DiLorenzo Column: Qualified Mortgages: Safe Harbor From What?

by Jeff Sovern

My colleague, Vincent DiLorenzo, has a piece in the New York Law Journal on the CFPB's qualified mortgages regulations. 

Richard Cordray on the Consumer Financial Protection Bureau's agenda

CFPB director Richard Cordray sat down with the Washington Post for this Q&A on what's next for the agency.

Guest Post from Kathleen C. Engel: Currents, Continents and Consumer Law

We are grateful to Professor Kathleen C. Engel of Suffolk University Law School for providing this guest post on the International Association of Consumer Law biannual conference:

Every two years, consumer law academics from around the world gather to present their research and discuss their countries’ credit markets and consumer protection laws. This year, the International Association of Consumer Law held its biannual conference at the University of Sydney. Given Australia’s extraordinary success protecting consumers while providing broad access to capital, the setting was fitting.

The conference delegates hailed from Taiwan, Brazil, South Africa, China, Finland, Indonesia, Japan, Malaysia, the UK, and many other countries. There were well over sixty papers presented as as enlightening talks by Australian regulators, ombudspeople, and members of the judiciary.

For me, the highlight of IACL conferences is the opportunity to learn about the experiences of other countries—the challenges they face in making affordable credit available, the structure of their credit markets, their consumer regulatory systems, and the protections they provide consumers.  At the end of the day, the balance between protecting consumers and ensuring access to credit seems to be
the core issue in all countries.

The individual papers were outstanding and I wish I could write a synopsis of each of them. Instead, I will highlight a few of themes.  One distressing theme was that while many countries have strengthened their consumer laws in recent years, widespread exploitation of consumers continues. During one session, the audience was exuding envy at a description of Brazil’s consumer protections, which are Constitutional, only to find that abuses continue there.  Why?  Because the profits to be made through unlawful loans far exceed any consequences for making such loans.  Brazil is not alone.

Switching gears, Sharia complaint financing was on the conference agenda.  In western countries,there are structural barriers to Islamic financing, such as how to develop credit products that do not have any interest features and developing a secondary market for such products.  There are also concerns about how to reconcile Islamic financing with extant consumer protection laws.  For example, with some types of Sharia compliant financing, homes are under “underwater” from the outset, which could run afoul of loan-to-value limits.  Even in countries where there are significant Muslim populations, there are issues of bank compliance with both religious and secular law.

Big data and the internet came up at a number of sessions.  For years, people have talked about how lenders can dupe consumers because of inequalities in their understanding of credit terms and unequal bargaining power. There is another growing power imbalance: the private sector has more information on individual consumers’ spending habits and credit histories than the consumers themselves have.  Industry can use this information to target consumers with specific products, but consumers don’t have information on their spending patterns that would help them make informed choices. 

The intersection of the internet and consumer protection gave rise to a host of papers, including the question: what is applicable law in cross-border transactions?  What consumer law applies if I use the internet to rent an apartment in Shanghai that is owned by someone in Pretoria? No easy answers to this question.

If you want to learn more about the conference, the program with presenters’ names and the titles of their presentations is available at: http://www.iaclsydney2013.com/program_full.html.

My final thought is actually an expression of thanks to Gail Pearson, Professor at the University of Sydney, who hosted and planned a flawless conference.

D.C. tax lien program solds liens by mistake even after homeowners paid bills

Read the third and final part of the Washington Post's investigative report on the District of Columbia's tax lien program that has caused poor people to lose their homes. Part three discusses how "tax officials have made hundreds of mistakes in recent years by counting property owners as delinquent even after they paid their taxes, forcing them to fight for their homes in grueling legal battles that in some cases persisted for years." Part 1 of the story is here; part 2 is here.

Yesterday, Scott noted that D.C. Mayor Vincent Gray is pushing for emergency legislation to deal with the serious problems uncovered by the Post's report. The Post has this story on public officials' reactions and promises of reforms, which explains that although the mayor and councilmembers have expressed outrage and surprise about the operation of D.C.'s tax lien program they were warned in writing almost a year and a half ago about the program by an advocacy group, the Alliance to Help Owners Maintain Equity.

