Consumer Law & Policy Blog

The FDA is looking into caffeine regulation because it's not just coffee and coke anymore

by Brian Wolfman

As you may have read, the FDA is beginning to look into possible regulation of caffeine when used as an additive to foods and drinks, including foods and drinks marketed to kids. How about some caffeine with your marshmellows or nuts? Yes, indeed, these foods sometimes have caffeine thrown in. Read this interview with FDA Deputy Commissioner Michael Taylor about the FDA's first steps in this area. Here's an excerpt from a couple of Taylor's answers:

The [Wrigley's] gum [with a half a cup of coffee's worth of caffeine in each stick] is just one more unfortunate example of the trend to add caffeine to food. Our concern is about caffeine appearing in a range of new products, including ones that may be attractive and readily available to children and adolescents, without careful consideration of their cumulative impact. One pack of this gum is like having four cups of coffee in your pocket. Caffeine is even being added to jelly beans, marshmallows, sunflower seeds and other snacks for its stimulant effect. ... We have to address the fundamental question of the potential consequences of all these caffeinated products in the food supply to children and to some adults who may be at risk from excess caffeine consumption. We need to better understand caffeine consumption and use patterns and determine what is a safe level for total consumption of caffeine. Importantly, we need to address the types of products that are appropriate for the addition of caffeine, especially considering the potential for consumption by young children and adolescents.

Surprise--A study finds the Supreme Court is friendly to business.

Sunday's New York Times has a nice article discussing a recent study prepared by Lee Epstein, who teaches law and political science at the University of Southern California; William M. Landes, an economist at the University of Chicago; and Judge Richard A. Posner, of the federal appeals court in Chicago, who teaches law at the University of Chicago. Published in the Minnesota Law Review, the study finds that the Robert's Court is far friendlier to business than those of any court since at least World War II. I don't think this will come as a surprise to many consumer lawyers or professors.

 

American Banker: Payday Lenders Lash Out at CFPB

Brian posted in April on the CFPB's White Paper on payday lending. Payday lenders have fired back, as the American Banker reports here.

Pat McCoy on Barriers to Foreclosure Prevention

Patricia A. McCoy of Connecticut has written Barriers to Foreclosure Prevention During the Financial Crisis, forthcoming in 55 Arizona Law Review. Here's the abstract:

The number of modifications to distressed residential loans has been subpar to date compared to the number of foreclosures. This raises concerns about the presence of artificial barriers to loan modifications in situations where foreclosure should be avoidable. Numerous theories have been advanced for the relatively low level of modifications, including restrictions on loan modifications in private-label servicing agreements, threats of lawsuits by private-label investors, servicer compensation arrangements, the high cost of loss mitigation, accounting rules, junior liens, and tax considerations. This Article concludes that servicer compensation coupled with the costly nature of loan workouts, accounting standards and junior liens form the biggest impediments to an efficient level of loan modifications. These factors also distort the mix of loan modifications that are made toward types of modifications with higher redefault rates. Other explanations, such as servicing agreement restrictions, tax consequences, and the threat of lawsuits, either are not at play or are of second order importance.

Norm Silber and Joseph Sanderson in HuffPo Argue That Guns Should be Regulated as Consumer Products

Here. 

Fourth Circuit issues useful Freedom of Information Act decision

Many of our readers are interested in using and benefitting from federal and state freedom of information laws. With that in mind, you may want to read the Fourth Circuit's recent decision in Coleman v. DEA, which has a buch of good things to say about two federal FOIA topics: exhaustion of administrative remedies and the obligation (or not) to pay fees for processing a FOIA request and copying responsive documents.

A good deal for Facebook, a bad deal for privacy and for kids

Today Public Citizen filed objections to the proposed class action settlement in Fraley v. Facebook, which concerns Facebook's practice of using the images of their millions of users, without their knowledge or consent, to sell advertising. Specifically, through Facebook's "Sponsored Stories" program, whenever a user clicks the “Like” button, Facebook may use that interaction to create an advertisement that is then broadcast that user’s “Friends” on Facebook –- effectively turning every user into a potential spokesperson on behalf of one of Facebook’s advertisers. Minors are not exempt from the program, even though several state laws prohibit the use of a minor's likeness without parental consent.

In early 2011, the class action complaint was filed (here's the amended complaint) seeking damages under California law for Facebook's practice. Facebook's motion to dismiss based on standing and various other grounds was denied. So far, so good.

