Consumer Law & Policy Blog

Copyright-Protected Area?

by Greg Beck

In this post, I questioned whether a company can claim copyright in a shampoo bottle to preclude anyone from taking pictures of it.  As reported by BoingBoing, this business seems to have taken the concept even further, creating a "Copyright-Protected Area."

New Guidelines on Exotic Loans

by Jeff Sovern

An article in today's New York Times reports on predictions that new federal lending guidelines will reduce the number of borrowers who take out interest-only loans and adjustable-rate mortgages with payment options.  The Guidelines apply to so-called exotic loans and call for disclosure of, for example, possible increases in monthly payments (listed in the Guidelines under the heading "Payment Shock") and prepayment penalties.  If the predictions come true, that would suggest that better-informed consumers would rather not use such loans.  It would also support the notion that the Truth-in-Lending disclosures aren't enough to inform at least some consumers. 

How Far Can Companies Go to Regulate Use of Their Trademarks?

by Greg Beck

A scene in the pilot for NBC's new superhero drama Heroes shows one of the characters sticking her hand in a running garbage disposal and pulling out a mangled and bloody stump.  Due to the nature of her super powers, the hand heals itself within a matter of seconds.  Most viewers watching the gory scene (myself included) probably did not notice the name on the rim of the garbage disposal.  If you watch carefully, however, you can see that the disposal is an "In-Sink-Erator."  That is an actual brand of garbage disposal made by Emerson Electric Co.

Apparently upset by NBC's unauthorized use of a picture of its product, Emerson sued to block further distribution of the pilot episode.  Its complaint, which includes pictures of the ground-up hand, raises claims of unfair competion, trademark infringement, dilution by blurring and tarnishment, trade libel, and defamation.  It requests an order permanently restraining NBC from showing the pilot episode or from using any Emerson trademark without permission, and forcing NBC to destroy all existing copies of the show.  The complaint also demands attorneys' fees and damages, including money to conduct a corrective advertising campaign.

ABA eJournal Report on Brown v Card Service Center

Last week, Brian Wolfman blogged on Brown v. Card Service Center here.  Now the ABA eJournal has weighed in with an article as well.

New GAO Study: Credit Card Late Fees Up, Disclosure Down

An extensive new study by the Government Accountability Office, the investigative arm of Congress, shows that late fees for credit-card payments have jumped, but card issuers have done a poor job of explaining their policies on fees and penalties to consumers. The report examined:

(1) How card fees and other practices have evolved and how cardholders have been affected, (2) how effectively these pricing practices are disclosed to cardholders, (3) the extent to which penalty charges contribute to cardholder bankruptcies, and (4) card issuers' revenues and profitability. Among other things, GAO analyzed disclosures from popular cards; obtained data on rates and fees paid on cardholder accounts from 6 large issuers; employed a usability consultant to analyze and test disclosures; interviewed a sample of consumers selected to represent a range of education and income levels; and analyzed academic and regulatory studies on bankruptcy and card issuer revenues.

The GAO report describes the fees, interest rates and disclosure practices of 28 popular credit cards. It found that late fees averaged $34, up from $13 in 1995, while some credit-card issuers impose penalty interest rates of more than 30 percent on consumers who pay late or exceed the credit limit.

"Predatory Structured Finance": Is it time for a new label within the lexicon of predatory lending?

by Christopher Peterson

Over the past five years commentators in the debate over subprime home mortgage lending have ironed out a standard list of practices and contract terms that serve as warning signs of "predatory lending." These terms and practices include high interest rates, high fees and closing costs, balloon payments, negative amortization, inflated appraisals, insurance packing, mandatory arbitration, unaffordable loans based on the value of collateral, rushed closings, multiple refinancing, abusive collection, prepayment penalties, and misleading or fraudulent disclosure. This list is both necessary and useful.

However, in a new article entitled "Predatory Structured Finance" (forthcoming in the Cardozo Law Review) I suggest that the concept of predatory lending has nevertheless been cast too narrowly.  In today’s subprime mortgage market, originators and brokers quickly assign home loans through a complex and opaque series of transactions involving as many as a dozen different strategically organized companies.  Loans are typically transferred into large pools, and then income from those loans is "structured" to appeal to different types of investors. 

The article includes a useful illustration (pictured above) of a typical subprime home mortgage securitization structure.  This process, usually referred to as securitization, can lower the cost of funds for lenders, allowing them to offer better prices.  But, it can also capitalize fly-by-night companies that specialize in fraud, deceptive practices, abusive collections, and other predatory behavior.  Some of the institutions that sponsor and administer securitization of mortgage backed securities are complicit in predatory lending.  By encouraging, facilitating, and profiting from predatory loans, these financiers have themselves slipped into predation. In addition to transferring liability to the secondary market through assignment based rules (such as the Federal Trade Commission’s holder-notice rule or the Home Ownership and Equity Protection Act’s assignee liability provisions), courts and policy makers should explore common law imputed liability theories such as civil conspiracy, aiding and abetting, and joint venture.  Unlike assignee liability rules, these older common law theories can reach architects of predatory structured finance that never actually own predatory loans themselves.

New Second Circuit Decision Protects Homeowners

by Brian Wolfman

    The Second Circuit today issued a major decision regarding the rights of homeowners whose homes are seized by local authorities for failure to pay taxes without giving the homeowners constitutionally adequate notice.

