Consumer Law & Policy Blog

Update on Dodd-Frank

A few months ago I put out a call for articles on the newly enacted Dodd–Frank Wall Street Reform and Consumer Protection Act. The result is, “Breaking Down Financial Reform: A Summary of the Major Consumer Protection Portions of the Dodd-Frank Wall Street Reform and Consumer Protection Act,” by Linda Singer, Zachary Best and Nina Simon, recently published in the Journal of Consumer and Commercial Law. I highly recommend this excellent article.

 

PS I also welcome submissions for our next issue which will appear in January. Send them in word format to alderman@uh.edu

 

Robosigner Scandal Making for Strange Bedfellows

By Alan White

From the AP we learn today that banks hired foreclosure specialists with no knowledge of mortgages or foreclosures to file foreclosure papers.  Meanwhile, Treasury Secretary Geithner, HUD Secretary Donovan, and even Presidential spokesperson David Axelrod, piously intone the banking and real estate industries' line, attempting to trivialize the widespread fraud on the grounds that more delays in foreclosure will prevent economic recovery.  As if.

The Obama administration and its provisional allies on the Wall Street Journal editorial page want to scapegoat the robosigner scandal for delaying a housing recovery.  The real culprit is the foreclosure crisis itself, i.e. the fact that we have more than 5 million mortgages in default or foreclosure, that were being resolved at a snail's pace before the robosigner scandal and moratoria came along.  If every bank and servicer called off its moratorium today, and if all the state Attorneys General went away, we would simply go back to the agonizing process of dumping another 100,000 or so foreclosed properties on the market every month, while homeowners who want to make payments wait for months to get their workouts processed.  Before the foreclosure fraud scandal hit we were already facing  another five years  of depressed and uncertain home prices, even assuming more homeowners now making payments don't start falling behind.

Whether or not forcing banks to foreclose properly will delay economic recovery, the economic argument is hardly a reason to condone the systematic abuse of courts and the property recording system.  The banks we bailed out continue to cut corners, refusing to hire adequate staff to properly administer modification, short sale and other programs, or to do foreclosure paperwork correctly. 

Given the unpopularity of banks, it is a mystery why the Administration refuses to call out the banks, who are handing out record pay and bonuses, and demand that they do their jobs.  The way to stabilize home prices is to modify every loan that can be modified, bite the bullet on every reasonable short sale, and foreclose what is left, with adequate personnel to handle all these tasks quickly AND accurately.  Making excuses for banks who take shortcuts and lie to courts and deed recorders is not an economic recovery program.

Federal judge denies Greek tycoon preliminary injunction against Go Daddy -- but misses the lack of federal jurisdiction

by Paul Alan Levy

Eric Goldman carries a report today of a decision earlier this month by Judge David Campbell of the United States District Court for the District of Arizona.  George Bobolas, a Greek real estate and media magnate, brought suit in that court against several Doe defendants who manage an  allegedly defamatory blog about him (entirely in the Greek language).  Plaintiffs sued in Arizona because they wanted a preliminary injunction against Go Daddy, which hosts the blog, and they sued in federal court alleging diversity jurisdiction “on information and belief.”   Judge Campbell denied injunctive relief against Go Daddy on the ground that a non-party cannot be enjoined absent proof that it is an agent or employee or is “in active concert or participation” with the defendants.  He denied the requested preliminary injunction against the Does on the merits, because plaintiff insisted on arguing about the allegedly defamatory statements together rather than individually, because many of the statements claimed to be “false” were actually, according to the translations provided, non-actionable opinion, and because there was no proof of fault, whether negligence or actual malice.   The court recognized that plaintiffs’ failure to make such proof is understandable, because the identity of the anonymous bloggers is unknown, but, as he noted, the fact that the absence of proof is  understandable is no substitute for the proof needed to sustain emergency relief against otherwise-protected speech.  Indeed, Judge Campbell ruled that the requested preliminary injunction would be an impermissible prior restraint.

