Consumer Law & Policy Blog

Dodd Financial Reform Bill Approved in Committee

The Financial Reform bill sponsored by Senator Chris Dodd passed the Senate Banking Committee today on a party line 13-10 vote and now heads to the full Senate.  Our earlier coverage of the bill is linked from this post.  

Chamber of Commerce Will Not Work to Repeal Health Care Reform

 The Chamber knows when to fold 'em. As the Chamber's President Thomas Donahue puts it: "If people want to try and repeal [the health care reform legislation], let them. We're not going to spend any capital on that." On this score, the Chamber is at odds with the Republican Party, which is claiming that it will begin its repeal efforts before the ink is dry on President Obama's signature. 

Streamlined Rulemaking for the FTC’s Consumer Protection Mission?

Guest Post by Dee Pridgen

I was recently invited to testify at the March 17 hearing of the Senate Commerce Committee, Subcommittee on Consumer Protection, Product Safety and Insurance on some proposed FTC reforms that had previously been passed as part of the House bill on consumer financial protection. This was a follow-up to hearings held in February by the full committee. The proposals being discussed included:

• substituting APA informal rulemaking procedures for the FTC’s existing unwieldy and cumbersome Magnuson Moss rulemaking proceedings,
• providing the FTC with authority to seek civil penalties for direct violations of the statute, rather than only for violations of rules and orders, and 
• providing the FTC with explicit authority to pursue aiders and abetters of FTC Act violators.

I testified in favor of all three proposals. Due to the spotlight on healthcare reform this week on Capitol Hill, this hearing did not get much attention (outside of the affected industries) but these consumer protection proposals should be supported.

FTC Commissioner Thomas Rosch testified in favor; Edward Mierzwinski, Consumer Program Director of the U.S. Public Interest Research Group, spoke in favor. Linda Woolley of the Direct Marketing Association spoke against, as did Timothy Muris, former chair of the FTC and now a professor at George Mason University School of Law. Commissioner William Kovacic was not at the hearing but provided a statement opposing the proposals. All the statements of these witnesses, including mine, can be found here.

I favor these proposals because the current Magnuson-Moss rulemaking procedures are so cumbersome that they have become a “dead letter.” FTC is now relegated to issuing industry guides, which do not have the force of law, responding to directives of Congress to promulgate regulations under specific statutes, such as the Telemarketing Sales Act, or bringing individual adjudications resulting in injunctions or cease and desist orders. To say that the FTC should keep this current process is basically to say they should not have the power to issue industry-wide rules without a specific Congressional mandate. The opponents have said that the FTC with APA rulemaking power would be like a “kid in a candy store,” or the “FTC on steroids” because the statute broadly prohibits all “unfair and deceptive trade practices.” However, I point out that the law of “unfair and deceptive trade practices” has been constrained and tempered since Magnuson Moss was passed in 1975, mainly by FTC policy statements using consumer injury cost-benefit ideas in unfairness policy and implementing a “reasonable consumer” standard in deception doctrine, so the need for the “safeguards” of Magnuson Moss is diminished. Also, there is no reason to believe that the FTC would go into regulatory overdrive if it had APA rulemaking authority to enforce its general unfair and deceptive practices jurisdiction. If the FTC uses APA rulemaking, it will be governed by the safeguards of the APA, including notice requirements, regulatory statement of basis and purpose, and judicial review. All agency rules must comply with other safeguards such as the Regulatory Flexibility Act, the Congressional Review Act and review by the Office of Information and Regulatory Affairs.

The Direct Marketing Association spokesperson expressed concern that the FTC would use APA rulemaking authority to limit innovation in internet marketing by requiring that consumers “opt-in” to the use of online profiling to develop focused ads on websites. Tim Muris stressed that the FTC would likely go back to the “binge” of regulating that occurred in the late 70s if given APA rulemaking authority. I say “times have changed” and the FTC needs the tools that other agencies have to issue binding rules in consumer protection.

President Obama Speaks on Financial Reform and the Consumer Financial Protection Agency

President Obama's Saturday morning address was devoted to the need for financial reform legislation.  A significant proportion of his address urged the establishment of a truly independent Consumer Financial Protection Agency. The President said that the CFPA was a key component of any meaningful financial reform. He spoke favorably of the Senate bill recently introduced by Senator Dodd. But a number of posts to this blog --- here, here, here, and here --- have claimed that the Dodd bill is weaker than the legislation passed by the House, among other reasons because it would place the CFPA within the Federal Reserve and give banking regulators veto power over its regulations.  View the President's address:

The Hot News Doctrine Rides Again

by Paul Alan Levy

 Does a firm that expresses an opinion "own" that opinion, and thus have the ability to prevent others from reporting on the fact that the firm has expressed the opinion?  When a newspaper or other entity reports some facts, does it "own" the news and can it prevent others from truthfully reporting the same facts?  Granting ownership in important public facts would seem to be at odds with intellectual freedom, yet it takes resources to develop the facts and news organizations have been struggling to invoke concepts of ownership as a way to ward off competition for readers from online news web sites that re-report what the established media are reporting.

A ruling yesterday by U.S. District Judge Denise Cote holds the online financial reporting firm theflyonthewall.com liable for both copyright infringement and misappropriation for engaging on the business of obtaining trading recommendations issued by the financial analysts at major brokerage and investment firms and publishing them before the market opens.  As in many situations involving a hot news claim, the defendant was also republishing copyrighted content, thus making it much harder to sympathize with the defendant. At the same time, one might well wonder why copyright law does not provide sufficient protection for the public interest in encouraging the creation of the underlying intellectual work, and whether the threat to freedom posted by the hot news doctrine is justified as a matter of public policy by a need to foster the creative endeavor.  