But now the plaintiff class and Facebook have proposed to settle the case on terms that are great for Facebook and pretty weak for the 70-million-plus estimated members of the class. Facebook has promised to pay $10 per class member -- a paltry amount as compared with the $750 statutory damages plaintiffs could recover if successful -- and even the $10 payment is unlikely to reach class members because if more than 2% of the class members make claims, the settlement fund does not contain enough money to pay all claims. Meanwhile, the plaintiffs' lawyers stand to receive $7.5 million. Facebook has also promised to create a mechanism for users to opt out of Sponsored Stories, but the opt-out right is limited in key respects -- for instance, it does not appear that users will have the ability to opt-out of all Sponsored Stories on a categorical basis -- and Facebook has agreed to abide by opt-out preferences for only two years. Worst of all, the settlement allows Facebook, in violation of numerous state laws, to continue to use minors’ likenesses without their parents’ consent.

We filed our objections on behalf of several parents and their children, aged 13 to 16, from around the country. The district court will hold a settlement approval hearing on June 28.

Why a Longstanding Legal Doctrine Supports Limiting Bank Overdraft Fees

Over the past decade, overdraft fees and abuses have spiraled out of control, snaring millions of consumers while generating billions in profits for banks. In 2011, consumers paid $29.5 billion in overdraft fees.

A new white paper by the National Consumer Law Center explores why overdraft fees should be subject to a “reasonable and proportional" standard, how overdraft fees are currently excessive and unreasonable, and why the ability to charge excessive overdraft fees encourages banks to engage in abusive practices to maximize overdrafts.  The white paper also describes how excessive overdraft fees are contrary to a centuries-old legal doctrine that prohibits punitive damage clauses in contracts. 

 The Consumer Financial Protection Bureau (CFPB) has legal avenues to restore the standard of “reasonableness” to overdraft fees. One venue is through the Credit Card Accountability, Responsibility, and Disclosures (CARD) Act of 2009, by treating debit cards as “credit cards” for which penalty fees must be “reasonable and proportional.”  Another avenue for the CFPB is to use its authority to prevent unfair, deceptive, or abusive practices.

Download a three-page issue brief with key points and solutions:
Common Sense from the Common Law: Why a Longstanding Legal Doctrine Supports Limiting Bank Overdraft Fees to a “Reasonable and Proportional” Standard at:
http://www.nclc.org/images/pdf/high_cost_small_loans/ib-common-sense-common-law.pdf

Download the white paper at:
http://www.nclc.org/images/pdf/high_cost_small_loans/common-law-overdraft-fees.pdf

American Banker: How to CFPB-Proof New Financial Products

by Jeff Sovern

Here (behind a paywall, unfortunately). But here's the part that's not behind the paywall:

To avoid unwanted scrutiny from the Consumer Financial Protection Bureau and other regulators, banks need to start thinking about "what is fair, not just what is legal," banking attorneys say.

And isn't that one of the reasons we needed a CFPB?  Because lenders ignored what is fair? 

One point that the article makes is that disclosures don't save an objectionable product, especially if they're confusing.  That's the direction the FTC has been going in with privacy, but it seems a (welcome) departure from the idea of the duty to read.  The article also claims that the Bureau believes that if products generate enormous profits, they had better generate similarly large benefits for consumers.

The article also notes that the Bureau has not defined what it considers unfair, deceptive or abusive practices ("UDAAP") beyond the statutory definitions.  I can understand why lenders would want the Bureau to do so, because that would enable them to predict when they might fall afoul of those rules.  On the other hand, such a definition might hem the Bureau in too much at a time when it is still finding its way in this area.  My own opinion is that the Bureau should resist calls to offer greater specificity about how it will use its UDAAP powers until it is more experienced.  It would be unfortunate if the Bureau said it would not use its powers to prohibit certain conduct, and then lenders found a way to engage in that conduct inappropriately. 

I don't want to summarize the whole piece, but it's definitely worth a look.

Should parties be able to settle a class action that cannot be litigated as a class action?

Law professor Howard Erichson says no in his new article "The Problem of Settlement Class Actions." Here is the abstract:

This article argues that class actions should never be certified solely for purposes of settlement. Contrary to the widespread “settlement class action” practice that has emerged in recent decades, contrary to current case law permitting settlement class certification, and contrary to recent proposals that would extend and facilitate settlement class actions, this article contends that settlement class actions are ill-advised as a matter of litigation policy and illegitimate as a matter of judicial authority. This is not to say that disputes should not be resolved on a classwide basis, or that class actions should not be resolved by negotiated resolutions. Rather, this article contends that if a dispute is to be resolved on a classwide basis, then the resolution should occur after a court has found the matter suitable for classwide adjudication regardless of settlement.