Consumer Law & Policy Blog

New blog-on-the-block: The Situationist

There is a new blog on the block that should be interesting to anyone investigating, litigating and advocating consumer issues such as deceptive advertising, visual illusions, and human biases in issues such as lending and credit payments. Indeed, one of its founders, Jon Hanson, has been a leader in consumer law scholarship and areas such as product liability and market manipulation, using insights from social psychology and behavioral economics to inform policy. Here is the description of the blog and its origins:

Part of a larger effort, including the Project on Law and Mind Sciences at Harvard Law School (website forthcoming), this blog will provide commentary by social psychologists, law professors, policy analysts, practicing attorneys, and others connected to law and mind sciences. Our posts . . . will address current events and law and policy debates, informed by what social scientists are discovering to be the causally significant features around us and within us that we believe are irrelevant or don’t even notice in explaining human behavior, that is “the situation.”

Situationism is premised on the social scientific insight that the naïve psychology—that is, the highly simplified, affirming, and widely held model for understanding human thinking and behavior—on which our laws and institutions are based is largely wrong. Situationists (including critical realists, behavioral realists, and related neo-realists) seek first to establish a view of the human animal that is as realistic as possible before turning to legal theory or policy. To do so, situationists rely on the insights of scientific disciplines devoted to understanding how humans make sense of their world—including social psychology, social cognition, and related disciplines—and the practices of institutions devoted to understanding, predicting, and influencing people’s conduct—particularly market practices. Jon Hanson & David Yosifon, The Situation: An Introduction to the Situational Character, Critical Realism, Power Economics, and Deep Capture, 152 U. Pa. L. Rev. 129, 149–77 (2003).

Situationism has been applied to such topics as power economics, natural disasters, obesity, commerical speech and junk-food advertising, Supreme Court dynamics, racial injustice, affirmative action, race and rape, employment discrimination, employee adherence to workplace rules, legitimization of war, inside counsel, and player autonomy in the National Basketball Association, among other topics.

More Than 1,000 Households Were Determined Eligible for Housing Assistance Benefits After Legal Challenge Forced FEMA to Review Cases

After winning continued housing assistance for more than 1,000 households of evacuees from Hurricanes Katrina and Rita, Public Citizen voluntarily dismissed a lawsuit late Tuesday against the Federal Emergency Management Agency (FEMA).

Lawyers with Public Citizen represented the Association of Community Organizations for Reform Now (ACORN) and individual hurricane evacuees in a lawsuit against FEMA after the agency cut housing benefits to thousands of evacuee households in August 2006. The agency did not provide adequate notice of the reasons that further benefits were denied and what steps the evacuees could take to restore them.

Judge Richard J. Leon of the U.S. District Court for the District of Columbia ruled that FEMA’s procedures violated the Constitution and ordered the agency to provide clearer notices of the reasons for, and an opportunity to appeal, denials of eligibility for further housing assistance. FEMA was required to send better notices of the reasons for denial of eligibility for temporary housing assistance benefits to more than 4,000 evacuee households. As a result of the lawsuit, FEMA quickly adjudicated the resulting appeals, and at least 1,069 evacuee households have had their status changed from ineligible to eligible because of the case. The benefits for these households have been extended through August 2007.

Virginia Poised to Enact Lenient Payday Loan Legislation

    Those of you interested in state legislative efforts in the predatory lending area should take a look at this report from the Richmond-Times Dispatch, which describes yesterday's committee action in the Virginia House of Delegates signing off on legislation "sought by" the lending industry that provides for almost no regulation of payday loans.  The same legislation has already easily passed the Virginia Senate.

New York AG Settles Adware Charges

by Greg Beck

New York’s Attorney General announced a settlement yesterday with three big companies, Priceline.com, Travelocity.com, and Cingular Wireless, accused of using software called Direct Revenue to deliver unwanted ads to computer users. In a 2006 lawsuit, the Attorney General alleged that Direct Revenue installed its software onto millions of computers without adequate notice or consent. Once installed on a user’s computer, the software monitored Internet usage, collected data typed into web forms, and delivered a steady stream of unwanted advertising. To make matters worse, once installed, the software was difficult to remove.

The settlement marks the first time that advertisers, instead of just the adware maker itself, have been held responsible for this abusive sort of advertising. That seems like a smart strategy. In this case, Priceline, Travelocity, and Cingular had spent hundreds of thousands of dollars advertising their services through Direct Revenue. Targeting the advertisers could help dry up the source of funding that keeps adware companies in business. Although the financial settlement was relatively small, a total of $100,000 between the three companies, the companies also agreed to use only adware programs that provide notice and consent to users and make it easy for users to uninstall. Of course, few computer users, if fully informed, will willingly choose to install adware on their computers.

Center for Responsible Lending Critiques Predatory Lending Study

Ed Mierzwinski over at U.S. PIRG's Consumer Blog reports that "The Center for Responsible Lending has published a critique of major analytical flaws in a new working paper 'Defining and Detecting Predatory Lending' . . . by Federal Reserve economist Donald P. Morgan of the Federal Reserve Bank of New York."  Ed's post and all the relevant links can be found here.

Dear Senator Dodd: A Credit Card Holder's Bill of Rights

After this week's hearing on the credit card industry, Texas consumer lawyer Craig Jordan sent the following letter to Chris Dodd, outlining a "Credit Card Holder's Bill of Rights." I asked Craig if he would let us reprint the letter here because I thought our readers would find his commonsense proposal worth reading.

