Consumer Law & Policy Blog

Supreme Court Rules 5-4: Cell Phone Provider May Not Ban Class Actions By Consumers

by Deepak Gupta

In a 5-4 decision, the Supreme Court has ruled that a consumer class action against a cell phone company may proceed -- despite a contract that purports to require arbitration and ban class actions. 

This is a big victory for consumers. The opinions of the Justices are available here.  Here are some of the latest headlines:

• Contracts can't stop class actions, top court says 
• Supreme Court says . . . consumers can join class actions despite signed contracts
• Consumers can't sign away class-action right

Read on for more details...

Google Says That Chinese Government Is Blocking Access To Gmail

Go here. The Gmail blockage appears to be part of China's intensified Internet interference campaign aimed at tightening censorship in response to political uprisings in the Middle East.

Adam Levitin on the Mortgage Servicing Settlement: "Shakedown" or "Bailout"?

We've been surprisingly silent around here about the mortgage servicing settlement. Over at Credit Slips, Adam Levitin of Georgetown Law has this interesting post on the settlement. He calls it a "bail-around" and the "prime exhibit" in the case for an independent CFPB.

Will the Supreme Court Take Up Due Process Limits on Consumer Fraud Class Actions?

by Deepak Gupta

We'll probably learn the answer tomorrow morning, at 10:00 am, when the Court issues its order list from the March 18 conference.  I think there's a good chance that the Court will decide to grant Philip Morris USA v. Jackson, a major tobacco case, known in the Louisiana courts below as Scott v. Philip Morris. (The electronic docket is here.) 

This is a big one. The tobacco companies' petition -- signed by a formidable trio of Alan Untereiner, Paul Clement and Miguel Estrada -- presents the question whether the Due Process Clause "prevents states from employing the class-action device to eliminate fundamental substantive and procedural protections that would otherwise apply to the adjudication of class members' individual claims."  Specifically, the case is about whether litigating a class action despite individual reliance issues can violate due process. Reliance is a hotly contested issue in consumer fraud class actions, though it's not usually framed in constitutional terms.

There's good reason to think that the Justices will be interested in this petition. Apart from the Court's intense interest in all things class action this term (see, e.g., Wal-Mart v. Dukes, AT&T v. Concepcion, Smith v. Bayer), there's the fact that Justice Scalia, back in September, issued a must-read in-chambers opinion granting Philip Morris's request for a stay. Not only did his opinion predict that it was "reasonably probable" that four Justices would vote to grant cert, he also told the petitioners' lawyers which issue to argue in their petition:

Joe Nocera Criticizes the Republicans Who Attack Elizabeth Warren

by Jeff Sovern

Here.  An excerpt:

And thus the real purpose of the hearing: to allow the Republicans who now run the House to box Ms. Warren about the ears. The big banks loathe Ms. Warren, who has made a career out of pointing out all the ways they gouge financial consumers — and whose primary goal is to make such gouging more difficult. So, naturally, the Republicans loathe her too. That she might someday run this bureau terrifies the banks. So, naturally, it terrifies the Republicans.

That's to be expected.  But here's another excerpt that illustrates a problem that could have been avoided:

It’s not just the House Republicans either. Already the Office of the Comptroller of the Currency has reverted to form, becoming once again a captive of the banks it is supposed to regulate. (It has strenuously opposed the efforts of the A.G.’s to penalize the banks and reform the mortgage modification process, for instance.) The banks themselves act as if they have a God-given right to the profit they made precrisis, and owe the country nothing for the trouble they’ve put us all through. The Justice Department has essentially given up trying to make anyone accountable for the crisis.

It's a shame that the Obama admininstration has not nominated someone to head the OCC.  Someone who could stand up to the banks when appropriate.  The directorship has been vacant for quite a while now. I wonder why it's taking so long to fill it.

Baseline Scenario Asks Who's Afraid of Elizabeth Warren?

Here.  Excerpt:

The next big political battle in Washington – after the budget debate is declared “over” – will likely feature the Consumer Financial Protection Bureau, in particular the fight to determine whether Elizabeth Warren can become as the agency’s first official head.

Elizabeth Warren Defends the CFPB at House Financial Services Committee Hearing

Elections change things. The House Financial Services Committee held a hearing today on the new Consumer Financial Protection Bureau, which is under fire from House Republicans even before it has taken an official act. (Its doors do not open until July 21.) Elizabeth Warren -- who is working to structure the new bureau from her post at the Treasury Department -- testified. Read Warren's written testimony and look at a webcast of the hearing, which can be accessed from this page. The New York Times has a story on the hearing here.

American Express Merchants Win The Latest Round

by Steve Berk

Power can take several forms.  It can be as overt and raw as Libyan leader Muammar Gaddafi bombing his own people, or it can be as subtle as controlling the agenda of a Board meeting so that the interests of shareholders are not just ignored but substantially defeated by the power of the agenda.

The mighty American Express (2010 Q4 revenues exceeding $7 billion) has dominated its merchants -- millions of businesses large and small -- by a very nuanced form of power: a simple contract provision.  Not the entire contract, simply one provision; a line or two, buried deep in the fine print, prohibiting merchants from bringing a class action claim against American Express in Court or before an arbitrator.  Any claim, large or small.

So what?  Doesn't sound like that big a deal. Well it is. It is one of those subtle forms of power that are "game changers".  Without the right to file a class action (in any forum) merchants are rendered defenseless to the whims of American Express.  For example AmEx can: (1) raise rates; (2) issue bogus chargebacks to customers, leaving the merchant without compensation for good or services sold; (3) refuse to honor valid charges; and (4) tack on unearned or even unlawful fees.

Preemption After the Dodd-Frank Wall Street Reform Act

Today's issue of American Banker has an alarming article entitled "Preemption After Dodd-Frank May Not Be as Weak As You've Heard."  According to the article, "a growing number of preemption experts" (all on the industry side) are arguing that the conventional wisdom on federal preemption of state banking laws — that it's been rolled back — is "dead wrong."  Here's the text:

For eight months after the enactment of the Dodd-Frank Act, it has been conventional wisdom that federal preemption of state banking laws was rolled back at least somewhat, dealing the Office of the Comptroller of the Currency and national banks a significant blow.

But a growing number of preemption experts are arguing that is dead wrong, saying the regulatory reform law left preemption largely untouched despite the addition of ambiguous language that consumer advocates and others see as weakening it.

"The substance of the federal preemption analysis hasn't changed at all," said Robert Cook, a partner at Hudson Cook.

He is hardly alone. Howard Cayne, a partner at Arnold & Porter, has given speeches to fellow lawyers entitled "Reports of the Death of National Bank Preemption Have Been Greatly Exaggerated."

Campaign Contributions and the Vote to Cut the CFPB's Budget

by Jeff Sovern

As we noted a couple of weeks ago, the House of Representatives voted to cut the Consumer Financial Protection Bureau's budget.  I was curious about the relationship of campaign contributions to the vote, so I asked my research assistant, Edmund Witter, to look into it. Using data from the Center for Responsive Politics, Edmund concluded that the average representative who voted to reduce the Bureau's funding received $186,723 from the financial, insurance, and real estate industries; those who voted to preserve its funding received $159,138, for a difference of $27,585.  Reminds me of the old saw about how we have the best Congress money can buy.