Consumer Law & Policy Blog

Taking advantage of lead-poisoning victims

The Washington Post yesterday published an eye-opening expose concerning the practice of buying monetary settlements for lead poisoning from the victims for a fraction of what they are worth -- as little as 9 cents on the dollar. As the Post documents, the victims are often cash-strapped, have little education and sometimes mental disabilities, and don't understand what has happened before it's too late. For instance:

Rose sold everything to Access Funding — 420 monthly lead checks between 2017 and 2052. They amounted to a total of nearly $574,000 and had a present value of roughly $338,000. In return, Access Funding paid her less than $63,000. Rose, who spoke to The Washington Post on the condition that her full name not be used, had just tumbled into the little-noticed, effectively unregulated netherworld of structured settlements.

Read the whole story here.

Third Circuit affirms that FTC may sue Wyndham for cybersecurity failures

The FTC sued Wyndham Worldwide (the company that operates Wyndham Hotels) for unfair and deceptive trade practices under the FTCA after Wyndham sustained data breaches in 2008 and 2009 leading to more than $10.5 million in fraudulent charges to consumers. The FTC charged that Wyndham's security was deficient and its policies misled consumers.

Yesterday, in an important victory for consumer privacy and for FTC authority, the Third Circuit affirmed the denial of Wyndham's motion to dismiss over arguments that the FTCA doesn't cover Wyndham's conduct and that Wyndham lacked notice that its conduct was unlawful.

Read the opinion here.

Gauthier Guest Post: Spotify Modifies Not Just Privacy Policy, But Also Arbitration Clause: The Results Are Outrageous

Guest Post by Gregory Gauthier:

Late last week, many media outlets drew attention to broadly-worded terms in Spotify’s new privacy policy.  Although Spotify’s CEO later explained the intent of the changes to the privacy policy, another change to Spotify’s terms has yet to be explained by Spotify or discussed by the media.  The change, which Spotify characterized as providing “[g]reater detail around the arbitration process for dispute resolution”, is far from innocuous.  The two most outrageous terms added to the arbitration clause (original version here) are an exceptionally broad gag clause and a clause requiring some arbitration hearings to take place in San Francisco or New York City, the consumer’s residence and the locations’ convenience for the consumer notwithstanding.

Arbitration gag clause

Section 24.3.5 of the new terms states:

All documents and information disclosed in the course of the arbitration shall be kept strictly confidential by the recipient and shall not be used by the recipient for any purpose other than for purposes of the arbitration or the enforcement of arbitrator’s decision and award and shall not be disclosed except in confidence to persons who have a need to know for such purposes or as required by applicable law. Except as required to enforce the arbitrator’s decision and award, neither you nor Spotify shall make any public announcement or public comment or originate any publicity concerning the arbitration, including, but not limited to, the fact that the parties are in dispute, the existence of the arbitration, or any decision or award of the arbitrator.

The confidentiality provision in the new terms is not to be confused with the general principle that, in contrast to litigation, arbitration proceedings are not open to the public and arbitration papers are not public records.  Rather, this gag clause goes much farther.  Here are just some examples of the gag clause restricts core First Amendment activity:

• It may prohibit consumers from sharing information about previous Spotify arbitrations to better prepare for arbitration hearings against a business that already has all the information about all Spotify arbitrations.
• Some consumers dissatisfied with the arbitration process publicize faults they find in the arbitration process.  Jon Perz created a website documenting his frustration with an arbitration proceeding with a car dealer.  Nicole Mitchell and Debbie Brenner provided their narratives on their dissatisfaction with their arbitration proceedings and outcomes for the Alliance for Justice film Lost in the Fine Print.  Yet, none of this robust commentary would be possible for consumers in an arbitration with Spotify, for Spotify users’ core First Amendment rights have been erased like “a pinky hitting the delete key”.  Licitra v. Gateway, Inc., 189 Misc. 2d 721, 728 (N.Y.C. Civ. Ct. Richmond County 2001).
• Congress has regularly heard testimony from participants criticizing the fairness of arbitration proceedings in conjunction with bills limiting the scope of the Federal Arbitration Act (FAA).  Yet Spotify can veto any attempt by fed-up consumers to tell their arbitration story before their elected officials.
• It is doubtful that a consumer dissatisfied with a Spotify arbitration could even submit complaints about the fairness of the arbitration proceeding to their representatives or administrative agencies.  After all, Spotify could argue that government officials do not have a “need to know” about the complained-of arbitration.
• Most disturbingly, Spotify can use the aegis of the FAA to achieve what KlearGear could not: complete suppression of criticism.  Suppose that a consumer makes a public complaint about Spotify.  In order to erase this complaint, all Spotify needs to do is initiate arbitration about that dispute.  Voila!  Now, the consumer’s original complaint is “publicity concerning…the fact that the parties are in dispute” that is prohibited under the contract.  Moreover, Spotify can “seek injunctive relief in a court of law” under Section 24.3.2 to obtain a court order gagging the consumer from talking about the dispute.  At least the couple in the KlearGear case were only subject to the threat of a fine, not possible contempt of court, which Spotify users could face.