Professor Goldman’s analysis, and the court’s discussion of the merits, largely seem right to me, but there is a more fundamental flaw in the decision that Professor Goldman does not mention — the absence of subject matter jurisdiction.  I discuss it here because it is disappointing how often federal judges get this issue wrong when they are faced with ex parte requests for injunctive relief about alleged online torts.

MIchael W. Hudson Quotes Ameriquest Loan Officer: "Every closing that we had really was a bait and switch,"

MIchael W. Hudson interviewed industry insiders for his new book, The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America--and Spawned a Global Crisis.  It won't be out until October 26, but you can read a fascinating excerpt here.  The excerpt and subtitle suggest that this book will focus much more on the conduct of the predatory lenders themselves than other accounts of the subprime crisis have.  It sounds like the book will help add to our understanding of why so many people took out loans they couldn't repay.

The Washington Post Reports That The Government Had Been Warned That The Mortgage Foreclosure Industry Was A Mess

 We've learned in recent weeks that consumer mortgages have been foreclosed using illegal procedures and improper paper work. And now the Washington Post reports that the "Government had been warned for months about troubles in [the] mortgage servicer industry." "Consumer advocates and lawyers warned federal officials in recent years that the U.S. foreclosure system was designed to seize people's homes as fast as possible, often without regard to the rights of homeowners." As Ira Rheingold, head of the National Association of Consumer Advocates, put it:

Have we talked to [Obama Administration officials] about servicer incompetence? Repeatedly. Have we talked to them how the servicer system is broken? Yes. ... Have we talked to them about the costly stream of errors made by servicers? Yes.

Some Commentary on Concepcion

Here's a roundup of some recent commentary on AT&T v. Concepcion.  You can find more commentary, briefs, and other information on the case at this page.

• Bonnie Robin-Vergeer, at the Making Justice Real blog, discusses an amicus brief filed on behalf of a big coalition of legal aid and national consumer groups. She says that [t]he case has the potential to be a blockbuster for consumer rights. . . . . [I]f the Court accepts AT&T’s position, businesses could effectively strip consumers of their right to pursue small claims in any forum because, for small individual claims, classwide proceedings often offer the only effective means for consumers to obtain redress and to force businesses to halt illegal practices." 

• At its Text & History blog, the Constitutional Accountability Center discusses its amicus brief, focusing on federalism. “Concepcion will test whether the Court’s federalism principles are trumped by its favoritism toward corporate America,” says Doug Kendall. “Concepcion should be an easy case,” Kendall said, “because state courts are vital in protecting the rights of American consumers, and the Federal Arbitration Act specifically preserves a critical role for state law."

• In a masthead editorial in Sunday's paper, The New York Times mentioned the case as part of a broader discussion of the Roberts Court and the battle over preemption. A win for the respondents in Concepcion, the Times opines, "would be good for consumers."

• Ian Millhiser at the Center for American Progress observes that "Class-action lawsuits enable many people with small dollar losses to join together in a single suit, and they make sure that corporate America cannot continuously break the law a few dollars at a time. Yet Concepcion could allow corporations to force consumers to sign both a forced arbitration agreement and a no-class-action agreement—a step that would further erode ordinary Americans’ power to hold big-moneyed interests accountable for lawbreaking."

• At the ADR Prof Blog, Richard Reuben of Missouri Law, an expert on arbitration law, observes that "if the 9th Circuit is reversed, one may reasonably question what is left of Section 2’s savings clause. After all, all Discover Bank did was apply general unconscionability law to the class arbitration context ... If that’s preempted, then how would any application of general contract law to arbitration be able to withstand preemption?"

