Clarence Thomas Voted With Liberals in a Big Consumer Rights Case. Why?

From today’s Slate Magazine:

On Tuesday, the Supreme Court issued a surprising 5–4 decision in Home Depot v. Jacksonthat progressive advocates view as a win for consumers and class actions. The lineup in Home Depot was unusual: Justice Clarence Thomas wrote the majority opinion, joined only by the liberals; the other conservatives dissented. Home Depot marked the second time this term that Public Justice, a public interest advocacy firm, has triumphed at SCOTUS. Earlier this year, the firm won a unanimous victory in New Prime v. Oliveira, an important labor rights case. How did it nab Thomas’ vote this time around?

The story of Home Depot is a tale of greed, grift, and civil procedure. It centers on a scheme that involved three companies: Home Depot, Citibank, and Carolina Water Systems Inc. Here’s how it allegedly worked. Representatives from Home Depot or CWS called homeowners and claimed that “contaminants” were found in nearby tap water. They urged homeowners to let them perform a test for “contaminants,” which was really just a test for water hardness; almost all tap water tested positive, even if it was perfectly safe. But CWS told homeowners the positive result proved their water was unsafe and required a $9,000 water purification system that other companies sell for $1,400. The company then told homeowners they had been approved for a Home Depot–branded Citibank credit card, which they could use to pay for the system with deferred interest.

George Jackson got suckered into this alleged scam and, like many others, couldn’t afford to pay off the charges he put on the credit card to pay for the overpriced water purification system. A company representative allegedly told Jackson the Citibank card had zero interest for two years—but in fact, the interest rate jumped to 25.99 percent after one year. Jackson couldn’t afford to pay, so Citibank sued him in state court to collect the debt. Eventually, he secured the representation of consumer protection lawyers who filed a counterclaim against Citibank, as well as class-action claims against Home Depot and CWS on behalf of about 290 other homeowners targeted by the alleged scam. He claimed that the companies, working together, had violated North Carolina laws prohibiting unfair and deceptive trade practices.

Home Depot promptly tried to move the case from North Carolina court to federal court—a typical corporate tactic, since federal courts are widely considered to be more business-friendly than state courts. F. Paul Bland, the executive director of Public Justice who argued Home Depot at the Supreme Court, told me that there’s a strong perception among most corporations that “federal courts are more hostile to consumer class action.” Federal judges “are overwhelmingly former prosecutors, corporate lawyers, and law professors,” and “very few ever represented a consumer or worker against a corporation.” By comparison, “about 40 percent of state court judges were plaintiffs’ lawyers.” State courts, as a result, are considered much friendlier to consumer class actions, hence Home Depot’s desire to get the case before a federal judge instead.

Republican lawmakers also think state courts are too favorable toward class actions, which is why the GOP-controlled Congress passed the Class Action Fairness Act in 2005. CAFA was designed to expand the kinds of class actions that corporations could move from state to federal court. It has, Bland said, “been a great boon to corporate America.” And predictably, in response to Jackson’s claims, Home Depot argued that CAFA allowed it to move the entire case out of North Carolina court and get it before a federal judge.

But Home Depot had a problem. Under a long line of cases going back to the 1940s, only a defendant can move a case from state to federal court. And a defendant is defined as the party sued by the original plaintiff. Here, Jackson is the defendant; remember, Citibank sued him to collect the debt he owed—that’s how the whole case started. Under the usual rules, then, Home Depot can’t escape North Carolina court.

Read the complete article here.

Op-Ed: Consumer rights are worthless without enforcement by the state

From today’s San Francisco Chronicle:

57 years ago, President John F. Kennedy made an impassioned pitch for stronger consumer rights.

“If consumers are offered inferior products, if prices are exorbitant, if drugs are unsafe or worthless, if the consumer is unable to choose on an informed basis, then his dollar is wasted, his health and safety may be threatened, and the national interest suffers.”

Kennedy offered these words of warning on March 15, 1962, a date now celebrated as World Consumer Rights Day. He then called on Congress to enact legislation to protect four fundamental consumer rights: the right to safety, the right to be informed, the right to choose and the right to be heard.

