New Report from the Center for Responsible Lending Examines the Repayment Experiences of Payday Loan Borrowers in Colorado

Today, the Center for Responsible Lending released a new report examining the repayment experiences of borrowers of longer-term payday loans in Colorado. The report is based on focus groups that were conducted in four Colorado cities in September 2017. The full report is worth the read, but here are the key takeaways:

• In many cases, unaffordable loan payments triggered significant additional financial hardships, either immediately or down the road, such as not having enough money remaining to meet other basic expenses, aggressive debt collection, and damaged credit reports.
• Payday lenders made back-to-back loans to borrowers and made payday loans to borrowers who already had outstanding loans from other payday lenders, both of which indicate payday lenders’ failure to assess whether the loan can be paid without re-borrowing or in light of a borrower’s existing debt load.
• Payday borrowers faced frequent financial challenges and elevated levels of debt from a wide range of sources such as student loans and medical debt that pushed them to seek other, often high-cost debt and made the repayment of their total debt load difficult.
• While many payday borrowers looked to payday loans to avoid other credit options, many viewed borrowing from credit cards and family and friends as an available option for them.

The Mulvaney Discount

by Jeff Sovern

David Dayen has coined the phrase, the "Mulvaney Discount," to describe the tendency of CFPB Acting Director Mick Mulvaney to settle cases for less than the original amount. As Dayen and others have pointed out, Mulvaney's CFPB has been announcing more enforcement cases than it did in his first six months. That's good, but if the penalties are too small, the Bureau's actions will not have sufficient deterrent effect.  In addition, when Mulvaney settles for smaller amounts of restitution, not only do consumers receive less, but Mulvaney  undermines one of the Bureau's selling points. Advocates for the Bureau frequently cite the $12 billion it has returned to consumers, but that number will grow more slowly as Mulvaney reduces restitution, making the Bureau seem less effective--which under Mulvaney, appears to be the case.  Dayen describes a couple of cases in which consumers will receive no restitution at all, though he also mentions one in which they will receive $25 million.

Sen. Warren answers questions about the economy and regulation

Senator Elizabeth Warren answers policy questions about the economy, free markets, and regulation for the Washington Post, here.

More Results from an Empirical Study of Consumer Understanding of Debt Collection Validation Notices

by Jeff Sovern

We just posted to SSRN the draft of our article, Validation and Verification Vignettes: More Results from an Empirical Study of Consumer Understanding of Debt Collection Validation Notices, Forthcoming in the Rutgers U. L. Rev. (with Kate Walton & Nathan Frishberg). Comments welcome! Here's the abstract:

The federal Fair Debt Collection Practices Act obliges debt collectors to provide certain notices to consumers from whom they are attempting to collect debts. This article is our second to report findings from the first academic study of consumer understanding of one of those notices, commonly called the validation notice or “g notice.” We showed consumers different versions of collection letters and then asked questions to measure their understanding of the notices. Our findings raise serious questions about the efficacy of a commonly-used form of validation notice, especially when read in conjunction with the findings in our first article. 

In this article, we report that a fifth of the respondents who said they would write a letter if told they needed to do so to dispute a debt they did not owe failed to realize that the letter they saw said that the collector would have to verify the debt if they wrote 25 days after receipt of the collector’s demand for payment—even though the demand letter had been approved by the Seventh Circuit. Most respondents did not find the validation notice salient enough to mention when asked an open-ended question about the contents of the two-page collection letter they saw. We also found a gulf between what many consumers expect when requesting verification of a debt and what some courts say collectors must provide. 

Some consumers also seemed to run out of patience to dispute debts. Significantly fewer consumers said they would dispute a debt with a second collector when they had already disputed it once, though most said they would dispute the debt a second time. Because some collectors sell disputed debts to other collectors, that finding suggests that consumers will surrender some rights simply because they grow tired of asserting them. On the positive side, we found that seeing a validation notice made a difference on some questions, though not on others. After discussing these and other findings, the article offers some recommendations to lawmakers for addressing the problems revealed in our study.

Senate Banking Committee May Vote on Kraninger Next Week

So Bloomberg reports (no link available). Kraninger has until July 31 to answer any questions senators submitted after the hearing, so if any such questions were submitted, and she takes the full time allotted, that won't leave much time to digest her answers.  The Senate is expected to take a recess during the week of August 6, so if the vote doesn't take place next week, it will have to wait until later in August.

Dep't of Ed / Betsy DeVos propose to abandon student protections through a new Borrower Defense Rule

The Department of Education today proposed a new Borrower Defense Rule that would abandon important protections designed to stop for-profit colleges from forcing students to give up their right to take schools to court for wrongdoing by forcing them to arbitrate any claims. Forced arbitration provisions, together with bans on the right of students to band together in class actions and gag clauses that prevent students from discussing arbitration proceedings with other students, have stopped students from accessing the court system to bring claims of wrongdoing against for-profit schools, including the now-shuttered Corinthian Colleges and ITT Technical Institute.

The proposed rule is here.

Rolling Stone describes the Department's proposal this way: "Betsy DeVos’ New Proposal Aligns Her With For-Profit Colleges Over Debt-Saddled Students." Or more succinctly: "The Department of Education wants to make it harder for screwed-over students to get their money back." That article is here.