Joe Hadeed, Deadbeat

by Paul Alan Levy

This spring I reported on a decision of the Virginia Supreme Court that overturned a contempt citation against Yelp for honoring its users First Amendment right to post pseudonymous criticisms of a Virginia merchant called Hadeed Carpet Cleaning, because Hadeed refused to present any evidence that the reviewers had made any false statements about it.  The Virginia Supreme Court did not address the lack of evidence, but ruled that the subpoena had to be pursued in California state court.

Hadeed has consistently claimed that the anonymous critics aren’t really customers.  Its lawyer from the law firm of Bean Kinney & Korman put his own credibility on the line, claiming that as a lawyer he would not have signed the complaint alleging such a belief if there were not good reason for that belief, and arguing that the Virginia courts should place enough credence in such a certification from a Virginia lawyer to warrant overriding the First Amendment rights of the critics.  But California precedent requires subpoenaing plaintiffs to present evidence of falsity; faced with this requirement of establishing an evidentiary basis for its claimed belief that the seven anonymous critics were not really customers, Hadeed Carpet Cleaning chose instead to drop its libel claims altogether.   We can, I think, infer that, notwithstanding their brave words on their client's behalf, the lawyers understood that they had no credible evidence of falsity.   And the aftermath of the litigation can serve as a reminder of why evidence of wrongdoing should be required.

Hadeed's Refusal to Pay Costs

The Virginia Supreme Court taxed appellate costs of $2500 against Hadeed (mostly attributed to a lengthy report that it insisted be included in the Joint Appendix); it has refused to pay, and its lawyers won’t even return phone calls and emails about when it plans to pay up.  The file has been turned over to Yelp’s collections counsel.

I’d love to be there when they execute on Hadeed's assets.

The latest in the legal fight over Obamacare contraceptive coverage

We've covered before the ongoing fight over employers' responsibility to provide insurance that covers contraception, a mandate that some employers argue violates their religious beliefs. 

The opening of the argument in the Solicitor General's brief in opposition to certiorari in Priests for Life v. HHS summarizes the state of the law as the Court considers whether to take up the issue in the wake of its decision in Hobby Lobby (permitting employers to opt-out in a manner that ensures employees will receive coverage from another source; we covered that decision here):

Petitioners contend that RFRA [the Religious Freedom Restoration Act] entitles objecting employers not only to opt out of providing contraceptive coverage themselves, but also to prevent the government from eliminating the resulting harm to their female employees and beneficiaries by arranging for third parties to provide those women with separate coverage. Six courts of appeals have considered that claim, and all six have rejected it. As those courts have explained, the accommodation is entirely consistent with RFRA and with this Court’s decision in Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751 (2014), which was premised on the availability of the accommodation and which did not suggest that objecting employers may prevent their employees from receiving contraceptive coverage from third parties willing to provide it.

You can read the full brief in opposition here.

This is one of several pending petitions on the subject. (The SG lists the others: Geneva College v. Burwell, No. 15-191 (filed August 11, 2015); Southern Nazarene Univ. v. Burwell, No. 15-119 (filed July 24, 2015); Little Sisters of the Poor Home for the Aged v. Burwell, No. 15-105 (filed July 23, 2015); East Texas Baptist Univ. v. Burwell, No. 15-35 (filed July 8, 2015); Zubik v. Burwell, No. 14-1418 (filed May 29, 2015).)

