Consumer Law & Policy Blog

WSJ Article on the CFPB Complaint Databases

by Jeff Sovern

Last week, the Wall Street Journal published a piece about the CFPB's public database of consumer complaints. This excerpt particularly caught my eye:

The agency's approach rankles some in the financial industry who say the publication of complaints leads to an unfair and overly negative view of companies. They fault the CFPB for failing to verify the facts behind complaints--apart from ensuring the gripe is coming from an actual customer.

"You're throwing allegations up on the wall and hoping something sticks," said Richard Hunt, chief executive of the Consumer Bankers Association.

Of course, it would be ideal for the Bureau verify complaints before posting them.  But that would take significant resources, and there are already complaints about the Bureau spending too much.  So such a demand is really a catch-22, because it amounts to saying that the Bureau should spend more, thereby giving critics more ammunition against it, or else that it should eliminate the lists altogether, which is probably what the critics really want.

The argument that the Bureau should verify complaints before disclosing them applies with equal force to credit reporting agencies.  Credit bureaus do not typically verify the information in their databases before making them available to lenders. And yet, I cannot recall industry advocates calling for such verification. 

Town Council to Meet on Settlement in Mount Holly Tonight

by Deepak Gupta

We've blogged before about Mount Holly--the Supreme Court case about the future of disparate impact in housing and lending discrimination. (My firm represents current and former Members of Congress in the case). All along, it's seemed possible that Mount Holly would settle before the December oral arguments. 

This morning, that's looking even more likely: Bloomberg reports that the Mount Holly town council will meet tonight to consider, and possibly vote, on a proposed settlement that will end the case and deprive the Supreme Court -- for the second time in two years -- of the opportunity to decide the fate of disparate impact. (Relatedly, Adam Serwer of MSNBC has an-depth piece today that summarizes the relevant history and includes interviews of photographs of Mount Holly Gardens residents and their homes.)

A settlement will shift attention to a previously little-known case before the U.S. District Court for the District of Columbia. Two insurance trade groups are challenging HUD's new disparate-impact rule. They claim not only that the rule is contrary to the FHA but that it is reverse-preempted under the McCarran-Ferguson Act because (as applied to insurance companies) it impermissibly regulates the "business of insurance," a province of state regulation. If the court adopts the far narrower McCarran-Ferguson reverse-preemption theory, the case could cease to be a vehicle for a broader challenge to disparate impact. 

Jeffrey Joseph Op-Ed: Consumer Protection Bureau Bad for Business

by Jeff Sovern

In the Detroit News. Professor Joseph refers to the Consumer Financial Protection Bureau as "purposefully-misnamed," as if members of Congress sat around saying "let's create an agency that will hurt consumers but give it a name that suggests it will protect them." So what does he think is wrong with the Bureau? He cites a report that says it is insufficiently transparent and doesn't do enough to protect consumer data. He also states "recently the bureau has been seeking to eliminate dealer-negotiated car financing and replace it with a flat fee method of compensation. According to one analysis, such a move would eliminate a key source of price competition between auto dealers — the ability to vary interest rates — and ultimately result in restricting consumer choice." But he neglects to mention that such car financing has led to discriminatory lending. He does mention some praise for the Bureau in the report, but also claims that "taxpayers have good reason to be scared" of the Bureau and calls for it to be subjected to "a little more heat."  Oh, and the Bureau's actual accomplishments for consumers? Its enforcement actions and rules?  They somehow were omitted from the op-ed. Unfortunately, Professor Joseph's op-ed followed his recommendation for more heat, but casts little light.

The Nation: The Scholars Who Shill for Wall Street

by Jeff Sovern

I frequently post links to scholars' articles on consumer law issues, including pieces by George Mason's Todd J. Zywicki, like this one.  The Nation recently published a piece reporting on professors who also work for Wall Street-funded operations without disclosing that in, as The Nation put it, their "university profile, CV, byline or congressional testimony." Zywicki was the first academic discussed in the article.  My own view is that scholars who receive money from the financial industry and write on matters that deal with that industry should disclose that, but I'm not aware of any ethical rules requiring such disclosure, though there should be. I should also note that I don't know Zywicki and certainly have no reason to think his views are affected by the money he receives from financial firms. Still, if you read the articles I link to, bear in mind that other authors may also have an undisclosed interest.  And in the interest of disclosure, I should report that two of my relatives work for banks and a third works for an internet company. 

