Consumer Law & Policy Blog

Colbert Report on the Gutierrez "Protect Payday Lenders" Bill

Earlier this year Representative Louis Gutierrez (D-IL) reversed his longstanding opposition to payday lending by sponsoring a bill that would authorize payday loans under federal law for the first time. Represntative Gutierrez is touting the bill as a crack down on payday lending, but a broad coalition of consumer advocacy organizations oppose the legislation because it would legitimize and entrench loans with interest rates of between 390 and 780 percent. The legislation also would reverse President Obama's promise of a national interest rate limit of 36 percent.

Stephen Colbert weighed in on the issue on his Comedy Central program yesterday. Colbert's perspective on the effects of payday lending industry campaign contributions may come as no surprise to CL&P Blog readers. But, fair warning: his remarks may leave you with a whole new perspective on pineapples.

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David Vladeck to Head Bureau of Consumer Protection

by Deepak Gupta

FTC Chairman Jon Leibowitz today announced six senior staff appointments, drawn from the private sector, the public interest community, academia, and government. Most notable (at least to us) is the appointment of former Public Citizen litigator and current Georgetown law professor David Vladeck to head up the FTC's consumer protection activities. From the FTC's press release:

David C. Vladeck, who will serve as Director of the Bureau of Consumer Protection, has been a Professor of Law at Georgetown University Law Center, teaching federal courts, government processes, civil procedure, and First Amendment litigation. He co-directed the Center’s Institute for Public Representation, a clinical law program for civil rights, civil liberties, First Amendment, open government, and regulatory litigation. Vladeck previously spent almost 30 years with Public Citizen Litigation Group, including 10 years as Director. He has argued a number of First Amendment and civil rights cases before the U.S. Supreme Court, and more than 60 cases before the federal courts of appeal and state courts of last resort.

Needless to say, we think this is really terrific news. David is a tenacious advocate for consumers and is taking up this important post at a time when strong leadership and enforcement on consumer protection issues is sorely needed. Congratulations to David!  The full announcement--listing the other five appointees, including the heads of the agency's antitrust, economics, and policy planning divisions--is posted after the jump.

Howell E. Jackson on the Trilateral Dilemma in Financial Regulation

Howell E. Jackson of Harvard has written The Trilateral Dilemma in Financial Regulation in IMPROVING THE EFFECTIVENESS OF FINANCIAL EDUCATION AND SAVINGS PROGRAM (Anna Maria Lusardi, ed., University of Chicago Press, 2008).  Here's the abstract:

In choosing financial products and services, consumers often rely on financial advisers to recommend products or services. With surprising frequency, these advisers receive side payments or other forms of compensation from the firms that provide the products or services the advisers recommend. Many times these payments are not clearly disclosed to consumers; often they are entirely secret. These practices, which I label the trilateral dilemma of financial regulation, raise concerns that advisers may be giving their customers biased advice. Side payments of this sort also have the potential to increase the cost of financial products and services. In this article, I describe how trilateral dilemmas have arisen in many different sectors of the financial services industry, including mortgage lending, retirement savings, investment management, insurance brokering, student loans, and banking services. I then review the many different regulatory strategies that Congress and regulatory agencies have employed to police trilateral dilemmas and assess the efficacy of these techniques in solving the problems that side payments of this sort pose. I also evaluate the possibility that side payments and other forms of indirect compensation may in fact be an efficient or at least innocuous means of financing the cost of distributing financial products and services. The article concludes with a brief discussion of how consumer education might address trilateral dilemmas.

Mini-Doc on Credit Card Legislation

Check out this great new Youtube mini-documentary about the ongoing fight over credit card legislation in Congress. It's by Harry Hanbury of the investigative video journalism group American News Project. Consumer advocates Ed Mierzwinski of U.S. PIRG and Travis Plunkett of Consumer Federation of America are featured prominently.

NACA Class Action Guidelines Published in Federal Rules Decisions

by Brian Wolfman

In 1997, the National Association of Consumer Advocates published its ground breaking "Standards and Guidelines for Litigating and Settling Class Actions." These guidelines, published at 176 F.R.D. 375 (1997), sought to support the proper use of class actions while curbing their abuse.The first edition was widely cited by litigants and courts.

In 2006, NACA issued a second edition to the guidelines, which revised and improved the prior version and addied eight entirely new guidelines. At the time, class action expert Charles Delbaum wrote an excellent CLP post about the new guidelines.

Now, Federal Rules Decisions has published the second edition at 255 F.R.D. 215 (2009) (with a very brief foreword by me). Advocates and judges will now be able to easily find and cite the second edition as they were with the first.

Blind Readers in Fight with Amazon and Kindle Over Right to "Books on Tape"

Read this terrific post over at U.S. PIRG's consumer blog, chock full of great links. Here's the first paragraph:

Last week, on a chilly day, over 350 advocates for the blind and others with print disabilities held a protest in front of the Author's Guild in New York City over the authors' demand that speech software on the Kindle 2 e-book reader be turned off to preserve authors' rights to royalties from selling "books on tape" products that they read themselves. Amazon, the Kindle's maker/seller, has capitulated to the authors. The authors want the blind to submit to a special registration process where they would pay a fee and would be granted a license to turn the robotic reader software back on. They claim the Kindle 2 otherwise violates copyright laws. Fair use experts say "not true." We agree with advocates for the blind and others with reading disabilities that the authors are wrong on the law and wrong to pick this fight and that Amazon took the wrong side. 

