Holding Facebook Accountable

According to a recent story from Tony Romm and Elizabeth Dwoskin at the Washington Post, “U.S. regulators have met to discuss imposing a record-setting fine against Facebook” for violating a 2011 consent decree that settled charges that Facebook deceived consumers with regard to its privacy policies and practices. In March 2018, the Federal Trade Commission confirmed that it had an “open non-public investigation” into Facebook’s privacy practices. That investigation was prompted, in large part, by the Cambridge Analytica scandal. According to the reporting:

The FTC’s exact findings in its Facebook investigation and the total amount of the fine, which the agency’s five commissioners have discussed at a private meeting in recent weeks, have not been finalized, two of the people said. Staff has briefed the commissioners about their probe, the third person said, and plan to issue a formal recommendation for a fine soon — a move that would then trigger a vote by the commissioners.

The full story is available here.

Jacob Hale Russell Paper Shows Death of Unconscionablity Doctrine is Greatly Exaggerated

Jacob Hale Russell of Rutgers and Stanford's Arthur & Toni Rembe Rock Center for Corporate Governance has written Unconscionability's Greatly Exaggerated Death. Here is the abstract:

Reports of unconscionability’s demise are greatly exaggerated. According to conventional wisdom, the common-law contracts doctrine is rarely used, except in limiting clauses that purport to waive consumers’ remedial rights. In fact, as this Article documents, the doctrine is quietly flourishing: courts are using it to strike down substantive terms, including interest rates, in consumer finance contracts. In recent years judges across the country have rewritten or voided payday loans, signature loans, overdraft fees, and mortgage contracts on the grounds that their interest rates or other core terms were unconscionably unfair. 

Since unconscionability is alive and well, the time is ripe to answer an unexplored question in the doctrine’s contours. How tailored should the unconscionability analysis be to the characteristics of a particular consumer entering into a contract, versus untailored to the typical, median, or “reasonable” consumer? This Article advances an argument in favor of tailoring unconscionability. In addition to consistency with unconscionability’s theoretical underpinnings, tailoring brings the doctrine in line with modern contracting practices. Today’s consumer contracts involve increasing market segmentation, individualized pricing, and customization of terms, in stark contrast to the stylized view of boilerplate that most scholars take for granted. Unconscionability can thus play an important role in consumer protection policy, which faces the challenge that consumers are highly heterogeneous and need different protections. Courts have a particular edge here: they specialize in individualized fact-finding, in contrast to regulations, which are generally one-size-fits-all. 

CFPB and NY settle with Sterling Jewelers over enrolling customers in credit cards without the customers' consent

The State of New York and the Consumer Financial Protection Bureau (which is not shut down) yesterday settled claims against Sterling Jewelers, based on findings that that the company violated the Consumer Financial Protection Act of 2010 by opening store credit-card accounts without customer consent; enrolling customers in payment-protection insurance without their consent; and misrepresenting to consumers the financing terms associated with the credit-card accounts. The CFPB also found Truth in Lending Act violations, based on Sterling signing customers up for credit-card accounts without having received an oral or written request or application from them.

Under the settlement, the company will pay a $10 million civil money penalty to the CFPB and a $1 million civil money penalty to New York. The settlement also includes injunctive relief designed to prevent the continuation of the wrongdoing.

The consent order is here.

So apparently Wells Fargo is not the only company to sign people up for accounts without consent. The scope of wrongdoing by Wells Fargo, and the penalty, were of course much larger.

Representative Katie Porter to Join House Financial Services Committee

by Jeff Sovern

The media has devoted considerable attention to Representative Alexandria Ocasio-Cortez's joining the House Financial Services Committee. I'm glad she is on the committee--the more members who are not beholden to banks, the better--and I suspect few realize how intelligent Ocasio-Cortez is (taking second place in the Intel competition is an impressive accomplishment).  But I believe the rookie member of the committee who is likely to have the most impact is former professor Katie Porter.  Not only is Porter brilliant, she is also extremely knowledgeable about consumer law and bankruptcy, having studied and written about them for years. She also brings the practical experience that comes from having monitored the mortgage settlement in California. During hearings, she may know more than some witnesses about the matters the witnesses are testifying about. She promises to be a formidable member of the committee, and I hope its members defer to her judgment.