The Nation article is very much worth reading. Academics may find the following quote of particular interest: "Jim Overdahl, an economic consultant formerly with National Economic Research Associates, told The Nation that professors can fetch $5,000 per letter submitted to a regulator." Alas, not all of us get paid for our communications with regulators.

Another Perspective on the Recess Appointments Cases

Is Noel Canning v. NLRB a classic separation-of-powers conflict between the Senate and the President, or a false controversy created by the House of Representatives, which has no business interfering with appointments? I argue the latter in a short essay forthcoming in the Harvard Law Review's online companion, the Forum.

I have a few more thoughts on the controversy that I hope to share here in the coming weeks as well. Here's one: If you've followed the current recess appointments controversy, you know that challenges to Richard Cordray's appointment are moot since the Senate confirmed him in July and he ratified his prior actions. So the issue is moot now, but there's an unexplored argument that his appointment was always valid because the Senate consented to it.

Bloomberg: Banks Pushed by Regulators Send ‘Nastygrams’ to Car Dealers

Remember how car dealers fought to avoid being subject to the Consumer Financial Protection Bureau's jurisdiction, and won?  It turns out that the dealers are still experiencing pressure to comply with the Bureau's edicts. From Carter Dougherty's story:

Under pressure from the agency, large banks that routinely buy auto loans have been reviewing records to ensure the dealers they work with aren’t discriminating against customers on the basis of race or gender. When firms including Bank of America Corp. find evidence of possible unfair treatment, they are sending warning letters to the dealers.

* * *

Dealers are learning a “painful lesson,” said Richard Hunt, head of the Consumer Bankers Association, which represents large institutions. “If you provide a financial product to consumers, you will be under the oversight of the CFPB -- one way or another.”

 

9th Circuit appeal on background-screening companies & fair credit reporting

by Deepak Gupta

I thought readers might be interested in a new appeal that my firm is handling in the Ninth Circuit, Moran v. The Screening Pros, concerning the state and federal regulation of background-check companies. You can read our opening brief here. The Consumer Financial Protection Bureau and the Federal Trade Commission have weighed in with an amicus brief, discussing a relatively narrow question of federal law. An amicus brief by the East Bay Community Law Center -- on behalf of a coalition of 18 public-interest organizations including the National Consumer Law Center and the ACLU -- discusses the broader policy implications.

Landlords and employers have increasingly come to rely on background-check companies to provide them with criminal history and other sensitive information about prospective tenants and employees. But the industry is more fragmented and less visible that the traditional credit bureaus and advocates are concerned that it routinely skirts state and federal fair-credit-reporting laws, with grave consequences for those who seek jobs and housing. NCLC put out a great report on this topic last year: Broken Records: How Errors by Criminal Background Checking Companies Harm Workers and Businesses.

At issue on appeal is the constitutionality of California's Investigative Consumer Reporting Agencies Act, one of the nation's strongest protections against background-screening company abuses. The district court held the Act unconstitutionally vague because it overlaps with another state fair-credit-reporting law and the court couldn't figure out which one applied. But, as the Eleventh Circuit explained in a 2009 case that also happened to arise in the fair-credit-reporting context (Harris v. Mexican Specialty Foods), it's well established that there's no vagueness when a statute "clearly defines what conduct is prohibited and the potential range of fine that accompanies noncompliance.”

The appeal also presents a question of federal statutory interpretation: How long, under the Fair Credit Reporting Act, can a consumer-reporting agency report negative criminal-history information? The FCRA prohibits the reporting of adverse information for more than seven years. The CFPB's and FTC's brief argues that for a dismissed criminal charge, the seven-year period begins on the date of the charge, not the date of the dismissal. The district court's conclusion to the contrary relied on out-of-date FTC commentary that preceded relevant amendments to the statute. 

CFPB Report: Credit CARD ACT "REDUCED PENALTY FEES AND MADE CREDIT CARD COSTS CLEARER"

The Report is here. From the press release:

• Total cost of credit declined: The CFPB found that the total cost of credit declined by two percentage points between 2008 and 2012. The total cost of credit includes all fees, interest, and finance charges paid by the consumer to the card issuer. The decline in the total cost of credit has occurred even as annual fees and interest rates have increased, indicating a shift from back-end pricing toward more transparent front-end pricing that consumers can understand and evaluate more easily.    

• Overlimit fees have been effectively eliminated: Before the CARD Act took effect, card issuers could charge an overlimit fee for transactions that put cardholders over their credit limit. Each overlimit transaction could result in an additional overlimit fee. With the law’s requirement that consumers opt-in to fees before they are allowed to exceed their credit limit, the CARD Act essentially eliminated overlimit fees as a source of cost to consumers and revenue to issuers. The report found that consumers paid about $2.5 billion less in overlimit fees than they paid in 2008.  

