Consumer Law & Policy Blog

President Obama to Nominate Richard Cordray to Head CFPB

Read about it here.

UPDATE: A few more articles on the nomination -- here, here, here, and here -- and Cordray's Wikipedia entry.

 

WSJ: President to Nominate CFPB Head Next Week; It's Not Warren

The report is at http://blogs.wsj.com/washwire/2011/07/15/obama-to-nominate-consumer-bureau-chief-next-week/?KEYWORDS=elizabeth+warren.

Colin Marks on The Possible Irony of Concepcion

Colin P. Marks

 of St. Mary's has written The Possible Irony of AT&T versus Concepcion.  Here's the abstract:

Irony is defined as, “the use of words to express something other than and especially the opposite of the literal meaning.” Though many other definitions of the word exist, in light of the Supreme Court’s majority opinion in AT&T v. Concepcion, this definition comes to mind. Read broadly, the decision strikes a blow to the ability of consumers to bring suits against companies, both inside and outside of arbitration. But that was not the intent behind the federal act which the Court relied upon to justify its decision.

In 1925, when Congress passed the Federal Arbitration Act (FAA), its intended purpose was to promote enforcement of arbitration clauses. Congress did not sweep away all state-created defenses to contract; however; quite the contrary, Congress inserted a savings clause that arbitration provisions could be stricken just as any other contract could, “upon such grounds as exist at law or in equity.” It was upon this basis that the Ninth Circuit upheld a decision to strike down a clause in an agreement between AT&T and the Concepcions which required not only that the Concepcions submit all disputes to arbitration, but also forbade them from forming a class within that arbitration. On appeal to the Supreme Court, AT&T argued that the FAA preempted the unconscionably finding, despite the savings clause, as California law discriminated against arbitration clauses in violation of the FAA. Justice Scalia, writing for the majority, agreed that the unconscionably finding under California law was preempted by the FAA. In overruling the Ninth Circuit, he repeated the theme of the need to promote arbitration. Throughout the majority opinion, he introduced, as a corollary, the desire to promote expedited resolution of disputes.

The majority opinion is itself open to multiple interpretations, however. Read narrowly, the opinion may do nothing more than restate the already established principle that states cannot strike down arbitration clauses simply by virtue of their existence. But the decision can also be read much more broadly. A broad reading of the opinion suggests that any attempt by a court or state legislature to limit the method and means of arbitration in a way inconsistent with what Congress envisioned is preempted by the FAA. Thus, according to the majority opinion, Congress’ desire to promote bilateral arbitrations preempted the California courts’ rulings that clauses limiting the ability to form class actions are unconscionable.

And therein lies the irony.

If the opinion is read broadly, in striking down the defense of unconscionably to class actions waivers as inconsistent with the purposes of the FAA, the majority opinion, in effect, has denied a large swath of individuals the realistic opportunity to ever bring their claims, in arbitration or otherwise. In the aftermath of this decision, every corporation will be inserting class action waivers into their arbitration clauses, if they haven’t already, and may be emboldened to go much further. Thus, while the majority opinion cites, as the reason for its decision, to a broad policy of encouraging arbitration and the expeditious resolution of disputes, the effect will be quite the opposite.

This essay explores the possible dual readings of AT&T v. Concepcion in light of the FAA and its interpretation, including Supreme Court precedents. This essay concludes that, though there is support for interpreting the Concepcion decision narrowly, it is more likely that a broader interpretation was intended, but the metes and bounds of this opinion have yet to be explored. Nonetheless, under this broad interpretation, the effect on consumers will be to discourage individuals from seeking redress for their claims. The decision may actually encourage businesses to breach contractual obligations with impunity when the individual sums owed are too small to justify, in the mind of a reasonable consumer, the time and effort to seek a remedy.

 

Michael Hiltzik on Social Security and the "Chained" CPI

For many years, some observers have argued that Social Security cost-of-living increases are too generous. They argue that the public fisc could save billions of dollars by using a "chained" consumer price index (CPI). The idea is that CPI increases should not be based on increases in the cost of a static market basket of goods because as the price of a product rises, consumers tend to substitute lower-priced products, use less of the product, stop using the product, etc.

In this LA Times article, Michael Hiltzik says that the chained CPI makes no sense for social security benefits for several reasons, one of which seems quite important: For the kinds of things that senior citizens need -- medical care, for instance -- it is often not reasonable to assume that there is a substitute product or that the person can do with less of it. (As Hiltzik puts it, "it's not as though you can forgo a prescribed heart bypass operation and opt for a cheaper hernia operation instead.") Moreover, the CPI underestimates inflation for seniors because medical care is a disproportionate part of their spending, and medical care "has risen in cost at nearly twice the rate of overall inflation over the last couple of decades." So, at the very least, you wouldn't want to go with a chained CPI until you fixed the CPI for seniors. Hiltzik's article talks about efforts to do that as well.

