Consumer Law & Policy Blog

Hartford Courant Consumer Columnist Laid Off

Sad news for those who care about consumer protection: the Hartford Courant has laid off consumer columnist George Gombossy. According to the Times coverage, Gombossy attributes his firing to his refusal to stop criticizing advertisers.  The Courant claims the position was eliminated and that Gombossy "was not interested in a different position, which would focus on consumer complaints and not investigative work . . . ."  Gombossy continues to write at http://ctwatchdog.com/.  The incident may shed some light on why so few papers have consumer protection columns, and on the wisdom of the Consumer Reports policy of not accepting advertising.

Federal court using scare tactics to block sharing of public records

It appears that the US Courts, concerned about competition from software that offers the possibility of widespread free access to documents filed on federal judicial dockets, for which the public would otherwise have to pay the courts at the rate of 8 cents a page, are ready to resort to scare tactics to discourage lawyers from using that software.

As recently announced, RECAP is a Firefox plug-in that automatically downloads to a free, public archive all documents that a lawyer or other consumer uses when obtaining paid access to court documents on the PACER web sites maintained by federal trial and appellate courts.  At the same time, users of RECAP can tell whether the documents that they are trying to access have already been downloaded to the public archive by another RECAP user; if so, the user can avoid the $.08 per page charge that the user would otherwise pay to view the document on the judicial electronic docket.  These are public documents — if RECAP is willing to maintain them and make them available for free, the courts have no business stopping them. 

In this regard, we are advised that the court system is charging far more than the cost of maintaining is electronic dockets as the fee for viewing and downloading documents. Because PACER has become a profit center for the courts, when Public Citizen lawyers decided to adopt RECAP for our own downloads, we recognized the possibility that the courts might take some action to protect their revenue source.

We did not have long to wait.  I received the following shot across RECAP’s bow in the form of a notice to all ECF filers sent today by the United States District Court for the Eastern District of Michigan:

    The court would like to make CM/ECF filers aware of certain security concerns relating to a software application or “plug-in” called RECAP, which was designed to enable the sharing of court documents on the Internet.

    Once a user loads RECAP, documents that he or she subsequently accesses via PACER are automatically sent to a public Internet repository. Other RECAP/PACER users are then able to see whether documents are available from the Internet repository.  At this time, RECAP does not appear to provide users with access to restricted or sealed documents.

    Please be aware that RECAP is “open-source” software, which means it can be freely obtained by anyone with Internet access and could possibly be modified for benign or malicious purposes.  This raises the possibility that the software could be used for facilitating unauthorized access to restricted or sealed documents. Accordingly, CM/ECF filers are reminded to be diligent about their computer security and document redaction practices to ensure that documents and sensitive information are not inadvertently shared or compromised.

    The court and the Administrative Office of the U.S. Courts will continue to analyze the implications of RECAP or related-software and advise you of any ongoing or further concerns.

In other words, the courts’ experts have not been able to find any present security concerns, but they want users to worry that “open source” software is more vulnerable to malign modifications.  Be afraid.  Be VERY afraid.

There is one aspect of this warning from the Eastern District of Michigan that does bear consideration, in light of the point made about RECAP by Eric Turkewitz that the free availability of PACER documents makes it easier to obtain private information that is often included in court filings.  It is certainly true that public availability of these documents -- especially if the RECAP archive will be searchable -- will significantly increase the consequences of filings that inadvertently disclose private information such as social security numbers and exact birth dates that Federal Rule 5.2 requires to be redacted from electronic filings and only submitted in paper form if it is essential that the information be provided to the court.  The rise of RECAP should give lawyers an added incentive to be careful about their redactions to comply with Rule 5.2.

UPDATE:

It does appear that there is a concerted campaign to send these scare messages, and that the message that I got from ED Mich was disseminated by the AO to all districts.  Today, however, I received a lower key message from  the Northern District of Georgia, as follows:

The purpose of this e-mail is to provide you with information about a software application or plug-in called RECAP. There has been widespread coverage about this software in the media. The Administrative Office of the US Courts is examining how the software operates to ascertain whether there are policy or security implications. The Court cautions all CM/ECF filers that the full implications of using RECAP or related-software are as yet unknown, including whether restricted documents could be inadvertently made available on the public Internet. Please check our website for more details as they are available.

It is not clear whether the AO itself has decided to tone down its communications, or whether this modification of the message was developed by the ND Ga on its own.

CPSC and NHTSA Recalls for July 2009

The July 2009 Consumer Product Safety Commission product recalls are here. The July 2009 National Highway Traffic Safety Administration vehicle recalls are here.

