Consumer Law & Policy Blog

14 Top-Side Briefs Filed in FCRA Cases

by Deepak Gupta

In Safeco v. Burr and GEICO v. Edo, set for argument on January 16, the U.S. Supreme Court will decide whether a "willful" violation of the Fair Credit Reporting Act can be established by proof that the defendant recklessly disregarded the law. My colleague Scott Nelson, who is counsel for the respondents in both cases along with Scott Schorr of Portland, Oregon, has already summarized the case in this prior post and posted the the decision below, the petitions in Safeco and Geico, and our Brief in Opposition.

The other side's briefs have just been filed: two insurance company petitioners' briefs, the Solicitor General's brief, and a slew of industry amicus briefs--for a whopping total of 14 briefs in all. This is a perfect illustration of a point made by Brian Wolfman and Paul Bland at a panel on Supreme Court litigation in Miami this past weekend: Does anyone really believe that the Justices will have the time to carefully study all of these briefs?

(A sidebar: On the problem of amicus overload at the Court, see these two articles. Justice Ginsburg is quoted as saying that "she has her law clerks arrange the briefs into three piles: must-read briefs; those she could skim or read selected pages from; and then, the 'skip' pile that she does not need to read at all. The first pile, she said pointedly, is 'very thin.' The largest pile, she said sheepishly, is the 'skip' pile." Needless to say, when you have 14 briefs on one side of the case, the odds that a good number will end up in the 'skip' pile is pretty high.)

Horsing Around with Consumer Law

by Jeff Sovern

I have wanted to comment on the postings of Michael Greve's thought-provoking Law of the Horse here and here for some time but other matters have prevented me from getting to it sooner. If I understand him correctly, he argues that the justifications offered for separate rules governing consumer law are inadequate, or to put it another way, that we shouldn't have created this particular "law of the horse."  I mostly disagree.

Let me give an example, drawn from my article, Towards a New Model of Consumer Protection: The Problem of Inflated Transaction Costs, 47 William & Mary L. Rev. 1635 (2006), that helps explain why.  There I wrote about: 

the quotation of interest rates prior to enactment of Truth in Lending.  Different lenders quoted interest rates on consumer loans in different ways. Some used the dollar add-on method; some used the discount basis; others stated a monthly rate as applied to a defined balance; and still others combined different methods.  Consumers could not compare rates calculated by one method to rates determined by another method without going through complex calculations, calculations beyond the skills of most consumers. As a result, consumers attempting to shop for the lowest rates found it very difficult to do so.   (footnotes omitted).

Congress responded  to this problem by enacting Truth in Lending, which among other things, standardizes the way in which lenders quote interest rates so that consumers can determine which lender offers the lowest rate.  TILA may or may not have succeeded in its goals--that's a subject for another day--but I believe that few today would call for returning to the pre-TILA days concerning quotation of interest rates.

CL&P Roundup

by Deepak Gupta

• Hard times for "tort reform" lobbyists?  Now that the Democrats have taken control of Congress, will so-called legal reform or tort reform proposals fall off the agenda?  That's what the National Law Journal suggests in this article.  Given the changeover in many state legislatures, the same might be true of recent industry proposals (see here and here) to gut state consumer protection statutes.  Might predatory lending become a focus?  As my colleague Scott Nelson reported here last week, some lobbyists may be planning to use federal predatory lending legislation as an excuse to preempt state law.  We'll be watching.

• Affirmative proposals on credit cards, arbitration: In the coming weeks and months here at CL&P blog, we'll be covering what the consumer legislative agenda might look like.  In the meantime, over at Professor Elizabeth Warren's blog, her students have floated some proposals:
  • Amend the Truth in Lending Act to prohibit credit card companies from unilaterally changing the terms of cardholder agreements.
  • "Amend the Federal Arbitration Act so that arbitration clauses in adhesion contracts are unenforceable unless there is a mechanism for the efficient aggregation of claims.  We can class them in or out of arbitration -- but there must be a functional class mechanism." 
  • Repeal the requirement that consumers receive credit counseling before they are eligible to file for bankruptcy.

• Preemption, deference, predatory lending, and national banking.  As we've mentioned here earlier, Watters v. Wachovia -- the pending Supreme Court case about the OCC's preemption of state predatory lending laws as applied to state-chartered operating subsidiaries of national banks -- has the potential to be a real blockbuster decision in all of these areas, whichever way it's decided.  The Court's answer to the case's thorny questions about deference to a federal agency's self-aggrandizing interpretation of its own authority through regulatory preemption may have an impact well beyond the relatively narrow context in which it arises.  I'll be participating in a moot court for respondents' counsel next week and plan to attend the oral arguments on November 29, so stay tuned for more on this subject later.  But for now you can check out all of the bottom-side (i.e. pro-preemption) briefs at the OCC's website.   Here's the petitioner's opening brief and here's the consumer groups' amicus brief.  The reply will be filed next week.