Another Viewpoint on Restaurant Calorie Disclosures

[Ed. note: One of our readers read our recent posts on the value of calorie disclosure laws and wanted to join the discussion.]

by Thomas McSorley

I read this week’s earlier posts [here and here] about the questionable worth of calorie disclosure laws as a solution to the nation’s obesity epidemic with very mixed feelings. While I appreciate the importance of using data to discern good policy, I also personally know how effective calorie disclosure can be in effecting weight loss. Until a year ago, I had been obese nearly my entire life. (I’m 27.) After a series of false starts (over a period of years), I finally began to achieve sustainable weight loss by logging everything I ate on a “food diary” website, and also by exercising fairly regularly (for thirty or so minutes most days . . . by no means training for a triathalon). After a week of focused effort, I lost a couple pounds. By keeping up the program over a year, I had lost seventy, 1 to 2 pounds a week. I’ve now kept it off for a year (and lost a handful more). (In the spirit of full disclosure, I also eliminated most meat and dairy from my home consumption and bulked up my diet of vegetables and fiber-rich grains and legumes.)

The key—the absolute, unquestionable key—to my weight loss was a clear daily calorie target and the availability of calorie data. When I would eat at restaurants where calorie data wasn’t available, I would work hard to eat the healthiest thing I could figure out and overestimate the calories on my food diary. This worked fine, and most chain restaurants (the only ones affected by the new national calorie disclosure law) have calorie data on their websites so I could plan when I ate at them. However, now that I’m in the “sustaining” weight loss phase, I especially appreciate those restaurants that have calories right on the menu or package. If the calories are there, I cannot ignore them. I always get the right thing. If they are not, I’ve been known to cheat. In the short term, this hasn’t had any adverse effects, but over the long run, I know that having calories printed right there on restaurant menus (the way they are on everything I eat at home) will significantly bolster my ability to stay at a healthy weight.

Calorie disclosure laws certainly aren’t a panacea; they require the recipient of the data to be serious about using the information. But, sustainable weight loss isn’t just about a wishy-washy attempt to “eat better, exercise more.” To lose weight effectively and in a way that keeps it off, I had to be serious and scientific about hitting a hard calorie goal every single day. Even though I probably wasn’t going to order the bacon double cheeseburger whether or not I knew it had exactly 1500 calories (seriously, without fries), the difference between a grilled salmon dish with 350 and one with 450 calories meant a significant difference in a carefully calibrated program.

So, I celebrated the news that restaurant calorie disclosure was going to be nationally mandated, and I know of at least one person who will be using the data. (I already love walking into take out places in Philly and New York, and Pret a Manger, that have the numbers printed right there.) Like the new gruesome cigarette packs, I’m not sure that the calorie disclosure laws will save many lives or make many more people healthier, but I’m not complaining about them.

More on Today's House Oversight Hearing on the Consumer Financial Protection Bureau

Jeff Sovern posted earlier on today's House Oversight & Government Reform hearing on the Consumer Financial Protection Bureau. Jeff described it as the House majority's "one last shot" at Elizabeth Warren before the CFPB officially opens its doors on July 21. Today's Washington Post has another article on the topic, and Committee Chair Darrell Issa has this hearing "Preview Statement" on the Committee's website.

The Haggler, Deception, and Google

by Jeff Sovern

The Sunday Times Haggler column took on lead generation companies in the context of Seattle emergency locksmiths.  As David Segal (the Haggler) explained:

Last Tuesday, the Haggler typed “emergency locksmith Seattle” into a browser, and the top results — most notably, the seven that appeared in the highly coveted Google Places spots, which are marked on an area map — appeared to be lead gen sites.

That is to say, they are not locksmiths at all, but phone banks that dispatch locksmiths.  So what, you might say.  According to Segal "Some are legitimate, but others may all too often do shoddy work and/or charge two or three times the estimate."  And if you are seeking a Seattle locksmith, would you rather call someone who works in your city and so depends on local good will, or a service that might be located far away that has no such interest, and that has attained prominence on Google by gaming its algorithm? Consumers reading such listings are deceived into think they are calling a locksmith, but they are really calling a phonebank.  Segal observes that this practice is not limited to Seattle or locksmiths, by the way.

Google is fighting such efforts, and Segal reports that state attorneys general have also become involved.  But maybe it's time for Congress to look into improper lead generation practices and consider legislation to prevent them.

