CL&P Blog

The Haggler, Deception, and Google

by Jeff Sovern

The Sunday Times Haggler column took on lead generation companies in the context of Seattle emergency locksmiths.  As David Segal (the Haggler) explained:

Last Tuesday, the Haggler typed “emergency locksmith Seattle” into a browser, and the top results — most notably, the seven that appeared in the highly coveted Google Places spots, which are marked on an area map — appeared to be lead gen sites.

That is to say, they are not locksmiths at all, but phone banks that dispatch locksmiths.  So what, you might say.  According to Segal "Some are legitimate, but others may all too often do shoddy work and/or charge two or three times the estimate."  And if you are seeking a Seattle locksmith, would you rather call someone who works in your city and so depends on local good will, or a service that might be located far away that has no such interest, and that has attained prominence on Google by gaming its algorithm? Consumers reading such listings are deceived into think they are calling a locksmith, but they are really calling a phonebank.  Segal observes that this practice is not limited to Seattle or locksmiths, by the way.

Google is fighting such efforts, and Segal reports that state attorneys general have also become involved.  But maybe it's time for Congress to look into improper lead generation practices and consider legislation to prevent them.

Have Law Schools Violated Consumer Protection Laws?

Law professors have been buzzing about the graduate of Thomas Jefferson Law who brought a class action against the school under a UDAP statute for allegedly misrepresenting its placement statistics (a compendium of articles can be found here).  In addtion, 

Joel F. Murray

, a graduate of Cal-Davis, argues in Professional Dishonesty: Do U.S. Law Schools That Report False or Misleading Employment Statistics Violate Consumer Protection Laws? that law schools that report inaccurate figures are violating the FTC Act.  He urges the FTC to investigate.  Here's the abstract:

This paper examines the potential legal application of the Federal Trade Commission Act (FTC Act) to American Bar Association (ABA) accredited law schools. In recent years, evidence has emerged indicating that many law schools are misreporting or falsifying employment statistics in marketing materials and to the U.S. News Rankings and World Report law school rankings, the preeminent rankings for United States (U.S.) law schools. The reporting of false or misleading employment statistics to prospective students may violate provisions of the FTC Act that prohibit deceptive practices and false advertising. This paper reviews evidence that U.S. law schools are misreporting employment statistics, examines how the FTC Act applies to U.S. law schools, and argues that U.S. law schools that misreport or falsify employment statistics violate multiple provisions of the FTC Act.

 

Adam Levitin on the Mortgage Servicing Settlement

Over at Credit Slips, Adam Levitin has this lengthy, eye-opening post on the mortgage servicing settlement negotiations based on his analysis of internal documents that have been made public. Among other things, he concludes that the documents reflect an estimate that "the banks made $24B from servicing fraud. That's the largest consumer fraud in history. This isn't just some chump game with cutting corners on affidavits. It's that doing that (and lots of other bad stuff) has saved the banks $24B in costs."  He surmises that "the negotiations are over a substantially bigger figure than $20B. And this explains everything about the banks' negotiating strategy including the recent attacks on Elizabeth Warren by the Wall Street Journal's editorial page and by Congressional Republicans on the CFPB."  While you're there, check out this other recent post by Levitin sketching out what he calls a broad "anti-consumer agenda," ranging from AT&T v. Concepcion to attacks on the CFPB.

 

More on the Fed/OCC Robosigning Report and Orders

The joint report of the federal bank regulators (including FHFA, the Fannie/Freddie regulator) and Consent Orders with 14 major banks, LPS and MERS, while framed in typical cautious language, are remarkable in their implications, while somewhat disappointing in ultimate outcome.  Whatever one’s view of the remedy, the breadth of the indictment should not be overlooked.   The agencies selected fourteen banks not on the basis of suspected robosigning, but based on their concentration of servicing and foreclosure volume.  The fourteen banks handle 36 million mortgages, or two-thirds of the market.  All fourteen flunked their exams.

All fourteen banks were found to have systematically engaged in robosigning, i.e. filing false court affidavits with improper notarizations, and to have inadequately staffed and supervised foreclosure and loss mitigation functions, on a scale that threatened their safety and soundness.  All fourteen are now subject to public enforcement action, a step that regulators, especially the OCC and most especially the Federal Reserve, usually regard as a last resort.   All of the banks, of course, announced in late 2010 or early 2011 that they had completed internal reviews and corrected the problems; the agencies’ public consent orders among other things represent a clear finding that those self-reviews did not do the job.  It bears repeating that not a single one of the banks was able to persuade its regulator that it either had not engaged in systematic false court filings, or had sufficiently corrected the problem before the review. 

