Category: Credit & Debit Cards

  • OCC Preemption Brief Regarding the Illinois Interchange Statute

    Posted by

    Adam Levitin
     
    Compliance with the statute would be an administrative and technological hot mess for card networks. Not surprisingly, the banking industry has challenged the law, and the OCC has weighed in with an amicus brief.  I’m not going to address the policy merits of the Illinois statute here. Instead, my interest is the National Bank Act preemption analysis in the OCC’s brief. Although I think the OCC gets the preemption analysis correct in the end, it makes a concerning claim on the way. 
     

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  • The New Usury: The Ability-to-Repay Revolution in Consumer Finance

    Posted by

    Adam Levitin

    I have a new article out in the George Washington Law Review, entitled The New Usury: The Ability-to-Repay Revolution in Consumer Finance. The abstract is below:

    American consumer credit regulation is in the midst of a doctrinal revolution. Usury laws, for centuries the mainstay of consumer credit regulation, have been repealed, preempted, or otherwise undermined. At the same time, changes in the structure of the consumer credit marketplace have weakened the traditional alignment of lender and borrower interests. As a result, lenders cannot be relied upon to avoid making excessively risky loans out of their own self-interest.

    Two new doctrinal approaches have emerged piecemeal to fill the regulatory gap created by the erosion of usury laws and lenders’ self-interested restraint: a revived unconscionability doctrine and ability-to-repay requirements. Some courts have held loan contracts unconscionable based on excessive price terms, even if the loan does not violate the applicable usury law. Separately, for many types of credit products, lenders are now required to evaluate the borrower’s repayment capacity and to lend only within such capacity. The nature of these ability-to-repay requirements varies considerably, however, by product and jurisdiction. This Article terms these doctrinal developments collectively as the “New Usury.”

    The New Usury represents a shift from traditional usury law’s bright-line rules to fuzzier standards like unconscionability and ability-to-repay. Although there are benefits to this approach, it has developed in a fragmented and haphazard manner. Drawing on the lessons from the New Usury, this Article calls for a more comprehensive and coherent approach to consumer credit price regulation through a federal ability-to-repay requirement for all consumer credit products coupled with product-specific regulatory safe harbors, a combination that offers the best balance of functional consumer protection and business certainty.

     

  • The Proposed Credit Card Interchange Settlement

    Posted by

    Adam Levitin

    The Bleak House of Cards Litigation over credit card interchange fees still isn't ending, but it's hit an interesting inflection point. We're nearly two decades into the case and over a decade from the original proposed settlement. Now there's a proposed injunctive relief class settlement. The settlement's headline figure is $30 billion in savings, but on closer inspection, it's a farcically weak settlement. Credit card interchange fees after the settlement will be 25% higher than when the litigation began. That sort of result is what's called litigation failure.

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  • The Consumer Debt Default Judgments Act

    Posted by

    Melissa Jacoby

    MapConsumer debt has been a difficult topic for uniform state law movements, but here's one more attempt recently approved by the Uniform Law Commission and the American Bar Association, and introduced in Colorado last week.  You can access the materials here. Meanwhile, here is ULC's summary:

    Numerous studies report that default judgments are entered in more than half of all debt collection actions. The purpose of this Act is to provide consumer debtors and courts with the information necessary to evaluate debt collection actions. The Act provides consumer debtors with access to information needed to understand claims being asserted against them and identify available defenses; advises consumers of the adverse effects of failing to raise defenses or seek the voluntary settlement of claims; and makes consumers aware of assistance that may be available from legal aid organizations. The Act also seeks to provide a uniform framework in which courts can fairly, efficiently, and promptly evaluate the merits of requests for default judgments while balancing the interests of all parties and the courts.

    Would welcome Credit Slips posters and readers chiming in on this act in the comments, especially if you were involved in the drafting process and/or if will be weighing in on this act with their state legislatures.

    And for previous recent coverage of other uniform acts being urged on state legislatures, see here and here.

  • Unhappy Campers and Their Credit Cards

    Posted by

    Adam Levitin

    This story about the failure of a company that ships duffel bags to/from sleep-away camps has an interesting payment systems meets bankruptcy angle that got me particularly excited given that I'm teaching payment systems this fall:

    Parents are disputing the Camp Trucking fees with their credit card companies, but so far there haven’t been any resolutions. “We told them they’ll probably become creditors in a liquidation and get 20 cents on the dollar in five years,” said Mr. Aboudara [a camp network director].

    Credit cards offer better purchase protection than any other payment medium, but it's not absolute, and this situation seems to fall into one of TILA's crevasses. 

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  • New Book Alert: Delinquent

    Posted by

    Melissa Jacoby

    Cover ImageThe University of California Press has published Delinquent: Inside America's Debt Machine by Elena Botella. 

    Botella used to be "a Senior Business Manager at Capital One, where she ran the company’s Secured Card credit card and taught credit risk management. Her writing has appeared in The New Republic, Slate, American Banker, and The Nation."

    Here's the description from the publisher between the dotted lines below: 

    ——————

    A consumer credit industry insider-turned-outsider explains how banks lure Americans deep into debt, and how to break the cycle.

