Consumer groups call for cancer warnings on alcohol

Various consumer and health groups --  including the Consumer Federation of America, the American Institute for Cancer Research, the American Public Health Association, Breast Cancer Action, the Center for Science in the Public Interest, and the U.S. Alcohol Policy Alliance -- have called for the following warning on alcohol beverage labels: GOVERNMENT WARNING: According to the Surgeon General, consumption of alcoholic beverages can cause cancer, including breast and colon cancers.

Read about it here. 

Dept of Education not processing applications for student-debt relief

On Tuesday, seven borrowers sued Education Secretary Betsy DeVos and the Department of Education after the agency failed to take action on their applications for relief from student loans.

Under a 1995 law, the Department has authority to forgive the federal debt of students whose colleges defrauded them. The agency, however, has not approved or denied an application for debt relief in a year. More than 180,000 applications for debt relief are sitting at the agency; nearly 10,000 of them were filed more than three years ago.

In 2018, Public Citizen successfully challenged the Department's delay of its "borrower defense" regulation--an updated rule for implementing the law. Since then, however, the Department has mostly refused to act on the applications.

The Washington Post has the story.

Consumer group asks for investigation into "surveillance scoring"

A consumer-advocacy group as asking the Federal Trade Commission to investigate a practice where retailers use consumer information collected by data brokers to decide how much to charge individual customers.

According to the petition submitted to the FTC by #REPRESENT, part of the Consumer Education Foundation, "[m]ajor American corporations, including online and retail businesses, employers and landlords are using Secret Surveillance Scores to charge some people higher prices for the same product than others, to provide some people with better customer services than others, to deny some consumers the right to purchase services or buy or return products while allowing others to do so and even to deny people housing and jobs."

The petition is here.

2d Annual Berkeley Consumer Law Scholars Conference to be held March 5-6

From the announcement:

The Berkeley Center for Consumer Law and Economic Justice is pleased to announce that the second annual Consumer Law Scholars Conference will be held at the UC Berkeley School of Law on March 5-6, 2020.

The conference will provide those who publish in the field of Consumer Law the opportunity to share their work with their peers, give and receive constructive feedback, and collaborate in setting a research agenda for the field as a whole. Keynote speakers will include both leading scholars and prominent policymakers.

We welcome doctrinal, theoretical, and empirical approaches. Potential topics include the full breadth of issues involving consumers in the marketplace: common law contracts and products liability; UDA(A)P and disclosure laws; food and drug law; consumer lending, credit reporting, and fintech; loan servicing and debt collection; commercial speech and the First Amendment; federalism, preemption, and sovereign immunity as related to consumer transactions; regulation, supervision, and enforcement by public agencies; private enforcement; and more.

Call for papers to follow.

More here.

Court finds employees have standing to sue after data breach

On Friday, the DC Circuit held that two groups of federal workers can move forward with class action lawsuits against the Office of Personnel Management (OPM) over a 2015 data breach that exposed the personal information of 22 million people.The district court had dismissed the case, holding that the plaintiffs lacked standing and had failed to state a claim. The appellate court reversed.

As The Hill esplains: "According to the appeals court, the data breach left the plaintiffs vulnerable to identity theft, a substantial and ongoing "injury" that can be traced back to OPM's failure to adequately safeguard its systems. Hackers in 2014 began stealing personal information such as Social Security numbers, birth dates, fingerprints and addresses from OPM, which functions as the federal government's human resources department. In the years since, federal workers affected by the breach have reported various types of identity theft, including credit cards being opened and fraudulent tax returns in their name, according to the lawsuit."

The DC Circuit's decision is here. The Hill article is here.

Is "regulation by enforcement" a pretext for less enforcement?

by Jeff Sovern

The industry and some others often complain about "regulation by enforcement," by which I gather is meant that enforcement agencies bring actions against businesses without having previously given extremely clear notice that, in the agency's view, the conduct that is the subject of the action violates existing law.  Director Cordray's CFPB was thought to be a particularly bad offender. At its root, this idea is a complaint that companies are expected to comply with laws that don't spell out proscribed conduct explicitly,  but rather specify standards by which the industry is expected to operate. The idea behind the glib phrase has some appeal: who doesn't want notice of what the law is?  But in fact not only does the idea behind regulation by enforcement have a long history in our law, it is hard to imagine how some areas of the law could proceed without it.

