Consumer Law & Policy Blog

Indiana Court of Appeals Embraces Dendrite Standard but Declines to Apply State Shield Law

by Paul Alan Levy

In Miller v. Junior Achievement, decided today, the Indiana Court of Appeals today joined the national consensus approach to deciding whether to allow plaintiffs who sue anonymous Internet speakers to use the judicial subpoena power to compel the identification of those speakers.    Public Citizen filed amicus briefs opposing the plaintiff’s motion to dismiss the appeal for lack of appellate jurisdiction and supporting the First Amendment grounds for the appeal from an order enforcing a subpoena to identify the anonymous commenter, and I participated in the oral argument.

Acting in a case involving an anonymous reader of the Indianapolis Star who commented on a news story about the former head of the local chapter of Junior Achievement, the court embraced the Dendrite approach that requires a plaintiff to notify the speaker and give her a chance to defend her anonymity, plead a viable claim that specified words are actionable, and present evidence establishing a prima facie case on the elements of the claim, and then show that the balance of interests favors disclosure.   The court decided that the comment implicitly accused the plaintiff of embezzling funds, and hence was defamatory on its face, but reversed a trial court decision enforcing a subpoena to identify the poster because the plaintiff had produced no evidence that anything said about him was false.  The trial judge was ordered to apply the Dendrite standard, as spelled out in the Court’s opinion, to see whether plaintiff can meet the standard.

At the same time, the Court of Appeals rejected the argument advanced by the Indianapolis Star that the commenter was a “source” protected against discovery by the Indiana Shield Law, at least in the circumstances of the case.   Some states have applied their shield laws to protect anonymous commenters on media companies’ web sites, but the court decided that the Indiana law does not extend that far, partly because of language of the statute, but partly as well for policy reasons which, the court said, encouraged this reading of the law’s somewhat ambiguous language.  Although the term “source” is not defined by the statute, the general meaning of the term is someone upon whom a journalist relies in preparing a story, and because there was no evidence that the Star had used the comment in any way in furthering its own reporting, the commenter could not be regarded as a source whose identity was protected from discovery by the shield law.  The court emphasized the narrowness of its holding in that regard — on page 21 of the opinion, it said, “for this reason alone, we determine that the anonymous commenter was not a source as envisioned by our Shield Law.”  In this respect, the court’s opinion suggests that the shield law’s protection might extend to anonymous posters on newspaper web sites in some circumstances.

But the policy concerns on which the court also relied do not appear to be so limited.  For one thing, the court noted that once the Indiana shield law applies, the protection against discovery is absolute, and the court noted that, because the Indianapolis Star would be immune from suit over the comment under the federal Communications Decency Act, 47 U.S.C. § 230, applying the shield law would have the untoward result that nobody could be held liable for an anonymous comment no matter how false and how damaging.  Interestingly, there were no previous Indiana state court decisions addressing the CDA, so this decision also advances free speech principles by adding Indiana to the list of states that have agreed with the consensus approach to section 230. 

The court also expressed concern that applying the shield law in these circumstances could weaken legislative support for shield principles, and cited the opinions of some journalists that protecting anonymous commenters is “a bad idea.”  Indeed, while the case was pending the Indianapolis Star and other papers in the Gannett chain changed their policies regarding comments on news stories to require commenters to link their registration to their Facebook accounts.

A complete set of the briefs on both sides in the case can be found on the Cyberslapp web site. 

Taxes: Expectations and Reality

What does it mean to say, as many politicians do, that our taxes are too high? Does it mean that we tax more than is required to run the government we want? That seems unlikely, given the huge deficits we run. Does it mean that certain taxpayers, but not all of them, pay too much (and perhaps others not enough)?  Maybe. In any event, the notion that our taxes are too high is a relative concept. Compared to what? Does it matter what we paid last year? Or ten years ago? Should we pay more or less than the citizens of Sweden or England or Japan pay their governments? It's not enough simply to say we pay too much (or too little).

