Consumer Law & Policy Blog

Brief Filed In Critical California Supreme Court UDAP Case

By Brian Wolfman

    Way back on September 15, I blogged here about an effort by Public Citizen and the Center for Auto Safety to convince the California Supreme Court to review a ruling that, if allowed to stand, would gut California's consumer protection laws.  The California Court of Appeal had ruled that California's Proposition 64 requires consumers to show "reliance" to prevail under those laws.  (As you may recall, Proposition 64 got rid of the so-called private attorney general provisions of California's consumer protection laws.)  Then, here, I blogged again after the California Supreme Court granted review.

    With the able representation of California consumer lawyer Jeff Fazio, Public Citizen and the Center for Auto safety have now filed their amicus brief on the merits.  Because a fundamental premise of modern consumer protection law has been that the plaintiff need not prove reliance, the California Supreme Court's decision in this case is likely to be very important. 

Preventing Contamination Of Our Food Supply: Is FDA Up To The Task?

Today's Washington Post contains this article about the recent spate of serious food contamination incidents around the country and asks whether the FDA has the capacity to keep the food supply safe.  Here's the beginning of the article, which is worth reading in its entirety:

The Food and Drug Administration has known for years about contamination problems at a Georgia peanut butter plant and on California spinach farms that led to disease outbreaks that killed three people, sickened hundreds, and forced one of the biggest product recalls in U.S. history, documents and interviews show.

Overwhelmed by huge growth in the number of food processors and imports, however, the agency took only limited steps to address the problems and relied on producers to police themselves, according to agency documents.

Congressional critics and consumer advocates said both episodes show that the agency is incapable of adequately protecting the safety of the food supply.

Uncle Sam: Dangerously Careless With Our SSNs

Ed Mierzwinski over at U.S. PIRG's consumer blog has this informative piece about recent U.S. government disclosures of our social security numbers.  Ed links to stories in today's New York Times and Washington Post describing these disclosures in detail.  Worth a look.

Arbitration and Identity Theft

by Jeff Sovern

  I was inspired by my co-blogger Paul Bland to add a problem to the consumer law casebook I've been working on with Dee Pridgen, Andy Spanogle, and Ralph Rohner about what happens when an identity thief signs an agreement providing for arbitration.  Can the impersonated consumer be forced to arbitrate?   Who decides if the consumer's signature is genuine: an arbitrator or a court?   Unfortunately, one of the downsides of writing a casebook with problems is that you have to give answers to the problems in the teacher's manual.  So what is the answer?

It seems incredible that a consumer who never agreed to arbitration would be obliged to submit to arbitration anyway.  In fact, a federal district court decision, Maranto v. Citifinancial Retail Services, Inc., 2005 WL 3369948 (W.D.La. 2005), held that when an account is allegedly opened by an identity thief, the impersonated person is not bound to arbitrate even though the agreement contains an arbitration clause. The opinion reads as if the Magistrate Judge felt that the court decides whether the consumer signed the agreement (“There is no valid agreement to arbitrate between Plaintiff and Defendant. Defendant apparently issued a credit card and opened an account in Plaintiff's name, but there is no evidence before the court that Plaintiff applied for the card or consented to the opening of the account. In fact, the allegations are that the account was opened as a result of identity theft committed by an imposter.”).

More on Whether the Federal Government is a "Consumer Reporting Agency" Under the FCRA

by Jeff Sovern

On Wednesday I blogged about whether lenders who trolled for potential borrowers through a federal database containing the financial records of millions of student aid applicants might have violated the Fair Credit Reporting Act.  The answer depends in part on whether a government agency qualifies as a consumer reporting agency within the meaning of the FCRA.  Notwithstanding the statutory language which I referred to on Wednesday, some authority states that it does not.  In Ollestad v. Kelley, 573 F.2d 1109, 1110 (9th Cir. 1978), the Court wrote:

The district court concluded that the FCRA does not apply to records held by federal agencies and granted defendants' motion for summary judgment. That conclusion was proper in light of the plain language of the statute, the absence of evidence of Congressional intent to include federal agencies within the statutory definition of “consumer reporting agency,” and the Federal Trade Commission's interpretation of the statute.