Credit Card Company Fees on the Rise

New credit card rules go into effect today. (And others will go into effect in February, when new Congressional legislation becomes effective.) Today's rules are relatively minor, such as giving consumers more time to pay their bills. Next year's changes are broader, including rules that will restrict over-limit fees and marketing to students and young people. So, the credit card companies are looking for other ways to make money (which is what profit-making companies will do). This article in today's Washington Post explains that credit card companies are instituting annual fees on accounts that previously did not impose them and increasing interest rates and late fees. The article quotes a spokesperson for American Express saying, in business-speak, that the new legislation prompted the moves: "The reason why we did it is to be responsive to the business and economic environment, which obviously included the recent regulatory changes."

Jeff Sovern made mention of this phenomenon briefly in a post at the end of June. Jeff questioned whether the coming legislation was the real cause of the fee and rate hikes.

More on "Clunkers" Program: Some Dealers Pulling Out; Biggest Sellers Not From Detroit

This story in today's Washington Post explains that half the dealers in the New York City area and at least one in Maryland is pulling out of the "cash for clunkers" program because of delays in getting paid by the government. The dealers say that they have been paying up to $4,500 to each participating consumer immediately, but they have not yet been reimbursed by the government. Transportation Secretary Ray La Hood says that's the money will be coming to the dealers. And, though one of the justifications for the program is that it will help save Detroit automakers, the Post also reports that the top two new cars sold in the clunkers program are the Toyota Corolla and Honda Civic. The Ford Focus is third.

Doctors as Bankers

My colleague, Jim Hawkins, has posted an interesting article on SSRN. Here is an abstract:

In a variety of medical contexts, doctors play a prominent role as bankers, lending directly to patients or arranging for patients to obtain loans from third party lenders. This Article offers evidence of this activity from fertility markets based on an empirical study of virtually every fertility clinics’ website in the United States and on interviews with key market participants. I find that doctors play an important role in patients’ decisions about credit, discussing credit with patients and even recommending and promoting specific lenders to patients while excluding consideration of other potential lenders. 

Despite the prevalence of this conduct, the law does not generally regulate doctors as bankers. Patients are largely left unprotected by current regulations, but they face significant problems when doctors act as bankers. Patients, vulnerable to their physicians’ suggestions, often uncritically accept financial advice from their doctor. Instead of shopping for the best loan, they take the loan their doctor selects for them. But, doctors face a conflict of interest when choosing which lender to recommend because different lenders charge physicians different amounts when patients pay with loans. Also, patients are often left confused when doctors present piecemeal information about lenders, and patients end up taking out loans with unfavorable terms. 

In light of these problems, I offer a potential regulatory framework to regulate doctors acting as bankers. I suggest that regulations should require doctors to disclose the basic loan information that the Truth in Lending Act currently requires that lenders disclose. Moreover, policymakers should require physicians to disclose the financial arrangement between themselves and the lenders they recommend and, if they recommend lenders, to recommend at least three potential lenders to patients to encourage price shopping

New Book by Bill Patry -- who is back to blogging

by Paul Levy

Bill Patry has just published an intellectually provocative and useful polemic, Moral Panics and the Copyright Wars, that urges public attention to excessive incursions on the public domain undertaken at the behest of copyright holders through what Patry calls “The Copyright Wars.”  Patry is the author of two significant copyright treatises, Patry on Copyright and The Fair Use Privilege in Copyright Law, as well as the very well-received Patry Copyright Blog that he suspended last year.

Patry points out that although there is always a very powerful constituency for the expansion of copyright protection, and it is easy to identify those who will gain economically from such expansion and hence whose wrath will be incurred by politicians who refuse to go along, the constituency for protecting the interests of consumers and other users who benefit as works pass into the public domain tends to be more diffuse, and the victims of incursions into the public domain are far less likely to punish the elected officials who hurt them.  Yet the evidence supporting the proposition that augmentation of copyright protection is needed to create incentives for the production of creative works – the supposed justification for copyright and patent protection found in the Constitution’s so-called “intellectual property” clause – is really quite thin.  Indeed, evidence suggests that the expansions protect industries that exploit authors, not the authors themselves.

Patry draws on his own lengthy experience in the legislative branch, dealing with such masterful lobbyists as Jack Valenti, to point out the effectiveness of the copyright-expansion interests in manipulating publc attitudes.  For example, he argues that the very use of the term intellectual “property” unduly loads the dice in the public mind because decision-makers often ignore the ways in which copyright is solely the product of legislation, much more so than real or personal property that necessarily entail exclusive possession and enjoyment at any one time.

