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07/19/2018

CFPB’S Arbitration Rule Under Scrutiny in Report from Cause of Action Institute

Washington, DC – July 19, 2018 – Cause of Action Institute (CoA Institute) today released a report on the failure of the Consumer Financial Protection Bureau (CFPB) to conduct a proper study on its arbitration rule, which banned certain corporations from using pre-dispute arbitration clauses in their consumer credit contracts. CoA Institute Case Study on the CFPB’s Arbitration Rule: How the Bureau Evaded Scientific Guidelines and Bypassed Peer Review—And How to Fix It examines the failings of the arbitration study and offers solutions to ensure future policy is informed by sound science.

The rule was overturned by Congress and President Trump in February of 2018, but lasting change is needed to CFPB’s analytical approach to prevent future rules from being based on weak science. President Trump nominated Kathy Kraninger as the new potential CFPB director and, just today, July 19, she had her nomination hearing. If confirmed, she needs to immediately take steps to ensure that the CFPB follows the law when conduct future studies and promulgating rules.

CoA Institute attorney Eric R. Bolinder said, “The CFPB not only had to adhere to the orders of Congress in Dodd-Frank to do the study, it was also required to follow the Information Quality Act and Office of Management and Budget guidelines on peer review. The Bureau ignored both. Accountability is needed to keep this too-powerful agency in check.”

As CoA Institute’s report explains:

In the Dodd-Frank Act, Congress delegated to the CFPB the power to study and regulate, if necessary, mandatory-binding arbitration clauses in consumer financial contracts. This power came with an important caveat: the CFPB must first conduct a study on the effect arbitration clauses have on consumers, and any regulation promulgated by the agency must be based on that study. The CFPB already had the goal in mind to regulate and ban these arbitration clauses, driven largely by internal bias and promoted by third-party interests. Instead of conducting an objective study backed by peer-reviewed data, the agency sought a pre-determined result, abusing junk science and methodology to get there.

See the report and more about this issue here.

For any media inquiries, contact media@causeofaction.org.

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07/19/2018

CoA Institute Case Study on the CFPB’s Arbitration Rule: How the Bureau Evaded Scientific Guidelines and Bypassed Peer Review—And How to Fix It

 

Executive Summary

The Consumer Financial Protection Bureau (“CFPB” or “Bureau”) is an agency unlike most any other in the history of the United States.  It possesses untold power over the American people and businesses, and the heft of this power is in a single agency director accountable to no one.  As Judge Kavanaugh of the U.S. Court of Appeals for the D.C. Circuit held in a since-vacated decision, “the Director enjoys more unilateral authority than any other officer in any of the three branches of the U.S. Government, other than the President.”[1]

In the Dodd-Frank Act of 2010, Congress delegated to the CFPB the power to regulate, if necessary, mandatory-binding arbitration clauses in consumer financial contracts.  This power came with an important caveat: the CFPB must first conduct a study on the effect arbitration clauses have on consumers, and any regulation promulgated by the agency must be based on that study.  Yet the CFPB already had the goal in mind to regulate and ban these arbitration clauses, driven largely by internal bias and promoted by third-party interests.  Instead of conducting an objective study backed by peer review, the agency sought a pre-determined result, abusing junk science and methodology to get there.  In doing so, it ignored the requirements of the Information Quality Act (“IQA”) and the ensuing Office of Management and Budget (“OMB”) bulletin requiring agency peer review.  This paper examines the failings of the arbitration study and offers solutions to the potential new agency head to ensure future policy is informed by sound science.

Recommendations

The best way to curtail the CFPB’s abuse of junk science is to force the agency to follow the standards contained within the IQA and the OMB peer review bulletin.  If the CFPB were to strictly adhere to the IQA’s standards of data quality—objectivity, integrity, and utility—and conduct rigorous, academic peer review, outcomes like the one detailed in this paper would be avoided.

Cause of Action Institute (“CoA Institute”) recommends that the new CFPB Director, once confirmed, immediately institute rulemaking actions to codify these already-mandatory requirements of the IQA and peer review.  This should apply to all studies or scientific findings released by the agency, whether they undergird a rule or not.[2]  Although the Director could just order agency personnel to follow these directives through a memorandum, that would only be a temporary solution.  Rulemaking under the Administrative Procedure Act (“APA”) would ensure that these science-based requirements have more permanence and apply regardless of who is running the agency five years from now.[3]  Furthermore, the new Director should require, whether through rulemaking or otherwise, that all published scientific findings be accompanied by full disclosure of outside datasets, sources, and lobbying.

