Consumer Law & Policy Blog

Table of Contents for Fall 2008 Journal of Consumer Affairs

Here is the table of contents for the Fall 2008 issue of the Journal of Consumer Affairs (Volume 42, Number 3).  It includes an article by Elizabeth Warren, as well as pieces on predatory lending, consumer privacy, food labeling and advertising.

Disentangling the Differences Between Abusive and Predatory Lending: Professionals' Perspectives
 Lucy M. Delgadillo, Luke V. Erickson and Kathleen W. Piercy

An Open Mind Wants More: Opinion Strength and the Desire for Genetically Modified Food Labeling Policy
 Sonja Radas, Mario F. Teisl and Brian Roe

Parental Influence and Teens’ Attitude toward Online Privacy Protection
 Seounmi Youn

Neuromarketing and Consumer Free Will
 R. Mark Wilson, Jeannie Gaines and Ronald Paul Hill

Bits Briefs & Applications
Consumers’ Understanding of Privacy Rules in the Marketplace
 Joseph Turow, Michael Hennessy and Amy Bleakley

Consumer Vulnerability and Credit Card Knowledge Among Developmentally Disabled Citizens
 Phylis M. Mansfield and Mary Beth Pinto

Picture-Text Incongruency in Print Advertisements Among Low- and High-Literacy Consumers
 Haeran Jae, Devon S. Delvecchio, and Deborah Cowles 

Product Safety Regulation as a Model for Financial Services Regulation
 Elizabeth Warren

Notes & Observations
Pet Peeves: Trademark Law and the Consumer Enjoyment of Brand Pet Parodies
 Ross D. Petty

The Often-Forgotten Non-Funeral Consumer Grief for the Grieving
 Elizabeth Taylor Quilliam

Cautions and Concerns in Experimental Research on the Consumer Interest
 Marla B. Royne

Editorial Postlude
Can You Really Say That?
 Herbert Jack Rotfeld

Business Week Article on Fed's Credit Card Proposals

Business Week has an article, "Credit Card Rage," about consumer dissatisfaction with credit card interest rate practices and the Fed's proposed rules to rein in some of those practices, including increasing the interest rate on previously-incurred charges.  The article notes that the Fed received more than 56,000 comments on the proposal, a record setting number.  After describing some of the comments, the article discusses responses by credit card issuers:

The five largest credit-card issuing banks say that as much as consumer may enjoy lashing out, they're likely to regret the end result of the rule changes. The new regulations will curtail their ability to "price for risk," the banks say: By being able to change the rates they charge cardholders based on payment history, outstanding debt, and credit score, banks can price in the risk that each individual consumer won't be able to pay off his debt. The alternative is to cut back on low-interest offers for all cardholders, the banks say.

* * *

"We have very real concerns that the proposal will result in higher costs for cardholders across the board," says Peter Garuccio, a spokesman for the American Bankers Assn. (ABA). If the Fed rules rob them of the right to price for risk, all consumers will suffer with higher rates overall and worse teaser rates.

Of course, businesses always make such claims, but that doesn't mean they're not true in this instance.  Still, I wonder what evidence supports the claims.  (HT to Maurice E. Stucke of Tennessee)

New Third Circuit Arbitration Decision Worth Reading

by Brian Wolfman

A construction company hires a new employee, Mr. Morales, who speaks only Spanish. Morales attends a company orientation session conducted only in English. The company employee who runs the orientation asks another, reasonably bilingual employee to explain to Morales what is going on at the orientation and to present him with an employment agreement that includes a pre-dispute mandatory arbitration clause. The agreement is in English. Morales does not ask what he is signing, and the other employee does "not specifically explain the arbitration clause to Morales.” (During the orientation session, the guy who is running the session does explain the arbitration provision in English.) Morales signs the agreement. Was there mutual assent such that the arbitration clause is binding on Morales? Yes indeed, says the Third Circuit in yesterday’s 2-to-1 decision in Morales v. Sun Constructors, Inc., No. 07-3806 (Aug. 28, 2008).

