CL&P Blog

Conservative/industry CFPB Taskforce on consumer laws issues request for information

by Jeff Sovern

Earlier this year, the CFPB created a Taskforce to make "recommendations for ways to improve and strengthen consumer financial laws and regulations." The Taskforce is chaired  by George Mason professor Todd Zwyicki and its other members are J. Howard Beales III, Thomas A. Durkin, William C. MacLeod, and Jean Noonan.  As far as I can tell, all the Taskforce members are white Washington, D.C. area folks. They have tended in the past to take conservative positions on consumer law, or represented the industry, or both. I certainly do not mean to suggest that the members of the Taskforce are not qualified to serve on it, nor am I suggesting that any member of the Taskforce will not act in good faith. But a Taskforce that included consumer advocates and more diversity would be more likely to offer a balanced approach to consumer protection and elicit support for its proposals from both sides of the aisle. [Disclosure: I applied to serve on the Taskforce but my application was denied.] 

Another point about the Taskforce: it is to give its final report no later than January of 2021. In other words, if a Democrat wins the presidency this fall, is inaugurated January 20, 2021, immediately fires Director Kraninger (a power the president might or might not have after  SCOTUS decides Seila Law), and names an acting director, the likelihood is that the Taskforce's report would already have been submitted.  

The CFPB's website explains that "The taskforce is in part inspired by an earlier commission established by the Consumer Credit Protection Act (Act) in 1968." But that commission seems very different from the Taskforce in several respects. For one thing, the Commission did not issue its final report until 1972, three years after it was fully constituted. For another, its membership included notable consumer advocates, such as Senator William Proxmire and Representative Leonor K. Sullivan, though it also included industry representatives, such as Ira Millstein and conservatives like Senator John Tower. In other words, the Commission included more ideological diversity and took more time to consider its report. In addition, the Commission was created by an act of Congress, rather than an agency director who has frequently declined to comment on statutes during her testimony before Congress, stating instead that her job is to implement them.

In any event, the Taskforce has now issued a request for information, and you can read it here. It will be interesting to see both what responses it elicits and how the Taskforce treats them.

Bloomberg: Bill would require credit bureaus to stop listing negative items during pandemic

by Jeff Sovern

Evan Weinberger reports here. The bill's text is not yet available at Govtrack. I wonder if the bill would also apply to consumers who have not lost their jobs or had hours cut back because of the pandemic, and if so, what incentives it would create for them. 

Where do the Democratic presidential candidates stand on consumer protection issues involving banks?

The American Banker has the answer (free content).

Porter v. Kraninger

by Jeff Sovern

Twice a year, CFPB Director Kathy Kraninger testifies before the House Financial Services Committee about the Bureau's Semi-Annual Report. A committee member I always look forward to hearing from is Katie Porter, a former law professor at UC-Irvine, among other schools, with an impressive record of consumer law scholarship and accomplishment. Representative Porter often devotes her time to quizzing Director Kraninger on the Director's consumer law knowledge, a test on which the Director typically fares poorly. One such interaction went viral. Last week's hearing featured a series of questions about reverse mortgages with the usual result. There are at least two takeaways from these exchanges. One has to do with the level of Director Kraninger's knowledge about the area over which she has jurisdiction, though her command of consumer financial law has certainly (to use one of the Director's favorite words) improved dramatically during her tenure.  The other takeaway, which to me is more worrisome, involves consumer education. If even the CFPB director has not mastered so many of the important consumer protection concepts that Representative Porter asks about, how can we expect consumers to do so? And if we can't expect consumers to master these concepts, how can we expect consumer education to provide adequate consumer protection?  As Lauren Willis has demonstrated, the empirical support underlying the claim that financial literacy education provides sufficient consumer protection is insufficient. And yet, Director Kraninger, among others, continues to stress such education as a solution to consumer protection. Financial education may have a place, but it is not up to the task some seem to assign it--as Director Kraninger should be able to tell from her own responses.