But the case is easily distinguishable and the statements appear to be overbroad dicta.  The plaintiff in Ollestad had sought an injunction under the FCRA to obtain corrections in his FBI records.  After quoting the definition of a consumer reporting agency, the court wrote: "It cannot be contended seriously that agencies such as the F.B.I. compile information on persons, particularly on former employees as is the appellant, for the purpose of furnishing consumer reports to third parties."  In addition, in commenting on the legislative history, the Court explained that "Although the FCRA's legislative history is less than explicit, the tenor of remarks of members of Congress indicates that the statute is concerned with regulating practices in the credit reporting industry rather than with regulating the record-keeping functions of federal agencies."  The student loan database, by contrast, has to do with the credit industry.

Bush Administration Antitrust Policy

    You may be interested in this recent Washington Post article by Steven Pearlstein about the laxity of the Bush Administration's antitrust policy.  The article discusses a number of recent mergers on which the Bush Administration took a pass and a new academic paper reporting on a study in which 100 leading antitrust lawyers were asked to compare the current legal environment to a decade ago on a scale of 1 to 5, where 1 was tough antitrust enforcement and 5 was lax enforcement.  The score: 4.9.

Are Lenders Trolling a Federal Student Loan Database to Solicit Borrowers Violating the FCRA?

by Jeff Sovern

The Washington Post had a story on Sunday about fears that lenders are trolling for potential borrowers through a federal database that contains the financial records of millions of student aid applicants.  Today's New York Times reports that because of the concerns, the Education Department has temporarily cut off outside access to the database.  Federal rules reportedly prevent the use of the database for that purpose and the Department of Education has in the past revoked some IDs that grant access to the database.  I'm not familiar with the federal rules in question and I hadn't even heard of the database until these reports surfaced, but I can't help wondering if this practice would give rise to a claim under the Fair Credit Reporting Act. 

The FCRA limits access to consumer reports to certain permissible purposes as stated in 15 U.S.C. § 1681b.  Lenders are permitted to send solicitations if they comply with the prescreening rules but if those rules were not complied with, the lenders may have a problem.  It's hard to believe that the FCRA applies to a database maintained by the government, but on a quick look I can't find anything that says it doesn't.  The FCRA applies to "consumer reports" assembled by "consumer reporting agencies," as defined in § 1681a. The database reportedly was maintained at least in part to determine student eligibility for financial aid, which would seem to qualify its reports as consumer reports ("any written . . . or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity . . . .").  "Consumer reporting agency" is defined in part as "any person which for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information . . .."  It seems likely that that describes the federal database.  The word "person" is specifically defined as including any "government or governmental subdivision or agency, or other entity." 

Does anybody out there see something I'm missing?  Incidentally, obtaining information from a consumer reporting agency under false pretenses is a federal crime under § 1681q; gives rise to a private claim by consumers with $1,000 in statutory damages under § 1681n; and gives rise to a claim by the credit reporting agency.

More On The Federal Judicial Center's New Report On CAFA From The Lead Author

by Tom Willging

[Ed. note:  Tom Willging is a Senior Researcher at the Federal Judicial Center and an expert on class actions.  Among other things, he helped write the Manual on Complex Litigation.  Note the request for assistance at the end of Tom's post]

    You probably haven't heard enough about CAFA lately. As the Federal Judicial Center's long-term study of the impact of CAFA on the federal courts plays out, we have delivered our third--that's right third, time flies--report on the Judicial Conference's Advisory Committee on Civil Rules. We blogged earlier, here and here, about whether our results were surprising. Now, with 16 months of data after CAFA went into effect, there's no surprise in the number of case brought into the federal courts: at least 300 and perhaps as many as 364 appear attributable to CAFA. More newsy, though, is a shift in the type of cases. The initial wave consisted mostly of cases filed in state courts and removed to federal courts. Most of the more recent increase, though, comes in the form of diversity cases filed originally in federal courts. Figure 4 in the report tells this story in graphic format. Diversity cases before CAFA typically came into federal court by removal. Now they more often arrive as original actions. We also present data on the courts where the increased cases were filed. Though dispersed across the district courts in all circuits, Figure 5 shows that the 9th seems to have had a special impact, particularly focused in Central (L.A.) and Northern (SF) California.  We're still looking for a partner to work with us in studying activity in one or more state courts. Anyone interested?

