Want to publish an article about the new financial reform legislation?

Now that Congress has passed, and the president will soon sign, Wall Street reform legislation, the question is just what does the new law say and what does it do and not do? Many have blogged about the bill, and numerous articles have been printed in newspapers, but there does not appear to be a detailed analysis of exactly what we have enacted, and the potential reach of the new agency. The Journal of Consumer and Commercial Law would like to fill that gap, and be the first to publish a detailed analysis of the new law. If a manuscript is received by August 20th, we can get it in the September issue. Due to the short notice, we will be very flexible with respect to format and length. If you want to put something together in the next month, let me know, alderman@uh.edu.

Congress Passes Financial Reform; Much More Must Be Done to Rein in Wall Street

by Rob Weissman

More than a year and a half after Wall Street crashed the global economy, Congress has finally taken important action to rein in the Wall Street titans. The Wall Street reform bill is a crucial first step, passed despite the financial sector’s enormous investments in lobbying and campaign contributions. But Wall Street remains far too powerful in Washington, with the result that this bill does not contain crucial reforms that must be included in subsequent reform efforts.

On the positive side of the ledger, the bill contains stronger consumer financial protections and curbs on some of the worst practices in the derivatives markets.

Consumer Protection: The bill consolidates and streamlines existing consumer financial protection by creating a Consumer Financial Protection Bureau. This bureau will have the authority to crack down on unfair, deceptive and abusive practices in connection with consumer products such as payday loans, credit cards and mortgages by using new rules and enforcement powers. It also will have authority to ban particularly harmful practices such as forced arbitration. Had the bureau been in place and operating effectively during the run-up to the financial crisis, it would have prevented the predatory and abusive mortgage lending practices that led directly to the crash.

Transparency, Oversight and Stability in the Over-the-Counter (OTC) Derivatives Market: The bill also makes major progress on reining in reckless and unfair derivatives practices. It restricts the most egregious practices, such as federally insured banks engaging in risky proprietary trading and financial institutions making bets against their own clients. It requires the vast majority of previously unregulated OTC derivatives to be cleared and traded on regulated exchanges. Derivatives were a critical cause of the financial crisis; new clearing and exchange rules should go a long way toward stabilizing the system.

There are many other positive components of the bill. How effective they turn out to be will depend crucially on implementation over the next months and years. If Wall Street can regain control of the regulatory process, then many of the potential benefits from this bill will be lost.

Unfortunately, many important reforms are missing from the bill. Some key elements were jettisoned or weakened in the conference process. These include limits on commercial banks owning hedge funds, and the bulk of the requirement that commercial banks spin off their derivatives trading desks.

Financial Reform Passes!

Brian Beutler has the story at Talking Points Memo:

It's done. The Senate this afternoon, by a vote of 60-39 passed the final version of Wall Street reform legislation -- the exact same version the House passed two weeks ago, which will now go the White House for a signature. Senate Majority Leader Harry Reid (D-NV) said that the President plans to sign the bill next week.

The development, though expected for days, represents a major achievement for President Obama and congressional Democrats -- their first landmark bill since health care. And this time it's actually popular.

President Obama will sign the bill next week.

Lessons for Anti-SLAPP Work from Russell v ML-Implode.com

by Paul Alan Levy

A recent blog post by Aaron Krowne, castigating the rejection of an anti-SLAPP motion filed by his company ML-Implode.com as "bizarre ruling" and "blatant miscarriage of justice," has gained wide circulation on the Internet. Judge Deborah Chasanow of the United States District Court for the District of Maryland refused to grant a motion to dismiss, filed under Maryland's anti-SLAPP law, a libel suit brought against his company by individuals and entities who were criticized in an article published on the ML-Implode blog. The article said that the plaintiffs, a company arranging FHA loans in conjunction with the Penobscot Indian Tribe, were engaged in fraud. 

Although one can understand Krowne's dismay at the economic impact of the adverse ruling —  he indicates that his company will now have to file for bankruptcy —   it appears to be that the problem is not with the ruling but with Maryland's anti-SLAPP statute itself. As recited in the opinion, Maryland defines a SLAPP as a suit that was  "[b]rought in bad faith" against the party exercising free speech rights, Maryland Code, Courts and Judicial Proceedings § 5-807(b)(1), and was "intended to inhibit the exercise of [free speech] rights," § 5-807(b)(3).  The statute then allows a motion to dismiss only against "an alleged SLAPP suit." § 5-807(d)(1).

Progress in protecting gripe site owners against silly trademark claims

by Paul Alan Levy

A recent decision from a federal judge in Detroit holds out hope of providing better protection for the owners of Internet gripe sites who face groundless lawsuits intended to make them pay a high price for standing up for their free speech.