Take the FTC.  The FTC Act has barred deceptive and unfair practices for more than eighty years, and the statute doesn't say much more than that about what is deceptive; a definition of unfairness, which some must find intolerably vague as it is the same one that the CFPB operates under, was added in the nineties. The FTC, with occasional judicial intervention, has given shape to unfairness and deception doctrine largely by bringing cases for all those years, and somehow sellers have not only dealt with it but the economy has grown dramatically.  Given the many ways bad actors have found to take advantage of consumers, more explicit standards would have have to leave out much misconduct, and so words like unfair and deceptive are a necessity to adequately protect consumers. An example: the FTC has based much of its privacy jurisprudence on its power to prohibit unfair and deceptive practices, even though the words themselves say nothing about privacy; indeed, a leading article in the field is titled The FTC and the New Common Law of Privacy. If we didn't have regulation by enforcement as to privacy protections, I suppose that we would have far fewer FTC privacy cases.

The analogy to common law is not coincidental. Every first-semester law student learns that courts create common law by deciding cases, and by so doing, we end up with something very like regulation by enforcement (the main difference is that the plaintiff in most such cases is not a regulator but a private person or entity). Nor is the Supreme Court reluctant to spin out lengthy interpretations of single words. For example, the entire standing doctrine, as exemplified by cases like Spokeo that make it harder for consumers to sue misbehaving businesses derives from a single word in the Constitution: case.  The Court has held in numerous cases that a case is present only when a consumer has standing; i.e, has suffered a concrete and particularized injury that can be fairly traced to the defendant's conduct, etc.  The word "case" surely gives as much notice that plaintiffs must satisfy such standards as the word "unfair" does that banks should not open unauthorized accounts. The point is that the idea of using standards rather than clear rules--which is the basis of "regulation by enforcement"--is well established in our tradition. Why should the industry be treated any differently than the rest of society?

What about limiting enforcement actions to cases based on clear regulations so businesses have notice?  The problem is that the process of issuing regulations takes years and in the meantime companies could harm consumers.  Promulgating regulations also takes substantial resources, and taxpayers have better uses for those resources than issuing rules to stop what may be only one company from misbehaving when an enforcement action can do the job faster and at less expense. What about issuing guidance to let businesses know that their conduct is problematic?  That would give notice but take less time and fewer resources than rule-making--except that the business-oriented Trump administration and the CFPB have said they won't base enforcement decisions on such guidance. If guidance can't be used to warn what actions an agency will bring, then complaining about an agency bringing cases without providing prior guidance seems like a recipe for bringing very few cases--which may in fact be the goal.

In any event, companies always have the option of challenging enforcement actions in court and trying to show that the agency has exceeded its mandate.  Maybe the industry would do better to stop whining about regulation by enforcement and instead give up engaging in deceptive, unfair, and abusive acts and practices. 

 

Crespi Paper: Why Are 99% of the Applications for Debt Discharge under the Public Service Loan Forgiveness Program Being Denied, and Will This Change?

Gregory S. Crespi of Southern Methodist Universit has written Why Are 99% of the Applications for Debt Discharge under the Public Service Loan Forgiveness Program Being Denied, and Will This Change? Here is the abstract:

During the first 18 months after October 1, 2017 that student loan borrowers were able to apply for tax-free debt forgiveness under the Public Service Loan Forgiveness program a striking 99% of the 76,002 applications that have been fully processed have been denied. The more recently adopted Temporary Expanded Public Service Loan Forgiveness program also has a 97% to 99% application denial rate, depending on how it is calculated. This short article discusses the various factors that may be contributing to such a bizarrely high denial rate, and why the number of applications filed and the proportion of applications filed that are approved are both likely to increase significantly over time, particularly after 2024, and to a greater extent if the Department of Education improves its currently inadequate borrower outreach and loan servicer oversight activities.

Hunt Paper: Promoting the Purposes of Student Loans by Tempering Bankruptcy Nondischargeability

John P. Hunt of California, Davis has written Promoting the Purposes of Student Loans by Tempering Bankruptcy Nondischargeability. Here's the abstract:

Student loans, unlike other debts, are not dischargeable in bankruptcy unless the debtor starts a special proceeding and proves that repayment would cause “undue hardship.” This requirement probably accounts for the fact that only a tiny fraction of bankrupt debtors succeed in discharging their student loans. This Article is the first to make the case that student-loan nondischargeability interferes with achieving the programs’ goals and to propose solutions that courts and the Department of Education (“Department”) can employ under current law.

The Article draws on the legislative history of the student-loan programs to establish that they serve at least four distinct purposes: providing equality of access to higher education, educating the population for the benefit of the country, enabling students’ free choice of career, and providing a benefit to students.

The Article then looks to the empirical literature and to fundamental precepts of bankruptcy law to show that nondischargeability can thwart the purposes of the student-loan programs through four different effects: deterring students from starting or completing higher education, distorting career choice, discouraging borrowers from economic and social participation, and rendering student loans harmful to borrowers.