"Visual Gut Punch: Persuasion, Emotion, and the Constitutional Meaning of Graphic Disclosure"

That's the name of this article by Ellen Goodman concerning disclosure requirements and the First Amendment. Here is abstract:

The ability of government to “nudge” with information mandates, or merely to inform consumers of risks, is circumscribed by First Amendment interests that have been poorly articulated. New graphic cigarette warning labels supplied courts with the first opportunity to assess the informational interests attending novel forms of product disclosures. The D.C. Circuit enjoined them as unconstitutional, compelled by a narrative that the graphic labels converted government from objective informer to ideological persuader, shouting its warning to manipulate consumer decisions. This interpretation will leave little room for graphic disclosure and is already being used to challenge textual disclosure requirements (such as county-of-origin labeling) as unconstitutional. Graphic warning and the increasing reliance on regulation-by-disclosure present new free speech quandaries related to consumer autonomy, state normativity, and speaker liberty. This article examines the distinct goals of product disclosure requirements and how those goals may serve to vindicate, or to frustrate, listener interests. It argues that many disclosures, and especially warnings, are necessarily both normative and informative, expressing value along with fact. It is not the existence of a norm that raises constitutional concern, but rather the insistence on a controversial norm. Turning to the means of disclosure, the article examines how emotional and graphic communication might change the constitutional calculus. Using autonomy theory and the communications research on speech processing, it concludes that disclosures do not bypass reason simply by reaching for the heart. If large graphic labels are unconstitutional, it will be because of undue burden on the speaker, not because they are emotionally powerful. This article makes the following distinct contributions to the compelled commercial speech literature: Critiques the leading precedent, Zauderer v. Office of Disciplinary Counsel, from a consumer autonomy standpoint; Brings to bear empirical communications research on questions of facticity and rationality in emotional and graphic communications; Teases apart and distinguishes among various free speech dangers and contributions of commercial disclosure mandates with a view towards informing policy, law and research.

Possibility of progress on D.C. tax lien practice

Responding to the Washington Post's heart-wrenching investigative report this weekend about predatory lien-buying practices causing D.C. homeowners to lose their homes -- a story Brian flagged last night -- Mayor Vincent Gray promises action "as quickly as possible," reports the Post today: "Gray said he would introduce emergency legislation next week to put a moratorium on the practice after first learning about it Sunday in [the Post's report]."

Lancet study: Affordable Care Act-sponsored stop-smoking media campaign was valuable, may help bring down smoking rates

by Brian Wolfman

We've blogged here about the difficulty of altering unhealthy or economically destructive behavior through public-education campaigns or mandated disclosures.

Bringing down smoking rates took a lot of work. In 1964, the U.S. government said for the first time that smoking causes cancer. The next year, cigarette packages were required by law to have cancer warnings. TV ads for tobacco products were banned in 1969 (effective in 1970). The campaign to curb smoking has been large and sustained, with funding from public and private sources. It drove down U.S. adult smoking rates from more than 42% in 1965 to about 19% today.

In the Affordable Care Act, Congress wanted to do something to further drive down smoking rates. With funding provided by the Act, the U.S. Centers for Disease Control (CDC) ran a hard-hitting, three-month media blitz stressing the health hazards of smoking.

The medical journal The Lancet has just published an analysis of the penetration and effectiveness of the CDC campaign (with the catchy title "Effect of the first federally funded US antismoking national media campaign"). Here's the article's description of the CDC's campaign:

In the USA, the Patient Protection and Affordable Care Act 2010 (ACA) provides opportunities to accelerate national progress in tackling tobacco use, including enhanced reimbursements for cessation services and mass-media support. In 2012, through the ACA, the US Centers for Disease Control and Prevention launched the first, federally funded, national, antismoking, mass-media education campaign—Tips From Former Smokers (Tips). This $54 million initiative featured emotional true stories told by former smokers to increase awareness of the human suffering caused by smoking, encourage quitting, and motivate non-smokers to communicate with family and friends about the dangers of smoking. We aimed to measure changes in quit attempts by smokers, quit status at follow-up, and non-smokers' cessation support behaviour in nationally representative cohorts of smokers and non-smokers and to estimate the effect of the campaign nationally by applying cohort rates to US census data.

Here is the authors' brief and wonky "Intepretation" of the study:

The high-exposure Tips media campaign was effective at increasing population-level quit attempts. The growth in smokers who quit and became sustained quitters could have added from a third to almost half a million quality-adjusted life-years to the US population. Expanded implementation of similar campaigns globally could accelerate progress on the WHO Framework Convention on Tobacco Control and reduce smoking prevalence globally.