Eric Bolinder is Counsel at Cause of Action Institute

[1] PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1, 7 (D.C. Cir. 2016), vacated on reh’g en banc, 881 F.3d 75 (D.C. Cir. 2018); see Consumer Fin. Prot. Bureau v. RD Legal Funding, LLC, No. 17-890, 2018 WL 3094916, at *35 (S.D.N.Y. June 21, 2018) (“Respectfully, the Court disagrees with the holding of the en banc court and instead adopts Sections I-IV of Judge Brett Kavanaugh’s dissent[.]”).
[2] This, of course, would extend to any scientific findings that are part of a proposed rule.
[3] A future Director could institute rulemaking to reverse the requirements, but that is a cumbersome process subject to judicial review.

 

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07/19/2018

CoA Institute Joins Amicus Brief Challenging Qualified Immunity

Washington, DC – July 19, 2018 – Cause of Action Institute (“CoA Institute”) has joined a Supreme Court amicus brief in support of the petitioner seeking a writ of certiorari in Allah v. Milling. The brief argues that qualified immunity denies justice to victims of government misconduct, imposes prohibitive and unjustified costs on civil-rights litigants, and harms law enforcement officials by eroding public trust.

“Preserving the fundamental liberties afforded by our Constitution remains a critical priority in today’s policing environment. The notion of qualified immunity has grown from the bench and is not rooted in our founding charter. Some form of meaningful redress for those admittedly injured by police errors must be available,” noted John Vecchione, President and CEO of Cause of Action Institute.

From the amicus brief:

[Q]ualified immunity often bars even those plaintiffs who can prove their case from remedying a wrong: harm, but no foul. Qualified immunity thus enables public officials who violate federal law to sidestep their legal obligations to the victims of their misconduct. In so doing, the doctrine undermines the public’s trust in those officials—law enforcement in particular—making on-the-ground policing more difficult and dangerous for all officers, including that vast majority who endeavor to uphold their constitutional obligations.

The amicus brief is available here.

About Cause of Action Institute

Cause of Action Institute is a 501(c)(3) non-profit working to enhance individual and economic liberty by limiting the power of the administrative state to make decisions that are contrary to freedom and prosperity by advocating for a transparent and accountable government free from abuse.

For more information, please contact Nichole.VanValkenburg@CauseofAction.org

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07/19/2018

EPA responds to House OGR Democrats, arguing FOIA “sensitive review” originated with the Obama Administration

Earlier this week, Democrats on the House Oversight and Government Reform Committee (“OGR”) released details about how officials from the Environmental Protection Agency (“EPA”) admitted to subjecting politically sensitive Freedom of Information Act (“FOIA”) requests to layers of extra scrutiny, including review by political appointees.  OGR Ranking Member Elijah Cummings even asked Chairman Trey Gowdy to issue a subpoena compelling the EPA to hand over various records documenting its FOIA processes.

Since Cause of Action Institute’s (“CoA Institute’s) coverage of this issue on Monday, there have been two important developments.  First, on Tuesday, Chairman Gowdy denied OGR Democrats their request for a subpoena.  Second, and more importantly, reports have revealed that Kevin Minoli, the EPA Principal Deputy General Counsel and Designated Agency Ethics Official, sent a letter to OGR Democrats on Sunday, arguing that the agency’s sensitive review policies actually originated with the Obama Administration.

According to Minoli, the EPA created a “FOIA Expert Assistance Team,” or “FEAT,” in 2013 to provide “strategic direction and project management assistance” on “complex FOIA requests.”  Minoli explained that a FOIA request could be classified as “complex,” for FEAT purposes, if someone in the agency’s leadership requested it to be so.  FEAT coordinated “White House equities” review and also alerted the Office of Public Affairs, as well as “senior leaders” within the EPA, of particularly noteworthy requests through its so-called “awareness review” process.