Not Entirely "Unpresidented" -- The History of the Domain Name Used to Parody the Washington Post

The Yes Men perpetrated (or perhaps only collaborated on) a parody of the Washington Post today, distributing tens of thousands of hard copy editions date-lined May 1, 2019 (making the parody too obvious), but also transmitting email from “send85-proxymailing@washingtonpost.com” domain, which in turn links to a fairly extensive parody web site located at my-washingtonpost.com. A second email, purporting to come from an email address on the washingtonpost.com domain, purported to provide a correction:

“An earlier email from the Washington Post erroneously stated that President Trump has departed the Oval Office. We stand corrected (by ourselves, as well as dozens of Twitter users). This event in fact occurred three months and a half from now, possibly."

For those of us with a sense of history, it was startling to see that the parodists were using the domain name my-washingtonpost.com, a name that was featured in litigation running from 2002 to 2005 under the Lanham Act and the then-fairly new anti-cybersquatting law, the ACPA.

Changes to consumer law in 2019

The National Consumer Law Center has a list of federal and state consumer law changes scheduled to take effect in 2019, as well as several changes that were effective in November and December of 2018 that have special relevance in 2019. The list is here.

In latest from Trump Administration's "deregulatory agenda," hospitals are required to post prices and post meaningless gibberish

by Jeff Sovern

So reports the NY Times. Excerpt:

Vanderbilt University Medical Center, responding to a new Trump administration order to begin posting all hospital prices, listed a charge of $42,569 for a cardiology procedure described as “HC PTC CLOS PAT DUCT ART.”

Baptist Health in Miami helpfully told consumers that an “Embolza Protect 5.5” would cost them $9,818 while a “Visceral selective angio rad” runs a mere $5,538.

More evidence that disclosure is usually an unsuccessful consumer protection, but the Trump administration is locked in ideologically to disclosure, as demonstrated by the quote in the article from Seema Verma, the administrator of the Centers for Medicare and Medicaid Services: “This is about empowering patients.” Disclosure often provides the illusion of consumer protection without the reality. Could it be that the administration wants to be able to say it is empowering patients, while actually providing them no benefit whatsoever?

Shutdown impeding consumer and worker protections

In a post yesterday, Public Citizen reported that the government shutdown is placing crucial consumer, health, and safety protections at serious risk.

The agency most impacted in the Consumer Product Safety Commission, where only 20 members of the 550-person staff are at work during the shutdown (working, but not being paid).

For information about the specific impacts due to furloughs brought on by the shutdown at eleven federal consumer and worker protection agencies, read the report here.

ABA President responds to our op-ed but ignores our main argument

by Jeff Sovern

Here, in Bloomberg. I'm afraid I didn't find it persuasive. He didn't respond to our argument that state courts often fail to discipline attorneys who violate ethical rules in debt collection matters, as well as other points we made. 

FTC during government shutdown

The following Federal Trade Commission services are NOT available during the shutdown:

• National Do Not Call Registry (For consumers)
• National Do Not Call Registry (For telemarketers)
• Consumer Sentinel Network (For law enforcement)
• Complaint Assistant (For filing consumer complaints)
• Identitytheft.gov (For consumers reporting ID theft)
• Econsumer.gov (For consumers reporting international complaints)

Public comments can be submitted, but the FTC will take no action on these comments until the government reopens.

Individuals can submit documents to be filed, but the FTC will take no action until the government reopens.

FOIA requests can be submitted, but they will not be processed until the government reopens.

The Supreme Court unanimously rejects a "wholly groundless" exception to arbitrability under the Federal Arbitration Act

The Supreme Court today decided Henry Schein Inc. v. Archer and White Sales Inc., which presented the question "whether the Federal Arbitration Act permits a court to decline to enforce an agreement delegating questions of arbitrability to an arbitrator if the court concludes the claim of arbitrability is 'wholly groundless.'” The answer was an unanimous no. The opinion is here.

Fosamax drug preemption case argued in the Supreme Court

The Supreme Court held argument yesterday in Merck Sharp & Dohme Corp. v. Albrecht. Here's the (loaded) question presented in Merck: 

Whether a state-law failure-to-warn claim is pre-empted when the Food and Drug Administration rejected the drug manufacturer's proposal to warn about the risk after being provided with the relevant scientific data, or whether such a case must go to a jury for conjecture as to why the FDA rejected the proposed warning.