With that in mind, consider this article from Saturday's Washington Post, which explains that many tax cuts enacted in recent years are set to expire at the end of 2012. So, if Congress doesn't do something after the election, taxpayers will be hit with a signficant tax increase all at once, unsettling expectations, harming taxpayers with modest incomes, and possibly slowing economic recovery. As the Post explains:

With Congress voting last week to extend the payroll tax holiday, 160 million workers will be spared an immediate tax hike. But the move leaves them facing an even bigger hit in January, when the holiday ends and the payroll tax joins a long list of levies already set to sharply and abruptly go up. On Dec. 31, the George W. Bush-era tax cuts are scheduled to expire, raising rates on investment income, estates and gifts, and earnings at all levels. Overnight, the marriage penalty for joint filers will spring back to life, the value of the child credit will drop from $1,000 to $500, and the rate everyone pays on the first $8,700 of wages will jump from 10 percent to 15 percent. The Social Security payroll tax will pop back up to 6.2 percent from 4.2 percent under the deal approved Friday by Congress. And new Medicare taxes enacted as part of President Obama’s health-care initiative will for the first time strike high-income households.

The Post says congressional aides are calling the coming tax-cut expirations "Taxmaggedon." But isn't this caused, at least in part, by the failure of many politicians to tell the truth about taxes? Listening to many of them, you would think that taxes are continually rising and that it is their job to bring them back to earth. Not so. Effective tax rates have been dropping for years, are currently at historical lows, and are generally lower than those of our global competitors. Read about it here and here.

 

Josh Frank Study Finds the Credit CARD Act Worked

Joshua M. Frank

 of the Center for Responsible Lending has written Credit Card Clarity: CARD Act Reform Works.  Here's the abstract:

This research studies the effect of the Credit CARD Act of 2009 on pricing, transparency, and credit availability.This report’s findings refute negative claims by the credit card industry that new credit card rules have restricted access to consumer credit and raised its cost.These claims rely on limited data that do not accurately capture the cost or availability of credit extended to consumers.

This study uses multiple data sets and methods and consistently finds that the CARD Act has not caused prices to rise or credit to constrict. The difference between the stated rate on credit card solicitations and the rate consumers actually paid widened to unprecedented levels by 2004 and stayed at those levels through 2008. This difference narrowed markedly in the wake of reform, with stated prices on solicitations moving much closer to actual prices.

This study also finds that, in the year since the CARD Act’s implementation, actual prices have remained stable and available credit has not tightened beyond what would be expected from the economic downturn. Because price transparency fosters competition, the long-term effect of the CARD Act is likely to be lower costs for consumers.

 

James Nehf on the FTC's Proposed Framework for Online Privacy Protection

James P. Nehf  of Indiana, who has made significant contributions to the privacy literature in the past, has written The FTC's Proposed Framework for Privacy Protection Online: A Move Toward Substantive Controls or Just More Notice and Choice?, 31 William Mitchell Law Review 1727 (2011).  Here's the abstract:

The FTC released a "proposed framework" for privacy protection late in 2010. While the new framework made headlines by calling for a "do not track" list that consumers could use to avoid being tracked online, most of the framework continues to rely heavily on a notice and choice regime whereby consumers will be expected to make privacy decisions in market transactions (e.g., notice and opt-out opportunities). This paper explains why this approach is not likely to lead to enhance privacy protection in Internet transactions in the years to come.

CFPB Proposes Oversight of Larger Credit Reporting Agencies and Debt Collectors

by Jeff Sovern

The proposal is to cover debt collectors with receipts exceeding $10 million and credit bureaus with receipts over $7 million.  As for the credit bureau piece of the proposal, here's an excerpt from an article in the Washington Post:

[L]ittle attention has been paid to the so-called “Fourth Bureau” firms that target the 30 million consumers outside the mainstream financial system. Often they are students, immigrants or low-income consumers who do not qualify for traditional loans or choose not to use them. Instead, they rely on a makeshift system of payday lenders, check cashers and prepaid cards — none of which show up in the Big Three. Without a paper trail of credit, these consumers are virtually shut out of the traditional banking system.

