Consumer Law & Policy Blog

David Stockman on Crony Capitalism and Paul Ryan

Here.

Ninth Circuit Issues Important Decision on Class Action Fees

I should have posted on the Ninth Circuit's decision in Rodriguez v. Disner when it came down last week. The decision involved the federal antitrust class action in which the plaintiffs alleged that BAR/BRI (a subsidiary of West Publishing) conspired with others to monopolize the market for certain bar-review courses. The case settled a while back, and an earlier appeal regarding the settlement's fairness is now final. (Disclosure: I was one of the counsel for objectors in the initial appeal. The particular arguments that my clients raised in that appeal were rejected by the Ninth Circuit, which affirmed approval of the settlement.)

In the earlier appeal, the Ninth Circuit had affirmed a holding of the district court that the large "incentive" payments offered by some of the plaintiffs' lawyers to some of the named plaintiffs -- payments that would incease as the total class recovery increased, but would top off at a certain amount -- created a conflict of interest between the class lawyers (who had a duty to seek the best deal for the class) and the named representatives. See 563 F.3d 948 (9th Cir. 2009). The Ninth Circuit remanded to determine what effect the conflict finding should have on the fee award to the conflicted lawyers.

On remand, the district court denied all fees to the conflicted lawyers. The district court also denied any fees to the objectors' lawyers who had brought the conflict to the district court's attention and had argued the point to the Ninth Circuit the first time around.

In the second appellate decision issued last Friday, the Ninth Circuit affirmed the denial of fees to the conflicted plaintiffs' counsel, calling the conflict "egregious," and holding that the district court acted within its discretion. The Ninth Circuit reversed, however, regarding fees for objectors' counsel. It noted that when an objector's counsel's work improves a class settlement and the class members benefit -- as is the case when forfeited fees go back to the class -- the objector's counsel should get a fee. On the other hand, the Ninth Circuit affirmed the denial of fees to other objectors' counsel whose objections, the court concluded, were unsuccessful and, therefore, did not benefit the class.

Vehicle Crashworthiness and Luxury Cars

In May of this year, we posted on car crashworthiness and noted that what seems right -- for instance, that small cars that feel flimsy are invariably unsafe in crashes -- may not be right. In fact, the little Toyota Prius does well in crash testing. Now, as explained in this LA Times article by Jerry Hirsch, the Insurance Institute for Highway Safety has found that most luxury cars -- some of which are pretty large -- do poorly in a new crash test designed to see how cars and their passengers hold up in certain risky crashes (so-called "small overlap" crashes rather than head-on crashes). Go here or click on the video below to see why this new test will reveal risks that traditional government crash testing misses. 

Here's an excerpt from Hirsh's article:

Such fancy nameplates as BMW, Mercedes and Lexus all earned "poor" ratings in a test that simulated what happens when the front corner of a sedan hits another vehicle or an object such as a tree or pole, according to the Insurance Institute for Highway Safety. Just three of 11 luxury cars from the 2012 model year passed the new crash test, which looked at front-corner impacts, which are not well protected by vehicles' crush-zone structures. ... The Acura TL and Volvo S60 earned "good" ratings, while the Infiniti G was rated "acceptable." The Acura TSX, BMW 3 Series, Lincoln MKZ and Volkswagen CC all received "marginal" ratings. The Audi A4, Lexus ES 350, Lexus IS 250/350 and Mercedes-Benz C-Class were rated "poor."

The Insurance Institute has yet to test other, non-luxury cars. Read the Institute's discussion of the new test here. Go here to read about the Institute's crash ratings more generally.

How the Election of 2012 Could Affect the Supreme Court

In recent years, the Supreme Court has not ruled favorably on access-to-the-courts issues important to consumer advocates. Think, for instance, of last year's class-action decisions in Wal-Mart v. Dukes and AT&T v. Concepcion. Neither decision interpreted the constitution (although Wal-Mart was, at least in part, driven by the majority's constitutional concerns), and so both, in theory, could be overruled by Congress. Nonetheless, the decisions in those two cases are indicative of a Supreme Court that, for quite a while now, has been closely divided in "big" cases. Concepcion was decided 5-4, as was one of the two issues in Wal-Mart (although on the other issue the plaintiff lost 9-zip).

With that in mind, check out this article by law professor Geoffrey Stone. Stone wanted to know what the effect might be if President Obama wins a second term and replaces a "conservative" justice (say, Justice Scalia) with a "liberal," or, on the other hand, if former Governor Romney wins and replaces a "liberal" justice (say, Justice Ginsburg) with a "conservative."

To figure it out, he asked several of his law professor colleagues to name the Court's most significant constitutional rulings since 2000. He came up with a list of 18 cases. The following excerpt summarizes Stone's findings:

[T]the eighteen cases are, in chronological order, United States v. Morrison (2000) Bush v. Gore (2000), Zelman v. Simmons-Harris (2002), Lockyer v. Andrade (2003), Grutter v. Bollinger (2003), Lawrence v. Texas (2003), Hamdi v. Rumsfeld (2004), Roper v. Simmons (2005), McCreary County v. American Civil Liberties Union (2005), Kelo v. City of New London (2005), Hamdan v. Rumsfeld (2006), Gonzales v. Carhart (2007), Parents Involved in Community Schools v. Seattle School District No.1 (2007), Crawford v. Marion County Election Board (2008), Boumediene v. Bush, (2008), District of Columbia v. Heller (2008), Citizens United v. Federal Election Commission (2009), and National Federation of Independent Business v. Sebelius (2012).

