The financial crisis exposed major faultlines in banking and financial markets more broadly. Policymakers responded with far-reaching regulation that created a new agency—the CFPB—and changed the structure and function of these markets.
Consumer advocates cheered reforms as welfare-enhancing, while the financial sector declared that consumers would be harmed by interventions. With a decade of data now available, this Article presents the first empirical examination of the successes and failures of the consumer finance reform agenda. Specifically, I marshal data from every zip code and bank in the United States to test the efficacy of three of the most significant post-crisis reforms: in the debit, credit, and overdraft markets.
The results of my analysis are surprising. Despite cosmetic similarities, these reforms had very different outcomes. Two (changes in the credit and overdraft markets) increase consumer welfare, while the other (in the debit market) decreases it. These findings run counter to prior work by prominent legal scholars and push us to reevaluate our (mis)conceptions about the efficacy of regulation.
The empirical evidence leads me to novel insights for regulatory design. First, banks regularly levy hidden fees on consumers, obscuring the true cost of financial products. Regulators should restrict such practices. Second, consumer finance markets are regressive: low-income customers pay higher prices than their higher-income counterparts. Regulators should address this inequity. Finally, profit-maximizing banks will always discourage regulation by promising its costs will be passed through to consumers. Regulators should not be overly swayed by their dire warnings.
According to the executive summary (emphasis in original):
In much of America, access to a car is all but required to hold a job or lead a full and vibrant life. Generations of car-centric transportation policies – including lavish spending on roads, sprawl-inducing land use policies, and meager support for other modes of transportation – have left millions of Americans fully dependent on cars for daily living.
Car ownership is costly and often requires households to take on debt. In the wake of the Great Recession, Americans rapidly took on debt for car purchases. Since the end of 2009, the amount of money Americans owe on their cars has increased by 75 percent. A significant share of that debt has been incurred by borrowers with lower credit scores, who are particularly vulnerable to predatory loans with high interest rates and inflated costs.
Americans’ rising indebtedness for cars raises concerns for the financial future of millions of households. It also demonstrates the real costs and risks imposed by our car-dependent transportation system. Americans deserve protection from predatory loans and unfair practices in auto lending. Americans also deserve a transportation system that provides more people with the freedom to choose to live without owning a car.
The full report is available here. The full executive summary is available here. The news release is available here.
Scammers who use love to target consumers can take both an emotional and a financial toll on their victims. New complaint data from the Federal Trade Commission shows romance scams generated more reported losses than any other consumer fraud type reported to the agency in 2018.
The FTC reports that romance scammers "often find their victims online through a dating site or app or via social media. These scammers create phony profiles that often involve the use of a stranger’s photo they have found online. The goals of these scams are often the same: to gain the victim’s trust and love in order to get them to send money through a wire transfer, gift card, or other means."
The number of romance scams reported to the FTC exceeded 21,000 in 2018, representing losses totaling $143 million. The median reported loss was $2,600; for people 70 and over, the median loss was $10,000.
Seven million Americans are at least 90 days behind on payments for automobile loans, according to a study by the Federal Reserve Bank of New York. According to the study, more people are now delinquent or late on loan payments than at the height of the 2008 financial crisis.
A blog post by the study's authors is here. The Hill summarizes the report, here.
A New York Times editorial today addresses the proposal by the Consumer Financial protection Bureau to gut the Bureau's own rule protecting low-income borrowers from predatory practices of payday lenders. As the NYT put it, "The federal Consumer Financial Protection Bureau betrayed financially vulnerable Americans last week by proposing to gut rules conceived during the Obama era that shield borrowers from predatory loans carrying interest rates of 400 percent or more."
The editorial explains that "voluminous data collected by the consumer protection bureau showed that the industry’s business model — in which a $500 loan could cost a borrower $75 or more in interest just two weeks later — was built on the presumption that customers would be unable to pay at the appointed time and would be forced to run up the tab by borrowing again."
The editorial suggests that the CFPB's "s abdication of its mandate to protect consumers underscores the need for state usury laws, which have passed in 16 states and offer the surest path to curtailing debt-trap lending."
The full editorial is here. The CFPB's proposed rule is here.
Over the past few years, a LA-based law firm named Higbee and Associates (although it pretentiously labels itself a "National Law Firm") has become identified with a pattern of making aggressive and, in many cases, unsupportable demands for the payment of significant sums of money by individuals and nonprofits whose web sites feature copyrighted graphics, and especially photographs, that they saw online but have never tried to license. The firm’s principal, Mathew Higbee, revels in his reputation for aggressive enforcement tactics. (The interview linked above, for example, is featured on his own firm’s web site.)