 

A Pair of Arbitration Papers

Richard Frankel of Drexel has written Concepcion and Mis-Concepcion: Why Unconscionability Survives the Supreme Court's Arbitration Jurisprudence, 17 Journal of Dispute Resolution. Here is the abstract:

States have long relied on the doctrines of unconscionability and public policy to protect individuals against unfair terms in mandatory arbitration provisions. The Supreme Court recently struck a blow to such efforts in AT&T Mobility LLC v. Concepcion and American Express Co. v. Italian Colors Restaurant. In those two cases, the Court established that a challenge to the enforceability of unfairly one-sided arbitration clauses is preempted if it would interfere with “fundamental attributes of arbitration.” Several commentators have argued that these decisions will dramatically alter the arbitration landscape, by wiping away virtually any contract defense to the validity of an arbitration agreement and giving corporations carte blanche to impose whatever terms they want into an arbitration clause. Many practitioners are aggressively pushing courts to take a similarly broad reading of Concepcion and Italian Colors.

This article takes a contrary view. First, this article argues that the cases will have very little impact outside of the context of class action waivers, the subject matter of both Concepcion and Italian Colors. Applying state law to strike down arbitration provisions that are so one-sided as to be unconscionable ordinarily will not interfere with “fundamental attributes of arbitration” and should not be preempted.

Second, the Court’s newfound focus on “fundamental attributes of arbitration” reveals why Concepcion should actually narrow the scope of Federal Arbitration Act (FAA) preemption rather than expand it. A careful examination of arbitration clauses shows that, if anything, the “fundamental” aspect of arbitration is choice, that is, the ability of parties to freely negotiate the terms of their arbitration agreements in an arms-length fashion. If choice is fundamental to arbitration, then what is inconsistent with arbitration is a lack of choice, namely adhesion. As a result, states have much greater power than previously thought to ensure fairness in standard-form, non-negotiable adhesion contracts, in which most arbitration agreements are contained, without violating the FAA.

And Stephen J. Ware of Kansas has authored The Politics of Arbitration Law and Centrist Proposals for Reform.  Its abstract is as follows:

Arbitration law in the United States is far more controversial when applied to individuals than to businesses. While enforcement of arbitration agreements between businesses sometimes raise legal issues that divide courts, those issues tend to interest only scholars, lawyers, and other specialists in the field of arbitration. In contrast, enforcement of arbitration agreements between a business and an individual (such as a consumer or employee) raises legal issues that interest many members of Congress and various interest groups — all of whom have taken positions on significant proposals for law reform. The Consumer Financial Protection Bureau has extensively researched and reported on consumer arbitration agreements and is expected to issue a rule regulating, or even prohibiting, such agreements.

This Article both explains how issues surrounding consumer and other adhesive arbitration agreements became divisive along predictable political lines and introduces a framework to understand and compare various positions on them. This new framework arrays on a continuum five positions on the level of consent the law should require before enforcing an arbitration agreement against an individual. Progressives generally would require higher levels of consent than arbitration law currently requires, while conservatives generally defend current arbitration law’s low standards of consent.

This Article proposes an intermediate (or centrist) position. It joins progressives in rejecting conservative-supported anomalies that enforce adhesive arbitration agreements more broadly than other adhesion contracts on the three important topics: contract-law defenses, correcting legally-erroneous decisions, and class actions. Once these anomalies are fixed though, adhesive arbitration agreements should — contrary to progressives — be as generally enforceable as other adhesion contracts. In other words, this Article joins conservatives in defending general enforcement of adhesive arbitration agreements under contract law’s standards of consent. The Article briefly concludes with the language of a rule the CFPB could adopt to enact into law the reforms advocated in this Article.

D.C. Circuit Limits Commercial-Speech Disclosure Requirements

            In a split decision Tuesday, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit struck down a portion of an SEC rule requiring publicly traded companies to disclose whether their products “have not been found to be ‘DRC conflict free’”—a term defined to mean that they do not contain “conflict minerals” (gold, tantalum, tin, and tungsten that originate in the Congo region of Central Africa) that finance or benefit armed groups in the Democratic Republic of Congo and adjoining countries. The panel’s decision in National Association of Manufacturers v. SEC is unusual in its explicit criticism of an en banc (i.e., full court) decision of the same court, American Meat Institute v. USDA. That decision upheld country-of-origin disclosure requirements for meat labels and in the process overruled an earlier decision of the panel striking down a portion of the conflict minerals rule. This time around, the panel reached the same result by different means.

