Questions for the CFPB director

Next week, Consumer Financial Protection Bureau Director Kathy Kraninger will deliver the statutory “Semi-Annual Report of the CFPB” to the House Financial Services Committee and the Senate Banking Committee. On his blog, US PIRG's Ed Mierzwinski suggests questions that the committee members should ask, here.

FTC alleges company using deceptive claims to push pricey real estate seminars

A federal court has entered a temporary restraining order against Utah-based Zurixx, LLC and affiliated companies, which the Federal Trade Commission (FTC) and the Utah Division of Consumer Protection (DCP) allege have used deceptive promises of big profits to lure consumers into real estate seminars costing thousands of dollars. The order prohibits Zurixx from making unsupported marketing claims and from interfering with consumers’ ability to review Zurixx and its products.

The FTC's press release, with a link to its complaint and the judge's order, is here.

Dep't of Education violated a court order to stop collecting on debt of former students of defunct Corinthian College

Despite a court order barring the Education Department from collecting on the federal student loans of former Corinthian College students, the agency continued to pursue the debts. Some former students had their paychecks garnished or tax refunds seized by the government.

The students' recently moved to hold Education Secretary Betsy DeVos in contempt. DeVos and the Education Department argued in response that sanctions are unwarranted because there was a “good faith” effort to comply with the order. The court will hold a hearing on the motion today.

The Washington Post has the story, here.

Update: The judge was not pleased. The LA Tines story on the hearing is here.

DMCA Takedown of Trump Video about Biden: DMCA-abuse silly season begins again

by Paul Alan Levy

It always happens during the presidential election season. This year, a bogus DMCA takedown was aimed at a video posted to Twitter by Donald Trump. Promoting his wild conspiracy theories about potential election opponent Joseph Biden, Trump fiddled with the first fifteen seconds of the video for the Nickelback musical number “Photograph” by inserting a photo showing Joe Biden and his son Hunter with two other individuals, one identified as a Ukrainian gas executive, into the image that appears just as the band is singing, "Look at this photograph, every time it makes me laugh . . ..” Twitter removed the video in response to a DMCA takedown notice from Warner Music.

Much of the commentary praises Nickelback for shutting Trump down by blocking his play on their work; but this video excerpt was plainly fair use. And even if Nickelback (or Warner Music) disapproves of Trump and resents his use of their copyrighted work to make a political point, that would make the takedown even worse, a form of copyright misuse.   We should fault Twitter for acceding to the takedown, but the reflexive removal of content based on abusive takedowns is consistent with the policies followed by other platforms in previous presidential elections – they have argued that the politicians should learn from these examples about the need to amend the DMCA to make bogus takedowns more unattractive, rather than expecting the platforms to make special exceptions when it is the powerful whose speech is subject to abusive takedowns.   It has been refreshing to see YouTube taking more steps to educate users about their fair use rights, and even calling out examples of abusive takedowns (as in this situation involving one of my clients, who got extra attention for its anti-fracking campaign as a result of being identified as a victim of abusive takedown).

It is, indeed, worth remembering the easy ways in which the DMCA could be amended to make it harder for abusive takedowns to succeed and easier for the victims of such takedowns to obtain redress. We suggested several such changes in this letter to then-Senators Obama and McCain after their presidential campaigns suffered unjustified takedowns; Marc Randazza put forward his own proposal a few years later.

Great recession mortgage meltdown redux? Read this story entitled "Federal government has dramatically expanded exposure to risky mortgages"

Damian Paletta at the Washington Post has written Federal government has dramatically expanded exposure to risky mortgages, effectively asking whether conditions are forming for another homeowner mortgage crisis of the severity associated with the Great Recession. Some excerpts:

The federal government has dramatically expanded its exposure to risky mortgages, as federal officials over the past four years took steps that cleared the way for companies to issue loans that many borrowers might not be able to repay. Now, Fannie Mae, Freddie Mac and the Federal Housing Administration guarantee almost $7 trillion in mortgage-related debt, 33 percent more than before the housing crisis, according to company and government data. Because these entities are run or backstopped by the U.S. government, a large increase in loan defaults could cost taxpayers hundreds of billions of dollars. * * * In 2019, there is more government-backed housing debt than at any other point in U.S. history, according to data from the Urban Institute. Taxpayers are shouldering much of the risk, while a growing number of homeowners face debt payments that amount to nearly half of their monthly income, a threshold many experts consider too steep. Roughly 30 percent of the loans Fannie Mae guaranteed last year exceeded this level, up from 14 percent in 2016, according to Urban Institute data. At the FHA, 57 percent of the loans it insured breached the high-risk echelon, jumping from 38 percent two years earlier.

Various studies indicate that the Affordable Care Act has made Americans healthier

This article by Amy Goldstein describes "an emerging mosaic of evidence that, nearly a decade after it became one of the most polarizing health-care laws in U.S. history, the ACA is making some Americans healthier — and less likely to die."

Frankel Article: Corporate Hostility to Arbitration

Richard Frankel of Drexel has written Corporate Hostility to Arbitration, 50 Seton Hall Law Review (forthcoming 2020). Here is the abstract:

In the last 30 years, corporations have aggressively and successfully pushed the Supreme Court to invalidate virtually all state regulation of mandatory arbitration clauses on the ground that the Federal Arbitration Act (FAA) preempts any state law that expresses “hostility” to arbitration. Under current doctrine, the FAA preempts any state law that is premised on the idea that arbitration is inferior to litigation for resolving disputes, or that treats arbitration clauses less favorably than other contracts.