Either in concert with a specialized search firm or using his own firm’s software, this firm patrols the Internet looking for graphics (especially photographs) that have been copied improperly from online sources. The firm then sends a demand letter bearing Higbee's signature, threatening to seek up to $150,000 in statutory damages as well as attorney fees unless the target of the letter promptly agrees to pay a specified amount. Deploying a tactic that is all too familiar from the depredations of Evan Stone and Prenda Law, the specified amount is low enough – usually in the low four figures, but I have seen high three figures as well —that it is not likely to be cost-effective for the target to hire a knowledgeable copyright lawyer to litigate an infringement lawsuit, even if the claim is bunk or, at least, if there is good reason to believe that the claim can easily be defended. The letter encloses a document identifying the allegedly infringing use as well as the online location where the work was found; another document that purports to authorize the firm to represent the copyright holder in seeking damages in connection with the work; a proposed “settlement agreement”; and a credit card payment form. If the target of the letter does not respond, or responds without agreeing to pay, then the Higbee firm increases the pressure: a non-lawyer who calls herself a “claim resolution specialist” sends an email warning that the claim is going to be “escalated to the attorneys,” at which point “[t]claim gets more stressful and expensive,” and an assurance that “my goal is to not let that happen to you.”
The links to the documents above all relate to a single Higbee demand to a single target, but I have seen a number of other demand letters and ensuing emails from this firm, and spoken to several other copyright lawyers who have helped clients respond to Higbee’s blustering and threats, and it appears to me that these are pretty standard exemplars. Indeed, when I was reaching out to some other copyright lawyers to try to get their sense of some of the documents I was reviewing, a number of them guessed that it was Higbee based only on what I said I wanted to ask about, based on work they had done for their clients trying to address his threats against them. Plainly, this is a copyright troll with an outsized reputation.
The Demand to Homeless United for Friendship and Freedom (“HUFF”)
As it happens, I had heard recently from colleagues in the copyright law community about threats that Higbee was making to nonprofits when I was contacted by Thomas Leavitt, a former client in a free speech case, about a Higbee demand to Homeless United for Friendship and Freedom (“HUFF”). HUFF is a loose-knit activist group in Santa Cruz, California, that addresses issues of poverty, with specific reference to homelessness. It maintains a blog which, among other things, shows media coverage related to homelessness. On August 6, 2012, the blog reposted an article from the New York Times about a mass detention of migrants in Greece. That article featured a photograph showing an immigrant in the hands of the Greek police. The photograph could be seen in the HUFF blog post, along with the photo credit “Angelos Tzortzinis/Agence France-Presse — Getty Images.” but although the text of the Times article was placed directly on the blog, the photograph appeared only by virtue of deep-linking to the graphic as it appeared on the Times’ own web site, at this address.
More than six years later, on January 2, 2019, Mathew Higbee sent HUFF his demand letter, accompanied by the other documents described above. Several things jumped out at me. First, instead of reciting that the copyright in the photograph had been registered, and either attaching the registration or at least citing the registration number, the letter recited the photo’s “PicRights Claim Number” – a matter of utterly no consequence for the recipient of the demand. The registration number, by contrast, is far more significant in this context, because, for most copyrighted works (the exception is discussed below), a copyright holder cannot bring suit for infringement until the copyright has been registered, and regardless of the exception, a copyright holder cannot seek statutory damages or attorney fees for infringements that take place before registration, or even for infringements that continue after registration unless the copyright was registered promptly after the work was first published. Because this photograph appeared in the New York Times within a day after the photo was taken, and more than six years before the demand letter was sent, a failure to register would have meant that the letter’s warning about statutory damages and attorney fees was an empty bluff meant to intimidate.
Second, the letter was plainly a boilerplate form, containing somewhat stilted language that was poorly adapted to the specifics of HUFF’s claimed infringement. For example, the letter varies back and forth between referring to the recipient in the second and third person singular, suggests that HUFF might have its wages garnished, warns of action against “the business owner,” and refers to “the attached exhibits” even though only one exhibit was attached. Indeed, the “representation agreement” that was provided along with the demand letter, purporting to show that Agence France-Presse, PicRights and a European version of PicRights had authorized Higbee to pursue claims on its behalf about HUFF’s alleged infringement with respect to this specific photograph, did not identify the photograph but simply indicated that Higbee was handling “a copyright infringement matter.”
