Consumer Law & Policy Blog

Justices Search for Limits on Preemption of Consumer Claims Based on Federal Transportation Deregulation Laws

Over at SCOTUSblog, I've got two posts up about Dan's City Used Cars v. Pelkey, an interesting preemption case that was argued before the U.S. Supreme Court this week. The case concerns whether transportation deregulation law preempts a suit under state consumer-protection law brought by a man whose car was towed away from his home by a used car dealer and sold to someone else. Read the case preview here, and the argument recap here.

Yet another loss for access to the courts and for class actions under the Federal Arbitration Act

by Brian Wolfman

The Second Circuit issued a decision yesterday enforcing arbitration in a Title VII employment discrimination case. It rejected an argument that requiring arbitration would undermine effective vindication of federal statutory rights.The decision is Parisi v. Goldman Sachs.

To simplify a bit, here's what happened: Three plaintiffs brought a putative employment discrimination class action against Goldman Sachs, saying that the company engaged in an ongoing "pattern and practice" of discrimination against certain types of female employees on the basis of sex. A pre-dispute arbitration agreement demanded that employment disputes be arbitrated. The agreement was silent as to class actions, but the Supreme Court has held that, generally, when an arbitration agreement is silent as to class actions, you can't pursue one -- even in arbitration. That's the Supreme Court's interpretation of the Federal Arbitration Act in the Stolt-Nielsen case.

But the district court refused to enforce the arbitration agreement here. It said that the plaintiffs wanted to pursue a "pattern and practice" theory of Title VII liability -- that is, they wanted to show that Goldman Sachs discriminates systematically --and that theory could only be vindicated through a class action. In other words, according to the district court, non-class arbitration would mean that the plaintiffs' federal statutory rights could not be vindicated effectively.

The Second Circuit reversed. It agreed that a "pattern and practice" suit can only be pursued through a class action. But an allegation of "pattern and practice" does not seek to vindicate a federal "right" under Title VII, the court said. Rather, it constitutes only a "method of proof" under Title VII. Therefore, the case would have to be pursued individually in a private arbitration. No "pattern and practice" case; no public trial; no binding precedents.

This decision is not surprising. It just underscores the reality. Employers big and small can insist on arbitration (typically, in take-it-or-leave-it contracts). And when they do, they not only escape court, but they escape ever having to face aggregate litigation over a dispute arising out of the employment relationship. And that's okay even when individual arbitration would effectively limit a key "method of proof" that federal law has recognized for years.

Bottom line: Employees are out of court, and they are on their own.

Will the CFPB Hold Banks Responsible for Their Contracting Parties?

by Jeff Sovern

The American Banker has an interesting article titled CFPB Focuses on Consumer Choice - or Lack Thereof which discusses the speech Director Cordray gave to the Consumer Advisory Board last month (Allison blogged about it here). Excerpt from the article follow:

[Cordray said] added, "When people cannot vote with their feet, their clout is limited, even though these products and services can have a profound influence on their lives."

"Without consumer choice, a key element of market discipline is lacking," Cordray said in the Feb. 20 speech. "The result is to permit or even facilitate a distinct indifference to the interests of individual consumers."

And what does the Bureau do with that fact?  Here's more:

Cordray's speech last month to the bureau's Consumer Advisory Board goes farther than earlier regulatory edicts. The remarks suggest that the relationship between a bank and a debt collector may be fundamentally unfair to the consumer, no matter how much due diligence the bank does on the debt collection firm.

"When a consumer does not pay back a debt, the creditor may decide to sell it to or contract with a debt collector to secure payment of what is still owed," Cordray noted.

"Once this occurs, the paying business relationship has shifted; it now lies between the debt collector and the creditor, not the consumer and the creditor. This can lead to mistreatment of the consumer, who becomes, in effect, a kind of 'bystander' to the new business relationship. In this situation, creditors may have little reason to ensure that debt collectors treat consumers fairly and appropriately or that they maintain and use accurate information."

Cordray also listed mortgage servicing, student loan servicing, and credit reporting as examples of industries where the interests of consumers can become largely incidental.

"From the perspective of the credit reporting firm and its clients," he said, "inaccurate reports may be no more than a statistic or an error rate. But for individual consumers whose reports are incorrect, the damage done to their lives can be severe and lasting."

So, to repeat, where does the Bureau go with this?  Toward increased regulation of the entites that don't contract with consumers?  In that case, why mention the banks?  Or to holding banks responsible?  We will see.

"Snake Oil Salesmen or Purveyors of Knowledge: Off-Label Promotions and the Commercial Speech Doctrine"

That's the title of this article by Constance Bagley, Joshua Mitts, and Richard Tinsley. The article deals with concerns about last year's Caronia decision, where the Second Circuit ditched the misdemeanor conviction of a drug company prescription drug representative, saying that his promotion of one of the company's products was protected by the First Amendment. (Go here for more info on Caronia.) Here's the abstract:

The Second Circuit's December 2012 decision in United States v. Caronia striking down the prohibition on off-label marketing of pharmaceutical drugs has profound implications for economic regulation in general, calling into question the constitutionality of restrictions on the offer and sale of securities under the Securities Act of 1933, the solicitation of shareholder proxies and periodic reporting under the Securities Exchange Act of 1934, mandatory labels on food, tobacco, and pesticides, and a wide range of privacy protections. In this Article we suggest that Caronia misconstrues the Court's holding in Sorrell v. IMS Health, which was motivated by concerns of favoring one industry participant over another rather than a desire to return to the anti-regulator fervor of the Lochner era. Reexamining the theoretical justification for limiting truthful commercial speech shows that a more nuanced approach to regulating off-label marketing with the purpose of promoting public health and safety would pass constitutional muster. We argue that as long as the government has a rational basis for subjecting a particular industry to limits on commercial speech intended to further a legitimate public interest rather than unfounded paternalism and does not discriminate against disfavored industry participants, those limits should be subject to intermediate scrutiny under the Central Hudson standard. Finally, we critique the FDA’s 2011 Draft Guidance for Responding to Unsolicited Requests for Off-Label Information and present a proposal for new rules for regulating the off-label marketing of pharmaceutical drugs based on transparency, the sophistication of the listener and the type of information offered, and the requirement that the pharmaceutical company comply with ongoing duties of training, monitoring, reporting, and auditing.