Brian McCall on Usury Law

Brian McCall of Oklahoma has written "Unprofitable Lending: Modern Credit Regulation and the Lost Theory of Usury."  Here's the abstract:

With almost daily news stories about the crisis in our credit markets, it seems inevitable that a new political and academic debate about credit regulation is commencing. With Americans paying billions of dollars in finance charges every year and some losing their homes, it is time to ask fundamental questions about the liberality of credit supply and terms. Rather than readjusting usury limits or tinkering with disclosure requirements, it is time to reassess America's philosophy of lending. Although the current socio-economic belief that more credit is better has held dominance for several centuries, history offers an alternative theory. Surprisingly, a serious analysis of this scholastic theory of usury has been virtually absent from academic debates about credit for the past several decades. This article argues that the confusion and ineffectiveness of usury laws could be corrected by a return to the principles of the scholastic theory of usury. This article identifies contemporary academic, political and public dissatisfaction with the current state of credit regulation. It surveys some of the recent data demonstrating the rising levels and costs of consumer debt. Next, the historical approaches to usury that predated the scholastic theory are introduced to set the context for a presentation of the scholastic theory itself. The article outlines the scholastic theory of usury as a synthesis of biblical principles, natural law reasoning and Roman law concepts. The scholastic theory is shown to have developed while remaining true to its core principles from the fourth to the sixteenth century. The new economic environment of the sixteenth century caused some usury theorists to develop a troubling subjective theory of usury which eventually displaced the original principles. After examining this history, the article articulates core principles of the scholastic theory which are then applied to modern commercial and consumer lending transactions. The article concludes that modern credit regulation would greatly benefit from a return to the scholastic principles of usury regulation.

New Study on Mortgage Modifications

By Alan White

I have just posted a paper on SSRN reporting on loan-level mortgage modification data from subprime mortgage servicer monthly reports. The gist is that voluntary mortgage modifications are not reducing principal debt, and are in fact increasing it, and that many modifications are not even reducing monthly payments. In addition, whether a homeowner gets a modification, and what kind they get, depends a great deal on who their servicer is.

The data in the report covers about 100,000 subprime mortgages, about 4,000 of which were modified in the last twelve months. The most common modifications are interest rate reductions to reduce the payment, interest rate freezes on ARMs, and recasting of arrears and reamortization, which increases principal debt and monthly payments.

From July 2007 to June 2008 losses on foreclosure sales have steadily increased, month after month, while the number of mortgages paid in full through refinancing and sale have dwindled to the point that foreclosure sales exceed the number of prepayments. The combined effect of all this is that subprime mortgages, which used to last only 3 to 5 years, will now take many more years before they are foreclosed or paid off, leaving homeowners with debt in excess of home values and payments in excess of their repayment ability, and needlessly prolonging the crisis.

The abstract is in the continuation of the post.

2008 Supplement to Consumer Law Casebook Available

by Jeff Sovern

I am pleased to announce that the 2008 supplement to our casebook is now finished.  I expect Thomson/West will shortly make it available to those using the book but if you are using the book and need it right away, I can email it to you.  Perhaps the most significant addition consists of the materials on the subprime lending crisis.  Because we anticipate that some professors will want to refer to the subprime crisis throughout the course, as it has ramifications for a number of topics, including fraud rules, TILA, reverse-redlining and predatory lending, we inserted a prefatory note that provides a brief overview of the crisis (those who don't wish to discuss the crisis until later in the course can simply skip the prefatory note).   We also added materials at various points that go into more detail on the crisis and responses to it, including problems on advertising rules and "higher-priced mortgage loans" under the new amendments to Regulation Z.  The supplement also contains the revisions to TILA and Regulation Z.  In other areas, the supplement includes as a principal case the recent New Mexico Supreme Court decision in Fiser v. Dell Computer Corp. (Deepak blogged about it here), as well as references to other recent consumer law court decisions and developments.  And, of course, the supplement contains most of the material that appeared in the 2007 supplement, including the Supreme Court's Safeco decision.  As always, we welcome comments and suggestions on the casebook and supplement.

