Analysis of CFPB complaint database

In a recent analysis of complaints submitted to the Consumer Financial Protection Bureau about financial services, the consulting firm Deloitte found that mortgage-related issues are the basis for most of the 94,000 complaints posted so far and that customer misunderstanding is often the problem.

The Washington Post has a short write-up of the findings and notes that, although "less-affluent people bore the brunt of subprime loans and the foreclosure wave that followed, which some banks still haven't made right," the Deloitte analysis "shows that people in wealthy neighborhoods complain a lot more about all aspects of the mortgage process, from brokers to servicers to underwriters." An interesting finding, but difficult to know what conclusion to draw from it.

Estimating the Value of Wikipedia

by Paul Alan Levy

A fun exercise by Jonathan Band estimates the value of Wikipedia  at tens of billions of dollars, with this punchline: "Wikipedia demonstrates that highly valuable content can be created by non-professionals [without the incentives provided] by the copyright system."

Read Public Citizen's amicus brief in Third Circuit Carrera case

As Allison explained, the Third Circuit's recent Carrera decision puts consumer class actions in jeopardy, and so the plaintiff has sought hearing en banc. Public Citizen has now moved, with the parties' consent, to file this amicus brief.

The CFPB goes after another debt settlement services company (and lawyers too)

As the Blog of the Legal Times explains:

Continuing its crackdown on companies that provide debt settlement services, the Consumer Financial Protection Bureau today announced that a payment processing company will pay $1.376 million to settle allegations that it collected illegal up-front fees from consumers. The CFPB said Tacoma, Wash.-based Meracord LLC helped debt-relief service providers including lawyers wrongly take millions in fees from more than 11,000 consumers who enrolled in payment programs to reduce or eliminate their debts.

Read the agency's complaint and press release.

“Federal Verification Company” Seeks to Shut Down Online Criticism

by Paul Alan Levy

A Tampa-area company called “Federal Verification Co.,” which operates under “dozens of names,” according to the author of this exposé on a local television station, has filed a defamation lawsuit against its online critics, and is using vague allegations about defamation on a number of sites as an excuse for a subpoena seeking to identify more than one hundred anonymous online critics, for example here and here. In a letter sent today, we have objected to the subpoena pending compliance with the widely-accepted Dendrite procedure.

We have no way of knowing whether this company’s critics have leveled valid applications, but our experience suggests that sleazy operators often assume that they can have a greater intimidating effect if they proceed against multiple critics.  The fact that the plaintiff scaled back its discovery demand to as few as five posts at the slightest pushback against its subpoena suggests that it was never serious about proving that most of the criticisms were actionable. 

I’ll be surprised if we hear from this company again.   Note that the company uses a number of different names, including GSA Applications, GSA 1000, GSA Processors, GSA Alliance, Federal Suppliers Guide, Government Awards Consulting, and a variety of others.  An unverified listing appears here.  Caveat emptor.

Judge Rakoff Strikes Down New York's Credit-Card Surcharge Law

by Deepak Gupta

Back in June, I blogged about my firm's constitutional challenge to New York's credit-card surcharge law -- a law that aims to protect credit card company profits by preventing merchants from communicating the true cost of credit to consumers.  

This morning, U.S District Judge Jed Rakoff issued a fantastic 35-page opinion agreeing with our challenge in every respect and holding that the law violates the First Amendment and is void for vagueness. The opinion provides a detailed analysis of not only the constitutional arguments, but also the behavioral economics of no-surcharge rules and their regressive economic effect. The first few lines of the opinion provide a nice overview:

Alice in Wonderland has nothing on section 518 of the New York General Business Law. Under the most plausible interpretation of that section, if a vendor is willing to sell a product for $100 cash but charges $102 when the purchaser pays with a credit card, the vendor risks prosecution if it tells the purchaser that the vendor is adding a 2% surcharge because the credit card companies charge the vendor a 2% “swipe fee.” But if, instead, the vendor tells the purchaser that its regular price for the product is $102, but that it is willing to give the purchaser a $2 discount if the purchaser pays cash, compliance with section 518 is achieved. As discussed below, this virtually incomprehensible distinction between what a vendor can and cannot tell its customers offends the First Amendment and renders section 518 unconstitutional.

Here's the summary of the case that I posted here back in June.

Whenever consumers use credit cards, merchants pay swipe fees, which are typically passed along to all consumers in the form of higher prices. American consumers pay the highest swipe fees in the world—eight times those paid by Europeans. These fees, which amount to about $50 billion annually, are highly regressive: low-income and minority cash customers end up subsidizing high-income credit customers. Unfortunately, most consumers don't know about the fees. And even those who do typically can't do anything about them.

Merchants are, however, permitted to charge different prices to consumers who pay with credit versus cash, which would give consumers the option to choose a lower-cost payment method in exchange for lower prices. The credit-card lobby has long fought to stop merchants from being able to implement such dual pricing. Under state laws adopted at the industry's behest, the price difference must be described as a “discount” for cash, not a “surcharge” for credit—even though they're mathematically identical. In New York, a merchant who uses the wrong word could face criminal prosecution.