American Banker lists 2020 congressional agenda involving banks, including CFPB issues and national usury cap

Here.  Free content. In light of the election and the divided Congress, it seems unlikely that anything controversial will pass.

What is the optimal structure for the Consumer Financial Protection Bureau?

That's the topic of Commissioning the Consumer Financial Protection Bureau by law prof Jolina Cuaresma. Here's the abstract:

There has been much debate over the Consumer Financial Protection Bureau’s lack of executive and congressional oversight: its single director removable only for cause and its operations are not subject to appropriations. This paper explains how this very leadership and accountability structure — intended to politically insulate the agency — had the perverse effect of politicizing it. Since Director Cordray’s departure, there has been increased regulatory uncertainty, discouraging financial innovation and harming consumer welfare. This paper recommends that Congress restructure the Bureau into a multi-member, bipartisan commission to provide industry regulatory predictability and ensure that consumer protection retains its independent seat in the financial regulatory system.

Will New York catch up to Mississippi in protecting consumers?

by Jeff Sovern

Many states allow their consumers to sue misbehaving companies for unfair practices, including red and purple states like Mississippi, Georgia, North Carolina, Tennessee and West Virginia, states that we normally don't think of as being in the vanguard of consumer protection.  This power can be important in protecting consumers. For example, the CFPB used its own ability to stop unfair practices when it pursued Wells Fargo for opening unauthorized accounts, rather than its power to block deception. But New York has lagged behind these states, as well as its neighbors like Connecticut, Pennsylvania, and Massachusetts, in leaving unfairness out of its UDAP statute. Thus, New Yorkers could not have sued Wells Fargo for unfair conduct in opening unauthorized accounts.

But now that may change. The New York legislature is considering a bill to put the U in its UDAP statute.  The bill would also eliminate New York's requirement that plaintiffs in UDAP cases demonstrate that the offending conduct is "consumer-oriented," a requirement that no other state has adopted and that does not even appear in New York's statute; instead it was added by a court that evidently eschewed textualism as a method of statutory interpretation.

Unfortunately, but predictably, the bill is encountering heavy industry opposition. One argument made against the bill is that it "will open the flood gates for litigation."  But many other states permit consumers to sue for unfair conduct and don't require consumer-oriented conduct and have not experienced a flood of litigation (even assuming there is something wrong with a flood of litigation against bad actors). The items I have listed merely bring the statute into conformity with other states.

The statute currently provides for only $50 in statutory damages. As a number of studies have demonstrated, consumers almost never bring claims for $50.  It just isn't worth it to them.  So preserving $50 as the amount of statutory damages would be essentially the same as having no statutory damages.  The bill addresses this problem by increasing the amount of statutory damages to $2,000, an amount which is more likely to be enough to cause consumers to enforce the statute, though still less than the red state of Kansas, which allows statutory damages of fives times as much, or 200 times what the New York statute currently provides. Of course, businesses object to this too: they prefer that the amount be so low as to render private enforcement virtually nonexistent in the absence of large actual damages.

New York has a chance to offer its consumers not just the protection they need, but that they deserve. It should leap at the opportunity. 

How the New US News Scholarly Impact Ranking Could Hurt Niche Subjects, Like Consumer Law

by Jeff Sovern

There's been a lot of talk among law professors about the US News plan to measure faculty scholarly impact in part by citations to faculty scholarship (see here for a blog post citing to commentary).  While for now US News says it will not incorporate the citation rankings into its general law school rankings, US News may in the future replace the faculty reputation measure to some extent with a measure of how frequently professors are cited.  That could create disturbing incentives for faculty hiring and retention, as well as affect what professors write about. 

