Consumer Law & Policy Blog

Call for Papers on the Subprime Mortgage Crisis

We've received a call for papers on the subprime mortgage meltdown:

The Albany Government Law Review is planning an issue dedicated to the pressing topic of the Subprime Mortgage Crisis.  The issue will offer a varied look into the subprime mortgage crisis by examining the origins of the crisis, federal, state, and municipal government response to the growing crisis, and a multi-viewed perspective on who bears the responsibility of solving the crisis as well as other insights into the issue. The issue is expected to be published in the winter of 2008 and manuscripts must be received by August 1, 2008 in order to be considered for publication. In addition, the AGLR offers a $500 honorarium to contributing authors.  Submissions may be sent to Daniel Leinung, Managing Editor for Submissions at dleinung@albanylaw.edu.

AGLR is a student-edited law review publishing semi-annually using an all-symposia format. It released its inaugural issue on campaign finance reform on January 29, 2008 with an introduction from (now-former) Governor Spitzer, and featuring the scholarship of Melvin Urofsky, Richard Briffault, and Daniel Ortiz. its second issue will be published in Spring 2008 and will feature articles contributed by speakers from the conference held at Albany Law School in October 2007 entitled Firearms, the Militia and Safe Cities: Merging History, Constitutional Law and Public Policy. These authors include Mark Tushnet, Robert Spitzer, Saul Cornell and Carl Bogus. The website is still under development but the articles from the inaugural issue are available at http://www.albanygovernmentlawreview.org/.

New Consumer Law Symposium from Competition Policy International

by Chris Peterson

Competition Policy International, a peer reviewed antitrust journal, has just come out with a new symposium on consumer protection. Among other highlights, you might check out Emory Law Professor Paul Rubin's argument that government should ignore advertising claims that are deceptive or misleading. Here are the articles with links to abstracts for each:

Consumer Protection Policies, Economics, and Interactions with Competition Policy
by Paul Pautler (Federal Trade Commission)
Interactions between Compeition and Consumer Policy
by Mark Armstrong (University College London)
Consumer Protection and Behavioral Economics: To BE or Not to BE?
by Howard Beales (George Washington University)
Regulation of Information and Advertising
by Paul Rubin (Emory University)
Unfair Commercial Practices and Misleading and Comparative Advertising: An Analysis of the Harmonization of EU Legislation in View of the Italian Implementation of the Rules
by Claudio Tesauro (Bonelli Erede Pappalardo) & Francesco Russo (Amsterdam Center for Law and Economics)

Thanks to new University of Florida law professor Danny Sokol for the heads up.

Fast-Food Calorie Law Goes Into Effect in New York City

by Deepak Gupta

Did you know that a smoked turkey sandwich (930 calories) at Chili's has more calories than a sirloin steak (540 calories)?  Or that a large milk shake from Mc Donald's has over 1,000 calories, about half a day's recommended amount? Or that two jelly-filled doughnuts at Dunkin' Donuts have fewer calories than a sesame bagel with cream cheese?   

New Yorkers are about to find out. Thanks to an order from the Second Circuit issued late yesterday afternoon (the same day as oral argument on a stay motion), New York City's landmark calorie law is now in effect.  The law requires large fast-food chains to post calorie information about standardized food items on their menus, so consumers can make healthier choices about their diets.  You can still choose that gut-busting 1,500-calorie meal, of course, but you won't be able to say you didn't know what you were getting into.

Yesterday's order is the latest development in an ongoing legal food fight over the new law, about which we've blogged here before. The New York State Restaurant Association has been challenging the City's measure on two grounds: (1) that it's preempted by the Nutrition Labeling and Education Act (the federal statute that requires the Nutrition Facts Panel on the packaged foods you buy at the supermarket) and (2) that it violates the fast food chains' right to free speech under the First Amendment, because it requires them to disclose information to consumers that they'd rather not disclose.  The first time around, they won a pyrrhic victory from the district court, which held that a minor quirk of the rule rendered it preempted but that the substance of the rule passed muster; the City fixed that quirk and the restaurant association sued again.  On April 16, U.S. District Judge Richard Holwell issued a very careful, thorough decision rejecting the restaurant association's preemption and First Amendment theories. Two days later, the judge issued another thoughtful opinion, denying the restaurant association's request for a stay pending appeal.