Where Are the Consumer Protection Columnists?

by Jeff Sovern

Consumer protection has been much in the news these days, but based on a quick look, there don't seem to be a lot of columnists who specialize in consumer protection.  Take the New York Times, for example.  The closest it has to a consumer protection columnist is Ron Lieber, who writes the "Your Money" column on Saturdays, which sometimes explores consumer issues. But not always: today's column, for example, is about the temptation to cheat on taxes.  In contrast, the Times Business section alone includes two weekly columns on economics, and weekly columns on each of finance, the media, deals, technology, and columns called "Talking Business," "Fair Game," and "Everybody's Business"--and I've probably left some out.  All valuable, but given that everyone is a consumer, and only some people are involved with finance, for example, you'd think a regular column on consumer issues would also serve a purpose.  The Washington Post's Michelle Singletary's personal finance column "The Color of Money" covers consumer issues (here, for example, is a piece on foreclosure scams), but she also devotes attention to non-consumer matters, as in this recent column about--you guessed it--cheating on taxes.  So I'm wondering: are there columnists that specialize in consumer protection issues?  If you know of one, please mention him or her in the comments (no need to mention Consumer Reports magazine).  I don't see this as purely an academic issue: the more columnists that focus on consumer issues, the greater the likelihood that consumer issues will receive attention in other venues, like legislatures, and so the greater the likelihood that we'll see fair consumer laws.

BankofAmerica signs on to Home Affordable

Bank of America announced this week that it has begun refinancing mortgages at up to 105% of home values under the Fannie/Freddie Home Affordable program, part of the Administration's foreclosure relief plan.  There are two main components to Home Affordable, the refinancing of existing mortgages that are not behind and modification of mortgages that are.  Refinancing doesn't really solve the excess debt problem, but it does slow down the foreclosure machine a bit.

 BofA also announced that it will begin offering the new and improved mortgage modifications consistent with Home Affordable guidelines in the next two weeks, and is extending its moratorium on foreclosures until April 30.  The press release mentions that homeowners needing modifications will first be placed on "trial modifications", i.e. short-term payment agreements that must be converted to permanent modifications after 3 to 6 months.  Treasury's guidelines for modifications released in March contemplated that servicers could begin offering compliant modifications on a trial basis, pending full development of the program.  The contracts between Treasury and servicers for incentive payments and data reporting on mortgage modification and foreclosures have not been rolled out yet, but are due out by the end of April.

UPDATE:  I am told that few if any employees at BofA's servicing operation know about Home Affordable modifications (designed to reduce borrower's mortgage payment to 31% of income.)  With persistence, however, it is possible to find someone who has heard of the new program.  Homeowner advocates should try calling 1-877-776-5842, and wait for the message.

Meanwhile according to a report on BankruptcyProfBlog the Bankruptcy legislation to permit modification of mortgages to actually reduce debt to align with property values appears to be dying a slow death in the Senate.

More nonsense from defenders of marketplace deception

Yesterday (April 9), the Wall Street Journal ran an excellent article by Nathan Koppel on the changes to food companies' practices brought about by litigation, or the threat thereof. And by "excellent," I mean that it fairly and completely gave both sides of the issue.

This is, of course, not the kind of excellence that food companies, or the lawyers who profit from their predations, like to see. So the Journal also posted a blog entry that talked about Koppel's article. The blog entry is itself sufficiently fair and balanced, but it allowed for comments from the blinkered defenders of all things corporate.

Comments like:

• "Consumers never wanted to know the exact health risks from smoking." (This makes me think of Jack Nicholson screaming "You can't handle the truth!")
• "If its citizens want to know, then the free market provide the information, and at a cost much lower than any government mandate." (This is the kind of thinking that loosed people like Bernie Madoff on our pocketbooks.)
• And this gem, from a PepsiCo lawyer, who opines that "food litigation is part of a larger 'paternalization of society,' adding that such litigation 'in effect, says the masses aren’t intelligent enough to understand what they are buying.'"

No sir, it's not a matter of intelligence, it's ignorance, and not the blissful kind. Exactly what the food companies (many of which really can't handle the truth) are counting on, and indeed fostering.

However, sometimes the efforts of food marketers to blinker the public do not succeed, so that they are forced to respond to consumer demand, when consumers learn the truth about their products.

Products such as Snapple, which called itself "natural" and "made from the best stuff on Earth," while using the very unnatural high-fructose corn syrup instead of sugar. Responding to informed consumer demand, Snapple has begun the change to sugar, now saying that "The Best Stuff on Earth Just Got Better." Congrats to Snapple for having found the true Aristotelian Ideal, something that surpasses "best"--the adjectival progression is now, "good, better, best, Snappliester."

I am struck over and over by the food companies’ (and their defenders’) knee-jerk use of words like “paternalism” and “consumer choice,” when the simple fact is that companies are hiding from consumers the precise information necessary for consumers to make informed choices. Our economic system is based on the free flow of information, but that flow has to be two-way. For companies to hide from consumers facts, knowing that consumers would make different choices if they knew the truth, is contra to the principles on which our system is based.

When companies try to cheat their way around the truth, it hurts consumers and it hurts honest competitors.

This isn’t paternalism; it’s capitalism.

Eleventh Circuit Upholds FCRA's Statutory Damages Provision Against Constitutional Challenge

Today, in Harris, et al. v. Mexican Speciality Foods, et al., No. 08-13510 (11th Cir. Apr. 9, 2009), the Eleventh Circuit rejected a facial vagueness and excessiveness/due process challenge to the statutory damages provision of the Fair Credit Reporting Act. The district court had held the provision facially unconstitutional on both grounds. CL&P blogger Deepak Gupta briefed and argued this case for the victorious plaintiffs.