FTC takes action against developers of “stalking” apps

The Federal Trade Commission today charged the developer of three "stalking" apps with violating consumer's privacy and creating security vulnerabilities. The apps allowed purchasers to monitor a user's GPS location, text messages, and photos without the knowledge of the user. The FTC's complaint was announced concurrently with a consent order under which Retina X Studios and its founder James Johns Jr. will have to delete the data collected by the three apps and will not be able to sell new apps without taking steps to ensure they are used for legitimate purposes.

The FTC's press statement, with links to the complaint and consent order, are here.

Teaching Consumer Law Conference

Save the Date

Call for Papers and Speakers

Teaching Consumer Law Conference – Santa Fe, New Mexico, 29 & 30 May 2020

Teaching Consumer Law: Back to Basics?

The Center for Consumer Law at the University of Houston Law Center, in cooperation with the University of New Mexico School of Law, is organizing its twelfth biennial international teaching consumer law conference. The subject is “Teaching Consumer Law: Back to basics?” The Conference will be held at the Hilton Hotel in Santa Fe, New Mexico, the “City Different,” one of the oldest and most interesting cities in the United States.

For more information, click here, or contact Richard Alderman, alderman@uh.edu.

I look forward to seeing you in Santa Fe next May

Richard

FTC releases annual National Do Not Call Registry Data Book

The Federal Trade Commission has issued the National Do Not Call Registry Data Book for Fiscal Year 2019. The Data Book contains information about the DNC Registry from October 1, 2018, to September 30, 2019. It provides information on robocall complaints, the types of calls consumers reported to the FTC, and a complete state-by-state analysis.

The FTC data show that the number of active registrations on the DNC Registry increased over the past year. Although the total number of consumer complaints decreased slightly, the FTC attributed the decline to the fact that it could not accept complaints during government shutdown. Of the complaints received, 71 percent were about robocalls.

Supreme Court to Decide Constitutionality of CFPB

The Supreme Court today issued orders stemming from this morning's conference in which the Justices considered what new cases to take up.

Among those cases is Seila Law v. CFPB, which raises the question of the constitutionality of the placing the agency under a director protected against removal at will by the President. The Court also added another question of its own: What is the remedy if the CFPB is unconstitutionally structured?

In the Seila Law case, the CFPB defended its constitutionality in the lower courts even though the Department of Justice had already taken the position, shortly after President Trump took office, that the agency's structure was unconstitutional. In the Supreme Court, however, the agency has switched sides, and currently no party defends its constitutionality.

The Court is expected to appoint an amicus curiae to argue in favor of the agency. The argument will likely be in February, and the decision issued by the end of next June.

 

CFPB Announces Taskforce on Federal Consumer Financial Law

The CFPB announced last Friday the planned formation of a "Taskforce on Federal Consumer Financial Law." According to the Bureau, "[t]he taskforce will examine the existing legal and regulatory environment facing consumers and financial services providers and report recommendations on ways to improve and strengthen consumer financial laws and regulations to CFPB Director Kathy Kraninger." 

The Bureau says that the taskforce is "inspired" by a commission established by the Consumer Credit Protection Act in 1968, which issued a 1972 report recommending a variety of reforms to strengthen consumer protections (as well as recommendations to loosen certain restrictions on the S&L industry, which turned out to be disastrous for consumers as well as the industry itself). A piece by David Lazarus in today's LA Times questions whether a task force sponsored by this Administration's CFPB is likely to be inspired by the earlier commission to produce recommendations for improving consumer protections, or will instead recommend cutbacks of existing protections to facilitate predatory practices by the financial services industry.

According to the CFPB, "[a]ny interested person may apply for membership on the taskforce." The agency says it is looking for "[e]xpertise in consumer protection and consumer financial products or services," experience researching and analyzing consumer issues, a "record of senior public or academic service," and recognition for "professional achievements and objectivity in economics, econometrics, or law."  The taskforce will consist of a chair and approximately six members, who will serve for a year and be assisted in their efforts by detailees from the CFPB and other agencies.