The address has become known as the “consumer bill of rights.” But Kennedy also discussed an equally important issue: how such rights would be enforced. After all, without enforcement, consumer rights are just empty promises.

Consumer rights flourish

The idea of consumer rights was nothing new in 1962.

As I describe in my research on the history of consumer credit regulation, the states took an early interest in protecting ordinary Americans against abuse by lenders and debt collectors, beginning in the earliest days of the republic. Most adopted usury laws limiting the price of credit in the colonial period, exemption laws shielding property from seizure by creditors in the 19th century and more tailored consumer credit regulations in the early and middle 20th century.

What was noteworthy about Kennedy’s address was not his push for more consumer rights, but rather his call for the federal government – “the highest spokesman for all the people” – to act on behalf of consumers instead of ceding the role of consumer protector to the states.

Congress heeded Kennedy’s call and passed a flurry of consumer legislation.

In the 1960s and ‘70s, it required lenders to clearly disclose loan terms through the Truth in Lending Act, mandated fair credit reporting and debt collection practices, created safety standards for cars and other consumer products, and banned discrimination in housing and consumer lending. More recently, in 2010, Congress created the Consumer Financial Protection Bureau and tasked the agency with guarding consumers against unfair, deceptive or abusive acts and practices in financial services.

The states also reinforced their decades-old consumer laws in the 1960s and ’70s by banning unfair and deceptive acts and practices under state “UDAP” laws.

Accordingly, consumer rights today are far more robust than they were when JFK gave his speech. To be sure, new business practices regularly require that existing laws be updated to address unanticipated threats.

But the biggest challenge today is not the need for new consumer rights. Rather, it is ensuring that existing rights are enforced.

Legal fee recovery and class actions

There are basically two ways to enforce a consumer right: privately with a lawsuit or publicly via regulators.

The biggest barrier to effective private enforcement is financial. First of all, the harm to an individual consumer from a rights violation is often small, reducing the economic incentive to sue. Secondly, to sue in court, a consumer generally requires the assistance of an attorney, who must be paid. Finally, even if the individual goes to court and wins, the damage award is frequently too insignificant to deter the violator from engaging in profitable but illegal practices in the future.

Fortunately, two legal innovations have helped consumers overcome some of these hurdles.

One, rules allowing prevailing plaintiffs to recover attorneys’ fees, expanded with the raft of consumer rights legislation of the late 1960s. These provisions gave consumers the right to recover the costs of their legal representation along with any actual damages for some rights violations.

The other was the birth of the modern class action lawsuit in 1966, which allowed consumers who suffer similar monetary harms to aggregate their claims into a single large lawsuit, leading to multimillion dollar settlements.

Public enforcement

The other way to give consumer rights teeth is through public enforcement. And besides the potential for monetary awards, this method opens the door to other types of remedies for consumers.

For example, the New Jersey attorney general recently sued two auto dealerships, alleging that they sold damaged vehicles at unaffordable prices to “financially vulnerable” customers who were then left stranded when the dealers repossessed the cars without advance warning. The complaint seeks to ban the violators from selling car in the future, in addition to monetary relief.

Enforcement shortfalls

Recent developments, however, raise concerns about the future of consumer rights enforcement through both public and private channels.

The strength of public enforcement is subject to the whims of state and federal officials, who may reduce enforcement resources or refuse to bring enforcement actions.

A prime example is the weakening of the Consumer Financial Protection Bureau, which from 2011 through 2017 helped millions of consumers receive nearly $12 billion back from misbehaving financial institutions. A recent study found that CFPB enforcement activity has declined significantly since the end of 2017, when Richard Cordray, its first director, stepped down.

Paper tigers

Compared with 1962, when President Kennedy put consumer concerns on the national agenda, ordinary Americans now have far more robust rights to safety, to information, to choice and to a fair hearing.

But consumer rights do not enforce themselves. Public enforcement requires funding and willing leaders. Private enforcement requires legal devices that allow consumers to pay attorneys for their work.

Without an ongoing commitment to enforcement, consumer rights may become paper tigers, offering the appearance of protection without any teeth.

Read the complete article here.

