Consumer Law & Policy Blog

Payday Lending is a Public Health Concern and Other Payday Lending News

by Jeff Sovern

So says a study from the Glassgow Centre for Population Health, Public Health Implications of Payday Lending. The study's "key messages:"

• Payday lending is a contemporary public health concern: the vulnerability of the populations involved, the urgency, scale and growth of the issue coupled with the corrosive nature of personal debt and financial vulnerability to mental and physical health are key factors in this.

• Provision of viable alternatives to payday lending is a societal policy priority requiring immediate attention: the demand for rapid, easy access and short-term credit among low-income households is not currently met by mainstream banking, credit unions, microcredit or employer lending, nor do the 2014 Financial Conduct Authority regulatory reforms address these demands; indeed the reforms may exacerbate demand for some borrowers.

• It is limiting to focus entirely on the monetary consequences of debt and payday lending: alongside populations experiencing chronic debt, payday borrowers should have access to a range of sustained and person-centred services and support. To help manage their debt and mitigate the damaging effects to health and wellbeing, longer-term support should involve access to training, continued education and career advice.

• Greater transparency is required within the payday lending industry: it would help services and support for payday borrowers if there were a clearer and timelier profile of borrower demographics and patterns of borrowing.

A digression: when I was a boy, before cable television, I remember going to movie theaters which asked moviegoers to sign petitions against "pay TV." I had the impression that many people signed the petitions.  I wonder how many of them would give up their cable and sign such petitions today.  In any event, some payday lenders seem to be employing a similar strategy and are encouraging customers to post to the CFPB's "Tell Your Story" portal.  The result can be read in the Washington Examiner story, Payday lenders tout overwhelmingly positive feedback.  Excerpt:

Of 12,546 comments on payday lending posted through the bureau's "Tell Your Story" portal, 12,308 reflected positively on the industry, according to the Community Financial Services Association of America, an industry group for payday lenders.

 

Video on CFPB Debt Collection Rule Proposals

 

Or click here.

Noll Article on Regulating Arbitration, including the CFPB's Proposed Regulation

David L. Noll of Rutgers has written Regulating Arbitration,  California Law Review, Forthcoming.  Here's the abstract: 

Arbitration is everywhere, as are calls to regulate its use in consumer and employment contracts. But when should Congress and federal administrative agencies do so? That is, what is the policy rationale for regulating arbitration through federal legislation and agency action? This Article reveals an overlooked set of consequences caused by the growing use of arbitration -- its impact on the implementation of federal statutory policy -- and argues that these effects should be a focus of policymakers' efforts to regulate arbitration through legislation and agency action. In hundreds of statutes, Congress has created financial incentives for private litigants to enforce the law through civil litigation. The enactment of such incentives allows litigants to assert claims that would be too expensive to prosecute under ordinary procedural rules, and, more importantly, allows Congress to calibrate enforcement of federal law. By mandating specific forms of dispute resolution procedure, arbitration can dramatically alter the returns from enforcement of statutes with incentives for private, civil litigation, and, in so doing, subvert or completely undermine congressional efforts to mobilize and calibrate private statutory enforcement. These "enforcement effects" threaten Congress's ability to accomplish substantive regulatory objectives through private, civil litigation but have received little attention. To illustrate how greater attention to them would affect efforts to regulate arbitration, the Article analyzes the Consumer Financial Protection Bureau’s proposed arbitration regulation under section 1028 of the Dodd-Frank Act and explains how it falls short of ensuring that consumer financial protection laws are enforced in the manner contemplated by Congress.

WSJ Article Criticizes CFPB for Using "Mystery Shoppers" Who Find Evidence of Racial Discrimination

by Jeff Sovern

Here (behind paywall).  Excerpt:

In 2013, a loan officer at BancorpSouth Bank's Madison, Ala., branch received visits from two people with similar profiles within 10 days of each other, both saying they were first-time home buyers -- one white, the other black. The employee allegedly steered the black customer to a smaller and more expensive loan, even though her stated income and credit score were higher than the white applicant's. * * *

"We have concerns with the way the information was collected, and selectively released," the Tupelo, Miss., bank said in a statement, adding that it has "zero tolerance for this type of behavior" from employees.

