New FDA cigarette-pack graphic warnings finalized; slated to go into effect 2021

Jacqueline Howard of CNN explains here that "the US Food and Drug Administration issued a final rule Tuesday that requires tobacco companies to place new graphic health warnings on cigarette packages and in advertisements. Beginning on June 18, 2021, the new cigarette health warnings will be required on cigarette packages and in advertisements, occupying the top 50% of the area on the front and back panels of packages and at least 20% of the area at the top of cigarette ads, according to the FDA." 

Here's RJ Reynold's predicable (and immoral) response: "We support the goal of reinforcing and sustaining the near universal public awareness of the dangers of smoking, but attempting to shock cigarette smokers away from making an informed choice through the use of grotesque pictorial warnings is poor public health policy as well as an unconstitutional violation of free speech."

Here are the proposed graphic warnings:

Norm Silber on what Katrina can teach us about the coronavirus and consumer protection

After Katrina, Norm Silber wrote an article, Debts, Disasters, and Delinquencies: The Case for a Mandatory Force Majeure Provision in Consumer Credit Agreements, and for a Consumer Credit Insurance Fund, 34 New York University Review of Law and Social Change 1 (2010), which has lessons for consumer protection as we grapple with the coronavirus.  Here are his thoughtful comments about the cornoavirus:

What can we predict based upon the Katrina experience? 

First, that shut-downs,  lay-offs, and isolations  have already created a  perfect storm—great reductions in consumer income, spikes in emergency consumer expenditures--costs for medical supplies, hotels, day care, and so much more-- and higher food prices, not to speak of food shortages. 

Second, consumer credit balances are going to shoot up, and these will create very large interest charges, very soon.   Consumers will soon be making only  minimum payments on their balances, and they will be using their credit cards to withdraw cash and buy food; they will surely hit their credit limits and unless consumers have premium cards they will hit over-the-limit fees. 

Third, the relief provided in Congressional bills will not be going to pay off credit card balances; from what we have heard it  will pay if anything for sick leaves. 

Fourth, because of reduced employment and over-the-limit dings and missed payments, credit scores will undoubtedly be adversely affected, and this will be through no fault of consumers; if what happened during Katrina and Sandy is any guide, the credit reporting agencies will not make any distinction between scores affected by the virus and other behavior that indicates inability or unwillingness to pay. 

Fifth, access to almost every sort of  consumer credit will be harder—the terms of the credit and the difficulty in getting it.

Sixth, people will die in hospitals and their families will have bills to pay.  Some of these people will be breadwinners.

Seventh,  credit card issuers will “generously” allow some debtors to skip payments, but exceedingly few of them will forgive the interest that results from skipping them. 

Eighth, we can expect a rise in consumer bankruptcies, even though credit-balance bankruptcies are not going to be simple to file for.

Ninth, and this is where my proposal hits, we could at least do something now and for the future.  We could work for a law which pays interest charges for consumers during the length of this current catastrophe, and adopt my proposal to mandate a force majeure clause in consumer credit agreements in future ones. To avoid moral hazard, to avoid the incentive to charge excessively, Congress should cover a high percentage-- but not all-- of the credit card interest charges incurred during the catastrophe. The long term fix is laid out in the article. 

 

 

 

Trump waives interest on government student loans, but payments won't change

by Jeff Sovern

Yesterday, as part of his response to the coronavirus, President Trump announced that he was temporarily waiving "interest on all student loans held by federal government agencies." According to the NY Times, monthly payments won't change. Instead, the monthly payments will go to reducing the principal, which will ultimately reduce the amount students owe. Consequently, borrowers might not experience any immediate benefits from the waiver, but it will help them down the road. Forbes has more here. I'm not sure what this has to do with defeating the coronavirus, but I'm sure student loan borrowers will be grateful. One caveat: I don't know where the Times and Forbes got their information.

Why few legislators are interested in Trump's proposal to suspend the payroll tax

Trump tweeted yesterday that "Only [suspending the payroll tax] will make a big difference!" (my emphasis). Yet Congress appears uninterested. And Trump himself just endorsed Nancy Pelosi's bill, which doesn't touch the payroll tax. For more on why, on policy grounds, Trump didn't get his way, read Why Trump isn’t getting the payroll-tax cut he wanted for the coronavirus by Amber Phillips at the Washington Post.

