On Wednesday, Paul Levy posted about some of the consumer law implications of the Wikileaks controversy, a case in which a California federal judge issued an order shutting down a website for leaked documents exposing corporate and governmental misconduct. Paul was in San Francisco today to argue the case on behalf of Public Citizen and the California First Amendment Coalition. I spoke with Paul by phone and he was very pleased to report that after listening to several hours of argument, the judge has reversed himself and decided to lift the injunction. Needless to say, this is a big victory for Internet free speech. You can read the documents related to the case here. And here's a detailed report on today's argument at CNET news.
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Friday, February 29, 2008
Industry and Republican Allies Gear up to Fight Moderate Consumer Health and Safety Bill
by David Arkush and Graham Steele
Republicans and Democrats in the Senate recently spent weeks negotiating a moderate, bipartisan consumer product safety bill, the “CPSC [Consumer Product Safety Commission] Reform Act of 2007” (S. 2663). After these negotiations concluded, and with the bill cued go to the Senate floor soon, industry is making a last-ditch effort to derail or further weaken it. This week, Senator Jim DeMint (R-SC) and a few other Senate Republicans, apparently playing the role of mouthpiece for industry, circulated a strategy packet for defeating the CPSC bill. The packet includes a list of “Top Ten Reasons to Oppose the CPSC ‘Reform’ Act,” which is riddled with misstatements about the bill. Apparently, industry knows it can’t win an honest debate against an important consumer safety law, so it’s going dirty.
Consumer safety is a serious issue, worthy of an honest and fair debate. Senators Mark Pryor (D-AR) and Ted Stevens (R-AK) had that discussion and, with input from their fellow Senators, constituents, industry, and consumer groups, they arrived at a bipartisan compromise. The bill doesn’t give any stakeholder everything it wants -- we certainly urge that the bill be strengthened -- but it makes real improvements to current law. For example, the bill increases the CPSC's budget and staff (which are currently at about half their original levels), adds whistleblower protection, creates a public database of consumer complaints like NHTSA’s, increases penalties for violations, and permits state attorneys general to bring enforcement actions to supplement the CPSC’s notoriously lax enforcement.
Thursday, February 28, 2008
Anheuser-Busch and Miller continue down their deadly path
by Steve Gardner
I’ve previously written about the reprehensible practice of Miller Brewing and Anheuser-Busch in spiking malt beverages with stimulants flavoring them in a way that attracts young drinkers.
Today, CSPI announced that we have served formal notices of intent to sue on Anheuser-Busch and to Miller, in an effort to get them to do right, and stay out of the courthouse.
The letters give great detail, but for those who hate to read the fine print, here’s a précis.
We’ll seek two kinds of relief:
• Entry of a permanent injunction that prohibits both companies from
(1) manufacturing and offering for sale any alcoholic beverage that contains caffeine, guarana, taurine, ginseng, or any other ingredient that is not determined by FDA as GRAS for use in alcoholic beverages;
(2) including any ingredient that does not serve a functional purpose in the product;
(3) representing (either expressly or implicitly) that these alcospeed products or the ingredients in the products give the consumer energy or counteract the effects of alcohol; and
(4) making any other misleading statements.
Continue reading "Anheuser-Busch and Miller continue down their deadly path" »
Fed to Curb Credit Card Abuse
Here are the last two sentences of Chairman Bernanke's testimony in Congress yesterday:
"Separately, we are actively reviewing potentially unfair and deceptive practices by issuers of credit cards. Using the Board's authority under the Federal Trade Commission Act, we expect to issue proposed rules regarding these practices this spring."
This is (welcome) news to me.
Of Bailouts and Rescues
By Alan White
Today's Wall Street Journal reports that Treasury Secretary Paulson, on behalf of the Bush Administration, categorically rejects any plan to "bail out" homeowners facing foreclosures with federal dollars, displaying a remarkable blind faith in the unregulated market in the face of an unfolding catastrophe. While it would be foolish to write Treasury checks to pay off inflated mortgage balances on depreciating homes, no one is suggesting such a plan. Several rescue proposals would provide loans to homeowners, not handouts, and would require investors to absorb losses, not reward their recklessness.
