Consumer Law & Policy Blog

Jeff Gelles Column: Lawsuits were stymied, but CFPB finally puts halt to rent-a-D.A. scheme

Here. Excerpt:

The ominous letter from the prosecutor's office was addressed to her grandfather, Albert Lachowicz, but it came to Jennifer Paczan because she was handling his finances.* * *

The letter was signed by Beaver County District Attorney Anthony J. Berosh, and was on the D.A.'s letterhead. It said Berosh's office had received reports alleging that Lachowicz had engaged in "criminal activity" by "issuing a fraudulent check."

Paczan, then a student at the University of Pittsburgh, knew that hadn't happened.* * *

So why was she getting a threat from the D.A. - followed several weeks later by another letter from Berosh topped even more ominously, "Warning of Criminal Charges"?

It turned out she wasn't. Instead, both came from a California company, National Corrective Group, that was behind an elaborate scheme to profit from simple mistakes made by people like Paczan.

* * *

The worst part of this story? That the scheme worked only thanks to the complicity of hundreds of local prosecutors around the country, who were invited to join in profiting from the deceptions. You might even call it "rent a D.A."

California announces effort to fight search engine advertising by unlicensed payday lenders

The California Department of Business Oversight announced this week that it has launched an initiative with Bing, Yahoo and Google to halt advertising by unlicensed payday lenders. 

When the DBO identifies unlicensed online payday lenders, it issues cease and desist orders against them. Under the protocol, when those orders become final, the DBO will notify designated individuals at Microsoft and Google. The firms then will take quick action to block the lenders’ ads, if they are advertising on the search engine pages.

The California Department of Business Oversight's full release is here.

FTC and IL Attorney General’s Office get TRO halting fake debt collection scam

The FTC's press release explains:

The Federal Trade Commission and the Illinois Attorney General’s Office have obtained a court order temporarily halting a fake debt collection scam located in Aurora, Illinois, a western suburb of Chicago. The defendants are charged with illegally using threats and intimidation tactics to coerce consumers to pay payday loan debts they either did not owe, or did not owe to the defendants.

The FTC’s case against K.I.P., LLC, Charles Dickey, and Chantelle Dickey is the agency’s seventh ‘phantom’ debt collector matter.

Hain Celestial takes another hit

By Steve Gardner

In Astaina v. Hain Celestial Group, Inc. (download here), and just two days after a district court’s decision in Anderson v. Hain Celestial Group, Inc. (discussed here), the Ninth Circuit dealt Hain another blow to its efforts to trick consumers into buying products falsely called “natural,” this time involving cosmetics, not food.

The Ninth Circuit opinion is notable in two ways:

First, it rejects Hain’s argument that state consumer law prohibition of deceptive language (not required by FDA) on a label that was partly regulated by FDA was a “novel state labeling requirement” and thus preempted. This is a favorite argument of defendants, and it’s good to have an appellate finding of its speciousness.

Second, and of possibly more impact to other cases, the Court held that, if a court determines that the doctrine of primary jurisdiction applies, the proper action is generally a stay and not a dismissal (even without prejudice), because of the potential damage to an individual plaintiff (and even more so for a plaintiff class) if limitations were to run while the FDA considered things. The Court observed that the “purpose of referral to the FDA was not for the agency to adjudicate Astiana’s claims, but to provide expert advice that would be useful to the court in considering this lawsuit.”

Both of these points should be settled law, but that likely won't stop defendants in future cases from trying to pretend that they don't exist. 

 

Another motion to dismiss a food law case bites the dust

by Steve Gardner

Earlier this week, in Anderson v Hain (highlights added), Judge Edward J. Davila of the Northern District of California issued an opinion on a motion to dismiss that is a good example of the trend to accept consumer pleadings of deception in food labeling. The Northern District judges have considered food deception issues repeatedly and Judge Davila’s opinion is a good example of the middle ground among the judges.

Four points are particularly worth noting:

1. The Court adopts the prevailing trend of opinions allowing consumers to bring claims for products that they didn’t actually purchase but are substantially similar to the product(s) they did purchase.

2. The Court adopts the stricter reading of standing to obtain future injunctive relief, recognizing that courts differ on the point but holding that the fact that California law expressly allows a plaintiff to seek future relief does not in itself establish Article III standing. However, the Court expressly recognizes that the plaintiff could pursue an injunctive claim in state court: "If this means that Plaintiff must pursue parallel litigation, then so be it. Both court systems exist so that all varieties of claims have a forum for adjudication."