• Size of late fees declined: The CARD Act required that penalty fees, such as late fees, be “reasonable and proportional” to the relevant violation of account terms.  As a result, the report found that the average size of late fees diminished. The CFPB estimates that the average late fee went down by $6 after the CARD Act took effect. Based on the data used to prepare the report, that reduction resulted in a $1.5 billion decrease in late fees paid by consumers in 2012.    

• Responsible access to credit remains available:  As the financial crisis hit, creditors faced losses and as a result, implemented more restrictive credit standards. While the amount of available credit card credit has generally decreased since the financial crisis began, there is still $2 trillion of unused credit for consumers with credit cards in the marketplace. One factor affecting credit availability is a notable drop in the number of consumers who receive unsolicited credit limit increases on their accounts. Now that consumers have to ask for their credit limit to be raised rather than having it happen automatically, these increases are happening less frequently.   

• Young consumers are better protected from credit cards they cannot afford: Before the CARD Act, it was often too easy for young consumers to rack up unmanageable credit card debt and damage their credit rating. Now, consumers under the age of 21 cannot get a credit card unless they can demonstrate an independent ability to repay the debt or unless they have a cosigner over 21. The report found that the percent of young adults ages 18-20 that have at least one credit card account has dropped by half. 

The industry had vigoroulsy opposed the statute claiming that it would produce higher credit costs.  I hope people remember how that prediction turned out the next time the industry trots out that argument.

Paper on Private Enforcement

Stephen B. Burbank of Pennsylvania, Sean Farhang of Berkeley' s Goldman School of Public Policy, and Herbert M. Kritzer of Minnesota have written Private Enforcement, 17 Lewis & Clark Law Review 637 (2013).  Here's the abstract:

Our aim in this Article is to advance understanding of private enforcement of statutory and administrative law in the United States and to raise questions that will be useful to those who are concerned with regulatory design in other countries.  To that end, we briefly discuss aspects of American culture, history, and political institutions that reasonably can be thought to have contributed to the growth and subsequent development of private enforcement.  We also set forth key elements of the general legal landscape in which decisions about private enforcement are made, aspects of which should be central to the choice of an enforcement strategy and, in the case of private enforcement, are critical to the efficacy of a private enforcement regime.  We then turn to the business of institutional architecture, describing the considerations — both in favor of and against private enforcement — that should affect the choice of an enforcement strategy.  We lay out choices to be made about elements of a private enforcement regime, attending to the general legal landscape in which the regime would operate, particularly court access, as well as how incentives for enforcement interact with the market for legal services, which has important implications for private enforcement activity.  We situate these legislative choices about private enforcement in the context of institutions that shape them.  Finally, we seek to demonstrate how general considerations play out by examining private enforcement in two policy areas: legislation proscribing discrimination in employment, and laws protecting consumers from unfair and deceptive practices.

Sovern Paper: Cost-Benefit Analysis and Consumer Protection

by Jeff Sovern

I've posted a paper on SSRN, Can Cost-Benefit Analysis Help Consumer Protection Laws? Or at Least Benefit Analysis?, forthcoming in the University of California-Irvine Law Review.  Here's the abstract:

Cost-benefit analysis is often troubling to consumer advocates. But this article argues that in some circumstances it may help consumers. The article gives several examples of supposed consumer protections that have protected consumers poorly, if at all. It also argues that before adopting consumer protections, lawmakers should first attempt to determine whether the protections will work. The article suggests that because lawmakers are unlikely to adopt multiple solutions to the same problem, one cost of ineffective consumer protections is a kind of opportunity cost, in that ineffective consumer protections might appear to make unnecessary adoption of effective ones. Ironically, such an opportunity cost is unlikely to be taken account of in cost-benefit analysis. Among the protections that especially risk failing to benefit consumers are laws that require consumers to perform certain tasks, such as disclosure laws that presuppose consumers will pay attention to and act on the disclosures; if consumers instead generally ignore the disclosures, the consumer protection will be largely illusory. Accordingly, before adopting measures that depend on consumers to do something, lawmakers should try to verify that consumers will in fact undertake those actions. The article also makes some suggestions for ascertaining whether consumer protections will work—i.e., benefit consumers--and concludes with a brief critique of the proposed Independent Agency Regulatory Analysis Act.