Daniel Schwarcz on Insurance Policy Transparency

Daniel Schwarcz of Minnesota has written The Need for Insurance Policy Transparency.  Here's the abstract:

This Article empirically debunks the common claim that homeowners insurance policies do not vary across different insurance carriers. It demonstrates that different carriers' homeowners policies differ radically with respect to numerous important coverage provisions. It also reports that a substantial majority of these deviations produce decreases in the amount of coverage, though some deviations increase coverage. Additionally, the Article reviews the shocking absence of any mechanisms by which even informed and vigilant consumers could comparison shop among carriers on the basis of differences in coverage. It closes by noting that state insurance regulators must act aggressively to remedy this lack of transparency in homeowners insurance markets and to study more broadly whether this problem extends to other personal lines of coverage.

Ninth Circuit Rehearing Petition Filed in Important Copyright Case: Do Consumers Own Their Own Software (or Books or Music)?

by Deepak Gupta

Several weeks ago, my colleague Greg Beck blogged about a very significant and disturbing Ninth Circuit decision effectively holding that consumers don't own their own software. 

In Vernor v. Autodesk, a panel of the Ninth Circuit (Judges Canby, Callahan, and Ikuta) ruled that Timothy Vernor, who purchased authentic, second-hand copies of Autodesk software at garage and office sales to sell on eBay, did not own that software and thus had no right to resell it.  The court accepted Autodesk's argument that the resale amounted to copyright infringement because it violated the terms of Autodesk's "license agreement" with the original owner. The case raises fundamental questions about the future of copyright's first-sale doctrine and has big implications for consumer ownership of software, music, books, and other media.

Last week, Public Citizen, representing Vernor, filed a petition seeking rehearing of the case by the full Ninth Circuit. Although such petitions are rarely granted, this case is a particularly strong candidate for rehearing.  The decision implicates direct conflicts between the Ninth Circuit and the Second and Federal Circuits (together, the three most important courts for intellectual property issues), is difficult to square with the most relevant Supreme Court precedent, and has enormous practical consequences. Condemnation of the decision has been swift and harsh. It has been criticized as a "triumph of legal formalism over reality," "logically flawed," and as "open[ing] the door to effectively killing off the entire concept of the first sale doctrine."

First, the legal background:  More than a century ago, in a case called Bobbs-Merrill, the Supreme Court rejected a book publisher’s attempt to impose restrictions on resale with a limited “license.” Congress codified this limitation as the first-sale doctrine, providing that the “owner of a particular copy” of a copyrighted work is entitled to resell that copy “without the authority of the copyright owner.” The district court in this case held that the first-sale doctrine allowed Vernor to resell the software packages, but the the Ninth Circuit panel reversed, holding that the first-sale doctrine is inapplicable to copies of Autodesk software because the software is accompanied by a “license agreement” that purports to prohibit resale.  The panel’s opinion adopts an artificial distinction between “licenses” and “sales” that flatly conflicts with decisions of the Second and Federal Circuits. The panel’s test for determining whether a transaction is a sale relies entirely on the copyright owner’s characterization of the transaction and formalistic reservation of rights, while ignoring the economic realities of the exchange—an approach that conflicts with decisions of the Supreme Court, the Ninth Circuit itself, and the Second Circuit.

Here's why this all matters in practical terms: The panel’s decision in Vernor is the first by any court to hold that a consumer is not the owner of an ordinary package of commercial software that is distributed with a “license agreement.” By holding that a relatively typical software license is sufficient to withhold ownership, the decision effectively abolishes the first-sale doctrine for the software industry and has the immediate effect of depriving almost all consumers of ownership of their software. The panel’s test provides a cost-free formula for the book, music, movie, and other copyright industries to follow software’s example, thus rendering Bobbs-Merrill a dead letter.

The panel's decision brings to the surface serious tensions in the Ninth Circuit's case law. Although the panel recognized the policy concerns discussed above, it did not reach them because it considered itself bound by a line of authority originating from a one-sentence footnote in MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511, 518 n.5 (9th Cir. 1993), an early software copyright decision later overruled by Congress.  In a later case, the Ninth Circuit recognized the extensive criticism MAI has engendered and the Federal Circuit’s express rejection of its holding, but declined to revisit the decision because the case could be decided on other grounds.  This time, because the panel held that the much-discredited MAI footnote controlled the result, there's no good reason for the Ninth Circuit to defer reconsideration.