Texas considers exempting real estate brokers from its consumer protection statute

by Richard Alderman

For most consumers, their home is the most expensive purchase they will make. It is also is the transaction with the greatest potential for problems.  A consumer who is mislead or deceived with respect to the purchase of a home is likely to suffer substantial economic harm. It is a good thing that in Texas, real estate brokers, agents and salespersons are subject to the Texas Deceptive Trade Practices Act [DTPA]. The DTPA imposes liability for such wrongful conduct, allows recovery of economic damages, damages for mental anguish, and possible punitive damages, and mandates attorney’s fees to a prevailing consumer. At least this is the law today.

The Texas Legislature currently is giving serious consideration to a bill to exempt real estate brokers, agents and salespersons from liability under the DTPA. Why?  Because they are sued too much. Apparently, the fact that consumers successfully use the DTPA against false, deceptive and misleading conduct in connection with the single largest purchase they make requires we no longer apply that law.  What’s good for business is good for Texas. 

UDAP Statutes Used Against Books

by Jeff Sovern

Kevin Jon Heller of the Opinio Juris blog has a post about the troublesome practice of using UDAP statutes against book authors and publishers in connection with the content of their books.  Heller writes about the suit against former President Jimmy Carter and the publisher of his book Palestine: Peace Not Apartheid for, according to the plaintiffs, publishing inaccurate information about Israel.  This strikes me as a perversion of deceptive trade practices statutes which are intended to prevent deceptive speech in selling products, rather than claims in books.  It obviously also raises First Amendment issues; UDAP statutes are constitutional because states can regulate commercial speech within boundaries, but this speech is not commercial.  The appropriate response to inaccuracies in books is more speech, not a UDAP claim.  (HT: Charles Bobis)

Kwikset v. Superior Court: Victory, Made in California

by Ted Mermin

  In a closely watched case, the California Supreme Court on Thursday issued a decision preserving the broad availability of the state’s principal consumer protection laws in cases involving mislabeled goods.

The question at issue in Kwikset v. Superior Court (Benson) was whether a consumer who has bought a product that was mislabeled -- a “union-made” shirt that was in fact manufactured in a sweatshop, “organic” produce that was grown with pesticides, or (as in this case) a “Made in the USA” lockset that had actually been partly manufactured in Taiwan and Mexico -- may bring suit under the Unfair Competition Law (UCL) and the False Advertising Law (FAL). 

Proposition 64, passed by referendum in 2004, inserted in both laws a requirement that a private plaintiff have “lost money or property.”  But what if the product the customer received was perfectly functional even if it wasn't what the customer had ordered?  Was there still a loss of money or property?  The Court of Appeal thought not: since the item received was of equal value, plaintiffs had not “lost money” and therefore could not bring a claim under the UCL or FAL.
 
  The California Supreme Court, however, disagreed. 
 
The Supreme Court held that neither the language nor the logic of Prop 64 precluded suits by consumers who did not get what they paid for. “Plaintiffs who can truthfully allege they were deceived by a product’s label into spending money to purchase the product, and would not have purchased it otherwise, have ‘lost money or property’ within the meaning of Proposition 64 and have standing to sue.”  It doesn't matter that to some other people, or by some objective measure, the mislabeled product is worth as much as the one the consumer expected.  What matters is the consumer’s subjective valuation.

Ray Brescia Paper on the Robo-Sign Scandal and UDAP Statutes

Raymond H. Brescia of Albany has written Leverage: State Enforcement Actions in the Wake of the Robo-Sign Scandal.  Here's the abstract:

In the fall of 2010, in one of the largest scandals to ever hit the American court system, information gathered from lawsuits across the country revealed that tens of thousands of foreclosure filings were likely fraudulent - if not outright criminal. These revelations sparked a nation-wide investigation by all 50 state attorneys general to assess not only the extent of the scandal and its potential impacts but also potential legal and policy responses to such behavior. One of the tools at the state attorneys general’s disposal that might rein in this behavior includes each state's Unfair and Deceptive Acts and Practices (UDAP) laws. Such laws typically prohibit "unfair" and "deceptive" practices and often give consumers, as well as state attorneys general, the ability to bring affirmative litigation to rein in practices that violate their terms. UDAP laws serve a critical consumer protection function by filling in gaps in the law where other, more targeted statutes might not cover practices that have a harmful impact on consumers. Since their inception, UDAP laws have been used to rein in abusive practices in such areas as used car sales, telemarketing and even the sale of tobacco products. This paper explores the availability of UDAP laws and the remedies they provide to rein in the range of practices revealed in the so-called "robo-sign scandal." It concludes that such practices - the false affidavits, reckless claims and improper notarizations - all violate the essence of most state UDAP laws; accordingly, the remedies available under such laws may be wielded by state attorneys general to halt abusive foreclosure practices throughout the nation. Such remedies include civil penalties, actual and punitive damages, attorney's fees and injunctions. What's more, UDAP actions in light of robo-sign abuses could help chart a path towards a more robust mortgage modification regime, one that would result in principal reduction, which is the clearest path out of the current crisis.