The CFPB's use of undercover investigators "is a worrisome precedent, because. . .we see more and more aggressive civil law-enforcement activity by the government, so that civil law enforcement borders on, if not bleeds into, criminal law enforcement," said Andrew Vollmer, a former deputy general counsel at the Securities and Exchange Commission who now teaches at the University of Virginia's law school. "What we do not have are the corresponding protections of the criminal law-enforcement system for the accused."

So let me get this straight: the CFPB sends in two similar loan applicants of different races who are treated differently.  And it's the Bureau that gets criticized. Incidentally, as the article reports, the bank agreed to a $10.6 million settlement with the Bureau and the DOJ, though it denied wrongdoing.

Reuters: U.S. consumer agency faces heat on financial arbitration rules

Here.  Excerpt:

Thousands of angry consumers and business representatives have flooded the Consumer Financial Protection Bureau with comments on its May proposal to block companies from forcing customers to take disputes to arbitration instead of joining group lawsuits.

Sentiment in the unusually high number of comment letters, more than 8,380 have already been filed though the deadline still is a week away, seems roughly divided between supporters and critics of the proposed rule.

Are Community Banks Perishing Under Dodd-Frank (the Statute That Created the CFPB)? Not According to White House Economists

Here.  Excerpt from the Issue Brief:

Although opponents of financial reform often claim that it has harmed community banks, a closer and more comprehensive review of the economic evidence shows that community banks remain healthy. Critics typically point to declining numbers of community banks as evidence that new regulatory requirements are too restrictive. In reality, due to bank branching patterns, the number of institutions does not provide a comprehensive picture of the health of community banks, and other indicators like lending growth and geographic reach show that community banks remain quite strong. Many community banks—particularly those with assets between $100M and $10B—have continued to grow steadily, as evident by their substantial lending growth, increasing market share in agricultural and mortgage lending, and expansion into new counties. With these trends, access to community banks and the important services that they provide has remained robust across many communities. At the same time, longer-term trends in the banking industry over the past several decades—including bank branching deregulation, merger activity, and other factors—often have created long-term challenges for community banks, particularly for the smallest ones. Macroeconomic conditions in recent years have also contributed to the lower rate of new entry by small banks. 

UPDATE: The American Bankers Association disagrees.

USA Today Editorial: Rogue Debt Collectors

Here.  Excerpt:

While ACA maintains that its 3,500 members have "long been committed to making debt collection a more consumer-friendly experience," its idea of friendly stretches credulity. While the consumer bureau has proposed that collectors limit phone attempts to reach debtors to six a week, the ACA's idea was quite different — to limit "collection call attempts to no more than six times per day per unique debt.” That adds up to 42 calls a week, multiplied by however many individual debts someone owes. Does that sort of harassment sound reasonable to anyone but a debt collector?

As the first step in a lengthy review process, the consumer bureau last month outlined proposals to prohibit collection of debts that can't be substantiated, require that collectors make debt details clear to debtors, make disputing a debt easy, and limit excessive communications to debtors. Neither consumer advocates nor industry representatives have fully embraced the ideas — which might mean the consumer bureau has hit the right balance.

American Banker: Trump's Call to Freeze New Banking Regs Would Be Tough to Deliver

Here (free access).  Excerpt:

Republican presidential nominee Donald Trump called for a temporary suspension of all new federal regulations during a speech Tuesday, but even if he wins the White House, stalling or rolling back financial rules may prove to be beyond his reach.

* * *

"I don't think a full-on moratorium is even plausible," said Ian Katz, a policy analyst Capital Alpha Partners. "There are independent agencies that don't need to ask the president's permission to pass new regulations."

* * *

Still, some academics argued Trump's plan could have an impact. J.W. Verret, an associate law professor at George Mason University and senior scholar with the school's Mercatus Center, said Trump could use the Office of Management and Budget to slow down or block new regulations.