Coventry First’s Abuse of Trademark Law to Suppress Criticism Falls Apart

by Paul Alan Levy

Coventry First is in the viatical business.  It buys life insurance policies hoping to profit from payment of the insurance proceeds when the insured dies.  It recently got a spate of publicity for its trademark action against one of its critics who anonymously set up a parodic Twitter account, using the Twitter name coventryfirst, to publish a series of messages focusing on the ghoulish aspect of Coventry First’s business —the sooner the insured dies, the better the return on the investment.  As one blogger noted,  “it has been criticized as an industry that basically bets on death.” Coventry then sent a subpoena to Twitter demanding the identity of the account holder.

We at Public Citizen have defended consumers’ rights to use trademarks in domain names,  Facebook account names, titles and meta tags of web sites and web pages that criticize the trademark holder.  The ability to put the company or product name in those locations is important both because it identifies the subject of the criticism and, in many cases, may help consumers who are using search tools to find information about companies to find criticisms as well as the companies’ own self-aggrandizing web sites.  We have also been concerned about efforts to overcome anonymity based on legal claims without a realistic chance of success because it puts speakers at risk of retaliation for speaking out against powerful and well-connected companies and politicians, and our client was worried about what she considered to be Coventry First’s pleasure at using its economic clout against perceived enemies.  We were thus happy to help the Twitter user defend herself against the suit.  We thus undertook to file a motion to quash the subpoena.  

Generic Drugs: Their Use Saves Consumers Billions of Dollars, But Consumers Could Do Better If Doctors Cooperated

About 70% of all prescriptions for drugs are filled with generic drugs. The move to generic drugs has occurred for many reasons including a landmark 1984 federal law that encouraged their development. Another reason is that laws in many states require pharmacies to give consumers the generic version of a prescription drug whenever a generic version is available, even if the doctor prescribes the brand name. In the aggregate, these laws, pressure from insurers, and growing acceptance of generic drugs by many doctors, save consumers (and their public and private insurers) tens of billions of dollars every year.

But there is a big exception in the state "generic substitution" laws: When doctors prescribe brand name drugs and demand that the pharmacist "dispense as written" (that is, when they write "DAW" on their prescription pads), the pharmacist generally must fill the prescription with the brand name drug. About 5% of all prescriptions are DAW, costing consumers lots of money.

How much money? Well, the difference in price between brand name and generic drugs can be very large. Here's one example from an informative article in today's Washington Post on DAW prescriptions:

Take . . . the popular anti-cholesterol drug Zocor. According to Drugs.com, a 90-pill bottle costs $459.98. But 90 pills of simvastatin, the generic version of Zocor, are only $83.97. Buy simvastatin at Wal-mart or Target, which offer special pricing programs, and the cost comes down to just $12.

Why do doctors insist on DAW? According to the Post article, because (1) some doctors wrongly believe that generic drugs are unsafe or ineffective; (2) some doctors frequently remember only the brand name not the generic name of the drug (which doesn't seem like a reason to use DAW); and (3) some doctors are influenced by brand name advertising.

As the Post explains, some states trying to curb DAW prescriptions:

 In 2009, for example, Massachusetts began requiring doctors to explain in writing why they were insisting — via a DAW — on a brand-name medication as opposed to a generic. The results were dramatic. According to the Generic Pharmaceutical Association, the state’s Medicaid spending for drugs fell by $150 million within a year.

It will be interesting to see whether other states follow Massachusetts' lead.

The Hill: GOP gets one last shot at Consumer Protection bureau before it opens

by Jeff Sovern

Here.  The article is mostly about Elizabeth Warren's upcoming appearance before the House Oversight Committee on Thursday.  A couple of quotes:

“This hearing will give Professor Warren an opportunity to provide clear information – which has so far not been articulated in public statements, budget justification, FOIA responses, or previous congressional testimony – about how the administration intends to go about protecting consumers,” said an Oversight spokesperson.

* * *

In perhaps a taste of what is to come, Raj Date, the CFPB’s associate director of research, markets and regulations – and a potential candidate for the agency’s director – got his share of GOP grilling at a House Financial Services Committee hearing last week. Date faced several questions from Republicans, yet again, about the CFPB’s role in ongoing settlement negotiations between federal and state investigators and mortgage servicers over widespread documentation problems.

Perhaps the Committee spokesperson should take a look at the Bureau's web site: the spokesperson might see there how the Bureau has already started working on mortgage disclosures.  I wish the Committee would hold itself to its own standards and explain how interrogating Bureau personnel about its role in advising attorneys general helps consumers.