Lawrence White created a simple, anonymous web site at careeragentsnetwork.biz  to warn prospective small business owners to check carefully before investing their savings in a the “health care employee recruiting business” opportunity offered by a company called “Career Agents Network.”  Career Agents Network sued in the U.S. District Court for the Eastern District of Michigan, claiming that the domain name infringed its trademark and constituted cybersquatting.  Even though Sixth Circuit precedent foreclosed both causes of action, plaintiff moved ex parte for a temporary restraining order and obtained relief compelling the identification of White, and freezing the domain name, by concealing the controlling authorities from the Court.  The defendant got summary judgment (represented by private counsel)  by citing the controlling cases; but it cost the defendant nearly $20,000 to defend his rights.

Two new cases on Internet Anonymity

by Paul Alan Levy

In past posts, I have discussed the importance of the standards for deciding whether to compel the identification of anonymous Internet speakers. The First Amendment protects the right to speak anonymously, and if the bar to such discovery is set too low, much citizen and consumer discussion about the important issues of our day, including the doings of corporations and politicians, will be chilled and hence lost to the marketplace of ideas.  If it is set too high, valid claims may be lost.  We at Public Citizen have litigated many cases devoted to setting this balance correctly.

Two federal courts on the West Coast have chimed in on the standards to be used to decide whether to identify anonymous Internet speakers.   In the clearest ruling, a federal trial court in Seattle joined the national consensus approach, typified by the New Jersey appellate decision in Dendrite International v. Doe, whereby a plaintiff who wants to identify anonymous defendants to serve them with process must make both a legal and evidentiary showing of the validity of its claims, and must, in at least some circumstances, survive a balancing test that considers the interest on both sides.  In a second ruling, the Ninth Circuit refused to disturb a district court ruling two years ago that applied a similar approach in ordering three Does identified while preserving the anonymity of two others.  That Court’s analysis appears to limit the applicability of Dendrite, but the odd procedural context of the appellate ruling may limit its impact.

Three Interesting Articles on the OCC, Debt Collection, and the Military Lending Act

by Jeff Sovern

Yesterday the Times published speculations about who will replace John Dugan as head of the Office of the Comptroller of the Currency in its Reuters BreakingViews column.  The OCC will continue to matter even after the CFPB becomes a reality because of its power to declare state laws preempted as to federal institutions. An excerpt:

If President Obama is looking for a candidate already intimately involved in the transformation of the nation’s regulatory architecture, he could go with Daniel K. Tarullo, a Fed governor and an expert on bank regulation. But why would he want the job? Although the Office of the Comptroller of the Currency will pick up the powers of the thrift regulator, oversight of the biggest bank holding companies will be the purview of the Fed. In that respect, the O.C.C. could be a step down for Mr. Tarullo.

That paves the way for more of an up-and-comer, like Richard H. Neiman, New York’s top state bank regulator. Mr. Neiman knows Washington, too. He worked at the O.C.C. earlier in his career and serves on the Congressional oversight panel for the bank bailout. Even better, Mr. Neiman has private sector experience as head of TD Bank USA.

Following up on Deepak's post yesterday on the FTC debt collection report, today's Times included Automated Debt-Collection Lawsuits Engulf Courts about a law firm, Cohen & Slamowitz, of Woodbury, N.Y, that files more than 5,700 lawsuits per lawyer a year.  The article strongly implies that those are collection cases.  What makes it possible is software that merges court documents with information received from debt buyer-clients.  I wonder how that squares with the "meaningful review" requirement courts impose on lawyers under the Fair Debt Collection Practices Act.

Finally, Parade Magazine had a depressing piece this weekend about soldiers who have been scammed, titled  Red, White, and Scammed, which reported on how some lenders have gotten around the Military Lending Act's interest rate limits:

Some lenders abide by the cap but drown their products in fees—in one reported case, $452 of charges were piled on a $1000 loan. Others base their businesses offshore and call their offerings “revolving lines of credit”—both so they can skirt U.S. laws and charge 500% interest. In her Arlington, Va., office, Petraeus typed “ military loans” into Google. “I got about 2.5 million results from that,” she says. “A lot of them are predatory or just outright scams.”

FTC Issues Major Report on Debt Collection and Forced Arbitration: System is "Broken"

by Deepak Gupta

The Federal Trade Commission today issued a major report on debt collection and the forced arbitration of consumer collection disputes. Concluding that "the system for resolving consumer debt collection disputes is broken," the FTC recommends a series of sweeping reforms. The new report, Repairing A Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration, reflects information gathered at roundtable discussions following a February 2009 report on the same subjects. The vote to issue today's report was 5-0.

Given the heated debate in Congress and the courts over forced arbitration, the arbitration-related material in today's report is likely to receive the most attention. The report addresses concerns about requiring consumers to resolve debt collection disputes through binding arbitration without meaningful choice, bias or the appearance of bias in arbitration proceedings, and procedural unfairness in arbitration proceedings. The FTC's principal recommendations are:

• Consumers should have a meaningful choice about arbitrating debt collection disputes.
• Arbitration forums and arbitrators should eliminate bias and the appearance of bias.
• Arbitration forums should conduct proceedings in a manner that makes it more likely that consumers will participate.
• Arbitration forums should require that awards contain more information about how the case was decided and how the award amount was calculated.
• Arbitration forums should make their process and results more transparent.