Applications are due next Friday, October 25. Application instructions are available here.

 

Paper: Racial Disparities in Debt Collection

Jessica LaVoice and Domonkos F. Vamossy, both of the University of Pittsburgh's Department of Economics, have written Racial Disparities in Debt Collection. Here is the abstract:

A distinct set of disadvantages experienced by black Americans increases their likelihood of experiencing negative financial shocks, decreases their ability to mitigate the impact of such shocks, and ultimately results in debt collection cases being far more common in black neighborhoods than in non-black neighborhoods. In this paper, we create a novel data-set that links debt collection court cases with information from credit reports to document the disparity in debt collection judgments across black and non-black neighborhoods and to explore potential mechanisms that could be driving this judgment gap. We find that majority black neighborhoods experience approximately 40% more judgments than non-black neighborhoods, even after controlling for differences in median incomes, median credit scores, and default rates. The racial disparity in judgments cannot be explained by differences in debt characteristics across black and non-black neighborhoods, nor can it be explained by differences in attorney representation, the share of contested judgments, or differences in neighborhood lending institutions.

Trump Admin's 5 big changes to the Affordable Care Act

NPR reported today on 5 ways that the Trump Administration has undermined the Affordable Care Act.

Among the takeaways:

Overall, [Professor] Nicholas Bagley says, the ACA has been "pretty resilient to everything, so far, that the Trump administration has thrown at it." Some of Trump's efforts to hobble the law have been caught up in the courts; others have not gone into effect. And, despite efforts to lure people away from the individual insurance marketplaces or to make ACA policies unaffordable, "the marketplaces have proved themselves to be remarkably resilient," [Professor Sabrina] Corlette says.

Abbe Gluck, director of the Solomon Center for Health Law and Policy at Yale, cautions that though the law has proven to be stronger than expected, all these actions by the Trump administration have, indeed, had an effect.

"These actions have been designed to depress enrollment — they have depressed enrollment," she says. "They have increased insurance prices." Also, the uninsurance rate for U.S. residents also went up in 2018 for the first time since before the ACA was passed.

The article is here.

And speaking of new California laws ...

After reading the post below, reader Ted Mermin of California Low-Income Consumer Coalition emailed:

Last week the Governor signed a groundbreaking law providing an automatic exemption from bank levy for the last $1724 in a debtor's account. According to the law's findings, debt collectors routinely clean out consumers' bank accounts, leaving nothing to pay for basic living expenses like rent or food. Too often, the financial shock results in the loss of a home, a car, and/or a job. Senate Bill 616 (bill text here) requires instead that the bank protect the amount set by the state Department of Social Services as the minimum needed to live for a month ($1724 in 2019). The author's press release is here; the press release from supporters is here. And an LA Times piece by David Lazarus is here. 

[Thanks, Ted.]

California passes new law to fight predatory lending

California's Governor Newsom today signed into law legislation intended to to protect consumers from predatory lending practices that create debt traps for families already struggling financially. The bill bars payday lenders from charging high interest rates – which in the past have soared as high as 200 percent – on loans between $2,500 and $10,000. (Existing California rate limits applied to loans of $2,500 or less.)

The press release from the California Governor's office is here. National Consumer Law Center's press release applauding the law is here.

Questions for the CFPB director

Next week, Consumer Financial Protection Bureau Director Kathy Kraninger will deliver the statutory “Semi-Annual Report of the CFPB” to the House Financial Services Committee and the Senate Banking Committee. On his blog, US PIRG's Ed Mierzwinski suggests questions that the committee members should ask, here.