Not all of what Patry says is entirely persuasive, but the book is a good read and worth reading.  There is a blog devoted to the issues raised in the book, thus far consisting largely of back and forth between Patry and blogger Ben Sheffner.  Patry has also recently posted to his main blog, the Patry Copyright Blog -- we may hope that he will resume that useful point of discussion of recent developments in copyright law.

Kurt Eggert Article on Securitization

Kurt Eggert of Chapman has written The Great Collapse: How Securitization Caused the Subprime Meltdown, 41 Conecticut Law Review.  Here's the abstract:

This Article builds on existing criticism of securitizing subprime loans and argues that one of the primary causes of the subprime meltdown and the resulting economic collapse was the structure of securitization as applied to subprime and other non-prime residential loans, along with the resecuritization of the resulting mortgage-backed securities. Securitization weakened underwriting by discouraging originators from gathering “soft information” about the likelihood of borrower default and instead caused loan originators and other market participants to focus almost exclusively on such “hard information” as FICO scores and loan to value ratios. At each stage of the loan and securitization process, securitization encouraged market participants to push risk to the very edge of what the applicable market standards would tolerate, to make the largest, riskiest loans that could be sold on Wall Street, to bundle them using the fewest credit enhancements rating agencies would permit, and then to repeat the securitization process with many of the lower-rated mortgage-backed securities that resulted. Loan originators could profit by bargaining down the due diligence of other market participants and so reduce their own underwriting standards. Securitization also created a business model for subprime lenders whereby they could “profitably fail.” Thinly capitalized subprime lenders could generate large numbers of loans likely to default, along with substantial profits for the executives who directed them, and then simply exit the market when they predictably lost their access to the securitization pipeline.

Bank of America stops arbitration—Another problem with consumer arbitration

You may have read that Bank of America  has decided to stop requiring its customers to arbitrate disputes. Many appluaded this as a victory for consumers, which it is. It also is another example of why consumer arbitration must be prohibited. Bank of America’s decision demonstrates the real problem with consumer arbitration—it is completely controlled by the business. For whatever reason, Bank of America wanted to stop arbitration, and it did. If its customers wanted to continue to arbitrate, they are ou of luck. And no matter how many consumers wanted to stop arbitration, without the bank’s consent, they could not. Talk about a one-sided agreement.

Perhaps, Bank of America felt that with the demise of NAF and AAA as arbitration forums, it would be better to not arbitrate and run the risk that whatever arbitration forum they choose would suffer the same fate, and leave the validity of decisions in jeopardy. Or, maybe the cost of litigating arbitration clauses was too high and the bank wanted a cooling-off period. Or maybe the bank just thought it would be better to litigate. The point is, it doesn’t matter. Regardless of why Bank of America wanted to stop arbitrating,  it had the absolute, unfettered right to change the terms of its contracts with its customers, and terminate the arbitration agreement. Of course, as soon as Bank of America changes its mind, and decides to again arbitrate, all it must do is send another form notice to all of its customers who then be bound by its decision. Not exactly a two-way street.
        The legal theory supporting arbitration is that an arbitration agreement is a voluntary decision of two parties to a contract to waive the right to sue and substitute a binding decision of an arbitrator. The conduct of Bank of America in unilaterally terminating the arbitration agreement it had entered into with its customers shows the true “voluntary” nature of consumer arbitration.  Arbitration is impose or withdrawn at the whim of the business. Hopefully Congress will enact the Arbitration Fairness Act before Bank of America has a chance to change its mind and re-impose mandatory, pre-dispute binding arbitration on all of its customers.

Will the New Disclosure Date for Mortgage Terms Lead to Delays?

Bob Tedeschi has an interesting column in today's Times about the impact of the new rule that obliges lenders to provide the final TILA disclosures for mortgages three days before closing, as opposed to the old rule that they could be provided at the closing itself.  The headline, New Law May Cause Delays for Borrowers, tells the story.  The reason for the delays?  If interest rates change between the time of the disclosure and the closing, the disclosures have to be made all over again, which would start the clock running again. See, e.g., Statement of Jack M. Guttentag, University of Penn. Wharton School of Business, at the Federal Reserve Board Public Hearing, Building Sustainable Homeownership: Responsible Lending and Informed Consumer Choice 135 (June  9, 2006) (“the prices in this market are volatile. They change every day.”). Of course, lenders could go ahead with the closing at the rates that were previously disclosed.