Consumer Law & Policy Blog

FTC Opposes Proposed Tennessee Lawyer Advertising Rules

Yesterday, Scott Michelman posted on Public Citizen's opposition to proposed Tennessee lawyer advertising rules that would undermine consumer choice and competition in the legal services market. Citing similar concerns, the FTC has also opposed the proposed rules, as explained here. UPDATE: Read the FTC's press release and comments on the proposed rules.

The CFPB and the Recess Appointment: De Facto Officer Doctrine to the Rescue?

by Deepak Gupta

There are some important counterpoints to the wild predictions I'm already hearing from industry lawyers about the effect of today's D.C. Circuit's decision invalidating the NLRB recess appointments.

First, because the decision openly creates a circuit split with an Eleventh Circuit decision upholding George W. Bush's recess appointment of Judge Pryor and because of its tremendous importance for the separation of powers, the Supreme Court is likely to review the decision if the Justice Department files a cert petition. The need for the Court to step in is heightened by the sweeping nature of the decision, which goes well beyond the controversy over "pro forma" sessions and invalidates nearly two centuries of settled practice. (Indeed, the decision's unnecessary reading of the word "happen" to preclude appointments for vacancies that pre-exist the recess conflicts with the Eleventh, as well as the Ninth and Second Circuits.) There's also the possibility that the Justice Department will first seek en banc review.

Second, because the banking industry -- despite what it says -- fears chaos and regulatory uncertainty more than anything else, there will be pressure on the Senate to reach a deal and confirm Rich Cordray. 

Third, even assuming the decision on the NLRB appointments is ultimately upheld and that Rich Cordray's CFPB recess appointment is likewise unconstitutional, that doesn't necessarily mean that everything the Bureau has done under Cordray would be wiped out. A longstanding legal doctrine known as the "de facto officer doctrine" is designed to avoid the sort of needless chaos that would otherwise result from a ruling like today's. The de facto officer doctrine confers validity upon acts performed by a person acting under the color of official title even though it is later discovered that the legality of that person’s appointment or election to office is deficient. Although its roots are old and somewhat murky, the Supreme Court recognized the doctrine as recently as 1995. See Ryder v. United States, 515 U.S. 177 (1995).

As the Court explained in Ryder, the doctrine “springs from the fear of the chaos that would result from multiple and repetitious suits challenging every action taken by every official whose claim to office could be open to question, and seeks to protect the public by insuring the orderly functioning of the government despite technical defects in title to office.” 

In my view, the de facto officer doctrine may be successfully invoked to protect many of the Bureau's actions, including regulatory and supervisory actions.  Notably, this doctrine was applied to protect from legal challenge actions taken by an improperly-appointed Director of the Office of Thrift Supervision. See, e.g., Office of Thrift Supervision v. Paul, 985 F. Supp. 1465, 1475 (S.D. Fla. 1997); Franklin v. Sav. Ass’n v. Director of Office of Thrift Supervision, 740 F. Supp. 1535, 1542, 1542 (D. Kan. 1990). Ryder, however, provides an exception to the doctrine when “one makes a timely challenge to the appointment of an officer who adjudicates his case.” 515 U.S. at 181. Thus, the de facto officer doctrine might not be available if objections to Bureau authority are raised in the course of a pending adjudication, but could operate to insulate a finalized rulemaking, for example. 

D.C. Circuit strikes down last year's recess appointments; serious implications for CFPB

This post picks up from Allison's earlier post to add more details.

As Allison noted, the U.S. Court of Appeals for the D.C. Circuit, ruling today in Noel Canning v. NLRB, held that President Obama's recess appointments of three NLRB commissioners in January 2012 were invalid because the Senate was not in a constitutionally-required "Recess." The three-judge panel, which consisted of all Republican appointees, focused its reasoning on text and history in ruling that a functional break in Senate business -- during which only pro forma sessions are held -- does not trigger the President's constitutional power to fill vacancies, which arises only during a formal "Recess" of the Senate. The court went on to restrict the recess appointment power further, holding that it extends only to positions that become vacant during the "Recess," not to vacancies that existed prior to the "Recess," even if the vacancies arose during a prior "Recess."

CFPB head Richard Cordray, whom President Obama plans to renominate, was appointed at the same time as the commissioners whose appointments this decision invalidates, so as we've noted, this ruling -- if it stands -- has serious implications for the CFPB and its actions in the past year. The government may seek review of the decision before the full D.C. Circuit or seek review by the Supreme Court. Given the significant implications of this case for the functioning of federal agencies, as well as the explicit circuit conflict on this issue (today's opinion notes that it conflicts with a decision of the Eleventh Circuit, Evans v. Stephens, 387 F.3d 1220, 1224 (11th Cir. 2004)), this case would seem a good candidate for Supreme Court review.

Breaking news - DC Circuit decision on recess appointments

The US Court of Appeals for the DC Circuit held this morning that the Constitution permits “recess appointments” only during the Recess between Sessions of Congress and only for positions that become vacant during the Recess. The opinion conflicts with a 2004 decision of the Eleventh Circuit. The DC case arises from a challenge to a decision of the National Labor Relations Board, when three of the Board’s five members were appointed during “a recess.” But it has implications as well for the recess appointment of Richard Cordray, the director of the Consumer Financial Protection Bureau. (See prior posts here and here.)

Bank agrees to stop making payday loans in North Carolina

Alabama-based bank Regions Financial Corp. has agreed to stop offering payday loans in North Carolina. Although North Carolina has banned payday loan shops or Internet services, federal law allows a bank to make those loans if allowed in the bank’s home state. This article from the Charlotte Post has the details.