FTC alleges company using deceptive claims to push pricey real estate seminars

A federal court has entered a temporary restraining order against Utah-based Zurixx, LLC and affiliated companies, which the Federal Trade Commission (FTC) and the Utah Division of Consumer Protection (DCP) allege have used deceptive promises of big profits to lure consumers into real estate seminars costing thousands of dollars. The order prohibits Zurixx from making unsupported marketing claims and from interfering with consumers’ ability to review Zurixx and its products.

The FTC's press release, with a link to its complaint and the judge's order, is here.

Dep't of Education violated a court order to stop collecting on debt of former students of defunct Corinthian College

Despite a court order barring the Education Department from collecting on the federal student loans of former Corinthian College students, the agency continued to pursue the debts. Some former students had their paychecks garnished or tax refunds seized by the government.

The students' recently moved to hold Education Secretary Betsy DeVos in contempt. DeVos and the Education Department argued in response that sanctions are unwarranted because there was a “good faith” effort to comply with the order. The court will hold a hearing on the motion today.

The Washington Post has the story, here.

Update: The judge was not pleased. The LA Tines story on the hearing is here.

DMCA Takedown of Trump Video about Biden: DMCA-abuse silly season begins again

by Paul Alan Levy

It always happens during the presidential election season. This year, a bogus DMCA takedown was aimed at a video posted to Twitter by Donald Trump. Promoting his wild conspiracy theories about potential election opponent Joseph Biden, Trump fiddled with the first fifteen seconds of the video for the Nickelback musical number “Photograph” by inserting a photo showing Joe Biden and his son Hunter with two other individuals, one identified as a Ukrainian gas executive, into the image that appears just as the band is singing, "Look at this photograph, every time it makes me laugh . . ..” Twitter removed the video in response to a DMCA takedown notice from Warner Music.

Much of the commentary praises Nickelback for shutting Trump down by blocking his play on their work; but this video excerpt was plainly fair use. And even if Nickelback (or Warner Music) disapproves of Trump and resents his use of their copyrighted work to make a political point, that would make the takedown even worse, a form of copyright misuse.   We should fault Twitter for acceding to the takedown, but the reflexive removal of content based on abusive takedowns is consistent with the policies followed by other platforms in previous presidential elections – they have argued that the politicians should learn from these examples about the need to amend the DMCA to make bogus takedowns more unattractive, rather than expecting the platforms to make special exceptions when it is the powerful whose speech is subject to abusive takedowns.   It has been refreshing to see YouTube taking more steps to educate users about their fair use rights, and even calling out examples of abusive takedowns (as in this situation involving one of my clients, who got extra attention for its anti-fracking campaign as a result of being identified as a victim of abusive takedown).

It is, indeed, worth remembering the easy ways in which the DMCA could be amended to make it harder for abusive takedowns to succeed and easier for the victims of such takedowns to obtain redress. We suggested several such changes in this letter to then-Senators Obama and McCain after their presidential campaigns suffered unjustified takedowns; Marc Randazza put forward his own proposal a few years later.

Great recession mortgage meltdown redux? Read this story entitled "Federal government has dramatically expanded exposure to risky mortgages"

Damian Paletta at the Washington Post has written Federal government has dramatically expanded exposure to risky mortgages, effectively asking whether conditions are forming for another homeowner mortgage crisis of the severity associated with the Great Recession. Some excerpts:

The federal government has dramatically expanded its exposure to risky mortgages, as federal officials over the past four years took steps that cleared the way for companies to issue loans that many borrowers might not be able to repay. Now, Fannie Mae, Freddie Mac and the Federal Housing Administration guarantee almost $7 trillion in mortgage-related debt, 33 percent more than before the housing crisis, according to company and government data. Because these entities are run or backstopped by the U.S. government, a large increase in loan defaults could cost taxpayers hundreds of billions of dollars. * * * In 2019, there is more government-backed housing debt than at any other point in U.S. history, according to data from the Urban Institute. Taxpayers are shouldering much of the risk, while a growing number of homeowners face debt payments that amount to nearly half of their monthly income, a threshold many experts consider too steep. Roughly 30 percent of the loans Fannie Mae guaranteed last year exceeded this level, up from 14 percent in 2016, according to Urban Institute data. At the FHA, 57 percent of the loans it insured breached the high-risk echelon, jumping from 38 percent two years earlier.

