Consumer Law & Policy Blog

Judges and Credit Card Cases

by Jeff Sovern

Suppose you're a judge presiding over cases in which debt buyers--who have bought credit card debt from credit card companies or, often, other debt buyers--sue the credit card holders for the amounts due on the credit card.  You know that virtually no debt buyers can prove their cases (indeed, I'm told that often the contract under which the debt buyer purchased the debt does not oblige the credit card company to provide the underlying documentation needed to prove the debt, or obliges the credit card company to provide such documentation for only a limited number of the debts).  The debt buyers are like poker players bluffing with weak hands.  Consequently, if the cases go to trial, the debt buyer will lose.  You could insist that the cases go to trial.  But that would clog your court up with trials.  In addition, you believe that most of the consumers did incur debts on the credit cards on which they're now being sued, so that they would get a windfall if they win outright.  Moreover, if all judges insisted on trials in such circumstances, consumer debts would become worth even less, which means that credit card issuers would have an even harder time recouping their losses, and that might increase the cost of borrowing or reduce access to credit, or both.  Alternatively, debt buyers might insist on buying the documentation, and that the credit card companies supply the witnesses needed to prove their cases, which would again increase the cost to credit card companies.  So there are long run costs to that approach.  Many of these cases terminate in settlements.  So you could push the parties to settle.  But what kind of settlement is fair?  Often the final charges on the card exceed by a large margin the cost of the items that the consumer initially charged, because of the various penalty fees and charges.  And of course the debt buyers usually purchase the claims for considerably less than their face value, so a settlement at 100% of the amount owed would give the debt buyers a windfall.  So all in all, what's the appropriate role of the judge in these cases?  To do justice?  But what's just?

Snake Oil Salesman Liable for $50 Million: Apparently Can't Cure Cancer

by Christopher L. Peterson

The Boston Herald reported today that a federal judge awarded the Federal Trade Commission nearly $50 million in damages in its case against Donald Barrett. Mr. Barrett is an infomercial pitchman who hawked his “Coral Calcium” and “Supreme Greens" dietary supplements on late night television.

The award comes nearly a year after the Federal Trade Commission won a summary judgment motion on the question of Mr. Barrett's and his co-defendant's liability. Among other counts, the district court agreed that Mr. Barrett's Coral Calcium infomercial made false representations that coral calcium is an effective treatment or cure for cancer, Parkinson’s disease, heart disease, and autoimmune diseases such as multiple sclerosis and lupus.

Still advertised and on the market: Mr. Barrett's "Hope^TM for Pets" dog food supplement which allegedly provides "Omega-3 fatty acids and phospholipids for healthy skin & hair coat." Any one want to bet whether he did a double blind, placebo-controlled, longitudinal dog study to back up that claim? Woof.

Bank of America Abandons Mandatory Arbitration

CNBC is reporting that Bank of America will no longer require that consumer disputes involving credit cards, among other matters, be resolved by arbitration. 

Andrew Serwin on Privacy Litigation

Andrew B. Serwin of Foley & Lardner LLP has written Poised on the Precipice: A Critical Examination of Privacy Litigation.  Here's the abstract:

A collection of factors has caused the United States to be poised on the precipice of a new wave of litigation - litigation arising from the improper use or collection of information. Public concern over privacy is ever increasing while, and some would say because, information has become critical to our everyday existence. In what is now a self-reinforcing cycle, increased public concern has caused an exponential increase in regulations, and the new regulations have caused increased attention and public concern because many of the new laws require public disclosure of security breaches, which increases societal concerns over privacy.

Security breach laws, the laws that mandate public disclosure of data incidents, provide the best example of the increase in regulation - Just a few short years ago California passed the first security breach law. Now, 43 other states, the City of New York, Washington, D.C., and Puerto Rico, have adopted laws and many other countries have either adopted, or are likely to adopt, security breach laws as well. Restrictions on the collection and use of Social Security number laws provide another such example as now more than 35 states have adopted these type of laws.

Whether the increasing public concern over privacy is caused by, or reflected in, the new privacy laws, the phenomenal expansion in the number of privacy laws will have a predictable effect - a geometric increase in the number of privacy laws will result in an equally geometric increase in the number of violations of privacy laws. As violations increase there is an equally predictable consequence - increased incentives for individuals to attempt to enforce these new rights.

