Consumer Law & Policy Blog

Airbag Reports

by Jeff Sovern

The Times reported yesterday Takata Saw and Hid Risk in Airbags in 2004, Former Workers Say.  Last weekend, the Philadelphia Inquirer's Jeff Gelles weighed in with Safety agency is failing the public on air bags. One sidenote: stories on air bags and more generally on product safety rarely if ever quote law professors. I suspect that's because few law professors study these areas. When I surveyed consumer law professors on the content of their courses, there was little interest in covering product safety issues in consumer protection courses, as a result of which we didn't addd materials on that to our casebook.  The existing consumer law curriculum is pretty broad, so I certainly understand that, but surely somewhere in the law school world there are academics who specialize in these issues. And if not, that would be a shame, given the importance of these issues.

(BREAKING) Supreme Court to hear case challenging key aspect of Obamacare

This afternoon, the Supreme Court decided to hear a case raising the question whether Obamacare subsidies to assist individuals in the purchase of health insurance apply to purchasers at all health care exchanges under the law or only those run by states instead of the federal government. The Fourth Circuit adopted the former interpretation, granting Chevron deference to the interpretation of the law by the IRS and finding the agency's interpretation to be most consonant with the purpose of the law. The issue is also pending before the en banc D.C. Circuit. There is currently no circuit split.

SCOTUSblog's coverage, here, notes that the case implicates the availability of subsidies in 34 states.

Richard Feynman and Arbitration

by Jeff Sovern

Some readers of our blog will no doubt be familiar with Nobel prize-winning physicist Richard Feynman from his popular books, What Do You Care What Other People Think? or Surely You're Joking, Mr. Feynman! Others will remember him from his service on the panel that investigated the Challenger disaster.  His relevance to arbitration stems from his quote about the difference between knowing the name of something, and actually knowing what that something is. See Richard P. Feynman, What Do You Care What Other People Think? 14 (1988)( “I learned very early the difference between knowing the name of something and knowing something.”). Unfortunately, that appears to describe many of the respondents to the St. John's Arbitration Study.

Here's what I mean.  After showing respondents a contract with an arbitration clause, we asked:

If you and the credit card company have a dispute that is too large to be brought in a small claims court, did the contract you just saw say you have agreed to arbitrate it?

43% said it did, though a majority either didn't know or said the contract did not provide for arbitration.  The contract had included a bold-face reference to the arbitration clause on page two, and the clause itself appeared in bold partly on page six and partly on page seven, so that in all, the arbitration clause was referred to or appeared in bold on three of the seven pages of the contract. In addition, some of its terms were printed in italics and ALLCAPS, making it even more conspicuous.  In light of all that, it may not be surprising that 43% of the consumers noticed the arbitration clause.

But as Feynman noted, that doesn't mean they know what it meant.  Of the 43% who said that the contract provided for arbitration, 61% also believed that consumers would have a right to have a court decide the dispute, despite the fact that the contract said in bold, italics, and ALLCAPS that they wouldn't.  Nearly a fifth of those who believed that the contract mandated arbitration checked “I don’t know” when asked if consumers would have a right to sue in court.  In short, only 59 respondents—less than 9% of the total—realized that the contract both provided for arbitration and precluded litigation in court.  Similarly, of the 43% who understood that the contract specified that disputes would be resolved through arbitration, only 80 realized that they could not obtain a jury trial, meaning than only 12% of the total understood both that the contract provided for arbitration and that it precluded a jury trial of disputes. An even smaller subset of the 43%, 46 (less than 7% of the total), recognized that the contract foreclosed participation in a class action. All this even though the contract instructed respondents in bold that “It is important that you read the entire Arbitration Provision section carefully.” In short, our study,  'Whimsy Little Contracts' with Unexpected Consequences: An Empirical Analysis of Consumer Understanding of Arbitration Agreements suggests some consumers may know the word arbitration, but few know what it means.