Elizabeth Warren's Speech to the Bankers

by Deepak Gupta

Last week, Elizabeth Warren went into the lion's den, giving a dinner speech in Washington to the Financial Services Roundtable -- the banking industry's lobbying group. According to one account, she gave a "tough speech to bankers, comparing them to 'snakes' and their lending practices to 'garbage.'"

Or at least that's how the speech was characterized by certain news outlets. But if you go beyond the headlines and actually read the text of the speech, what you'll find is that Warren outlined a pragmatic, principles-based approach to regulation that contrasts sharply with a heavy-handed regime focused on technical disclosure requirements. Drawing inspiration from the SEC's first chairman, banker Joe Kennedy (pictured), Warren explained how smart regulation can create opportunities for good business to thrive. The heart of her speech focused on a proposal put forward by the Financial Services Roundtable itself:

Regulation can take two obvious forms: Regulators can make more pronouncements from on high, identifying suspicious practices in the various markets and banning them. Or regulators can layer on more disclosure requirements. But neither restores customer trust. In one case, it becomes the job of the agency to highlight industry shortcomings and pile on more and more “thou shalt not” rules, and, in the other case, consumers are hit with even more paperwork— and a growing suspicion that the game is rigged against them. . . .

But I’m here tonight to talk about an alternative recommended by the Financial Services Roundtable three and a half years ago: a principles‐based approach.

Instead of creating a regulatory thicket of “thou shalt nots,” and instead of using ever more complex disclosures that drive up costs for lenders and provide little help for consumers, let’s measure our success with simple questions. Your first principle is “Fair treatment for consumers.” I’ll paraphrase your explanation of how to tell if that principle has been met: Can customers understand the product, figure out the costs and risks, and compare products in the marketplace? Regulators should be aiming toward the goals you laid out.

Instead of layering on regulations that don’t fully protect consumers, a better approach would focus on how to give consumers the power to make the right choices for their families—and, at the same time, to ease the regulatory burden for the lenders. Best of all, if we do this right, perhaps together we can reassure families that the people in this room have met their own goal of fair treatment and that they should be treated as trusted friends.

More on Warren's vision for the new agency, below the jump.

Deception and the CFPB

by Jeff Sovern

The Dodd-Frank Act gives the Consumer Financial Protection Bureau the power to adopt regulations prohibiting deceptive, unfair, and abusive acts, and to bring actions against covered entities that are engaging in such acts.  Dodd-Frank defines unfair and abusive, but not deceptive.  So what qualifies as deceptive? 

One of the canons of statutory construction, the Doctrine of Presumed Adoption, says that when a legislature copies from another statute, it is presumed to adopt interpretations of that statute, unless the legislature says otherwise.  That suggests Congress intended the CFPB to use the same standard the FTC created and articulated in its 1983 deception policy statement: that conduct is deceptive if it is likely to mislead the consumer acting reasonably in the circumstances.

But one of my students, Carey Alexander, has brought to my attention a different argument.  Carey pointed out that § 4301(c)(2) of H.R. 4173, the House version of what became Dodd-Frank, included the following:

2) DECEPTIVE ACTS OR PRACTICES- Any determination by the Director and the Agency that an act or practice is deceptive shall be consistent with the policy statement adopted by the Federal Trade Commission pursuant to section 5 of the Federal Trade Commission Act and dated October 14, 1983.

That language did not end up in the final version of Dodd-Frank.  That suggests that Congress was open to the CFPB using a different definition of deceptive.  It may also be relevant that until 1983, the FTC framed its standard for deception differently: conduct was said to be deceptive if it had a capacity or tendency to deceive the credulous consumer.  The Congressional decision to omit the language quoted above from the final law permits the inference that Congress would find it acceptable for the CFPB to use the pre-1983 FTC standard--or perhaps still another standard.  Moreover, the policies pertaining to deception in the financial context are arguably different from those in conventional consumer transactions because consumer financial transactions tend to be more complex than other consumer transactions--which argues for finding deception more easily.

Given Chevron deference, it is likely that the courts would not upset a determination by the CFPB to use a different standard.  But we'll have to see if the CFPB even wants to.