Dodd-Frank's "Abusive" Standard: The Dog that Didn't Bark

posted by Adam Levitin

The Trump Treasury Department's Dodd-Frank Act report spends more pages on the CFPB (including mortgage regulation) than on any other issue.  There's a whole bunch of blog posts that one could write about the Treasury report, but I want to limit myself here to one item that has long been on the GOP/industry complaint list about the CFPB:  that its power to proscribe "abusive" acts and practices is a problem because the term "abusive" is novel and undefined and that this creates uncertainty that is chilling economic growth.  Total hooey.  The Treasury's report is a lazy document is totally unconnected to the realities of how the CFPB has operated. It's a shame that some commentators are buying into it

Here's the story of the "abusive" power in a nutshell:  it's the dog that didn't bark.  The CFPB's critics have been complaining about the vagueness of the "abusive" power ever since the Dodd-Frank Act was in the legislative process.  Those arguments didn't hold a lot of water then because the term is defined by statute and has a history (namely HOEPA, the FDCPA, the Telemarketing Sales Rule, and the FTC's interpretation of "unfair" from 1962 to 1980), and the codification of "unconscionability" in the Uniform Consumer Credit Code.  But we now have the advantage of six years of CFPB enforcement activity to understand how the agency has used this power and what it means. Unfortunately, it seems that no one at Treasury bothered to look through the CFPB's enforcement actions to see how the agency has actually used its power to prosecute "abusive" acts and practices.  I did.  Here's the two things that stand out.  

Continue reading "Dodd-Frank's "Abusive" Standard: The Dog that Didn't Bark" »

New HMDA Regs Require Banks to Collect Lots of Data...That They Already Have

posted by Adam Levitin

The Home Mortgage Disclosure Act  of 1975 is a key piece of fair lending legislation.  It requires mortgage lenders to report data on loan applications and loans funded that enables both government and private groups to monitor lending patterns for violations of the Fair Housing Act and Equal Credit Opportunity Act (as well as state fair lending laws).  In 2015 the CFPB adopted a new HMDA rule that would expand the number of data fields collected by some 25 fields, effective Jan. 1, 2018.  This is being decried as an unreasonable burden on small institutions and a bipartisan collection of Senators on the Senate Banking Committee have proposed a bill that would exempt financial institutions that made less than 500 open-end loans or 500 close-end loans in each of the previous two years from the new HMDA reporting requirements.  

There's no question that the new HMDA requirements add something to financial institutions regulatory burden. But a look at what these requirements are shows that the burden is really de minimis.  It's not going to make-or-break a small financial institution.  Below is a list of all 25 new data fields.  As you will see, after each one I have indicated whether it is data that is already required for the TILA-RESPA Integrated Disclosure (TRID) or would normally be in a loan underwriting file.  If it is in either, then it is simply a matter of having adequate software to plug that data into HMDA reporting.  Asking a bank to have integrated mortgage underwriting and reporting software doesn't seem like an unreasonable request, but none of this is stuff that should take very long to do even by hand-entry of data (something I've done plenty of). I've dotted all my i's and crossed my t's here, but the bottom line is this.  Almost every piece of information required under the new HMDA rule is already being collected by the lender for either its own underwriting purposes or for compliance with other regulatory requirements.  In other words, this just ain't a big deal.  My guess would be that the total additional compliance costs is a few thousand dollars per year for this.  

The CFPB itself estimates (see p. 66308) per the Paperwork Reduction Act requirement that for truly small banks total HMDA compliance costs (which includes existing costs) will be between 143 and 173 hours of time annually.  Even at $100/hr (which is far more than a compliance staffer at a small bank makes), this would total, at most, $17,300 annually.  Around half the fields are new, so we're looking at around $8,650 annually in additional costs for small banks as the high-end estimate.  So this leave me wondering why the pushback against the new HMDA rule.  

Am I missing something here?   This just doesn't seem to be a game changer for small financial institutions, and it will cause some serious damage to HMDA data in some communities and even some entire states in which large financial institutions don't have much of a presence.  

Continue reading "New HMDA Regs Require Banks to Collect Lots of Data...That They Already Have" »

Wells Fargo Fake Accounts and Arbitration

posted by Adam Levitin

Jeff Sovern has an excellent new article about arbitration clauses and class action waivers that uses the Wells Fargo fake account scandal as a test case.  He also does a monster job knocking down the Johnston-Zwyicki arbitration study.  As Sovern points out, the Johnston-Zywicki study makes a big deal out of some data on a Texas bank's voluntary refunds of fees in consumer disputes.  But as Sovern observes, Johnston and Zywicki aren't able to differentiate between fees due to bank misconduct and fees due to consumer behavior (account inactivity, overlimit, etc.), much less why the bank refunded the fees in some cases.  Highly recommended and relevant in the run-up to the anticipated CFPB arbitration rulemaking.  