To be more concrete, imagine that a law school is hiring a new professor and has two candidates.  One candidate writes about criminal law and the other writes about consumer law.  The law school wants to maximize its ranking, and so wants to hire the candidate whose work will be cited more.  The universe of people writing scholarly articles about criminal law is much larger than the universe of professors writing about consumer law, and so, all other things being equal, the criminal law professor is likely to rack up more citations and so help with the school's ranking more.  How do we know more people write about criminal law?  I did a search for "consumer law" on SSRN and got 637 hits. "Criminal law" by contrast elicited 7,867 hits, or more than a dozen times as many. Every law school offers criminal law courses, probably all have a full-time professor teaching in the area, and many have one or more professors writing in the area. But as of 2014, only about a third of law schools had a consumer law course of one sort or another (yes, I need to update that), and many of the courses were taught by adjuncts who have a day job and so are unlikely to find time to write about consumer law.  Fewer professors writing in an area means fewer people likely to cite your work. And so that means hiring the consumer law scholar could hurt your ranking as compared to hiring the criminal law professor. It also means that those seeking to become law professors should write in widely-taught areas to make themselves more attractive to law schools.

Now maybe you're thinking that even within broad areas like criminal law, professors are apt to specialize when it comes to writing and so as a practical matter writing about a consumer law topic is no different than writing about a criminal law topic. So let's compare the number of papers on SRRN in a couple of specific areas within criminal law and consumer law.  Homicide drew 767 hits while "mens rea" got 479 hits. "Debt collection" elicited 179 hits while "credit reporting" got 135.  Those differences are less dramatic, but the number of criminal law hits are still multiples of the consumer law hits. No doubt SSRN is an imperfect measure of the amount of scholarship in a particular area, but it would have to be off by a lot to make those differences insignificant. It makes intuitive sense that a subject that is taught at fewer law schools will be written about less--and so generate fewer citations. 

This isn't just bad for consumer law scholars. It's also bad for consumer law, and indeed any subject that isn't taught at all or nearly all law schools.  If you think, as I do, that scholarship is valuable, and law schools stop producing consumer law scholarship because they stop hiring consumer law professors, then society will have lost something. Society will have gained instead more articles about widely-taught subjects, but surely the marginal value of yet another article on criminal law is less than the marginal value of an article in an area less traveled.

 

Representative Katie Porter to Join House Financial Services Committee

by Jeff Sovern

The media has devoted considerable attention to Representative Alexandria Ocasio-Cortez's joining the House Financial Services Committee. I'm glad she is on the committee--the more members who are not beholden to banks, the better--and I suspect few realize how intelligent Ocasio-Cortez is (taking second place in the Intel competition is an impressive accomplishment).  But I believe the rookie member of the committee who is likely to have the most impact is former professor Katie Porter.  Not only is Porter brilliant, she is also extremely knowledgeable about consumer law and bankruptcy, having studied and written about them for years. She also brings the practical experience that comes from having monitored the mortgage settlement in California. During hearings, she may know more than some witnesses about the matters the witnesses are testifying about. She promises to be a formidable member of the committee, and I hope its members defer to her judgment.

Bloomberg Law Insight: Why the ABA Is Wrong on Amending Debt Collection Bill

by Jeff Sovern

That's the title of my essay my colleague Gina Calabrese and I wrote here in Bloomberg Law.  Excerpt:

The ABA argues that consumers don’t need protection from unscrupulous lawyers because lawyers are already subject to state ethics rules largely written by the ABA itself. Experience tells us otherwise. When a law firm sued consumers for debts they did not owe, the Consumer Financial Protection Bureau needed the FDCPA to stop it. One of us teaches in a law school consumer clinic and has observed that ethical rules do not stop attorneys from deceiving consumers.

* * * 

One of us has seen an attorney tell a court—under penalty of perjury—that a large balance remained on a debt that had been fully paid. The firm later admitted it was wrong, but only after it was held accountable under the FDCPA. Lawyers have frozen our law clinic’s clients’ bank accounts, blocking their access to their own funds, for debts that had already been paid. In none of these cases did the attorneys face ethics sanctions. Indeed, courts routinely excuse such missteps.