Consumer Law & Policy Blog

Eleventh Circuit Issues Important RESPA Class Action Decision

by Brian Wolfman

The Eleventh Circuit's decision in Busby v. JRHBW Realty, No. 06-15308 (Jan. 17, 2008), is worth reading for two reasons.  First, in Busby, the district court denied class certification, the plaintiff class sought permissive interlocutory review under Federal Rule of Civil Procedure 23(f), the appellate court allowed review, and that court reversed in favor of the class. That scenario has been quite rare.  In the vast majority of Rule 23(f) cases, it has been defendants who have convinced the appellate court to review, and, in many of those cases, certification has been reversed.  Plaintiffs' Rule 23(f) petitions have rarely been granted, let alone led to plaintiff-favorable rulings.

Second, the Eleventh Circuit's reversal is interesting on its own terms.  Busby is a class action under the Real Estate Settlement Procedures Act (RESPA).  Section 8(b) of RESPA provides that

No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.

The Eleventh Circuit held that because all class members were claiming a violation of section 8(b) on the ground that no services were provided for the fee that they were charged in settlement, the predominance requirement of Rule 23(b)(3) had been met.  In so holding, the court distinguished another of its cases holding that class treatment is generally inappropriate in other kinds of RESPA actions.  The Eleventh Circuit's decision also contains an interesting discussion of whether class counsel's allegedly unethical solicitation of the named plaintiff rendered that counsel inadequate under Rule 23(a)(4).

Does copyright law bar the posting of unflattering cease and desist letters?

by Paul Alan Levy

Last fall, Greg Beck blogged here about a law firm's cease and desist letter that demanded suppression of consumer criticisms of Direct Buy, and closed with a threat to sue for copyright if the recipient of the letter had the audacity to post the cease and desist letter on his web site.  Although the widespread discussion that followed this posting (including a fair amount of ridicule) apparently had the effect of inducing the firm to leave such threats out of future letters, the firm's proprietor, John Dozier, can’t let go of his theory that such a copyright suit could be brought and not laughed out of court.

A Dozier press release proclaims that a recent decision from a federal judge in Idaho “has found that copyright law protects a lawyer demand letter posted online,” that the decision “recognizes copyright rights in Cease and Desist,” and that the publisher of the letter “raised First Amendment and fair use arguments without success.”  Consequently, Dozier claims that unauthorized publishers of demand letters “can subject the publisher to liability” for statutory damages “as much as $150,000 per occurrence plus attorney fees that can average $750,000 through trial.”  And, he concludes, the ruling returns C&D letters to “a state of normalcy” because businesses can send them without having to be afraid that the letters will be posted for the public to see and ridicule.

This would certainly be chilling if it were an accurate portrayal of the decision (which was not appealed because the blogger ran out of money and could not find pro bono appellate counsel).  But Dozier seems not to have read the  actual decision carefully.  The ruling reveals something else – disturbing in its own way, but not what Dozier claims. 

White House Considering Candidates To Head Consumer Product Safety Commission

by Brian Wolfman

Today's Washington Post has  this article about the White House's consideration of candidates for Chair of the Consumer Product Safety Commission, the government agency charged with protecting the public from potentially dangerous products, ranging from fire-prone mattresses to hazardous cleaning products to lead-laden toys. It is important for the CPSC to have a permanent leader dedicated to consumer protection.

We blogged here, here, here, and here about President Bush's ill-fated effort to place Michael Baroody in the job.  Baroody's main credential for CPSC chair was that he was chief lobbyist for the National Association of Manufacturers. We have also blogged here and here about the controversy over acting chair Nancy Nord's travels to exotic locations around the world paid for by the industries that she is charged with regulating. We have also reported various times, for instance here, on proposed legislation to enhance the CPSC's powers. The effort at new legislation was spurred in large part by the failure of our regulatory system to prevent the influx of lead-tainted toys from abroad.

Jack Kemp on Using Bankruptcy Law to Help Mortage Borrowers

Jack Kemp, former Member of Congress, Secretary of Housing and Urban Development, and Republican vice presidential candidate, has a column here in the Christian Science Monitor supporting changes in the bankruptcy laws to help consumers facing default on their mortgage loans.  Some excerpts:

* * * Under current [bankruptcy] law, courts can lower unreasonably high interest rates on secured loans, reschedule secured loan payments to make them more affordable, and adjust the secured portion of loans down to the fair market value of the underlying property – all secured loans, that is, except those secured by the debtor's home.

This gaping loophole threatens the most vulnerable with the loss of their most valuable assets – their homes – and leaves untouched their largest liabilities – their mortgages.

