Consumer Law & Policy Blog

Vision Media's Claims Panned by NPR; Will Hugh Downs Stand Up for His Principles?

by Paul Alan Levy

I have posted recently the efforts of Vision Media TV Group to use litigation to suppress critical speech on 800Notes, an online online message board devoted to comments about unwanted marketing calls.  Vision Media seeks to hold Julia Forte, the operator of the message board, personally liable for messages posted by anonymous users linking to previous articles about Vision Media in such publications as the New York Times, and elaborating on those charges.  When I asked Vision Media's lawyer whether he has sued the Times for its criticisms (or, was he just picking on a small operator that might not be able to afford a defense in order to cleanse its reputation), he said, "I should have."  But the statute of limitations had expired by the time I talked to him.

Now he will get his chance.  Yesterday, National Public Radio carried a devastating story about Vision Media's business.  (The audio and a print version of the story are here; the transcript is here.)  Noting claims by Vision Media that it sends its stories to public television stations, NPR reporter David Folkenflik checked with officials at PBS as well as "individual PBS stations across the country" and could not find a single instance in which a Vision-Media-produced segment had aired on a public station.  Nor would Vision Media representatives say how many times its segments had been shown on a public station.   But NPR found numerous instances in which Vision Media segments had been aired as paid commercials.

Hugh Downs' agent told NPR that his contract "limits his participation to public TV."  When Walter Cronkite figured out how he was being played by a similar scheme, by a company that appears to have been related to Vision Media (a fact that Vision Media denies), he severed his relationship with the company.  It remains to be seen whether Hugh Downs will do the same.

UPDATE:

One of Vision Media's main complaints against Julia Forte, the proprietor, involves the removal of a post (submitted by Vision Media pretending to be a Vision Media customer) that cited Vision Media's favorable rating by the local Better Business Bureau.  But since the NPR report, the BBB has pulled Vision Media's rating, which is now shown on the South Florida BBB web site only as "NR" or not rated.

SECOND UPDATE:

NPR is reporting that Downs is reconsidering his relationship with Vision Media in light of NPR's reporting.  Downs' agent told NPR that he will "likely" let his contract expire without renewal at the end of June.

Jeff Gelles Column About How a Bank May Have Misrepesented Debit Card Law

by Jeff Sovern

Here's the column, and follow up posts can be found here and here.  Basically, someone made unauthorized charges of $5,208 to a couple's bank account in December, as reflected in the bank's statement which came in January.  The couple didn't open the bank statement until March, when they reported the loss to the bank.  The bank told the couple that they had to bear the loss because they didn't notify the bank until 63 days after the bank statement went out.  The problem is that that's not what Regulation E provides. Reg E, § 205.6(b)(3) does provide that the consumer is liable for unauthorized withdrawals that take place more than 60 days after the statement goes out, but here the withdrawals were all well before that date.  The Reg imposes a $50 cap for consumer liability if the consumer reports the loss within two days of learning of it.  I can't tell whether the couple reported the loss within two days of opening the statement or not, but if they failed to do so, under § 205.6(b)(2), their exposure should be limited to $500.  So the bank was wrong.  Even more troubling is Gelles's experience trying to get federal agencies to comment.  Here's a quote, from one of the blog posts:

It took me several days to sort through the misinformation – partly, I have to suspect, because of the lack of a strong, focused consumer-protection agency for financial services. The Federal Reserve's Washington press office did not return at least two phone messages requesting help – not a good sign for an agency that seems to want to preserve its role in consumer protection and has resisted proposals for an independent Consumer Financial Protection Agency.

A spokesman for the Office of the Comptroller of the Currency, which oversees the bank in question, wasn't familiar enough with the rules to comment initially, and tried to refer questions back to the Fed, anyway. "They write the rules. It's their job to interpret them."  It's a common response from the OCC, and one that reflects our fractured system of bank oversight.

This time, the spokesman was helpful after I reminded him that it's the OCC's job to enforce the rules when it comes to national banks. Enforcing them requires understanding them, doesn't it?

Late Friday, I finally got a response from the OCC – not about the Mannings' case specifically, but at least about the pattern of facts.

Is it me, or do all roads lead to the need for a single federal consumer financial protection agency?

Another Supreme Court Victory for Consumers: Ignorance of the Law Doesn't Excuse Collection Abuses

by Deepak Gupta

 In an opinion by Justice Sotomayor, the U.S. Supreme Court this morning handed consumers an important victory in the battle against abusive and deceptive debt-collection practices.  The Court ruled 7-2 that debt collectors who violate the Fair Debt Collection Practices Act can't evade liability for those violations by claiming ignorance or mistake of law. Resolving a circuit split, the Court rejected the collection industry's argument that the Act's defense for "bona fide errors," which excuses clerical or factual errors made despite adequate preventive procedures, also extends to errors of law.