The Article offers suggestions for tempering each of these effects. To avoid deterrence of education, the fact that bankruptcy relief often is available if requested should be made more salient. To combat distortion of career choice, bankruptcy courts should stop ruling that debtors should abandon jobs for which their education has prepared and find others that pay more. To remedy borrower discouragement, courts and the Department should take account of the likelihood that borrowers will be discouraged in deciding whether to grant or consent to discharge. The debt-income ratio is a promising proxy for likelihood of discouragement. Finally, courts and the Department should consider whether student loans harmed the borrower. 

FTC investigates YouTube for violations of kids' privacy

The Federal Trade Commission has reportedly launched an investigation into YouTube after complaints from consumer groups and privacy advocates alleging that YouTube violates kids' privacy. The complaints contend that YouTube failed to protect kids who used the streaming-video service and improperly collected their data in violation of the Children’s Online Privacy Protection Act, a 1998 law that forbids tracking and targeting of people under age 13.

The Washington Post has the story, here.

Are state attorneys general enforcing Dodd-Frank in a fair, non-partisan way?

Professors Brian Feinstein, Chen Meng, and Manisha Padi took a look at that question from one angle in State Attorneys General & Lender Behavior. Here is the abstract:

The Dodd-Frank Act empowers state attorneys general to enforce, with limited exception, both state and federal laws concerning predatory lending, unfair and deceptive practices, information disclosure, and mortgage servicing. During the debate over Dodd-Frank’s passage, the Act’s drafters argued that these dual-enforcement provisions provided a safeguard: should the federal government scale back its consumer-protection activity, the states could help fill the void. Dodd-Frank’s critics, however, warned that the placement of this substantial enforcement authority in the hands of partisan attorneys general could subject lenders to inconsistent law-on-the-ground within a given state, as successive attorneys general — each with his or her own party-driven priorities — enter office.

This Article puts this critique to the test. Viewing lenders’ observed behavior as a window into their expectations about enforcement levels, we utilize a dataset of every residential mortgage originated between 2004 and 2013 to examine whether lender activity changes following a switch in the partisan identification of a state’s attorney general.

We find no evidence that the attorney general’s party has an impact on mortgage markets. When one controls for other factors, lenders’ behavior is not materially different in states with a Republican versus a Democratic serving as attorney general. Essentially, dual enforcement does not mean inconsistent enforcement. 

"How Payday Lenders Spent $1 Million at a Trump Resort — and Cashed In"

That's the title of this ProPublica piece by Anjali Tsui and Alice Wilder. Among other things, this article explains that the payday loan industry's trade group has held its last two annual conventions at a Trump property while at the same time that the Trump Administration's regulatory stance has been decidedly pro-payday lending. The article ends like this:

[T]the payment to the president’s business [for holding the trade group's convention] ... is a stark reminder that the Trump administration is like none before it. If the industry had written a $1 million check directly to the president’s campaign, both the [trade group] and campaign could have faced fines or even criminal charges — and Trump couldn’t have used the money to enrich himself. But paying $1 million directly to the president’s business? That’s perfectly legal.

Company to cancel and repay $40 million in payday loans that violated state rate caps

The Dallas Morning News reports that Think Finance Inc., a Fort Worth financial firm, will cancel its outstanding loans and pay nearly $40 million to consumers after engaging in an alleged payday lending operation that used Native American tribes as shields from state laws. Think Finance serviced loans that charged interest rates over 375% and locked borrowers into plans in which paying off the loan was nearly impossible, according to a 2016 complaint. The loans were originated by Plain Green LLC, an online lending business purportedly owned by the Chippewa Cree Tribe of Montana.

The full article is here.

Supreme Court: Virginia law banning uranium mining is not preempted by federal law

In yesterday's opinion in Virginia Uranium, Inc. v. Warren, the Supreme Court held that a Virginia law banning uranium mining is not preempted by the Atomic Energy Act. The vote was 6 to 3, with the six Justices in the majority divided between two separate opinions—the first announcing the judgment of the Court, written by Justice Gorsuch (joined by Justices Thomas and Kavanaugh), and the second concurring in the judgment, written by Justice Ginsburg (joined by Justices Sotomayor and Kagan). 

Some readers of this blog follow the Court's preemption decisions, and so I thought I'd mention a couple things about Justice Gorsuch's opinion:

1. The opinion begins by explaining what the federal government does and does not regulate:

We begin with the company’s claim that the text and structure of the [Atomic Energy Act (AEA)] reserve the regulation of uranium mining for the purpose of addressing nuclear safety concerns to the NRC alone—and almost immediately problems emerge. Unlike many federal statutes, the AEA contains no provision preempting state law in so many words. Even more pointedly, the statute grants the NRC extensive and sometimes exclusive authority to regulate nearly every aspect of the nuclear fuel life cycle except mining. Companies like Virginia Uranium must abide the NRC’s rules and regulations if they wish to handle enriched uranium, to mill uranium ore or store tailings, or to build or run a nuclear power plant. See 42 U. S. C. §§2111(a), 2113(a), 2073. But when it comes to mining, the statute speaks very differently, expressly stating that the NRC’s regulatory powers arise only “after [uranium’s] removal from its place of deposit in nature.” §2092 (emphasis added [by Justice Gorsuch]).

Virginia Uranium, slip op. at 4. Justice Gorsuch then goes on to address other contextual hints and statutory amendments, all indicating, in his view, that Congress plays no role in deciding whether private actors should or should not get involved in uranium mining.

One way to look at this decision, then, is that Congress has left it open to the states to regulate whether folks get into the business at all, but once they are in the business, they have to follow a whole bunch of federal rules that may (or may not) be preemptive. We could view a lot of other federal regulatory programs that way too. Many of them extensively regulate products and services that private companies put into commerce, but those programs don't (of course) demand market entry in the first place. I wonder, then, whether a similar analysis would free states to ban or restrict marketing of other federally regulated products and services, even though when those products or services are on the market, federal rules play a significant (and possibly preemptive) role. Cf. Wyeth v. Levine, 555 U.S. 555, 592 (2009) (Thomas, J., concurring in the judgment). See also slip op. at 11 (Ginsburg, J., concurring in the judgment) ("A state law regulating an upstream activity within the State’s authority is not preempted simply because a down-stream activity falls within a federally occupied field.")

2. Justice Gorsuch's opinion roundly condemns freewheeling application of the species of implied conflict preemption known as "obstacle preemption." Under that doctrine, the question in Virginia Uranium was whether Virginia's ban on uranium mining would "stand[] as an impermissible 'obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" Slip. op. at 14 (citation omitted). Justice Gorsuch rejected this use of the Supremacy Clause "to elevate abstract and unenacted legislative desires above state law." Id. "[O]nly federal laws 'made in pursuance of' the Constitution,through its prescribed processes of bicameralism and presentment, are entitled to preemptive effect." Id. (quoting Art. VI, cl. 2). "Any evidence of pre-emptive purpose, whether express or implied, must therefore be sought in the text and structure of the statute at issue."  Slip. op. 14-15 (citations and quotation marks omitted). Otherwise, Justice Gorsuch went on, "we may only wind up displacing perfectly legitimate state laws on the strength of “purposes” that only we can see, that may seem perfectly logical to us, but that lack the democratic provenance the Constitution demands before a federal law may be declared supreme." Slip op. at 15.

Justice Gorsuch's critique of obstacle preemption in Virginia Uranium is highly reminiscent of Justice Thomas's separate opinion in Wyeth v. Levine, which makes the same points. Justice Thomas maintained there that obstacle preemption is, first, at odds with the interlocking constitutional commands of the Supremacy Clause, which makes ‘‘supreme’’ only those laws ‘‘‘made in Pursuance’ of the Constitution,’’and the Bicameral and Presentment Clauses, which demand that the ‘‘passage of legislation’’ follow ‘‘‘a step-by-step, deliberate and deliberative process,’’’ 555 U.S. at 586 (Thomas, J., concurring in the judgment) (citations omitted), and, second, ‘‘problematic because it encourages an overly expansive reading of statutory text,’’ in a misguided and error-producing search for a statute's purposes, id. at 587-88, 595-96.

Another survey of consumer law professors fails to find any who always reads consumer contracts before signing them

by Jeff Sovern

Regular blog subscribers may recall that last year, at Richard Alderman's Teaching Consumer Law Conference, I asked two questions of attendees about whether they read contracts or required disclosures (those results are available here). James Nehf generously allowed me to ask the same questions at his IACL conference last week.  The IACL conference has more attendees from overseas and fewer US law professors, so the responses offer a look at a somewhat different population. The number of the respondents to the questions was small: thirteen for one and fifteen for the other, so take this with some salt, but here are the results:

How often do you read contracts before agreeing to them (e.g., before clicking "I agree" on a web site or to obtain wifi access, a rental car contract, a credit card contract)?

Response options	Count	Percentage
Always	0	0%
Usually	0	0%
Sometimes	3	23%
Rarely	8	62%
Never	2	15%

N = 13

 

Do you read required disclosures before entering into consumer transactions?

Response options	Count	Percentage
Always	0	0%
Usually	4	27%
Sometimes	2	13%
Rarely	8	53%
Never	1	7%

N = 15

Now here are the responses combined with the responses from last year:

How often do you read contracts before agreeing to them (e.g., before clicking "I agree" on a web site or to obtain wifi access, a rental car contract, a credit card contract)?

 

Response options	Count	Percentage
Always	0	0%
Usually	3	9%
Sometimes	9	26%
Rarely	16	47%
Never	6	18%

N = 34

Do you read required disclosures before entering into consumer transactions?

 

Response options	Count	Percentage
Always	0	0%
Usually	8	21%
Sometimes	10	26%
Rarely	17	45%
Never	3	8%

N = 38

Not one respondent always reads the contracts or disclosures; in contrast, more than half said they rarely or never read the contracts or disclosures (nearly two thirds reported that they rarely or never read contracts).  And yet courts act as if everyone reads contracts.  

 

 

Essay on common characteristics and problems in aggregated litigation

In The Continuum of Aggregation, law prof Alexi Lahav discusses the commonalities in various types of aggregated litigation. Here is the abstract:

This essay, written for a conference marking the fiftieth anniversary of the multidistrict litigation statute, 28 U.S.C. § 1407, traces the evolution in thinking about aggregation, analyzes the forms of aggregate litigation — the class action, multidistrict litigation (MDL), and bankruptcy — and describes how while they were at first understood to be separate phenomena, they are now understood to comprise a continuum for resolving large-scale disputes. Mass litigation is like water: the cases will move to the form of litigation that is the most likely to lead to closure, be it the class action, a consolidation of individual cases under the auspices of the MDL, or bankruptcy. All forms of aggregation raise the same three problems: (i) horizontal equity between claimants, (ii) the agent-principal problem between claimants and their lawyers, and (iii) the defendants’ and the system’s need for global resolution of litigation.

 

A Terrific Conference and a Terrific Talk

by Jeff Sovern

I've spent the last few days at a terrific International Association of Consumer Law conference at the of Indiana University's Robert H. McKinney Law School (my second great conference in five months, the other being Ted Mermin's Berkeley Consumer Law Scholars Conference). Indiana's James Nehf clearly had worked very hard to put on the conference.  The IACL brings together consumer law scholars from all over the world every other year so this was an opportunity to hear how other countries solve the same kinds of problems we have while at the same time getting helpful comments on our own work.  One lesson from the conference is that other countries are also struggling with the challenges of how to regulate electronic commerce.

I will probably have more to say about the conference in future posts but I wanted to say something in this post about the talk Shmuel ("Samuel") I. Becher of Victoria University of Wellington in New Zeeland gave about a paper he co-authored with Uri Benoliel of Ramat Gan Law School, The Duty to Read the Unreadable, 60 Boston College Law Review (Forthcoming).

One of the useful things about conferences is that they allow you to hear a brief talk about a paper the significance of which you might have overlooked. I had previously posted the article's abstract to the blog (I'll paste it in again below), but I hadn't read it, a mistake I will now correct.  The article surveys many online wrap contracts and finds that they are beyond the reading level of many consumers.  This doesn't seem unusual; according to the CFPB, the average credit card contract requires a reading level well into eleventh grade while credit card arbitration clauses are on average at a reading level of someone who has nearly completed college. Yet, the paper points out, courts hold consumers to a duty to read these contracts--even though many consumers can't.  That hardly seems either fair or consistent.  The paper argues that policy-makers should oblige consumer contract drafters to write contracts that consumers should be able to understand. Indeed, if policy-makers do not impose such a duty, contract drafters have an incentive to make the contracts unreadable so they can impose their terms on consumers but consumers can't read them and so won't shop elsewhere (though perhaps that incentive is reduced slightly by the unlikely possibility of an unconscionabilty defense). If only courts would say that unreadable contracts are likewise unenforceable.

There were other excellent talks but many were about papers that have not yet been published or posted on the web, and I won't discuss those until they are.

Anyway, here's the abstract:

The duty to read doctrine is a well-recognized building block of U.S. contract law. Under this doctrine, contracting parties are held responsible for the written terms of their contract, whether or not they actually read them. The application of the duty to read is especially interesting in the context of consumer contracts, which consumers generally do not read. 

Under U.S. law, courts routinely impose this doctrine on consumers. However, the application of this doctrine to consumer contracts is unilateral. While consumers are expected and presumed to read their contracts, suppliers are generally not required to offer readable contracts. This asymmetry creates a serious public policy challenge. Put simply, consumers might be expected to read contracts that are, in fact, rather unreadable. This, in turn, undermines market efficiency and raises fairness concerns. 

Many scholars have suggested that consumer contracts are indeed written in a way that dissuades consumers from reading them. This Article aims to empirically test whether this concern is justified. The Article focuses on the readability of an important and prevalent type of consumer agreement: the sign-in-wrap contract. Such contracts, which have already been the focal point of many legal battles, are routinely accepted by consumers when signing up for popular websites such as Facebook, Amazon, Uber, and Airbnb. 

