Consumer Law & Policy Blog

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.

 

Terrific Craswell Paper on Disclosures

by Jeff Sovern

I just read a terrific article by Richard Craswell of Stanford, Static Versus Dynamic Disclosures, and How Not to Judge Their Success or Failure, 88 Washington Law Review 333 (2013). Here's the abstract:

Disclosure laws can serve many different purposes. This Article is the first to distinguish two of those purposes, which I call static and dynamic disclosures. In brief, static disclosures aim to improve consumers’ choice from among the set of products that are already available on the market. By contrast, dynamic disclosures aim to improve the range of products from which consumers must choose, by sharpening sellers’ incentives to improve the quality of their products.

The Article also discusses the various ways in which the effects of static and dynamic disclosures might be measured and evaluated. In doing so, it examines and mildly criticizes the position recently advanced by Professors Omri Ben-Shahar and Carl Schneider, who argue (approximately) that disclosure almost never works, and that it should not even be considered as a policy option. While I agree with much else that Professors Ben-Shahar and Schneider say, their claim that disclosures almost never work is far too broad.

Craswell uses as an example of dynamic disclosures something that should be familiar to readers of this blog; namely, the health department grades for restaurants that in Los Angeles were found to reduce hospitalizations caused by food-borne diseases (but not in New York, apparently).  The disclosures are designed to change seller behavior by causing restaurateurs to clean up their restaurants. 

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.

Amy Schmitz Paper on Cramming

Amy Schmitz of Colorado has written Ensuring Remedies to Cure Cramming, 14 Cardozo J. of Conflict Resolution 877 (2013).  Here's the abstract:

The unauthorized addition of third party charges to telecommunications bills ("cramming") is a growing problem that has caught the attention of federal regulators and state attorney generals.  This Article therefore discusses the problems associated with cramming, and highlights consumers’ uphill battles in seeking remedies with respect to cramming claims.  Indeed, it is  imperative for policymakers, researchers, consumer advocates, and industry groups to collaborate in developing means for resolving these claims.   Accordingly, this Article offers a proposal for resolving cramming disputes in order to advance this collaboration, and inspire development of a functioning online dispute resolution ("ODR") process to handle these claims.  This process is designed to provide consumers a quick and easy-to-understand option for reporting and resolving cramming cases.

Fisher Study of Stalled Foreclosures

Linda Fisher of Seton Hall has written Shadowed by the Shadow Inventory: A Newark, New Jersey Case Study of Stalled Foreclosures & Their Consequences, forthcoming in the UC Irvine Law Review.  Here's the abstract:

Foreclosure activity has declined recently in some areas, but a number of states, such as Florida, New Jersey, and Illinois, showed increases in 2012. The national inventory of homes in foreclosure or owned by banks climbed nine percent to 1.5 million homes. Although investors are now buying foreclosed properties in certain markets, driving down inventory and contributing to an upswing in housing prices, lower-income neighborhoods generally have not enjoyed these effects. These include many of the African-American and Latino neighborhoods that bore the brunt of predatory and subprime lending.  There, lenders have failed to complete foreclosures or maintain and market their REO (real-estate owned) properties, contributing to the shadow inventory that continues to depress local housing markets.

This empirical project tests the extent to which bank stalling has contributed to foreclosure delays and property vacancies in Newark, New Jersey. Previous studies conducted by the U.S. General Accounting Office, as well as by researchers at the Federal Reserve, and in Cleveland and Chicago, uncovered considerable evidence of stalled or abandoned foreclosures. Several of the studies found that abandoned foreclosures correlated positively with property vacancies. This is the first study to trace the disposition of each property in the sample through both public and private sources, allowing highly accurate conclusions to be drawn. I reach a similar conclusion to the previous studies with respect to stalling: without legal excuse or ongoing workout efforts, banks frequently cease prosecuting foreclosures. The stalled foreclosures in my study, however, do not strongly correlate with property vacancies, but a high percentage of REO properties are vacant. This study is small in scale, involving a random sample of 100 foreclosures filed between 2007 and the first half of 2009 in a single neighborhood, but the results can be extrapolated to the City of Newark, and, to some extent, similar lower-income urban neighborhoods in Northeastern states with judicial foreclosure regimes. The national banks that securitized mortgages during the housing boom followed standard practices of targeting communities of color for the worst subprime loans. They also followed national servicing and foreclosure practices adapted to each state’s laws.

Papke Paper on RTO, Payday Lending, and Title Pawn Businesses

David Ray Papke of Marquette has written Perpetuating Poverty: Exploitative Businesses, the Urban Poor, and the Failure of Liberal Reform. Here's the abstract:

This article scrutinizes the rent-to-own, payday lending, and title pawn businesses – all of which target and exploit the urban poor.  Each type of business has developed a sophisticated business model that features a standardized contractual agreement for dealing with customers.  Reform efforts in the courts and legislatures have attempted to rein in these tawdry businesses, but these efforts have for the most part been unsuccessful.  The businesses continue not only to exploit the urban poor but also to socio-economically subjugate them by trapping many into a virtually ceaseless debt cycle.  In the end, a blanket proscription of these businesses might be the only way to drive them from the center-city and prevent them from perpetuating poverty.

