Consumer Law & Policy Blog

Victory in Second Circuit for people with reading disabilities

Last summer, we told you about my office's amicus brief in the Second Circuit on behalf of 15 leading national disability rights organizations and academic researchers. The case is Authors Guild, Inc. v. Hathitrust, No. 12-4547, and the brief urged the court of appeals to uphold a district court ruling that the HathiTrust's effort to make university library collections accessible to people with print disabilities constituted a non-infringing fair use under copyright law. The brief detailed the efforts of people with disabilities and the federal government to make copyrighted works accessible and describes the role of fair use in harmonizing disability rights law, copyright law, and the Progress Clause of the Constitution. This morning, the Second Circuit affirmed.

Thrown Out of Court--How corporations became people you can't sue

That's the title of this article about binding consumer arbitration by Lina Khan, a reporter and policy analyst with the Markets, Enterprise and Resiliency Initiative at the New America Foundation. I was alerted to this article by arbitration expert Paul Bland at Public Justice. Paul called it "one of the best pieces of journalism ever on forced arbitration."

President Obama takes executive action on student-loan debt and urges Congress to do more

Here's what the White House says about the President's action yesterday on student loans:

More students than ever before are relying on student loans to pay for their college education. 71 percent of students earning a bachelor's degree graduate with debt, averaging $29,400. While most students are able to repay their loans, many feel burdened by debt, especially as they seek to start a family, buy a home, launch a business, or save for retirement. ... [Yesterday,] the President signed a memorandum directing the Secretary of Education to propose regulations that would allow nearly 5 million federal direct student loan borrowers the opportunity to cap their student loan payments at 10 percent of their income. The memorandum also outlines new executive actions to support federal student loan borrowers, especially vulnerable borrowers who may be at greater risk of defaulting on their loans. But in his remarks at the signing, the President made clear that Congress needs to take action as well, saying that today's executive action will "make progress, but not enough." He brought up the bill written by Sen. Elizabeth Warren that would allow students to refinance their student loans at today's lower interest rates, noting that "it pays for itself by closing loopholes that allow some millionaires to pay a lower tax rate than middle-class families."

For more info on the White House plan, go here.

Ready for Bullying?

by Paul Alan Levy

Last week, the pre-campaign PAC promoting Hillary Clinton's presidential candidacy, Ready for Hillary, demanded that both Zazzle and CafePress, the rival print-to-order companies that designers use to fill orders for Tshirts and other paraphernalia displaying their designs, stop selling material displaying the following design:

The design, created by Liberty Maniac’s Dan McCall, whose clever parodies of the National Security Agency produced controversial takedowns last year that culminated in an apology from the NSA, is an obvious parody of Ready for Hillary’s own design, playing off the concern that the next presidential election may feature major-party candidates from relatives of former presidents (Bushes and Clintons), as well as a recent study by Martin Gilens and Benjamin Page suggesting that policy-making is increasingly dominated by “powerful business organizations and a small number of affluent Americans.” In a letter to Ready for Hillary this afternoon, we have given the PAC a short deadline to rescind its takedown demand to avoid the need for a lawsuit for a declaratory judgment.

Should business trade associations have tax-exempt status (as they currently do)?

That's the question discussed in Taxing the Unheavenly Chorus: Why Section 501(c)(6) Trade Associations are Undeserving of Tax Exemption by law professor Philip Hackney. Here is the abstract:

Our federal, state, and local governments provide a subsidy that enhances the political voice of business interests. This article discusses the federal subsidy for business interests provided through the Internal Revenue Code (“Code”) and argues why we should end that subsidy. Under the same section that provides exemption from income tax for charitable organizations, the Code also exempts nonprofit organizations classified as “business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues.” Theory supporting tax exemption states that we should subsidize nonprofit organizations that provide goods or services that are undersupplied by the market. A charitable organization that assists the poor is a classic example of a service undersupplied by the market. Business interest group services, however, are found in abundance. Data shows that there is a significant bias in the interest group system in favor of business interests and away from interests such as labor, the poor, and the environment. Tax-exemption at federal, state, and local levels likely fosters at least some of this bias in our democracy. Rather than enhancing a pluralistic society, as some argue is a prime benefit of our tax-exempt system, tax-exemption for business interest groups enhances the voice of the powerful and detracts from the voice of the weak. Thus, because business interests experience little in the way of market failure and tax-exemption for such groups likely leads to a bias in our democratic system I argue we should end exemption for nonprofit business interests.

Has the Stanford Law Review Forgotten About Consumer Protection?

by Jeff Sovern

A lot has happened in consumer law in the last half-dozen years:  To name only some of the highlights. consumer protection failures contributed to the Great Recession; Congress passed the Credit CARD Act in 2009 and the Dodd-Frank Act in 2010; Congress created the Consumer Financial Protection Bureau, which has in turn promulgated plenty of regulations and brought enforcement actions; words like robo-signing and foreclosure crisis entered the language; and alternative credit scores seem poised to take off, if they have not already done so. Consumer law has often been on the front pages of the newspapers in recent years.  But not, it seems, in the Stanford Law Review, one of the elite law reviews in this country.