Yet, at the same time corporations decry state-law hostility to arbitration, they frequently express their own hostility to arbitration in the way they draft their own arbitration provisions. By carving out specific claims from arbitration, adopting procedural rules that approximate litigation, or imposing restraints that make it difficult for their consumers and employees to bring disputes in arbitration, corporations have shown that they believe arbitration to be inferior to litigation in multiple ways.

Although scholars have widely debated the Supreme Court’s arbitration jurisprudence, “corporate hostility” to arbitration has gone largely unnoticed. This article examines the various methods by which corporations express hostility to arbitration and argues that this hostility carries significant implications for FAA preemption doctrine. Currently, contract drafters can exempt claims from arbitration because they believe that arbitration is inferior to litigation. But when states seek to regulate arbitration for those same reasons, they are barred from doing so by the FAA. Thus, corporations can exempt claims from arbitration to maximize their self interest, but states cannot exempt claims from arbitration to protect the public interest.

This dichotomy is anti-democratic and results in bad policy. This article proposes that corporate hostility to arbitration shows that not all hostility to arbitration is improper, and that states should have greater freedom to regulate arbitration clauses without violating the FAA.

How did ordinary people experience the foreclosure crisis?

That's the subject of a new book by Linda Fisher of Seton Hall and Judith L. Fox of Notre Dame, published by Cambridge Press, The Foreclosure Echo: How the Hardest Hit Have Been Left Out of the Economic Recovery. You can read the introduction here. Here's the abstract:

This paper includes the Table of Contents and Introduction to a book recently published by Cambridge University Press: It tells the story of the foreclosure crisis from a new perspective – that of ordinary people who experienced it. Using actual experiences – often examined through a legal lens – supplemented by economic, social science and legal research, The Foreclosure Echo explains how people experienced the crisis and how their lenders and public institutions let them down. The book also details the lingering effects of the crisis – such as vacant and abandoned buildings – and how these effects have magnified inequality. Finally, the book suggests reforms that could help avoid another crisis.

May a company get an injunction to block a defendant from invoking the Streisand Effect?

by Paul Alan Levy

The United States Court of Appeals for the Third Circuit recently upheld the rights of litigants to use public pressure to discourage companies from suing them. The issue arose in Bank of Hope v. Chon, when a bank sued one of its departed founders, after an employee who was fired for embezzlement implicated him in her crimes. The founder proclaimed his innocence and urged the CEO to drop the case, and when he did not, he warned that he would take his complaint to the bank’s shareholders. After he wrote letters to “dozens of institutional shareholders,” suggesting that the bank’s litigation strategy was doing to hurt the bank’s value. The bank then asked the district court to enjoin further such communications on the theory that the defendant was interfering with the "fairness and integrity” of the litigation process by “attempting wrongfully and unlawfully to coerce Bank of Hope into making a settlement payment.” After the trial court granted such an injunction, the defendant appealed.

The Third Circuit reversed. It held that there was no evidence that the gag order was needed, and that the blanket injunction was an impermissible restraint on the defendant's speech.  The defendant had argued that the injunction was an impermissible prior restraint; the bank argued that the founder's speech was "commercial" (because he had the economic motive of securing a better financial outcome from the litigation).  The panel expressed skepticism of that argument, but found it unnecessary to address that point because, it held, the order failed even under the Central Hudson scrutiny applied to constraints on commercial speech.

Some commentary on the case has suggested that it stands generally for the “rule . . .  that if somebody wants to talk about their case, it’s not for the courts to restrain them simply to protect the decorum or integrity of the litigation.”

I like that rule, but I am worried that it overstates the opinion,which was written narrowly. The Third Circuit panel described protecting the fairness and integrity of the litigation process as a sufficiently substantial government interest that could, in some circumstances, support a gag order directed to civil litigants; it even hinted, in dictum, that evidence such coercion was likely might be enough to justify an injunction against speech (that is, it faulted the trial court for issuing an injunction on this ground without evidence that the speech was being effective). And it faulted the trial judge for failing to consider a less restrictive injunction, such as barring specific criticisms.

So the result is the right one but some of the reasoning is troublesome. When a company pursues an individual, the defendant has every right to appeal to the court of public opinion to condemn the company for its litigation strategy – invoking the Streisand Effect, as it were- and thus give the company reasons to drop the litigation. Protecting the jury pool against tampering through overwhelming local publicity is one thing, but increasing the social and political costs of being a bullying plaintiff is a technique that ought to be available to unfairly sued defendants.  It is going to take further litigation in the Third Circuit to ensure that this is the governing rule.

House passes bill to end forced arbitration

The House just passed a bill that would restore legal rights to millions of workers and consumers. By a vote of 225-186, the House passed the Forced Arbitration Injustice Repeal (FAIR) Act, to ban companies from requiring workers and consumers to resolve legal disputes in private arbitration.

Arbitration is a process with no judge, no jury, and no public accountability,in which the parties have fewer rights than in the court system. Companies routinely require arbitration as a condition of doing business. For example, you have almost surely agreed to arbitrate any disputes through your credit card agreement, your cell phone agreement, or any agreement with a for-profit college.

Under the FAIR Act, people would still be permitted to arbitrate if they chose to, but companies could no longer force them to do so.