Third, the exhibit revealed Higbee’s recognition that the “infringing location” for the copyrighted work was not HUFF’s own web site but rather the web site of the New York Times which, presumably had licensed the photograph (I was able to confirm that assumption by contacting the Times’ legal department). And the Court of Appeals for the Ninth Circuit has decided, in Perfect 10 v. Amazon, that Google does not infringe a photographer’s copyright by including images in its search results, because American copyright law does not prevent the “framing” of deep-linked images that actually sit on the server of a party that is entitled to display the photograph and serve copies of the image to visiting viewers; it is only displaying and distributing from the defendant’s own server that violates the copyright laws (the “server test”).
Higbee Retreats Rapidly When Challenged by a Lawyer
Consequently, I wrote back to Higbee, asking directly whether the copyright in the image had been registered, and pointing out some of the legal flaws in his demand letter as well as the bullying email that had been sent as a followup by his "claims resolution specialist," Rebecca Alvarado. I told him that he needed to issue a prompt retraction of the demand, else we would be seeking a declaratory judgment of non-infringement. At the same time, to eliminate any risk that we might be suing a copyright holder that had never actually authorized the making of threats in its name, I reached out to Agence France-Presse’s lawyers in France, and was able to obtain their verification that they had, indeed, authorized Higbee’s threatening communications, and reached out to find local counsel so that we could file suit promptly if that were needed.
What followed was a rapid retreat by Higbee, accompanied by some truculence while, at the same time, he signaled his recognition both that he had no basis for seeking any monetary relief for his client, and that I knew that he hadn’t a leg to stand on. First, he sent me an , dropping PicRights as a client, insisting that he had a viable basis for suing on the image (while implicitly admitting that his client had not registered the copyright), and implicitly dropping as well the demand for $1775; instead, he asked me to make “some reasonable offer” comparable to the cost of filing a federal court complaint ($400) as well as service costs (which would have been free under the waiver of service procedure”). The redacted email address on the cc line was my client’s email, violating his ethical obligations given that the client was represented by counsel. (In a separate email chain, Higbee tried to excuse this violation by claiming that he had no idea I was a lawyer, but I found that statement less than credible, particularly considering that I know of at least one other situation in which his firm made contact with a party after an attorney contacted the Higbee firm on the party's behalf in in response to the demand. Higbee also asked me how a lawyer not belonging to the California Bar could help a California client in a copyright matter. The mere fact that he thought he had to make this point told me how desperate he was getting to avoid the merits).
I responded to his February 1 email with this letter, which explained why the arguments he had put forward in his email could not save his claims. His next responses (shown in this exchange) made clear that he knew he was on the ropes – first he said that a “semi-reasonable offer” would be enough, and then he asked plaintively that at least our client might remove its deep link to the photograph – when I declined he told me that the refusal was “absurd.” In the meantime, I learned about some astonishing developments regarding a demand letter that Higbee had made to a community college professor named Claudia Eckelmann relating to the inclusion of a cartoon in the online syllabus that she had provided for her students’ edification. She responded to Higbee’s demand letter and subsequent bullying emails by filing a complaint against Higbee’s firm in state small claims court (not against the copyright-owning client), seeking a declaration that she did not owe anything. Eckelmann told me that she had immediately taken down the syllabus when the Higbee’s client first contacted her; but apparently that did not appease Higbee’s relentless appetite to squeeze money out of potential targets. Higbee responded by removing the state-court proceeding to federal court, asserting both that the court had subject-matter jurisdiction because the dispute was really about copyright infringement (Higbee seems to have ignored the rule that, for a removal to be proper, federal jurisdiction has to be shown on the face of the state-court complaint, and the state complaint does not make clear whether Eckelmann seeks a declaration of non-infringement or a judgment under state unfair business practices law). Indeed, his notice implicitly suggests, at the same time, that there was no case or controversy because, given Eckelmann’s recalcitrance, his firm had decided to “close” the case. Of course, if there was no case or controversy there would be no Article III jurisdiction to hear the removed case.
I suggested to Higbee that he might extricate Agence France-Presse from the possibility of having to defend against a declaratory judgment action in which it could not possibly recover any significant monetary relief without retracting the demand and thus admitting that it was wrongful, by simply doing the same as what he had done with Eckelmann, declaring the case closed. And that is what he did.
