Here's what all of the commentary I've read has overlooked. Signatures are utterly irrelevant to consumers except to the extent that the slow down the transaction. (Ok, they also require those germaphobes among us to touch a shared pen when we were doing just great with a contactless NFC transaction). The signature requirement has ZERO effect on consumer liability. Federal law already limits consumer liability on unauthorized credit card transactions to $50. But that $50 liability only applies if (1) it is an "accepted card" and (2) the card issuer has provided a means to identify the cardholder, and those limitations mean that consumers are rarely, if ever, actually liable for unauthorized credit card transactions. Put another way, the statute says $50, but it is basically saying $0.
Category: Credit & Debit Cards
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Call for Commercial Law Topics (and Jargon!)
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For the spring semester, I am offering advanced commercial law and contracts seminar for UNC students, and have gathered resources to inspire students on paper topic selection as well as to guide what we otherwise will cover. But given the breadth of what might fit under the umbrella of the seminar's title, the students and I would greatly benefit from learning what Credit Slips readers see as the pressing issues in need of more examination in the Uniform Commercial Code, the payments world, and beyond. Some students have particular competencies and interests in intellectual-property and/or transnational issues, so specific suggestions in those realms would be terrific. Comments are welcome below or you can write us at bankruptcyprof <at> gmail <dot> com.
We also are going to do a wiki of commercial law jargon/terminology. So please also toss some terms our way through the same channels as above (or Twitter might be especially useful here: @melissabjacoby).
Thank you in advance for the help!
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Visa’s Maginot Line: Chip Cards and the Equifax Breach
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The media attention on the Equifax breach has been primarily on consumer harm. There's real consumer harm, but it's generally not direct pecuniary harm. Instead, the direct pecuniary harm from the breach will be borne by banks and merchants, and it's going to expose the move to Chip (EMV) cards in the United States without an accompanying move to PIN (as in Chip-and-PIN) to be an incredibly costly blunder by US banks. Basically, Visa, Mastercard, and Amex have built the commercial equivalent of the Maginot Line. A great line of defense against a frontal assault, and totally worthless against a flanking assault, which is what the Equifax breach will produce.
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Guess Who’s Supporting Predatory Lending?
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Guess who’s sponsoring legislation to facilitate predatory lending? It’s not just the usual suspects from the GOP, but it looks like a number of centrist “New Democrats” are signing up to help predatory financial institutions evade consumer protections.
Yup, you heard me right: Democrats. Ten years after the financial crisis, it seems like we’ve gone back to the mistakes of the Clinton years when centrist Democrats rode the financial deregulatory bandwagon. What I’m talking about is the McHenry-Meeks Madden “fix” bill, the “Protecting Consumers’ Access to Credit Act of 2017”. The bill effectively preempts state usury laws for non-bank finance companies like payday lenders in the name of ensuring access to credit, even if on extremely onerous terms.
Right now there's only one Democratic co-sponsor, but others seem to be preparing to join in. They shouldn't, and if they do sign onto this bill, it should only be in exchange for some solid consumer protections to substitute for the preempted state usury laws. This bill should be seen as a test of whether New Democrats "get it" about financial regulation. I'm hoping that they do. If not, perhaps its time to find some new Democrats.
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Supreme Court Strikes Down State No-Surcharge Law
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The Supreme Court ruled today in Expressions Hair Design v. Schneiderman. The Court unanimously ruled for the merchant plaintiff that was challenging New York State's no-surcharge law on the basis that a law criminalizing credit surcharges (but not cash discounts) was impermissibly vague. The Court declined to rule on the plaintiff's First Amendment challenge because the Second Circuit Court of Appeals had held that New York law regulated conduct, not speech, so the Court of Appeals had never considered whether there was a First Amendment violation if the pricing was a form of speech. The Supreme Court determined that the law regulates speech and remanded the First Amendment issue to the Court of Appeals.
Five Justices were on the majority opinion with a pair of concurrences driven by procedural concerns (Alito + Sotomayor) or a fear that the case will be used as a precedent for attacking economic regulation via the First Amendment (Breyer).
Technically the opinion is narrow, as it addressed only an as-applied challenge based on a pricing regime in which two prices are simultaneously listed, with neither labeled a surcharge or discount, but I suspect that the effect of the opinion will be much broader. If, on remand, the plaintiff's First Amendment argument is accepted (and I suspect it will be), the opinion will be pretty important in terms of development of payment systems. Prior to today there were two obstacles to effective price discipline on consumer payment choice: state no-surcharge laws and credit card networks' merchant rules. The state no-surcharge laws are gone now, leaving only the card networks' merchant rules. MasterCard and Visa had previously agreed to substantially rollback their rules on surcharging in an overturned class action settlement. It's going to be hard for them to argue against making that concession now, unless they are willing to admit that it wasn't previously made in good faith because they knew that surcharging wouldn't be used on any scale in the presence of state no-surcharge laws.
Congratulations to Deepak Gupta, who quarterbacked this litigation!