    Delinquent takes readers on a journey from Capital One’s headquarters to street corners in Detroit, kitchen tables in Sacramento, and other places where debt affects people's everyday lives. Uncovering the true costs of consumer credit to American families in addition to the benefits, investigative journalist Elena Botella—formerly an industry insider who helped set credit policy at Capital One—reveals the underhanded and often predatory ways that banks induce American borrowers into debt they can’t pay back.

    Combining Botella’s insights from the banking industry, quantitative data, and research findings as well as personal stories from interviews with indebted families around the country, Delinquent provides a relatable and humane entry into understanding debt. Botella exposes the ways that bank marketing, product design, and customer management strategies exploit our common weaknesses and fantasies in how we think about money, and she also demonstrates why competition between banks has failed to make life better for Americans in debt. Delinquent asks: How can we make credit available to those who need it, responsibly and without causing harm? Looking to the future, Botella presents a thorough and incisive plan for reckoning with and reforming the industry.

    ———————

    Looking forward to reading this book! Also expecting to see more from the University of California Press of direct interest to Credit Slips readers in the years ahead. 

  • Chase’s 50% Venmo Transaction Fee

    Posted by

    Adam Levitin

    I teach about the $40 latte–a $5 latte with a $35 overdraft fee–and think I know how to avoid that. But I was pretty shocked when I looked at my Chase credit card statement today and saw the card card equivalent of an outrageous overdraft fee:  $20 in cash advance fees and $0.25 in cash advance interest for two credit-card funded Venmo transactions totaling $40. A 50% fee?  WTF.

    What made this even more shocking was that Chase has never previously charged me fees or interest for Venmo transactions. As recently as July, I have Venmo'd without paying anything more than Venmo's 3% fee for credit-card funded transactions, and my card issuer has not sent me any change of terms notices in the interim. Puzzled, I decided to figure out what was going on. 

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  • The Blurring of Tech and Finance

    Posted by

    Adam Levitin

    I have an op-ed in ProMarkets about how Apple leverages control of the iPhone's NFC chip to push the dominance of its platform into new areas that let it hoover up more consumer data. The NFC (near field communication) chip is what lets the iPhone do contactless payments for ApplePay.  Apple strictly controls access to the NFC chip–it doesn't let AndroidPay use it, for example. But the NFC chip's uses extend beyond payments.  Apple is now using it to let the iPhone operate as a car key and a hotel room key. The catch? If you're a car manufacturer or hotel and you want this cool technology to work with your product, you're going to need to share some of the consumer data with Apple. 

    What we're seeing here is an example of the increased blurring between tech companies and financial services companies, tied together by troves of consumer data.  This is a development that ultimately challenges the traditional regulatory boundaries of FTC and CFPB and is going to raise all sorts of issues for antitrust, consumer protection, and data privacy for years to come.

  • Getting Ahead of Consumer Loan Defaults Post-Pandemic

    Posted by

    Pamela Foohey

    On this Tuesday, the Supreme Court refused to lift a ban on evictions for tenants that the Centers for Disease Control and Prevention recently extended through the end of July. The eviction moratoria is one of a handful of debt pauses put in place by the federal government during the COVID-19 pandemic that are set to expire soon. The student loan moratorium ends on September 30. The mortgage foreclosure moratorium ends on July 31. In anticipation of the end of the foreclosure moratorium, this week, the CFPB finalized new rules that put into place protections for borrowers that servicers must use before they foreclose.

    Student loans and mortgages are most people's two largest debts. But they are not the only large loans that people are in danger of getting behind on post-pandemic. Indeed, when student loan and mortgage debts become due, people may prioritize paying them ahead of car loans, credit cards, and similar. In a new op-ed in The Hill, Christopher Odinet, Slipster Dalié Jiménez, and I set forth how the CFPB can use its legal authority to steer a range of loan servicers to offering people affordable modifications. As a preview, we suggest that the CFPB should issue a compliance and enforcement bulletin directing loan servicers to make a reasonable determination that a borrower has the ability to make all required, scheduled payments in connection with any modification.

    The piece is a short version of our new draft paper, Steering Loan Modifications Post-Pandemic, which we wrote as part of the upcoming "Crisis in Contracts" symposium hosted by Duke Law's Law & Contemporary Problems journal. The paper contains more about what federal agencies already are doing to get ahead of mortgage modification requests, about why similar is needed for the range of consumer loans, and about the reasoning behind our suggestion that the CFPB use its prevent what we term modification failures.

  • Commercial and Contract Law: Questions, Ideas, Jargon

    Posted by

    Melissa Jacoby

    In the Spring I am teaching a research and writing seminar called Advanced Commercial Law and Contracts. Credit Slips readers have been important resources for project ideas in the past, and I'd appreciate hearing what you have seen out in the world on which you wish there was more research, and/or what you think might make a great exploration for an enterprising student. This course is not centered on bankruptcy, but things that happen in bankruptcy unearth puzzles from commercial and contract law more generally, so examples from bankruptcy cases are indeed welcome. You can share ideas through the comments below, by email to me, or direct message on Twitter.

    Also, I am considering having the students build another wiki of jargon as I did a few years ago in another course. Please pass along your favorite (or least favorite) terms du jour in commercial finance and beyond.

    Thank you as always for your input, especially during such chaotic times.