Consumer Law & Policy Blog

House of Representatives Passes Bill to Give FDA Authority to Regulate Tobacco

by Brian Wolfman

For years, tobacco control advocates have pushed to give the FDA authority to regulate tobacco. Yesterday, the House of Representatives voted to do it -- with a veto-proof majority, but it is unclear whether the Senate will do the same. Read the 210-page bill and this Washington Post article about the bill. Here's part of the Post article to give you the gist:

The House approved legislation yesterday that would for the first time empower the FDA to regulate the tobacco industry, a measure long sought by anti-smoking advocates. After about 40 minutes of sometimes passionate debate, the House voted 326 to 102 to approve the measure, which would give the agency broad authority over cigarette makers, including the power to ban marketing of cigarettes to children, require disclosure of tobacco ingredients and mandate larger, more specific health warnings. It would also enable the agency to require tobacco companies to reduce or eliminate harmful ingredients and ban candy- and fruit-flavored cigarettes. The White House has signaled that President Bush will veto the legislation if it is approved by the Senate, which may not have a veto-proof majority in support of it.

The Arbitration Trap Debate

[cross posted from Citizen Vox]

July 29, 2008   

By David Arkush, Taylor Lincoln, and Peter Gosselar

Last November, Public Citizen released “The Arbitration Trap,” a scathing report exposing the one-sided nature of “justice” for consumers trapped by the National Arbitration Forum. The report inspired a lawsuit against the NAF by the city of San Francisco, Watchdog Blog) and an in-depth examination of the practice by BusinessWeek (previous Watchdog Blog coverage here, Watchdog Blog’s analysis of NAF’s response to the article here).

“The Arbitration Trap” also prompted the Chamber of Commerce to commission a Catholic University law professor, Peter B. Rutledge, to write an official response. The Chamber also gave Rutledge financial support for a law review article in which he reviews empirical evidence on arbitration. These papers claimed that the broad sweep of serious academic research shows that our report was just plain wrong – “both on the facts and in its ultimate conclusions.”

[cross posted from Citizen Vox]

President Bush Signed the Housing Bill

The Times so reports here.

An Argument Against Legislation to Help Those Facing Foreclosure?

Each year the Business Lawyer provides a valuable service by publishing a survey on consumer financial services law.  In the introduction to this year's survey, Donald C. Lampe, Fred H. Miller, and Alvin C. Harrell, Introduction to the 2008 Annual Survey of Consumer Financial Services Law, 63 Bus. Lawyer 561, 568 (2008) (footnotes omitted): write as follows:

Solutions designed to prevent future problems by reducing the availability of credit to marginal borrowers may (in addition to affecting adversely those future borrowers) worsen the current plight of existing marginal borrowers who need to refinance their homes.  Direct relief for troubled borrowers, e.g., a foreclosure moratorium or expanded bankruptcy relief, may have the same effect.  To some extent this has already happened.  The tightening of mortgage law requirements and regulatory restrictions over the past few years in response to allegations of predatory lending have probably contributed to the dramatic increase in foreclosures by making it more difficult for troubled borrowers to refinance.  A significant further tightening of these restraints—we have heard the further tightening referred to as “more robust regulation”—may worsen the problem and increase the number of consumers facing foreclosure as a result.

My comment:  It is fair to say that measures that make it harder for lenders to collect when borrowers default are likely to increase the cost of future borrowing or even make it impossible for some to borrow in the future (which may or may not be a good thing), and that's an argument against such measures.  But I'm skeptical that adoption of such measures will make life harder for those already facing financial difficulties.  My understanding is that credit for those in such circumstances has already dried up and indeed, many in better circumstances are reportedly facing problems obtaining credit.  Consequently, legal restraints on unwise lending, limits on foreclosures and expansions of bankruptcy relief are unlikely to worsen the short-term problems of those in financial distress.  Such rule changes may be unwise for different reasons, but not because they will make the lives of those facing foreclosure worse in the short-term.

The new iPhone—when half-price costs 40% more

by Richard Alderman

I just bought a new iPhone 3G.  Great device, no complaints about the phone. But the signs at the store boast “Twice as Fast—Half the Price.” This claim is based on the fact that the new 3G iPhone has faster connection times (a claim I cannot verify or dispute) and costs $199. The prior iPhone cost $399. Simple math—half the price. I had previously purchased the more costly phone and agreed, this was a great deal. Until you actually pay.

After I purchased my new phone, I had to enroll for AT&T service at the store. I asked why I couldn’t do it myself online as I had before, and the salesperson replied, “You need to sign up for the AT&T two-year contract now because they subsidize the cost of the phone.” How, you ask, do they do this? By charging $15 a month more than they charged for the same two-year service agreement with the more expensive phone. In other words, over the length of the two-year contract, the new half-price phone costs $360 more in service fees. Subtract the $200 “savings” in the cost of the phone and the net result is the new “half-price” iPhone actually costs $160 more than the more expensive one ($559). My math may be wrong, but I believe that is about a 40% price increase over the old price or $399. Apple may be a great company with a great product, but they either can’t do math or are deceptively advertising.

Times Reports on Housing Bill, Identity Theft, and Student Loans

Here is the Time's report in today's edition on the Senate passage of the housing bill; it now goes to the President for signature.  On Friday the Times ran "A Housing Bill That Has Something for Nearly Everyone" which summarized the features of the bill.  An excerpt from the part of the article about the foreclosure issues:

Part of the bill is devoted to the creation of a program that may allow some people to cancel their old mortgage loans and replace them with new fixed-rate loans lasting at least 30 years. The amount of the new loans would be no more than 90 percent of what their property is actually worth now.