As a result, fourth bureau firms are increasingly using non-traditional and, at times, unreliable data, including auto warranties, cellphone bills and magazine subscriptions to come up with credit scores.

* * * [The proposal would cover] not only the three major credit bureaus but also roughly 30 smaller firms in the Fourth Bureau. The rule would give the CFPB authority over about 94 percent of the industry by receipts.

But the debt collection industry would receive less attention under the proposal.  The Bureau explains: "the proposed threshold would likely bring within the Bureau’s scope of supervision approximately 175 entities out of approximately 4,500 firms engaged in debt collection . . . . Thus, approximately 4 percent of all collection firms would be covered by the proposed threshold." Put another way, 96% of debt collector firms will not be subject to the Bureau's supervision.  Will that drive unscrupulous individual collectors to work for the 96% to evade the Bureau's oversight?  If so, is that a good thing?

Comments on the proposal will be due within 60 days of publication of the notice in the Federal Register; instructions for commenting can be found here and should refer to Docket No. CFPB-2012-0005.

 

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How Widespread Are Foreclosure Flaws?

From today's Times: "An audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation, according to a report released Wednesday." 

More on President Obama's Recess Appointments

Primarily because the new director of the Consumer Financial Protection Board, Richard Cordray, was a recess appointee, we have been covering the politics and legality of President Obama's recent recess appointments (here, here, here, here, and here). I am using the word "recess" just to identify the appointments. The question whether the Senate was actually in recess is the principal issue in contention. Yesterday, the House Judiciary Committee held a hearing on the legality of the appointments. The National Law Journal reports here on the hearing. My favorite quote is from Congressman Jerrold Nadler: "I'm not sure of the purpose of this hearing. No one has said the House of Representatives can do anything about this except make statements." Said by a tried and true member of the minority.

OT: Could Law School Applicants Hit a 20-Year Low?

by Jeff Sovern

Last month the ABA Journal reported that as of January 13, the total number of applicants at ABA-approved law schools stood at 31,815. . . ."  Last year, about 48% of applicants had applied by that date.  If that trend holds, the total number of applicants for the year will be about 66,281.  Going back to the 1990-91 application cycle, the smallest number of applicants was 71,500, in 1998-99 (the high was 100,600 in 2004-05). 

Back in the 1998-99 year, the number of law students who actually enrolled was 42,804.  By contrast, in the last five years, the smallest number of law students who enrolled was 48,937. 

We may see a late surge in applications.  Law school applications tend to rise when unemployment is high, as it obviously continues to be; perhaps some college students will discover they can't find jobs and apply later in the cycle. But if the current trend holds, we may see law schools competing more fiercely than usual to fill their classes.  Because there are more law schools than there were back in 1999, with more seats to fill, law schools may admit more applicants with weak credentials.  Alternatively, law schools may shrink their classes. Probably we will see both reductions in class sizes and law schools going more deeply into the applicant pool.

Looking to Hire Law Students for Consumer Law Work?

If so, please email or call Helena Rojas (rojash@stjohns.edu; 718-990-6614), St. John's Associate Director of Employer Relations.  Because St. John's offers more courses in consumer law than perhaps any other law school in the country, including a basic survey course, two clinics, and a consumer bankruptcy course, St. John's students are well-equipped to hit the ground running on consumer law issues. 

 

Is There A Gaping Hole in the Mortgage Fraud Deal?

A couple days ago we told you about criticism of the mortgage fraud settlement between the states and five large banks that was brokered by the Obama Administration. Now, Michael Hiltzik of the LA Times tells us about what he calls a "gaping hole" in the deal. Here's the beginning of Hilzik's piece:

You can love or you can hate the recent $25-billion federal-state mortgage foreclosure settlement, but there's no getting around one simple fact: There's a huge, gaping hole right in the middle of it. The hole is that if your home loan has been bought from your lender by Fannie Mae or Freddie Mac, you're not eligible for the mortgage relief encompassed by the deal. Since Fannie and Freddie control well more than half of all outstanding mortgages, this shortcoming looks to be what engineers would call "non-trivial."