Consumer Law & Policy Blog

Expose about predatory retail chain and military consumers

USA Discounters, reports the Washington Post in conjunction with ProPublica, is a retailer that takes advantage of service members' transience and locks them into cycle of debt using a venue-selection clause in their contracts that permits the business to litigate against customers in southeastern Virginia, no matter where in the world those customers are stationed.

USA Discounters' huge profits and troubling practices, and the harms they cause, are documented in this must-read investigative piece, which describes how the company exploits loopholes in both the Fair Debt Collection Practices Act and the Servicemembers Civil Relief Act.

 

FDA regulation of e-cigarettes

In 2009, Congress for the first time gave the Food and Drug Administration authority to regulate tobacco. In April 2014, the agency proposed to regulate e-cigarettes and similar products. In a short paper in the Journal of the American Medical Association entitled E-Cigarettes, Vaping, and Youth, Larry Gostin and Aliza Glasner have provided their views on the FDA's proposal and what they think the agency should do. They note that "[t]he conundrum is how to regulate e-cigarettes given scientific uncertainty about the nature and extent of harms." Here is the abstract:

E-cigarettes, a relatively new product, storming the tobacco industry are causing a massive stir among public health advocates. While e-cigarettes have the potential to serve as an effective harm reduction tool for existing smokers, they also may present an equally tempting pathway to first time smoking, particularly among youth. Many fear that e-cigarettes will revive the popular smoking culture that has taken decades to dismantle. In April 2014, the FDA issued proposed rules to “deem” or extend its authority over tobacco products to regulate electronic cigarettes, cigars, pipe tobacco, nicotine gels, waterpipe (hookah) tobacco, and orally ingested dissolvable tobacco products. As proposed, FDA’s rules, among other things, would set a federal minimum age of 18 years to use e-cigarettes, require identification to purchase them (currently, just more than half of states impose age restrictions), prohibit most sales in vending machines, mandate warning labels on packaging, and prohibit manufacturers from providing free samples. Further, companies would be permitted to make claims for reduced risk only if the agency confirms the claim based on scientific evidence while also finding a benefit to the health of the public. While the proposed rules represent a watershed moment in tobacco control, they still leave major regulatory gaps affecting the most vulnerable population, youth. FDA’s silence when it comes to the use of flavored nicotine and marketing practices is certain to have negative consequences for youthful smokers. The agency should move boldly and rapidly to prevent companies from exploiting youth. By bolstering the proposed rules to limit advertising and prohibit flavored nicotine, the agency could prevent proliferation of e-cigarette use among adolescents, while not undermining its regulatory goal of reducing harm. The public health community must speak with a clear voice to urge meaningful and effective regulation to protect US youth against the reinvention of Big Tobacco.

Nancy S. Kim on Wrap Contracts

Nancy S. Kim of California Western has written Exploitation by Wrap Contracts -- Click 'Agree', 39 California Bar IP Journal, no. 2, pp. 10-17 (2014). Here is the abstract:

A spate of news articles involving online agreements has made headlines recently.  They provide cautionary tales of the brave new world of wrap contracts where unwitting users can be exploited simply by clicking "agree." Wrap contracts — particularly digital ones such as clickwraps and browsewraps — govern most online activity, setting rules and giving companies broad enforcement discretion.  Despite their ubiquity on the Internet and their increasing importance in online interactions, consumers discount or ignore how wrap contracts affect their rights and leave them vulnerable. This essay explains why these recent examples mark a turning point in the role of wrap contracts in Internet governance — and why consumers should be very wary of clicking "agree."

 

Is the Affordable Care Act as unpopular as we've been told? No, apparently . . .

by Brian Wolfman

Take a close look at this story about a new CNN poll. The first thing you see is this:

So, it looks like 59% oppose the ACA and only 40% support it. If you are an ACA supporter that doesn't sound very good, though it's up from December 2013, when the numbers were 62% opposed, 35% in support.

But look closer at the whole story. The 59% includes people who oppose the ACA "from the left," that is, people who oppose the ACA because it doesn't go far enough in providing universal healthcare (as a single-payer system more like Medicare would do). So, seven paragraphs into CNN's story, we read:

"Not all of the opposition to the health care law comes from the right," said CNN Polling Director Keating Holland. "Thirty-eight percent say they oppose the law because it's too liberal, but 17% say they oppose it because it's not liberal enough. That means more than half the public either favors Obamacare, or opposes it because it doesn't go far enough."