Payday loans are made at very high interest rates for very short terms. The Center for Responsible Lending defines payday loans this way: “Banks make payday loans by depositing money into a customer’s checking account.  The bank then automatically repays itself in full by deducting the loan amount, plus fees, from the account when the customer’s next direct deposit paycheck or other benefits income comes into the account.  The average annual percentage rate (APR) based on a typical loan term of 10 days is 365% APR.” More information on payday loans, including how they can be harmful to consumers. is available on the Center’s website.

How regulation of attorney advertising can distort the market and hurt consumers

Public Citizen is filing comments tomorrow with the Tennessee Supreme Court opposing proposed rule changes to the legal ethics rules there governing attorney advertising. The current rules already prohibit false and misleading advertising; the proposals would go much further and ban a host of specific advertising techniques, including the use of celebrities, the use of recorded sounds, and even specific types of statements, including truthful statements about an attorney's own record.

At first glance, attorney advertising may look like something consumer advocates should want to regulate as much as possible because of the danger that unscrupulous lawyers could mislead unsuspecting clients. But there needs to be a balance. Though ads can manipulate and mislead, they can also inform people of their rights. Additionally, restrictions on advertising can shut smaller or newer providers out of the market by diminishing the effectiveness of their message. The result is less competition in the market for legal services. Bar rules that prohibit false and misleading content specifically are one thing. But restrictions on sounds, celebrities and the conveyance of truthful information or opinion are something else: they reach ads that aren't misleading at all and in fact seem to be aimed not at sneaky advertising techniques but effective ones.

Compounding the fear that this particular proposal in Tennessee is motivated by something other than consumer protection is a provision in the proposed rules that would ban advertising completely by lawyers without offices in Tennessee -- such as a lawyer with a multi-state practice whose office is located in the Arkansas or Mississippi suburbs of Memphis. Why should the bar want to ban such advertising? The proposal comes right out and admits the goal is economic protectionism: the proponents tout the out-of-state ban because it "prevents out-of-state attorneys from taking business out of Tennessee." (Public Citizen's comments oppose the new rules for this reason as well as the First Amendment.)

Ultimately, the market will work best for consumers if they have more options to choose from and more information with which to make that choice. When advertising restrictions go beyond false and misleading communications and start cutting into truthful information and advancing efforts to stifle competition, the result is bad for consumers.

NAACP Amicus Opposition to NYC Soft Drink Rules -- Bought and Paid-for?

by Paul Alan Levy

The Times reports that the NAACP filed an amicus brief supporting the soft-drink industry in its opposition to the New York City rules barring super-sized sugary drinks.  It is surely not a coincidence that the NAACP gets donations from Coke, as does its New York State Conference, which filed the brief).  Even worse, NAACP had the poor judgment to let Coke's own law firm, King & Spaulding, write the amicus brief.

Yuck.

WaPo Reports Obama to Re-Nominate Cordray to Head CFPB

by Jeff Sovern

Here.  I have seen reports that Cordray might seek the Ohio governorship, even that he might leave the CFPB directorship before his recess appointment expires at the end of this year to that end, but perhaps this indicates that he will stay at the Bureau.  I wonder if this is a pro forma thing or whether it means that the president thinks something may have changed or will change in the Senate--perhaps a change in the fillibuster rules?--that will enable the Senate to vote on Cordray's confirmation.

Differential Employer-Sponsored Health Insurance Costs Based on "Health Management"

That's the topic of this Market Watch article by Jan Wieczner. Here's an excerpt:

Car insurance companies reward good behavior: Drivers with records free of 15-car pileups and tickets for doing 90 in a 55 pay cheaper premiums. Health insurers, on the other hand, offer people little incentive to stay out of harm’s (and doctor’s) way. But a growing number of health advocates say this is a mistake, and that the system would function better if bodies were treated more like Buicks. * * * Some Fortune 500 companies and other employers — from JetBlue to IBM to equipment manufacturer Caterpillar — have begun to experiment with new health-care models that allow employees to keep some of the money they don’t spend on health care, or that reward or penalize them based on how well they manage their health. Many of these plans more closely resemble auto insurance — with healthier employees effectively paying less than colleagues who are at greater risk for developing diseases related to smoking or obesity. For example, 38% of companies planned to charge higher premiums or deductibles in 2012 to employees who smoked, had high cholesterol levels, did not actively treat a chronic condition like diabetes or high blood pressure or failed on other health measures, according to Towers Watson — the same way people with speeding tickets pay higher auto insurance rates to compensate the plan for their greater risk of car damage.

Hmmm. I wonder whether in the end a supposed focus on health management would really mean little else than sick people pay more.

The in-and-outs of the CFPB

Georgetown law professor Adam Levitin has just written this 34-page article on the history, structure, powers, and politics of the Consumer Financial Protection Bureau. Here is Levitin's introduction:

In the wake of the financial crisis of 2008, Congress undertook a major overhaul of financial regulation, culminating in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Dodd-Frank Act covers an incredibly wide range of financial regulatory issues, from systemic risk to debit card swipe fee regulation, but perhaps the most important and certainly most immediately tangible reform was the creation of the Consumer Financial Protection Bureau (“CFPB”). The CFPB is an independent bureau housed within the Board of Governors of the Federal Reserve (the “Fed”), itself an independent regulatory agency. The CFPB has a wide regulatory ambit with rulemaking, supervision, and enforcement authority over nearly all firms involved in consumer financial services, irrespective of their particular legal form. While there has been a great deal of journalistic coverage of the CFPB, there is no single overview work on this powerful new agency. This brief Article is meant to provide a brief legal and political overview of the CFPB, covering its history, structure, powers, and ongoing politics.