This morning, our firm (Gupta Beck) filed a lawsuit challenging the constitutionality of the New York state law forbidding merchants from imposing a “surcharge” on any customer who pays with a credit card. Along with the Friedman Law Group, we represent five New York merchants: a hair salon, an ice-cream parlor, a liquor store, a martial-arts academy, and an outdoor furniture store. The suit, filed in federal court in Manhattan, has been assigned to U.S. District Judge Jed Rakoff.

Our principal claim is that New York’s law violates our clients' constitutional right to free speech and that the state is, in effect, seeking to enforce the credit-card industry’s preferred speech code. Merchants, we contend, should be able to use whatever words are most effective to inform their customers about the high cost of using credit cards, and consumers have a right to receive that communication.

OT: Take Our Poll

by Jeff Sovern

Which happens first: a win by the NY Giants or Congress resolves the budget impasse?  Put your responses in the comments (Disclosure: though I am in New York, I am not a Giants fan).

New York Times to White House: issue the backover rule

Great editorial in the Times today calling on the Obama Administration to stop obstructing the long-delayed rule to prevent backover injuries, i.e. injuries from cars backing into people the drivers can't see -- injuries that disproportionately befall young children. Representing a coalition of safety advocates and parents, we here at Public Citizen filed suit last week to require issuance of the rule.

Excoriating the Administration for the "inexcusable" delay, the Times concludes "the delays are political, not the result of procedural or technological problems" but rather "an administration ploy to avoid Republican charges of 'job killing' regulations, while placating the auto industry, which opposes the rule as too expensive."

Stark consequences of Supreme Court's holding on Medicaid expansion

When the Supreme Court upheld Obamacare's individual mandate last year in National Federation of Independent Business v. Sebelius, it was not a total victory for reform: because the Court held that the Act's Medicaid expansion imposed too coercive a spending condition on states, states were left with a choice whether or not to accept federal money and expand Medicaid to cover individuals up to 133% of the poverty line. The sad and predictable consequence of that latter holding is a large and persistent gap in health care coverage for poor people, as documented in this article in the New York Times, which notes that half the states have not accepted the Medicaid expansion.

 

Hawaii Supreme Court Says No Arbitration Without Meaningful Consent

By Paul Bland, On Twitter  @PblandBland

 

This is a case with very painful facts – according to the complaint, a Kaiser patient went in to see his doctor and was told he had a particular type of cancer that his doctor wasn’t familiar with, but would do “internet research” about, that he might die within a month or so from the cancer.  Then the doctor proposed surgery.  The patient decided to go to another hospital (Duke) to get a second opinion (you can see why that would have seemed like a really good idea), and discovered he had a different type of cancer which should be treated a different way.  (Duke’s treatment worked.)  Kaiser refused to cover the costs of the treatment at Duke, saying it was “elective, non-emergency, non-urgent care.”  (Query about what illness would be more “urgent” than one that might kill you in a month.  The guy sued Kaiser, which (naturally) tried to force him into arbitration.

Kaiser's arbitration clause, by the way, like so many of them, would have required the plaintiff to pay substantial costs to arbitrate his case, has sharp limitations on the plaintiff's ability to take discovery, and has onerous secrecy provisions. 

The trial court enforced the arbitration clause, but the Hawaii Supreme Court reversed, finding in a great opinion that there had been no mutual assent or meeting of the minds.  The court noted that the burden was on Kaiser, as the party moving to compel arbitration, to demonstrate that the patient had assented to arbitration.  The court held that to form an agreement to arbitrate, a contract must be unambiguous as to the intent of the parties to submit disputes to arbitration.

The court points to a variety of useful facts in finding that there was not assent:  the enrollment form referenced “terms and conditions,” but the group agreement had no section with that title; there was no signature line for an applicant to acknowledge having read or received the documents; that there was no evidence that the agreement was ever provided to the HMO member; the arbitration clause was substantially amended but the changes were not included in communications to the HMO members in a “Summary of Important Changes.”  Basically, Kaiser's argument amounts to this:  the patient could have found it if he's pestered his employer for every piece of paper related to his health plan and read through it.  And the Court found this unpersuasive -- no real person would have had meaningful, realistic notice that they were supposedly giving up these important rights.

Having lost on consent, Kaiser then offered a grab bag of arguments for how the court might enforce the arbitration clause even where the member didn't agree to it.  So Kaiser argued that the HMO member’s employer was his “agent” for the purpose of agreeing to arbitration; that he was a third party beneficiary of a contract between his employer and Kaiser that provided for arbitration; that he was estopped from pointing out that he’d never agreed.  The Court rejects each of these arguments for a variety of legal reasons; none of these technicalities was sufficient to supplant the idea that arbitration is supposed to be a matter of consent, for people who agree to it.

The bottom line is that “In this case, the Enrollment Form that Michael signed did not reference the arbitration agreement and the record does not establish that Michael was otherwise informed of the existence of the arbitration agreement, much less that he assented to it.

 

Congratulations to Matt Winter of Davis Levin Livingston in Honolulu for this fantastic achievement.  This is one of the best decisions I’ve seen all year.