Consumer Law & Policy Blog

A Solution to Incomprehensible Contracts?

Back on August 20, the Times published John Aloysius Cogan's op-ed piece, Plain English Is the Best Policy about the unintelligibility of health insurance policies.  My letter appeared on Friday, under the heading "No More Gobbledygook:

To the Editor:

Re “Plain English Is the Best Policy” (Op-Ed, Aug. 20):

John Aloysius Cogan Jr. complains that insurance policies are incomprehensible, but many other consumer contracts suffer from the same defect. Ever try to read a credit card contract?

We should require companies using consumer contracts longer than, say, four pages to test what percentage of consumers understand them, and then post their scores in their ads. Maybe businesses would compete for better comprehension scores by using easier-to-understand terms.

Jeff Sovern
Jamaica, Queens, Aug. 20, 2009

The writer is a professor of law at St. John’s University and co-coordinator of the Consumer Law and Policy Blog.

 

Chrysler Assumes Post-Bankruptcy Product-Liability Claims

by Adina Rosenbaum

In a reversal of its position in the bankruptcy proceeding, Chrysler has agreed to assume liability for people injured after the Chrysler bankruptcy by vehicles sold before the bankruptcy.

As background, in late May and early June, Public Citizen represented a bunch of consumer organizations in objecting to the Chrysler bankruptcy sale because the sale documents purported to sell Chrysler "free and clear" of product liability claims. We particularly got involved to represent the interests of future claimants -- that is, the claims of people who would be injured or killed in accidents that occurred after the bankruptcy but were caused by defects in Chrysler vehicles sold before the bankruptcy. The bankruptcy court approved the sale free and clear of such future claims, and I argued the issue in front of the Second Circuit. Within minutes after that argument ended, the Court announced that it was upholding the sale for substantially the same reasons as the bankruptcy court and that opinions would be forthcoming. Four days later, we filed a petition for certiorari.

Debate on Forced Arbitration With Alan Kaplinsky

by Deepak Gupta

This week, the Legal Talk Network hosted a debate over mandatory arbtiration between me and Alan Kaplinsky, a corporate defense lawyer known for pioneering the use of arbtiration clauses by banks and lenders. 

I was surprised by how open Alan was about the real purpose of forced arbitration: to foreclose any possibility of class actions alleging that his clients have violated consumer protection laws, and to avoid being held accountable by juries. You can listen to a podcast of the debate at at this link, or download it as an MP3.  (Coincidentally, in another one of this week's podcasts, you can hear U.S. District Judge William Young of Boston, a well-regarded trial judge, discuss the implications of mandatory arbtiration for the future of the civil jury trial.)

Alan's repeated attempt in our discussion to use empirical studies to prove the legitimacy of forced arbtiration reminded me of a really excellent law review article that I've been meaning to plug here.  It's a piece called Mandatory Arbitration and Fairness, by David Schwartz of the University of Wisconsin, and it appeared earlier this year in the Notre Dame Law Review. Professor Schwartz makes a persuasive case for the view that the empirical question is the wrong question to be asking in the first place, and that it's a mistake for consumer and civil rights advocates to get bogged down in the empirical debate. It gets the "burden of proof" wrong, and it stands in the way of more meaningful and fundamental questions about fairness. "Interposing [the] empirical question as a hurdle to legislative reform would be a strategic victory for mandatory arbitration supporters," Schwartz writes, "because there is a good likelihood that a definitive answer is years away, and perhaps unattainable."

Ten Practice Implications of NAF Withdrawal from Consumer Arbitrations

by Bob Hobbs

The Minnesota consent order requiring the National Arbitration Forum (NAF) to cease by July 24 all new consumer arbitrations has ten dramatic practice implications, detailed in NCLC Reports, Deceptive Practices & Warranties Edition (July/August 2009).

1. Arbitration clauses naming NAF as the sole forum may now be unenforceable.

2. If a court decides instead to select the arbitrator, then the court will have to determine the arbitration rules and make sure the cost of arbitration to the consumer is no more expensive than what NAF arbitration was advertised to cost.

3. New life for class arbitrations (no longer under NAF rules) and class actions (corporations may even prefer court actions rather than class arb before court-appointed arbitrator).

4. Bank of America has dropped its arbitration requirement for all consumer transactions (auto, credit cards, banking).

5. Companies will not be able to amend many of their arb agreements to substitute AAA.

6. Collection via arbitration is dead for the foreseeable future.

7. There is now a powerful defense to confirmation of existing awards.

8. Consumers may be able to unwind even confirmed NAF arb awards.

9. Private parties, AGs, or state courts may be able to vacate NAF arb awards on a class basis.

10. There will be many reasons for attorneys with individual clients to monitor new class actions against NAF, Mann Bracken, and Creditors.