How did the thirteen Justices who participated in these eighteen decisions vote? The moderate liberal Justices voted for the more liberal position ninety-seven percent of the time (seventy of seventy-two votes). The very conservative justices voted for the conservative position ninety-eight percent of the time (fifty-nine of sixty votes). This shows just how polarized the Justices are. The all-important swing Justices cast nineteen of their twenty-nine votes in line with the very conservative Justices. That is, they joined the very conservative Justices two-thirds of the time. The very conservative Justices were in the majority in nine of the cases and the moderate liberals were in the majority in nine of the cases.

With this information, and re-counting votes, we can reasonably infer that if Kagan had been on the Court since 2000 instead of Scalia, the moderate liberals would have won eight of the nine cases they lost and seventeen of the eighteen cases. On the other hand, if Alito had been on the Court instead of Ginsburg, the very conservative justices would have won seven of the nine cases they lost and sixteen of the eighteen cases.

Julie Williams Steps Down As OCC Chief Counsel

Julie Williams, the Office of the Comptroller of the Currency's notorious longtime Chief Counsel and sometime Acting Comptroller, is stepping down from her post effective September 30. According to a statement released by the agency, she will retire from the government at the end of this year; it's unclear whether that means that she won't do any lobbying for banks after leaving the agency. The Wall Street Journal has the story here.  The published reports do not indicate whether Williams was fired, but that's what I have heard from some reliable sources.

Williams has long been a target of criticism by consumer advocates; in a post earlier today, Naked Capitalism calls her "the Lex Luther of bank regulators."  The main reason for the criticism is Williams' role as the principal architect and chief defender of the OCC's expansive preemption regime, which wiped out state anti-predatory lending laws at the very time they were most needed. Even after Congress took specific action to roll back OCC preemption through the Dodd-Frank Act, Williams persisted, spearheading new rules last summer that attempt to circumvent the Act.  More generally, Williams was known for her tendency to prioritize banks' interests over consumer protection and for her hostility to the CFPB and the Dodd-Frank Act.

Although she held the position during previous vacancies, Williams was passed over for Acting Comptroller by the Obama Administration and there has been much speculation about whether she would be fired outright by the new comptroller, Tom Curry.  Curry had a very different, and more balanced position on preemption when he ran the state banking agency in Massachusetts, but has been circumspect on the topic since taking over the OCC.  

Times Report on Problems in Collecting Credit Card Debt and Column on Refinancing Mortgages

The debt collection report is here. An excerpt:

The same problems that plagued the foreclosure process — and prompted a multibillion-dollar settlement with big banks — are now emerging in the debt collection practices of credit card companies.

As they work through a glut of bad loans, companies like American Express, Citigroup and Discover Financial are going to court to recoup their money. But many of the lawsuits rely on erroneous documents, incomplete records and generic testimony from witnesses, according to judges who oversee the cases.

Lenders, the judges said, are churning out lawsuits without regard for accuracy, and improperly collecting debts from consumers. The concerns echo a recent abuse in the foreclosure system, a practice known as robo-signing in which banks produced similar documents for different homeowners and did not review them.

“I would say that roughly 90 percent of the credit card lawsuits are flawed and can’t prove the person owes the debt,” said Noach Dear, a civil court judge in Brooklyn, who said he presided over as many as 100 such cases a day.

Meanwhile, on the opinion pages, Nobel laureat Joseph Stiglitz and frequently-quoted economist Mark Zandi published The One Housing Solution Left: Mass Mortgage Refinancing.

The CFPB Proposes New Mortgage Servicing Rules

On Friday, the Consumer Financial Protection Bureau proposed new mortgage servicing rules. Here's what the CFPB says about its proposal:

We are proposing rules on mortgage servicing to implement new laws in the Dodd-Frank Act. Our proposals have new rules that are designed to put the service back in mortgage servicing, and will benefit borrowers by eliminating surprises and run-arounds. The rules are divided into two proposals -- one to amend the regulations in the Truth in Lending Act (Regulation Z) and the other to amend the regulations in the Real Estate Settlement Procedures Act (Regulation X). The rules are:

• •  
    • Monthly mortgage statements
      Servicers would be required to provide clear billing statements including information on the loan, amount due, and application of past payments.
    • Warnings before interest rate adjustments
      Servicers would be required to provide consumers with a new notice 6 to 7 months before the first rate adjustment, as well as earlier and improved notices before rate adjustments causing an increase in a consumer’s mortgage payments.
    • Force-placed insurance
      Servicers can only charge borrowers for buying insurance on the property when they have a reasonable basis to believe that the borrowers have let their own insurance lapse and have given borrowers two notices estimating the cost of the “force-placed insurance.”
    • Early outreach for delinquent borrowers
      Getting a delinquent borrower back on track requires early intervention and information about options available.
    • Prompt crediting of payments
      Payments must be applied as of the day they are received, and the handling of partial payments is clarified.
    • Accurate information management
      Servicers must have reasonable policies to ensure that when borrowers provide documents and information the servicers can find and use them.
    • Error resolution and information requests
      Mistakes happen, but they need to get fixed. Servicers must address borrower concerns about possible errors within certain timeframes and provide the information they request.
    • Direct and ongoing access to servicer personnel
      Delinquent borrowers will be able to contact the right people at their servicer to get information and take steps to avoid foreclosure.
    • Evaluation for alternatives to foreclosure
      Servicers would be required to appropriately review borrower applications for loan modifications or other options to avoid foreclosure.

The Washington Post has this story about the proposal. It notes that Margot Saunders of the National Consumer Law Center has criticized the proposal for "not compelling lenders to try loan modifications. Instead, it states that lenders must follow procedures they have in place for averting loan losses."

Laws Limiting Junk Food at Schools May Curb Obesity

Some states have laws limiting junk food sales in schools. As explained in this AP article, those laws may reduce obesity, according to the first national study attempting to gauge whether the laws work. The laws are fairly new, and, if they work at all, they may take a while to have a significant effect on childhood obesity. And, of course, it's hard to measure the effect of the school laws alone given all the other factors that may influence kids' eating and excercise habits (and, thus, obesity). But the study's findings offer some hope. Here are a few excerpts from the AP article:

Laws strictly curbing school sales of junk food and sweetened drinks may play a role in slowing childhood obesity .... The results come from the first large national look at the effectiveness of the state laws over time. ... [E]ven obesity experts who praised the study acknowledge the measures are a political hot potato, smacking of a "nanny state" and opposed by industry and cash-strapped schools relying on food processors' money. ... Children in the study gained less weight from fifth through eighth grades if they lived in states with strong, consistent laws versus no laws governing snacks available in schools. For example, kids who were 5 feet tall and 100 pounds gained on average 2.2 fewer pounds if they lived in states with strong laws in the three years studied. Also, children who were overweight or obese in fifth grade were more likely to reach a healthy weight by eighth grade if they lived in states with the strongest laws. The effects weren't huge, and the study isn't proof that the laws influenced kids' weight. But the results raised optimism among obesity researchers and public health experts who generally applaud strong laws to get junk food out of schools.

Obamacare on Trial

"Obamacare on Trial." That's the name of a new book by law professor Einer Elhauge about the Affordable Care Act case before the Supreme Court. Buy it here. Here's how Amazon describes the book:

This short book analyzes the Obamacare case — focusing on many points the Supreme Court was never told about — including the fact that the constitutional framers themselves had approved mandates to buy health insurance! It collects essays that Harvard Law Professor Einer Elhauge wrote to explain these new legal points in a clear, nontechnical fashion in The New York Times, The New Republic, The Atlantic, and elsewhere. It also reproduces excerpts from Chief Justice Robert's Opinion on the mandate.

And here are blurbs on the book by law professors Lawrence Lessig and Larry Tribe, respectively:

Elhauge asked a brilliant and devastatingly simple question of the Supreme Court's so-called "originalists." They simply ignored it. This beautiful book tells a story history won't forget.

Anyone who cares about the Supreme Court's approach to constitutional issues -- and especially about the claims of some Justices that they try to follow the Constitution's original meaning  – must read Einer Elhauge's devastating analysis of what all nine Justices, and the hundreds of advocates whose briefs and arguments they studied, simply failed to take into account when the Supreme Court decided the Health Care Case of 2012. No history of that decision will be complete unless it includes this brilliant and eminently readable little book -- a book that deserves to become an instant classic.

On-Line Social Security Statements

We explained here last May that the Social Security Administration (SSA) was no longer sending annual hard-copy statements to everyone who has paid into the system (and, instead, limiting annual statements to people approaching retirement age). But SSA was making everyone's social security information available on-line through a password-protected site. It's really quite good. Go here to sign up. There, you get . . .

• Estimates of the retirement and disability benefits you may receive;
• Estimates of benefits your family may get when you receive Social Security or die;
• A list of your lifetime earnings according to Social Security’s records;
• The estimated Social Security and Medicare taxes you’ve paid;
• Information about qualifying and signing up for Medicare;
• Things to consider for those age 55 and older who are thinking of retiring;
• General information about Social Security for everyone;
• The opportunity to apply online for retirement and disability benefits; and
• A printable version of your Social Security Statement.

You can also sign up to get an annual e-mail reminder to check your account -- the rough equivalent for those with on-line accounts of getting an annual statement in the mail (in one sense a little better because there's more info on-line than what's provided in the mailed notices). But there are at least two downsides to the on-line system: (1) you need to set up an on-line account and check it, which is not the same as getting something in the mail without lifting a finger; and (2) it's useless for people who don't use or have access to the Internet. (Another possible downside is that perhaps the system is not as secure as it should be.)