The Article applies well-established linguistic readability tests to the 500 most popular websites in the U.S. that use sign-in-wrap agreements. The results of this Article indicate, inter alia, that the average readability level of these agreements is comparable to the usual score of articles in academic journals, which typically do not target the general public. These disturbing empirical findings hence have significant implications on the design of consumer contract law.

Ninth Circuit: TCPA Survives Constitutional Challenge After Minor Cosmetic Surgery

The U.S. Court of Appeals for the Ninth Circuit yesterday rejected Facebook's effort to avoid a Telephone Consumer Protection Act lawsuit on First Amendment grounds. Facebook had argued that a recent amendment to the law, which excepted calls seeking to collect debts owed to or guaranteed by the federal government from the TCPA's ban on robocalls to cell phones, made the statute an unconstitutional content-based restriction on speech. The court agreed with Facebook but held that the argument didn't do Facebook any good: The remedy the court gave was to sever and invalidate the government-debt exception while leaving the rest of the statute intact. In so doing, the court followed a Fourth Circuit decision from earlier this year.

If this approach is followed by other courts, consumers will benefit twice over: They'll still have the benefit of the TCPA's protections, plus be relieved of the provision that allows student debt collectors and others to do what most callers can't do: pester cell-phone users with unwanted, autodialed calls.

One can disagree with the courts' view that the government debt-collection exception is unconstitutional while still not mourning its loss. Unfortunately, the issue probably will need to be litigated in other circuits before it is ultimately resolved. Congress could solve the problem once and for all by just excising the government-debt exception, which wasn't part of the original TCPA and shouldn't ever have been added.

My Bloomberg piece about the CFPB's FDCPA proposed rules and consumer privacy

by Jeff Sovern

Link here

Excerpt:

[T]the bureau proposal would invade consumer privacy by allowing collectors to bombard consumers with demands for payment. Under the proposal, debt collectors could try the consumer’s phone number seven times a week and leave voicemails each time. That may not sound too bad, but the CFPB reports that nearly 75% of consumers with a debt in collection also have other debts in collection, meaning that such consumers could be overwhelmed with calls from multiple collectors. * * *

Add in that the proposal does not limit the number of texts and emails individual collectors could send, and the result might be that consumers, far from receiving occasional reminders that they owe a debt, flinch when their phone vibrates with a call, text, or email.

Study shows businesses benefit from using unenforceable contract terms

Meirav Furth-Matzkin and Roseanna Sommers, both of Chicago, have written Consumer Psychology and the Problem of Fine Print Fraud, 72 STANFORD LAW REVIEW___ (Forthcoming). Here's the abstract:

This Article investigates how laypeople respond to consumer contracts that are formed as a result of fraud. Across four studies, we show that contrary to the prevailing wisdom in contract law scholarship, fine print is not simply white noise. Rather, it has a significant and detrimental effect on lay consumers. We demonstrate that clauses that consumers neglect to read ex ante, at the time of signing, have a significant psychological effect ex post, when consumers discover that they were deceived about the terms of the transaction. Consumers who would otherwise complain about being cheated are demoralized by contractual fine print, and consequently decline to seek redress. This is because they erroneously assume that all contracts—even contracts induced by fraud—are binding. Our studies presented participants with cases in which a seller induces a consumer to buy a product or service by making a false representation. The false representation is directly contradicted by the written terms of the contract, which the consumer signs without reading. Our findings reveal that laypeople, unlike legally trained individuals, mistakenly believe that such agreements are consented to, and will be enforced as written, despite the seller’s material deception. Importantly, the presence of fine print discourages consumers from wanting to take legal action, initiate a complaint, or damage the firm’s reputation by telling others what happened, even when the contract contradicts what they were told. At the same time, the fact that the seller lied makes little difference to laypeople’s intuitions about whether the contract will be, or should be, enforced as written. Finally, we show that informing consumers about Anti-Deception Consumer Protection Laws alters their perceptions about the legal and moral status of contracts induced by fraud, although such information does not completely counteract their formalistic intuition that whatever the contract says is the final word. The implications of our study, we argue, are that prevailing methods for addressing deceptive business practices are inadequate because they fail to take account of consumer psychology.

 

Some big problems with the CFPB's proposal to allow debt collectors to leave limited-content messages over the phone

by Jeff Sovern

The more I think about the CFPB's recent proposal to allow debt collectors to leave limited-content messages over the phone, the more I think the proposal has real problems. The proposal would allow debt collectors to leave voicemails or oral messages with whomever answered the phone. To qualify as a limited-content message, the message must contain a few items--such as the collector's name and number--may contain certain other items--such as that the person is calling about an account--but can't contain still other items, such as that the person is trying to collect a debt.  These limited-content messages would not count as "communications" within the meaning of the FDCPA, and so wouldn't trigger disclosures that would tell third parties who happened to hear the message that a debt collector is pursuing the consumer. But I don't think they will work, at least not as currently proposed. First I'm going to discuss messages left with a human being, and then voicemails.