Consumer law professors have long bemoaned the failure of elite law reviews to give our subject the attention we think it merits. We are not unique in this; law professors in many disciplines complain that elite law reviews devote disproportionate attention to subjects like constitutional and criminal law, with the result that professors in those areas have more impressive resumes than we do. So I decided to test that proposition. I asked a research assistant, Eric Levine, to look at the issues of two elite journals published from 2007-2013 to count up the number of pieces that are predominantly consumer law pieces. One was the Stanford Law Review   He came up with only three consumer law pieces, all professional articles: one by Nora Freeman Engstrom on attorney advertising; another by Omri Ben-Shahar on unfair contracts; and the last by Kenneth Bamberger & Deirdre Mulligan on privacy, collectively representing about 2% of all the Stanford law Review's professional pieces during that period (I should note that Eric's list may not be complete; I haven't had time to check the Stanford Law Review myself. But he would have to have omitted many consumer law pieces to make the number of consumer law articles as high as it should be given what has happened in the field. In any event, I hope that readers who know of other Stanford consumer law pieces will so note in the comments below)

Why so few in a time of such turmoil in the subject?  It's hard to know. But here is a possible factor: regular readers of the blog will recall that I had another research assistant, Preston Postlethwaite, check law school web sites to see which schools are offering a consumer law course during the 2013-2014 school year. I later posted the list on the blog twice and solicited the names of additional schools teaching consumer law. As best I have been able to tell, Stanford did not offer the course this year. It's possible that is incorrect; if the course was offered at Stanford but no one wrote in to tell us, Stanford could have been wrongly omitted from the list. And just because Stanford didn't teach the course this year doesn't mean it didn't during the period Eric looked at.  But if Stanford didn't, it is possbile that the failure of Stanford Law to offer a consumer protection course has led law review editors to conclude that articles on consumer law didn't warrant publication.  It is interesting also to see that Stanford seemingly did not publish any student consumer law pieces during the years Eric looked at.

This contrasts with the Harvard Law Review, the other law review Eric checked.  Harvard teaches both a basic course in consumer law and a clinic. From 2007-2013, the Harvard Law Review published 16 pieces on consumer law.The nine professional pieces it published during that period represented 8% of the professional articles it printed. 

So, assuming Eric's research is correct, we have major changes in an important field of law apparently overlooked by a leading journal in the field.  

Austin's Empirical Study of Student Loan Debt in Bankruptcy

Daniel A. Austin of Northeastern has written Student Loan Debt in Bankruptcy: An Empirical Assessment, forthcoming in the Suffolk Law Review. Here's the abstract:

Education loan debt in the U.S. recently reached $1.2 trillion. Thirty-nine million Americans -- nearly 20% of U.S. households -- owe student loans, and student loans are by far the fastest growing component of non-housing consumer debt. For example, in fourth quarter 2013, U.S. households incurred $82 billion in debt (exclusive of housing debt), a 3.3% increase from the previous quarter. Of this amount, $53 billion (65%) was student loan debt. In contrast, auto loans and credit card debt accounted for only $29 billion. 

Student loan debt is also a rapidly increasing element in consumer bankruptcy. This study examines the growth of student loan debt in consumer bankruptcy cases filed each year from 2005 to 2013. In this study I obtain data from 500 randomly-selected cases per year to calculate values such as annual percentage of filers with student loan debt, average annual amount of student loan debt, and student loan debt as a percentage of debtor income and percentage of total unsecured debt. Among the findings of this study, the percentage of debtors with student loan debt increased from 15.7% in 2005 to 22.3% in 2013, while the average student loan debt load for such debtors more than doubled from $15,350 to $32,096 during the same period. As these and other numbers reported in this study show, student loan debt is a rapidly increasing component of consumer bankruptcy.

New lawsuit by payday lending industry challenges "Operation Choke Point"

by Deepak Gupta

The payday lenders' main trade association, the Community Financial Services Association, brought an unusual lawsuit this week against three federal regulators -- the Fed, the FDIC, and the OCC -- in an effort to challenge a controversial federal initiative known as "Operation Choke Point." The case was filed in federal district court in Washington, DC.

At the heart of the industry's suit is a grievance that has been surfacing regularly among Republicans on the Hill of late: that the federal bank regulators are, in their view, unfairly using "coercive regulatory pressure" to get banks and other regulated financial institutions to end their relationships with payday lenders.

Here's how the complaint -- which you can read here -- puts it:

The Defendant agencies, under the guise of protecting the safety and soundness of banks, are waging a covert war against certain legitimate businesses that rely on banking services to function. What started as a set of diffuse sorties has now coalesced into a coordinated campaign, known as “Operation Choke Point,” designed by the Defendant agencies and the DOJ to eliminate certain lawful businesses that they disfavor, by using their regulatory and enforcement authorities to quietly coerce banks to terminate their relationships with the disfavored businesses.