Lessons for dealing with copyright demands from Higbee
Steve Vondran has posted some broad suggestions about how to consider and address copyright demands from Higbee; my ambition here is somewhat narrower. Considering the recent spate of demands from the Higbee firm seeking to enforce non-registered copyrights, the first thing a recipient should do is look to see whether Higbee has claimed that the copyright has already been registered and provided the registration number. If the copyright has not been registered, he cannot bring suit on an alleged infringement unless the work is not a “United States work” – as discussed in my second letter to Higbee, that term refers to any work that was first published in the United States, or first published simultaneously in the United States and abroad (at least, most countries); “simultaneously” is defined by the Berne Convention as meaning within thirty days of each other. To be sure, a copyright owner can register at any time and then sue, but as explained in my first letter to Higbee, such a plaintiff cannot obtain statutory damages and attorney fees for infringements that occurred only before registration, and cannot obtain that relief if registration is effected more than three months after the first publication. That limitation applies even if the photograph was not a United States work. That, to me, is the real explanation for Higbee’s retreat (and his retreat in other cases of which I am aware)- – it costs money to register, and he and his clients cannot make money on the cases if he cannot win statutory damages and attorney fees. So in addition to questions of fair use, the issue of registration is the first matter a recipient of his letters should explore. It is the key to the situation. For Higbee, who repeatedly asked me what he should do better, this is my public response: either stop trying to enforce unregistered copyrights, or at least be honest in your demand letters about the fact that you have no claim for statutory damages and attorney fees, and take those cases on an hourly basis without making deceptive threats to seek statutory damages and fees.
Is Higbee deliberately misleading his targets?
The HUFF matter would have ended with Higbee’s statement to me that he had “closed" the case, as he claimed to have done with respect to Eckelmann, except that, a couple of days later, I received this remarkable email from one of Higbee’s "claims resolution specialisists," Rebecca Alvarado. Here she was, AFTER her boss had "closed the case," responding to my initial email to Higbee on behalf of HUFF, and warning that, despite my points, the “fact is there is a copyright claim on the table” and that she was “willing to work with me to see that the claim is resolved.” She gave me her direct line, so I called her to find out just what resolution she had in mind, as well as what she might tell me about the nature of the firm’s practice.
The call was enlightening. Unlike Higbee, who never directly responded to my question about whether the copyright was registered, and claimed to have some basis for arguing that statutory damages could be sought even despite his client’s apparent failure to register the copyright in timely fashion, Alvarado made no bones about the facts that the copyright was unregistered and that statutory damages were hence not available; instead, she told me, defensively, that the demand letter did not say that statutory damages would be sought, but only that these might be “possible” in some circumstances. She told me that her client was only seeking actual damages, in terms of the lost licensing fee — but she could not tell me what that licensing fee was (so, how could she “resolve” the copyright claim?). And she admitted that her firm’s business model involves paying its clients a fractional share of the moneys that they wring out of their victims. She told me that she did not know what the fraction was, but Higbee told Fast Company that clients who came to him through a no-longer-existing service called “Copypants” received 50% of the financial gain. Moreover, he boasted as well that some 75% to 80% of the targets who receive his demand letters pay him without having to be taken to court. With numbers like that, it is no wonder that an otherwise reputable copyright holder like Agence France-Presse is apparently willing to give him free rein to represent that he is proceeding on its behalf. Considering his abuses, however, this company ought to be ashamed of using an enforcement representative like Higbee.
It is hard not to have concerns about his apparent overreaching. When he sends demand letters with respect to non-registered copyrights, he has no business referring to the possibility of an award of $150,000 in statutory damages as well as attorney fees, which are legally precluded. In the course of preparing this article, I spoke to a number of legitimate copyright lawyers who told me that, when they send demand letters claiming infringement on behalf of their clients, they would never refer to statutory damages in a demand letter if registration has not been effected in a timely fashion. The use of the word “possible” is not likely to save the firm from the conclusion that their demand letters deliberately convey a misleading impression. This problem is exacerbated by what appears to be the standard followup email from paralegals such as Alvarado who tell victims that the dispute is about to become ”more stressful and expensive” if the matter is “escalated to the attorneys,” while portraying themselves as the good cops who can save the victims from the bad cops.
As I see it, Higbee is skating at the ethical edge here. If he does this on a regular basis, as it appears he does, he may will be leaving himself vulnerable to a class action claim from victims to his bullying who have paid him based on such misleading representations.