* * *

The proposed Emergency Home Ownership and Mortgage Equity Protection Act being considered by Congress would [close the so-called loophole]. It is targeted only at subprime and nontraditional mortgages and will be available for only seven years after it is enacted in order to mitigate against the next wave of exploding interest-rate resets.

* * * It is estimated that more than 600,000 homeowners could use bankruptcy protection to modify their loans and stay in their homes.

Some argue that expanding bankruptcy relief for homeowners would encourage frivolous bankruptcy filings, but recent reforms have made filing a very onerous process. People who bought homes with the intent of flipping them two years later are not going to go through the aggravation, embarrassment, and cost of bankruptcy.

The folks at Credit Slips have also blogged on proposals to allow stripdowns.

U.S. News Article on Rebates

U.S. News and World Reports has an article on rebates, titled "Why Shoppers Love to Hate Rebates" that gives both sides of the debate.  A self-serving excerpt:

Jim Wohlever, chief executive at Young America, explains that companies could not afford to offer as many rebates if everyone took advantage of them. Requiring effort on the part of customers separates those who will make a purchase only if they can get the refund from those who are willing to pay more. Plus, it allows retailers to maximize their profits by selling to both groups at different prices. "It's a price segmentation strategy," Wohlever says.

Or it may just be a paperwork-tolerance segmentation strategy. "It may only separate those who can better fill out forms from those who can't, or those who have more time to complete forms from those who don't," says Sovern, who questions the fairness of rebates.

Using Choice-of-Law Clauses to Defeat State Consumer Law Protections

After the California Supreme Court found unconscionable a clause banning class actions in a consumer arbitration contract in Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal. Rptr.3d 76, 113 P.3d 1100 (2005), the lower court, on remand, relied on a Delaware choice-of-law clause in the contract, among other things, to conclude that Delaware law applied and that Delaware would enforce the class action waiver, thus rendering the consumer victory at the Supreme Court pyhrric.  See Discover Bank v. Superior Court, 134 Cal. App.4th 886, 36 Cal.Rptr.3d 456 (2005).  William J. Woodward of Temple explores the problem of such choice of law clauses in his article, Constraining Opt-Outs: Shielding Local Law and Those it Protects from Adhesive Choice of Law Clauses, 40 Loyola of Los Angeles L. Rev. 9 (2006) and available at http://ssrn.com/abstract=1003997.  Here's the abstract:

Fifty years ago, the idea that parties could "choose" the law governing their contract was alien to the way most courts viewed their roles. Applicable law depended on complicated conflict of laws rules, administered by judges who would apply the law, not on party choice. Contemporary contracts, by contrast, nearly always specify the law that will govern them. Choice of law clauses reduce uncertainty, contribute to economic welfare and, in most instances, are no longer controversial. But when we move from negotiated contracts to adhesion and mass market contracts, choice of law clauses can become less than benign. A drafter will, of course, choose law that best suits its needs. But the law that best suits the drafter may well be less than ideal for the customer. Not surprisingly, recent cases reveal that mass market drafters often choose the law of a state that offers very limited protection for customers in their dealings with the drafter. Cases show, for example, that drafters choose the law of a state that recognizes adhesive class action waivers over the law of a state that does not. If such a choice of law provision is effective against customers whose law ordinarily protects them from such waivers, the drafter has effectively replaced the law their state crafted to protect its residents with the less-beneficial law the drafter chose. This, of course, raises policy questions and both courts and state legislatures have begun to address them. How can a state "protect" the law it has developed to benefit its residents without jeopardizing the commercial certainty that choice of law provisions provide? After providing an analytic framework for considering the complex issues raised by this amalgam of conflicts and contract law, we proceed to consider solutions both at the state and federal level.

Nancy S. Kim on the Effect of Clickwrap and Similar Licenses

Nancy S. Kim of California Western School of Law has authored "Clicking and Cringing," available at http://ssrn.com/abstract=1003921, on the effect of shrinkwrap, clickwrap, and browsewrap licenses.  Here's the abstract:

Shrinkwrap, clickwrap and browsewrap licenses have complicated contract law by introducing non-traditional methods of contracting to govern the use of software. The retention of the underlying intellectual property by the licensor, and the malleable qualities of software, give rise to the ability and the need to set parameters of use. The courts have tended to defer to the ownership rights of licensors by claiming that there is valid contract formation, even in "rolling contract" situations. Some commentators have argued that existing contract law doctrines--such as unconscionability and good faith--are sufficient to address digital-era contracting dilemmas. While such arguments have their place in discussions about contract enforcement, because these doctrines are standard contract defenses, they fail to explain a finding of contract formation. In this Article, I propose a theory for non-negotiated software licenses. A consumer's assent to a transaction should not be transmuted into blanket assent to each individual term of a non-negotiated contract. Instead, the concept of "assent" should be bifurcated into two parts, actual assent and presumed assent. Actual assent means express agreement, not simply to the transaction, but to each of the individual material terms. Presumed assent means that the licensee, by expressly agreeing to the transaction, may also be presumed to have assented to certain of the contract terms. The licensee should not be presumed to have assented to all contract terms, however, as is currently the case under the "blanket assent" approach to contracts. Whether the licensee's assent to a given term may be presumed depends upon the operative effect of the term. The licensee may be presumed to have assented to provisions governing the "scope of license" or the "terms of use" (as further defined) to the software or website because such terms establish the conditions upon which the licensor has agreed to make the digital information available. The licensee's performance under the contract, however, would be conditioned upon notice. Furthermore, the caption heading of "scope of license" or "terms of use" would not be determinative. The licensee should not be presumed to have assented to provisions that impose affirmative obligations or purport to take away the licensee's legal rights. Part I of this Article introduces the doctrinal problems related to non-negotiated software licenses. Part II proposes a 2-part methodology that first analyzes whether the putative licensee has assented and the nature of that assent (i.e. whether it is general assent to engage in a transaction or whether it manifests assent to the disputed term). The second step examines what terms govern the activity and determines enforceability according to the nature of the assent. Part III summarizes and analyzes the current case law using my proposed methodology, and applies the methodology to a sample license agreement. Part VI concludes that a presumption of assent to license terms and a requirement of actual assent to other material terms both respects the integrity of contract doctrine and accommodates business realities. A requirement of active assent affects the consumer experience and is therefore likely to influence contracting behavior.

How Much Do Consumers Value Not Getting Telemarketing Calls?

In a paper titled "On the Value of Privacy from Telemarketing: Evidence from the 'Do Not Call' Registry," and available at http://ssrn.com/abstract=1000533, Ivan P.L. Png of the National University of Singapore, estimates the value of privacy at a surprisingly low $8.25 per year.  Here's the abstract:
   

Despite tremendous debate and policy interest, there has been relatively little research into the issue of how much individuals value their privacy. In this paper, I estimate the demand for the value of privacy from telemarketing as provided by the federal "do not call" registry. From the demand curve, I compute two estimates of the household value of privacy: a lower bound of $3.22 per year, and a best estimate of $8.25 per year.  The telemarketing industry must provide consumers with at least this much expected consumer surplus to persuade them not to conceal themselves through the "do not call" registry.

New York State's Human Rights Division Files Landmark Suits Against Sellers of Tax Refund Anticipation Loans

by Brian Wolfman

The New York State Human Rights Division has just filed first-of-their-kind suits against firms that market tax refund anticipation loans (RALs). The suits claim that the firms' RAL businesses illegally target African-American and hispanic consumers and members of the military. The New York Times suggests that the suits are an effort to end the RAL industry. The complaints in the two cases can be found here and here. Read the press release announcing the suit.

I blogged last year about the annual report of the National Consumer Law Center and Consumer Federation of America on RALs. Yesterday, those groups issued a press release concerning their most recent findings.

Mortgage Modifications: More Data

By Alan White

As often happens when writing about the foreclosure crisis, my last comment on foreclosures and loan modifications was obsolete almost as soon as I posted it. Today the Mortgage Bankers Association released a thorough study of foreclosures, loan modifications and repayment plans. The MBA study found that the number of repayment plans, and to a lesser extent loan modifications, was significant in relation to the new foreclosures started during the third quarter of 2007. The basic finding was that in that three-month period, mortgage servicers worked out 183,000 repayment plans and 54,000 loan modifications, while starting 384,000 new foreclosures. The foreclosure filings are further broken down based on whether the property was investor-owned, the subject of a previous broken payment plan, or the homeowner could not be reached by the servicer. Those three categories accounted for 235,000 of the 384,000 foreclosures.

These data reveal both good news and bad news. The scale of the servicer effort is starting to show. On the other hand, the overreliance on payment plans, especially for subprime adjustable-rate mortgages, is troubling. Strangely, repayment plans outnumbered loan mods 8 to 1 for subprime ARMs, compared with three to one for all mortgages. The mortgages most in need of modifications are being modified the least.

Nationally, 40% of the foreclosures started on subprime ARMs involved a failed repayment plan. Typical repayment plans require homeowners to make increased monthly payments to cure their arrears, and do nothing about payment shock caused by rate resets. It is understandable that these payment plans would fail to solve the long-term problem. Nevertheless, the evidence that servicers are starting to modify loans on a broader scale is welcome for homeowners in trouble, and suggests that calling their servicer now might yield better results than it would have six months or a year ago (assuming the caller can get through.)