The full article provides much more detail.

Pa appellate court holds nursing home's arbitration clause doesn't cover tort claims

by Paul Bland

On Twitter @PblandBland

 

In Setlock v. Pinebrook, a Pennsylvania appellate court read a nursing home's arbitration clause to cover only the types of disputes named, refusing the home's invitation to re-write the clause more broadly.

This is a tragic wrongful death and survivorship case, where nursing home personnel allegedly accidentally moved an elderly woman in a wheelchair in a negligent way that resulted in tossing her onto her head and face, which killed her.  The arbitration clause focused on disputes arising out of the Resident Agreement, and many of the surrounding paragraphs of the agreement deal with billing disputes, late fees, price increases, financial services, etc.

After discussing the details of the contract language at some length, the intermediate Pennsylvania state appellate Court concluded that the dispute predominantly dealt with financial obligations and contract terms, and was not intended to cover tort claims.

One issue lurking behind the opinion is how arbitration clauses are to be interpreted.  Corporations often turn to language from a 1983 U.S. Supreme Court decision, Moses H. Cone, which indicates that arbitration clauses should be interpreted generously to find that claims arising under them are arbitrable.  But in a subsequent decision, the Supreme Court applied the normal rule that a contract is to be construed against its drafter, in the case of Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 63, (1995), and the relationship between these two cases has often come up in lower court decisions. 

 

The family's lawyer, John R. Kantner, did a terrific job presenting the case to the court.

"Homes for the taking": Must-read investigative report on District of Columbia program that drives some poor people out of their homes

Read it here. Here's the page-one, top-of-the-paper headline in today's Washington Post:

This man [pictured above the fold in the Post] owed $134 in property taxes.

The District [of Columbia] sold the lien to an investor who foreclosed on his $197,000 home and sold it.

He and many other homeowners like him were LEFT WITH NOTHING.

Here's an excerpt that gives you the theme of the story:

For decades, the District placed liens on properties when homeowners failed to pay their bills, then sold those liens at public auctions to mom-and-pop investors who drew a profit by charging owners interest on top of the tax debt until the money was repaid. But under the watch of local leaders, the program has morphed into a predatory system of debt collection for well-financed, out-of-town companies that turned $500 delinquencies into $5,000 debts — then foreclosed on homes when families couldn’t pay, a Washington Post investigation found. As the housing market soared, the investors scooped up liens in every corner of the city, then started charging homeowners thousands in legal fees and other costs that far exceeded their original tax bills, with rates for attorneys reaching $450 an hour.

Today's segment is part one of a three-part piece by Michael Sallah, Debbie Cenziper, and Steven Rich.

Solove & Hartzog Paper on the FTC's Common Law of Privacy

Daniel J. Solove of George Washington and Woodrow Hartzog of Samford's Cumberland School of Law and Stanford's Center for Internet and Society have written The FTC and the New Common Law of Privacy, forthcoming in the Columbia Law Review. Here's the abstract:

One of the great ironies about information privacy law is that the primary regulation of privacy in the United States has barely been studied in a scholarly way.  Since the late 1990s, the Federal Trade Commission (FTC) has been enforcing companies’ privacy policies through its authority to police unfair and deceptive trade practices.  Despite more than fifteen years of FTC enforcement, there is no meaningful body of judicial decisions to show for it.  The cases have nearly all resulted in settlement agreements.  Nevertheless, companies look to these agreements to guide their privacy practices. Thus, in practice, FTC privacy jurisprudence has become the broadest and most influential regulating force on information privacy in the United States – more so than nearly any privacy statute and any common law tort.   

In this article, we contend that the FTC’s privacy jurisprudence is the functional equivalent to a body of common law, and we examine it as such. We explore how and why the FTC, and not contract law, came to dominate the enforcement of privacy policies.  A common view of the FTC’s privacy jurisprudence is that it is thin, merely focusing on enforcing privacy promises.  In contrast, a deeper look at the principles that emerge from FTC privacy “common law” demonstrates that the FTC’s privacy jurisprudence is quite thick.   The FTC has codified certain norms and best practices and has developed some baseline privacy protections. Standards have become so specific they resemble rules.  We contend that the foundations exist to develop this “common law” into a robust privacy regulatory regime, one that focuses on consumer expectations of privacy, that extends far beyond privacy policies, and that involves a full suite of substantive rules that exist independently from a company’s privacy representations.