Consumer Law & Policy Blog

Former employee of short-term lender explains how it snared consumers in debt traps

New Mexico recently enacted a 36% rate cap on consumer loans. Among the remarks that motivated them to do so was the following:

Thank you Madam Chair, Members of the Committee. My name is Will Hancock and I’m a student at the University of New Mexico School of Law. I had the displeasure of working briefly for a short-term loan company in Albuquerque. I completed the training and left shortly thereafter because I felt I was actively ruining people’s lives through predatory practices.

While I was there I saw countless customers come in seeking to pay off their loans. Customers rarely paid off their loans because it was company policy to heavily suggest they refinance. Of course, we never used the word “refinance,” but rather dangled money in front of the customer’s face and asked them if they wanted to take it. “Well, how about you give me $20 and then I’ll give you $40 back.” Or the classic, “Oh, I see we can give you an extra $50 today, how does that sound?”

Many customers simply did not understand that this was refinancing.

I was trained to look through bank statements for a source of recurring income. I noticed that most of these “recurring incomes” were payments from the social security office.

I support this bill because I support helping the vulnerable. If public social safety nets are not going to help these people, then least we can do is stop private companies from exploiting their vulnerabilities and lack of financial literacy, at least at such extortionate rates.

Thanks to Karen Meyers for forwarding Mr. Hancock's statement to me.

 

Who wrote the Utah Va, Colo, privacy laws? The Markup says it was industry lobbyists

Here.  Excerpt:

Not just in Utah, but in Virginia and Washington, and Minnesota, tech companies have provided draft language that led to the introduction of industry-friendly privacy bills, according to legislators The Markup interviewed and previous reporting by Protocol. 

Big Tech funded nonprofits like TechNet, the State Privacy and Security Coalition, and the Internet Association have traveled from state to state encouraging legislators to “mirror” those industry-authored bills. TechNet representatives, for example, have testified or supplied written comments on privacy bills in at least 10 states since 2021, more than any other organization, according to our analysis of state legislative records.

* * *

While the tactics vary by state, the message and the asks are clear: Big Tech wants laws that prohibit consumers from bringing private lawsuits against companies who break the rules, that narrowly define what constitutes “selling” data, and that require consumers to opt out of data collection and tracking on every website they visit rather than honoring what is known as a global opt-out.

 

 

Newsday essay calls for amending NY's UDAP law to give NY consumers the protections many red state consumers have

Here. My latest guest essay.

Arbitration and the myths of freedom of contract and free choice

by Jeff Sovern

Earlier this week, the Senate Banking Committee held a hearing on consumer arbitration clauses. The consumer side was ably represented by Paul Bland, Myriam Gilles, and Remington Gregg. I want to say something about the arguments put forth at the hearing by Senator Toomey and Professor Todd Zywicki. Professor Toomey argued that regulation of arbitration would undermine freedom of contract. And Professor Zywicki testified that "Available evidence suggests that the presence of arbitration clauses in consumer finance contracts is consistent with the operation of a competitive market with consumer choice."

But here's the thing: consumers don't understand arbitration clauses. I don't see how it can be said that consumers have freedom of contract and free choice when they don't understand the meaning of the terms they are supposedly agreeing to. We know consumers don't understand arbitration clauses because two studies have found that they don't. I co-authored one. We found, among other things, that when we showed consumers a credit card contract with an arbitration clause, less than 9% of consumers understood both that the contract contained an arbitration clause and that it barred them from going to court. We also learned that at least 87% of the consumers who thought they had never agreed to an arbitration clause had in fact done so. The CFPB study also found that consumers did not understand arbitration clauses. In fact, I am not aware of any study that has found that consumers understand arbitration clauses.

In other words, arbitration clauses are about as meaningful to consumers as they would be if they were printed in a language the consumers don't speak. Or not printed in the contract at all. That's not freedom of choice. Freedom of choice requires that you understand enough to choose among alternatives. And as for freedom of contract, what we have is a system in which businesses have the freedom to impose on consumers contract terns they don't understand. Businesses have freedom of contract, but consumers don't.

Ironically, if we want to preserve freedom of choice, we should allow parties to choose whether they want to go to court or arbitration after the dispute has arisen. At that point, consumers would be more likely to consult an attorney who would help them make the choice that is in their best interests, just as businesses consult attorneys to advise them whether to insert arbitration clauses in contracts. But with forced arbitration clauses, freedom of contract and free choice are no more than a myth.

Lots going on in Congress on arbitration

by Jeff Sovern

Bloomberg reports that the House will vote this month on the FAIR Act, a bill to bar arbitration clauses in consumer and employment contracts. The House last passed a similar bill in 2019. The Senate Banking Committee will hold a hearing on arbitration Tuesday. The stumbling block to congressional action remains the filibuster in the Senate. Still, Congress recently enacted a law barring the use of arbitration clauses to prevent sexual assault and sexual harassment claims, so there is reason for hope, the thing with feathers.