What implications does the coronavirus have for consumers and consumer protection ?

by Jeff Sovern

The coronavirus is already having an impact on consumers and consumer protection. Some initial observations:

• The FTC and FDA have sent warning letters to companies reportedly making deceptive or unsupported claims about their products' ability to treat the coronanvirus. It's good that they're on the job.
• There have been reports of discrimination against Asians caused by the virus, though I don't know if any of those incidents have taken place in the consumer context.
• My searches for coronavirus, virus, and covid-19 didn't produce any relevant hits on the CFPB's web site. The virus does seem likely to have consumer financial implications, however. For example, as people with student loans are laid off or suffer declines in income, they need to decide what to do about their student loan payments.  Those who qualify for Income Driven Repayment would be better off opting for that over forbearance, and they need to be told that; the CFPB has sued at least one student loan servicer, because, the Bureau claims, the servicer has a history of not so advising borrowers when IDR is in the borrower's best interest.
• Some consumers will probably turn to payday lenders, and many of those will get caught in debt traps if their income doesn't bounce back quickly, and maybe even if it does. Consumers need to be warned about that risk.
• If people borrow more or miss payments, credit reports will be less favorable. But drops in credit scores attributable to the virus may not be correct in indicating that particular consumers are more of a credit risk, because the cornoavirus seems like such an idiosyncratic event (at least, we hope it is). If that's true, will credit scores go down more than they should and be less predictive?
• More people will have debts go into collection, which could lead to more violations of debt collection laws. 
• If the US follows Italy and closes non-essential businesses, it will be interesting to see what effects follow from closing brick and mortar financial service providers (e.g., storefront payday lenders, pawn shops, check-cashing outlets, and the like), though some financial services should still be available online and even in Italy some bank branches have reportedly stayed open.
• Businesses that collect information about consumers may be able to figure out which consumers have the virus, which will have privacy implications. For example, Google knows what things people search for on its search engine, where people go if they have Google Maps on their phones, even when they are not using the app (did someone go to a doctor, hospital, drugstore?), and so on.

This is just a quick survey off the top of my head. If you have any other thoughts, please add them in the comments.

Congress has overturned Betsy DeVos's rule drastically limiting student-loan debt relief

Will Trump sign or veto? That topic is addressed in this article by CNN's Katie Lobosco. For other coverage, go here and here. This NYT's piece by Erica Green and Stacy Cowley does a nice job explaining the restrictive DeVos rule. Here's an excerpt from the CNN article:

Senate Republicans joined Democrats Wednesday to overturn a rule backed by Education Secretary Betsy DeVos that would have limited the student debt relief granted to people defrauded by for-profit colleges — an unusual bipartisan move to undo a Trump administration initiative to weaken an Obama-era policy. In a 53-42 vote, 10 Republicans joined Democrats to pass the resolution, which was first approved by the Democratic-held House in January. It will now go to President Donald Trump, who can either sign the bill or decide to stand with DeVos by vetoing the legislation and letting her rule go into place as was expected on July 1. A policy statement issued by the administration last month said that the President's advisers would recommend that he veto the resolution. Congress does not have the votes to overturn the President's veto.

 

One reason the CFPB's proposed time-barred debt disclosures might not help consumers despite the study showing they help consumers understand their rights and what the Bureau should do about it

by Jeff Sovern

The CFPB recently proposed various disclosures to include on validation notices pertaining to time-barred debt. Before doing so, the Bureau retained ICF International to test the notices empirically; this testing found that the notices enabled many respondents to better understand certain rights as to time-barred debt. So far, so good. But the study tells us far less than that, because it doesn't tell us what actually happens when consumers get debt collection notice in real life, as the Bureau candidly admits (p. 12; footnote omitted): 

In general, the Bureau believes that effects observed in a controlled setting, such as that employed in this testing, may be larger than those that might be observed in practice. For example, in the testing described here, respondents were given monetary incentives to participate, and therefore were likely to read and think carefully about the survey. Further, respondents were prompted at various times to refer to the notices and the specific disclosures so that the Bureau could most effectively test the content of the disclosures themselves. Consumers may read less (and less carefully) in the context of everyday life, and Bureau conducted cognitive testing interviews suggest this is true for at least some consumers in the debt collection context.

* * *

Whether consumers read the disclosure in real life is an important issue for disclosure policy, but the testing was not designed to address this question.

