Consumer Law & Policy Blog

Georgia State University Law Review Articles on Consumer Law

Longtime consumer law professor Mark Budnitz's home law review, Georgia State University Law Review, has published a quintet of consumer law articles, including an article by Mark himself, The Development of Consumer Protection Law, the Institutionalization of Consumerism, and Future Prospects and Perils.  The others include Kathleen E. Keest, Consumer Financial Services Law and Policy: 1968-20?? In the Thick of the Battlefield for America's Economic Soul; Alvin C. Harrell, The Great Credit Contraction: Who, What, When, Where and Why; and Fred Miller, Prime Interest Rates for Subprime Borrowers?.   I could find only one on the web, a piece by Peter A. Alces of William & Mary and Michael M. Greenfield of Washington University, titled They Can Do What!? Limitations on the Use of Change-of-Terms Clauses, with the following abstract:

Almost every contract that calls for ongoing services to consumers contains a provision that authorizes the provider of those services to modify the contract at any time, without any constraint on the modification. With some exceptions, the courts have not been very responsive to arguments that seek to enforce constraints on the provider’s discretion. In the recently enacted Credit CARD Act, Congress has declared that there are indeed some limits on the changes that may be made to one kind of ongoing consumer contract, viz., a contract to provide open-end credit. In this article, to be published in a forthcoming symposium issue of the Georgia State Law Review, we review several statutory rules and common-law doctrines that suggest limits, applicable to all kinds of consumer contracts, on the freedom of service providers to change the terms of the contract  

The articles appear in volume 26, number 4.

How Chase Bank Almost Helped a Teenager Get Scammed

by Jeff Sovern

A teenager I know responded to a listing for a summer job on Craig's List.  The employer claimed he was opening an art gallery and would pay $400 a week for twelve hours of work running errands and the like.  Because he was out of the country, he was unable to meet her, but emailed her a list of questions.  Upon receiving her answers, he hired her.  She was thrilled.

Shortly afterwards, he overnighted her two money orders totaling $1,700. He instructed her to deposit them and take $200 for half of her first week's salary; she was to wire the remaining $1,500 to an artist that day.  When she mentioned this to me, I became concerned.  What if she wired the money and the money orders later came back dishonored?  And why hadn't he wired the money himself rather than trusting a teenager he had never met? 

So she called her bank--JPMorgan Chase--to find out how long it would take before the money orders cleared.  The answer she received was one day.  That didn't sound right to me, so I got on the phone.  I explained my concern that this was a scam and that I didn't want to know when she could draw on the funds, but rather when the funds would clear so that she was assured that the bank would not charge back her account when the money orders came back dishonored.  Once again, I was told one day.  I was still unconvinced, so we called again.  Again we were told one day.  I haven't looked at check clearing for ages; had things changed so much in the interval?  I tried a third call to Chase, and this time the representative told me what I had expected to hear the first time: while Chase would make the funds available in one business day, it could take much longer than that to determine if the money order was legitimate and that if it were dishonored, Chase would charge back the account.  I instructed the teenager to text the employer that she would not wire the funds until the money orders had cleared, on the theory that if he's legitimate, he will get in touch with her.  So far, she hasn't heard back.  I don't think she will.

The teenager is disappointed at the loss of her seeming summer job and simultaneously relieved at not having lost her savings.  But there's a bigger issue here than just what happened to her.  Most teenagers--and probably most adults--would have stopped at the first phone call.  Many would have wired the money.  Maybe they could later persuade Chase that it should not charge their account back for the dishonored money order because of the information provided by its customer service agent, but more likely they wouldn't be able to.  Chase was in a position to prevent this fraud--and it didn't.

