Consumer Law & Policy Blog

Chris Peterson Article on CFPB Enforcement

Christopher Lewis Peterson of Utah has written Consumer Financial Protection Bureau Law Enforcement: An Empirical Review, forthcoming in the Tulane Law Review. Here's the abstract:

In the aftermath of the U.S. financial crisis, Congress created a new federal agency — the Consumer Financial Protection Bureau (CFPB) — with the goal of fashioning a more just and efficient American consumer finance market. The CFPB now serves as the U.S. Government’s primary regulator and civil law enforcement agency governing consumer lending, payment systems, debt collection, and other consumer financial services. In its first four years of enforcing federal consumer protection laws, the CFPB has announced over a hundred different law enforcement cases forcing banks and other financial companies to relinquish over $11 billion in customer refunds, forgiven debts, and financial penalties. Drawing upon pleadings, consent orders, settlement agreements, press releases, and other public documents, this Article presents an empirical analysis of the CFPB’s law enforcement track record. In particular, this paper:

(1) provides an introduction to the jurisdiction and powers of the CFPB’s Supervision, Enforcement and Fair Lending Division;

(2) classifies all of the CFPB’s publicly announced enforcement matters through 2015; and,

(3) presents seven notable findings on the CFPB’s public law enforcement program. An appendix listing the CFPB’s publicly announced enforcement cases through 2015 follows.  

Politico: Uncovering the 'astroturf' firm behind the CFPB attack ads

Here. Excerpt:

The campaign is being run by Lincoln Strategy Group, a political consulting firm Tempe, Ariz. Its founder, Nathan Sproul, has been linked to several instances of suspected voter fraud and barred from Republican Party contracts. The company also worked with Steve Gates, the only person previously identified with Protect America's Consumers, on the American Coalition for Clean Coal Electricity's 2009 "astroturf" campaign, when it was busted for sending fake letters to Congress.

* * *

Outside the event, five women held a banner and handed out fliers, obtained by PI, criticizing Cordray and linking to the fake website. But when these protesters were asked for their affiliation, they said they were day laborers paid to be there, according to Mikki Anaya, the New Mexico director of the Center for Economic Integrity, a community development organization, who attended the meeting. Anaya saw Bowman speak with the protesters as the meeting wrapped up. "It's not authentic at any level," Anaya told PI. "It's an intentional distraction from the true issue."

 

The Hill's Report on the House Financial Services Committee Hearing on the CFPB Arbitration Rule

Here. 

More Witnesses for House Arbitration Hearing Announced

The added witnesses are Jason S. Johnston of Virginia School of Law and Dong Hong, VP and Regulatory Counsel, Consumer Bankers Association. A link to Johnston's article on class actions is included in the post just below this one.  Johnston has previously criticized the Bureau's arbitration report and the Dodd-Frank mortgage restrictions. Neither witness seems likely to favor the CFPB's proposed rule.

 

Law Professor Letter Supporting Arbitration Rule in the Works

by Jeff Sovern

Jean Sternlight of UNLV is circulating an impressive and well-argued letter for law professors to sign supporting the CFPB's proposed arbitration regulation.  According to my count, 139 have already signed it.  If you would like to add your name to the list, please email Jean at jean.sternlight@unlv.edu no later than May 20.

The Consumer Bureau’s New Arbitration Rule: What’s Really at Stake

Here's a post that I wrote for the American Constitution Society's blog last Friday -- the day after the CFPB released its proposed arbitration rule.

Paul Bland's HuffPo Arbitration Column: The CFPB Just Took a Huge Bite Out of Predatory Lending

Here.

CFPB issues proposed rule on forced arbitration clauses that ban class actions

The CFPB has just released its much-awaited proposed rule on forced arbitration clauses -- arguably the single biggest step the Bureau can take to level the playing field for American consumers. 

If adopted after notice-and-comment, the CFPB's new rule would prohibit forced arbitration clauses that prevent consumers from banding together to hold companies accountable in court, effectively nullifying the impact of the Supreme Court's AT&T Mobility v. Concepcion decision in the market for consumer financial services. The proposed rule would also require companies with arbitration clauses to send the CFPB the claims, awards, and other information filed in arbitration cases, to allow the Bureau to monitor what until now has largely been a secret system of corporate tribunals. 

You can read the Bureau's entire 376-page proposal here. It contains an extensive history of class actions and arbitration, a summary of the Bureau's study on arbitration clauses, and a sustained defense of the policy merits of the Bureau's proposal. 