So who is eligible? You need to have originated your troubled loan or loans on or before Jan. 1, 2008. The loans in question must be on your primary residence. Vacation homes and investment properties are ineligible. You will also need to verify your income, which many borrowers did not have to do in recent years.

Also, as of March 1, 2008, your monthly housing payment (including the principal on all your various mortgage payments, interest, taxes and insurance) has to have been at least 31 percent of your monthly household income. So if you were earning $5,000 a month and had housing payments of $3,000, you are eligible. But if you had payments of just $1,400, you would not be, presumably because that loan is affordable given the size of your income.

Lenders, however, are not required to give you a better deal under the new law, even if you do meet the qualifications. They may not be willing to negotiate unless they think you are truly on the cusp of foreclosure.

The bill contains other restrictions.  Some critics think that few borrowers will end up taking advantage of it.  Other aspects of the bill change the rules for reverse mortgages, redefine jumbo loans for purchases by Fannie Mae and Freddie Mac, and change tax rules.

Bob Tedeschi's Mortgages column in today's Times reports that "Thieves Tap Into Home Equity" about a report from the Identity Theft Assistance Center that identity thieves are targeting consumers with good credit records "because such people often have substantial untapped home equity."  The article also notes the effect of the subprime crisis on identity theft:

Now that lenders have vastly tightened their lending criteria, criminals who specialize in mortgage fraud have little choice but to move upstream and seek out victims with good credit.

A particularly troubling article yesterday titled "How Shopping Around Can Cost You" reports on how students shopping around for student loans can end up paying higher interest rates. That's because when student apply to different student loan companies, the companies obtain the students' credit reports, and the repeated inquiries can lower credit scores.  Fair Isaac does not drop credit scores when consumers shop around, and therefore trigger multiple inquiries, for mortgages and car loans, but Fair Isaac does not have the same arrangement for student loan applicants.   Fair Isaac doubts that the repeated inquiries actually damage credit scores.  Personally, I'm constantly amazed at how little regulation we have of credit scores.

The Questionable "Services" of Debt Settlement Firms

by Greg Beck

David Giacalone has an eye-opening post on debt solutions services, which, for a fee, offer to negotiate with creditors to reduce a consumer's debt. One such service is NetDebt, a for-profit company that promises to reduce consumers' debt by ("in some cases") as much as 50%. In return, NetDebt charges a fee of 15% of the total debt turned over to the company, plus a "small" $50 monthly fee.

Consumers who sign up for the service are referred to a law firm, Contego Law, which claims to be "nationally recognized for its consumer protection practices" (the firm considers debt settlement to be one of these practices). NetDebt's website describes the process that follows:

Once you enroll in the program, you will immediately stop paying your creditors, and instead deposit your monthly payments into a trust account that's established by the law firm. From that point on, the attorneys take over everything. Since your creditors will not be receiving monthly payments, your accounts will become past due, but in a controlled environment. When your accounts are past due, your creditors become very willing to accept significantly less than the balance owed and will settle the account. Once there is sufficient money in your trust account, the attorney will settle with the first creditor, and that process will continue until all of your accounts are paid off and reflect a zero balance.

David asks the question: Is 15% plus $50 per month an excessive fee for a firm to charge for this service?

Consumer Groups: Consumer Product Safety Commission Product Recalls Up 22% From Last Year

Six national consumer groups -- Consumer Federation of America, Consumers Union, Kids In Danger, Public Citizen, National Research Center for Women & Families, and U.S. PIRG -- today issued a report entitled "Total Recall: The Need for CPSC Reform Now." The report says that product safety recalls are up 22% over last year. For a synposis, check out the groups' joint press release. For general information on CPSC legislative reform efforts, go here.

President Bush Now Says He'll Sign the Housing Bill

The AP is reporting that President Bush has dropped his opposition and will sign legislation that its proponents claim will help homeowners out of the mortgage meltdown and will authorize the Treasury Department to bail out Fannie Mae and Freddie Mac if necessary. Read about it here.

Should Victims of Data Breaches Be Able to Recover Absent a Showing of Identity Theft?

by Jeff Sovern

Most courts have rebuffed suits by consumers against companies that suffered data breaches when the consumers could not show that they had been victimized by identity thieves. For example, in Bell v. Acziom Corp., 2006 WL 2850042 (E.D.Ark. 2006), the court found that the plaintiff lacked standing when she alleged that defendant’s failure to prevent the breach of security had “jeopardized her privacy and left her at a risk of receiving junk mail and of becoming a victim of identify theft.” The court observed that “Plaintiff does not know whether her name and information were contained within the databases stolen by Levine. More than three years after the theft, Plaintiff has not alleged that she has suffered anything greater than an increased risk of identity theft.”

But Ruiz v. Gap, Inc., 540 F.Supp.2d 1121, 1126 (N.D. Cal. 2008), is a recent case going the other way.  After Ruiz applied for a job at the Gap, a Gap contractor lost two laptops containing Ruiz’s Social Security number and other personal information. Ruiz sued in negligence, among other claims, arguing that as a result of the loss he faced an increased risk of identity theft. The court denied the Gap’s motion to dismiss the negligence claim, finding that Ruiz had standing, but noting that it “is far from clear what damages, if any, Ruiz will be able to recover if he eventually prevails on his negligence claim.”  We don't know what will happen at the summary judgment stage, but this is more encouragement than most consumer-plaintiffs whose data has been compromised have received.  Will consumers eventually be able to recover for anxiety caused by breaches?  Because the data of a great many consumers has been compromised, if courts start allowing recovery for the increased risk of identity theft when no identity theft has occurred, businesses (and universities too, for that matter) face enormous exposure.  Of course, that exposure would increase the incentive to be careful with consumer data.