Messages left with people

Suppose a collector calls to speak to a consumer, let's call him Stan, and someone else, call her Marina, answers. The collector delivers the message: "Please have Stan call me, Ryan, at [number]." So far there's not a problem. But what happens when Marina asks, as people taking messages often do, "What's this about?" Ryan could reply that it's about an account, which is permitted under the proposal. But of course Marina is then likely to ask an account with whom.  And Ryan can't answer because if Ryan goes beyond the items listed in the definition of a limited-content message, he's no longer delivering a limited-content message, and anything he says risks violating the FDCPA.

So maybe Ryan doesn't want to use the word "account" to avoid getting the question about whom the account is with.  Should Ryan answer that it's a "personal business matter"?  That choice has two problems. First, it violates the prohibition on saying anything not listed in the definition of limited-content messages.  Second, that was the language the collector used in Foti v. NCO Fin. Sys., Inc., 424 F. Supp. 2d 643 (S.D.N.Y. 2006), the case that created the so-called Foti problem.  Not only did Foti say that the message left there violated the FDCPA (though some courts have not agreed as to similar messages), but the Bureau's decision not to include such language within the limited-content messages safe harbor when the Bureau proposal cited Foti indicates that the Bureau is not comfortable with limited-content messages being left that include that language. What if Ryan says it's private or some other such formulation? I don't think that's different enough from "personal business matter" to give me confidence that it will work. Any debt collector saying the matter is private risks paying for litigation to determine if the message is no longer a limited-content message.

Another option for Ryan is to say "I can't answer any questions." But again, who knows if that will take the message out of being a limited-content message? Even saying that is saying something. Still another option is for Ryan to hang up quickly when the consumer asks a question. That will probably work once or even twice per debtor.  But if Ryan calls a third time, and hangs up on the same person taking the message a third time, is that harassment?  Harassment also violates the FDCPA. Maybe Ryan could try to hang up quickly before the person taking the call gets to ask a question, but that's going to be hard to time when Ryan probably wants to verify that the person has written down the phone number correctly. At the end of the day, debt collectors might be better off not leaving messages with live people. Otherwise, they risk funding a law suit to defend their conduct, and maybe losing it.

Voicemails

The collector doesn't have to worry about being asked questions when leaving voicemails, so that's not a problem.  But there are two other issues (and these are also true of messages left with live people): first, it won't take long before everyone knows that a voicemail that refers to an account but doesn't say who it's with is a call from a debt collector.  I will have more to say about that in an upcoming piece in Bloomberg Law, so I will leave that alone for the moment.

But even a limited-content voicemail that doesn't use the word "account" is going to tip off anyone who hears it that the call is from a debt collector.  I'm pretty sure that these days, almost no one leaves voicemails of the sort debt collectors would be permitted to leave under the proposal.  Back in the eighties and nineties, they did, but today almost everyone communicates via text or email. The only people I get voicemails from are older folks who never took up texting--and anyone who hears one of their messages knows who it's from; doctors' offices--and they always identify themselves; and robocallers--and they're pretty easy to identify.  Maybe that isn't true of everyone, but I've been asking people I know, and they say much the same.  I never get a voicemail like the one debt collectors will be permitted to leave (if you do, please so indicate in the comments).  About a third of adult Americans have a debt in collection, which means a lot of people could receive debt collector voicemails, and if they later hear  other people getting the same kind of message, they will know what it is. That will violate the consumer's privacy.  This proposal would have made a lot more sense before everyone learned to text or use email.  But I don't think it will work today. 

It's ironic: for years, I thought that debt collectors should be able to leave voice messages for consumers. But now I don't think that can be done with violating the FDCPA's goal of protecting consumer privacy. The ship of phone messages has sailed.

Will New York catch up to Mississippi in protecting consumers?

by Jeff Sovern

Many states allow their consumers to sue misbehaving companies for unfair practices, including red and purple states like Mississippi, Georgia, North Carolina, Tennessee and West Virginia, states that we normally don't think of as being in the vanguard of consumer protection.  This power can be important in protecting consumers. For example, the CFPB used its own ability to stop unfair practices when it pursued Wells Fargo for opening unauthorized accounts, rather than its power to block deception. But New York has lagged behind these states, as well as its neighbors like Connecticut, Pennsylvania, and Massachusetts, in leaving unfairness out of its UDAP statute. Thus, New Yorkers could not have sued Wells Fargo for unfair conduct in opening unauthorized accounts.