[Link corrected 6/15/17 at 4:04pm ET]

Plain Meaning Rolls On in Gorsuch's First [Credit Related] Opinion

posted by Jason Kilborn

It was not at all surprising that, for his first (traditionally unanimous) opinion, in Henson v. Santander, the new Justice Gorsuch took on the relatively simple and low-key issue of the definition of "debt collector" in the Fair Debt Collection Practices Act. It was also not surprising that he hewed quite closely to the approach of his predecessor in basing his decision on the "plain meaning" of the words in the statute, complete with grammatical analysis of past participles and participial adjectives (the example adduced, "burnt toast," might describe how the consumer protection industry will view this latest ruling). The FDCPA is as simple as it appears, the Court confirmed:  if you're collecting a (consumer) debt owed to someone else, then you're a debt collector; if you're collecting on a debt owed to you, for your own account, you're not a debt collector, even if, as in Santander's case, you bought the debt from the original creditor with the intention of collecting it for an arbitrage profit later. The notion that Congress did not foresee the debt buying industry and its explosive growth when it wrote the FDCPA in the 1960s, and it certainly would have wanted to constrain abusive collections practices by debt buyers as much as by debt collectors was ... wait for it ... a matter for the present Congress to clarify. You can almost see Scalia whispering in Gorsuch's (or his clerk's) ear as the opinion is drafted. Well, at least there's something to be said for predictability.

Senate Banking Committee Testimony

posted by Adam Levitin

I'm testifying before the Senate Banking Committee this week about "Fostering Economic Growth: The Role of Financial Institutions in Local Communities".  It's the undercard for the Comey hearing.  The big point I'm making are that the problem is not one of economic growth, but economic distribution.  While the US economy has grown by 9% in real terms since Dodd-Frank, real median income has fallen by 0.6%.  That's pretty grim.  The gains have all gone to the top 10% and particularly the top 1%.  

None of the various deregulatory proposals put forward by the financial services industry have anything to do with growth, and they have even less to do with ensuring equitable growth. For example, changing the CFPB from a single director to a commission or switching examination and enforcement authority from CFPB to prudential regulators shouldn't have anything to do with growth.  It's a reshuffling of regulatory deck chairs.  

The banking industry has been doing incredibly well since Dodd-Frank, outperforming the S&P 500, for example.  You'd never know it, however, from their trade association talking points. It really takes a certain kind of chutzpah to demand the repeal of consumer protection laws and laws designed to prevent the privatization of gains and socialization of losses when you are already doing so much better than the typical American family.

My complete written testimony can be found here

The Chimerical Medicare Bar on Bankruptcy Jurisdiction

posted by John Pottow

Statutory interpretation enthusiasts: prepare to nerd out on an issue on which the Court has a cert petition pending.  The question involves the federal jurisdictional bar to Medicare challenges.  Let’s start with the text:

 “No action against the United States, the [Secretary of Health and Human Services, see 42 U.S.C. § 1395ii], or any officer or employee thereof shall be brought under section 1331 or 1346 of title 28 to recover on any claim arising under [the Medicare Act, see § 1395ii].”

Bankruptcy types—and quite frankly, all lucid readers of English—might well think that this jurisdictional bar does not apply to bankruptcy jurisdiction under section 1334.  Not so, say a surprising number of courts.

What could possibly justify reading what’s clearly only a bar of federal question jurisdiction (1331) and federal officer jurisdiction (1346) as a bar to bankruptcy jurisdiction (1334) as well?  In In re Bayou Shores, the subject of the pending cert petition, the Eleventh Circuit offered an argument based on congressional intent.  Until 1984, the precursor to the above-quoted statute did bar bankruptcy jurisdiction.  But it did so obliquely, by way of a statutory cross-reference to a subsequently dismantled omnibus jurisdictional grant in the Judicial Code.  So for a few decades after the dismantlement, the Medicare bar was a cross-reference to a no-longer-existing passage of the Judicial Code that formerly encompassed virtually all grants of jurisdiction to the district courts, including bankruptcy.

When Congress finally got around to updating the bar in the 1980s, it enacted the text above.  Without more, that would just be Congress changing the law from a broad bar cross-referencing all jurisdictional grants to a specific bar covering only two grants.  But there was more: Congress did so as part of a package of self-styled “technical corrections.”  And of these corrections, Congress wrote a proviso that “none . . . shall be construed as changing or affecting any right, liability, status or interpretation which existed (under the provisions of law involved) before [their effective] date.”  To read the amended bar as written would appear to violate this admonition.  The Eleventh Circuit (and others) thus read the proviso to justify junking the statute’s text in favor of the perceived congressional intent not to change anything.

Continue reading "The Chimerical Medicare Bar on Bankruptcy Jurisdiction" »

Taking Online Dispute Resolution To The Next Level

posted by Pamela Foohey

New HandshakeYesterday I purchased a travel alarm clock through Amazon. This morning, the manufacturer emailed me with instructions for its use, including a very important point about switching the travel lock button off to activate the clock. The clock apparently arrives in the locked condition, which has caused some customers confusion and led them to think that the clock was defective when it was not. The email made me think of a recently published book, The New Handshake: Online Dispute Resolution and the Future of Consumer Protection, by Professor (and former Slips guest blogger) Amy Schmitz and Colin Rule, who is the former Director of Online Dispute Resolution for eBay and PayPal.

The New Handshake surveys that current landscape of online dispute resolution and sets out a blueprint for how the Internet can help consumers worldwide deal with disputes arising from their e-commerce transactions. With more and more consumer transactions moving online (ten years ago, I likely would have purchased that travel alarm clock at the-somehow-still-semi-alive Radio Shack), the book's detailed ideas for how to design an effective dispute resolution system is increasingly important for businesses and for consumer advocates. As Schmitz and Rule note, largely gone are the days when transactions were sealed in person with a firm handshake, and class actions seem less and less effective overall -- which leaves both challenges and space to innovate for business and consumers. For my own interests, two parts of the books stood out.

Continue reading "Taking Online Dispute Resolution To The Next Level" »

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