    In Lussenhop v. Clinton County, the Second Circuit did two important things.  First, the court held that the Tax Injunction Act, 28 U.S.C. 1341, does not bar a plaintiff from challenging in federal court  notice procedures employed by state and local governments prior to seizing tax delinquent property.  Second, in remanding the three cases before it to the district court, the court indicated that it would vigorously protect the notice rights established in Jones v. Flowers, 126 S. Ct. 1708 (2005).  Jones held that when the government knows that its initial notice that it plans to seize a home has not reached the homeowner, due process requires the government to take reasonable additional steps to notify the owner prior to the taking.  As the first major post-Jones ruling, the Lussenhop decision is definitely worth a read.

    [Disclosures: Michael Kirkpatrick and Deepak Gupta of my office, Public Citizen Litigation Group, filed an amicus brief in Lussenhop.  The Litigation Group also represented the homeowner in Jones v. Flowers.]

Caveat Proletarius: The ALEC Model Consumer Protection Law

by Ira Rheingold

It's recently been announced in the press that the American Legislative Exchange Council or ALEC, an organization of "conservative state lawmakers" has created a "model state consumer protection law" that will be introduced in statehouses across the nation in 2007.  (CL&P has previously mentioned this development here and here; the proposal's full text can be found in an appendix to this law review article.)

As an organization that claims to be interested in the "Jeffersonian principles of free market, limited government, federalism and individual liberty," one might expect that their model law would promote a marketplace that rewards honest behavior, promotes fair competition, and supports a private incentive-driven regulatory scheme that would offset the need for more heavy-handed government regulation.  Unfortunately, those expectations would be very wrong.

Class Action Fairness Act: More on the New FJC Data

    by Brian Wolfman

    I am surprised that, as noted in Deepak Gupta's recent post, Tom Willging is surprised that The Federal Judicial Center (FJC) preliminary data on the Class Action Fairness Act (CAFA) show that CAFA had its intended effect of moving class actions of the kind previously litigated in state court to federal court (either via original filing or removal).  That result seemed inevitable because, under CAFA, in most substantial consumer class actions where there’s a diverse defendant, there’s nothing a plaintiff can do to keep the case out of federal court.  So, I wouldn't have expected it to take much time for the law to kick in; one would expect to see its effect almost immediately.  The more important question, I think, is whether the law will affect case outcomes (class certification, settlements, other legal rulings). On that question, it’s too early to tell, and the empirical evidence will be tougher to collect and evaluate.  It seems like difficult research, among other reasons, because seemingly there will be no significant group of similar post-CAFA state court cases to which the post-CAFA federal cases can be compared.  I look forward to seeing what Tom and his colleagues at the FJC produce in that regard.

CL&P Roundup

• Ohio's Chief Justice decries the influence of cash:  In an op-ed column in this week's Legal Times, the Chief Justice of the Ohio Supreme Court weighs in on the unhealthy influence of campaign contributions and politics on elected judiciaries--an issue we've recently discussed here, here, and here:

Over the past decade a perfect storm of millions in campaign contributions, increasingly hardball TV ads, and bare-knuckled special interest demands has descended on a growing number of state supreme court campaigns. The new politics deters good lawyers from becoming judges and increases voter cynicism. In August the states’ Conference of Chief Justices voiced "grave concern" over the changing nature of judicial elections and called for meaningful reforms . . . .

The bottom line is that we can’t leave judicial elections to the partisans and politicians. It’s time for everyone—judges, lawyers, and civic leaders—to enter the national debate over our courts. Americans want and need judges who are accountable to the law and the Constitution, not to special interests.

• A "Consumer Class Defense"?:  Consumers  should be allowed to intervene to assert their interests as a class in certain suits between two businesses--such as the recent patent litigation involving Blackberry handheld devices--under a "consumer class defense" theory.   That's the unusual proposal put forward in a note in the hot-off-the-presses Yale Law Journal, "Blackberry Users Unite! Expanding the Consumer Class Action to Include a Class Defense." 

• National Law Journal on federal class action stats:  The Journal reports on the Federal Judicial Center's report on the Class Action Fairness Act -- which Brian Wolfman discussed here several weeks ago -- showing a marked increase in class actions winding up in federal court:

"I was surprised that the impact happened so soon," said senior researcher Thomas E. Willging of the center, the research arm of the federal judiciary. "Often it takes time for a law's impact to play out. But we saw it in just four and a half months after the effective date. This was particularly dramatic."

• Pretexting:  Pretexting continues to be a hot topic in the news.  The FTC recently announced a settlement with a pretexting outfit, requiring the defendant to give back a whopping $2,700 in ill-gotten revenue (no, that's not a typo).  Reuters reports that "[d]isgorgement of the $2,700 is the stiffest penalty the FTC can seek under current federal law. The FTC has recommended that any new laws adopted give the agency authority to impose additional civil penalties for pretexting."   Meanwhile, in California, three of the defendants in the Hewlett Packard pretexting case were arraigned this afternoon.

• Project Posner:  Tim Wu, a law professor and former Posner clerk, has created a website where you can easily search and read the published decisions of "probably the greatest living American jurist."   The site doesn't include Posner's ridiculously large corpus of articles and books.