As my colleague Jeremy Telman points out on the ContractsProf blog, there is little coherence to the Administration's position on "bailouts" -- they also call the bankruptcy strip-down bill a "bailout", although it would actually force investors to absorb more losses in Bankruptcy court, and require homeowners to repay their loans.
The savings and loan bailout of the 1980s required payment in full, ultimately by taxpayers, of the (mostly commercial) mortgages involved, because the capital came from S&L depositors, whose deposits were FDIC and FSLIC insured. In contrast, the investors in subprime mortgages bought mostly uninsured securities (although the private bond insurers who backed some subprime deals are now in trouble, creating problems for other parts of the economy and prompting proposals to bail out the insurance companies.) Sensible rescue plans call for mortgage balances to be reduced to the current deflated value of the home before being refinanced or restructured, either by a Federal lender like the old HOLC or Federally-insured lenders under the FHA program. The haircut on the mortgage balance will result in losses to the investors, not a bailout. Properly managed, a rescue program would mitigate investor losses by avoiding the cost and delays (and further home value losses) of foreclosures, and would stabilize home values, by preventing more foreclosed homes from coming on the market and driving prices down further. While some rescue plans would leave investors with their losses, others would provide investors some upside recovery if the homes' values went back up and homeowners eventually sell at a profit. Obviously, the devil is in the details. The announcement of the plan, and the negotiation of mass mortgage buyouts, will have a significant effect on home values.
The alternative, doing nothing, means that we will continue to see 10 foreclosures for every loan modification, that the homes with brown grass and for sale signs will continue proliferating, and that the financial system's downward spiral will continue.
Wednesday, February 27, 2008
Advocate's view on HOPE NOW hotline
By Alan White
Last week, the Wall Street Journal ran an article about the HOPE NOW foreclosure help hotline. HOPE NOW is an alliance of six large mortgage servicers, mortgage and securities industry trade groups, Neighborworks, the Homeownership Preservation Foundation and other nonprofits. It operates a toll-free number for homeowners, has done some mass mailings, and has issued some reports on workouts and loan modifications by its members. The WSJ reported that HOPE NOW got 176,000 calls in the past two months. It recommended a workout for 9,975, another 12,113 were referred for other counseling services, and 4,410 were told to sell their homes. We don't know what happened to the other 150,000.
My friend Mark Wiseman, who is in the front lines of the foreclosure battle, serving as foreclosure prevention director for Cuyahoga County (Cleveland OH), wrote a letter to the WSJ, portions of which the Journal ran yesterday. Mark was kind enough to send me the full text of his letter (Download) which includes details left out of the edited version and which is highly critical of HOPE NOW and the Administration's foreclosure plan (or lack thereof).
Be Careful in Choosing Internet Providers -- Will They Defend Your Privacy?
by Paul Alan Levy
Public Citizen jumped into a case where a federal judge in San Francisco tried, albeit without success, to shut down the entire Wikileaks web site, based on a claim by a Swiss bank that among the leaked documents posted on Wikileaks were some highly sensitive documents revealing private customer information. (Wikileaks "invites people to post leaked materials with the goal of discouraging 'unethical behavior' by corporations and governments." A New York Times editorial denouncing the order is here). The case raises very serious issues about the First Amendment and prior restraint, which deeply affects consumers. It also affects groups like Public Citizen, which depends on access to leaked documents to better advocate for consumer safety and other rights. A discussion of how leaked information can be used to protect consumers appears in the first few pages of our motion to intervene in the case. Access to the affidavits described in the brief is here.
In our brief, though, we focused instead on the lack of “complete diversity” because there are subjects of foreign states on both sides of the case -- the Swiss bank on one side, and on the other side a Swiss former employee who took the documents when he left the company and Wikileaks, many of whose members are abroad. In addition, we point out that the main cause of action on which the bank relied, section 17200 of the California Business and Professions Code, applies only to unfair or unlawful "business practices" and hence does not apply to completely non-commercial web sites like Wikileaks. Others, including the ACLU and EFF, and a coalition of media organizations, have filed briefs addressing the First Amendment issues.
There is another serious consumer issue here that has received too little attention. The judge entered two separate orders. Although we have no way of knowing what the judge would have done without a stipulation, the broadest of the orders in the case was entered as a permanent injunction, without any findings of wrongdoing or basis for the order, that was submitted to the judge by the plaintiffs with the agreement of Dynadot, the domain name registrar. So far as I can tell, Dynadot simply rolled over, apparently to avoid having to defend against the relief that the bank was seeking. And that, to my mind, poses a significant consumer issue concerning the extent to which Internet providers protect their customers’ rights, and the considerations for consumers in choosing their Internet providers.
Continue reading "Be Careful in Choosing Internet Providers -- Will They Defend Your Privacy?" »
Freeze on Fremont Foreclosures (in Massachusetts)
by Alan White
Massachusetts Attorney General Martha Coakley persuaded a judge to order a 90-day statewide halt to foreclosures by Fremont Investment and Loan, so that Fremont could work out some of the defaults with borrowers. The press release includes a link to the 29-page decision. In his February 25 order, Judge Gant wrote: “It is both imprudent and unfair to approve a mortgage loan that the borrower cannot reasonably be expected to repay if housing prices were to fall. Just because we, as a society, failed earlier to recognize that loans with these . . . characteristics were generally unfair does not mean that we should ignore their tragic consequences and fail now to recognize their unfairness.” The order requires Fremont to notify the AG before foreclosing, and allows the court to review foreclosures on a case-by-case basis to determine whether the loan was unfair and whether Fremont has taken reasonable steps to explore alternative payment arrangements. This is the first such statewide foreclosure injunction, albeit against only one servicer, of which I am aware.
Tuesday, February 26, 2008
Consumer Protection and Law Students
by Jeff Sovern
Here comes a self-serving post. In my view, legal education raises significant consumer issues for its chief consumers, students (you could argue that the clients that retain the services of law school graduates are also consumers of legal education, but for purposes of this post, their interests are the same and so the distinction is irrelevant). The focus of this blog is usually on issues pertaining to a larger group of consumers than law students, but because many readers of this blog are law professors or lawyers (i.e., former law students), the readers of the blog may be interested in consumer issues involving law students. In addition, higher education in general may face some of the same consumer issues and so the issues may be of broader concern. Many of these consumer issues are familiar to law professors and lawyers may be aware of some of them as well; they are frequently discussed on Brian Leiter’s Law School Reports blog and by Brian Z. Tamanaha on the Balkinization blog, among other places.
In any event, in an effort to dramatize these issues and make them more vivid, I put on my playwright hat (I am an extremely minor playwright and have written a few plays, none of which has received a production, though three have been given staged readings), and wrote a fifteen-minute play about consumer protection for law students. The play has serious flaws, I’m sorry to say, but I think it brings the issues into a clearer focus. It’s a work in progress, so I’d be interested in comments about the content, and for that matter, the idea of using this format as a way to comment on legal matters.
Curious about what the consumer issues that I keep referring to are? You can get a hint from the abstract:
Sellers in a competitive market shift resources from attributes buyers don't care about to attributes buyers do care about. In markets in which buyers rely on imperfect signals for quality, sellers move resources away from improving the quality of their product to enhancing the illusion of quality. For example, before freshness dating, when consumers tested the freshness of bread by squeezing it, bakers reportedly added chemicals to bread to preserve its softness longer, thereby creating the illusion of freshness. Similarly, law school rankings encourage schools to shift resources away from improving the quality of the education they provide in favor of investing in improving their standings in the rankings. Consequently, under the guise of serving the market, rankings which are based on the wrong criteria are likely to subvert the market because they both fail to measure accurately the quality of a school's education and reduce the quality of legal education.
This piece dramatizes some of the ideas discussed in the preceding paragraph. It takes the form of a fifteen-minute play with three characters: a law school dean, a junior law professor, and a law student. The play illustrates how the incentives created by a ranking system could affect law schools and their administrators, faculty, and students. The play format is intended to make the ideas expressed more vivid.
If you want to know more about the consumer issues, you can read the play (which, I emphasize, is short) at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1097602. And if you get the impression that I want people to read it and comment, you’re right. I’m curious to learn whether writing this was useful or a waste of time.