Consumer Law & Policy Blog

Fox News Backs Away from Copyright Claim Against ProgressIllinois.com -- For Now

by Paul Alan Levy

Fox News, which filed DMCA takedown notices late last year against three excerpts showing significant remarks by political figures during news interviews that were posted by ProgressIllinois.com on YouTube, as well as the Progress Illinois blog, has admitted defeat for now.  Fox was either unable or unwilling to back up its copyright complaint against ProgressIllinois.com, which posted three video excerpts from Fox newscasts.  By failing to file suit to enforce its claims, Fox has shown it recognizes that the use of the excerpts were fair use. The clips have now been restored to Progress Illinois' blog and its YouTube account, which had been suspended, is active.

Public Citizen, which represented Progress Illinois in this matter, tried to talk to Fox about its claim filed under the Digital Millennium Copyright Act (DMCA) and discuss possible guidelines for future use, but we received a chilling demand. As a price of getting the DMCA takedowns lifted, Fox demanded that Progress Illinois waive its fair use rights for all future uses of Fox material.

Fox's position is that the price of making fair use of excerpts from its news broadcasts is that an otherwise non-commercial blogger must allow Fox to run advertisements on the blog as part of the excerpt. Specifically, Fox is apparently in the course of negotiating with a third-party video-hosting service, which bloggers who want use Fox excerpts would be required to use, rather than bloggers making their own choice between other services including YouTube and blip.tv  (which Progress Illinois began using, with great success, after YouTube suspended its account). The third-party service would then incorporate ads from Fox advertisers into any excerpt made from Fox material and Fox would receive the proceeds from the ads. It appears that Fox is preparing to argue that, because it has the capacity of charging advertisement revenues for excerpts posted by bloggers, any blogger who does not use these services fails the "fourth" factor  in the fair use test  - "the effect of the use upon the potential market for or value of the copyrighted work."

Second Circuit Decision Strikes Down Class Action Arbitration Ban

In In re American Express Merchants' Litigation, No. 06-1871 (2d Cir. Jan. 30, 2009), the U.S. Court of Appeals for the Second Circuit today struck down an arbitration clause that banned any type of class or representative litigation. The Second Circuit struck the ban on the ground that it would have effectively altered the substantive law by making the plaintiffs' federal antitrust claims impossible to vindicate. The Second Circuit relied heavily on the plaintiffs' expert affidavit showing that litigating this complex case on an individual basis would be far more costly than the value of any individual's claim. Worth reading.

A Comment on the New Credit Card Solicitation Disclosures

by Jeff Sovern

I have commented before on the December amendments to the credit card provisions of Regulation Z (here and here) but I find that as I prepare to teach them, I have a bit more to say.  You can see the new model form for the "Schumer Box," that is, the box that is to appear on credit card applications and solicitations and that is intended to provide consumers with the information they need to decide whether a particular credit card is for them here.  A model for the current form appears in our casebook at page 142. One change that I very much like: while the old form places the method of computing the balance for purchases (such as "Average Daily Balance (including new purchases)") inside the box, the new form places it less noticeably--and therefore, less distractingly--underneath the box.  Because, as the Fed observes in its accompanying statement, this disclosure is meaningless to most consumers, consumers are unlikely to take it into account in making a decision whether to apply for a particular card, and so it makes sense to make it less noticeable.  Another positive change: the old "Grace period for repayment of the balance for purchases" has been replaced with the more meaningful "How to avoid paying interest on purchases."  And another: fees have been collected together to make for easier comparison.  The new form also has a new item: "Penalty APR and When It Applies" in which applicants are told that the penalty APR might apply if the consumer makes a late payment, makes a payment that is returned, etc.  That seems like a positive change.  But I would have combined this last with two more.  First, the disclosures don't take into account the optimism bias: the tendency of consumers to overoptimistically assume that they won't default, etc. (you can find lots of discussion of the optimism bias if you look; I wrote about it in the text accompanying notes 145-150 of my article Towards a New Model of Consumer Protection: The Problem of Inflated Transaction Costs, 47 Wm. & Mary L. Rev. 1635 (2006)).  Thus, I suspect many consumers won't pay attention to that disclosure on the theory that it won't apply to them.  The disclosure could be made more effective if the lender is required to state also something like "In a recent year, X% of our credit card holders were obliged to pay the penalty APR."  (and wouldn't that be an interesting statistic?).  Second, the penalty APR disclosure is separated from the penalty fee disclosures, and so consumers might not realize that late payments trigger both a penalty fee and a penalty APR.  I think I would have inserted a very brief cross-reference to the penalty fees in the penalty APR box.  But despite these quibbles, I continue to believe that the new forms are a significant improvement over the old ones.

