CL&P Blog

ABI Bankruptcy Case Blog Launched

St. John's Law School and the American Bankruptcy Institute have launched the ABI Bankruptcy Case Blog, which will report on cutting edge bankruptcy issues and cases, including consumer bankruptcy issues.

Facebook Dumps Binding Mandatory Arbitration

by Greg Beck

As noted in a prior post, Facebook has been considering revisions to its terms of use in response to widespread criticism in the blogosphere. Facebook has now posted a proposed "Statement of Rights and Responsibilities" for its users to review. Instead of an arbitration clause, the agreement now states:

You will resolve any claim, cause of action or dispute (“claim”) you have with us arising out of or relating to this Statement or Facebook in a state or federal court located in Santa Clara County. The laws of the State of California will govern this Statement, as well as any claim that might arise between you and us, without regard to conflict of law provisions. You agree to submit to the personal jurisdiction of the courts located in Santa Clara County, California for the purpose of litigating all such claims.

There are still grounds to complain about requiring users to submit to jurisdiction in California, but Facebook deserves credit for doing away with binding mandatory arbitration. Hopefully other companies will learn a lesson from Facebook and realize that consumers don't appreciate being required to give up all their rights.

Third Circuit Strikes Down Class-Action Ban, Eliminates Claimed Circuit Split

by Deepak Gupta

This blog has closely followed the ongoing battle over class-action bans: adhesion contract provisions that purport to strip consumers and employees of their right to pursue class actions, whether in litigation or in arbitration. Needless to say, the stakes in this battle are big: Class actions seeking to vindicate protections under the civil rights, consumer, and tort laws could all be barred if industry gets its way.  Because these provisions are typically embedded in arbitration clauses, corporations argue that any refusal to enforce the clauses under state law is preempted by the Federal Arbitration Act.  Last year, I blogged about an industry effort to get the U.S. Supreme Court (in T-Mobile v. Laster and a series of tag-along cert petitions) to take up the preemption question and wipe out a string of industry losess in courts across the country. 

The industry pitch for Supreme Court review, and its claim of a split among the lower courts over preemption, had been premised largely on language in a single Third Circuit opinion by Senior Judge Morton Greenberg, Gay v. Creditinform, which could be read to reflect support for a categorical rule that state-law determinations concerning the unconscionability of class-action bans are preempted by the FAA. The Gay opinion was quite muddled, however, and it wasn't even clear that the panel understood that its discussion was in conflict with every other federal circuit and state high court to have considered the issue. In our cert opp in the Laster case, we suggested that the language in Gay was essentially dicta--unnecessary to the decision (which held that the clause was enforceable under Virginia law anyway) and entirely speculative, based on questionable predictions about what the Pennsylvania Supreme Court would do.

In a big victory for consumers on Tuesday, the Third Circuit's unanimous ruling in Homa v. American Express made clear that the FAA preemption language in Gay was nothing but dicta, thereby eliminating the industry's claimed circuit split. For those interested in the battle over mandatory arbitration and class-action bans, the decision is a must-read. It not only rejects the proposition that New Jersey's law on the unconscionability of certain class-action bans is preempted by the FAA, but also contains an important choice-of-law discussion. Based on New Jersey public policy, the court refuses to apply the law of Utah, under which the class action would be have been barred.  Congratulations to class-action-ban-slayer extraordinaire Paul Bland, who did a terrific job of briefing and arguing the appeal for the plaintiffs!

FTC Releases Annual Consumer Complaint Tally, Debt-Collection Reports

by Deepak Gupta

The Federal Trade Commission today released its annual tally of consumer complaints. For the ninth year in a row, identity theft was the number one consumer complaint category. Of 1,223,370 complaints received in 2008, 313,982, or 26 percent, were related to identity theft. The next-largest category, clocking in at 9% of all complaints, was debt collection. The FTC receives more complaints about the debt-collection industry than any other industry. You can view a summary of the results here, and a detailed report on the data, including geographical statistics, here.

The FTC also released two important reports on debt collection practices--a report on a workshop held last year to mark the 30th anniversary of the Fair Debt Collection Practices Act and the Commission's annual report to Congress on enforcement under the Act.  The workshop report, titled Collecting Consumer Debts: The Challenges of Change, makes several specific recommendations for amendments to the FDCPA and raises questions about abusive collection litigation practices and the use of mandatory binding arbitration.

