Consumer Law & Policy Blog

Fallout From Credit CARD Act?

by Jeff Sovern

This morning, the Pittsburgh Post-Gazette published the following essay I had written: 

Private Sector Commentary: New credit card law has teeth

Tuesday, June 30, 2009

By Jeff Sovern

The credit card legislation President Obama signed into law represents a sharp break from previous federal credit card statutes.

Ever since the landmark Truth in Lending Act was enacted in 1968, Congress has focused largely on disclosures of credit card terms on the theory that informed consumers would select the best credit terms available to them.

But rather than just mandating improved disclosures, the legislation contains outright prohibitions on certain credit card terms, such as increases in the interest rates charged on existing balances or sending monthly statements to consumers less than three weeks before the payment due date.

Put another way, you will not be able to agree to those terms with your credit card lender even if you wanted to. This shift reflects a better understanding of consumer decision-making. Classical economic theory of the sort in vogue 40 years ago presupposed that rational consumers, if properly informed, would choose wisely.

White House Proposal Includes Authority to Ban Forced Arbitration

by Deepak Gupta

Included in President Obama's proposed Consumer Financial Protection Agency Act of 2009 is the following provision giving the new agency the authority to ban pre-dispute mandatory binding arbitration clauses:

SEC. 1025. AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION.

The Agency, by rule, may prohibit or impose conditions or limitations on the use of agreements between a covered person and a consumer that require the consumer to arbitrate any future dispute between the parties arising under this title or any enumerated consumer law if the Agency finds that such prohibition, imposition of conditions, or limitations are in the public interest and for the protection of consumers.

This is a big step forward for arbitration fairness.

The measure follows up on a specific recommendation in the Treasury Department's blueprint for financial regulatory reform, which also suggests that the SEC should explore banning forced arbitration . (Jump to pages 62-63 and 72 of the report.) The Wall Street Journal wonders whether this is "The Beginning of the End of Mandatory Arbitration."

NPR's All Things Considered recently ran this excellent report on the forced arbitration debate, featuring Public Citizen's David Arkush.

White House Sends Consumer Financial Protection Bill to Capitol Hill

by Deepak Gupta

Today, President Obama sent a bill to Capitol Hill that would create a Consumer Financial Protection Agency.  You can read the text of the proposed Consumer Financial Protection Agency Act of 2009 here. The package also includes amendments to the Federal Trade Commission Act. The Washington Post has a story on the announcement here.  

Additional information is available at www.financialstability.gov and at the website of Americans for Financial Reform, a two-week-old coalition of 200 national, state and local consumer, employee, investor, community and civil rights organizations that Public Citizen has helped to launch. 

Here's the administration's press release:

With leaders in Congress committed to enacting regulatory reform by the end of the year, the Administration today delivered to Capitol Hill a bill that would create the Consumer Financial Protection Agency. The agency will be dedicated to looking out for American families when they take out loans or use other financial products or services – with a mission to promote access and protect consumers from unscrupulous practices across the market. This new agency will implement and enforce the new credit card bill signed into law by President Obama and Congress and have authority to combat the worst abuses in mortgage markets. This legislation creates an agency to promote transparency, simplicity, fairness, accountability, and access – laying the cornerstone for the effort to fundamentally reform our system of financial regulation.

“This agency will have the power to set standards so that companies compete by offering innovative products that consumers actually want – and actually understand. Consumers will be provided information that is simple, transparent, and accurate. You'll be able to compare products and see what's best for you. The most unfair practices will be banned. Those ridiculous contracts with pages of fine print that no one can figure out – those things will be a thing of the past. And enforcement will be the rule, not the exception.”  - President Obama

California's 17200: Have rumors of its death been greatly understated?

by Stephen Gardner

Yesterday, the California Supreme Court issued an opinion, Arias v. Superior Court, that seems to have gutted any hopes of a representative action under California Business & Professions Code § 17200, holding:

[W]e construe the statement in section 17203, as amended by Proposition 64, that a private party may pursue a representative action under the unfair competition law "only if the party complies with Section 382 of the Code of Civil Procedure" to mean that such an action must meet the requirements for a class action.

So, to bring a 17200 case, you must have suffered "injury in fact" and must have lost "money or property" (again, thanks to Prop. 64) and you have to bring it as a class action. Which means getting certified, giving notice, etc. The Court decided against a strict reading of Prop. 64, which would have required a rep plaintiff to meet the requisites of a class action without actually bringing the case as a class action.

Thus, I don't see that there is now a lick of difference between a representational plaintiff, who must also bring suit as a class rep, and any other class rep, except to the extent that the standing requirements as a rep plaintiff under 17200 are stricter than those for many class reps. Bummer.

