Consumer Law & Policy Blog

New York's Attorney Advertising Rules Held Unconstitutional

The Northern District of New York ruled today that New York's amended rules against attorney advertising are unconstitutional and permanently enjoined enforcement of most of the challenged provisions. The court agreed with Public Citizen's argument that the state had not shown that the rules were necessary to help consumers and were not narrowly tailored to the state's asserted purpose. In fact, the rules restricted truthful advertising that would benefit consumers.

Meanwhile, more state bars are moving toward enhanced restrictions on advertising that are patently unconstitutional. Louisiana and Indiana are both considering new rules that in many ways resemble the rules held unconstitutional in New York. Florida is also considering expanding its already draconian rules to cover websites. And the New Jersey Supreme Court is considering whether the state may constitutionally prohibit attorneys from calling themselves "Super Lawyers." In all these cases, the Federal Trade Commission has opposed the restrictions on speech in the interest of consumers. In the New Jersey case  the FTC filed an excellent amicus brief that I think clearly explains how unnecessary advertising restrictions accomplish little other than squelching competition and leading to higher prices.

Consumer lists are not so innocent if you can't opt out

Last Friday, the Christian Science Monitor published the following op-ed piece I wrote:

Protection of personal information has drawn increasing attention because of problems such as identity theft, the Hewlett-Packard pretexting scandal, and data losses by major corporations and government agencies. Congress and the states have responded by enacting numerous statutes to protect consumers. But one type of information that has received less attention is the sale of consumer lists.

While most consumers probably understand that mailing and similar lists exist, many may be surprised by the type of information available. Want a list of Jewish donors broken down by age and the presence of children? Check the Web. One broker offers lists of the members of more than 40 ethnic groups. Or maybe you would like one of the dozens of lists of users of particular medications. Lists can be broken down by income, geography, marital status, age, and gender.

The sale of such lists raises several issues. One issue is simply privacy. To be sure, some list creators offer consumers an opportunity to opt out of the sale of information about them. But federal law imposes no obligation to offer an opt-out, and even compilers who offer an opt-out may not explain that the failure to opt out may land consumers on a list organized by ethnicity or other private information. Of course, list sellers have little incentive to tell consumers things that may cause them to opt out because lengthier lists are more valuable.

The availability of lists also permits marketers to engage in discrimination. Federal law bars discriminating on the basis of national origin, for example, in lending, but it does not prevent a seller of products from sending mailings only to members of a favored group. Sellers can also fine-tune their solicitations and make different offers to different groups.

Finally, while it seems unlikely that a person wishing to commit hate crimes would purchase a list of members of a particular ethnic group to commit improper acts, the fact that such lists are available is nevertheless cause for concern.

Rather than enacting comprehensive privacy regulation, the US has proceeded ad hoc, passing legislation in response to particular privacy invasions. For example, Congress answered last year's Hewlett-Packard pretexting scandal by enacting a pretexting statute. As a result, privacy laws are a jumble of irreconcilable rules.

If you buy a Harry Potter book and video, federal law bars the seller from disclosing that you bought the video, but nothing prevents the seller from selling information about your book purchases. That is because Congress was outraged in 1987 when a newspaper published the video rentals of then-Supreme Court nominee Robert Bork. But no one published a list of his book purchases.

Congress has also regulated the sale of consumer financial data, credit reports, and health information, in part because they involve particularly sensitive matters. But the types of information on consumer lists may be just as sensitive. Congress should protect consumer privacy by establishing rules to govern the collection and sale of consumer information. At a minimum, it should require list compilers to disclose to consumers the types of lists they could appear on and allow them to opt out. This way the rights of those who wish to protect their privacy are respected.

Upcoming Consumer Law Conference at the University of Wyoming

The University of Wyoming will hold its Seventh Annual Consumer issues Conference at its campus in Laramie on Wednesday, September 26^th through Thursday, September 27^th, 2007.  The theme of the conference is "Money Matters" and it will cover issues regarding credit cards and credit scoring, bankruptcy and debt collection, investment & retirement, and identity theft. Keynote speakers include James Scurlock, Director of the documentary Maxed Out, Jeanne Hogarth of the Federal Reserve Board, and Nancy Smith of AARP Financial.  Other speakers include Norma Garcia of Consumers Union, Jan Zavisland of the Colorado Attorney General's Office, my co-author, Dee Pridgen, of the University of Wyoming Law School and Elaine Welle also of the Wyoming Law School.   The conference will also feature a session with regional legislators, presentations by  experts from across the country and region, and the opportunity to interact with other people interested in improving  consumer issues. There will be a special screening of the movie “Maxed Out: Easy Credit and the Era of Predatory Lenders,” on September 26^th at 7:30 p.m. in the A & S auditorium with Director James Scurlock and Norma Garcia, attorney with Consumers Union. CLE credits will be available.   The conference is open to lawyers, students and the general public.

For more information, please visit the conference website at www.uwyo.edu/consumerconference.