“Unqualified” Trump appointee set to take over consumer protection agency

From today’s Los Angeles Times:

If all goes according to Republican plan, this is the week a person with no experience in consumer protection will take over the consumer watchdog agency that the party has been steadily weakening to the point of irrelevancy.

Kathy Kraninger, a White House budget official, received the green light for final approval last week after Republican senators shut down debate on her nomination with a party-line vote of 50 to 49. The only wild card is whether memorial services for former President George H.W. Bush will delay action by a few days.

Kraninger would replace White House budget chief Mick Mulvaney, who has been leading the Consumer Financial Protection Bureau on an interim basis and fulfilling President Trump’s pledge to make the agency friendlier to the businesses it was intended to crack down on — banks, payday lenders and others.

“If the Senate approves this unqualified acolyte of Mick Mulvaney, who has no consumer protection or financial regulation experience, expect her to simply follow his playbook,” said Ed Mierzwinski, senior director of the federal consumer program for the U.S. Public Interest Research Group.

That means Kraninger will “leave service members and their families at the mercy of predatory lenders, work with payday lenders to eliminate the payday lending rule even Congress was afraid to vote to repeal, and reduce enforcement penalties, if any, to parking tickets, not punishments,” he said.

Read the complete article here.

Student Loan Watchdog Quits, Says Trump ‘Turned Its Back’ On Borrowers

From today’s NPR News:

The federal official in charge of protecting student borrowers from predatory lending practices has stepped down.

In a scathing resignation letter, Seth Frotman, who until now was the student loan ombudsman at the Consumer Financial Protection Bureau, says current leadership “has turned its back on young people and their financial futures.” The letter was addressed to Mick Mulvaney, the bureau’s acting director.

In the letter, obtained by NPR, Frotman accuses Mulvaney and the Trump administration of undermining the CFPB and its ability to protect student borrowers.

“Unfortunately, under your leadership, the Bureau has abandoned the very consumers it is tasked by Congress with protecting,” it read. “Instead, you have used the Bureau to serve the wishes of the most powerful financial companies in America.”

The letter raises serious questions about the federal government’s willingness to oversee the $1.5 trillion student loan industry and to protect student borrowers.

Read the complete article here.

Senators urge CFPB not to ‘abandon’ duty to protect troops, families

From today’s Military Times:

In the wake of reports that a key federal consumer protection agency is considering pulling back from efforts to protect service members from predatory lenders, 49 senators have signed a letter asking for a commitment that the bureau will continue to ensure troops are protected.

The Consumer Financial Protection Bureau “should not be abandoning its duty to protect our service members and their families” the senators wrote in a Wednesday letter to Mick Mulvaney, director of the Office of Management and Budget, and acting director of the Consumer Financial Protection Bureau. The lawmakers — all 48 Senate Democrats and independent Vermont Sen. Bernie Sanders — asked for a commitment that the CFPB will use “all of the authorities available to the CFPB to ensure that service members and their families continue to receive all of their [Military Lending Act] protections.”

Rather than actively examining lenders’ records to determine whether they are following the law under the Military Lending Act, several sources say the CFPB instead would rely on complaints from service members and their families to trigger potential investigations. CFPB officials reportedly have expressed a concern that they don’t have the authority to conduct these lender examinations, although they have been doing so for years.

According to the CFPB, their enforcement actions have resulted in about $130 million that has been provided in relief to service members, veterans and their families.

The possible change was first reported in the New York Times. The move wouldn’t change the law itself, only the enforcement techniques. In the past, some lenders have expressed concern to Military Times about what they perceived as aggressive and unfair practices by the CFPB.

Read the complete article here.

56 years later, JFK’s call for a consumer bill of rights is forgotten under Trump

From the Los Angeles Times:

On this day in 1962, President Kennedy laid out in a speech to Congress the framework for a consumer bill of rights and the crucial role the federal government must play in protecting those rights.

Kennedy’s call to arms is now marked every March 15 as World Consumer Rights Day, which seeks to advance “guidelines for consumer protection”backed by the United Nations.