"The White House OMB's Office of Information and Regulatory Affairs has authority to review regulations and impose a temporary moratorium," Verret said. "According to many legal scholars, including former Obama OIRA head Cass Sunstein, this includes authority over independent regulatory agencies."

Call for Papers -- Section on Financial Institutions and Consumer Financial Protection Program at the 2017 AALS Annual Meeting

We received the following announcement:

 

The Section on Financial Institutions and Consumer Financial Protection is pleased to announce a Call for Papers from which up to two presenters will be selected for our program to be held during the AALS 2017 Annual Meeting in San Francisco on Friday, January 6, 2017 at 8:30 a.m. The topic of the program is  "The Tenth Anniversary of the Subprime Mortgage Crisis: The State of Financial Reform and Consumer Financial Protection." 

 

Program Description:

On March 28, 2007, Fed Chairman Ben Bernanke spoke before a Congressional committee concerning the "turmoil in the subprime mortgage market." While recognizing the "severe financial problems" that many "individuals and families" faced, he noted that, "[a]t this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained." 

 

Days later, a leading subprime lender, New Century Financial Corporation would file for bankruptcy. By summer, with the downgrading of numerous subprime mortgage-linked securities and the collapse of two Bear Stearns hedge funds that were invested in such instruments, it became clear that the crisis was not contained.

 

Ten years later, we continue to reflect on both the profound pain and the tremendous progress.

 

This panel will assemble a range of academic and policy experts to consider the work completed and the work ahead. Topics will include the Dodd-Frank Act, bank capital requirements, systemic risk, consumer financial protection, and the ongoing race, economic justice and gender issues associated with the mortgage and financial crisis. 

 

As the conference takes place during the last weeks of the presidential interregnum, attention will also be paid to what changes a new administration could bring.

 

Potential paper topics include, but are not limited to:

• Legal tools for financial crisis prevention and intervention
• The MetLife SIFI designation case (MetLife v. FSOC)
• Impact of the mortgage and financial crisis on communities of color
• Incoming administration's proposals to address financial stability
• Incoming adminstration's proposals to address mortgage market
• Reflections on efforts to rollback Dodd-Frank Act reforms
• The Consumer Financial Protection Bureau
• The Office of Financial Research
• Fannie Mae and Freddie Mac
• Bank capital and liquidity requirements 

• Appeal of the AIG decision (Starr Int'l v. U.S.)

 

Form and length of submission: 

 

This is a “research in progress” program, and includes research that is ongoing as well as recently completed work (papers may not be published or accepted for publication at the time of submission). Papers may be either in a short form (5,000-7,500 words) or a long form (10,000-25,000 words).  Junior scholars are strongly encouraged to submit papers.  

 

Submission due dates and method: 

 

There are two submission due dates.  The Section seeks detailed abstracts (approximately 250-500 words) in early fall, with final papers due in late fall.

• The due date for detailed abstracts is September 15, 2016. 

• The due date for final papers is November 15, 2016. 

 

Abstracts and papers should be submitted electronically to:  Professor Jennifer Taub at jtaub@vermontlaw.edu

 

103 Members of Congress Endorse CFPB's Arbitration Rule

by Jeff Sovern

The Senate letter, signed by more than a third of the Senators, is here, and the House letter with 65 signers, is here.  The letters are more than pro forma expressions of support. They are extensively footnoted (and the House letter cites the law professor letter joined by more than 200 professors). Some excerpts from the Senate letter (with footnotes omitted):

The CFPB's study and proposal underscore the importance of class actions as a powerful tool to help consumers effectively vindicate their rights by returning billions of dollars to millions of consumers, in addition to achieving important non-monetary relief in the form of changes to harmful business practices. Because the majority of individual claims against consumer financial services companies are worth only small amounts of money, as Judge Richard Posner of the Seventh Circuit Court of Appeals once put it, "the realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30."The CFPB's data confirms this: although millions of financial consumers are covered by forced arbitration clauses and class action waivers, the CFPB found that only a few hundred consumers file arbitration claims each year and that very few file individual claims in court, particularly when compared to the 32 million consumers who benefit from class actions each year.