When Higbee and I had a telephone conversation about his “closing” the case against HUFF, he made the remarkable statement, plainly intended to portray himself as a good guy about whom I was getting the wrong impression, that the reasons why he was closing the case against HUFF, and why he had closed the case against Eckelmann even though she had defied his firm without the aid of counsel, (and against another of my clients), was that the firm undertakes careful screening when a situation is moved to “the litigation track.” It was that screening, he said, that revealed that HUFF’s and Eckelmann’s uses were entirely non-commercial.
The plain implication from this statement was that no such screening had taken place before the demand letters went out. When I told him I saw this implication, he was quick to deny it, saying that his firm also screens cases before demand letters are issued. However, he could not explain what the nature of the pre-demand-letter screening had been in any of these cases, or how he had missed what should have been obvious on the face of each situation. And besides, if three-quarters to four-fifths of all recipients of his demand letters pay up without contesting potential liability, how much comfort can we draw from the claim that there is more careful screening at a later stage?
In addition, I have been in touch with Agence France-Presse’s counsel in Europe about their enforcement strategies. Their explanations relate entirely to a desire to present large businesses from using their content without paying license fees. But it appears that Higbee is using their imprimatur to do much more than go after businesses, and that Agence France-Presse is profiting from unjustified demands made to targets well beyond the big businesses they claim to be targeting. This company should, as I see it, be held to account in the court of public opinion if not in other courts for its complicity in Higbee’s enforcement schemes.
Not All of Higbee’s Claims to Enforce Copyright Are Equally Sleazy
Despite what I have discussed above, there is a core of legitimacy to some aspects of Higbee’s practice. There are too many Internet users who assume that the mere fact that an image is sitting in an open location online is a sufficient reason to copy that image and paste it onto their own web sites. That assumption is simply not correct. Indeed, photographers earn a living by taking photos, developing them in an attractive and compelling manner, and selling copies, or the right to make copies, or allowing others to disseminate or display their work. Creators of content deserve to be paid.
One of Higbee’ longstanding clients, for example, is a photographer named Alexander Wild who specializes in photographs of insects; a number of Higbee’s cases are brought against pest-control companies who use Wild’s images without a license. These companies deserve what happens to them when they get sued, and the copyright eco-system is well-served by the existence of the Higbee’s practice, which stands as a warning that copying that cannot be..
In 2017, the Consumer Financial Protection Bureau issued a rule to protect borrowers from payday lending practices that harmed consumers. Today it proposed to eliminate several important protections that it earlier adopted to prevent industry practices from trapping low-income people in cycles of debt. I have not yet had a chance to read proposal in full. The CFPB's announcement, with a link to the proposed rule, is here. Coverage by the Washington Post is here.
In an en banc decision late last week, the U.S. Court of Appeals for the Ninth Circuit held that a San Francisco ordinance requiring ads for sugar-sweetened beverages to warn of the link between overconsumption and obesity violates the First Amendment.
The decision indicates that the Supreme Court's decision last term in National Institute of Family and Life Advocates v. Becerra, which struck down California's disclosure requirements applicable to clinics that offer some pregnancy-related services but not others, is likely to have significant effects on cases involving more traditional commercial speech disclosure requirements.
Although the Ninth Circuit stated that Becerra did not change the law applicable to commercial speech disclosure requirements, the court held that the decision did require it to strike down San Francisco's requirements as unduly burdensome.
The decision is likely to prompt more challenges to government mandated health and safety warnings benefiting consumers.
The Consumer Financial Protection Bureau today filed a proposed settlement with several payday lenders: NDG Financial Corp., E-Care Contact Centers, Ltd., Blizzard Interactive Corp., New World Consolidated Lending Corp., New World Lenders Corp., Payroll Loans First Lenders Corp., New World RRSP Lenders Corp., Northway Financial Corp., Ltd., and Northway Broker, Ltd., as well as several corporate officials.
The CFPB alleges that the defendants, all based in Canada and Malta, violated the Consumer Financial Protection Act "by misrepresenting to consumers in states where loans offered by the defendants violated state licensing or usury laws that they were obligated to repay loan amounts when such an obligation did not exist because state law voided the loan." The defendants also misrepresented that the loan agreements were not subject to United States federal or state law; misrepresented that non-payment of debt would result in lawsuits, arrests, imprisonment, or wage garnishment; and conditioned loan agreements upon irrevocable wage assignment clauses, which the Bureau alleges violated the Credit Practices Act.
Under the agreement, the defendants are permanently barred from advertising, marketing, promoting, offering, originating, servicing, or collecting any consumer loan issued to any consumer residing in the United States.