• "SSN or mother's maiden name, please." Professor Daniel Solove has some thoughts about banks' use of Social Security numbers as a means of verifying identities.

Opening the Door Back Up for Consumer Claims

by Mike Quirk

This is a followup to a panel presentation given at NCLC's Class Action Symposium in Miami earlier this week.  Over the past year, consumers have continued to make progress fighting back against companies that impose mandatory arbitration clauses banning arbitral awards of class-wide relief.  Consumers prevailed on challenges to these clauses before the U.S. Court of Appeals for the First Circuit and the State Supreme Courts of Illinois and New Jersey.  The carefully reasoned decisions of these three courts give consumers the chance to assert federal and state law claims that the class bans would have extinguished.

While these decisions represent important victories for consumers, none is an unqualified victory.  For consumers and their advocates who continue to encounter these clauses, there are at least two important lessons to be taken from the recent appellate decisions.  First, none of these courts holds that class arbitration bans in consumer contracts are per se unenforceable.  Rather, the decisions invalidating the bans turn on particular characteristics of the claims that were before each court.  Second, in assessing the validity of these class bans and whether it would be prohibitive for consumers to bring claims individually, each of the three courts was influenced by different factors.  What follows is a short overview of these decisions to hopefully guide consumers and advocates who will need to rely on these cases as companies continue to hide behind these class arbitration bans.

La Class Action Américaine

by Deepak Gupta

The French parliament may soon consider a new consumer protection bill that would, among other things, introduce a version of consumer class actions in France, require telecom companies and Internet service providers to stop charging consumers for time spent waiting on customer-service hotlines, beef up the government's consumer protection watchdog, and allow for tax-deductible contributions to consumer rights associations. "This [law] is a question of justice and it's important for consumer confidence, and thus for economic growth," said French President Jacques Chirac. The bill was introduced by finance minister Thierry Breton and approved at a cabinet meeting last week. Le Figaro recently interviewed Breton about the bill (in French).

This would be a big step for France, but it's a shame that the law stops short of reaping all of the efficiency benefits and incentives for private enforcement created by the American-style class action device. At least for now, liability alone will be decided on a classwide basis, leaving consumers to individually negotiate with the defendant for compensation and appear before a judge only if the defendant refuses to settle. And even these limited class actions can be brought only by government-approved consumer organizations, can only relate to consumer goods or services valued at less than 2,000 Euros, and will be subject to a damage cap. Still, it's a step in the right direction. And perhaps if France has a positive experience with the class action device, it will begin to loosen these restrictions.

Last month, the French consumer association filed not one but 12,530 requests for damages against three mobile phone companies accused of illegal collusive behavior, requesting a total of only 750,000 Euros. As a blog by a Belgian law professor who has been following the issue reports, the consumer association's tactic exposes the "stupidity of not having a kind of 'class-action' avenue for matters of this kind: flooding courts with thousands of requests raise the threat of further paralyzing the overburdened judicial machinery. This is what is at the heart of the consumer association's action: building - through the absurd - its case for a collective legal remedy."

For a predictably different view, see Ted Frank's post at Point of Law, which applauds only the restrictions and links to an Institute for Legal Reform paper by John Beisner and Charles Borden decrying other nations' importation of American-style class actions.

Not So Cute Anymore

by Christopher Peterson

Gary Coleman endeared himself to Americans as a child actor staring in the 80's sitcom "Different Strokes". His cherubic face and affably excitable character reliably delivered punch lines, including especially his signature catchphrase "Whatchoo talkin' 'bout, Willis?"  When his television show ended, Coleman found that his parents and manager had mismanaged his multi-million dollar trust fund, eventually leaving him penniless.

I always felt sympathy for the actor, who suffers from a congenital kidney disease, as he tried to break out of his childhood typecasting and find a satisfying path in life. Still, it raised my eyebrows when I learned that Mr. Coleman had accepted a job as a spokesperson for Cash Call, Inc., a California based finance company that makes high-interest, unsecured loans to consumers in California, Idaho, Nevada, New Mexico, and Utah. In most other states Cash Call also acts as a solicitation agent for First Bank & Trust, Milbank, South Dakota.