• Give FTC Rulemaking Authority: The report recommends that Congress give the Commission authority to issue rules under the FDCPA.
• Increase Statutory Damages: The report states that private actions, not FTC actions, were intended by Congress to be the primary means of promoting industry compliance with the FDCPA, and notes that the amount of statutory damages (up to $1,000) that consumers can obtain in lawsuits under the FDCPA has not changed since 1977. To increase deterrence, the report recommends increasing the damage amounts to reflect inflation since then, and, in the future, to increase them periodically.
• Information Flow:  Require that collectors have better information, making it more likely that their efforts will be for the right amount and be directed to the right consumer.

• Validation Notices & Reasonable Investigations: Require that collectors provide consumers with better information explaining their rights under the FDCPA, including (1) that the “validation notices” that collectors are required to send to consumers also disclose the name of the original creditor; break down the debt by principal, total interest, and total fees; and inform consumers of certain rights they already have under the FDCPA and (2) that collectors conduct “reasonable” investigations responsive to the specific dispute the consumer raised.

• Adjustments for New Technology: Modernize the law to reflect changes in technology, including prohibiting collectors from contacting consumers via their mobile phones, including by text messaging, without prior express consent; and requiring collectors who use new payment technologies to obtain express verifiable authorization from consumers before accessing their accounts.

Debt-Collection Litigation and Arbitration Practices: The report recognizes that "certain debt collection litigation and arbitration practices appear to raise substantial consumer protection issues."  Among other things, the report cites Public Citizen's report, The Arbitration Trap, on the use of arbitration as a debt-collection mechanism. The report makes no definitive recommendations on arbitration and litigation, but instead announces that the FTC will convene regional roundtables this year with state court judges and officials, debt collectors, collection attorneys, consumer advocates, arbitration firms, and other interested stakeholders to learn more and develop possible solutions.

Fed Call for Papers

The Philadelphia Federal Reserve Payment Cards Center has issues a call for papers for the fifth edition of its biennial conference on Recent Developments in Consumer Credit and Payments.  Here are the details:

This year's conference will be held at the bank on September 24-25, 2009. The submission deadline for complete papers is June 15, 2009 (see below for submission procedures). Once again, this conference is a joint endeavor by our bank's Research Department and the Payment Cards Center.  The dramatic deterioration in the markets for consumer credit and mortgages highlights the pressing need for original research in these areas and for a continuing dialogue among researchers and policymakers. Theoretical and empirical papers are welcome. Areas of interest include, but are not limited to, the following:

• Personal bankruptcy and consumer default
• Mortgage lending and default
• Regulation of consumer credit and mortgage markets
• Contractual and informational issues in consumer credit markets
• Credit scoring and credit reporting agencies
• Securitization of consumer debt
• Pricing and efficiency of retail payment services
• Consumer payments networks and their regulation

California passes 90-day Foreclosure Moratorium

by Alan White

Governor Schwarzenegger signed a bill Tuesday imposing a 90-day moratorium on foreclosures in California.  The bill exempts lenders who have a modification program in place meeting standards set forth in the bill, including reduction of payments to 38% of a borrower's income (higher than the 31% DTI standard in the Obama Administration plan.)  Nevertheless a halt to at least some foreclosures is a key missing piece of the Administration's plan announced last week.  Outside of California and apart from lenders with voluntary foreclosure freezes, homes will continue to be foreclosed while the new program, and perhaps even the legislation to allow Bankruptcy Court restructuring, is rolled out.  This means not only needless home losses but also needless losses for banks, to the tune of about $125,000 per house in January.

While the Administration's new plan has some merit, it doesn't actually stop any foreclosures, which is the point.  Regrettably, the Obama/Geithner plan perpetuates two basic flaws with mortgage modifications to date:  payment reductions are temporary (5 years) so that we will have another payment shock crisis in 2014, and homeowners for the most part are not deleveraged, because principal writedowns are not a central part of the program.  To its credit, the Administration is sticking to its guns on supporting bankruptcy stripdown of underwater mortgages, but that will still require getting past the Blue Dogs in Congress. 

In upcoming posts I will report on this week's International Association of Consumer Law conference in Hyderabad India, perhaps including some topics other than the U.S. mortgage foreclosure crisis.

Spring 2009 Issue of Journal of Consumer Affairs Table of Contents

The Spring issue of the Journal of Consumer Affairs is available here.  It includes an article by Jef I. Richards titled Common Fallacies in Law-Related Consumer Research.  Here's the table of contents:

Editorial Prelude: Looking Forward by Looking Back

State Prescription Drug Policies, Cost Barriers, and the Use of Acute Care Services by Medicaid Beneficiaries by Sharon Tennyson and Hae Kyung Yang

Consumer Self-Confidence in Searching for Information by Cäzilia Loibl, Soo Hyun Cho, Florian Diekmann, and Marvin T. Batte

The Bold and the Bankable: How the Nuestro Barrio Telenovela Reaches Latino Immigrants with Financial Education by Jonathan Spader, Janneke Ratcliffe, Jorge Montoya, and Peter Skillern

Explaining Financial Management Behavior for Koreans Living in the United States by John E. Grable, Joo-Yung Park and So-hyun Joo

Alcohol Messages in Prime-Time Television Series by Cristel Antonia Russell and Dale W. Russell

Playing With Food: Content Analysis of Food Advergames by Mira Lee, Yoonhyeung Choi, Elizabeth Taylor Quilliam and Richard T. Cole

Notes, Observation and Historical Perspectives

Trends in Journal of Consumer Affairs Feature Articles: 1967-2007 by Russell N. James III and Brenda J. Cude

Understanding Communication Research Findings by Ivan L. Preston

Common Fallacies in Law-Related Consumer Research by Jef I. Richards

Editorial Postlude

Disciplined Conduct of Inter-Disciplinary Research by Herbert Jack Rotfeld

           

Libel Tourism Hits a New Low

by Paul Alan Levy

A currently developing situation represents a new low for “libel tourism” – the practice of bringing libel claims against United States defendants in foreign courts where the First Amendment and other provisions of US law that protect free speech are not recognized.  The plaintiff's objective is to suppress speech by obtaining a judgment abroad and then claiming that international principles of comity require that the judgment be recognized – subject to a possible defense that enforcing the judgment would violate public policy – or at least to intimidate other speakers that might be tempted to engage in similar criticism.  In the most recent example, a UK company has seized on another recent trend in efforts to suppress free speech online — instead of taking action directly against a web site operator who might actually defend his or her free speech rights, the plaintiff goes after the speaker’s Internet Service Provider in the hope that it may be unwilling to risk a lawsuit and may, instead, sacrifice its customer’s free speech.  By threatening to file suit in a jurisdiction that does not recognize principles of ISP immunity, the company hoped to achieve its objective of suppressing criticism without even having to obtain a judicial determination that the speech was wrongful.  Public Citizen has urged Congress to address this issue in legislation currently being considered on the subject of libel tourism.

January 2009 NHTSA and CPSC Recalls

National Highway Traffic Safety Administration recalls for January 2009 are here. The Consumer Product Safety Commission recalls for January 2009 are here.  

Blockshopper Settles Jones Day’s Trademark Linking Suit – What Are the Lessons? What Can We Do Now?

by Paul Alan Levy

Late last week, lawyers for Jones Day filed a stipulation of dismissal of its trademark claims against the real-estate website Blockshopper. The lawsuit alleged that, by providing links to lawyer bio pages on the Jones Day web site from anchor text that set forth the lawyers’ names, Blockshopper was creating a likelihood of consumer confusion about whether Jones Day was the sponsor of or affiliated with the Blockshopper web site.  Under the terms of the settlement, Blockshopper agreed not to provide a clickable link to Jones Day’s web site from any form of anchor text other than the actual URL to which the viewer would be taken. Thus, instead of linking to Paul W. Schroeder, the lead counsel for Jones Day in the case, in the way I have just done, Blockshopper would have to configure its site this way: Paul W. Schroeder, http://www.jonesday.com/pwschroeder/.

There have been several excellent blog posts about the ramifications of the settlement, on Consumerist, Techdirt, Slate, and Ars Technica.  But here is my take on who won, and what lessons are to be drawn from this development.  Although there is reason to be concerned about the chilling effect of the litigation, there is something that the blogging community can do to limit that chilling effect.