Will electric cars benefit consumers and the environment?

The CL&P Blog has covered electric cars frequently, asking the questions whether they are cost-effective and otherwise beneficial to consumers and the environment. Go, for instance, here, here, here, here, and here. For a new and generally optimistic account of the future of the electric car from both an economic and environmental perspective, see "Five myths about electric cars" by Chris Paine, the director of the 2006 documentary "Who Killed the Electric Car?" 

Go here or click on the embedded video below to watch the trailer for that film.

 

Zacks Paper on Whether Contract Design Influences Consumer Behavior

Eric A. Zacks of Wayne State has written Shame, Regret, and Contract Design, forthcoming in Marquette Law Review. Here is the abstract:

This Article examines whether contract design can influence the post-formation behavior of the party that did not prepare the contract. Repeat players that utilize the same contract for many transactions, as is the case for many consumer transactions, would be significantly advantaged if this were true. This Article suggests that several contractual features can be explained in terms of their ability to exploit the cognitive biases of, and to induce particular “advantageous” emotions from, the other party after the contract has been executed. These features may include arbitration provisions, disclosures in capital letter or bold face type, “reliance” language, and language framing possible losses in particular ways. Contracts can encourage us to feel shame, to blame ourselves, to believe that contracts are sacred promises that should be specifically performed, to utilize faulty judgment heuristics when determining contract costs, and to rely on misperceived social norms with respect to challenging or breaching contracts. This may influence us not to breach or challenge an otherwise uneconomical, unconscionable, or illegal contract. Consequently, contract preparers may be able to enjoy the benefits of promises that often would not be realized if the other contracting party were profit-maximizing like the contract preparer.

Obama Administration Takes Its Defense of Recess Appointments to the Supreme Court

by Deepak Gupta

Earlier today, Solicitor General Don Verrilli filed the government's petition to the Supreme Court, challenging the D.C. Circuit's Noel Canning decision. (Background: There's been a lot of blogging here about Noel Canning, which invalidated President Obama's intersession recess appointments to the National Labor Relations Board and thereby threatened the validity of his simultaneous appointment of Richard Cordray to be Director of the Consumer Financial Protection Bureau. Brian recently posted on a Congressional Research Service report discussing the decision's implications here. On the day of the decision, I posted about the "de facto officer" doctrine and other reasons to be wary of some of the most sweeping claims regarding the decision's implications for the CFPB. I've also been commenting elsewhere--yesterday at NPR's Marketplace here and at Talking Points Memo here.)

The SG's petition has been expected for months now and has been previewed in court of appeals briefing, but it still makes for a good read.  It's a powerful and compelling piece of advocacy, combining rigorous historically-grounded arguments with a plea based on the pressing practical need for the Supreme Court's intervention. The petition has an unusually large number of Justice Department lawyers on the cover.

The CFPB isn't mentioned explicitly, but the petition makes clear that that the decision "threatens a significant disruption of the federal government’s operations" and that its effects can "be expected to extend to a wider range of federal agencies and offices."

Here's a quotation from the petition that provides an executive summary of the government's arguments:

The court of appeals’ decision would dramatically curtail the scope of the President’s authority under the Recess Appointments Clause.  Before that decision, Executive practice had long been predicated on the understanding that the Recess Appointments Clause authorizes the President to fill vacancies that exist during a recess of the Senate, regardless of whether the recess occurs between two enumerated sessions of Congress or during a session, and regardless of when the vacancies first arose.  The decision below also conflicts with the decisions of three other federal courts of appeals and with the central objects of the Recess Appointments Clause.  It would deem invalid hundreds of recess appointments made by Presidents since early in the Nation’s history.  It potentially calls into question every order issued by the National Labor Relations Board since January 4, 2012, and similar reasoning could threaten past and future decisions of other federal agencies.

I would be quite surprised if the Court does not grant the petition and set the case for argument early in the next term. Given the splits and the enormous practical implications, it seems like that rare case that virtually comes to the Court with a presumption of a grant.

Lyle Denniston has a summary at SCOTUSblog. Nothing yet at the Volokh Conspiracy, but John Elwood is an expert on the subject and I wouldn't be surprised if he posts something worth reading soon. Stay tuned.

An Item on My Wish List

by Jeff Sovern

Tonight marks the start of the NFL draft, a time when hope blooms for all fans of an NFL team, because they can always suppose that their team has used the draft to get better--and many teams will.  Many fans create wish lists--what they want for their teams.  In that spirit, I have a wish list of what I want in consumer protection. One item would shed significant light on whether discrimination actually occurs in lending.  I wish the CFPB would work with the credit bureaus to create records on imaginary individuals.  These individuals would each be paired with another fictitious person with an identical or nearly identical record, except that one of the two would appear to be a white male, and the other either a person of color or a woman or both.  The credit files would not actually indicate race or gender, but would signal such characteristics through zip codes, names, etc.  Then the Bureau would have the imaginary people apply for credit.  By comparing the applicants' grant and denial rates, and, for those who are offered credit, the terms of the offer, the Bureau would go a long way to showing that discrimination does or does not occur in the granting of credit.

To be sure, this would require making false statements to lenders, which might violate federal law. Perhaps the relevant laws have exceptions for such experiments; if not, the remedy would be to seek enactment of such an exception, which seems unlikely to happen in the current environment, but you never know. The idea is not very different from the testers that have been used to determine if realtors and others are engaged in housing discrmination.

What's on your consumer protection wish list?

Paper on The Performance of New Private-Label Mortgage Loan Modifications after 2009

Arthur Acoca of Penn's The Wharton School, Ren S. Essene of the Consumer Financial Protection Bureau, Min Hwang of George Washington's Department of Finance, Jacob Liebschutz of Harvard's Government Department, Patricia A. McCoy of Connecticut, Jessica Russell of the Consumer Financial Protection Bureau, and Susan M. Wachter, also of Wharton have written The Performance of New Private-Label Mortgage Loan Modifications after 2009.  Here's the abstract:

This paper presents summary statistics and a preliminary analysis of the success rate of loan modifications made in 2010 and January 2011 to residential mortgages securitized in private-label residential mortgage-backed securities.  We find that these more recent private-label loan modifications had a higher overall success rate, compared to similar modifications made in earlier years.  Consistent with prior literature, having a fixed-rate mortgage, a prime mortgage, a higher Fair Isaac & Company (FICO) credit score, and/or a lower interest rate at origination were positively correlated with lower redefault rates post-modification.  Borrowers with interest-only and teaser-rate loans performed slightly better than other borrowers after receiving loan modifications.  Similarly, modifications of purchase loans did worse not only than plain vanilla refinance loans, but also worse than debt consolidation and cash out refinance loans.  Modifications of private-label mortgages in the four “sand states” – Arizona, California, Florida, and Nevada – did better than modifications in other parts of the United States, although the difference was small.  Surprisingly, modifications of fully documented loans performed worse, while modified no-documentation loans performed best.  Finally, we confirm that capitalizations of arrears performed worse than interest rate reductions and principal modifications, with the latter appearing to be the most effective.

"The Problem of Settlement Class Actions"

That's the name of this article by law professor Howard Erichson. Here's the abstract:

This article argues that class actions should never be certified solely for purposes of settlement. Contrary to the widespread “settlement class action” practice that has emerged in recent decades, contrary to current case law permitting settlement class certification, and contrary to recent proposals that would extend and facilitate settlement class actions, this article contends that settlement class actions are ill-advised as a matter of litigation policy and illegitimate as a matter of judicial authority. This is not to say that disputes should not be resolved on a classwide basis, or that class actions should not be resolved by negotiated resolutions. Rather, this article contends that if a dispute is to be resolved on a classwide basis, then the resolution should occur after a court has found the matter suitable for classwide adjudication regardless of settlement.

An economic recovery for wealthy people only?

This article by Michael Fletcher explains that "[w]ealth inequality widened dramatically during the first two years of the economic recovery, as the upper 7 percent of American households saw their average net worth increase 28 percent, while the wealth of the other 93 percent declined."

That finding bears repeating. In its first two years, the "economy recovery" from the depression that began in 2008 saw the wealth of more than 9 in 10 American households drop. That is, generally, the "recovery" was not a recovery at all for most Americans, but often a worsening of their economic circumstances, a continuing economic depression.

This data discussed in Fletcher's article come from a Pew Research Center report. Below is an additional excerpt from Fletcher's article and two charts from the Pew report.

The uneven recovery has only accelerated a decades-long trend of growing wealth inequality in the country, despite rising popular and political awareness of the dynamic. From 2009 to 2011, the average net worth of the nation’s 8 million most-affluent households jumped from an estimated $2.7 million to $3.2 million, Pew said. For the 111 million households that form the bottom 93 percent, average net worth fell 4 percent, from $140,000 to an estimated $134,000, the report said.