What's New in the World?

by Richard Alderman

I recently returned from South Africa where I attended the 11^th Annual Conference of the International Association of Consumer Law. It was a wonderful, well attended, event with representatives from around the world. It was also an eye opening look at how consumerism is viewed around the world.

Everyone in attendance seemed to share a real concern for protecting consumers, but what struck me the most was what so many countries are doing, and the United States is not.  Mandatory pre-dispute arbitration clauses are prohibited in most countries, and there seems to be universal recognition that denying access to the civil justice system through a boiler-plate form contract is not right.  Abusive lending practices are under attack in many countries.  For example, South Africa recently enacted a new National Credit Act that prohibits the granting of “reckless credit,” and has proposed a law that limits the recovery of interest and fees, including attorney's fees, to the amount of the outstanding balance on the loan.  There is also a new Commission that was described as the “new sheriff in town,” and which seems to take its job very seriously.  Other countries, such as Australia, have consumer ombudsmen assisting consumers, and take financial education seriously.  While many countries around the world are experimenting with various forms of a the class action device to provide redress when the is a small injury to many consumers.

Meanwhile, back at the ranch, we embrace arbitration, defend payday lending, try to eliminate class actions, and deregulate credit terms, including interest rates, to the end of glorious profits for the consumer lending industry.  I was asked by one attendee at the Conference why American consumers put up with some of these things, and I realize he had asked the million dollar question.  Why do we?

Elizabeth Renuart on Line-Drawing and the Practical Effects of Watters v. Wachovia

by Elizabeth Renuart (National Consumer Law Center)

Rather than discussing why the majority may be legally wrong (the dissent does an excellent job of that), my thoughts focus on the lines drawn by the decision and its potential practical effects.

    One line that arguably became brighter is that between operating subsidiaries and other entities that are hired by or act as agents for national banks. The majority focuses on the legal relationship between operating subsidiaries and the banks, the OCC's position that it oversees both entities in a similar fashion, and the added "support" it found in the Gramm-Leach-Bliley Act for Congressional recognition of these closely related companies. The specificity with which the majority details its view of the legal support in federal statutes for its conclusion weighs against the authority of the OCC to extend preemption rights to agents or third party contractors who work closely with national banks, even if the OCC claims it can examine them. (The OCC put its foot in this pool a few years ago when it issued an opinion letter related to car dealers acting on behalf of banks in Michigan). Where an entity is not the equivalent of a national bank (see slip op. at 13), preemption ought not to extend to that business.

As for practical consequences, the decision should cause those remaining independent mortgage companies to reconsider whether they will seek federal charters to parent them in a bank holding structure. Any doubt about whether to go this route, at least as far as the regulatory playing field goes, is now eliminated. The OCC should be careful what it prays for: it is now crystal clear that it must examine and enforce all preempted state laws against all of the operating subsidiaries of national banks in all 50 states (and to know the ins and outs of those state laws). It has not hired scores of new examiners or enforcement attorneys. Its public record in enforcement has been weak over the last few years since it decided to take on this job.

Finally, the pressure now will build on the FDIC to create a similar playing field for state-chartered banks and their operating subsidiaries even though the legal infrastructure to do so is much weaker than the National Bank Act (arguably non-existent). Attempts to pressure the FDIC along these lines occurred 2 years ago but the FDIC shelved the industry's petition. I expect that pressure to resurface in light of this decision.