Not Everyone is Happy that the New CFPB Bill Will Give Denied Credit Applicants a Right to See Their Credit Score

by Jeff Sovern

Berin Michael Szoka of The Progress & Freedom Foundation has written The Dangerous Implications of a 'Right' to Free Credit Scores .  Here's the abstract:

Under the Fair Credit Reporting Act of 2003, every American has a right to a free credit report once a year from each of the three major credit bureaus - Experian, TransUnion, and Equifax. A search on any major search engine for "credit report" will lead the user (via the top search result) to AnnualCreditReport.com, which guides the user through getting these free reports after verifying their identity - a process that takes about 15 minutes. Having these reports empowers us all to take responsibility for verifying the accuracy of the borrowing history used to make assessments about our credit-worthiness, and also to detect fraud or identity theft. But for some lawmakers, this freebie isn't enough.

I was a little perplexed that the abstract doesn't provide any reason why free credit scores are a bad idea, so I had a quick look at the paper.  Szoka is concerned about something called "information socialism," which is the name Szoka gives to the idea that someone can create a score or algorithm or some such thing and the government can force them to turn it over to others without charge, thereby reducing the incentive to create new similar inventions that depend on information.  Szoka fears that this provision is the slippery slope bringing us closer to such a state generally.  Personally, I'm not persuaded that free credit scores will have the effects Szoka fears.  Even assuming that information socialism is a problem, the information here has already been paid for by the creditor who purchased it and used it to turn down the consumer's application. I would have been more worried that making credit scores available would facilitate gaming them to produce higher scores that don't actually reflect that someone is more creditworthy--except that since you've been able to buy your credit score for years from Fair Isaac, that bird has flown. 

Interim Health Care Reform Regulations and Transition

With big changes in the law, transition is often a big issue. Often, you don't want to just "grandfather" forever all the old products or services already on the market or you haven't achieved real reform. And, besides, sometimes "grandfathering" can provide a large and unfair competitive advantage to the old sellers (because only new market entrants must comply with the new law).

Transition is a major issue in implementing the new health care reform law, the Affordable Care Act. The Act does (or will do) many things to change the U.S. health care system, such as prohibiting exclusions for pre-existing conditions and eliminating lifetime cost limits. But, remember, one of the benefits of the new law was that folks would be able to keep their old insurance. So, perhaps the aim should be to have new rules that allow existing insurance plans to keep many of their existing attributes but require them to incorporate the Act's key reforms either immediately or soon.

Doing this is not easy. In interim final regulations issued jointly by the Departments of Health and Human Services, Treasury, and Labor on June 14, 2010, the Obama Administration has taken its best shot. (Though the rules are "final," they are also "interim," and so the three departments are taking comments due on or before August 16.)  The rules are very complex. For a well-written synopsis, see this advisory issued by the Arnold & Porter law firm.

And, by the way, HHS has established this webpage, which brings together all of the agency's efforts to implement the Affordable Care Act.

The Cost of Accessing Academic Research

In the legal world, we've become accustomed to getting most law review articles for free on SSRN. It doesn't seem that easy in the world of science. The publisher of the prestigious scientific journal Nature wants to up its on-line access fees for its publications to the University of California to more than $1 million a year. As you might imagine, there's been a reaction from scientists: Isn't it a little nuts to pay through the nose for our own research? So, among other things, scientists are trying to make use of a free on-line research database and are considering a boycott of Nature. Read about it in this LA Times article.

Brent White Paper on Underwater Mortgages

Brent T. White of the University of Arizona - James E. Rogers College of Law has written Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.  With more than 12,000 downloads, it's the most downloaded paper to appear in the SSRN LSN Consumer Law Abstracts ejournal thus far.  Here's the abstract:

Despite reports that homeowners are increasingly “walking away” from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations - and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision. Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse.

Building a New Consumer Protection Agency

Will Liz Warren or someone else be tapped to run the new consumer financial protection agency? What will the agency look like, what will its priorities be, and how will it manage the transition?  In today's Wall Street Journal, Sudeep Reddy takes a look at these and other questions surrounding the new agency.  An excerpt:

The president's choice of a director, subject to Senate confirmation, is almost certain to be controversial, given the power of the position and the fight over whether to create the agency in the first place.