Various studies indicate that the Affordable Care Act has made Americans healthier

This article by Amy Goldstein describes "an emerging mosaic of evidence that, nearly a decade after it became one of the most polarizing health-care laws in U.S. history, the ACA is making some Americans healthier — and less likely to die."

Frankel Article: Corporate Hostility to Arbitration

Richard Frankel of Drexel has written Corporate Hostility to Arbitration, 50 Seton Hall Law Review (forthcoming 2020). Here is the abstract:

In the last 30 years, corporations have aggressively and successfully pushed the Supreme Court to invalidate virtually all state regulation of mandatory arbitration clauses on the ground that the Federal Arbitration Act (FAA) preempts any state law that expresses “hostility” to arbitration. Under current doctrine, the FAA preempts any state law that is premised on the idea that arbitration is inferior to litigation for resolving disputes, or that treats arbitration clauses less favorably than other contracts.

Yet, at the same time corporations decry state-law hostility to arbitration, they frequently express their own hostility to arbitration in the way they draft their own arbitration provisions. By carving out specific claims from arbitration, adopting procedural rules that approximate litigation, or imposing restraints that make it difficult for their consumers and employees to bring disputes in arbitration, corporations have shown that they believe arbitration to be inferior to litigation in multiple ways.

Although scholars have widely debated the Supreme Court’s arbitration jurisprudence, “corporate hostility” to arbitration has gone largely unnoticed. This article examines the various methods by which corporations express hostility to arbitration and argues that this hostility carries significant implications for FAA preemption doctrine. Currently, contract drafters can exempt claims from arbitration because they believe that arbitration is inferior to litigation. But when states seek to regulate arbitration for those same reasons, they are barred from doing so by the FAA. Thus, corporations can exempt claims from arbitration to maximize their self interest, but states cannot exempt claims from arbitration to protect the public interest.

This dichotomy is anti-democratic and results in bad policy. This article proposes that corporate hostility to arbitration shows that not all hostility to arbitration is improper, and that states should have greater freedom to regulate arbitration clauses without violating the FAA.

How did ordinary people experience the foreclosure crisis?

That's the subject of a new book by Linda Fisher of Seton Hall and Judith L. Fox of Notre Dame, published by Cambridge Press, The Foreclosure Echo: How the Hardest Hit Have Been Left Out of the Economic Recovery. You can read the introduction here. Here's the abstract:

This paper includes the Table of Contents and Introduction to a book recently published by Cambridge University Press: It tells the story of the foreclosure crisis from a new perspective – that of ordinary people who experienced it. Using actual experiences – often examined through a legal lens – supplemented by economic, social science and legal research, The Foreclosure Echo explains how people experienced the crisis and how their lenders and public institutions let them down. The book also details the lingering effects of the crisis – such as vacant and abandoned buildings – and how these effects have magnified inequality. Finally, the book suggests reforms that could help avoid another crisis.

May a company get an injunction to block a defendant from invoking the Streisand Effect?

by Paul Alan Levy

The United States Court of Appeals for the Third Circuit recently upheld the rights of litigants to use public pressure to discourage companies from suing them. The issue arose in Bank of Hope v. Chon, when a bank sued one of its departed founders, after an employee who was fired for embezzlement implicated him in her crimes. The founder proclaimed his innocence and urged the CEO to drop the case, and when he did not, he warned that he would take his complaint to the bank’s shareholders. After he wrote letters to “dozens of institutional shareholders,” suggesting that the bank’s litigation strategy was doing to hurt the bank’s value. The bank then asked the district court to enjoin further such communications on the theory that the defendant was interfering with the "fairness and integrity” of the litigation process by “attempting wrongfully and unlawfully to coerce Bank of Hope into making a settlement payment.” After the trial court granted such an injunction, the defendant appealed.