 

FTC settles its first consumer-protection case against patent trolls

As the New York Times reports,

The Federal Trade Commission said on Thursday that it had settled its first consumer-protection lawsuit against a company for using “deceptive sales claims and phony legal threats” to try to get unsuspecting companies to license patents.

At issue is the practice of a company called MPHJ Technology Investments, described by the Times as "a patent-assertion entity, a company whose sole business is the buying of patents for use in asserting infringement claims." MPHJ threatened thousands of small to mid-size businesses with lawsuits for their use of document scanners in conjunction with a computer network, but filed no lawsuits and had no intention to do so, according to the FTC complaint.

The settlement seems mild, though: it just prohibits false representatons asserting patent rights going forward.

Read the Times story here.

The administration versus Sen. Elizabeth Warren on student loan servicers

The U.S. Department of Education, drawing applause from the Treasury Department, has moved to increase funding for student loan servicers. The goal is to improve customer service for students, according to the administration. The catch? Servicers get the money anyway, whether or not service improves.

The Huffington Post explains the concern, and Senator's Warren's position:

In September, under withering questioning from Warren, a top Education Department official conceded that the companies will get more money regardless of any changes they make to their operations. At the time, the senator was incredulous.

“Let me get this straight: You break the law. You don't follow the rules. You treat the borrowers badly," Warren said of the loan servicers. "And you all just renegotiated the contracts to make sure that across the portfolio, [loan servicers] are going to make a little more money if nothing changes?"

Read the full story here.

Overall, How Did Respondents in the St. John's Arbitration Study Do?

by Jeff Sovern

As to the eight questions that had right or wrong answers:

• Only two respondents answered all eight questions correctly out of 663 who answered all eight questions.
• 117 did not answer any of the questions correctly.
• That’s more than answered at least half the questions right.
• If this had been a test with a passing grade of 65%, 96% of the respondents would have failed.
• Not one of the eight questions elicited a majority of correct answers
• On one, a majority of the respondents gave wrong answers 
• More respondents gave correct answers than incorrect answers on only two of the questions
• On four of the questions more respondents gave wrong answers than right, sometimes by margins of three or four to one.

It's hard to argue that the respondents understood the arbitration clause in the face of that.

The entire article can be found at 'Whimsy Little Contracts' with Unexpected Consequences: An Empirical Analysis of Consumer Understanding of Arbitration Agreements.

 

CFPB issues report on debt-collection complaints of older Americans

The Consumer Financial Protection Bureau today issued a report entitled A snapshot of debt collection complaints submitted by older consumers. Among the report's findings are . . .

 

 ·         Collectors hounding older Americans about medical debt: Older Americans describe being confused and frustrated because collectors attempt to collect medical expenses while the consumer is simultaneously attempting to correct billing mistakes or waiting for providers and insurers to resolve the medical disputes. For example, older consumers report frequent and repeated attempts to collect medical bills already covered by insurance. Another common complaint from older consumers is first learning about an overdue bill from checking their credit report.

 ·         Collectors attempting to collect on debts of deceased family members: Older consumers describe collectors’ repeated attempts to collect debts of deceased family members. Many of the consumers complained that debt collectors continue to call or send collection letters after they have informed debt collectors that they are not personally responsible for the debt, or that there is no money left in the deceased borrower’s estate. Some complaints describe collection attempts made years after probate is concluded. Many consumers express anguish about collectors ignoring their requests to cease attempts to collect the debt of a deceased relative.

 ·         Collectors illegally threatening to garnish an older American’s federal benefits: Older consumers report debt collectors sometimes threaten to garnish Social Security, Supplemental Security Income or Veterans’ benefits, even though these funds ordinarily are not subject to garnishment by collectors. According to the complaints, these threats cause older consumers significant distress, especially when they rely on federal benefits to pay essential living costs.

 Go here  for the agency's advice on how to deal with these problems.

