Consumer Law & Policy Blog

DiLorenzo Column: Qualified Mortgages: Safe Harbor From What?

by Jeff Sovern

My colleague, Vincent DiLorenzo, has a piece in the New York Law Journal on the CFPB's qualified mortgages regulations. 

CFPB Issues Bulletin on Responsibilities of Furnishers of Information to Credit Reporting Agencies

by Jeff Sovern

One of the things Ira Rheingold and I wrote about in our Times op-ed earlier this summer was the need to require lenders that furnish information to conduct better investigations when they receive complaints about inaccurate information supplied to credit bureaus.  Today, the CFPB issued a bulletin about the duties of furnishers.  The Bureau cautioned that furnishers have to review all relevant information they receive about the disputes, including "documents that the CRA includes with the notice of dispute or transmits during the investigation, and the furnisher’s own information with respect to the dispute."  In an accompanying statement, the Bureau noted that "The “e-OSCAR” system [used by credit reporting agencies to tell lenders about disputes] has been upgraded so that the three [credit bureaus] can now send furnishers any relevant dispute documents mailed in by consumers." Up until that upgrade, credit bureaus often boiled down consumer complaints to a two-digit code.

So what does the Bulletin mean? In the past, the investigation process was reportedly so automated that creditor computers would verify that the disputed entry matched the entries in their databases and report the item as verified without a human being reviewing the information. The Bureau Bulletin doesn't say in so many words that a living person must read the documents, but it is hard to see how a computer could do so in a meaningful way.  I interpret the Bulletin as saying that a person must review the documents and must make a judgment about whether the entry is erroneous.  It will be interesting to see how furnishers respond to the Bulletin, and how the Bureau itself interprets it in its enforcement and supervisory actions.

David Skeel Paper on Behavioral Economics and the CFPB

David A. Skeel Jr. of NYU, Penn, and the European Corporate Governance Institute has written Behavioralism in Finance and Securities Law.  Here is the abstracgt:

In this Essay, I take stock (as something of an outsider) of the behavioral economics movement, focusing in particular on its interaction with traditional cost-benefit analysis and its implications for agency structure.  The usual strategy for such a project — a strategy that has been used by others with behavioral economics — is to marshal the existing evidence and critically assess its significance.  My approach in this Essay is somewhat different.  Although I describe behavioral economics and summarize the strongest criticisms of its use, the heart of the Essay is inductive, and focuses on a particular context: financial and securities regulation, as recently revamped by the Dodd-Frank Act and subsequent rule making.   To lay the foundation for the Essay, I begin by briefly describing behavioral economics and by surveying the most significant critiques of its use.  I then consider how behavioral economics has informed, or might inform, the work of the Consumer Financial Protection Bureau; SEC rulemaking on proxy access; and the efforts of the new financial legislation to ban bailouts.  I suggest, among other things, that behavioralism’s implications are quite different for rules and rulemaking than for questions of regulatory structure.

Soliciting Comments on an Arbitration Study

by Jeff Sovern

I figure if it's good enough for the CFPB, it's good enough for us: 

I'm part of a team, along with other professors and the Hugh L Carey Center for Dispute Resolution here at the Law School, that is crafting a survey on consumer understanding of arbitration clauses.  Unlike the CFPB survey, which is a telephone survey, we plan to approach consumers on the street and ask them to read a credit card contract containing an arbitration clause.  We then will ask questions about the arbitration clause to see what the consumers understand: do they realize they're giving up their right to sue in court, to bring a class action, to seek a jury trial; what happens if the arbitrator rules against them, etc.  It's a little artificial because while we will ask the consumers to imagine that they have just received the credit card contract and to give it the same amount of attention (or lack of attention) they would give a real credit card contract, the way they respond may not be exactly the way they would respond to receiving a real credit card contract.  On the other hand, unlike the CFPB survey, it doesn't require consumers to try to remember terms they may not have read in years. And who knows if we will even be able to persuade people to take the time to answer the questions?  Anyway, just as the CFPB is soliciting comments on its survey, I would love to get helpful comments on ours.  If you want me to email you the draft survey for the purpose of commenting on it, please let me know in the comments or email me at sovernj at stjohns dot edu.  We have already begun testing the survey and may begin surveying consumers in earnest next week, so we would prefer to have any comments soon.

Court Dismisses Big Springs Bank's Constitutional Challenge to CFPB

by Deepak Gupta

As some of us predicted on the day it was filed, Judge Ellen Huvelle of the U.S. District Court in Washington has just dismissed for lack of standing an ideologically-motivated constitutional challenge to the Consumer Financial Protection Bureau's structure and authority, including a challenge to Rich Cordray's recess appointment.