I filed a brief in the case, which you can read here, on behalf of five national consumer groups (Public Citizen, AARP, the National Association of Consumer Advocates, the National Consumer Law Center, and U.S. PIRG: The Federation of State PIRGs). We argued that a mistake-of-law defense would deter enforcement, inhibit the development of precedent, and create a "race to the bottom," encouraging the very abuses that Congress sought to prevent when it passed the FDCPA.  Justice Sotomayor's majority opinion cites and quotes our brief, explaining that "the dissent's reading would give a competitive advantage to debt collectors who press the boundaries of lawful conduct."  The opinion also twice cites the NCLC's manual on the statute.

Justice Breyer wrote a brief concurrence to stress that the dilemma lawyer-debt collectors may face--between zealous representation of their clients and fear of personal liability--can be cured by the FTC advisory opinion process.  He notes that the FTC hasn't issued many such opinions, but says that he "would expect" the FTC to issue more opinions if the dilemma proves serious, and joins the majority opinion "[o]n this understanding." Justice Scalia writes separately to say that the Court could have rested on textual analysis alone.

Justice Kennedy, joined by Justice Alito, dissents. Speaking for myself, I'm mildly surprised that there's a dissent in this case.  Justice Kennedy's opinion displays some worrying hostility to plaintiffs' lawyers, consumer litigation, class actions, and the statute itself.  Thankfully, it's just a dissent.

Moral Hazard, Strategic Default, and Debt Reduction

By Alan White

Opponents of mortgage debt reduction, with or without taxpayer subsidies, often invoke moral hazard and strategic default.  They argue that if delinquent borrowers are offered the chance to have part of their debt canceled to prevent foreclosure, other borrowers who can manage their payments will elect to stop paying in order to join the debt cancelation program, i.e. they will engage in strategic default.  The problem with this argument is that it ignores the competing incentives homeowners have to default in two opposing scenarios--one where mortgages are reduced to home values, and one where mortgages are not reduced so that homeowners face persistent negative equity.  I am not aware of any good research quantifying the likelihood that homeowners who can otherwise pay will default in order to benefit from modification programs.  The modifications offered to date, in both HOPE NOW and HAMP flavors, featuring capitalization of unpaid interest and temporary rate reductions that lead to future payment shocks, would not tempt a rational and strategic borrower, but perhaps some future hypothetical modification program might do so.  Deliberate default to benefit from modifications is a risky strategy when there is a screening process to determine hardship and eligibility for modifications is uncertain.

What is well established is that NOT reducing principal will result in strategic defaults.  In other words, as more homeowners face mortgage debts exceeding their home value, and the realization sinks in that home values will not return to 2007 levels any time soon, some will choose to stop paying their debt and walk away.  These strategic defaulters would be much less likely to walk away, and more likely to keep their payment promises, if their equity was restored through modest debt reduction.  A recent study helps to quantify exactly how much negative equity needs to be eliminated to prevent widespread strategic defaults.

The study by Luigi Guiso, Paola Sapienza and Luigi Zingales is based on a survey of homeowners.  Respondents would not elect to default as soon as their home equity is negative, due to both economic considerations (relocation costs) and moral restraints.  However, when the negative equity reaches a certain point they are much more willing to consider walking away.  Specifically, when negative equity reaches 20%, 12% will walk away, and at a 50% negative equity level, 17% will walk away.   The survey also found that respondents who knew of mortgage defaults by others judged 26% of them to be strategic.  This latter finding, reflecting a variety of values and judgments about others, should be taken with some skepticism, but is important because the survey also finds that there is a contagion effect.  Other things being equal, homeowners are more likely to walk away when they perceive that many of their neighbors have already done so, and more generally when foreclosures in their area increase.

Strategic default is not linear.  There is a tipping point effect, both because moral restraints on defaulting loosen as negative equity reaches hopeless levels, and because news of neighbors being foreclosed increases the willingness to walk away.  This all suggests that principal reduction, targeted at areas with significant and persistent negative equity, and with the use of appropriate screening to mitigate moral hazard, will prevent strategic defaults and resulting foreclosure losses. 