The plaintiffs -- CFSA and a leading payday lender known as Advance America -- are represented by conservative superlawyer Chuck Cooper of Cooper & Kirk, who is best known for his unsuccessful defense of the California anti-same-sex marriage initiative, Proposition 8.  Legally speaking, the complaint alleges twelve different claims and appears to rely on at least four distinct theories: that the agencies' actions exceed their statutory authority, are arbitrary and capricious, were promulgated without observance of the procedures required by law, and deprive the plaintiffs of liberty interests without due process of law.

In essence, the payday lenders' beef is that banks have been threatened with greater regulatory scrutiny and reputational risk, through supervisory examinations and enforcement investigations, if they continue their relationships with payday lenders.

The payday lenders may have many reasons for bringing this suit -- including drawing attention to their plight and getting more traction with their friends on Capitol Hill -- but I fail to see how this thing flies in in court. On the facts, it's doubtful the banks will come forward and substantiate any of this. And even if they did, are the payday lenders challenging anything other than non-final, purely discretionary decisions about how these federal agencies deploy their supervisory and investigatory resources against third parties?  That's like suing a prosecutor because you don't like the investigations they're bringing.

Even setting all that aside, the truth is payday lending actually does entail serious risk to consumers that could threaten the banks themselves--a legitimate concern for any responsible regulator. It's interesting that neither the CFPB nor the Justice Department (or their top officials) were named as defendants. I wonder why.

Semi-literate Bullying from Santy Integrated over Its Use of Unpaid Interns

by Paul Alan Levy

Michael Chichester, an Arizonan who does social media promotion on a contract basis for various firms, was annoyed when he saw an announcement from Santy Integrated, a local advertising company, recruiting "social media interns" to help promote its clients’ brands on a volunteer basis.  It was his belief — which seemed to me justified — that such interns working for a commercial operation are likely to be deemed employees who are entitled to be paid the minimum wage.  He was not shy about expressing this view. 

In response, Santy made some superficial changes to its social media internship job description (probably not enough to meet the wage and hour laws’ requirements for an internship position, as I see it) but had its lawyer Susanne Ingold threaten to sue Chichester for defamation and interference with business relationships. By an unhappy coincidence, Chichester was doing contract social media for that same law firm (he says that he had no idea that Santy was a client of one of his own customers); the firm promptly terminated his contract.  But to make its threats of litigation especially ominous, Santy’s lawyer sent another demand letter to Zooka Creative, another firm for which Chichester was doing contract work, charging it with responsibility for the accusations of its “employee” Chichester and asserting that, having been put on notice of Chichester’s alleged wrongdoing, this company could be held liable for his torts unless it promptly put an end to them.

Hoofnagle & Urban Reexamine Alan Westin's Privacy Classifications of Consumers

Chris Jay Hoofnagle and Jennifer M. Urban, both of Berkeley, have written Alan Westin's Privacy Homo Economicus, 49 Wake Forest Law Review 261 (2014).  Here's the abstract:

Homo economicus reliably makes an appearance in regulatory debates concerning information privacy.  Under the still-dominant U.S. “notice and choice” approach to consumer information privacy, the rational consumer is expected to negotiate for privacy protection by reading privacy policies and selecting services consistent with her preferences. A longstanding model for predicting these preferences is Professor Alan Westin's well-known segmentation of consumers into “privacy pragmatists,” “privacy fundamentalists,” and “privacy unconcerned.”  

To be tenable as a protection for consumer interest, “notice and choice” requires homo economicus to be broadly reliable as a model.  Consumers behaving according to the model will know what they want and how to get it in the marketplace, limiting regulatory approaches to information privacy.  While notice and choice is undergoing strong theoretical, empirical, and political critique, U.S. Internet privacy law largely reflects these assumptions.

This Article contributes to the ongoing debate about notice and choice in two main ways.  First, we consider the legacy Westin's privacy segmentation model itself, which as greatly influenced the development of the notice-and-choice regime. Second, we report on original survey research, collected over four years, exploring Americans’ knowledge, preferences, and attitudes about a wide variety of data practices in online and mobile markets. Using these methods, we engage in considered textual analysis, empirical testing, and critique of Westin’s segmentation model. 

Our work both calls into question longstanding assumptions used by Westin and lends new insight into consumers’ privacy knowledge and preferences. A close textual look at factual and theoretical assumptions embedded in the segmentation model shows foundational flaws. With testing, we find that the segmentation model lacks validity in important dimensions.  In analyzing data from nationwide, telephonic surveys of Internet and mobile phone users, we find an apparent knowledge gap among consumers concerning business practices and legal protections for privacy, calling into question Westin’s conclusion that a majority of consumers act pragmatically. We further find that those categorized as “privacy pragmatists” act differently from Westin’s model when directly presented with the value exchange — and thus the privacy tradeoff — offered with these services.

These findings reframe the privacy pragmatist and call her influential status in U.S. research, industry practice, and policy into serious question.  Under the new view, she cannot be seen as “pragmatic” at all, but rather as a consumer making choices in the marketplace with substantial deficits in her understanding of business practices.  This likewise calls into question policy decisions based on the segmentation model and its assumptions.  We conclude that updated research and a policy approach that addresses both rationality and knowledge gaps are key.