Bloomberg: CFPB Enforcement Actions Down Sharply Under Mulvaney

Here.  Excerpt from Jeff Bater's report:

The Consumer Financial Protection Bureau took only three enforcement actions in the third quarter of 2018 and is on pace for the lowest yearly total in its seven years of existence.

The bureau levied $1.6 million in penalties in the three-month period ending in September, compared to $7.3 million on eight actions during the third quarter of 2017, according to Bloomberg Law’s CFPB Enforcement Tracker.

Is Mulvaney Pushing the Envelope to Aid Fintech Providers?

by Jeff Sovern

Acting CFPB director Mick Mulvaney famously wrote that he would not push the envelope. He explained:

That entire governing philosophy of pushing the envelope frightens me a little. We are government employees, and we work for the people. That means everyone: those who use credit cards and those who provide the credit; those who take out loans and those who make them * * * 

* * *

It is not appropriate for any government entity to “push the envelope” when it comes into conflict with our citizens. We have the power to do damage to people that could linger for years and cost them their jobs, their savings and their homes.

But if you look at what 50 public interest groups say, it seems as if Mulvaney is indeed pushing the envelope, and not to help consumers.  Here's an excerpt from their statement:

A coalition of 50 public interest groups today sharply criticized the Consumer Financial Protection Bureau’s proposal to gut important consumer protection rules, especially for fintech companies, arguing the agency does not have the authority to create potentially unlimited exemptions from the very regulations that the CFPB is obligated to enforce.

The CFPB is exceeding its authority under the law that created the agency and would set a dangerous precedent with its “disclosure sandbox” policy, its label for granting companies exemptions from disclosure rules. Instead of conducting limited, carefully drawn trials of model disclosures that could improve consumer understanding, the CFPB would allow firms to obfuscate or eliminate important information in the name of “financial innovation,” a label that was often applied to defend practices in mortgage lending that led to the 2008 crisis.

“The reckless and unlawful scope of the CFPB's proposal is breathtaking,” said Lauren Saunders, associate director of the National Consumer Law Center. “The CFPB has no authority to allow ‘trials’ that go on for years and years and that allow entire industries to skip important consumer disclosures, such as the total cost of a loan or the required notice that the loan price was marked up due to information on the consumer's credit report. The CFPB’s proposal would not be confined to consumer testing, which recruits consumers to review and react to sample disclosures as if they were entering into a transaction. Instead, it would allow companies to experiment with or dispense with disclosures in real transactions with real consumers.”

 

Citigroup may face fair lending penalty

Reuters reports that the Office of the Comptroller of the Currency is considering sanctions against Citigroup for denying minority customers the kinds of mortgage discounts that the bank offered to many other borrowers. Citigroup, while performing a review to ensure it adhered to fair lending standards, reportedly found that some minority borrowers were not getting the discounts they were due under a program that gives a break on mortgage rates to customers who have large deposits or wealth in the hands of the bank. According to the article, Citigroup flagged the "relationship pricing" problems last year to the OCC.

The article is here.

Trump's mutually reinforcing wars on science and regulation

Law prof Albert Lin has written President Trump's War on Regulatory Science. Here is the abstract:

The Trump administration has taken numerous actions that appear hostile to scientists, scientific research, and scientific data, leading some observers to assert that a war on science is underway. A more precise characterization is that the Trump administration is engaging in a war on regulatory science, as these actions take aim specifically at regulatory science — i.e., knowledge production and synthesis carried out by the Environmental Protection Agency and other government agencies in the course of developing government regulations. The Administrative Procedure Act and other laws may constrain some aspects of the war on regulatory science, provided that they are subject to judicial review. Internal administrative law and agency norms also can promote rule of law values, but their success depends largely on the good faith of executive branch actors and the willingness of Congress and the public to push back when norms of administrative legality are ignored. Absent such pushback, the Trump administration’s war on regulatory science could lead to irrational policies and threaten democratic governance.

 

Kentucky Supreme Court: state law prohibiting employers from conditioning employment on an agreement to arbitrate is not preempted by the Federal Arbitration Act

The Kentucky Supreme Court's unanimous decision is Northern Kentucky Area Development District v. Snyder. The first two paragraphs of the court's opinion summarizes its reasoning:

Kentucky Revised Statute (“KRS”) 336.700(2) prohibits employers from conditioning employment on an existing employee’s or prospective employee’s agreement to “waive, arbitrate, or otherwise diminish any existing or future claim, right, or benefit to which the employee or person seeking employment would otherwise be entitled . . . .” When Northern Kentucky Area Development District (“NKADD”) conditioned Danielle Snyder’s continued employment on her agreement to arbitrate any dispute that may arise between them, that agreement violated KRS 336.700(2). As a result, the arbitration agreement between NKADD and Snyder—the enforcement of which is the basis of the case before us today—is unenforceable as a matter of state statutory law.