Now add to that another bit of CNN polling data. Though only 18% of those polled said that the ACA helped them personally, 53% said that the ACA helped their families or others in the U.S.

That makes me think the law is going to continue to grow in popularity. First of all, plenty of people like to help others and favor public programs even when they don't provide them with an immediate personal benefit. Adults without kids don't generally want to abolish the public schools. Moreover, it's in the nature of insurance that when the insurance is first obtained it may be seen as helping others more than one's self. But, as time goes on, more people need to cash in on the insurance. And, in this case, we are talking about health insurance, which nearly everyone needs to use at one point or another. So, more people will face situations where they can get subsidized insurance on an exchange or are not rejected because of a prexisting condition. More parents will be able to get coverage for their kids under age 26. More single people who are out of work, with little money, will find themselves in a state that has opted into the Medicaid expansion.

So, particularly if the ACA survives major court challenges, it seems likely that it will grow in popularity.

Health-care insurance consumers to get $330 million in rebates under ACA's 80-20 rule

Remember the 80-20 rule (also known as the medical loss ratio rule)? That's the Affordable Care Act rule that generally requires health insurers to spend 80% or more on hospitals, docs, prescription drugs, and the like (that is, actual health care) -- and not administrative expenses and advertising. The idea is to encourage insurers to trim administrative blubber. If insurers don't comply with the rule within any calendar year, they are required by August 1 of the next year to send rebates to consumers (or, in some cases, to employers who provide health insurance). We've talked about the issue before. Go here, for the Department of Health and Human Services's explanation of the 80-20 rule.

As explained in this article by Jack Torrey, this August, rebates will total about $330 million. That comes out to a small amount per eligible consumer. (Torrey points out that, in Ohio, the average rebate comes to just $69.) In previous years, the aggregate rebate was considerably larger. That may mean that the 80/20 rule is working. That is, the rule is producing fewer (and smaller) rebates because insurers generally are complying with the rule and running their businesses with less administrative waste.

For other stories on the rebates in various states, go here, here, here, and here.

 

FTC and CFPB sue foreclosure-relief fraudsters

According to The Hill,

The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) announced Wednesday they are taking action against dozens of companies that they allege falsely promised to help distressed homeowners prevent foreclosure and lower their monthly payments.

Several state regulators joined the two federal agencies in suing more than 40 law firms who allegedly collected fees for foreclosure-relief services they never performed. Many of the scammers disappeared after collecting the money, according to the regulatory agencies.

 

Read more here. Complaints in the various lawsuits are linked from this CFPB page.

 

Dee Pridgen on Notable New Mexico Signature Loan Case

My co-author, Dee Pridgen of Wyoming, took time out from updating her treatise to report on a recent New Mexico decision, State ex rel King v. B&B Investment Group, Inc., 2014 WL 2893304 (N.M. June 26, 2014). Here's her comment:

In the case, the State AG successfully sued a “signature loan” company that was selling small unsecured loans repayable in biweekly installments over a year at out of this world interest rates ranging from 1,147 to 1500%.  Customers were paying around $900 finance charges for $100 loans!  Apparently the company, a former payday lender, switched to this type of loan when the New Mexico legislature placed some limits on payday loans.  But the signature loans were not covered by the new legislation.

Nonetheless, the State AG (represented by Karen Meyers) was able to get a ruling that these loans were procedurally and substantively unconscionable and violated the state Unfair Practices Act which has a provision prohibiting as an unconscionable trade practice any extension of credit that “takes advantage of the lack of knowledge, ability, experience or capacity of a person to a grossly unfair degree” and is detrimental to the borrower.  [Utah law professor, CFPB staffer, and another of our co-authors ]Chris Peterson’s testimony was quoted by the court regarding cognitive biases exhibited by the customer pool targeted by the defendants, namely low income consumers who were unbanked or underbanked.  The court also cited [New Mexico law professor] Nathalie Martin’s study of New Mexico borrowers.  Chris was also quoted as saying “Defendants’ signature loan product is among the most expensive loan products offered in the recorded history of human civilization.”  The high court ended up ordering restitution to consumers of the difference between what they paid to the lenders and the principal plus a 15% default interest rate. 