Using the corporate fine print of debit card contracts to zing public-transit riders (and, in turn, to generate non-fare revenue fees for cash-strapped government agencies)

by Theresa Amato (guest post)

Reporter Jon Hilkevitch’s March 20 front-page Chicago Tribune story (“CTA’s Ventra debit option rife with fees, Contract’s fine print shows good deal for agency, not users”) describes the multiple unexpected charges awaiting customers in the fine print should they sign up for a prepaid debit card account along with their new “Ventra” fare card that the Chicago Transit Authority (CTA) and Pace bus system plan to roll out this summer. 

The terms of this first-in-the-nation transit-plus-optional-debit-card payment system are detailed in a 1000-page plus contract. The contract allows the CTA to get from participating corporate vendors “nonfare revenue generated by the debit card fees” extracted from CTA's consumers who opt for the debit card. Undoubtedly, many of the consumers will be unaware of the fees. These debit card fees potentially include, in addition to an ATM fee, a $2 paper statement, if requested, a $2 fee for a call to an “operator-assisted” customer service center, and then $10 per hour for an “Account Research Fee,” a $5-a-month “dormancy fee” after 18 months of no purchases or transfers, a $2.95 Internet “reload fee,” a $6 “balance refund fee,” and much more.   

The CTA defends the card as “voluntary” and competitive (go here), claiming both that the fees are lower than some other similar debit card fees and that the new CTA card is a benefit to low-income riders who do not have a bank and “don’t own a credit or debit card.” 

Anyone else find disturbing this use of a government agency and public transportation system to issue fare cards marketed in conjunction with debit cards that have the potential to gouge consumers through corporate fine-print practices? 

Loyola Consumer Law Review Symposium on Debt Collection in the Modern Economy

The Symposium is in Chicago on Friday, April 5, 2013.  Looks to be very interesting.  More information here.

The FDA has given up the legal fight to defend its graphic cigargette labels

by Brian Wolfman

As explained in this article by Brady Dennis, the Department of Justice and the FDA have acquiesced in the D.C. Circuit's ruling striking down the FDA's new graphic cigarette labels on First Amendment grounds and announced that the government will not seek Supreme Court review of the D.C. Circuit's ruling. The Sixth Circuit had taken a different view, but it appears that the government thought its chances were slim before the Supreme Court.

 

Dennis explains:

Facing a deadline to appeal to the Supreme Court, the Justice Department declined, Attorney General Eric H. Holder Jr. said in a letter to House Speaker John A. Boehner (R-Ohio) dated March 15. “In these circumstances, the Solicitor General has determined, after consultation with [the Department of Health and Human Services] and FDA, not to seek Supreme Court review of the First Amendment issues at the present time,” the letter said. ... Dozens of countries already require graphic warning labels similar to those proposed by the FDA, and a survey by the World Health Organization found that they were more effective than text-only labels in deterring smoking.

One of the FDA's 9 graphic warnings appears above. Here are the other 8:

  

Automotive News Survey Finds Many Dealers Expect CFPB to Bar Use of Arbitration Clauses

Here.  An excerpt:

* * * Nearly 40 percent of dealers responding to a recent unscientific Automotive News survey also expressed concern that they soon will lose  the arbitration option.

"I think arbitration is on its last legs," said Tom Hudson, a partner in the  Hudson Cook law firm in Hanover, Md., who predicts the bureau could issue such a  ruling before year end.

Senate Banking Committee Approves Cordray Nomination 12-10

Now it goes to the floor, again, where Republicans are expected to prevent it from ever getting to a vote. The Washington Post has the story here. 

Debate On the CFPB's Constitutionality at Georgetown Law

For those of you in Washington: Tomorrow afternoon at Georgetown Law, I'll be at debating C. Boyden Gray on the constitutionality of the CFPB and Rich Cordray's recess appointment. Here's the announcement:

The Consumer Law Society, The Federalist Society, and The Georgetown Center for the Constitution present:

The Constitutional Challenge to the Consumer Financial Protection Bureau: A Debate

Thursday, March 21, 2013 at 3:30 p.m.

Gewirz Student Center, Twelfth Floor

Speakers:

C. Boyden Gray

Founding Partner, Boyden Gray & Associates LLP

Deepak Gupta, ‘02

Founding Principal, Gupta Beck PLLC

Moderated by:

John D. Ohlendorf

Fellow, Georgetown Center for the Constitution

Does the Consumer Financial Protection Bureau violate the Separation of Powers doctrine?  What are the implications of the D.C. Circuit’s recess appointments decision in Noel Canning for the actions already taken by the Consumer Financial Protection Bureau?

Please join us for a debate between C. Boyden Gray, former White House Counsel to George H.W. Bush, and counsel for the plaintiffs in National Bank of Big Spring v. Geithner – a constitutional challenge to several parts of Dodd-Frank, including the CFPB and the appointment of Richard Cordray as the CFPB’s director – and Deepak Gupta, prominent consumer law attorney, Supreme Court advocate, and Adjunct Professor at Georgetown Law.