Paper on the "Show Me the Note" Defense

Bradley T. Borden and David J. Reiss, both of the Brooklyn faculty, and William KeAupuni Akina, a student at the school, have written Show Me the Note!, Westlaw Journal Bank & Lender Liability (June 3, 2013).  Here's the abstract:

News outlets and foreclosure defense blogs have focused attention on the defense commonly referred to as "show me the note." This defense seeks to forestall or prevent foreclosure by requiring the foreclosing party to produce the mortgage and the associated promissory note as proof of its right to initiate foreclosure. 

The defense arose in two recent state supreme-court cases and is also being raised in lower courts throughout the country. It is not only important to individuals facing foreclosure but also for the mortgage industry and investors in mortgage-backed securities. In the aggregate, the body of law that develops as a result of the foreclosure epidemic will probably shape mortgage law for a long time to come. Courts across the country seemingly interpret the validity of the "show me the note" defense incongruously. Indeed, states appear to be divided on its application. However, an analysis of the situations in which this defense is raised provides a framework that can help consumers and the mortgage industry to better predict how individual states will rule on this issue and can help courts as they continue to grapple with this matter. 

Molly Rose Goodman on Toxic Titles and Title Insurance

Kathleen Engel of Suffolk has forwarded an article one of her students, Molly Rose Goodman,  wrote for the Real Estate Law Journal.  The piece is titled The Buck Stops Here: Toxic Titles and Title Insurance, and the cite is 42 Real Est. L. J. 5 (2013).  Here's the abstract:

By failing to properly transfer ownership of loans and mortgages, recording fraudulent documents, and performing unlawful foreclosures, financial institutions and law firms have generated property titles that range from defective to toxic. Those actions evince a systemic failure to comply with longstanding principles of real property law and regulations governing financial transactions. Title companies participated in title services and issued title insurance policies throughout the housing boom and although they did not directly cause toxic titles, many title insurers have ultimately assumed the risk for the bad practices that became the industry norms in the last decade. In this article, I will discuss how title insurers have exposed themselves to liability for toxic titles. 

Amy Schmitz on Gender and Consumer Contracts

Amy Schmitz of Colorado has written Sex Matters: Considering Gender in Consumer Contracts, 19 Cardozo Journal of Law & Gender 437 (2013). Here's the abstract:

 

We hear about the so-called “War on Women” and persisting salary gaps between men and women in the popular media, but contracts scholars and policymakers rarely discuss gender. Instead, dominant voices in the contracts field often reflect classical and economics-driven theories built on assumptions of gender neutral and economically rational actors. Furthermore, many mistakenly assume that market competition and antidiscrimination legislation address any improper biases in contracting. This Article therefore aims to shed light on gender’s importance by distilling data from my own e-survey of Colorado consumers along with others’ research regarding gender differences in contract outcomes, interests and behaviors. In light of this research, the Article calls for open discussion of gender in contract and consumer law. It also suggests ideas for considering research findings and the importance of context in designing financial literacy and contract education programs that acknowledge gender while honoring individuality and avoiding stereotype reinforcement.

More From Margaret Jane Radin on Boilerplate

Margaret Jane Radin of Michigan has written An Analytical Framework for Legal Evaluation of Boilerplate. Here's the abstract:

This chapter develops an analytical framework that could help legal analysts – especially common law judges – make better decisions about boilerplate in the context of rights deletions deployed by firms against consumers. It is based on one aspect of the author’s recent work, Boilerplate: The Fine Print, Vanishing Rights, and the Rule of Law (Princeton University Press, 2012). A great deal of mass-market boilerplate – such as hidden lists of terms that recipients have no idea exist – should not be treated as contractual, and should be regulated by other means.  But when courts insist on treating boilerplate as contractual, I encourage them to consider an improved analysis. That analysis takes into account three factors:  (1) the nature of the right of recipients deleted by the boilerplate; (2) the quality of consent to the boilerplate deletion; and (3) the extent of social dissemination of the deletion.  Two particular features of current doctrine should be improved. The procedural/substantive requirement in unconscionability doctrine is misapplied when a judge ignores the nature of the right once she concludes that the quality of consent is adequate, because some rights are market-inalienable, or partially market-inalienable. Market-inalienable rights tend to be rights that are constitutive of civil society, that are not salient to individual decision-makers, and/or that are important for the progress or well-being of the collective as a whole.  Also, the notion of reasonable expectation should be avoided because it engenders a truly mischievous positive/normative ambiguity, and seems to license a conclusion that the more something is imposed on people, no matter what it is, the more it is permissible. The approach taken here need not be interpreted as innovative, because it can be understood as a reinvigoration of principles of equity that have been corrupted.