The Third Circuit reversed. It held that there was no evidence that the gag order was needed, and that the blanket injunction was an impermissible restraint on the defendant's speech.  The defendant had argued that the injunction was an impermissible prior restraint; the bank argued that the founder's speech was "commercial" (because he had the economic motive of securing a better financial outcome from the litigation).  The panel expressed skepticism of that argument, but found it unnecessary to address that point because, it held, the order failed even under the Central Hudson scrutiny applied to constraints on commercial speech.

Some commentary on the case has suggested that it stands generally for the “rule . . .  that if somebody wants to talk about their case, it’s not for the courts to restrain them simply to protect the decorum or integrity of the litigation.”

I like that rule, but I am worried that it overstates the opinion,which was written narrowly. The Third Circuit panel described protecting the fairness and integrity of the litigation process as a sufficiently substantial government interest that could, in some circumstances, support a gag order directed to civil litigants; it even hinted, in dictum, that evidence such coercion was likely might be enough to justify an injunction against speech (that is, it faulted the trial court for issuing an injunction on this ground without evidence that the speech was being effective). And it faulted the trial judge for failing to consider a less restrictive injunction, such as barring specific criticisms.

So the result is the right one but some of the reasoning is troublesome. When a company pursues an individual, the defendant has every right to appeal to the court of public opinion to condemn the company for its litigation strategy – invoking the Streisand Effect, as it were- and thus give the company reasons to drop the litigation. Protecting the jury pool against tampering through overwhelming local publicity is one thing, but increasing the social and political costs of being a bullying plaintiff is a technique that ought to be available to unfairly sued defendants.  It is going to take further litigation in the Third Circuit to ensure that this is the governing rule.

House passes bill to end forced arbitration

The House just passed a bill that would restore legal rights to millions of workers and consumers. By a vote of 225-186, the House passed the Forced Arbitration Injustice Repeal (FAIR) Act, to ban companies from requiring workers and consumers to resolve legal disputes in private arbitration.

Arbitration is a process with no judge, no jury, and no public accountability,in which the parties have fewer rights than in the court system. Companies routinely require arbitration as a condition of doing business. For example, you have almost surely agreed to arbitrate any disputes through your credit card agreement, your cell phone agreement, or any agreement with a for-profit college.

Under the FAIR Act, people would still be permitted to arbitrate if they chose to, but companies could no longer force them to do so. 

Moral Rights and Copyright Claims about Che Guevara Parodies

by Paul Alan Levy

The personal and commercial heirs of the deceased photographer Korda, best known for the iconic photograph of Che Guevara that has adorned Tshirts and posters displayed by young admirers for fifty years, have issued a takedown demand to Liberty Maniacs over its sales of parody items that display the photo’s cap and hair but replace Guevara’s visage with, alternately, Donald Trump and Alexandria Ocasio-Cortez. Advancing claims both under the doctrine of moral rights and under copyright law, Randy Yaloz, a New York lawyer based in Paris who proudly identifies himself as "combative" (but wrote using an letterhead identifying himself as an adjunct professor at his alma mater, New York Law School, where he does not currently teach), demands both that the parodies be taken off the market and that the parodist pay damages.

Our federal financial regulators are busy defending predatory loans

Read this post by law prof Adam Levitin titled "FDIC and OCC Race to Court to Defend 120.86% Interest Rate Small Business Loan." It's not a pretty thing our federal regulators are doing. Here's an excerpt from Adam's post:

FDIC and OCC filed an amicus brief in the district court in an obscure small business bankruptcy case to which a bank was not even a party in order to defend the validity of a 120.86% loan that was made by a tiny community bank in Wisconsin (with its own history of consumer protection compliance issues) and then transferred to a predatory small business lending outfit. Stay classy federal bank regulators. FDIC and OCC filed the amicus to defend the valid-when-made doctrine that the bankruptcy court invoked in its opinion. FDIC and OCC claim it is "well-settled" law, but if so, what the heck are they doing filing an amicus in the district court in this case? They doth protest too much.