Elizabeth Warren's Speech to the Bankers

by Deepak Gupta

Last week, Elizabeth Warren went into the lion's den, giving a dinner speech in Washington to the Financial Services Roundtable -- the banking industry's lobbying group. According to one account, she gave a "tough speech to bankers, comparing them to 'snakes' and their lending practices to 'garbage.'"

Or at least that's how the speech was characterized by certain news outlets. But if you go beyond the headlines and actually read the text of the speech, what you'll find is that Warren outlined a pragmatic, principles-based approach to regulation that contrasts sharply with a heavy-handed regime focused on technical disclosure requirements. Drawing inspiration from the SEC's first chairman, banker Joe Kennedy (pictured), Warren explained how smart regulation can create opportunities for good business to thrive. The heart of her speech focused on a proposal put forward by the Financial Services Roundtable itself:

Regulation can take two obvious forms: Regulators can make more pronouncements from on high, identifying suspicious practices in the various markets and banning them. Or regulators can layer on more disclosure requirements. But neither restores customer trust. In one case, it becomes the job of the agency to highlight industry shortcomings and pile on more and more “thou shalt not” rules, and, in the other case, consumers are hit with even more paperwork— and a growing suspicion that the game is rigged against them. . . .

But I’m here tonight to talk about an alternative recommended by the Financial Services Roundtable three and a half years ago: a principles‐based approach.

Instead of creating a regulatory thicket of “thou shalt nots,” and instead of using ever more complex disclosures that drive up costs for lenders and provide little help for consumers, let’s measure our success with simple questions. Your first principle is “Fair treatment for consumers.” I’ll paraphrase your explanation of how to tell if that principle has been met: Can customers understand the product, figure out the costs and risks, and compare products in the marketplace? Regulators should be aiming toward the goals you laid out.

Instead of layering on regulations that don’t fully protect consumers, a better approach would focus on how to give consumers the power to make the right choices for their families—and, at the same time, to ease the regulatory burden for the lenders. Best of all, if we do this right, perhaps together we can reassure families that the people in this room have met their own goal of fair treatment and that they should be treated as trusted friends.

More on Warren's vision for the new agency, below the jump.

Mobile Payments and Consumer Protection

With over two-thirds of the world’s population having a mobile phone, companies are rapidly developing “mobile payment” options for consumers in both developed and developing nations. The University of Washington School of Law and Samuelson Law, Technology & Public Policy Clinic at Berkeley Law are hosting a one-day conference in Seattle on October 29, 2010, that will explore the promises and pitfalls of this emerging commerce platform. Titled, Mobile Payments and Consumer Protection Conference, the conference will deal with questions such as:

• What are the benefits to the consumer of mobile payments –(e.g. remittances, money transfer for the unbanked, efficiency, more security and control)?
• What advantages do mobile payments offer that other forms of payment mechanisms do not?
• How do mobile payments fit into existing regulatory frameworks in the US, EU and other markets?
• What sort of regulatory models will encourage mobile payments adoption in both developed and developing markets? Should telecommunications operators, financial institutions and other business entities be permitted to compete to provide these services?

Panelists and speakers include Ignacio Mas (Bill and Melinda Gates Foundation), Adam Levitin (Georgetown Law), Bill Maurer (U.C. Irvine), Thomas Brown (O’Melveny & Meyers LLP), Gail Hillebrand (Consumers Union), Chris Hoofnagle (Berkeley Law), and many others. The conference is free, although registration is required. 5.0 General CLE credits are available ($50 for CLE course materials). (Thanks to Colin Hector, who is helping organizing this conference, for the tip.)

Details are available at https://www.law.washington.edu/cle/seminars/mobilepay/