FDA Planning to Establish Legal Limits on Salt in Foods

The lead story in today's Washington Post explains that the Food and Drug Administration, citing health concerns, plans to limit the amount of salt in foods. Given that only 6% of salt intake comes from salt added at the table and 77% comes from processed foods, the food industry will likely not go way quietly. Here's the first paragraph of the story:

The Food and Drug Administration is planning an unprecedented effort to gradually reduce the salt consumed each day by Americans, saying that less sodium in everything from soup to nuts would prevent thousands of deaths from hypertension and heart disease. The initiative, to be launched this year, would eventually lead to the first legal limits on the amount of salt allowed in food products.

Check out this handy chart, which shows that the average American takes in a lot more salt than the amounts considered healthy:

AARP Financial Reform Bill Music

Here.

R.J. Reynolds Test Marketing Nicotine "Pez," Trying to Lure Kids

by Brian Wolfman

It seems that the tobacco industry is still trying to hook kids. As the New York Time explains here: "A research study and editorial to be published Monday in the medical journal Pediatrics takes direct aim at a novel tobacco product that some critics say too closely resembles Tic Tac breath mints. R. J. Reynolds Tobacco, the nation’s second-largest cigarette maker behind Philip Morris, is test marketing the product, Camel Orbs, along with other dissolvable tobacco products, in three cities. It is part of a broad industry trend to create smokeless products in response to declining cigarette use and the rise of smoke-free air laws."

Compare the Orbs container with the Tic Tac container:  

And read Jon Wolfman's blog on the topic at salon.com.

Arbitration clause naming NAF as arbitrator is unenforceable.

The United States District Court for the Southern District of Texas has held that an arbitration agreement naming NAF as the arbitrator was unenforceable. In light of the substantial number of contract containing similar clauses, this may be just one of many opinions dealing with this issue.

The question before the court in Ranzy v. Extra Cash of Texas was whether section 5 of the Federal Arbitration Act authorizes the court to name a substitute arbitrator.  The court noted,

Although the FAA was designed "to overrule the judiciary's long-standing refusal to enforce agreements to arbitrate," it "does not require parties to arbitrate when they have not agreed to do so." Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478, 109 S. Ct. 1248, 103 L. Ed. 2d 488 (1989) (citations  omitted). The FAA "simply requires courts to enforce private negotiated agreements to arbitrate, like other contracts, in accordance to their terms." Id. The FAA does, however, provide for the court to appoint an arbitrator under certain circumstances. Section 5 of the FAA provides:

If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed; but if no method be provided therein, or if a method be provided and any party thereto shall fail to avail himself of such method, or if for any other reason there shall be a lapse in the naming of an arbitrator or arbitrators or umpire, or infilling a vacancy, then upon the application of either party to the controversy the court shall designate and appoint an arbitrator or arbitrators or umpire, as the case may require, who shall act under the said agreement with the same force and effect as if he or they had been specifically named therein; and unless otherwise provided in the agreement the arbitration shall be by a single arbitrator.

 

The court concluded that:

In the present case, the court need not determine whether § 5 is applicable when a chosen arbitrator becomes unavailable because the NAF was clearly an integral part of the arbitration provision. "Arbitration agreements are subject to the same rules of construction used to interpret contracts." Harvey v. Joyce, 199 F.3d 790, 794 (5th Cir. 2000). However, any ambiguities must be resolved in favor of arbitration. Id. To determine whether a named arbitrator is an integral part of the arbitration agreement, the court must look to the "essence" of the arbitration agreement. Grant, 678 S.E.2d at 439 (citations omitted). In this case, the plain language of the arbitration provision in both the Note and the Arbitration Agreement explicitly states that all disputes "shall be resolved . . . by and under the Code of Procedure of the [NAF]." Dkt. 15, Exs. 1, 2. Additionally, "all claims shall be filed at any NAF office," or on the NAF web site. Id. This is mandatory, not permissive language and evinces a specific intent of the parties to arbitrate before the NAF. See Reddam, 457 F.3d at 1059-61 (outlining criteria for courts to use in determining whether the selection of a specific arbitrator is integral to the arbitration clause and noting, that at a minimum, the arbitrator must be expressly named); Carideo v. Dell, No. C06-1772JLR, 2009 U.S. Dist. LEXIS 104600, 2009 WL 3485933, *4 (W.D. Wash. Oct. 26, 2009)  (arbitration provision that provided that disputes "shall be resolved exclusively and finally by binding arbitration administered by the NAF" was sufficient to find the NAF as integral to the arbitration clause) (emphasis added); but see Adler v. Dell, No. 08-cv-13170, 2009 U.S. Dist. LEXIS 112204, 2009 WL 4580739, *4 (E.D. Mich. Dec 3., 2009) (same language as Carideo insufficient to show NAF integral to the arbitration clause). In light of the plain meaning of the arbitration provision, the court cannot appoint another arbitrator even though the NAF is an unavailable forum-the parties "cannot be compelled to arbitrate a dispute if [they have] not agreed to do so." Nat'l Iranian Oil, 817 F.2d at 335 (citations omitted). The motion to compel arbitration is, therefore, denied.