NKADD correctly asserts that the Federal Arbitration Act (“FAA”)’ broadly prohibits discrimination against arbitration agreements. It then argues that the FAA preempts the operation of KRS 336.700(2) under the facts of this case. But, rejecting NKADD’s argument, we hold that no such discrimination occurred here because KRS 336.700(2) does not prohibit arbitration agreements, limit the power of persons to enter voluntarily into arbitration agreements, or single out arbitration agreements in any way. Correctly viewed, KRS 336.700(2) is an anti-discrimination statute that prohibits employers from conditioning employment on an agreement to, not only arbitration, but also any waiver or diminution of the employee’s existing or future rights or claims for benefits arising out of employment. So, on discretionary review, we affirm for different reasons the Court of Appeals’ decision that affirmed the trial court’s order denying NKADD’s motion to compel enforcement of the arbitration agreement. And we remand this case to the trial court for further proceedings consistent with this opinion

Department of Education will miss the deadline to gut borrower protections this year

In a filing last night, the Department of Education announced that it will miss a November 1 statutory deadline to publish a rule that rolls back protections for student loan borrowers and students defrauded by for-profit colleges. Those protections, part of what’s known as the Obama-era borrower defense rule, were set to go into effect in July 2017 but have been unlawfully delayed by Secretary DeVos.

The Department’s inability to push through the new changes is good news for the public and taxpayers, who were intended to benefit from those protections. Now the Trump Administration’s deregulatory action on these protections can’t possibly take effect until July 2020.

Getting relief to the students who need is an ongoing effort, though. Last month a federal district court held that the delays of the Obama-era rule that were still in force were unlawful. However, it held off on vacating one of those delays until October 12 to give the Department an opportunity to correct the deficiencies of that delay, if it could.

In the meantime, litigation over the rule has heated up in a separate case brought against the Department by a trade association representing for-profit schools. That association has moved to enjoin the Obama-era protections until it can fully litigate its claims. Two borrowers and a group of states are participating in the suit to help defend the rule from industry attack.

You can see the filing here.

California effort to limit forced arbitration of sexual harrassment claims vetoed

Citing the U.S. Supreme Court's precedent in favor of arbitration, California Governor Jerry Brown yesterday vetoed a bill that would end the practice of employers requiring workers to use private arbitration instead of the courts to resolve sexual harassment complaints. The bill would not have barred workers from voluntarily opting for arbitration, only barred predispute agreements requiring arbitration.

An LA Times article is here.

Is California's new net neutrality law preempted by federal law?

California's net neutrality law was just signed into law. The Justice Department says it will sue to invalidate California's law on federal preemption grounds. Read about it here.

Todd Zywicki article attacks Behavioral Law & Economics as applied to consumer finance

Todd J. Zywicki of George Mason has written The Behavioral Economics of Behavioral Law & Economics, Journal of Behavioral Economics (2019, Forthcoming). Here is the abstract:

Behavioral Law & Economics (BLE) has loudly proclaimed its victory over traditional law & economics methodologies. Nowhere has this proclamation been so loud or self-certain as with respect to claims about consumer financial decision-making. Drawing on a set of casual observations styled as empirical proof, BLE scholars have called for a variety of regulatory interventions that are claimed to be necessary to protect consumers. But examining two detailed case studies here, one involving credit card usage by consumers and the other involving claims about consumer behavior in response to cash discounts and credit card surcharges, it is shown that these claims are simply incredible, in the sense that it is literally difficult to believe that unbiased scholars would find those studies to be even slightly persuasive. Possible explanations for this disconnect between the weakness of the underlying science and the widespread social acceptance of the theories by BLE scholars are discussed.

Florida court holds company's non-disparagement clause unlawful

We have from time to time blogged about non-disparagement clauses inserted into consumer contracts to try to prevent consumers from complaining publicly about a product or service. Yesterday, a district court in Florida, in a case brought by the Federal Trade Commission against weight-loss supplement marketer Roca Labs, granted the FTC's summary judgment motion in a case in which the FTC challenged the company’s enforcement of “gag clauses” to stop consumers from posting negative reviews

The court found that the defendants violated the FTC Act by making deceptive weight-loss claims about their dietary supplements, known as Roca Labs Formula or “Gastric Bypass Alternative.” The court also found that the defendants’ threats to sue, and filing of lawsuits against, dissatisfied consumers for violating non-disparagement clauses in their online sales contracts unfairly suppressed negative information about the defendants and their products, to the detriment of subsequent purchasers, in violation of the FTC Act.

The court's opinion is here.