The case was originally brought by the State National Bank of Big Springs, Texas, represented by former White House Counsel C. Boyden Gray, and the Competitive Enterprise Institute. It was later joined by the States of Alabama, Georgia, Kansas, Michigan, Montana, Nebraska, Ohio, Oklahoma, South Carolina, Texas, and West Virginia, which challenged only the Dodd-Frank Act's orderly liquidation authority under Title I and II, not the CFPB's structure under Title IX.  

The court's 62-page opinion explains what should have been apparent all along: that the plaintiffs were all without standing.  None of the plaintiffs are even subject to regulation under Title I and II and the bank's attempts to establish standing on the basis of the potential impact of regulation under Title IX was far too speculative. 

Ian Ayres et al. Analyze CFPB Consumer Complaints

Ian Ayres of Yale, together with  Jeff Lingwall and Sonia Steinway, have written Skeletons in the Database:  An Early Analysis of the CFPB's Consumer Complaints.  Here's the abstract:

Analyzing a new data set of 110,000 consumer complaints lodged with the Consumer Financial Protection Bureau, we find that (i) Bank of America, Citibank, and PNC Bank were significantly less timely in responding to consumer complaints than the average financial institution; (ii) consumers of some of the largest financial services providers, including Wells Fargo, Amex, and Bank of America, were significantly more likely than average to dispute the company‘s response to their initial complaints; and (iii) among companies that provide mortgages, OneWest Bank, HSBC, Nationstar Mortgage, and Bank of America all received more mortgage complaints relative to mortgages sold than other banks. In addition, regression analysis suggests that consumer financial companies respond differently to complaints about different products and based on different issues, generating significant differences in timeliness of response, as well as significant differences in whether consumers dispute that response. Moreover, demographics matter: there were significant increases in mortgage complaints per mortgage in ZIP codes with larger proportions of certain populations, including Blacks and Hispanics, as well as an increase in untimeliness and company responses disputed for groups on which the CFPB is mandated to focus, including senior citizens and college students.

 

Susan Block-Lieb Paper on Accountability and the CFPB

Though the confirmation of CFPB Director Cordray mutes the issue of CFPB accountabilty, it does not moot it.  Those who remain interested in the issue may wish to consult Susan Block-Lieb of Fordham's paper, Accountability and the Bureau of Consumer Financial Protection, 7 Brooklyn Journal of Corporate, Financial & Commercial Law (2013).  Here's the abstract:

Some industry and political actors oppose the Consumer Financial Protection Bureau (CFPB) on the grounds that its institutional design ensures its lack of accountability. Specifically, opponents point to the CFPB’s regulatory and financial independence and to the fact that a single director heads the Bureau rather than a bipartisan panel of commissioners. But to focus on the Bureau’s financial independence and single director misses the distinctive political deal struck when Congress created the CFPB.  The CFPB has been uniquely and intentionally structured to insulate it not only from interest group influence and executive interference, but also from congressional control, while at the same time requiring the Bureau to share its regulatory space with numerous political actors. The Bureau’s independence is greatest when it issues regulations, but it is much less independent (and so more accountable) when viewed as an enforcement agent. While the CFPB holds nearly exclusive enforcement authority over large financial institutions, its ability to examine even these “large banks” is shared with prudential regulators; moreover, the CFPB must rely on the relevant prudential regulator to enforce consumer financial protection regulation as against banks and other financial institutions with assets of $10 billion or less and on the FTC as a contiguous regulator of “covered persons” that are not banks. Given that regulation is only as effective as regulators are willing to enforce the law in the books, this shared enforcement jurisdiction holds the key to the CFPB’s accountability to political and industry forces. Because the Bureau shares enforcement jurisdiction with the Office of the Comptroller of the Currency, the National Credit Union Administration, and other bank regulators, as a practical matter it will also have to take prudential regulators’ concerns into account when promulgating regulations. Although only the Financial Stability Council can veto a regulation promulgated by the Bureau, CFPB regulations might well be undermined by other regulators’ inaction as enforcement agents. Prudential regulators cannot alone veto regulation issued by the CFPB, but they can comment in the public record, lobby for the Council to set the rules aside, and try to thwart enforcement efforts. Moreover, although the CFPB is financially independent and headed by a single director, Congress can exert influence on the Bureau through its influence on other administrative agencies as well as its power to reverse CFPB regulations legislatively and modify or repeal the legislation that created the Bureau. The CFPB’s design, while unusual, it is not anti-democratic. Like Ulysses tied to the mast, the institutional design of the Bureau works like a pre-commitment device and permits the Bureau to rise above the client politics that normally surround financial regulation and protect the diffuse interests of consumers, even after concerns about the subprime mortgage crisis abate.

Roll Call: How Cordray Snagged 17 Republicans

by Jeff Sovern

Here.  According to the story, Republicans agreed to vote for Cordray because he promised to testify before (Portman's phrasing) brief (according to the CFPB spokesperson) the Appropriations Committee on the CFPB budget. Another piece of the agreement, according to Portman, is that the Bureau will implement cost-benefit analysis of CFPB regulations, though the Bureau spokesperson would not confirm that.  Assuming that the Senator is correct, that may not represent a change as Dodd-Frank already requires the Bureau to "consider . . . the potential benefits and costs to consumers
and [the entities it regulates]" before promulgating regulations.  12 U.S.C. § 5512.  I would have been concerned if the compromise required the Bureau to submit its regulations to the Office of Information and Regulatory Affairs for cost-benefit analysis, as the proposed Independent Agency Regulatory Analysis Act would require, since review by that office seems to slow adoption of regulations significantly.  See, e.g., Editorial, Stuck in Purgatory, N.Y. Times, July 1, 2013 (noting that 72 draft rules had been under review for longer than the 90 days specified by executive order; 38 had been under consideration for more than a year; and three have been languishing since 2010).  But that seems not to be the case, and besides that would require congressional action rather than just a decision by Cordray.

Things Happening in Privacy Too

by Jeff Sovern

Last week, we linked to Ed Mierzwinski's post about complaints about CFPB information-gathering processes.  There's more.  Over at the Taking Charge blog, Fred Williams has a post on the CFPB data collection, Privacy Agencies Say Don't Worry: Consumer Bureau is No Spy.  Here's an excerpt:

"I am not aware of any privacy or consumer group that has raised these issues," said David Jacobs, consumer protection counsel at the Electronic Privacy Information Center. EPIC has taken on the NSA in court over its telephone record collection, as part of its focus on government intrusions on privacy.

"If Congress was truly concerned with consumer privacy, they should pass comprehensive consumer privacy legislation," Jacobs added.

 

Onto real, rather than manufactured, privacy topics.  On Monday, the Times ran a story, Attention, Shoppers: Store Is Tracking Your Cell about how stores use signals from phones to determine how much time particular shoppers spend at various points around the stores, how often the shopper returns to the store, and other things. Interestingly, when Nordstrom posted a sign that it was tracking customers in this way, customer complaints caused it to back down. But no law I'm aware of obliges companies to let their customers know they are engaging in such practices, which makes me wonder how many stores do this without notfiying their customers. It also suggests that legislators should consider enacting such a disclosure law.

And another story: According to yesterday's Times, ‘Do Not Track’ Rules Come a Step Closer to an Agreement.  Here's an excerpt:

Web users should be able to tell advertising networks not to show them targeted advertisements based on their browsing activities — and those companies should comply. That is the verdict of the leaders of a working group that has been arguing for almost two years over how to establish a uniform Do Not Track standard for the Internet.

 

Cordray Confirmed (66-34)!

The confirmation was inevitable after this morning's deal and the vote just before noon, but it's official -- Richard Cordray is the Senate-confirmed Director of the Consumer Financial Protection Bureau. 

The Senate has voted to confirm Richard Cordray as director of the Consumer Financial Protection Bureau, as senators approved the first of a batch of President Barack Obama’s nominations freed for votes by a bipartisan agreement.

The 66-34 vote Tuesday came hours after Senate leaders worked out a deal freeing up seven stalled appointments for the consumer bureau and other agencies for simple majority votes by the chamber. In exchange, Democrats agreed to abandon for now an effort to change Senate rules to weaken the minority party’s ability to block nominations, and Obama agreed to submit two different nominees for two labor posts.

Senator Elizabeth Warren announced the final vote tally with a big smile.  Here's her statement:

After more than 700 days of waiting, Rich Cordray will finally get the confirmation vote he deserves from the U.S. Senate. Director Cordray has won praise from consumer and industry groups, and from Republicans and Democrats, for his fair and effective approach. With Director Cordray's confirmation, we will be able to say loudly, clearly, and with confidence: the consumer agency is the law of the land and is here to stay. We fought hard for the agency, and we proved that big change is still possible in Washington. Now we have the watchdog that the American people deserve - a watchdog looking out for middle class families, getting rid of tricks, traps, and fine print, and holding financial institutions accountable when they break the law.

Once I get done with an appellate brief tomorrow, I hope to be able to post some thoughts on what this all means. For now, let me just say that I'm very glad to learn that Section 1066 of the Dodd-Frank Act will be of only academic interest going forward.