Some observers have speculated that the forthcoming decision in Merck could substantially narrow the Supreme Court's ruling in Wyeth v. Levine (2009). Wyeth held that state-law failure-to-warn suits over mislabeled prescription drugs generally are not preempted by federal law, and are preempted only in very limited circumstances -- where the FDA would have rejected (or, presumably, has rejected) the very warning that the plaintiff maintains would have prevented her injuries. As I read the transcript from yesterday's argument in Merck, it does not seem that an earth shattering ruling is in the offing. It appears that the Justices generally accept Wyeth's basic holding and are struggling with how it applies to the idiosyncratic facts presented in Merck.  

"The FDA is still letting doctors implant untested devices into our bodies"

That's the name of this Washington Post article by Jeanne Lenzer and Shannon Brownlee. The article explains that the FDA continues to allow critical, implanted medical devices on the market via the so-called "510(k) process." Among other serious deficiencies, the 510(k) process does not require pre-market clinical safety testing. Lenzer and Brownlee explain that the FDA's lax regulation has harmed patients and note that while dangerous devices "have received widespread coverage in the press," that publicity has "had virtually no effect on FDA policy. Even a damning 2011 report by the Institute of Medicine (requested by the FDA), which deemed the agency’s 501(k) pathway so flawed it should be thrown out, fell on deaf ears." 

CFPB Complaint Database Scores Win for Times Columnist

by Jeff Sovern

The CFPB's former acting director, Mick Mulvaney, compared the Bureau's public database to Yelp and threatened to take it private, though he never did so. Director Kraninger has not made public her plans for the database, to the best of my knowledge, and so public access to the complaints may still be at risk. We have reported before how the database has helped even a consumer law expert. Now Pulitzer-Prize winning NY Times columnist Michelle Goldberg reports how the database helped her secure an $11,000 refund after her own efforts to work things out with her bank had failed:

I’d been signed up for a dubious program that purported to protect users’ credit in certain emergency situations. My bank had been accused of fraudulent practices in connection with it and fined $700 million by the Consumer Financial Protection Bureau, * * *  I tried, maddeningly, to seek redress from the bank — cycling through phone trees, screaming at automated operators. No one could tell me how I’d been enrolled in the program, or for how long.

Eventually, I turned to the C.F.P.B. itself, filling out a simple form on its website. A few weeks later, I was notified that the bank had been deducting money from my account for years, and I was being refunded more than $11,000. 

I wonder how many consumers have a similar story to tell. House Financial Services Chair Maxine Waters has said she will focus on the Bureau. This seems like one of many topics worth congressional attention.

CFPB announces first enforcement action under Kraninger: Will there be a Kraninger discount, as there was a Mulvaney discount?

by Jeff Sovern

Regular CFPB observers will recall that after Mulvaney took over as acting CFPB director, it took many months before the Bureau announced its first enforcement action.  Well, the new director, Kathy Kraninger, has already announced her first settlement. This settlement might offer some guidance as to what kind of director Kraninger will be. It will be interesting to see if the CFPB staff had recommended a fine different from that agreed to under the settlement.  Or perhaps former Bureau staffers will comment publicly on whether they find the settlement agreement satisfactory. Will there be a Kraninger discount, as there was a Mulvaney discount? The absence of a Mulvaney-style interval between Kraninger's assuming the directorship and announcing the first settlement may signify that, as expected, Kraninger has taken over an operation from someone whose ideology is consistent with her own, and so revisiting past decisions in the case is unnecessary. Evan Weinberger at Bloomberg has a report here.

Tsesis Article: Marketplace of Ideas, Privacy, and Digital Audiences

Alexander Tsesis of Loyola of Chicago has written Marketplace of Ideas, Privacy, and Digital Audiences, forthcoming in the Notre Dame Law Review.  Here's the abstract:

The availability of almost limitless sets of digital information has opened a vast marketplace of ideas. Information service providers like Facebook and Twitter provide users with an array of personal information about products, friends, acquaintances, and strangers. While this data enriches the lives of those who share content on the internet, it comes at the expense of privacy.

Social media companies disseminate news, advertisements, political messages, while also capitalizing on consumers’ private shopping, surfing, and travel habits. Companies like Cambridge Analytica, Amazon, and Apple rely on algorithmic programs to mash-up and scrape enormous amounts of online and otherwise available personal data to micro-target audiences. By collecting and then processing psychometric data sets, commercial and political advertisers rely on emotive advertisements to manipulate biases and vulnerabilities that impact audiences’ shopping and voting habits.

The Free Speech Clause is not an absolute bar to the regulation of commercial intermediaries who exploit private information obtained on the digital marketplace of ideas. The Commerce Clause authorizes passage of law to regulate internet companies that monetize intimate data and resell it to third parties. Rather than applying strict scrutiny to such proposed regulations as one would to pure speech, judges should rely on intermediate scrutiny to test statutes limiting the commercial marketing of data.