But now that may change. The New York legislature is considering a bill to put the U in its UDAP statute.  The bill would also eliminate New York's requirement that plaintiffs in UDAP cases demonstrate that the offending conduct is "consumer-oriented," a requirement that no other state has adopted and that does not even appear in New York's statute; instead it was added by a court that evidently eschewed textualism as a method of statutory interpretation.

Unfortunately, but predictably, the bill is encountering heavy industry opposition. One argument made against the bill is that it "will open the flood gates for litigation."  But many other states permit consumers to sue for unfair conduct and don't require consumer-oriented conduct and have not experienced a flood of litigation (even assuming there is something wrong with a flood of litigation against bad actors). The items I have listed merely bring the statute into conformity with other states.

The statute currently provides for only $50 in statutory damages. As a number of studies have demonstrated, consumers almost never bring claims for $50.  It just isn't worth it to them.  So preserving $50 as the amount of statutory damages would be essentially the same as having no statutory damages.  The bill addresses this problem by increasing the amount of statutory damages to $2,000, an amount which is more likely to be enough to cause consumers to enforce the statute, though still less than the red state of Kansas, which allows statutory damages of fives times as much, or 200 times what the New York statute currently provides. Of course, businesses object to this too: they prefer that the amount be so low as to render private enforcement virtually nonexistent in the absence of large actual damages.

New York has a chance to offer its consumers not just the protection they need, but that they deserve. It should leap at the opportunity. 

Senators ask CFPB to reconsider debt collection proposal

More than 20 U.S. senators are calling on the Consumer Financial Protection Bureau to reconsider a proposal to allow debt collectors to send unlimited texts and emails to consumers, and to call consumers seven times a week per debt, USA Today reports. “By allowing debt collectors to send consumers unlimited text messages and emails without first receiving affirmative consent for such a method of communication, the proposed rule permits collectors to overwhelm consumers with intrusive communications,” the senators wrote.

The full article (which quotes the full text of the letter) is here.

New challenges for Mathew Higbee and his clients

by Paul Alan Levy

About a month ago, I blogged about a new variant in Matthew Higbee’s high-volume copyright enforcement practice on behalf of photographers, in which he was pursuing the hosts of online forums where users had posted copyrighted photographs or deep links to copyrighted photographs, taking advantage of those hosts who had failed to preserve their DMCA immunity by not registering a DMCA agent. (Note his response in the comment section, which does not merit a reply).  I gave Higbee a chance to withdraw his client’s claims; however, Higbee had previously told me that my arguments about non-liability for infringement in an identical case were “delusional,” so we decided to give Higbee a chance to explain to a judge in what way these defenses were delusional, that is, in response to an action for a declaratory judgment.

I confess that, in filing that lawsuit, I wondered whether Higbee had ever warned Luong that he would not necessarily get to make the final decision whether his demand would end up in litigation, in that the very aggressiveness of Higbee’s demand letters, coupled with persistent nagging from paralegals to offer a settlement or face immediate litigation, sets up his clients to be sued for a declaratory judgment of non-infringement. That speculation proved prescient, because Higbee’s immediate response to the lawsuit was to offer to have his client covenant not to sue Schlossberg for infringement. Higbee also told me that he had offered to defend Luong against the declaratory judgment action for free.  It appears, however, that even such a generous offer was not enough to hold onto Luong as a copyright infringement claimant in this case. A settlement agreement has been signed; because there is no longer a case or controversy, the lawsuit has now been dismissed.  Many thanks to Phil Malone and to Stanford third-year law student Alyssa Picard for their work on this case; and thanks for Kevin Schlossberg for having the gumption to stand up to Higbee's bullying.

John Oliver on our failure to properly regulate medical devices

View it here or click on the embedded video below.

 

Linda Fisher & Judith Fox Book: The Foreclosure Echo: How the Hardest Hit Have Been Left Out of the Economic Recovery

It's to be published next month by Cambridge and sounds like an important contribution. Here's a description:

The Foreclosure Echo tells the story of the ordinary people whose quest for the American dream was crushed in the foreclosure crisis when they were threatened with losing their homes. The authors, Linda E. Fisher and Judith Fox - each with decades of experience defending low-to-moderate-income people from foreclosure and predatory lending practices - have employed a range of legal, economic, and social-science research to document these stories, showing not only how people experienced the crisis, but also how lenders and public institutions failed to protect them. The book also describes the ongoing effects of the crisis - including vacant land and abandoned buildings - and how these conditions have exacerbated the economic plight of millions of people who lost their homes and have increased inequality across the country. This book should be read by anyone who wants to understand the fallout of the last financial crisis and learn what we can do now to avoid another one.

• Provides specific examples, through stories, of how the law affects real people
• Illustrates the implications of law and policy to help readers see and feel the implications
• Makes concrete policy and legal recommendations, based on evidence, legal experience and clients' situations

More information here.