            The case, like a number of other recent and pending cases around the country, involves the scope of a 30-year-old Supreme Court decision called Zauderer v. Office of Disciplinary Counsel, which provides among other things that disclosure requirements applicable to commercial speech are subject to a much more lenient First Amendment standard of review than other kinds of regulation of commercial and noncommercial speech. But the scope of Zauderer remains a major point of contention as companies push back against requirements that they disclose information about their products and practices, likening them to the compelled speech condemned by the Supreme Court in cases challenging slogans on license plates and forcing schoolchildren to recite the pledge of allegiance.

            The conflict minerals decision is the latest move in a back-and-forth dialog on the D.C. Circuit over Zauderer as well as a broader wave of litigation nationally targeting requirements that companies disclose information to the public. As such, it is required reading (both Judge Randolph’s majority opinion and Judge Srinivasan’s dissent) for anyone following the issue.

            At least it’s an interesting read. The majority opinion starts off with several pages criticizing the en banc ruling in Meat Institute before moving on to find three grounds, consistent with Meat Institute in the majority’s view, for declining to apply the Zauderer standard. It’s not often that you see senior circuit judges attacking recent en banc decisions of their court, and beyond that Judge Randolph’s opinion is spiced with literary references, including to Dickens, Koestler, Twain, and Orwell. Much as I love any reference to Pudd’nhead Wilson’s New Calendar, however, I’d take Srinivasan’s bottom line over Randolph’s given the choice.

            By the way, Pudd’nhead Wilson’s New Calendar also notes: “It is by the goodness of God that in our country we have those three unspeakably precious things: freedom of speech, freedom of conscience, and the prudence never to practice either of them.” I wonder what Mark Twain would think of corporations claiming freedom of conscience not to describe where they get their tantalum.

            Note: Public Citizen Litigation Group represents Amnesty International, which intervened in the litigation in support of the conflict mineral rule, and I am one of the attorneys assisting in the representation.

Is refinancing of debt the best way to help student borrowers?

As NPR reports, a number of presidential candidates have been proposing, to enthusiastic reception, that students be permitted to refinance their student debt in the same manner mortgage borrowers can refinance their home loans.

But is this the best policy? In particular, is it a policy that helps the student borrowers who are struggling the most?

NPR has this enlightening analysis.

Alaska sued over decision to implement Obamacare Medicaid expansion

We've mentioned before that Alaska is among the latest states to join a slow but steady trend toward accepting the Medicaid expansion enacted as part of the Affordable Care Act but rendered optional by the Supreme Court's 2012 ruling on the constitutionality of the law.

Unable to block the governor's decision to accept the Medicaid expansion, the Alaska legislature has decided to sue the state. It's a shining moment for the separation of powers; for the provision of health care, not so much. The Alaska Dispatch Caller has the story, which includes this gem of a quote:

Asked about the impact of their decision on Alaskans without access to health care, Senate Majority Leader John Coghill, R-North Pole, responded: “They have access to health care.”

First, way to deny the premise of the question. And second, has Santa heard about his elected representative's stance on health care? Somebody's getting a lump of coal this year...

Dep't of Education to overhaul rules on student-debt forgiveness

The Washington Post reports:

The Obama administration said Wednesday it will overhaul the loan forgiveness process for students who believe they have been defrauded by their colleges, in light of the collapse of controversial for-profit Corinthian Colleges.

Students can apply to have their federal loans discharged if they can prove a school used illegal or deceptive tactics in violation of state law to persuade them to borrow money for college. But critics say the process, known as a “defense to repayment claim,” is complicated and difficult to navigate. And the demise of Corinthian, with thousands of former students muddling their way through the claims process, has shown that the system needs fixing.

Starting next month, the Education Department will begin holding field hearings and convene an advisory panel to develop regulations to streamline the loan forgiveness process. The department also wants to strengthen provisions to hold colleges accountable for the discharged loans, limiting the cost to taxpayers.

The full story is here.