CFPB Student Loan Ombudsman Resigns in Protest, Slams Mulvaney for Undercutting Enforcement of the Law, Shielding Bad Actors from Scrutiny

by Jeff Sovern

NPR has a report, including Seth Frotman's resignation letter, here.  The letter deserves to be read.

Severance and the Federal Arbitration Act

That's the topic of A New Legal Framework for Employee and Consumer Arbitration Agreements by law prof Imre Szalai. Here's the abstract:

If an arbitration clause in an employment or consumer agreement contains a harsh term, such as an abbreviated statute of limitations or a provision requiring arbitration in a distant location, judges will sometimes sever the harsh term and enforce the rest of the arbitration clause. In fact, some judges believe the Federal Arbitration Act and its strong federal policy favoring arbitration require severance of any harsh provisions so that arbitration will still occur minus the oppressive terms. This severance approach may encourage drafting parties to overreach and include harsh terms in an arbitration clause if the only penalty at the end of the day is mere severance of such terms. This Article demonstrates that the Federal Arbitration Act embodies a simple, binary approach to the enforcement of arbitration agreements: either an arbitration agreement is fully enforceable, or it is not enforceable at all. As a matter of federal law, the text, history, and policy of the Federal Arbitration Act require courts to invalidate an arbitration clause in its entirety if it contains any harsh provisions. Severance of harsh terms should not be permitted under the FAA in order to rescue parties who draft arbitration clauses with oppressive terms.

Blogger Found Liable for Copyright Infringement Nevertheless Maintains Anonymity

by Paul Alan Levy

A few months ago, I blogged about an important Sixth Circuit ruling on the issue of online anonymity. Signature Management Team v. Doe, 876 F.3d 831 (2017), came close to endorsing the Dendrite approach to deciding whether a defendant who has been sued for allegedly inappropriate behavior should be denied the right to remain anonymous while the issue of his liability is being determined. This case presented the further question of whether anonymity could be preserved even after a finding of liability. The case was remanded to the district court in Michigan to decide whether a defendant whose violation waas purely technical, but who faced a serious risk of significant harassment and retaliation, could remain anonymous.

In a decision issued today, won by Joshua Koltun, a Bay Area lawyer who has maintained a remarkable track record in such cases, the district court applied the factors enumerated by the appellate majority, also addressing some of the concerns articulated by the Sixth Circuit dissenting judge.  The Court decided that the Doe's interest in keeping his speech anonymous outweighed the plaintiff's interest in learning who it was that had, however briefly, been guilty of infringing its copyright in an outdated version of an instructional manual that is sold online for $1.98, for which plaintiff had chosen not to seek damages.

 

Total U.S. Household Debt Rises for the 16th Straight Quarter

Last week, the Federal Reserve Bank of New York issued its quarterly report on U.S. household debt and credit. It found that—for the 16th straight quarter—aggregate household debt balances increased in the second quarter of 2018. Debt from mortgage loans, auto loans, and credit cards increased, while outstanding student loan debt decreased. On the bright side, aggregate delinquency rates improved, and, for student loan debt specifically, transition rates into delinquency have “fallen noticeably” over the past year. The accompanying press release is available here.

Sen. Elizabeth Warren's new reform bill would ban members of Congress from owning individual stocks

That's the headline of this article by Kevin Breuninger's piece. Here are the key take-aways of Breuninger's piece:

• Sen Warren proposes a new bill that would ban members of Congress and the White House staff from owning individual stocks.
• As an apparent alternative, the legislation would create "conflict-free investment opportunities for federal officials with new investment accounts."
• While the measure is unlikely to pass the Senate as long as Republicans hold majority control of the chamber, it comes amid speculation that Warren could run for president in 2020.

 

A growing financial crisis for older people

Michael Hiltzik's column, titled Bankruptcy is hitting more older Americans, pointing to a retirement crisis in the making, surveys a new report about the growing number of bankruptcies filed by older people. One reason for this trend is that retired workers generally no longer have company-paid pensions. He notes that

a sizable percentage of American workers were [in the past] covered by corporate defined-benefit pensions, producing what retirement experts have called “a brief golden age” when many American workers could retire with confidence. Over the last few decades, however, confidence in that safety net has ebbed. Defined-benefit plans have given way to defined contribution plans such as 401(k)s, which saddle workers with all the risk of investment market downturns — and in which wealthier workers are overrepresented, both in enrollment rates and balances.

Speaking of wealth inequality . . .