This three-way relationship brought a couple of thoughts to mind:

First, lenders have a tendency to focus on economics when they talk about public policy. Discussions of usury law, disclosure law, and bankruptcy seem to inexorably turn to concepts like opportunity costs, Pareto optimal outcomes, and regulatory distortion. The intellectual contributions of behavioral economists are generally scorned or minimized. But lenders do seem to rely on psychology when they talk to their customers. Mr. Coleman is valuable to Cash Call and First Bank & Trust because of his notoriety. It is not as though loans from by a firm endorsed by Gary Coleman are better or cheaper loans. Rather they employ him because he is salient in the minds of millions of people who watched him on television back in the good-ole’ days. Mr. Coleman reminds us that things don’t always work out, and that even former TV super-stars do not need to feel bad about borrowing money from a shady company like Cash Call now and then. (Go to ripoffreport.com and search under "Cash Call" for a long list of upset customers, including this one or this one.) Mr. Coleman is an ideal spokesman for a company that wishes its customers to lower their guard. After all, who wouldn’t trust cuddly, little "Arnold" from TV?

A second point. In an essay forthcoming in the American Law Review, I question the wisdom of granting federal preemption to agents of chartered depository institutions. According to the Office of the Comptroller of the Currency and the Office of Thrift Supervision, independent agents of national banks and thrifts should be regarded as beyond the regulatory and legislative oversight of state governments. The FDIC is considering an attempt to grant similar powers to state banks, such as First Bank & Trust, Milbank, South Dakota. Federal regulators have explained that state governments should not be allowed to regulate national banks and thrifts simply because the financial institutions chose to deliver services through an agent. But as Cash Call’s relationship with First Bank & Trust demonstrates, non-depository agents will always tend to have less incentive to forego predatory behavior than a depository institution with closer oversight, greater capital requirements, and relatively greater investment in reputational capital. If First Bank & Trust wants to use Gary Coleman to peddle their high-interest loans, shouldn’t they be required to hire him directly, rather than hiding behind an agent?

In the end perhaps Mr. Coleman still deserves our empathy. I suspect he is being used yet again.

Public Citizen, the ACLU, and the NYCLU Comment on New York's Advertising Rules

by Greg Beck

As I've previously written, the New York courts are considering adopting new ethics rules restricting attorney advertising.  Today, Public Citizen, the ACLU, and the New York Civil Liberties Union submitted comments urging the courts to reject the proposed amendments in their entirety.  The comments, which you can read here, attack the constitutionality of the proposed amendments on three grounds:

1. The rules do not contain an exception for nonprofit attorneys, thereby restricting non-commercial and political speech at the core of the First Amendment.
2. The rules contain pointless restrictions on the content of attorney advertising that seem aimed more at limiting competition than helping consumers.  I wrote about these restrictions in more detail here.
3. The rules impose draconian burdens on Internet speech that would, for example, require us to print out a copy of this blog every time it is modified.  I covered this aspect of the rules here.

The proposed amendments have garnered a lot of negative publicity, especially in the blogosphere, and we hope that the courts will reconsider these blatantly unconstitutional rules.

Metro Ride to Capitol Hill: $1.35. Full-Page Ad in the Times: $250,000. Mass-Market Documentary on Credit Card Industry Abuses: Priceless.

by Deepak Gupta

One of the highlights of the Miami conference was an advance screening of Maxed Out, a new documentary on the credit card, credit reporting, and debt collection industries that hits theaters across the country next year.  The movie artfully combines heartbreaking stories of real consumers; segments with industry lobbyists, journalists, academics, and consumer advocates; shockingly honest interviews with a pair of frat boys who started a collection agency and a pawn shop owner who is himself in debt; Congressional testimony; politicians' speeches; and stock footage--all to create a fast-paced narrative that's equal parts humor and outrage, sometimes at the same time.  Members of the consumer law community such as Professor Elizabeth Warren, Bud Hibbs, David Szwack, and Ed Mierzwinski make appearances, as do President Bush, a Comptroller of the Currency official, and the stand-up comedian Louis C.K. (the creator of the hit HBO sitcom Luckie Louie).   

The film is made in the same vein as the fast food documentary Super Size Me--an entertaining and engaging documentary that sheds light on an important public policy problem.  In fact, in a panel discussion following the movie, director James Sculock revealed that he was planning to make a film about obesity in America until he found himself waiting in vain to see Super Size Me at the Sundance Film Festival; he realized immediately that it would be a big hit, and decided to switch gears.  He next planned to make a mostly comedic film about debt in America until his research revealed the gravity of the problem and the nefariousness of the industry's practices and convinced him to shift gears once again.  The result is a sober and responsible documentary that has the potential to shape the law for the better.   Given the change in Congress and the political mood of the nation, it couldn't come at a better time.

A single documentary film can't cover everything that's wrong with the financial services industry in America, of course, and decisions had to be made about what to include and what to leave out.  I could have done without the film's shallow and unexplained analogy between the growing national debt and the crisis of personal debt and might have at least mentioned student loans--but these are relatively minor criticisms.  Maxed Out manages to cover plenty, including the tactics of unscrupulous debt collectors, described in their own damning words; the complete indifference of credit reporting agencies to the overwhelming amount of false data in their reports; and the aggresive hawking of credit cards on university campuses, with kickbacks to university administrators.