White House Adviser Says Mulvaney's Mission is to Blow Up CFPB

by Jeff Sovern

So reports Nancy Cook, in Politico. The adviser is not identified. Excerpt:

Mulvaney also has received accolades for his slow dismantling of the former CFPB, a brainchild of Elizabeth Warren’s that was created by Democrats in the wake of the 2008 financial crisis and has long been a favorite target for Republicans.

“His mission was to blow that up, which he has. He is very well-suited to the chaos,” said a close White House adviser.

The article is about whether Mulvaney will become the next White House chief of staff, and the reference to "chaos" in the quote probably refers to the White House, not the CFPB.  

Weinberg article on the history of credit reports

Jonathan Weinberg of Wayne State has written 'Know Everything that Can Be Known About Everybody': The Birth of the Credit Report, Villanova Law Review, Forthcoming. Here is the abstract:

A remarkable amount of our personal information is in the hands of corporations such as the Experian credit bureau; strangers to us, they make their money by collecting our data, processing it and selling it to others. Other firms make decisions shaping our lives on the basis of credit ratings the credit bureaus assign to us. Those companies have profound impact on our lives, but we are not their customers and have no control over them. Most of us assume that this state of being, in which we find ourselves at the mercy of firms whose business is to process and sell our information, is a new thing – a product of the Information Age, credit cards, and mainframe computers. In fact, it's much older than that.

The story of the 21st-century credit bureau echoes that of the first credit bureau, initially known as the Mercantile Agency, founded before the Civil War. In a world in which such things were unknown, the Mercantile Agency sought to establish and maintain a file on every American who might ever seek commercial credit. Deeply controversial and deeply influential, the Mercantile Agency created an early, computer-free, version of the database system, maintaining and updating files on well over a million people by 1890. It and its rivals put in place a new, pervasive, network of social monitoring that became a central part of the nation's economic infrastructure. The early credit bureaus faced some of the same issues that the modern ones do, and inspired deep privacy fears. Modern privacy law didn't exist yet, and so privacy issues found their way into the law of credit bureaus in the context of defamation lawsuits. The resulting defamation case law displays remarkably modern concerns about the commoditization of information, and about the untrammeled distribution of information about individuals. It suggests possibilities in the evolution of the law that ultimately went unrealized.

What Are Kraninger's Promises to be Accountable and Transparent Worth?

by Jeff Sovern

In her written testimony, and again in her oral testimony, Kathy Kraninger, the president's nominee to head the CFPB, promised to be transparent and accountable.  But her testimony yesterday, in which she said giving her personal opinion was not appropriate, was anything but.  Don't take my word for it; here's how one industry blog, AccountsRecovery.net,  put it:

[W]hat I was watching wasn’t a hearing, it was a game of dodgeball. Kraninger had mastered the five D’s of dodgeball – dodge, duck, dip, dive, and dodge.

Similarly, InsideARM.com's headline read BCFP Nominee Kathy Kraninger Doesn’t Give Much at Senate Hearing.

In a sense, confirmation hearings are hiring interviews.  If Ms. Kraninger says so little during her interview, when she still wants the job, it seems unlikely that she will be either transparent or accountable once she has a five-year term in the position.  I can't imagine a normal employer hiring someone who was willing to say so little about her views or her past actions.  Of course, politics being what it is, it almost didn't matter what she said--or, to be more accurate, didn't say.  It is hard to see how a person coming to the hearing without any prior views about Ms. Kraninger would vote for her after yesterday's stonewalling.  Ms. Kraninger's refusal to answer questions was, to some extent, contemptuous of the Senate and the people whom it represents because such behavior makes it difficult, if not impossible, for the senators to discharge their constitutional duties to advise and consent. Not that the senators who will vote for her care.   But I suppose if you object to an agency, and think it's appropriate that it be run by a part-timer, you wouldn't care much about whether a candidate knows about what the agency regulates or parries legitimate inquires during her hearing.  A shame.

Kraninger's Frustrating Confirmation Hearing

by Jeff Sovern

For years, Republicans have complained that they felt frustrated by the CFPB.  During her confirmation hearing today, Kraninger got revenge on their behalf on Democrats by refusing to answer their questions.  Here is an excerpt from Renae Merle's story in WaPo:

Kathy Kraninger, President Trump’s nominee to lead the Consumer Financial Protection Bureau, repeatedly dodged questions from Senate Democrats on Thursday about issues facing the watchdog agency and her involvement in the administration’s “zero-tolerance” immigration policy.

Kraninger, a White House budget official, emerged largely unscathed from the more than two-hour hearing before the Senate Banking Committee, during which she told lawmakers that the bureau would be “fair and transparent” under her leadership.

* * * 

But Kraninger’s evasiveness in key areas appeared to exasperate Democratic lawmakers. “I am trying to get an answer from you. And I just can’t. And it’s maddening,” a visibly frustrated Sen. Brian Schatz (D-Hawaii) said. Sen. Elizabeth Warren (D-Mass.) repeatedly lashed out at Kraninger for giving “lawyerly and limited” answers. “You’re dodging,” Warren said.

* * *

Once again, Kraninger found herself in a tussle with Warren, who at one point asked whether Kraninger thought the immigration policy was immoral. “It’s not appropriate to give my personal opinion," Kraninger responded.

Here is Kraninger's written testimony, in which she promised to be transparent and accountable to the American people. She's not off to a great start.  

I wish the senators had asked her more questions about the substance of consumer law.