Public Citizen has been participating actively in this litigation. We twice filed friend-of-the-court briefs and presented oral argument, explaining to the court that the NLEA expressly leaves cities and states free to regulate nutrition labeling in restaurants and that the First Amendment does not prevent reasonable commercial disclosure requirements. (Public Citizen's briefs were joined by a distinguished list of amici, including Rep. Henry Waxman, who was the author of the NLEA, former FDA Commissioner David Kessler, the Center for Science in the Public Interest, the American Diabetes Association, the American Medical Association, as well as other health groups and several of the nation’s leading professors of nutrition and public health.)

So what now?  The restaurant association's last hope to knock out the law is their appeal to the Second Circuit, which now goes forward on a very expedited schedule: Briefing will take place in May and oral arguments will be heard the week of June 9.  Meanwhile, lawmakers in Seattle and San Francisco have enacted similar laws and several cities, counties, and states around the country are considering doing the same. Stay tuned; we'll let you know what happens next.

Third Circuit Ruling On Permissive Class Certification Appeals Under Rule 23(f)

by Brian Wolfman

Federal Rule of Civil Procedure 23(f) says a court of appeals may permit an appeal from a district court order granting or denying class certification if a petition for permission to appeal is filed with the court of appeals within 10 days of entry of the district court’s order. In Gutierrez v. Johnson & Johnson, No. 07-8025 (3d Cir. Apr. 22, 2008), a race discrimination class action, the district court denied class certification, and the plaintiffs moved for reconsideration 30 days later. The district court denied the reconsideration motion, and the plaintiffs petitioned for permission to appeal within 10 days of that denial. The Third Circuit dismissed the Rule 23(f) petition as untimely. The court of appeals noted that regardless of whether Rule 23(f)’s 10-day deadline is “jurisdictional,” it is nevertheless “strict and mandatory” – meaning, presumably, that it will be enforced in virtually every case. The court of appeals dismissed the petition because the plaintiffs did not seek permission to appeal or reconsideration in the district court within 10 days of denial of class certification. I understand the first part of the Third Circuit’s holding. Rule 23(f) says 10 days, and so if you miss the deadline, you’re out of luck. But I don’t understand the second part. The court of appeals said that if the losing party seeks reconsideration within 10 days of the district court’s class certification, then the 10-day time limit disappears and starts anew after the motion for reconsideration is ruled on. Why? What’s a motion for reconsideration anyway? And what’s the origin of the 10-day period for seeking reconsideration? Is it imported from Rule 23(f), which says nothing at all about motions for reconsideration?

Elizabeth Warren's Financial Services Product Safety Commission Proposal

Last month Deepak mentioned Elizabeth Warren's proposal for a financial services product safety commission.  You can find her Harvard Magazine article, Making Credit Safer: The Case for Regulation here.  The entire article is worth reading, but here are some excerpts: 

It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance your home with a mortgage that has the same one-in-five chance of putting your family out on the street—and the mortgage won’t even carry a disclosure of that fact. Similarly, it’s impossible for the seller to change the price on a toaster once you have purchased it. But long after the credit-card slip has been signed, your credit-card company can triple the price of the credit you used to finance your purchase, even if you meet all the credit terms. Why are consumers safe when they purchase tangible products with cash, but left at the mercy of their creditors when they sign up for routine financial products like mortgages and credit cards?

The difference between the two markets is regulation. * * *

* * *

* * * Just as the Consumer Product Safety Commission (CPSC) protects buyers of goods and supports a competitive market, a new regulatory agency is needed to protect consumers who use financial products. * * *

* * *

* * * Lenders have deliberately built tricks and traps into some credit products so they can ensnare families in a cycle of high-cost debt.

Creating safer marketplaces is about making certain that the products themselves don’t become the source of trouble. This means that terms hidden in the fine print or obscured with incomprehensible language, reservation of all power to the seller with nothing left for the buyer, and similar tricks have no place in a well-functioning market.

How did financial products get so dangerous? Part of the problem is that disclosure has become a way to obfuscate rather than to inform. In the early 1980s, the typical credit-card contract was a page long; by the early 2000s, that contract had grown to more than 30 pages of incomprehensible text.* * *

* * *

So why not create a Financial Product Safety Commission (FPSC), charged with responsibility to establish guidelines for consumer disclosure, collect and report data about the uses of different financial products, review new products for safety, and require modification of dangerous products before they can be marketed to the public? The agency could review mortgages, credit cards, car loans, and so on. It could also exercise jurisdiction over life insurance and annuity contracts. In effect, the FPSC would evaluate these products to eliminate the hidden tricks that make some of them far more dangerous than others, and ensure that none pose unacceptable risks to consumers.