The topic of campus credit card solicitation had perhaps the most emotional impact of anything in the film.  The movie profiles two mothers whose children committed suicide because they were so deep into credit card debt that they thought they had no way out--an alarmingly common occurrence.  One of the mothers featured in the film participated in the panel discussion in Miami, lending a very personal perspective on the issue.  (For more on this important topic, including stories of suicides and the complicity of college officials, see Creola Johnson's law review article, Maxed Out College Students: A Call to Limit Credit Card Solicitations on College Campuses, 8 N.Y.U Journal of Law and Public Policy 191 (2005).)

Suffice it to say, every consumer law professor should be screening this film in their classes and every legislator in America should see it.   The new coalition campaign on predatory lending issues, Americans for Fairness in Lending, plans to help roll out the film with selected screenings around the country, including a special Washington, DC, screening for members of Congress.  You may also want to visit AFFIL's website to see a sampling of their brilliant new advertisements on predatory lending issues. 

To read reviews, watch clips, learn more about the film and its director, and find out about screenings in your area, you can visit the film's website, maxedoutmovie.com.   The website even includes a blog by the film's director.    And there's also a fan website, www.maxedoutbuzz.com. We'll be sure bring you more news about Maxed Out as it comes to our attention.

Programming Note & Miami Recap

by Deepak Gupta

With most of the blog's contributors at the National Consumer Law Center conference in Miami over the past few days, posting activity around here has been a little sparse.  The good news, though, is that the conference was abuzz with lots of fascinating ideas, tips, and insights and we plan to make up the deficit by expanding upon and sharing some of them here.  NCLC, along with the National Association of Consumer Advocates, deserves enormous credit for creating and sustaining the national community of private lawyers, public interest organizations, legal services lawyers, and activists who advocate on behalf of consumers, and NCLC's excellent annual conferences are a huge part of that effort.  It's hard to overstate their importance.

The blog's contributors alone discussed a wide array of topics, including teaching consumer law (Chris Peterson, Jeff Sovern, Richard Alderman); lobbying on consumer legislative policy in Washington (Ira Rheingold); a report on the arbitration wars and strategic thinking about arbitration (Paul Bland); "check diversion" debt collection schemes (Deepak Gupta); and litigating consumer cases in the U.S. Supreme Court (Brian Wolfman, Paul Bland).   As Chris has already mentioned, Paul Bland was honored with the NCLC's most prestigious award and gave a truly inspiring acceptance speech.  In addition, CL&P bloggers gave presentations at the class action symposium on Sunday.  Brian Wolfman delivered a lunch address on the due process right to opt out--discussing ideas described in this prior blog post--and there were panels on the arbitration of consumer class actions (Mike Quirk, Paul Bland), and the role of trial plans in class actions (Cary Flitter, Stephen Gardner), among others.   On the latter topic, apparently nobody really knows what a trial plan is, except that some courts have insisted on them as a precondition for class certification.  To make matters worse, some courts have rejected plans as too cursory while others have rejected plans that were too complex.  This leads one to wonder whether the requirement is nothing more than a pretext to deny certification where it would otherwise be justified. 

Finally, on a slightly random note, here are two very intriguing questions that came up this weekend:

• Can the consumer movement be expanded (and its legislative agenda strengthened) by bringing in evangelicals and the "religious right"--people who presumably believe that the law should reflect the Biblical prohibitions on usury, but who are not necessarily positively disposed to the language of consumer rights?  Perhaps the answer lies in shifting the focus from rights-talk to the language of morality, responsibility, and obligation.  See Paul B. Rasor, Biblical Roots of Modern Consumer Protection Law, 10 Journal of Law & Religion (1993).

• Can the evil of mandatory binding arbitration be attacked, indirectly, by bringing successful consumer class actions in arbitral fora?   Do arbitrators, because of the way they are compensated, actually have an incentive to certify consumer classes?  And if so, what are the due process implications of an arbitral award in a class arbitration?   How can an arbitral award bind absent class members and what about injunctive relief?  To what extent can court confirmation cure any problems that might arise?   (We hope to bring you a discussion of at least some of these questions in the coming days.)

Congratulations to Paul!

On Sunday the National Consumer Law Center awarded the annual Vern Countryman prize to our colleague and co-blogger Paul Bland. Paul is uniformly regarded as the nation's foremost advocate against mandatory, binding arbitration agreements in consumer and employment litigation. The  Vern Countryman Award is presented to a legal services or public interest attorney who has made special contributions to the protection of the rights of low-income Americans.

Paul's acceptance speech--which featured iterative praise for mentors and co-workers--was a study in grace, humility, integrity, and determination. Surely there is no person in the country more deserving of the prestigious award. Please join me in offering Paul our best congratulations.