postings by Pamela Foohey

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.

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New Report on Car Insurance Redlining

posted by Pamela Foohey

Empirical studies have shown that minorities pay more for goods and services, and that they pay more to finance their purchases of those goods and services -- for instance, through subprime home and auto loans. Machine Bias, a new study from ProPublica and Consumer Reports, adds car insurance premiums to the list of what minorities can expect to pay more for. The study uses zip codes to analyze auto insurance premiums and payouts in four states, California, Illinois, Texas, and Missouri. It finds that major insurers charge up to 30% more in minority neighborhoods as compared to white neighborhoods with the same risk profile. The results mean that where someone lives matters even more, and could have devastating consequences on upward mobility. When faced with budget-busting car insurance bills, do people give up the cars they need to get to work? Or do they go out without necessities, such as food and medicine, so they can pay their car insurance premiums?

New Article from the Consumer Bankruptcy Project: Attorneys’ Fees and Chapter Choice

posted by Pamela Foohey

Many of us on Credit Slips have been part of the Consumer Bankruptcy Project (CBP), a long-term research project studying people who file chapter 7 and 13 bankruptcy. Several years ago, some of us blogged about the writings from the last CBP iteration in 2007.  In 2013, the CBP was relaunched as an ongoing data collection effort. The CBP’s current co-investigators – myself, Bob Lawless, Katie Porter, and Debb Thorne – recently posted “No Money Down” Bankruptcy, the first article analyzing data from the Current CBP (data from 2013-2015), combined with 2007 CPB data. The article focuses on the timing of when debtors are required to pay their bankruptcy attorneys to report on the increasingly prevalent phenomenon of debtors paying nothing in attorneys’ fees before filing chapter 13.

This nationwide phenomenon raises questions about how people are accessing bankruptcy and the extent of the benefits they receive from the system. The phenomenon also explains some prior findings about the intersection of race and bankruptcy filings. And it adds to our knowledge about regional disparities in the percentage of people who file chapter 7 versus chapter 13 bankruptcies.

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Two Books About Selling Math and Its Consequences for Inequality

posted by Pamela Foohey

EconomismOver at Consumer Law & Policy Blog, Jeff Sovern recently discussed James Kwak's new book, Economism: Bad Economics and the Rise of Inequality, which mounts a convincing case against the blind application of Economics 101 to important policy questions, such as healthcare, international trade, the minimum wage, mortgages and other financial products, and taxes. Kwak details the consequences of "economism," which he defines as "the belief that a few isolated Economics 101 lessons accurately describe the real world." Kwak analogizes using economics in this way to justify widening socioeconomic inequality to prior century's reliance on religion and applications of Darwinian evolution to justify the social order of those times. Part of the lure of economism, and how it can be used as an effective justification, is that it seemingly is grounded in math. And math appears to many as absolute, complicated, and scary. 

Weapons of Math DestructionWhich made me think of another relatively new book, Cathy O'Neil's Weapons of Math Destruction: How Big Data Increases Inequality and Threatens Democracy. O'Neil chronicles the repercussions of relying on algorithms fed by big data to assess everything from grade school teachers' effectiveness to credit worthiness to which households politicians should target during election campaigns. When not used properly, these "weapons of math destruction" can entrench and perpetuate inequality.

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Scarcity, Money, and Undocumented Immigrants

posted by Pamela Foohey

Scarcity refers to having less than one needs -- time, money, calories when on a diet. For example, not having enough money reduces a person's cognitive capacity as much as missing one full night of sleep. When Scarcity, by Sendhil Mullainathan and Eldar Shafir, was published, Slipster Katie Porter connected its lessons about the mental tax of not having enough to adding a "cushion" to a chapter 13 plan. And now, Slipster Nathalie Martin's recently published paper, Survival in the Face of Scarcity: The Undocumented Immigrant Experience, uses her hour-long interviews with 50 undocumented immigrants living in Albuquerque, New Mexico to explore how their acute financial scarcity impacts their lives. Though the paper is focused on undocumented immigrants, some of the lessons of the narrative that Martin weaves apply equally to all cash-strapped people.

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How Consumers Use the CFPB's Complaint Function

posted by Pamela Foohey

I recently posted to SSRN my new article, Calling on the CFPB for Help: Telling Stories and Consumer Protection (Law & Contemporary Problems, forthcoming 2017). In the article, I survey a random sample of consumers' narratives detailing their complaints about consumer credit and financial service providers, with the goal of assessing how people engage with the complaint function in light of how the CFPB processes complaints. In short, consumers submit complaints via the CFPB's website and by phone, the CFPB forwards the complaints to companies, and the companies are required to respond. That the CFPB does not respond to complaints in the first instance may come as a surprise to some consumers, despite the CFPB's websites’ prominent statements about where it sends complaints. Importantly, the CFPB is not the only federal or state agency that maintains a complaint function. The DOJ, FTC, and other agencies similarly take complaints from constituents, and likewise often do not respond directly to the complaining individuals. Identifying when and how people are not understanding how their complaints will be processed may provide agencies an opportunity to further help constituents and to augment how they meet their goals.

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Linking Pyramid Schemes (aka Multilevel Marketing Companies) and Consumer Bankruptcy

posted by Pamela Foohey

A couple weeks ago, on Last Week Tonight, John Oliver started what promises to be the greatest pyramid scheme ever. In an effort to help him, watch the segment here (warning: language). More seriously, multilevel marketing companies that sell products directly to customers through salespeople working out of their homes (Herbalife, Amway, Nu Skin, the relatively new Rodan + Fields) operate by way of a concerning sales structure. Salespeople recruit salespeople, who recruit more salespeople, who recruit yet more salespeople. The salespeople at the top make money off of the salespeople at the bottom. And the salespeople at the bottom often are left with stockpiles of soon-to-expire product in their homes and garages. Indeed, as noted by John Oliver, in July of this year, Herbalife consented to a $200 million settlement with the FTC in which they agreed to change their business tactics. When asked about Herbalife's business model, FTC Chairwoman Ramirez said, "they were not determined not to be a pyramid."  

Now, the potential (probable?) connection to bankruptcy filings. There is evidence that people sign up to sell these products because they need to make extra money--which makes sense. Signing up to be a salesperson for a multilevel marketing company could be one of many coping tactics used by someone hopelessly deep in debt. Get a second job, sell some belongings, go without insurance or food . . . and try to sell products from your home. People may get the idea from friends or financial gurus. For instance, Dave Ramsey's website has a page titled, "Guide to Joining a Multilevel Marketing Company," which includes some of the same inspirational, "go-getter," pull yourself up by your own bootstraps, you hold the key to your own success language that accompany Facebook posts that try to entice people to join Rodan + Fields. Of course, that means it is your fault when you fail, right?

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CFPB Consumer Complaint Narratives: What They Say About Bankruptcy

posted by Pamela Foohey

The Consumer Financial Protection Bureau's consumer complaint database has contained narratives for over a year now. Each month, the CFPB publishes a report that summarizes the complaints received over the previous three months, and that focuses on a specific product and geographic area. (The latest report was published on August 31.) The higher-level summary offered by these reports is interesting and I have referenced them in class on occasion.

The consumer complaint narratives tell as interesting, but often different stories. However, they are harder to sort through systematically. In preparation for a symposium, I recently took a random sample of complaints with narratives published in the year period between May 2015 and April 2016. Having now read thousands of narratives, one trend stood out to me rather quickly -- narratives that talked about the consumer's prior bankruptcy or a relative's bankruptcy. About 5% of the narratives discuss bankruptcy.

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

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