CFPB issues important "white paper" on payday loans

The Consumer Financial Protection Bureau today issued what it's calling a "white paper on intial data findings" on Payday Loans and Deposit Advance Products. The report is chock full of statistics and charts based on what the agency found is actually happening in the payday loan industry. Who is taking out the loans? How often do payday loan borrowers take out payday loans? What are the principal sources of income of payday loan borrowers? How poor are the borrowers? What is the average length and amount of the loans? What are their payback terms? The report begins to answer these questions with real data. Here is an excerpt from the report's conclusion:

Payday loans and deposit advances are both structured as products designed to meet short-term credit needs, with the full amount borrowed due at the next payday in the case of payday loans and due as soon as sufficient qualifying electronic deposits are received (but no later than 35 days) in the case of deposit advances.

It appears these products may work for some consumers for whom an expense needs to be deferred for a short period of time. The key for the product to work as structured, however, is a sufficient cash flow which can be used to retire the debt within a short period of time.

The data presented in this study suggest some consumers use payday loans and deposit advances at relatively low to moderate levels. Thirteen percent of payday borrowers in our sample took out only 1-2 loans over the 12-month period, and about one-third took out six loans or less. A similar share of deposit advance users (30%) took no more than a total of $1,500 in advances over the same period of time.

However, these products may become harmful for consumers when they are used to make up for chronic cash flow shortages. We find that a sizable share of payday loan and deposit advance users conduct transactions on a long-term basis, suggesting that they are unable to fully repay the loan and pay other expenses without taking out a new loan shortly thereafter. Two-thirds of payday borrowers in our sample had 7 or more loans in a year. Most of the transactions conducted by consumers with 7 or more loans were taken within 14 days of a previous loan being paid back—frequently, the same day as a previous loan was repaid. Similarly, over half of deposit advance users in our sample took out advances totaling over $3,000. This group of deposit advance users tended to be indebted for over 40% of the year, with a median break between advance balance episodes of 12 days or less.

 

Senate Republicans attack Richard Cordray for supposedly collecting consumers' private data

Jeff just told us that House Republicans won't let CFPB head Richard Corday testify before them because, they say, he's not the lawful head of the agency. He did testify today before the Banking Committee of the Democratic-controlled Senate. But there, Republicans went after him for gathering supposedly private data, which Corday says (reasonably, it seems) his agency needs to formulate agency policy. Read about it here. Here's an excerpt:

Consumer Financial Protection Bureau head Richard Cordray defended his agency's plan to collect financial data on 10 million consumers as necessary and appropriate in testimony today before the U.S. Senate Committee on Banking, Housing and Urban Affairs. The data, which include information on consumers' credit card use, mortgage payments and other financial transactions, "is widely available, widely used" and anonymous, Cordray said. "The notion that we are tracking individual consumers or somehow invading their privacy is quite wrong." He stressed that the agency needs the information to understand market trends and write reports to Congress.

House Financial Services Committee Chair Hensarling Blocks Cordray From Testifying About the CFPB

by Jeff Sovern

The Wall Street Journal has the story here and the American Banker here (one or both may be behind a paywall). Mr. Hensarling argues that as Cordray has not been confirmed, he is not the lawful head of the bureau and so cannot testify. But he adds in his letter to Mr. Cordray that "the Committee intends to conduct rigorous oversight of the CFPB's activities, and will expect the CFPB's cooperation in those efforts, including making other employees available to testify at Committee hearings and responding fully to Committee requests for documents and information."

So let me get this straight: Cordray can't testify because he hasn't been confirmed but his subordinates who also haven't been confirmed by the Senate can testify.  And the committee's "rigorous oversight" includes hearing from subordinates but not from their boss as to what the Bureau is doing. 

That, of course, makes no sense. Either the Committee wants to conduct appropriate oversight or it doesn't.  If it does, it should hear from Mr. Cordray as to matters as to which he is the most knowledgeable. If it doesn't, then it shouldn't hear from anyone from the Bureau.  The letter makes clear that the goal is not to conduct appropriate oversight but to make political points.  I don't know which is worse: how embarassing the letter's internal inconsistency is, or the fact that Mr. Hensarling expects people not to realize the inconsistency.