see here and here) but perhaps he hadn't had a chance to learn of those studies as they were issued shortly before he spoke. As for reducing the availability of credit, the Credit CARD Act was intended to reduce access to credit by borrowers who were not capable of handling the demands of credit cards (think of the college students who borrowed too much and then tragically committed suicide). 

My favorite statement by Zywicki was when he observed that the legal regime of debtor's prisons was probably too harsh (only probably?).  If even Zywicki thinks that, then it is indeed unfortunate that we seem to have resurrected that regime, as Lea Shepard has written about.