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John Oliver and Consumer Law YouTube Videos
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I’m trying something new this year. My consumer bankruptcy policy seminar students will read many great articles by many wonderful academics on this blog, as well as others, but this year, their “reading” will also include a great deal of YouTube.
90% of the videos are John Oliver segments from his excellent show on HBO, Last Week Tonight. They cover particular “products” (student loans, credit reports, debt buying, payday loans, auto loans, retirement plans and financial advisors) and middle class issues (minimum wage, wage gap, wealth gap, paid family leave).
I thought Credit Slips readers might enjoy seeing them all in one place. Here they are in no particular order. Let me know if I’ve missed any!
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Digital Wallets: The Honor All Devices Rule
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Every wondered how ApplePay works? What the whole deal with Chip cards is? Those contactless readers at stores? If you're looking to nerd out on 21st century payment technology…and its legal and business implications, look no further. I have a new paper out entitled Pandora’s Digital Box: Digital Wallets and the Honor All Devices Rules. The paper was commissioned by the Merchant Advisory Group, a retail industry trade association that focuses on payment issues. The paper, which benefitted from interviews with the payments teams from a number of the largest merchants in the US, covers the range of technologies known as "digital wallets," including mobile wallets like ApplePay and Samsung Pay (with the magnetic stripe emulation). The paper focuses on the potential benefits, but particularly the risks posed by digital wallets to merchants, and the legal implications, which are primarily antitrust issues.
The basic issue with digital wallets is that they aren't all the same in terms of costs and benefits, but merchants have to accept them equal on an all-or-nothing basis. Digital wallets involve lots of different technological and business arrangements that affect security, control over data, control over customer relationships, IP litigation risk, choice of payment method, and cost of payment. Some wallets are very attractive to merchants; others less so. Merchants, however, cannot accept digital wallets selectively or condition the terms of acceptance for particular wallets. This is because Visa, MasterCard, and American Express all have so-called "Honor All Devices" rules that require merchants to accept payments without discrimination from all devices using any technology accepted by the merchant. The arrangement has the nasty (but probably not coincidental) effect of foreclosing entry to digital wallets that offer cheaper payments, such as those that use PIN debit or ACH.
If this sounds a bit like a redux of the Honor All Cards rule and the two previous monumental rounds of antitrust litigation that produced (first on the tying of signature-debit and credit, second on the tying of different credit products, among other things), well, you're right. The problems that arise with the Honor All Devices rule show that things have not been properly resolved in terms of anticompetitive behavior in the payment card space, and the issues are just migrating over to new technologies.
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The Financial Lives of Undocumented Immigrants
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We know little about the financial lives and credit constraints of undocumented immigrants, partly because they are such a difficult to reach population. But Slips contributor Nathalie Martin gained access to this population in Albuquerque, New Mexico, interviewed 50 immigrants, and recently published a paper that provides an important glimpse into how this population handles money and finances. As the paper's title — Giving Credit Where Credit Is Due: What We Can Learn from the Banking and Credit Habits of Undocumented Immigrants — suggests, this population is leery of taking out credit, despite having so little income and savings that unexpected expenses quickly can become financial crises.
One of the most interesting, but expected findings is this population's extremely low level of savings. When asked if they could handle an unexpected expense of $100, three-quarters of respondents (37 of the 50) said they could not. But the majority of interviewees also expressed serious concerns with taking out credit, including via credit cards and the almost inevitable title loans (and payday loans, but most payday loans require a bank account, which a majority of respondents did not have). Indeed, they stated that they would rather ask family and friends for help, including help in trying to find work, which adds nuance to what we know about low-income individuals' feelings about relying on family and friends to deal with unexpected expenses (for instance, see Laura Tach and Sara Greene, Robbing Peter to Pay Paul). Martin's paper also contains data about how undocumented immigrants think about what ultimately often are legal problems and using (or not using) the legal system. Taken together, the paper provides a needed first glimpse into the financial lives of a subset of people who are in the country.
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How Backpage Is Different from Choke Point
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The Seventh Circuit Court of Appeals recently slammed Cook County Sheriff Thomas Dart for his actions trying to get Mastercard and Visa to stop processing payments for Backpage, an advertising website whose ads include various adult services (some legal, some not). The Backpage decisions has been taken as an indication of the strength of the legal case by some payday lenders against the FDIC, OCC, and Fed over Operation Choke Point.
Unfortunately, Judge Posner got it wrong in Backpage because he incorrectly assumed facts not in the record. But even if he got it right, there's a lot that differentiates Operation Choke Point (whose name does, unfortunately, sound like it might be from an adult ad on Backpage).
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The Myth of the Disappearing Free Checking Account
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A regular trope sounded by opponents of consumer financial regulations is that the regulations have resulted in the disappearance of free checking. Whether it's the Durbin Interchange Amendment, the CFPB, or the Dodd-Frank Act in general, all are variously blamed for the supposed demise of free checking. As it turns out, free checking is a little like Mark Twain–reports of its death have been greatly exaggerated. Most Americans with bank accounts report paying nothing for their services. The prevalance of such respondents has actually increased since 2010, from 53% to 61% of respondents.