Consumer Law & Policy Blog

Gelles' Final Blog Post: "Sometimes, government actually is the solution"

On Saturday, we linked to Jeff Gelles's final consumer column for the Philadelphia Inquirer. Here is his final blog post.

Recent announcements from DOJ's Consumer Protection Branch

Below are recent announcements about the work of the Department of Justice Consumer Protection Branch:

September 3, 2015 - Genzyme Corporation to Pay $32.5 Million to Resolve Criminal Liability Relating to Seprafilm

August 27, 2015 - Peruvian Man Charged with Leading Conspiracy to Defraud and Extort Spanish-Speaking Consumers through Call Centers

August 17, 2015 - District Court Enters Permanent Injunction against Iowa Dietary Supplement Company and its Principals to Stop Distribution of Adulterated Dietary Supplements

August 12, 2015 - U.S. Citizen Sentenced in Connection with Costa Rica-Based Business Opportunity Fraud Ventures

August 4, 2015 - District Court Enters Permanent Injunction against California Soy Food Producer and Three Individuals to Stop Distribution of Adulterated Foods

July 31, 2015 - United States Files Complaint against Three Wisconsin Dietary Supplement Manufacturers

July 29, 2015 - United States Seeks Criminal Penalties for Man Selling Dietary Supplements Online in Violation of Court Orders

July 16, 2015 - California Payment Processing Company Owner Pleads Guilty to Fraud

July 16, 2015 - Two New York Salesmen Sentenced to Prison in Business Opportunity Fraud Scheme

July 10, 2015 - District Court Enters Permanent Injunction against Nevada Animal Drug Manufacturer to Prevent Distribution of Adulterated Drug

July 10, 2015 - United States Files Enforcement Action against Iowa Dietary Supplement Company and Principals to Stop Distribution of Adulterated and Misbranded Dietary Supplements

'Tain't natural

Well, a judge has refused to certify an injunctive class based on “natural” deception where the company changed its practices in response to a CLRA notice letter, prior to the lawsuit. 

 

Most courts will hold that this moots an injunctive relief claim (incorrectly, in my opinion, because I don’t trust food companies not to return to a deceptive practice).

 

In this case, the court refused to certify an injunctive class based mostly on the “won’t get fooled again” theory—that the class rep certainly knows better than to buy something that she knows is fraudulent, and thus has lost Article III standing.

 

This creates a situation where anyone smart enough to be a class rep is deemed to be too smart to get fooled again.

 

Courts are split between those judges take this approach and those that—correctly—note that if this were the case, then no deceptive labeling class action could be brought.

 

Of course, industry lawyers use opinions like this to decry all food cases as “baseless” (as one does in a story reporting on this decision). 

 

Fact is, they are not baseless, even when unsuccessful. 

 

This company, and far too many others, cheat consumers by promising them a “natural” product that isn’t, in this case because it had GMO ingredients.

  

Ninth Circuit: no private right of action to enforce video privacy law's bar on data retention

In Rodriguez v. Sony Computer, a consumer sued Sony for keeping his personal information that he entered on his PlayStation past the one-year limit provided in the federal Video Privacy Protection Act, and sharing that information between Sony entities. (The Ninth Circuit provides interesting historical context for the VPPA: "The Act was promulgated in 1988 after the Washington City Paper published Judge Robert Bork's video rental history during his failed Supreme Court confirmation proceedings.")

Last Friday, the Ninth Circuit upheld dismissal of the complaint. First, the court held that the VPPA cannot be privately enforced by consumers as to unlawful retention of information, only unlawful disclosure. In this regard, the court joined the Sixth and Seventh Circuits. Second, as to the unlawful disclosure claim, the court held that Rodriguez's claim failed because Sony's sharing across its various entities because it occurred in the "ordinary course of business," which includes the transfer of ownership. When Sony took over the PlayStation network, the Ninth Circuit ruled, it could acquire Rodriguez's information.

The decision is here.

Is the Durbin Amendment working?

The Durbin Amendment to the Dodd-Frank Act, as implemented by a Federal Reserve Board regulation, limits debit card interchange fees in many debit-card transactions. Interchange fees are per-transaction fees imposed by debit-card issuing banks on merchants each time a consumer uses a debit card. The regulation went into effect in October 2011.

The idea of the Durbin Amendment was that interchange fees were excessive. (Excessiveness was blamed on the market power of the two large card networks, Visa and MasterCard.) The proponents claimed that fees harmed merchants, which in turn harmed consumers, because the merchants passed on some or all of the excessive fees to consumers. On average, for covered transactions -- there are exclusions -- the Durbin Amendment has reduced fees by about half to roughly 21 cents per transaction.

But has the Durbin Amendment benefited merchants in increasing their net revenues and consumers in the form of lower prices for goods and services?