The Economic Policy Institute has issued a report that looks at trends in chief executive officer (CEO) compensation. It looked at stock options realized, plus salary, bonuses, restricted stock grants, and long-term incentive payouts. It found:

In 2017 the average CEO of the 350 largest firms in the U.S. received $18.9 million in compensation, a 17.6 percent increase over 2016. The typical worker’s compensation remained flat, rising a mere 0.3 percent. The 2017 CEO-to-worker compensation ratio of 312-to-1 was far greater than the 20-to-1 ratio in 1965 and more than five times greater than the 58-to-1 ratio in 1989 (although it was lower than the peak ratio of 344-to-1, reached in 2000).

De Geest Book Argues Marketing Causes Inequality

Gerrit De Geest of Washington University in St. Louis has written Rents: How Marketing Causes Inequality. Chapter One is available here.  Here is the abstract:

This working paper contains the introduction and first chapter of a forthcoming book on the relationship between marketing and inequality. I argue that the dramatic rise of income inequality since 1970 has largely been caused by advances in marketing. Marketers have become better at creating and exploiting market distortions in legal ways. The legal system, in principle, prevents the deliberate creation of market failures, but it has not evolved at the same speed. Business schools have outsmarted law schools. This chapter offers an introduction to a new, general theory of marketing. Although marketing is meant to improve markets by bringing products to the right customers, it often does the opposite—creating “value” to businesses by making prices less transparent, splitting informed and uninformed consumers, making products incomparable, locking in consumers, exploiting psychological biases, creating network externality effects, or preventing price wars. Over the time span 1970–2015, the impact of marketing on the economy has steadily increased. Few markets have not been turned into less competitive ones by marketers, trained at modern business schools. This has significantly increased the amount of artificial profits (“rents”) in the economy.

NPR: Trump Administration proposing to weaken Military Lending Act

The Military Lending Act (MLA) is aimed at protecting service members from predatory loans and unfair financial products and services. (For instance, the MLA prohibits the use of arbitration agreements in most consumer credit contracts entered into by service members and their dependents.)

But it appears that the Trump Administration wants to undermine the MLA.

At the behest of the National Automobile Dealers Association, the Trump Administration has been planning to propose that car dealers be allowed to tack on "gap insurance" when they sell cars to service members. But when sold by car dealers, that type of insurance is typically a rip off imposed on unsuspecting customers. And so, current MLA regulations prohibit the practice.

NPR reporter Chris Arnold explains:

Here's how [gap insurance] works: Cars lose some of their value the moment they are driven off the lot. Dealers often tell customers that if their car gets wrecked in a crash they could be financially harmed because regular insurance may not pay out the entire amount owed on the loan. [Univ. of Utah law professor Chris] Peterson says some car dealers push this insurance product really hard. "They convince people they've got to have this gap insurance," he says. That kind of insurance can actually be inexpensive. Peterson ... says it often costs as little as $20 to $30 a year and is available from a car buyer's regular insurance company. "But if you buy it from your car dealer, they may mark it up. ... I've seen gap insurance policies being sold for $1,500" over the course of the loan, he says.

So, the Trump Administration, it appears, wants to give service members the option of paying $1,500 for something that the market values at about $30 when customers are well-informed. 

Listen to (or read) Arnold's story here. You'll learn about other ways in which the Trump Administration may weaken the MLA.

A tale of forced arbitration in the wake of the Supreme Court's decision in Epic Systems

Remember last May's decision in Epic Systems v. Lewis? There, the Supreme Court held that the Federal Arbitration Act demands enforcement of arbitration clauses against workers, including class-action and collective-action waivers contained in arbitration clauses, notwithstanding the Act's savings clause and the National Labor Relations Act's protection for workers to engage in "concerted activities."

This article by Dave Jamieson tells a predictable tale (predictable, that is, in the wake of Epic Systems) of 2,800 low-wage workers who were tossed from a collective suit against Chipotle -- which allegedly has not paid the workers their lawful wages. The federal judge handling the case said that, in light of Epic Systems,  he was “compelled to find that the class and collective action waiver in Chipotle’s Arbitration Agreement does not violate [the NRLA] or render the Agreement unenforceable.” 

Epic Systems and other Federal Arbitration Act precedents that make it nearly impossible for workers and ordinary consumers to vindicate their rights are premised on fictional consent -- the notion that by signing take-it-or-leave-it contracts to buy goods and services, or to work at low-wage jobs, they have agreed to give up their rights to go to court or to enforce their rights collectively (in court or in arbitration). Jamieson quotes the deposition of Chipotle's director of compliance, David Gottlieb, who gives you an idea of what Chipotle means by consent:

If you [a prospective Chipotle employee] choose not to agree to the arbitration agreement, for example, once you have been given notice and an opportunity to look at it, read it, ask any questions, download it, save it, whatever you want to do ― if you don’t, then you don’t have to be an employee.

The workers' lawyer stressed a different aspect of the "agreement" with Chipotle: that “virtually none of the” the workers even remembered signing it.