An FPSC would promote the benefits of free markets by assuring that consumers can enter credit markets confident that the products they purchase meet minimum safety standards. A commission could collect data about which financial products are least understood, what kinds of disclosures are most effective, and which products are most likely to result in consumer default. It could develop nuanced regulatory responses; some credit terms might be banned altogether, while others might be permitted only with clearer disclosure. * * *

Hat tip to Concurring Opinions.  An earlier version of the article appeared in Democracy.

Second Circuit: Plaintiffs Have Standing To Pursue Antitrust Case Alleging Collusion By Major Credit Card Companies To Require Arbitation And Ban Consumer Class Actions

by Brian Wolfman

The Second Circuit today issued Ross v. Bank of America, No. 06-04755 (Apr. 25 2008). In this case, the plaintiff credit card holders claimed that the defendant banks conspired in violation of section 1 of the Sherman Antitrust Act to include in their credit card contracts provisions that impose arbitration as the sole method of resolving disputes relating to the credit accounts and purport to ban class actions. The district court held that the plaintiffs lacked Article III standing, principally because the arbitration clauses had not been invoked against the plaintiffs. The Second Circuit reversed. The court held that because the case was based on an antitrust theory (and was not a challenge to the contract provisions themselves), the plaintiffs had suffered an Article III injury. The court noted, among other things, that the conspiracy to require arbitration and ban class actions had undermined the plaintiffs’ choice of contract provisions in the marketplace, and that limitation was a concrete and present injury. As the court of appeals put it, a “card that limits the holder to arbitration is less valuable (all other factors being equal) than a card that offers the holder a choice between court action or arbitration.” The opinion is only 15 pages and is written in plain English. Definitely worth a look.

Call for Papers - International Association of Consumer Law (IACL) International Conference, Hyderabad 25-27 February 2009

The 12th International Conference on Consumer Law, organised under the auspices of the International Association of Consumer Law (www.iaclaw.org) will be organised by the NALSAR University of Law (www.nalsarlawuniv.ac.in) in Hyderabad, India on February 25-27, 2009.The theme of the conference is ’Consumer Law - Globalisation, Poverty and Development’ and consumer law scholars from all parts of the world – both members of the IACL and others – are invited to participate.

CALL FOR PAPERS

“Consumer Law - Globalisation, Poverty and Development”

Consumer law has traditionally been an internationalized area of law. Many consumer problems are similar all over the world and solutions are sought for across the borders. The process of globalization have put new deregulatory pressures on consumer law, in the wake of the liberalization of the global economy, but it has also brought in new demands for regulation on the consumer law agenda. The conference will focus on such connections between consumer law and globalisation, from the particular perspective of our growing need to address poverty and development issues in the context of consumer law. What role can and should consumer law play in relieving problems connected with poverty and in promoting development in the context of the global economy?

The "Snowballing Futility" of Arbitration for Employees

Here's some more recent news on arbitration. A study by Professor Michael LeRoy of the University of Illinois shows that, while employers are frequently successful in getting arbitration awards overturned in state court, employees are not.

LeRoy examines a "snowballing futility for employees" who are forced into arbitration. If they manage to win, despite the built-in institutional bias, the employer can take it to state court and get the award overturned, forcing the employee to start over from scratch. On the other hand, if they lose, the courts are highly unlikely to disturb the decision.

From the study:

Remarkably, state appellate courts confirmed only 56.4 percent of employee wins in arbitration. But when the same courts ruled on employer victories, they confirmed 86.7 percent of awards.

WSJ on Arbitration Bias

Last month, San Francisco sued the National Arbitration Forum, accusing the arbitrator of unfairly favoring credit card companies in disputes with their customers. Nathan Koppel of the Wall Street Journal this week delved deeper into the allegations of bias (the article is behind a paywall, but a summary is available at the WSJ law blog). The article notes that, because NAF works with a few big credit-card companies in a large number of cases against consumers, there is a built-in incentive to keep the companies happy.

Last year, a Public Citizen report found that arbitrators rule for business between 94 and 97 percent of the time.

6.5 million

That's the new number for total projected foreclosures in the U.S. through 2012, according to a Credit Suisse report released Tuesday. In other words, one of every eight mortgages will be foreclosed. Not one of eight subprime mortgages, one of eight mortgages. To avert the possible 15% nationwide decline in home values, CSFB recommends a public-private partnership to purchase delinquent loans (something akin to the Frank proposal.)

[via ml-implode.com]