One of the first challenges in privacy litigation is to define what "privacy" litigation actually is. While consumer-based privacy litigation gains much of the attention, to focus exclusively on consumer-oriented privacy litigation misses half the picture. The increase in value of information has increased the number of businesses that are bringing litigation to protect their intellectual capital and their networks. Though these claims are not thought of as "privacy" litigation in the traditional sense, these claims are no less about the improper use of information than actions brought by individuals. This litigation is frequently brought under the Computer Fraud and Abuse Act, the Electronic Communications Privacy Act, CAN-SPAM, the unfair competition law, including portions of the Lanham Act.

In the privacy realm, the Federal Trade Commission ("FTC") serves as the primary federal privacy enforcer. However, the FTC does not have unlimited resources, privacy is not its only responsibility, and the actual number of enforcement actions is not as high as one might guess. As a result, state attorney generals have an important role to play in privacy enforcement. However, with limited exceptions, state attorney generals have not brought a significant number of privacy matters. As a result, enforcement in many cases falls to private plaintiffs, and they play a role in enforcing privacy laws where violations are alleged to have occurred.

However, the road to plaintiffs' recovery in privacy litigation is littered with a number of issues that can derail a case before it truly starts, not the least of which is that plaintiffs in many cases cannot prove actual damage, and may actually lack standing to bring an action. Moreover, even if the case clears this hurdle, many class actions fail the certification requirements because of issues unique to privacy litigation.

This article examines the common theories of privacy litigation, the issues faced by plaintiffs, and examines class action issues generally, as well as some class issues that are unique to privacy litigation. While privacy cases have had mixed success, the increased importance of information, coupled with increased public attention, and the ever-increasing number of privacy laws guarantees that we will be stepping off of the precipice and into privacy litigation.

Times Story on Medical Information Privacy

Today's Times has an article, And You Thought a Prescription Was Private, about the sale of information about patients' use of prescriptions. The article also reports about how February's stimulus bill prohibits the sale of much personal health information.  The Center for Democracy and Technology has more.

Debtor's Prison in Indiana

Apparently in the southern counties of Indiana, judges are not in sympathy with our state constitution's ban on imprisonment for debt, which dates back to 1851.  Judgment debtors whose sole income is exempt Social Security, and whose assets fall below the state property exemptions, are summoned to court on show cause orders, and threatened with contempt if they refuse to make payment arrangements.  The Indiana Court of Appeals recently reversed one trial court's judgment ordering an indigent debtor to pay $25 monthly on an ordinary contract debt, or face prison.  HT to student Laura Harris who researched this practice while working at Indiana Legal Services.  Below the break I have reproduced the exchange between the trial judge and the consumer.

Jeff Gelles Column on How Deregulation Both Helps and Hurts Consumers in Calling Overseas

Here.

Illinois sues Wells Fargo for Discrimination

Illinois Attorney General Lisa Madigan filed a Complaint on July 31 alleging that Wells Fargo violated state fair lending and consumer protection laws in its mortgage operations.  The 62-page complaint elaborates in great detail the compensation systems that induced Wells Fargo loan officers to steer prime borrowers to subprime loans.  The complaint also alleges that Wells Fargo engaged in marketing campaigns targeted at African-Americans to sell them subprime mortgages, and that foreclosures by Wells Fargo are now falling hardest on Blacks in Chicago and throughout Illinois. 

Meanwhile on July 2 Federal District Court Judge Benson Legg denied Wells Fargo's motion to dismiss the City of Baltimore's lending discrimination complaint, and discovery is now proceeding on that suit.

The Tug of War Over Who Will Protect Consumers Continues . . .

by Jeff Sovern

The Times has another article today about the tug of war between existing federal regulators and the Obama administration over the desirability of establishing a new Consumer Financial Protection Agency or allowing the existing agencies to keep their consumer protection jurisdiction, Geithner Takes Regulators to Task on Turf Battle.  It reminds me of the other evening, when my wife and I were putting together a book shelf.  First my wife encountered a problem, so I took over and was able to solve the problem.  Then, on another part of the project, I struggled; my wife stepped in, and completed the task.  The result: a place to put our books.  We all know that the existing regulatory agencies failed at their consumer protection mission.  Isn't it time for them to step aside and let someone else take over? 

FTC Seeks to Protect on On-Line Privacy

Ed Mierzwinski over at U.S. PIRG's Consumer Blog has this nice post concerning today's New York Times story on the FTC's efforts to combat commercial monitoring of consumers' on-line behavior.