Wyoming's 8th Annual Consumer Issues Conference

<>The University of Wyoming's 8th Consumer Issues Conference, to be held Thursday, September 25 from 8:45 to 4:30 at the University of Wyoming Union in Laramie, will focus on energy and telecommunications. There will be 20 speakers on energy and telecommunication consumer topics, including utility pricing, do not call lists, alternative energy, VOIP, gas pricing, cell phone contracts, energy saving buildings, DTV transition, and more. This year features NY Times correspondent Felicity Barringer on What Would a Green Economy Look Like? and the Wyoming Governor’s Energy and Telecommunications advisor Rob Hurless. Dee Pridgen will speak on "The Federal Trade Commission Goes Green: New Initiatives on Gas Pricing and Energy Information for Consumers.”   Chris Hoofnagle of Berkeley will have two poster session on privacy and telecommunications companies. Professional credits are available (engineering, legal, educational and family and consumer science). Details and registration at www.uwyo.edu/consumerconference. Early registration ends September 11.

Obama co-sponsors bill on soldiers and mandatory arbitration

by Deepak Gupta

Although the issue hasn't come up in the presidential campaign, those looking for clues about the presidential candidates' views on the ongoing debate over binding mandatory arbitration will want take note of a new piece of proposed legislation sponsored by Senator Barack Obama.

The Servicemembers Access to Justice Act of 2008 (S.3432), which will be considered by U.S. Senate's Committee on Veterans Affairs, would prohibit the enforcement of pre-dispute arbitration agreements in employment contracts between military service members and their employers. It is intended to improve enforcement of the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA). In a statement, Obama said: "Unfortunately, far too many of our brave men and women struggle to return to their daily jobs, or are denied the employment benefits they are owed. We must do everything we can to help our heroes when they return home, and I am proud to support this legislation." The lead sponsor of the bill is Bob Casey of Pennsylvania, also joined by Ted Kennedy of Massachusetts.

With regard to mandatory arbitration, the language in S.3432 roughly parallels the Arbitration Fairness Act: "Notwithstanding any other provision of law, any clause of any agreement between an employer and an employee that requires arbitration of a dispute arising under this chapter shall not be enforceable."

Loyola Consumer Law Review looking for articles

Here's a call for submissions from the Loyola Consumer Law Review:

The Loyola Consumer Law Review is currently seeking submissions for this year's journal. The Loyola Consumer Law Review is interested in any recent papers or articles you have written about the law and consumers, and accepts publication submissions year-round. Manuscripts may be sent electronically to Feature Articles Editor Andrew Nelson at anels4@luc.edu, to Loyola's mailing address at Loyola Consumer Law Review, 25 East Pearson Street, Suite 1339, Chicago, IL 60611, or via facsimile to (312) 915-7201 (Attention: Consumer Law Review).

Our large editorial staff has a wide range of experience in assisting practitioners and professors with transforming their papers and conference materials into publishable articles. We may also be interested in any ideas or suggestions you may have about potential symposia or conferences regarding legal issues as they relate to consumers, or any consumer-related issues that CLR members could pursue as a topic for a student or news article. For more information, please visit our website at www.luc.edu/clr

Conformity Assessment Programme of the Standards Organization of Nigeria

Here is an abridged version of a paper by Dr. Felicia Monye, Senior Lecturer, Faculty of Law, University of Nigeria, Enugu Campus and Editor-in-Chief of the Consumer Journal.  The full text of the paper may be found in volume three of the Consumer Journal.

The Standards Organisation of Nigeria (SON), the standards body of the country, is tackling the problem of fake and substandard products through its two recently introduced programmes, namely, the Mandatory Conformity Assessment Programme (MANCAP) and the Standards Organisation of Nigeria Conformity Assessment Programme (SONCAP). MANCAP applies to locally manufactured products, while SONCAP applies to imported regulated products.