Dear Senator Dodd:

I am a consumer lawyer with over 20 years experience representing consumers, both as an assistant attorney general for the State of Texas and as a private attorney. I commend your recent hearings on the credit card industry and I hope that you will take action to stop some of the serious problems the industry causes for consumers.

I believe, based upon my daily representation of consumers with problems relating to their credit cards accounts, that the industry has entirely lost touch with the basic concepts of fair play and honest dealing. To remedy the most serious problems I have published on my law firm website a credit card holder's bill of rights:

Credit Card Holder's Bill of Rights

1. No credit card company shall hold a card holder in default for any reason other than failure to make timely payments on the account being declared in default.

2. No credit card company shall change the interest rate payable on the existing balance of an account except pursuant to a previously agreed variable rate agreement in which the interest rate is tied to a published market rate.

3. No credit card company shall change the interest rate payable on future transactions unless the card holder has a meaningful opportunity to reject the change and pay off the account at the existing interest rate.

What Does Barney Have Planned?: Are Stricter Mortgage Lending Rules On Their Way?

    By Brian Wolfman

    Today's Washington Post has this annoyingly non-specific article based in part on the author's interview with Rep. Barney Frank (D-Mass.), the new Chair of the House Financial Services Committee.  The topic is "suitability" in mortgage lending -- the quaint notion that lenders should only lend on terms that provide borrowers a realistic ability to stay out of foreclosure.  Frank is quoted as saying that "[y]ou shouldn't lend [home buyers or refinancers] more than they can afford to pay back, and you [shouldn't] lend them more than their house is worth."  As I said, the article is short on specifics, but Frank seems to be considering a combination of more disclosure for potential borrowers and substantive requirements that would prohibit lending to people who don't have a realistic likelihood of repaying.   Is he contemplating a sort of HOEPA for all mortgage lending or something with more teeth?  Comments anyone?

A Bit More on the Senate Credit Card Hearing

Go here for the Washington Post's overview of yesterday's Senate hearing on credit card practices.

Reactions to Yesterday's Senate Hearing

In yesterday's post, I mentioned the Senate Banking Committee's hearing on credit card abuses, which received some attention in today's papers.  Jeanne Sahadi had an interesting column at the CNN Money website.   The Gannett service had this story, quoting Elizabeth Warren.  And Professor Warren's own blog has a post about how the phrase "tricks and traps" recurred throughout the hearing, as well as the reactions of one of her students.   Here's a quote from Senator Dodd:

“I would like to put the credit card industy . . . on notice,” Committee Chairman Sen. Christopher Dodd, [D-Conn.], said at the hearing. “If you currently engage in any business practice that you would be ashamed to discuss before this committee, I would strongly encourage you to cease and desist that practice.”

I asked Ira Rheingold, a seasoned legislative advocate for consumers who was at the hearing, to offer his take on how it went. Here's Ira:

Yesterday, the Senate Banking Committee held the first, of a promised series of hearings on the anti-consumer business practices of the credit card industry (The hearing can be seen here.) For now, while not much can be expected from this Congress that might really force the banking industry to end its myriad of predatory practices (in credit card lending and beyond), the hearing actually provides some hope that eventually something productive might happen.

The first good sign was that the hearing actually took place and a stellar lineup of consumer advocates had the opportunity to testify (although I might add, for some reason – feel free to take a guess – the consumer witness who was scheduled to testify was bumped at the last minute). Our side's testimony, particularly the descriptions of what really happens to actual consumers when they fall prey to the "tricks and traps" of the credit card industry, clearly made a marked impression on the Senators. We saw this in the other positive sign from the hearing, that a number of the Senators (including several of the Republicans and especially the new Democratic members) expressed real concern about the credit card industry’s behavior and unquestionably put the industry on the defensive. It seemed clear that most of the members of the Committee (with the particular exception of Senator Carper (D-DE)) were deeply disturbed by indefensible industry practices as “double-cycle billing”, “universal default” and the incessant marketing of credit cards to unemployed college students. While turning this expressed concern into a bill with teeth (instead of another recycled version of improving “disclosures”) isn’t going to happen tomorrow, I think at least we can now begin to see the flicker of possibility.

Senate Banking Hears Testimony on Credit Card Abuses

by Deepak Gupta

A hearing before the Senate Banking Committee on “Examining the Billing, Marketing, and Disclosure Practices of the Credit Card Industry, and Their Impact on Consumers" is now underway. You can watch the hearing live on your computer at this link.

Guests include Elizabeth Warren, Leo Gottleib Professor of Law and author of The Two Income Trap: Why Middle Class Mothers and Fathers are Going Broke, Harvard Law School; Dr. Robert Manning, Professor of Finance and Author of Credit Card Nation, Rochester Institute of Technology; John Finneran , President of Corporate Reputation and Governance, CapitalOne Financial; Richard Vague, Chief Executive Officer, Barclaycard US; Carter Franke, Executive Vice President of Marketing, JP Morgan Chase & Co.; Tamara Draut, Director, Economic Opportunity Programs, Demos; and Travis Plunkett, Legislative Director, Consumer Federation of America.

Consumer litigator and NACA member Mike Donovan of Philadelphia will be testifying and sharing some client stories about the effect of credit card industry practices on consumers. You can read his written testimony here. With the new leadership in Congress, we can expect more opportunities like this one for consumer advocates to share their clients' stories--and hopefully bring about some positive legislation, after so many years of playing defense. (Thanks to Ira and NACA and Ed at U.S. PIRG for the tip.)