Like Joseph Kennedy Sr., the first chairman of the Securities and Exchange Commission, the new director will shape the powerful agency's public image, initial priorities and starting lineup.

Democratic leaders in Congress say their top pick for the post is Elizabeth Warren, the high-profile Harvard law professor and an outspoken critic of what she sees as a too-cozy relationship between government and bankers.

Other potential candidates include Michael Barr, a Treasury assistant secretary and University of Michigan law professor with a longstanding interest in consumer finance; Democratic state attorneys general Martha Coakley of Massachusetts, Lisa Madigan of Illinois and Lori Swanson of Minnesota; Susan Wachter of the University of Pennsylvania's Wharton School, who served in the Clinton Department of Housing and Urban Development; and Nicolas Retsinas of Harvard's Joint Center for Housing studies, a former bank regulator and a low-income housing specialist.

Are Overdraft Fees a Things of the Past? Not by a Longshot.

Last week, new rules went into effect barring overdraft fees on ATM withdrawals and one-time debit card charges, unless the consumer opts in. We've discussed the issue extensively in the past.

David Lazarus in today's LA Times explains that the new rules don't cover many kinds of charges, and some banks are trying to convince consumers to opt in to "overdraft protection." Here's a brief excerpt:

[T]he [new] rules apply exclusively to ATM withdrawals and one-time-only debit card purchases, as opposed to recurring payments such as monthly deductions for a newspaper subscription or utility bill. Banks also remain free to enroll customers without permission in overdraft programs covering other transactions, such as payments with checks. And some are working hard to persuade customers to sign up again for full "protection," which can include fees as high as $39 for customers who didn't know that, say, a $2 cup of coffee surpassed available funds.

"Paperless" Ticketing for Concerts, Ballgames, Etc.

Read here about how concerts and ball games may move toward so-called paperless ticketing. You'd have to buy the ticket by credit card or ID card, and then the only way to get into the event would be to swipe that card at the event, which would then generate a receipt telling the consumer what seat he or she had a right to occupy. Sorta like getting on an airplane these days. So, you couldn't sell or even give the ticket to a friend or even Uncle Bennie, unless the friend or Uncle Bennie had the card or ID with which you bought the ticket.

So . . .  the people who are pushing this idea -- behemoths like Ticketmaster and Live Nation, who, by the way, recently completed a merger -- say that paperless ticketing will help consumers because it will prevent scalpers from scarfing up hundreds or thousands of tickets and reselling them way above face value. That may be. But the real reason they like this idea is because it will eliminate a secondary market over which they have no control, such as the ones that take place on StubHub (which is owned by ebay) and Craig's List, and the even more informal secondary markets that take place every day on the Internet or at the office or on the street. Why do Ticketmaster and Live Nation care if other folks resell their tickets? You guessed it: They run their own secondary market -- for which they generally take a 20% cut on every transaction -- and they'd just love to have exclusive control of all sales and resales.

Henry Sommer on Mortgage Overcharges and the Need for Reform

If you do bankruptcy work or help people deal with predatory mortgage lending, you should read bankruptcy law expert and consumer advocate Henry Sommer's post over at Credit Slips on unlawful mortgage overcharges. He explains that the overcharges themselves can be so large as to throw people into foreclosure. He also discusses the recent Federal Trade Commission settlement with Bank of America on overcharges for mortgages formerly serviced by Countrywide Financial and asks a series of questions about that settlement in an attempt to discern whether it will get at the problem.

The problem he described struck me as serious, so I wrote to Henry asking for more detail on exactly the kind of overcharges he was referring to (his blog entry mentioned charges for trumped up or unnecessary property inspections, but I wanted to know what else he meant), the magnitude of the charges, and the specific reforms he proposed.

Here's Henry's terrific answer (given within a few minutes of having received my question):