The proposal will be announced by Rich Cordray at a field hearing in Albuquerque, New Mexico on Thursday morning. I will be speaking as a consumer representative, along with Christine Hines of the National Association for Consumer Advocates and Paul Bland of Public Justice. The industry will be represented by Travis Norton of the U.S Chamber, Alan Kaplinksy, and a lawyer for credit unions.

Early coverage can be found in The Hill, the New York Times, and the L.A. Times. The U.S. Chamber came out swinging even before the proposal was released, decrying the "CFPB's class-action rule" as a "rich deal for trial lawyers" and a "raw deal for consumers." 

Along similar lines, a shadowy outfit calling itself "Protect America's Consumers" has just released a very nasty TV ad attacking the CFPB, suggesting (without a shred of evidence) that Rich Cordray's personal motive in supporting the rule is to gin up trial lawyer donations for a future gubernatorial run in Ohio. If previous campaigns by this group are any guide, the ad will likely receive signifiant airtime--possibly during the presidential debates.

The Chamber's congressional allies are likewise attempting to tie the Bureau to trial-lawyer groups. In a recent letter, Congressman Sean Duffy of the House Financial Services Committee informed the CFPB about an investigation into the rule. He asked asked for communications between bureau officials and consumer advocacy and trial-lawyer groups including the American Association for Justice, National Consumer Law Center, National Association of Consumer Advocates, Alliance for Justice, and Public Justice. 

More on the Argument that the CFPB's Single Director Structure is Unconstitutional

Last week I posted something about the latest attack on the CFPB's constitutionality because of its single-director structure and sought comment.  Americans for Financial Reform Policy Counsel Brian Simmonds Marshall addressed the issue on the ACS Blog in an informative post titled An Easy Case: Why a Federal Appeals Court Should Reject a Constitutional Challenge to the CFPB. An excerpt from the end of the post:

A decision striking down the CFPB’s structure would not only break new constitutional ground, it would have wide-reaching practical consequences as well. Such a holding would mean that the structures of at least three other agencies are also unconstitutional because they are headed by a single official removable only for cause * * * *

Unfortunately, PHH could hardly be more fortunate in the panel drawn to decide this issue. All three judges were appointed by Republican presidents. One judge on the panel has suggested in a prior case that he believes the Constitution would be best interpreted to require that all agency heads be removable by the president without cause and that the Supreme Court was mistaken when it decided otherwise 80 years ago. But even if the three-judge panel rules that the CFPB’s structure is unconstitutional, it will hardly have the last word: The CFPB can seek further review by the full D.C. Circuit and the Supreme Court.

Chamber of Commerce Letter on Arbitration: Does it Make the Case for Class Actions?

by Jeff Sovern

Earlier today, the US Chamber of Commerce released a letter to CFPB Director Richard Cordray from David Hirschmann, President and CEO, Center for Capital Markets Competitiveness, urging the Director to address certain issues at Thursday's CFPB arbitration field hearing. Here's one of those issues, as stated in the letter:

[T]he public would benefit if your remarks were to include a discussion of how a consumers with a small claim based on unique circumstances would be able to vindicate those legal claims if companies, faced with the need to reserve millions of dollars for class action defense, were to cease subsidizing consumer arbitration programs. Under the current class action litigation rules, many small claims that involve issues that customers actually care about, such as alleged overcharges or the failure to credit a deposit on time, are unlikely to be classable because they are individualized disputes. For these claims, consumers will therefore have virtually no economically rational options for seeking redress: arbitration (in which most companies pay for consumers to bring claims against them, making it free to the consumer) will be gone; class action litigation will not be available; and rational consumers are not going to pay a $400 filing fee to pursue a $25 claim in court. Taking the opportunity to highlight how consumers will obtain redress for these types of claims would be very helpful in advancing the discussion.

I'm going to assume for this blog post that the industry would indeed no longer use arbitration if they couldn't combine it with class action waivers.  Would consumers really suffer if they couldn't bring arbitration claims for $25?  Well, the CFPB study found that consumers almost never bring arbitration claims when less than $1,000 is at issue, so the ability to assert small claims in arbitration isn't worth much.  But if consumers want to bring $25 claims, they could still do so in small claims courts (I would be curious to hear about small claims courts that charge a $400 filing fee for a $25 claim).  So even if arbitration goes away, consumers would lose something they don't use and don't need when it comes to small claims.

Perhaps the most notable part of the paragraph is its concession that consumers will not devote substantial resources to winning $25 claims. That is precisely why we need class actions to protect consumers against being taken advantage of in small amounts: so that companies will be deterred from bilking consumers in amounts too small to justify consumers investing resources in stopping them.