 

CFPB Abandons Defense of Its Own Constitutionality

For years, subjects of CFPB enforcement actions have challenged the constitutionality of the agency's structure, arguing that separation-of-powers principles forbid Congress to grant enforcement authority to an independent agency whose director is protected against being fired without cause by the President. Throughout that time, the agency has defended its own constitutionality, and has prevailed in the only two cases that have so far resulted in final decisions by federal courts of appeals: PHH Corp. v. CFPB, in which the U.S. Court of Appeals for the D.C. Circuit upheld the agency's structure, and CFPB v. Seila Law, in which the Ninth Circuit agreed with the D.C. Circuit. Now, even as challenges continue in two other circuits, the Second and Fifth, in which the agency has so far steadfastly defended itself, the agency has joined in a filing in the U.S. Supreme Court asking the Court to overturn the Ninth Circuit's decision in Seila Law and hold the agency's structure unconstitutional.

The Department of Justice had changed sides on the issue when the Trump Administration took office, and it argued strenuously against the position taken by the agency's own lawyers in PHH Corp. The CFPB, however, held its ground not only in PHH, which was briefed while Richard Cordray remained in place as the agency's director, but also in other appellate challenges briefed and argued after he stepped down and was replaced by Trump appointees--first Mick Mulvaney as Acting Director, and then Kathy Kraninger as Director.

However, after the agency prevailed in the court of appeals in the Seila Law case, the losing party filed a petition for a writ of certiorari asking the Supreme Court to hear the issue. The Solicitor General, after obtaining multiple extensions of time to respond to the petition, today filed a brief "acquiescing" in the request that the Court hear the case. The brief is signed not only by the Solicitor General and other DOJ attorneys, but also by attorneys for the CFPB, who join fully not only in the brief's request that the Supreme Court hear the case, but also in its argument that the Court should reverse the lower court's decision and hold the CFPB's structure unconstitutional. Also today, Director Kraninger sent a letter to congressional leaders informing them that the CFPB would no longer defend the constitutionality of the statutory provisions protecting its director from Presidential removal.

Because neither DOJ nor the CFPB will now defend the agency's structure, the Supreme Court will, if it takes the case, have to appoint someone else--a friend of the court--to argue in favor of the lower court's judgment.

More Responses to the Higbee Trolling Operation

by Paul Alan Levy

Back in June 2019, the last time I had occasion to write  about Mathew Higbee’s bullying pursuit of copyright claims against alleged infringers, he had just backed away from a confrontation on the part of one of the longtime members of his stable of clients, Quang-Tuan Luong, and had, indeed, suggested that he was reconsidering whether he would pursue future demands against the hosts of interactive web sites whose users were the ones to post allegedly infringing content.  Regrettably, it appears that the lure of illegitimate profit has led him not to take that path.

Consumer Law Professors Who Want to Read or Sign On to a Comment on the CFPB's Proposed Debt Collection Rule . . .

. . .  should get in touch with @daliejimenez.

Read this op-ed on CFPB's proposed rule authorizing debt-collection harassment

In May, the Consumer Financial Protection Bureau proposed new Fair Debt Collection Practices Act rules. In this op-ed, Jennifer Wagner (of Mountain State Justice) and Linda Frame (of the West Virginia Center on Budget and Policy) explain why the CFPB's proposed rules, issued under a law meant to curb debt-collection harassment, actually authorize debt-collection harassment. "The most brazen breach of consumer protection [in the proposed rules] ... is allowing consumers to be called up to seven times per week per debt. Someone with eight medical debts could hear the phone ringing 56 times a week." Ugh.