This matters because some limited empirical evidence suggests that consumers are less likely to take in the information in disclosures when they are in stressful situations (see here, at pp. 14-15). Of course, plenty of evidence shows that they are not likely to take it in at other times either.

Obviously, the Bureau should test time-barred debt disclosures (as well as other disclosures) in circumstances as close to real-life as possible. I have conducted surveys of my own and it kills me that I can't test in real-life circumstances.  But the Bureau doesn't face the same limits I do. Some states already require time-barred debt notices.  Perhaps the Bureau could determine if the existing notices are effective. For example, it may be that the Bureau could enter into agreements with debt collectors to monitor what consumers do after receiving the notices. Maybe the Bureau could survey consumers who actually received the notices to see what they understood from the notices.  I don't know what constraints the Bureau operates under, but conceivably the Bureau could buy some time-barred debt--at pennies on the dollar, it would probably cost less than the staff needed to conduct a survey--send out its debt collection notices, and then see what happens. To be sure, consumers can be hard to reach when they are ducking calls from debt collectors, but perhaps they would be easier to reach when the Bureau, as opposed to a debt collector, calls to survey them. The Bureau would have to be careful not to act in such a way as to create a conflict with its consumer protection mission, and would have to return any money consumers actually sent it, but such an experiment might tell more about how effective such notices are than a sterile survey. If John Oliver can buy debts for entertainment purposes, surely the Bureau can do so for consumer research purposes.

In any event, if the Bureau does go forward with its rule, it should definitely follow up in some way along the lines I have described with consumers who eventually receive the notices to see what they absorb from the notices. I wish I could.

Rent-a-banks skirt caps on interest-rates for consumer loans

The Wall Street Journal reports that California passed a new law to cap interest rates—currently at about 37% a year—for some consumer loans. OppLoans, however, is charging 160% on a typical loan in California, using a partnership with a Utah bank to continue selling in the state despite the new rules.

OppLoans isn’t the only lender charging triple-digit rates in California. The Wall Street Journal ran 25 online searches in February within the state for loans for a financially stressed borrower. The top results included several companies pitching consumer loans with rates over 100% to borrowers browsing from California.

OppLoans and its partner FinWise Bank are in what is called a rent-a-bank partnership, which allows high-cost lenders to skirt interest-rate caps in dozens of states. Rent-a-bank arrangements are the focus of a fierce battle pitting state regulators and consumer advocates against the credit industry.

The full article in here (subscription required).

CFPB says Fifth Third Bank opened fake accounts using customers' money

The Washington Post reports today that the Consumer Financial Protection Bureau has filed a lawsuit against Fifth Third Bank, alleging the bank’s employees opened fake accounts for customers in order to meet aggressive sales targets.

The federal regulator alleged Monday that the bank knew its employees were opening fake accounts since at least 2008 and up until 2016, the same year that Wells Fargo admitted its own employees had opened fake accounts to meet aggressive sales goals. Wells Fargo was forced to pay billions of dollars in fines and penalties for its bad behavior.

The CFPB alleges that some of the fake Fifth Third accounts were actually funded, meaning bank employees moved money from a customer’s existing account to their new one, without their consent. Fifth Third’s sales program required the accounts to be funded, so once the employee was credited for the sale, the money was moved back.

The full article is here.

9th Circuit decision on FDCPA definition of "debt collector"

A nice win today for attorney Kelly Jones and my colleague Adam Pulver in McAdory v. DNF Associates:

Reversing the district court’s dismissal of an action under the Fair Debt Collection Practices Act and remanding, the Ninth Circuit held that a business that bought and profited from consumer debts, but outsourced direct collection activities, qualified as a “debt collector” subject to the requirements of the Act. Joining the Third Circuit, the panel held that an entity that otherwise meets the “principal purpose” definition of debt collector under 15 U.S.C. § 1692(a)(6) (defining debt collector as “any business the principal purpose of which is the collection of any debts”) cannot avoid liability under the FDCPA merely by hiring a third party to perform its debt collection activities.

Dissenting, Judge Bea wrote that the complaint failed to allege that defendant acted directly in any way to violate plaintiff’s rights under the FDCPA; plaintiff did not adequately allege that defendant’s “principal purpose” was the “collection of any debts;” and the word “collection” must, in context, describe the action of collecting.

The opinion is here. Adam is currently briefing the same issue in the 8^th Circuit, in a case called Reygadas.