Although the so-called hot-news doctrine has been acknowledged in strong dicta in a number of Second Circuit cases, most notably NBA v Motorola in 1997, that court has not issued a holding in the modern era on whether the Supreme Court’s World War I era ruling in International News Service v. Associated Press survives either copyright preemption or the First Amendment.  With the defendant declaring its intent to appeal, the case will likely set up a major test of this hoary doctrine.

Daniel Carpenter's Times Op-Ed on Why the CFPA Should Not be in the Fed

Here.  Excerpts:

The Fed has a long and largely undistinguished history of consumer protection. During the 1970s, officials at the Fed opposed the Community Reinvestment Act, which attacked home lending discrimination, and the Home Mortgage Disclosure Act, which compelled banks to reveal their lending patterns.

When these became law, the Fed limply enforced them; it gave the same treatment to the Home Ownership Equity Protection Act, passed in 1994.

* * *

Embedding consumer protection in the Fed could be worse than imperfect. By giving the imprimatur of a consumer protection office to an agency that has long resisted consumer protection, Congress risks creating a false sense of security among policymakers and the public. The Fed’s politically reactive posture is the exact opposite of the sustained care that consumer financial protection demands.

Viacom's Slippery Marketing Practices Revealed in Its Copyright Suit Against YouTube/Google

by Paul Alan Levy

The parties to litigation often abuse the process of demanding that court documents be kept under seal to protect confidential information, using the claim of a need for confidentiality for the ulterior objective of preventing the disclosure of facts that are just publicly embarrassing because they contradict the litigant's public relations positions.  It is with great interest, therefore, that we noted the mass unsealing of previously sealed materials from the Viacom lawsuit against Google and YouTube.

Very much worth a read is the public statement from YouTube's counsel, and the underlying summary judgment brief just revealed publicly after the court's seal was lifted.  Simply put, according to the statement, at the same time that Viacom has been suing Google for its failure to police adequately the placement of its copyrighted content on YouTube, Viacom was, itself, secretly placing clips from its own copyrighted content on YouTube, while going to elaborate lengths to make it appear as if the material was stolen and to conceal its own involvement in placing the material on YouTube.  Not, apparently, as a way to set Google up for suit, but because the posting of apparently stolen content was seen as a way to enhance the public interest in the underlying works. 

A particularly juicy excerpt: "Viacom's efforts to disguise its promotional use of YouTube worked so well that even its own employees could not keep track of everything it was posting or leaving up on the site. As a result, on countless occasions Viacom demanded the removal of clips that it had uploaded to YouTube, only to return later to sheepishly ask for their reinstatement. In fact, some of the very clips that Viacom is suing us over were actually uploaded by Viacom itself."

Some Bad News Buried in the Dodd Financial Reform Bill?

The financial reform bill introduced by Sen. Chris Dodd on Monday would not create an independent Consumer Financial Protection Agency as does the financial reform bill passed earlier by the House of Representatives. Rather, Sen. Dodd's bill would create a new bureau within the Federal Reserve. Not to worry. We were told that this didn't matter much because the bureau would be truly independent of the Fed, with separate funding and its own rulemaking and enforcement authority.

Maybe not. Credit Slips has posted a short piece by University of Connecticut law professor Pat McCoy that explains that the Dodd bill includes an "obscure measure that would fatally hamstring the [Fed's] new 'Bureau of Consumer Financial Protection.'" What is it you ask? I'll let McCoy tell you:

Today’s bill, however, would gut both objectives [that is, consumer protection and the safety and soundness of the banking industry] by giving any federal banking regulator the unprecedented right to appeal consumer protection rules issued by the BCFP to a new Financial Stability Oversight Council, made up in part of – guess who? -- federal banking regulators. The Council could overturn any BCFP rule by a 2/3 vote[.] ... In effect, the bill hands a nuclear option to the same federal banking regulators who failed to protect consumers and the financial system during the housing bubble.

Yikes!

Online (Non) Privacy

Today's New York Times explains "How Privacy Vanishes Online."  Among other things, the article explains how, by combining information from a variety of sources, someone can correctly "guess" a lot of people's social security numbers:

Even more unnerving to privacy advocates is the work of two researchers from Carnegie Mellon University. In a paper published last year, Alessandro Acquisti and Ralph Gross reported that they could accurately predict the full, nine-digit Social Security numbers for 8.5 percent of the people born in the United States between 1989 and 2003 — nearly five million individuals.

Social Security numbers are prized by identity thieves because they are used both as identifiers and to authenticate banking, credit card and other transactions.

The Carnegie Mellon researchers used publicly available information from many sources, including profiles on social networks, to narrow their search for two pieces of data crucial to identifying people — birthdates and city or state of birth.

That helped them figure out the first three digits of each Social Security number, which the government had assigned by location. The remaining six digits had been assigned through methods the government didn’t disclose, although they were related to when the person applied for the number. The researchers used projections about those applications as well as other public data, like the Social Security numbers of dead people, and then ran repeated cycles of statistical correlation and inference to partly re-engineer the government’s number-assignment system.

Federal Courts' More Constructive Response to RECAP?

by Paul Alan Levy

Last year I expressed concern in this space that the federal courts seemed to be responding to the RECAP the Law project -- which is designed to build up a database of federal court records that would be available free of charge -- by using scare tactics to discourage participation.  Now comes the news that the Judicial Conference has approved changes that could make federal court records more readily available for free to occasional users.  Under the changes, users can get $10 worth of downloads for free every quarter (rather than $10 per year), and audio recordings of court hearings will be available for $2.40 rather than the current $26.