Call for Papers

We've received the following Call for Papers:  Papers are invited for the 5th edition of the Consumer Journal, a publication of the Consumer Awareness Organisation, a non-governmental organisation based in Nigeria. Interested contributors should send their papers to the address below for assessment and possible publication.

Wyoming Food Safety, Security, and Sources Conference

Food Safety, Security and Sources, A Recipe for Tough Times is the theme for the 9th annual Consumer Issues Conference at the University of Wyoming in Laramie, Wyoming, to be held September 24th and 25th. An exciting program is being planned for this year’s conference, and will include subthemes of “Food Sustainability and Security Practices,” “Food Safety v. Food Freedom,” and “Food Fight: Nutrition and Health Choices.” Speakers will include Donna Byrne, Food Law Professor from William Mitchell Law School; Sandra Eskin, a Food Safety Policy Attorney for the Produce Safety Project, an initiative of the Pew Charitable Trusts at Georgetown University; Devin Koontz of the Federal Food and Drug Administration’s Denver District Office; and my co-author Dee Pridgen, Carl M. Williams Professor of Law and Social Responsibility and Associate Dean, UW College of Law, a noted author on consumer law issues. 

An Experiment on What Advertising Content is Worth

Marianne Bertrand of University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR), Dean S. Karlan of
Yale University - Economic Growth Center; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab; Center for Global Development, Sendhil Mullainathan of Harvard University - Department of Economics; National Bureau of Economic Research (NBER), Eldar Shafir of Princeton University, and Jonathan Zinman of Dartmouth College have written What's Advertising Content Worth? Evidence from a Consumer Credit Marketing Field Experiment.  Here's the abstract:

Firms spend billions of dollars each year advertising consumer products in order to influence demand. Much of these outlays are on the creative design of advertising content. Creative content often uses nuances of presentation and framing that have large effects on consumer decision making in laboratory studies. But there is little field evidence on the effect of advertising content as it compares in magnitude to the effect of price. We analyze a direct mail field experiment in South Africa implemented by a consumer lender that randomized creative content and loan price simultaneously. We find that content has significant effects on demand. There is also some evidence that the magnitude of content sensitivity is large relative to price sensitivity. However, it was difficult to predict which particular types of content would significantly impact demand. This fits with a central premise of psychology - context matters - and highlights the importance of testing the robustness of laboratory findings in the field.

Roberds and Schreft on the Economics Behind Data Security, Privacy, and Identity Theft

William Roberds and Stacey L. Schreft, both of the Fed, have written Data Security, Privacy, and Identity Theft: The Economics Behind the Policy Debates, 23 Economic Perspectives (2009).  Here is the (very short) abstract:

In this article, we explore the concept of efficient confidentiality, using some ideas from economic theory.

Official Word from US Courts -- Feel Free to Use RECAP With Our Blessing

by Paul Alan Levy   

I got a call this afternoon from Michel Ishakian, the Chief for Public Access and Records Management at the Administrative Office of the United States courts.  She assured me that they have no problem with counsel using RECAP (discussed here) and that the language sent out by the Northern District of Georgia (see my update to my previous post) is the only language that she disseminated for publication.  She also indicated that she has been in touch with Ed Felten (under whose auspices RECAP was developed) and that, so far as she can tell, he and she are on the same page.

To the extent that messages from some districts sounded more severe, it was simply a matter of reminding all of our ECF filers to be careful about computer security and was not intended to discourage use of RECAP.

UPDATE:  I have corrected Ms. Ishakian's title, which I had taken from an out-of-date LinkedIn profile.

2009 Selected Consumer Statutes Now Available

Here, for $36.  Here's the description:

This statutory supplement is the most up-to-date statutory collection available for use in a consumer protection course or for practicing attorneys. The 2009 edition includes the Credit CARD Act of 2009, changes to Regulation Z, and other changes in the law since the 2007 edition, including measures issued in response to the economic crisis. It contains excerpts from the Consumer Credit Protection Act, the Federal Trade Commission Act, the Magnuson-Moss Warranty Act, consumer privacy and identity theft protections, residential real estate financing regulations, a sample of state consumer protection statutes, relevant international materials, and many other sources.

[Disclosure: I'm a co-editor.]