Consumer Law & Policy Blog

Paper on Food and Beverage Marketing to Youth

Andrew Cheyne, Pamela Mejia, Laura Nixon, and Lori Dorfman, all of the Berkeley Media Studies Group, have written Food and Beverage Marketing to Youth, Current Obesity Reports, September 2014. Here's the abstract:

After nearly a decade of concern over the role of food and beverage marketing to youth in the childhood obesity epidemic, American children and adolescents — especially those from communities of color — are still immersed in advertising and marketing environments that primarily pro- mote unhealthy foods and beverages. Despite some positive steps, the evidence shows that the food and beverage industry self-regulation alone is not likely to significantly reduce marketing of unhealthy foods and beverages to youth. A variety of research is needed to monitor industry marketing of unhealthy products to young people, and identify the most promising approaches to improve children’s food marketing environments. The continued presence of unhealthy marketing toward children despite years of industry self-regulation suggests it is time for stronger action by policymakers to protect young people from harmful marketing practices.

Ronald Mann on Whether Payday Loan Defaults Matter

Ronald J. Mann of Columbia has written Do Defaults on Payday Loans Matter?  Here's the abstract:

This essay examines the effect on a borrower’s financial health of failure to repay a payday loan. Recent regulatory initiatives suggest an inclination to add an “ability to pay” requirement to payday-loan underwriting that would be fundamentally inconsistent with the nature of the product. Because the premise of that regulation would be that borrowers suffer harm when they fail to repay such a loan, it is timely to examine the after-effects of such a default empirically. This essay examines that question using a dataset that combines payday borrowing histories with credit bureau information.

The essay uses a difference-in-difference approach, comparing the credit-score change over time of those who default to the credit score change over the same period of those who do not default. The essay presents three principal findings. First, credit score changes for borrowers who default on payday loans differ immaterially from changes for borrowers who do not default on payday loans. Second, the fall in the year of the default plainly overstates the net effect of the default, because the credit scores of those who default on payday loans experience disproportionately large increases for at least two years after the year of the default. Third, the payday loan default cannot be regarded as the cause of the borrower’s financial distress; borrowers who default on payday loans have experienced disproportionately large drops in their credit scores for at least two years before their default.

Sickler Article on Why Courts Require Filing Suits to Rescind Under TILA

Alexandra Power Everhart Sickler of North Dakota has written The Truth Shall Set You Free: Explaining Judicial Hostility to the Truth in Lending Act’s Right to Rescind a Mortgage Loan, forthcoming in the Rutgers Journal of Law and Urban Policy. Here is the abstract:

The Supreme Court is entertaining a divide among the federal circuits over whether the federal Truth in Lending Act (TILA) requires a consumer borrower to file a lawsuit in order to exercise her statutory right to rescind, or cancel, certain types of mortgage loans where the lender fails to disclose information mandated by the statute. Many have commented on the appropriate interpretation of the statute and its implementing regulation, but there is a gap in the academic literature addressing the circuit divide. This article goes beyond interpretation of the relevant statute and regulation to explore and consider unarticulated explanations for the majority-held view. That view holds that TILA implicitly requires a consumer borrower to file a lawsuit to exercise her right to rescind even though the statute expressly provides that written notice is sufficient. Five circuits have imposed this requirement even though Congress did not, explaining that they are constrained by Supreme Court precedent. That precedent is clearly inapposite, because the Supreme Court is reviewing an Eighth Circuit ruling on this issue. This article posits that some evolving trend, beyond stare decisis, underlies the majority circuits’ rulings. Among the possibilities the article explores are: (1) the federal judiciary’s interest in regulating consumer litigation behavior; (2) a paradigm shift in agency deference doctrine, including the reconsideration of Seminole Rock/Auer deference; and (3) disagreement with Congress’s liberalization of common law rescission by statute.

Mary Heen Paper Asks: Should Insurers Be Able to Discriminate

Mary L. Heen of Richmond has written Nondiscrimination in Insurance:  The Next Chapter, 49 Georgia Law Review (2014-2015).  Here is the abstract:

For nearly 150 years, American insurance companies have engaged in race and gender pricing practices that would be illegal if followed today by any other major commercial enterprise.  The insurance industry has defended its long-standing practices, first for race and now for gender, based on ideas about insurance “equity” developed in the nineteenth century. The continued application of these ideas, and the practices that have resulted from them, conflict with fundamental civil rights principles and should not be tolerated as exceptions to our national civil rights laws.  As that history shows, classifications used by insurers to determine rates and benefits raise complex distributional, financial, and political issues that cannot be resolved simply as technical questions of actuarial risk or economics.  This Article proposes comprehensive federal civil rights legislation to ban discrimination based on race, color, religion, national origin, and sex in insurance coverage, rates, and benefits. It explains why previous reform efforts have failed and why recent developments, including the adoption of unisex insurance rates in Europe, could make consideration of such legislation in the United States timely once again.

Do Mortgage Strip-Downs Affect the Supply of Mortgage Credit?

Wenli Li of the Philadelphia Fed, Ishani Tewari of the Yale School of Management, and Michelle J. White of California, San Diego's Department of Economics and the National Bureau of Economic Research have written Using Bankruptcy to Reduce Foreclosures: Does Strip-Down of Mortgages Affect the Supply of Mortgage Credit?  Here's the abstract:

We assess the credit market impact of mortgage “strip-down” — reducing the principal of underwater residential mortgages to the current market value of the property for homeowners in Chapter 7 or Chapter 13 bankruptcy. Strip-down of mortgages in bankruptcy was proposed as a means of reducing foreclosures during the recent mortgage crisis but was blocked by lenders. Our goal is to determine whether allowing bankruptcy judges to modify mortgages would have a large adverse impact on new mortgage applicants. Our identification is provided by a series of U.S. Court of Appeals decisions during the late 1980s and early 1990s that introduced mortgage strip-down under both bankruptcy chapters in parts of the U.S., followed by two Supreme Court rulings that abolished it throughout the U.S. We find that the Supreme Court decision to abolish mortgage strip-down under Chapter 13 led to a reduction of 3% in mortgage interest rates and an increase of 1% in mortgage approval rates, while the Supreme Court decision to abolish strip-down under Chapter 7 led to a reduction of 2% in approval rates and no change in interest rates. We also find that markets react less to circuit court decisions than to Supreme Court decisions. Overall, our results suggest that lenders respond to forced renegotiation of contracts in bankruptcy, but their responses are small and not always in the predicted direction. The lack of systematic patterns evident in our results suggests that introducing mortgage strip-down under either bankruptcy chapter would not have strong adverse effects on mortgage loan terms and could be a useful new policy tool to reduce foreclosures when future housing bubbles burst.

Hockett on Using Eminent Domain to Save Underwater Mortgages in NYC

Robert C. Hockett of Cornell has written 'We Don't Follow, We Lead': How New York City Will Save Mortgage Loans by Condemning Them, 124 Yale Law Journal Forum 131 (2014).  Here is the abstract:

This brief invited essay lays out in summary form the eminent domain plan for securitized underwater mortgage loans that the author has been advocating and helping to implement for some years now.  It does so with particular attention in this case to New York City, which is now actively considering the plan.  The essay's first part addresses the plan's necessity.  Its second part lays out the plan's basic mechanics.  The third part then systematically addresses and dispatches the battery of remarkably weak legal and policy arguments commonly proffered by opponents of the plan.

American Banker Op-Ed on the St. John's Consumer Arbitration Study

Here.

Cleveland Plain Dealer's Sheryl Harris on the St. John's Arbitration Study

Here.  An excerpt:

Right now, the CFPB is finishing up the second phase of its study, which will hone in on consumers' understanding of arbitration clauses. At that point, it will decide whether it needs to act.

If the bureau's findings are anything like those of the law school study, it must. Being stripped of our rights shouldn't be a cost of doing business.

Jeremy Telman at ContractsProf Blog on the Debate Over "Whimsy Little Contracts"

Here.

Alan Schwartz Article Argues for Assuming Rational Consumers

Alan Schwartz of Yale has written Regulating for Rationality, Forthcoming in the Stanford Law Review. Here's the abstract:

Traditional consumer protection law responds with various forms of disclosure to market imperfections that are the consequence of consumers being imperfectly informed or unsophisticated.  This regulation assumes that consumers can rationally act on the information that it is disclosure’s goal to produce.  Experimental results in psychology and behavorial economics question this rationality premise.  The numerous reasoning defects consumers exhibit in the experiments would vitiate disclosure solutions if those defects also presented in markets.  To assume that consumers behave as badly in markets as they do in the lab implies new regulatory responses.  This Essay sets out the novel and difficult challenges that such “regulating for rationality” -- intervening to cure or to overcome cognitive error --  poses for regulators. Much of the novelty exists because the contracting choices of rational and irrational consumers often are observationally equivalent: both consumer types prefer the same contracts.  Hence, the regulator seldom can infer from contract terms themselves that reasoning errors produced those terms.  Rather, the regulator needs a theory of cognitive function that would permit him to predict when actual consumers would make the mistakes that laboratory subjects make: that is, to know which fraction of observed contracts are the product of bias rather than rational choice. The difficulties exist because the psychologists lack such a theory.  Hence, cognitive based regulatory interventions often are poorly grounded.  A particular concern is that consumers suffer from numerous biases, and not every consumer suffers from the same ones.  Current theory cannot tell how these biases interact within the person and how markets aggregate differing biased consumer preferences.  The Essay then makes three further claims.  First, regulating for rationality should be more evidence based than regulating for traditional market imperfections: in the absence of a theory the regulator needs to see what actual people do.  Second, when the facts are unobtainable or ambiguous regulators should assume that bias did not affect the consumer’s contracting choice because the assumption is autonomy preserving, administerable and coherent. Third, disclosure regulation can ameliorate some reasoning errors.  Hence, abandoning disclosure strategies in favor of substantive regulation sometimes would be premature.