A survey study of merchants -- written by Zhu Wang, Scarlett Schwartz, and Neil Mitchell of the Federal Reserve Bank of Richmond -- indicates that, in general, the Amendment has benefited neither merchants nor consumers. The authors stress that their findings are preliminary, based on a small sample of merchants, and more in-depth study is needed. 

New York City bans credit checks in hiring

Consumer reporter Michele Singletary has penned this article entitled In New York, good riddance to a questionable hiring practice.

Singletary explains that "[f]ederal law allows employment credit checks under the Fair Credit Reporting Act. It requires employers to get an applicant’s or employee’s permission before pulling his or her history. But really, if you want the job, how likely are you to refuse such a request?"

And then, she asks:

How does the fact that you once couldn’t pay your credit card bill correlate to job performance? Or if someone is a poor money manager, does that mean she’s more likely to commit fraud? We don’t really know the answers to those questions, yet many employers are allowed to screen folks on the assumption that their character is related to their credit history. As I’ve seen in my own work with people, a bad credit record can be the result of a host of problems not linked to irresponsible financial behavior. The think tank Demos and other advocates have found that many people’s credit was brought down by periods of unemployment or medical debt. Some were the victims of predatory lending practices.

Singletary then goes on to explain that"[e]leven states limit employers’ access to or use of [job] applicants’ credit information — California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington. And 28 bills are pending in statehouses across the nation. And then she describes a new law in New York City that proponents say is the toughest in the country.

More details on the NYC law can be found here and here.

Critique of the Consumer Financial Protection Bureau's arbitration study

The Dodd-Frank Wall Street Reform and Consumer Protection Act mandates that the CFPB conduct a study on the use of pre-dispute arbitration clauses in consumer financial markets. The Dodd-Frank Act specifically prohibits the use of arbitration clauses in mortgage contracts. And it gives the Bureau the power to issue regulations on the use of arbitration clauses in other consumer finance markets if the Bureau finds that doing so is in the public interest and for the protection of consumers, and if findings in the agency's regulation are consistent with the results of the Bureau’s study.

In March, the CFPB issued its study, which found that mandatory pre-dispute arbitration clauses unfairly undermine consumers' rights to bring and be members of class actions. Go here to read the study and see what the CFPB said at the time.

But some people don't like the CFPB study. Our readers may be interested in reading The Consumer Financial Protection Bureau's Arbitration Study: A Summary and Critique by law professors Jason Johnston and Todd Zywicki. Here is the abstract:

The Consumer Financial Protection Bureau’s Arbitration Study: Report to Congress 2015 does not support the case for ex ante regulation of mandatory consumer arbitration clauses. It contains no data on the typical arbitration outcome - a settlement - and it is these arbitral settlements, and not arbitral awards, that should be compared to class action settlements. It does not address the public policy question of whether, by resolving disputes more accurately on the merits, arbitration may prevent class action settlements induced solely by defendants’ incentive to avoid massive discovery costs. It shows that in arbitration consumers often get settlements or awards, are typically represented by counsel, and achieve good results even when they are unrepresented. In class action settlements, the Consumer Financial Protection Bureau reports surprisingly high payout rates to class members and low attorneys’ fees relative to total class payout. These aggregated average numbers reflect the results in a very small number of massive class action settlements. Many class action settlements have much lower payout rates and higher attorneys’ fees.

 

Jeff Gelles's Final Consumer Column for the Inquirer

Here. Sad news for those who believe the media should cover consumer law.

Perspectives on the value of a college education

The Sept. 7 New Yorker has a thoughtful piece about what college is really worth today from an economic perspective. The piece explores and criticizes various takes from recent literature on the subject. No one's got a wholly satisfactory answer, but it's definitely a question worth considering as the economy changes and tuition costs soar. One important development highlighted is the recent stagnation in the economic "bonus" one can expect for an undergraduate degree as compared to a high school diploma -- the serious income growth comes with a graduate degree.

At the very least, the article suggests, "Being more realistic about the role that college degrees play would help families and politicians make better choices. It could also help us appreciate the actual merits of a traditional broad-based education, often called a liberal-arts education, rather than trying to reduce everything to an economic cost-benefit analysis."

Read the article here.

Xbox One Promoter Settles FTC Charges That it Deceived Consumers

A California-based online entertainment network has agreed to settle Federal Trade Commission charges that it engaged in deceptive advertising by paying “influencers” to post YouTube videos endorsing Microsoft’s Xbox One system and several games. The influencers paid by Machinima, Inc., failed to adequately disclose that they were being paid for their seemingly objective opinions, the FTC charged.

Under the proposed settlement, Machinima is prohibited from engaging in similar deceptive conduct in the future, and the company is required to ensure its influencers clearly disclose when they have been compensated in exchange for their endorsements.