3. The Court joins with pretty much every other court in rejecting the oft-raised defense that the lack of an FDA definition of ‘natural' preludes a state deception-based claim: "Defendant also suggests that since the Food and Drug Administration ('FDA') has not defined the word 'natural,' the word is too vague to be actionable. That argument is unpersuasive since the FDA’s opinion on 'natural' is not a commentary on whether or not use of the word on food labels would mislead a reasonable consumer operating under a common understanding of its meaning." 

4. The Court also reminds this defendant that the Ninth Circuit (in Williams v. Gerber, the case that defense counsel like to pretend doesn’t exist) years ago rejected the (also oft-raised) defense that any consumer who might be deceived by language on the front of the box should be required to scour the entire box, just in case the truth is out there somewhere, quoting the Gerber opinion that a reasonable consumer is not "expected to look beyond misleading misrepresentations on the front of the box to discover the truth from the ingredient list in small print on the side of the box."

 

On demeaning the poor through regulation

A Washington Post op-ed by Dana Milbank this week catalogues the disturbing rise of welfare-benefit restrictions around the country that seem designed not to prevent abuse but to cut welfare beneficiaries off from a range of common, everyday activities (like swimming pools) and foods (like tuna fish) that many Americans enjoy. Another set of laws, notes Milbank, imposes high court costs on impecunious defendants. The piece, which highlights laws and practices from Kansas, Massachusetts, Missouri, and Washington, is worth a read, here.

For a counterpoint to the view that the best way to encourage people to avoid welfare is to make life unpleasant, see this NPR story about a charity called “GiveDirectly.”

When it comes to financial literacy, start early

... is the thrust of a piece in today's Washington Post, which observes:

Studies show that young people who graduate in states that mandate personal finance education are better with money as adults. They have higher credit scores and are less likely to default on credit cards. Yet, most states don’t require the classes.

Read the entire article, including a graphic on which states provide and/or require a high school financial literacy course, here.

Appellate court holds that foreclosure complaint can violate FDCPA

The Third Circuit Court of Appeals this week reversed the dismissal of a class-action case alleging violations of the Fair Debt Collection Practices Act by Bank of America and a law firm. The plaintiff alleged that the bank and firm, when they initiated foreclosure proceedings, assessed fees that had not yet been incurred. The court agreed that including the not-yet-incurred fees in the foreclosure complaint was an attempt to collect a debt that was not owed and, therefore, that the plaintiff’s claim against the law firm was wrongly dismissed.

Specifically, the court held that the plaintiff could proceed under FDCPA § 1692f(1) because the foreclosure complaint attempted to collect a debt not “expressly authorized” by the mortgage contract or permitted by law. However, because the firm did not “threat[en] to take an[] action that cannot legally be taken,” such as falsely threatening to file suit, the court affirmed that the plaintiff had not stated a claim under FDCPA § 1692e(5).

Perhaps most significant, the court held that pleadings—in particular, foreclosure complaints—can form the basis of FDCPA claims.

The court's opinion is here.

Court of appeals rules for tobacco company, overturns verdict for smoker

Reuters explains:

The ruling by the 11th U.S. Circuit Court of Appeals reverses more than $800,000 in damages from R.J. Reynolds and Altria Group Inc unit Philip Morris USA Inc awarded in 2013 to Earl Graham, whose wife Faye, a longtime smoker, died in 1993 of lung cancer.

More broadly, the court said smokers who, like Graham, were originally part of a massive class action in Florida against the tobacco companies could not rely on findings from the class action trial to prove claims that cigarettes are defective and tobacco companies were negligent.

That class action, Engle v. Liggett, resulted in a $145 billion award, which was overturned. But the Florida Supreme Court in 2006 said smokers could use findings from the trial in their individual lawsuits. Thousands of lawsuits, known as the Engle progeny, were filed in Florida federal and state courts, resulting in multiple multimillion-dollar verdicts against tobacco defendants.

In the appeal, the tobacco companies argued that individual plaintiffs should not be able to rely on the jury findings from the class action. The court of appeals agreed. Its opinion is here.

CFPB acts against deceptive robocall operation used to collect "debts" that consumers did not owe

The Consumer Financial Protection Bureau yesterday filed a lawsuit against the leaders of a robocall debt collection operation, their companies, and their service providers.The CFPB explained:

The debt collectors, using various aliases, allegedly deployed automated calls to threaten, harass, and deceive consumers in attempts to collect debt the consumers did not owe to them, and in most instances, to anyone else. The complaint alleges that the debt collectors’ scheme depended on the participation of the telemarketing company that sent the robo-calls and payment processors that allowed the collectors to access consumers’ bank accounts.

The CFPB obtained a temporary restraining order stopping the operation and freezing the assets of the people involved.

The CFPB press has the details. Read the release here.