The Transportation Department's $16.4 Million Fine Against Toyota and the Need for a Vibrant Civil Justice System

by Brian Wolfman

Today's news reports bring word that, after mulling its options for weeks, Toyota is expected to agree to pay a $16.4 million fine levied by the U.S. Department of Transportation (DOT), which charged Toyota with hiding information related to the company's recall of cars with sticking gas pedals. As the the New York Times explains, the amount of the fine is an all-time record and "the maximum amount allowed by law." That tells you something unsettling about the law. The record fine is just a bit over 7 bucks for each of the 2.3 million cars recalled because of the accelerator problem, and, in total, that's not even pocket change for a behemoth like Toyota.

In short, the fine is not remotely enough, on its own, to have any deterrent effect. Sure, the recall and the fine may have some negative effect on consumers' attitudes toward Toyota, and, sure, the SEC and the Department of Justice are still contemplating their own prosecutions. But why do you think Toyota took its time deciding whether to pay up or fight the fine in court? I'm guessing, at least in part, because of the effect paying the fine might have in pending civil litigation, which holds out the promise of deterring future bad behavior far more than the puny $16.4 million fine.

This post has assumed that Toyota engaged in wrong doing. I know only what I've read in the papers, and, certainly, Toyota is entitled to its day in court. But assuming that Toyota broke the law, as the government obviously thinks it did, putting lives at stake in the process, at least until DOT sanctions have some real bite, we need a vibrant civil justice system to punish wrong doers and deter future illegal behavior.

Report on the American Council on Consumer Interests Conference

by Jeff Sovern

Some comments on the Annual Conference of the American Council on Consumer Interests (ACCI), which I attended last week:

ACCI seems to be made up largely of people who study consumer matters, including something called consumer science, financial planning, consumer behavior, and consumer education.  Its members include academics, economists, financial planning people and others.  But it includes few law professors. Norm Silber of Hofstra is a longtime ACCI leader (it was Norm who told me about ACCI and urged me to come), but I didn't see any other law professors there, and saw only a couple of lawyers. It strikes me as a conference from which consumer law professors might benefit, though I was told that the topics of the conference vary widely from year to year and it was just happenstance that I attended a conference with a lot of discussions that I found of interest. 

The conference was presented in partnership with the Federal Reserve Bank of Atlanta, at their conference center.  I have never before written on this blog about a facility, but I have to write about this one, in part because I wonder if it has consequences for policy judgments, crazy as that may sound. I have never been in a more palatial place for meetings, or classes for that matter.  I say that as someone who has at one time or another been in numerous schools (including Ivy League schools), law firms, and hotel conference centers,  The Fed's conference center was extremely comfortable, with reclining chairs in the meeting rooms.  Of course it had state-of-the-art technology, including smart boards.  The facilities were beautifully appointed, with wide corridors, elegant furniture, and artwork on the walls. 

I started to wish that all the conferences I attend (not to mention my classes) could be conducted in such lavish surroundings.  But of course the cost of such a facility would preclude that.  Then I began to wonder who paid that cost.  It seems unlikely that the facilities were a gift to the Fed.  If not, that means the money ultimately came from the taxpayers.  While the Fed has income from its investments, and so could have funded the facility from that income, presumably any excess income belongs to the government and so could be used to reduce the burden on taxpayers.  Personally, even though I benefited from the facility, I'm not enthusiastic about having the government pay for such sumptuous facilities.

I'm also curious about the impact of working in such surroundings.  Perhaps the Atlanta Fed is unique among the Fed's facilities (though another conference attendee said he had been in a different Fed facility and that it too was elegantly furnished).  Maybe this seems a bit far-fetched, but somehow it seems like it would be hard to worry about the problems of the poor while in such a place.  Unfair and deceptive practices seem like less of a possibility when you're that comfortable.  How can you identify with those who have been victimized by predatory lenders when you're surrounded by beauty?  If the Consumer Financial Protection Agency (or Bureau) ends up in the Fed, I hope their offices are a little bit less nice.

I also hope to find time to blog in the next few days about some of the content of the conference.