The EPA’s latest clarification vindicates CoA Institute’s repeated warnings (here and here) not to let political judgments about the Trump EPA’s policy agenda interfere with understanding and criticism of long-standing problems of FOIA administration, including the politicization that inevitably results from “sensitive review” processes.  To be sure, it appears the Trump Administration has worsened the problem, particularly at the EPA.  But the groundwork for this sort of FOIA politicization was laid by President Obama.  Indeed, Minoli claims OGR’s investigative work during the Obama-era was part of the then-Administration’s impetus for creating FEAT.

Regardless of which party or president is responsible for introducing FOIA sensitive review at the EPA or any other agency, the practice still raises serious concerns.  Although alerting or involving political appointees in FOIA administration does not violate the law per se—and may, in rare cases be appropriate—there is never any assurance that the practice will not lead to severe delays of months and even years.  At its worst, sensitive FOIA review leads to intentionally inadequate searches, politicized document review, improper record redaction, and incomplete disclosure.  When politically sensitive or potentially embarrassing records are at issue, politicians and bureaucrats will always have an incentive to err on the side of secrecy and non-disclosure.

Considering these developments, CoA Institute has submitted a FOIA request to the EPA seeking further information about FEAT and the agency’s sensitive review policy.  We will continue to report on the matter as information becomes available.

Ryan P. Mulvey is Counsel at Cause of Action Institute.

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07/17/2018

CoA Institute Moves for Summary Judgment in TABOR Case Challenging Hospital Tax

Cause of Action Institute has moved for summary judgment asking the Colorado state district court to rule that, as a matter of law, Colorado violated the Taxpayer’s Bill of Rights (TABOR) and other constitutional provisions when it levied $4.5 billion in hospital taxes without a vote of the people.

TABOR requires that the state legislature obtain Coloradans’ consent before it raises taxes. This constitutional amendment was approved by the voters in 1992 and it continues to be a leading issue in election races statewide.  It was designed not only to restrain the growth of government, but also to give Coloradans a voice when lawmakers attempt to reach into their pockets. Yet since its passage, legislators and governors of both parties have consistently refused to ask voters for more money. Instead, they use convoluted tactics to avoid using the ballot to raise taxes. Some of these tactics include mortgaging state buildings, eliminating tax breaks, and trying to disguise tax increases as fees administered by “enterprises,” state-run entities whose revenues do not count towards TABOR’s revenue cap.

This practice might make it easier for legislators to spend, but it runs contrary to the will of the voters, of whom only 26% disapprove of TABOR. And there is little reason to believe that voters will never approve a tax increase; a ballot measure in 2015 allowing the state to keep $67 million it had over-collected won with wide voter support.

In 2009, as the Affordable Care Act neared passage, the legislature enacted a hospital provider tax, which exploits the federal Medicaid fund-matching scheme to draw down more money to the state. Normally, when a state reimburses a health care provider who gives medical services to a patient who can’t afford healthcare, the federal government matches some percentage of those costs. But with the hospital provider tax in place, the hospital’s costs are artificially increased. When reporting that cost to the federal government, the state then receives matching funds for the inflated price of healthcare, rather than the actual cost to the hospital.

This scheme doesn’t just amount to quasi-money laundering – it also creates perverse incentives for hospitals, who might not choose the most cost-effective care, and legislators, who use Medicaid expansion to fill state coffers.

The scam worked well for the better part of a decade, but in 2016, the state was facing a budget crunch; the newest round of taxes was expected to take Colorado’s revenue collection past the TABOR cap, and it seemed likely that the governor would have to cut funds to higher education or transportation, an essential budget item in a snow-heavy state like Colorado. The governor could have instead cut the fee on the hospitals, but that would have decreased the federal matching funds.

Rather than send a revenue increase to voters for permission, as TABOR requires, the legislature and the governor instead passed SB 17-267, subtitled “Concerning the sustainability of rural Colorado.” The bill, among other things, set up the Colorado Healthcare Affordability and Sustainability Enterprise (CHASE). As with many of Colorado’s enterprises, CHASE was an attempt by the state legislature to avoid its duties under TABOR. To exempt the hospital provider tax from the TABOR revenue cap, the legislature threw an ill-fitting “enterprise” label onto the administration of the tax and the federal matching funds.

In response to this attempt to dodge accountability to the public, the TABOR Foundation, a non-profit educational organization whose mission is to protect TABOR, sued CHASE and the Colorado Department of Health Care Policy and Financing in 2015. According to Penn Pfiffner, President of the TABOR Foundation:

“The Hospital Provider program was built on a lie, then made much worse. The people should get a final vote on tax increases and new government debt, but that was taken from them in a dishonest power grab by elected officials.”