Legislative reforms are needed to address the substantial economic effects of massive, commercial agglomeration of data files containing histories, daily routines, medical conditions, personal habits, and the like. To address this logarithmically expanding cyber phenomenon, Congress should temporally restrict the retention and trade in private data. Internet intermediaries should not be immune from such a restriction on private data storage. For such a policy to be effective, safe harbor provisions shielding internet intermediaries should be modified to allow for civil litigation against internet companies that refuse a data subject’s request to remove personal information no longer needed to accomplish the transaction for which it was originally processed.

Sad News: FTC Crippled by Government Shutdown

by Jeff Sovern

The FTC was expected to run out of funding to conduct most of its operations at some point today, according to the Washington Post. The FTC's shutdown is obviously bad news for consumers. My understanding is that because the CFPB receives its funding from the Fed, it is not subject to the shutdown.  

Applications for Janet D. Steiger Fellowship now open; it pays law students $6,000 to do summer consumer law work

Excerpts from the announcement:

The Janet D. Steiger Fellowship Project provides law students the extraordinary opportunity to work in the consumer protection departments of state and territorial Offices of Attorneys General and other consumer protection agencies, including the National Association of Attorneys General and the Attorney General’s Office of the District of Columbia, throughout the United States. * * * 

The first and second year law students who have served as Steiger Fellows have characterized their experiences as truly rewarding, often well beyond their expectations. 

More information here. The application deadline is January 28.

Judge Young Speaks His Mind About Arbitration

It could have been a routine order directing arbitration in a commercial dispute no one beyond the parties would likely care about. Instead, Judge William Young of the U.S. District Court for the District of Massachusetts used the occasion of a dispute between two companies about the meaning of their arbitration agreement to deliver an opinion with some firmly stated critiques of arbitration as well as informative asides about a number of other aspects of litigation, including some stinging comments about affidavits drafted by lawyers.

The parties had tied themselves in knots litigating over an arbitration agreement they had drafted but apparently didn't understand. Judge Young had to explain to them that they had actually agreed to arbitrate over an issue they had asked him to decide (namely, whether the arbitrators had authority to issue injunctive relief). In accordance with the agreement, he sent the issues to arbitration while entering a stand-still injunction stipulated to by the parties. In doing so, he had a few choice words about both consumer/employment arbitration ("forced arbitration," as he correctly called it) and commercial arbitration.

Judge Young began with the observation that "[i]t is important to note that this is not 'forced arbitration,' that one-sided species of arbitration unconscionably forced on vulnerable consumers and workers and almost universally reviled, enforceable only due to the mandate of a slim majority of the Supreme Court." (Don't hold back, Judge Young; tell us how you really feel!)

But even as to "the knowing mutual resort to arbitration" by "independent equals, each represented by skilled counsel," Judge Young pointed out that arbitration has serious flaws. In particular, he pointed out that in the case before him, as in many others, arbitration was likely to be much more expensive to the parties, and much slower than litigation in court (perhaps to the benefit of attorneys who lacked the stomach for a real trial of the issues, if not their clients). It would, however, allow the parties to resolve their dispute "entirely [out of] public view," and such "[s]ecret, private tribunals carry with them a host of other societal ills."

Judge Young concluded:

Which is the better approach to adjudication? I am not so self-regarding (or confident) to stake a claim. The honest answer -- it depends. As regards this case, the facts are these:

The litigation costs will be roughly equivalent, though the start-up costs of arbitration are greater. So long as one party wants speed, the Massachusetts federal courts are markedly faster, 5-8 months start to finish. In arbitration, [the parties] can cloak themselves in secrecy; in federal court they cannot. At the conclusion of arbitration, the parties will receive an award but no explanation and will have virtually no appellate rights. At the end of a federal trial the parties will get a thorough written decision and award. Each will have full rights to appeal to one of the finest appellate courts in America.

Which course is better? You be the judge.

For our readers who may be interested . . . a guide to government shutdowns

Happy New Year.