Elizabeth Warren on the Relationship Between Our Broken Health Care System and Personal Bankruptcy

Professor Elizabeth Warren testified last week before the Judiciary Committee of the U.S. House of Representatives on the tragic relationship between our failing health care system and the rise in personal bankruptcies.  As Prof. Warren puts it:  "Since 2000, an estimated five million families have filed for bankruptcy in the aftermath of serious medical problems. The current health care finance system is bankrupting hard-working, play-by-the-rules American families."  Prof. Warren's testimony, as well as materials related to her proposal to create a Financial Product Safety Commission to protect consumers against risky financial products, can be found at this entry on the Harvard Law School website.  For more on the relationship between illness/injury and bankruptcy, see this empirical study in the journal Health Affairs by Warren, David Himmelstein, Steffie Woolhandler, and Deborah Thorne.
 

Another Form of Predatory Lending?

Saturday's Times had an article headlined "Enticing Ad, Little Cash And Then a Lot of Regret," about what Steve Cox, spokesperson for the Council of the Better Business Bureaus called "another form of predatory lending" that "generates more complaints than any other business."  The practice involves businesses that offer computers to consumers with poor credit and then deliver the computers late (or never) while deducting payments over time directly from the consumer's bank account and charging far more than the computer is worth.

Securitization of Loans

Chris Peterson has previously blogged here about securitization of subprime and predatory loans (that is, the packaging and sale of the right to receive payments on such loans); he's also published a longer treatment of the issue in the Cardozo Law Review available here.  Professors Engel and McCoy, who are also estimable commentators on the problem of predatory lending have now weighed in on the problems caused by securitization as well.  See Kathleen C. Engel & Patricia A. McCoy, Turning a Blind Eye: Wall Street Finance of Predatory Lending, 75 Fordham L. Rev. 2039, 2041 (2007) available here.  Here's a quote:

* * * [S]ecuritization inflicts negative internalities on borrowers in at least four ways.  First, securitization funds small, thinly capitalized lenders and brokers, thus enabling them to enter the subprime market.  These originators are more prone to commit loan abuses because they are less heavily regulation, have reduced reputational risk, and operate with low capital, helping to make them judgment-proof.  Second, securitization dilutes incentives by lenders and brokers to avoid making loans with excessive default risk by allowing them to shift that risk to the secondary market, which has other ways to protect itself.  Third, securitization denies injured borrowers legal recourse against assignees by triggering the holder-in-due-course rule and impeding-outs.  Lastly, securitization drives up the price of subprime loans because investors demand a lemons premium for investing in subprime mortgage-backed securities.

Professors McCoy & Engle propose a number of reforms, including increased due diligence requirements and assignee liability for “(1) common law tort claims, such as fraud and improvident lending; (2) contract claims such as unconscionability; [and] (3) claims under state and local anti-predatory lending laws” but not under state UDAP statutes.  By contrast, advocates of securitization claim it enables lenders to extend loans to more borrowers at reduced rates because it reduces lender risks. 

Eleven Big Junk Food Sellers Promise To Limit Advertising To Kids

In an effort to ward off federal regulation, eleven big food companies, including McDonald's and Pepsi, have voluntarily agreed to limit their junk food TV advertising to kids.  Read this New York Times article for a complete explanation, including why General Mills will be limiting its advertising of Trix but not of Cocoa Puffs!  Hmmm . . .

Consumers Opt In to Receive Text Message Ads

Opponents of opt-in systems for advertising (in which sellers send ads only to consumers who have agreed to receive them) sometimes claim that no one would ever opt in to receive ads, and so the systems won't work.  But yesterday's New York Times E-Commerce Report, headlined "Reaching More Customers With a Simple Text Message," tells a different story.  A quote:

Earlier this year, Moosejaw [Mountaineering, a Michigan retailer,] began sending out text messages to more than 1,000 of its customers who had signed up to receive them. The campaign caught on quickly, with recipients often sending messages back to the retailer and receiving loyalty program points as a reward.

Opt-in systems may be unattractive to sellers because they may reach fewer consumers and are more expensive for sellers than opt-out systems (in which sellers send ads to consumers unless the consumers have objected to receiving them), but at least some consumers are willing to opt in for messages they think are right for them.

Companies Claim Right to Interfere with eBay Auctions for Charging Too Little

by Greg Beck

I predicted here that companies would soon rely on the Supreme Court’s decision in Leegin Creative Leather Products v. PSKS to justify interfering with competition from less expensive products sold online. It did not take long for that prediction to come true. Although interference with eBay sales is nothing new (see here and here), companies in two recently filed federal cases explicitly invoke Leegin as a justification for terminating the eBay auctions of competitors that charge lower prices online. These cases not only show Leegin’s likely effect on Internet sales, but are also, unfortunately, fairly typical examples of the sort of anticompetitive actions companies take to fight lower-priced competition online.

Consumer Law Questions for Presidential Candidates

by Jeff Sovern

The presidential campaigns and media outlets are understandably concerned with issues like the Iraq war, health care, the economy, nuclear proliferation, global warming, and the like. But the nation also faces important consumer law issues. One service a specialized subject-matter blog like ours can provide during national elections is to ask the candidates about issues within our purview that might fly below the general media’s radar screen. We cannot guarantee that the candidates will answer, but it might be helpful to post a list of questions that seem worth asking, invite readers to suggest other questions, and then pose the questions to the candidates. We can post responses as we receive them (and even if we don’t receive any responses — which seems unlikely, though we may have to wait for responses until the parties choose their candidates — the exercise of compiling questions might itself be useful). The questions could also be asked of candidates for the Senate or House of Representatives.