The Foundation argues that the Hospital Provider Charge was a tax that had been levied without the requisite TABOR vote, and that CHASE is an illegal enterprise because its fees are not charged to hospitals based on services provided.

Recently, Cause of Action Institute took on the representation of the TABOR Foundation and the other plaintiffs in the case and will request summary judgment from the Colorado district court. Hopefully, this suit at minimum will indicate to lawmakers that the state might find tax policy to be less onerous (and litigious) if, next time, they simply follow their state constitution and ask voters for permission.

Yesterday’s motion for summary judgment can be viewed here.

Jake Carmin is a law clerk at Cause of Action Institute.

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07/16/2018

Follow the Coverage: TABOR Foundation v. Colorado Dep’t of Health Care Policy & Financing

Updates:

 

In The News:

 

 

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07/16/2018

EPA Chief of Staff describes agency’s sensitive review process for “politically charged” FOIA requests

Democrats on the House Oversight and Government Reform Committee (“OGR”) revealed new details last week about the processing of politically sensitive Freedom of Information Act (“FOIA”) requests at the Environmental Protection Agency (“EPA”).  According to The Hill, Ryan Jackson, Chief of Staff to former Administrator Scott Pruitt and current Acting Administrator Andrew Wheeler, explained to “congressional investigators” how “‘politically charged’ or ‘complex’ requests . . . get an extra layer of review before being fulfilled, likely delaying” production of requested records.  Jackson specifically discussed how the EPA determined that one Sierra Club FOIA request—described as a “fishing expedition”—was improperly broad.  Other requests were delayed so that the disclosure of responsive records could “coincide with similar releases.”  This politicization also benefitted requesters sympathetic to the Administration; one request from the National Pork Producers Council was “expedited” due to Jackson’s intervention when he set up a meeting with EPA policy officials.

Reports about FOIA politicization at the EPA are not new.  At the beginning of May 2018, Politico reported that “top aides” had leaked internal emails showing the role of officials within the Office of the Administrator in reviewing “documents collected for most or all FOIA requests regarding [Pruitt’s] activities[.]”  The apparent aim of this “sensitive review” was to limit the release of embarrassing or politically damaging records.  House Democrats at OGR stepped into the game in early June 2018, demanding various records concerning the EPA’s policies for implementing the FOIA.  To date, the agency has pointed only to publicly available records, thus prompting Ranking Member Elijah Cummings to ask Chairman Trey Gowdy to exercise his subpoena authority and compel a substantive response.  (Incidentally, the EPA has previously ignored congressional records requests about FOIA politicization, as we explained in May 2014.)

The entire transparency community should be concerned over the heightening of sensitive review at the EPA.  But it also is important to keep politics from clouding our understanding and criticism of the practice.  As I wrote in May 2018:

It is true that the Trump Administration has enhanced sensitive review processes at the EPA.  Other agencies have witnessed a similar expansion of sensitive review, as Cause of Action Institute’s investigation of the National Oceanic and Atmospheric Administration demonstrates.  But it would be a mistake—as I argued last December—to think that the Obama White House was any better at avoiding FOIA politicization.  The EPA has a long and terrible track record for anti-transparency behavior.  Consider the agency’s blatant weaponization of fee waivers.  According to data compiled by the Competitive Enterprise Institute, and reported by Reason and The Washington Examiner, the Obama EPA regularly denied public interest fee waivers to organizations critical of the agency’s regulatory activities and the White House’s policy agenda.  By contrast, left-leaning groups nearly always (92% of the time) received fee waivers.

Sensitive review, along with other forms of FOIA politicization, such as “White House equities” review, is a cherished tradition for both the Left and the Right.  Regardless of which party controls the Executive Branch, the natural tendency will always be to keep embarrassing or politically sensitive records out of the hands of the public and—most especially—the news media.  Cause of Action Institute itself was regularly subject to “sensitive review” during President Obama’s tenure, and we continue to be singled out for “special” treatment under President Trump, as records from the Federal Aviation Administration have shown.  Regardless, we remain committed to exposing the practice of sensitive review and advocating for reform to combat all FOIA politicization.

Ryan P. Mulvey is Counsel at Cause of Action Institute.

 

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