Yet over half a century later, the current occupant of the Oval Office, President Trump, a wealthy businessman, is aggressively pursuing policies that undermine each of Kennedy’s declared rights.

So it’s worthwhile asking: Is it too late to change course? Have corporate interests prevailed?

Read the complete article here.

CFPB to reconsider rule on payday loans

From CNN Money Edition:

The watchdog agency said in a statement Tuesday that it intends to “reconsider” a regulation, issued in October, that would have required payday lenders to vet whether borrower can pay back their loans. It also would have restricted some loan practices.

If the rule is thrown out or rewritten, it would mark a major shift for an agency that had zealously pursued new limits on banks and creditors before Mick Mulvaney, President Trump’s budget director, became the CFPB’s acting director.

Mulvaney took over the top job at the CFPB in November following a leadership scramble. A vocal critic of the CFPB when it was run by President Obama appointee Richard Cordray, Mulvaney since said the agency would cut back on burdensome regulations.

Tuesday’s announcement does not amount to a formal repeal of the payday lending rule. But it does cast doubt on whether it will ultimately be implemented.

Payday loans provide those in need with small amounts of cash — typically between $200 and $1,000. The money needs to be paid back in full when a borrower receives his or her next paycheck, and such loans often come with exorbitantly high interest rates.

Consumer advocates that have supported the CFPB’s restrictions on the loans say such transactions often take advantage of people in desperate financial situations.

“The CFPB thoroughly and thoughtfully considered every aspect of this issue over the course of several years,” Karl Frisch, executive director of progressive group Allied Progress, said in a statement. “There is no reason to delay implementation of this rule — unless you are more concerned with the needs of payday lenders than you are with the interests of the consumers these financial bottom-feeders prey upon.”

The sentiment was echoed in a statement by Sen. Elizabeth Warren, a Democrat who helped create the CFPB.

“Payday lenders spent $63,000 helping Mick Mulvaney get elected to Congress and now their investment is paying off many times over. By scrapping this rule, Mulvaney will allow his campaign donors to continue to generate massive fees peddling some of the most abusive financial products in existence,” Warren said.

Read the complete article here.

Bad news for American consumer rights, as CFPB director announces departure

Richard Cordray, the head of Consumer Financial Protection Bureau, is stepping down at the end of the month. The bureau was created in the wake of the financial crisis and has recovered $12 billion from financial firms on behalf of consumers, but Republicans have fought Cordray and the bureau, claiming its very existence is illegal and that it has harmed consumers by stifling lending.

Listen to the NPR Roundtable discussion about his announcement, and what it means for American consumers here.

Federal consumer protection agency announces reform agenda for 2014

From the New York Times by Tara Siegel Bernard:

The Consumer Financial Protection Bureau, which has already overcome considerable political resistance, has managed to pack some punches in the last few months on behalf of the purchasing public it represents.

In December, the agency ordered refunds by major companies for misleading business practices: American Express, more than $59 million; GE Capital Retail Bank, up to $34 million. A joint settlement with Ocwen Financial totaled about $2 billion. The list goes on.

And on Friday, new mortgage rules and consumer protections went into effect that were part of the financial overhaul bill that created the agency, which opened its doors just over two years ago.

Yes, there’s a new sheriff in town. But the true test of the consumer watchdog’s mettle will be in the year ahead, when the agency is set to take on several thorny issues that are likely to draw more resistance from the financial services lobby and give more impetus to Republican opponents in Congress who continue to try to reduce the bureau’s power. As recently as November, a House committee passed several bills to do just that.

(The agency’s new director, Richard Cordray, whose confirmation was being blocked by Republicans, was finally confirmed in July, two years after his appointment by President Obama.)

Consumer advocates say they will be watching several big issues closely, including something called forced arbitration, which amounts to waiving the right to sue in some kinds of cases, as well as debt collection and overdraft charges.

The consumer agency has already begun studying all of these areas, but how far it will go remains to be seen. Several consumer advocates, consumer law experts and others have weighed in on what they would like to see the agency accomplish in the year ahead on these issues and others: Arbitration, Overdraft Fees, Debt Collection, Student Loans, and Credit Report Disputes.

Click here to read the entire article.