A non-disparagement clause ends peacefully

We’ve covered on the blog several examples of troubling non-disparagement clauses preventing consumers from speaking out about their bad experiences with businesses (for instance, see here and here). From our experience, these seem to be cropping up more and more.

I’m pleased to report on a counterexample. The company Madwire Media, a marketing firm, used to include this clause in its standard contract:

Non-Disparagement: The parties to this contract agree that neither shall make any disparaging comments or accusations detrimental to the reputation, business, or business relationships of the other except in connection with any legal proceedings. In the event the client publishes or otherwise disseminates any false, disparaging, defamatory or derogatory information about Madwire Media, its employees, its business, or its services, Madwire Media reserves the right to terminate this Agreement. Upon termination any outstanding balances will immediate come due. In addition, the parties hereby agree that any dispute arising out of any disparaging, defamatory or derogatory information published by client about Madwire Media, or any other provision of this contract, or any other dispute that may arise between the Parties, shall be settled by confidential binding arbitration in Denver, Colorado by a single attorney. Such arbitration shall be conducted pursuant to the Commercial Arbitration Rules (CARs) of the American Arbitration Association (AAA). The Parties agree that any published statements will be removed pending the outcome of the arbitration. Each party also agrees that the arbitrator shall have the authority and right to grant temporary and permanent injunctive relief and that the prevailing party shall be entitled to enter judgment in any court and that it shall be entitled to recover reasonable attorney’s fees.

A non-disparagement clause and arbitration clause wrapped together beneath a cloak of confidentiality – not consumer friendly at all.

But I’ve learned this month that Madwire plans no longer to use that clause. Madwire customers should still be alert to the fine print, of course (as we all should). Still, it’s heartening to see a company do the right thing for its customers by dropping this noxious clause. Let's hope in the future we see less of these clauses coming up in the first place.

 

Three States Sue 5-Hour Energy Makers For Deceptive Ads

From Food Safety News:

Oregon, Washington and Vermont have filed lawsuits against the makers of the energy drink 5-Hour Energy for making “deceptive” marketing claims. More states are expected to follow.

....

The suits take issue with claims about what 5-Hour Energy actually does, whether consumers experience a “crash,” whether it’s recommended by doctors and whether it’s appropriate for adolescents ages 12 and older.

A large point of contention is whether 5-Hour Energy gives consumers benefits such as extra energy, alertness or focus. The product’s manufacturers have made claims that it’s “packed with B-vitamins for energy and amino acids for focus” and “enzymes to help you feel it faster.”

You can access the Vermont and Washington complaints here and here. (Oregon's complaint does not seem to be posted online.)

Seventh Circuit decison in Fair Credit Reporting Act case

Several years ago, an attorney named James Bormes paid a case filing fee via pay.gov, which the federal courts use to facilitate electronic payments. He received an email receipt that included both the last four digits of his credit card’s number and the card’s expiration date. Bormes sued seeking damages under the Fair Credit Reporting Act (FCRA), which he read to allow a credit card receipt to contain one or the other of these things, but not both.

To prevail in the suit, Mr. Bormes first hurdle was to overcome the government’s argument that the U.S. was immune from suit for damages. In 2012, the U.S. Supreme Court held in the case, called Bormes v. United States, that the Little Tucker Act, 28 U.S.C. §1346(a)(2), does not waive the sovereign immunity of the United States in a suit seeking to collect damages for an asserted violation of the FCRA. The case then went back to the Seventh Circuit Court of Appeals, for consideration of whether the FCRA itself waives the government’s immunity from suit for damages.

In a decision yesterday, the court of appeals held that the FCRA does waive the U.S.’s immunity from suit for damages. The court held that this conclusion follows easily from FCRA’s text.

The court of appeals then turned to the alleged FCRA violation: Does the FCRA prohibit an email receipt that includes both the last four digits and the expiration date? On this issue, Mr. Bormes lost. The court held that the relevant statutory provision addresses only paper receipts given to a consumer at the point of sale, not to email receipts.

Although the ultimate result is a loss for the consumer in this case, the Seventh Circuit’s holding on the immunity issue may nonetheless be a useful precedent for consumers, either in litigation or by encouraging FCRA compliance by the U.S.