Block-Lieb and Wiener on Whether Disclosure Helps Prevent Overindebtedness

Susan Block-Lieb of Fordham and Richard L. Wiener  of Nebraska have co-authored Disclosure as an Imperfect Means for Addressing Overindebtedness: An Empirical Assessment of Comparative Approaches.  Here's the abstract: 

Within a generation, household overindebtedness has grown to become a social problem of significant proportion in the US, the UK, and around the world. Public policy makers on both sides of the Atlantic have taken initial steps to ameliorate excessive and unwise use of consumer credit, by reforming the procedures for settling and collecting defaulted consumer debt (including the procedures available under consumer bankruptcy law) and by providing enhanced disclosure and other protections to borrowers. We focus on credit card disclosure reforms in this paper and note that empirical research (ours and others) suggest that enhanced disclosure requirements are, at best, an incomplete mechanism for tackling the problem of overindebtedness. Enhanced disclosure presumes a rational actor model of consumer decisionmaking. In earlier articles, both together and with other co-authors, we have argued that extant data do not support fundamental assumptions underlying a strong version of the rational actor model of consumer credit but do support models that view consumer borrowers as quasi-rational, emotional actors. Research supporting a behavioral, emotional model of consumer decisionmaking undercuts enhanced disclosure as a remedy for increased consumer debt loads. This article proceeds in four parts: Part I compares household indebtedness - and measures of overindebtedness - in the US and UK. Part II looks at recent legislative responses to this problem, and concludes that the US approach is premised on a rational actor model of consumer decisionmaking, while the UK presumes a consumer in need of regulatory protection, enhanced information and debt advice. In Part III, we describe our most recent experimental work and its results, and reach similar conclusions about the likelihood that enhanced disclosure will quell the problem of overindebtedness. Part IV draws tentative conclusions for future research intended to study overindebtedness.

Fed to Write Down Mortgage Balances

Yesterday Chairman Bernanke announced in a letter to Congressman Barney Frank that the Fed will include principal reductions in its plan to modify mortgages that it controls through Maiden Lane LLC, a vehicle set up by the Fed to hold mortgages from Bear Sterns that JP Morgan didn't want.  In particular the Fed foreclosure prevention policy contemplates priority write-downs for mortgages that exceed 125% of current home values.  While the Maiden Lane portfolio (about $27 billion, of which only half are residential mortgages) is a drop in the bucket, the Fed's embrace of principal reduction is a departure even from the FDIC's proactive loan modification program, which prefers deferring principal to actually cancelling it.  Let's hope this design influences the soon-to-be-announced Administration plan to address the foreclosure crisis.

Update:  Wells Fargo's announcement Monday that it will offer streamlined modifications to 478,000 Wachovia borrowers includes a promise to write down principal in areas where home values have declined significantly.  It seems that the dam (holding back principal reductions) is starting to break.

Nationalize the Banks, Modify the Mortgages

By Alan White

No more than 10 companies now service most of the mortgages in the U.S, including the four big banks (Citi, Wells Fargo, Chase and BofA).  Ocwen is aggressively modifying mortgages, including principal writedowns, and is reporting good results, including reduced delinquencies and foreclosures.  The rest are adamantly refusing to write down principal debt.  My new study on this topic is posted on SSRN.   

All the proposals to solve the foreclosure crisis have aimed at creating incentives and removing obstacles for servicers to do what needs to be done.  The time for nudging servicers is past.  Now is the time to tell them what to do.  Who can tell them what to do?  Treasury Secretary Geithner of course.

Gail Hillebrand of Consumers Union on Payments Law

Gail Hillebrand of Consumers Union has written Before the Grand Rethinking: Five Things to Do Today with Payments Law and Ten Principles to Guide New Payments Products and New Payments Law, 82 Chicago-Kent Law Review 769 (2008).  Here's the abstract:

U.S. consumers today have a broad range of choices about how to make payments. In addition to checks, credit cards and traditional debit cards, consumers may be offered prepaid cards, contactless cards, mobile payment devices, online payment sites, online credit payments, and other new ways to pay.

Federal payments law was developed before many of these methods existed, so it is no surprise that it has gaps in coverage. The variations in the law underlying the different payments methods place consumers in very different legal positions when something goes wrong. The gaps in the law mean that the particular payment method used, and how the payment is processed, can affect the consumer's ability to get his or her money back if the goods are not delivered as ordered, the payment information is stolen and misused, the payment was unauthorized, or the payment is processed for the wrong amount.

This article, first published at 83 Chicago-Kent Law Review, No. 2, 769 (2008), describes the current state of confusion and gaps in the payments law; outlines a set of five immediate changes to current law that would address major problems and ambiguities in payment law; and offers ten principles to evaluate existing and future payments methods, regulations and laws.

First, the article describes the current state of the law as applied to some of the new payments methods in terms of the questions consumers might ask: Is my money safe? Will it disappear in fees before I have a chance to spend it? Will I get my money back if someone else makes a mistake? Can I stop or reverse payment if I do not get the goods? This section describes the different answers to these questions depending on which payment product is used.

Second, the article describes how many of these problems could be eliminated and greater consumer protection in the non-cash payment marketplace could be accomplished with a handful of changes to the Electronic Fund Transfer Act, the Fair Credit Billing Act, and the Expedited Funds Availability Act, plus more vigorous regulatory use of the power to prohibit unfair practices. These changes could provide a baseline set of consumer protections, built from the strongest elements of current federal consumer protections in payments law. Finally, the article recommends ten principles for evaluating new payments products and new payments law.

Times Piece by Debt Collector and Reports on Other Consumer Issues

Today's Times has a piece written by a debt collector about how he helps people, In Tough Times, A Debt Collector Sees the Pain.  An excerpt:

When someone calls back and thanks you for suggesting they get the debt resolved with me before it appears on a credit report, I think, “Wow, I did do good for someone.” It’s a great feeling to help someone out of a dire situation. I’ve helped young people just out of school and took time out to explain how bad credit could hurt them in the long run. They call back and say: “Thanks for the advice. You’ve saved me years of heartache.”

I wonder if the Times will print any letters from those who have different feelings about debt collectors (maybe readers of the Blog?).  The article was in the business section, so letters should be emailed to sunbiz@nytimes.com. 

Another article in the Business section, Phones as Credit Card? Americans Must Wait, describes how we may someday use cell phones as payment instruments, something that has been occurring in Japan for years.  Does that mean that cell phone contracts will someday include TILA disclosures? And from the Real Estate section, Safeguarding Against Loan Discrimination, about settlements reached by the New York State Attorney General's Office with two mortgage brokers accused of charging minority borrowers higher fees than white borrowers, and how borrowers can protect themselves. 

Wednesday's paper brought distressing news: Big Breach in Card Data Raises Risk for Millions.  Here's the first paragraph:

Heartland Payment Systems, a major payment processing company, disclosed a data breach on Monday that potentially exposed tens of millions of credit and debit cardholders to the risk of fraud in what could quickly become one of the country’s biggest data compromises.

At the risk of trampling on Alan White's territory, here's an article from back on December 21 that I never got around to posting, Bob Tedeschi's Mortgages column titled Revising Loan Modifications.  Some excerpts:

“The average loan servicer wants to reach a resolution about a loan modification with a single letter or a phone call,” said Steven Horne, the president of Wingspan Portfolio Advisors, which helps clients renegotiate loan terms. But, he said, devising an effective long-term strategy to enable a borrower to avoid foreclosure might take several rounds of communication.

* * *

But Mr. Horne, a former executive at Fannie Mae, suggested that the new loans had not been structured to best meet borrowers’ financial circumstances, in large part because the loan servicers that collect mortgage payments cannot engage in a lengthy analysis of each borrower’s finances.

It is up to the borrowers, therefore, to be more proactive. Mr. Horne says they can increase the likelihood of securing the right loan if they push for more personal attention, and do a little homework about their own finances.

And from December 18, Yahoo Puts New Limits on Keeping User Data, about how Yahoo will keep some personally-identifiable data for only 90 days, less time than the other major search engines.

Simkovic Study Finds 2005 Bankruptcy Act Profits Credit Card Companies at Consumers' Expense

Michael Simkovic of Harvard's Olin Center for Law and Economics has written The Effect of 2005 Bankruptcy Reforms on Credit Card Industry Profits and Prices.  Here's the abstract:

The U.S. Bankruptcy code changed dramatically with the passage of The Bankruptcy Abuse Prevention and Consumer Protection Act Of 2005. This act increased the costs and decreased the benefits of bankruptcy to consumers. Supporters of the law claimed that it would benefit consumers as well as creditors, because reducing the losses faced by creditors would lower the cost of credit to consumers. Critics of the law depicted it as special interest legislation designed to profit credit card companies at the expense of consumers. This study tests whether the 2005 Bankruptcy Reform: (1) reduced the number of bankruptcies; (2) reduced credit card company losses; (3) lowered the cost to consumers of credit card debt; and (4) increased credit card company profits. The data suggests that although bankruptcies and credit card company losses decreased, and credit card companies achieved record profits, the cost to consumers of credit card debt actually increased. In other words the 2005 bankruptcy reforms profited credit card companies at consumers' expense.

Soliciting Suggestions for Selected Consumer Statutes

My co-authors and I are planning to come out with a new edition of Selected Consumer Statutes, the statutory supplement to the casebook, ideally in time for fall classes.  While we've been able to incorporatethe amendments to TILA, Regulation Z, and other regulations in our 2009 supplement, a new edition would be easier to work with.  So we're wondering: do those who have used the 2007 edition have any suggestions?  Is there anything you think we should add?  Delete?  Any way we can make it easier to use?  Our hope is that practitioners have also found the book useful; do practitioners have suggestions?  You can post comments below or email me directly.  Just to remind people, the book currently includes the Consumer Credit Protection Act (including TILA, CROA, FCRA, ECOA, FDCPA, EFT), associated regulations, various FTC regulations and guides, the Magnuson-Moss Act and regulations, privacy laws, the U3C, excerpts from the UCC, Restatement provisions, and an assortment of other federal, state, and international materials.