Arbitration Study Shows Many Don't Know They Have Agreed to Arbitrate

by Jeff Sovern

Last week I posted the abstract for our study, 'Whimsy Little Contracts' with Unexpected Consequences: An Empirical Analysis of Consumer Understanding of Arbitration Agreements. I want to discuss today some of what we learned about respondent awareness of arbitration clauses in the contracts they have entered into.

As the abstract noted, we asked the respondents if they had ever entered into a contract with an arbitration clause, and then we gave them a list of companies that include arbitration clauses in their contracts, like Verizon Wireless and PayPal, and asked them if they had agreed to contracts with those companies. The abstract reports that of the 303 respondents who claimed never to have agreed to arbitrate, 264, or 87%, did indeed have at least one account subject to an arbitration clause. That works out to more than 40% of the respondents who answered both questions.  Many respondents who thought they had not agreed to arbitrate disputes had in fact entered into more than one arbitration agreement. In addition, 244 respondents said they did not know whether they had entered into an arbitration agreement. Of  those, 89% had at least one account covered by an arbitration agreement.  Putting those numbers together means that at least 74% of our respondents had unknowingly entered into at least one agreement to arbitrate.  I say "at least" because we don't actually know whether even more had agreed to arbitration clauses in contracts we didn't ask about, like credit card contracts or checking accounts. 

The comments make it even clearer that many respondents believed they had not agreed to arbitrate despite having done so.  For example, one respondent who had entered into two contracts with arbitration clauses that we know of, wrote “i wo uld[sic] never never up my right to [sue the company].”  Another commenter who had agreed to arbitrate  explained: “i [sic] am a person to read about this before signing anything, i have never seen or read anything like this i see n mostly read,very surprising, . . . .”  One respondent rather plaintively wrote “please tell me i haven’t entered into such a contract.” We can't tell him that because he had.

I'll try to post more from the study in the days to come.

Supreme Court holds oral argument in Jesinoski v. Countrywide Home Loan

The Supreme Court held oral argument yesterday in Jesinoski v. Countrywide Home Loan, a case potentially important to consumers and their advocates. The question presented is

Does a borrower exercise his right to rescind a transaction in satisfaction of the requirements of Section 1635 [of the Truth in Lending Act] by “notifying the creditor” in writing within three years of the consummation of the transaction, as the Third, Fourth, and Eleventh Circuits have held, or must a borrower file a lawsuit within three years of the consummation of the transaction, as the First, Sixth, Eighth, Ninth, and Tenth Circuits have held?

Go here to read the oral argument transcript, and note that on page 50 Justice Sotomayor talks about how issues in the case might have worked out with respect to her own loans.

FTC Charges Gerber with Falsely Claiming That Its Baby Formula Protects Infants from Developing Allergies

Last week, the Federal Trade Commission sued Gerber Products Co. in federal district court in New Jersey, alleging that the company deceptively advertised that feeding infants Good Start Gentle formula would prevent or reduce the risk that the babies would develop allergies. The complaint also alleges that Gerber falsely advertised Good Start Gentle’s health claims as FDA-approved. The FTC is seeking an injunction barring Gerber from making the allergy-prevention claims.

According to the FTC, Gerber does not have evidence to back up its claim that the formula reduces the risk of babies developing their parents’ allergies.

 

The FTC's press release explains:

 

In its complaint, the FTC alleges that since 2011, Gerber has advertised its Good Start Gentle formula through advertisements that ran on television, in magazines, at point-of-sale displays, online, and in other promotional material. Good Start Gentle sells for about $24 for a 23.2-ounce package of powdered formula.

Good Start Gentle is made with partially hydrolyzed whey proteins (PHWP). Gerber claims that feeding babies this formula, instead of formula made with intact cow’s milk proteins, will prevent or reduce the risk that they will develop allergies.

        ....

The agency’s complaint charges that Gerber lacked the scientific substantiation to make these general allergy-prevention claims, in violation of the FTC Act.