Sternlight article on mandatory arbitration's detrimental effects on employment law and society's must vulnerable employees

Law prof Jean Sternlight has written Mandatory Arbitration Stymies Progress Towards Justice in Employment Law: Where To, #MeToo?. Here's the abstract:

Today our employment law provides workers with far more protection than once existed with respect to hiring, firing, salary, and workplace conditions. Despite these gains, continued progress towards justice is currently in jeopardy due to companies’ imposition of mandatory arbitration on their employees. By denying their employees access to court, companies are causing employment law to stultify. This impacts all employees, but particularly harms the most vulnerable and oppressed members of our society for whom legal evolution is most important. If companies can continue to use mandatory arbitration to eradicate access to court, where judges are potentially influenced by social movements, social movements will no longer be able to assist the overall progressive trend of our jurisprudence. While the phenomenon of mandatory employment arbitration is not new, recent Supreme Court opinions have encouraged an even greater number of employers to use this practice to force employees to take any disputes to arbitration, rather than to court. Focusing particularly on the #MeToo movement, this Article will consider this reality and its detrimental implications for the evolution of legal precedent affecting our most vulnerable employees.

 

Did Johnson & Johnson cover up possible asbestos contamination in its baby powder?

In case you've not read about the allegations that Johnson & Johnson covered up possible asbestos contamination in its baby powder, read this article by Roni Caryn Rabin and Tiffany Hsu.

We've posted before (for instance, here) about suits against Johnson & Johnson alleging that talc in baby powder caused the plaintiffs' ovarian cancer. Plaintiffs won large verdicts in some cases. Johnson & Johnson says there's no link between baby powder and ovarian cancer, and the National Cancer Institute has said that "[t]he weight of evidence does not support an association between perineal talc exposure and an increased risk of ovarian cancer."

But the Rabin-Hsu article points out that "asbestos, unlike talc, is an indisputable carcinogen. Even trace amounts are considered dangerous. Its dagger-like fibers penetrate deep into tissue and can lead decades later to cancer of the lungs, voice box and ovaries, and to mesothelioma." Rabin and Hsu quote a lawyer who has defended asbestos makers saying that the asbestos concern “puts the defense in a much more difficult position. You get a much higher degree of indignation from juries.”

Delaware Chancery Court Rejects Corporate Forum Selection Clauses, With Potential Implications for Forced Shareholder Arbitration (Amended)

Alison Frankel of Reuters reports that the Delaware Chancery Court has held that Delaware corporations lack authority to include in their charters "forum selection clauses" applicable to federal securities fraud claims asserted by shareholders. Put more simply, the ruling limits corporate power to tell shareholders where they have to file their claims. As Frankel's article explains, the decision may imply that corporations can't include provisions that would force shareholders to arbitrate federal securities claims. Reuters has posted the opinion here. The ruling is subject to appeal to the Delaware Supreme Court. If sustained, and if applied to arbitration clauses as well, the ruling will be a major victory for shareholder rights.

Consumer groups ask FTC to investigate apps that manipulate kids

Today, in conjunction with a new study that details a host of concerning practices in apps targeted to young children, 22 consumer and public health advocacy groups (including Public Citizen) called on the Federal Trade Commission to investigate the preschool app market. The groups' letter urges the FTC to hold app makers accountable for unfair and deceptive practices, including falsely marketing apps that require in-app purchases as “free” and manipulating children to watch ads and make purchases.

The study, “Advertising in Young Children’s Apps,” was led by researchers at University of Michigan C.S. Mott Children’s Hospital, and examined the type and content of advertising in 135 children’s apps. Researchers found a number of troubling advertising practices, including apps that force kids to watch ads or make in-app purchases in order to advance in the game, ads disguised as game play, and beloved characters urging children to make in-app purchases. Advocates assert that these practices are deceptive to kids and parents alike.

The effort is spearheaded by the Campaign for a Commercial-Free Childhood and the Center for Digital Democracy. More information is here.

Study ranks best federal agencies to work for -- good and bad news for consumer protection

The Partnership for Public Service issues an annual ranking of "Best Places to Work" in the federal government. The rankings are based on questions posed to hundreds of thousands of federal employees.

This year, two agencies abut which we frequently blog declined in the rankings. The Consumer Financial Protection Bureau's score fell 25.2 points from 76.9 to 51.7 (out of 100), representing a drop from 7th in the rankings to 26th (out of 27). The CFPB results showed a large drop in employees’ views of top agency management. A short analysis of the findings on the CFPB is here.

Among mid-size federal agencies, the Department of Education scored the lowest. The Department dropped 12.4 points, from 47.3 to 59.7.

One bright spot for consumer protection agencies: The Federal Trade Commission, ranked first at mid-size agencies, rising from a score of 81.4 to 84.0.

The study is available here.