Consumer Advocates Propose New Model State Consumer Protection Act

The LA Times and Ralph Nader have already written about it. Here's the press release, which includes links:

Hacked by Big Corporations, America’s Civil Justice System Has Crashed, Consumer Advocates Say

Report Details Impact on Consumers – and Democracy – of Corporate Attack on the Rule of Law, Proposes New Protections and Legal Procedures

Contact: Harvey Rosenfield (213) 527-3757; Laura Antonini (949) 929-2612
Los Angeles, CA – February 17, 2022

America’s civil justice system has been corrupted by corporations and no longer protects average Americans from the countless non-stop thefts of their money, time, and privacy, according to a new report by two nationally recognized consumer advocates.

The 259-page study, published by #REPRESENT, a California-based non-profit, documents how business goliaths and their front groups like the U.S. Chamber of Commerce sponsored a fifty-year campaign to reprogram the nation’s civil laws and judicial procedures to favor corporations and the elites.

Reboot Required: The Civil Justice System Has Crashed details the most common costly and abusive tactics that consumers face in the U.S. marketplace – against which they have virtually no legal rights or remedies.

It chronicles how corporations seized control of the legislative, executive, and judicial branches beginning in the 1970s to erode landmark consumer protection laws and block the passage of badly needed new ones, crippling the class action system and stripping Americans of their cherished right to their “day in court” and trial by jury.

And it sounds an urgent call to action. The advocates present a detailed blueprint for the restoration of the civil justice system, in the form of a model state consumer protection law, The Represent Act.

“The relentless corporate assault on the rule of law has deeply damaged Americans’ confidence in the legal system, a development with dire implications for U.S. democracy,” warn Harvey Rosenfield and Laura Antonini, the authors of the report. “We have lately learned how fragile our institutions are, how quickly anger and despair can turn to violence when the rules do not apply to everyone. We must reclaim control of our civil justice system from the corporations so that it serves the American people and empowers them to meet the challenges of the 21st Century.”

Nancy Kim explains the TLDR bill (but I didn't read her post)

by Jeff Sovern

Over at the ContractsProf Blog. The bill would provide a short form and a diagram for Terms of Service. But without consumer testing, who knows if consumers would pay attention even to the short form or diagram.

NACA essay argues that consumer statutory damages set decades ago should be increased because of inflation

Here. Excerpt:

Since the 70’s, the FCRA has allowed consumers with credit reporting claims to recover up to $1,000 per statutory violation of the law, while the FDCPA allows statutory damages up to $1000 per case even when multiple violations of the law are present. It is decades-past time for an update.

An annual inflation rate of 6.2%, a 31-year high, has been enough to spark panicked headlines and heavy debate among policymakers, but the effects of the 351% cumulative rate of inflation on FDCPA statutory damages also have been consequential but less discussed.

Rep. McHenry opposes government-run credit bureau on ground that government suffers cyberattacks. Equifax, anyone?

by Jeff Sovern

Last week, the House Financial Services Committee held a hearing on credit reporting. I haven't yet watched the recording, but the American Banker's Neil Haggerty has a story here (the story is behind a paywall, but is available on Lexis). Among the topics addressed during the hearing was President Biden's proposal for a government-run credit bureau. Ranking member Patrick McHenry opposed a government-run credit bureau, commenting, according to the article:

"Cyberattacks are also a major issue with federal databases," McHenry said. "The idea that the government agency doing this will be a better steward of our data is quite questionable, given the track record the federal government."

The article continues:

But Chi Chi Wu, a staff attorney at the National Consumer Law Center, cited the 2017 Equifax data breach of more than 148 million consumers' data as a reason to be skeptical of the private sector's ability to protect consumers' data better than the government.

"Are we forgetting four years ago about the Equifax data breach, how one of these credit bureaus let hackers take the personal information of half the American adult population?" Wu said. "In terms of privacy, our data is with three private corporations that monetize and exploit it and don't do a very good job of making sure it's accurate."

A government-run credit bureau conflicts with conservative ideology. Conservatives tend to trust the free-market, oppose government intervention, and dislike government possession of information.  But the free-market does not operate with credit bureaus because consumers don't get to choose which bureau will report their information. Consequently, credit bureaus have little reason to fear consumer displeasure. And studies often indicate that credit reports contain errors. The FCRA has not been up to the task of protecting consumers. If we don't try something else, we are doomed to have a system in which many consumers are denied credit or charged higher prices for it through no fault of their own.

The Hill: Senate votes to repeal OCC 'true lender' rule

Here. The House is expected to follow suit, and the White House has indicated that the president would sign the repeal resolution.