Citing the scandal over the National Arbitration Forum, Commissioner Julie Brill issued a separate concurring statement in which she urged Congress to enact a temporary ban on the mandatory arbitration of consumer debt collection disputes:

Such a ban should remain in place until the arbitration process can be shown to be fair, transparent, and as affordable as traditional litigation, and until consumers have a meaningful opportunity to opt out of pre-dispute arbitration without losing access to the credit services they seek. Once these conditions have been met, Congress could lift the ban itself, or it could delegate that authority to the Federal Trade Commission or another appropriate consumer financial protection agency or bureau established in the future.

Today's report also recommended a number of sweeping reforms to consumer collection litigation:

• States should consider adopting measures to make it more likely that consumers will defend themselves in litigation, decreasing the prevalence of default judgments.
• States should require collectors to include more information about the alleged debt in their complaints.
• States should take steps to make it less likely that collectors will sue on debt on which the statute of limitations has run.
• Federal and state laws should be changed to prevent the freezing of a specified amount in a bank account including funds exempt from garnishment.

Georgia State University Law Review Articles on Consumer Law

Longtime consumer law professor Mark Budnitz's home law review, Georgia State University Law Review, has published a quintet of consumer law articles, including an article by Mark himself, The Development of Consumer Protection Law, the Institutionalization of Consumerism, and Future Prospects and Perils.  The others include Kathleen E. Keest, Consumer Financial Services Law and Policy: 1968-20?? In the Thick of the Battlefield for America's Economic Soul; Alvin C. Harrell, The Great Credit Contraction: Who, What, When, Where and Why; and Fred Miller, Prime Interest Rates for Subprime Borrowers?.   I could find only one on the web, a piece by Peter A. Alces of William & Mary and Michael M. Greenfield of Washington University, titled They Can Do What!? Limitations on the Use of Change-of-Terms Clauses, with the following abstract:

Almost every contract that calls for ongoing services to consumers contains a provision that authorizes the provider of those services to modify the contract at any time, without any constraint on the modification. With some exceptions, the courts have not been very responsive to arguments that seek to enforce constraints on the provider’s discretion. In the recently enacted Credit CARD Act, Congress has declared that there are indeed some limits on the changes that may be made to one kind of ongoing consumer contract, viz., a contract to provide open-end credit. In this article, to be published in a forthcoming symposium issue of the Georgia State Law Review, we review several statutory rules and common-law doctrines that suggest limits, applicable to all kinds of consumer contracts, on the freedom of service providers to change the terms of the contract  

The articles appear in volume 26, number 4.

How Chase Bank Almost Helped a Teenager Get Scammed

by Jeff Sovern

A teenager I know responded to a listing for a summer job on Craig's List.  The employer claimed he was opening an art gallery and would pay $400 a week for twelve hours of work running errands and the like.  Because he was out of the country, he was unable to meet her, but emailed her a list of questions.  Upon receiving her answers, he hired her.  She was thrilled.

Shortly afterwards, he overnighted her two money orders totaling $1,700. He instructed her to deposit them and take $200 for half of her first week's salary; she was to wire the remaining $1,500 to an artist that day.  When she mentioned this to me, I became concerned.  What if she wired the money and the money orders later came back dishonored?  And why hadn't he wired the money himself rather than trusting a teenager he had never met? 

So she called her bank--JPMorgan Chase--to find out how long it would take before the money orders cleared.  The answer she received was one day.  That didn't sound right to me, so I got on the phone.  I explained my concern that this was a scam and that I didn't want to know when she could draw on the funds, but rather when the funds would clear so that she was assured that the bank would not charge back her account when the money orders came back dishonored.  Once again, I was told one day.  I was still unconvinced, so we called again.  Again we were told one day.  I haven't looked at check clearing for ages; had things changed so much in the interval?  I tried a third call to Chase, and this time the representative told me what I had expected to hear the first time: while Chase would make the funds available in one business day, it could take much longer than that to determine if the money order was legitimate and that if it were dishonored, Chase would charge back the account.  I instructed the teenager to text the employer that she would not wire the funds until the money orders had cleared, on the theory that if he's legitimate, he will get in touch with her.  So far, she hasn't heard back.  I don't think she will.

The teenager is disappointed at the loss of her seeming summer job and simultaneously relieved at not having lost her savings.  But there's a bigger issue here than just what happened to her.  Most teenagers--and probably most adults--would have stopped at the first phone call.  Many would have wired the money.  Maybe they could later persuade Chase that it should not charge their account back for the dishonored money order because of the information provided by its customer service agent, but more likely they wouldn't be able to.  Chase was in a position to prevent this fraud--and it didn't.