The case was issued  with a companion case, Amalgamated Transit Union v. Superior Court, which holds that representational plaintiff status can't be assigned to another.

But, who would want that, since it confers effectively no benefit?

I gotta go sit shiva for consumer rights in California now.

Should section 230 be broadened to the traditional media?

by Paul Levy

General Motors’ retreat from its effort to use bankruptcy proceedings to shed tort liability represents a great victory for consumers.  But the Washington Post reported that, in the course of the consumer campaign to achieve that result (which Public Citizen and other groups pursued in the courts as well as in the court of public opinion), GM successfully suppressed an ad by consumer groups.  The story provides a stark reminder about the crucial role played by section 230 of the Communications Decency Act in protecting free speech by consumer interests online. 

Cuomo Case Great News for State Attorneys General

by Christopher Peterson

The Supreme Court has issued an opinion striking down the federal banking regulatory preemption of state fair lending enforcement lawsuits. The Court confronted whether ambiguity in the National Bank Act left the Office of the Comptroller of the Currency free to preempt state fair lending litigation originally brought by former New York Attorney General Eliot Spitzer. In applying the administrative deference standard of Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., the Court explained:

[T]he presence of some uncertainty does not expand Chevron deference to cover virtually any interpretation of the National Bank Act. We can discern the outer limits of the term “visitorial powers” even through the clouded lens of history. They do not include, as the Comptroller’s expansive regulation would provide, ordinary enforcement of the law. Evidence from the time of the statute’s enactment, a long line of our own cases, and application of normal principles of construction to the National Bank Act make that clear.

Cuomo v. Clearing House Association, LLC.,  No. 08-453, slip. op. at 3 (U.S. June 29, 2009).

The decision reverses the trend in recent years, discussed here and here, of giving free reign to federal banking regulators to squelch the consumer protection efforts of state attorneys general. While the long-term impact of the decision is yet to be clear, the opinion is likely to embolden some state AGs in litigation against national banks and their subsidiaries over the subprime mortgage debacle.

Read the GM Bankruptcy Objection Filed by Consumer Groups

Earlier today, we posted materials concerning the amendments to the GM bankruptcy sale that will save future product liability and lemon law claims. That post neglected to say that these amendments largely redress objections in the bankruptcy case made by national consumer groups, including Public Citizen and the Center for Auto Safety. Read the the Consumer Groups' Objection.  

GM Bankruptcy Sale Agreement Amended to Cover Product Liability Claims

A number of news sources are reporting that the GM bankruptcy sale agreement has been amended to assure that the new company emerging from bankruptcy will be liable for product liability claims. As the New York Times story puts it:  "General Motors and the Obama administration have reached a deal for the carmaker to assume responsibility for product liability claims filed after it emerges from bankruptcy as a new company, even those claims involving vehicles made by the old company, according to documents filed in bankruptcy court late Friday."

UPDATE:  Read the amended sales agreement. The changes are in red and blue.

NHTSA Recalls for May 2009

Check out the the auto safety recalls from the National Highway Traffic Safety Administration for May 2009.

The Role of Predatory Lending in the Collapse of Detroit

by Laura MacCleery

After listening to a stirring speech by Professor Elizabeth Warren of the Senate Congressional Oversight Committee on the bailout last Saturday at the American Constitution Society convention, I was struck by the many similarities between credit card company practices in moving the profitability of financial products towards the “back end” penalties and fees, and those I uncovered several years ago in the automobile lending context.

The coverage of the auto bailout and the collapse of the domestic auto industry has lacked real understanding of how risk was fed into the auto purchase marketplace. The same full range of predatory practices affecting home mortgages were widely used – and perhaps even to a greater extent – by the automobile industry to sell vehicles. 

In general, Detroit has been inattentive to the serious problem of oil dependency for its profitability model, pushing far larger SUVs and pickups on consumers than was justified by transportation needs. It has also been hostile to safety advances, and managerially backwards. These problems are well known. Less well understood is that, through predatory lending practices, they’ve been taking their customers to the poorhouse with them.

When I was at Public Citizen, we wrote a report in 2003, entitled Rip-Off Nation, detailing many of the fraudulent and misleading aspects of auto purchases. We worked closely with a whistleblower who had been an auto dealership employee and was familiar with many of the tricks and traps then being used to saddle consumers with overpriced auto loans, and published real examples of actual auto lending documents demonstrating the scams. Without the mortgage lending example to illustrate the problem and its potential economic costs, our work to raise the issues largely fell on deaf ears.

Yet the situation has only worsened since, and the number of consumers who are underwater in their loans continues to climb. In December 2008, as The Denver Post reported, both the number of “upside-down” new vehicle purchases and the amount that consumers owe on auto loans have ballooned: