Consumer Law & Policy Blog

Department of Education proposes measures to protect students from predatory higher education institutions

The Department of Education announced on Friday a proposal to establish borrower-friendly processes for seeking and obtaining loan relief triggered by unscrupulous conduct by higher education institutions. The Department also proposed options to protect students from the use of mandatory arbitration provisions in enrollment agreements. The proposals were made in connection with an ongoing negotiated rulemaking currently underway.

The Department's press release explains: "Last September, the Department began a negotiated rulemaking process to clarify how Direct Loan borrowers who believe they have been defrauded by their institutions can seek relief and strengthen provisions to hold colleges accountable for their wrongdoing. Current provisions in federal law and regulations called 'defense to repayment' or 'borrower defense' allow borrowers to seek discharge of their Direct Loans if their college's acts give rise to a state law cause of action."

The proposal to restrict use of binding, pre-dispute arbitration provisions in contracts with students builds on a request made to the Department by Public Citizen in a citizen petition submitted two weeks ago. The petition urges the Department to deny Title IV funding – such as direct loans – to schools that require students to submit any future disputes with the schools to a private system of arbitration. These requirements, built in student enrollment contracts, are used by many for-profit schools to block students from suing the schools in court and to avoid accountability for their wrongdoing.

"Lawsuits are good for America"

Ralph Nader has an article on tort law entitled "Suing for Justice - Your lawsuits are good for America" in April's edition of Harper's Magazine. His conclusion:

We are at a moment in our legal history at which the tort system, built over the course of a century in courts of law by tens of thousands of plaintiffs, is in need of saving. We could have the best system of tort law in the world, but we need to restore what has been lost and keep pace with changes in our society. New technologies fraught with risk — such as robotics, artificial intelligence, biotechnology, and nanotechnology — presently provide no statutory safeguards to speak of. Only the common law of torts can hold the negligent sellers of these technologies accountable. What tort lawyers must do is decide to recognize the remarkable resilience of the few citizen groups and victim-advocacy organizations, and work to greatly expand their number in every state....

... This country is unique in having a marvelous right to trial by jury that has been lauded historically by left and right, from Thomas Jefferson to Winston Churchill to William Rehnquist. That right now requires a most robust defense.

The full article is here.

Settlement in Vermont enforcement action against electronic-payment processor

Last week, the Vermont Attorney General announced that Advantage Payment Systems will pay $22,000 to settle claims that the company violated state consumer laws by processing electronic payments to payday lenders charging 100-300% interest despite the fact that Vermont law forbids interest rates of greater than 24%.

Apparently, the company has already stopped processing payments in Vermont involving online consumer loans.

Not knowing much about the case, my question is whether the state's real objection was the $22,000 (which seems small to me) or forcing the company out of Vermont (which seems like a more meaningful remedy going forward).

You can read the state's press release here.

Akerlof & Shiller's Phishing for Phools

by Jeff Sovern

I recently listened to the audio version of a book authored, by two Nobel Prize winners, George A. Akerlof & Robert J. Shiller, titled Phishing for Phools: The Economics of Manipulation and Deception.   Their basic thesis is that while free markets have the salutary effect of encouraging sellers to provide things that consumers want, free markets also encourage sellers to trick consumers into thinking they want what sellers provide.  Much of the book consists of instances of this latter phenomenon.  A familiar example: when researchers began showing that smoking caused cancer, tobacco companies financed research to cast doubt upon the evidence, thus deceiving consumers into thinking smoking was safe, so that consumers continued buying cigarettes. A more recent example along the same lines is Vioxx, which probably killed thousands of consumers.  Still other examples involve addictions to harmful things (alcohol, gambling), foods (the manipulation of salt and fat in potato chips, Cinnabon buns), credit cards (consumers spend more using credit cards than when paying cash) and subprime loans. With all of these, the authors argue, sellers benefit when they manipulate and deceive consumers into behaving irrationally.  The book thus makes a powerful argument for regulated capitalism, rather than unfettered capitalism.

The authors describe similar manipulation in politics.  They use a quote from Les Aspin, a former Congressman and Secretary of Defense: "If you give Congress a chance to vote on both sides of an issue, it will always do it,"  to explain how politicians like to vote one way to garner donations and another way to garner votes.  The authors didn't use the Fair Credit Reporting Act's furnisher liability provisions as an example, but they might as well have.  Section 1681s-2(a) bars furnishers, such as credit card issuers, from reporting to credit bureaus information about consumers that they have reasonable cause to believe is inaccurate. Sounds like a provision that might get votes from consumers.  But the furnisher can avoid complying with that provision if the furnisher provides consumers with an address to use to notify the furnisher of errors--meaning that furnishers can avoid liability even for telling credit bureaus things they have reasonable cause to believe is inaccurate--and in any event, consumers can't bring private claims for violation of the provisions. Sounds like a provision that might elicit contributions from the financial industry.  So politicians can get credit both for protecting consumers and banks, and voters/consumers are phished for phools.

One comment about the audio version: the reader mispronounces names that you would think he would get right, like Scalia and Keynes.  But worth listening to just the same. 

 

Will Obama's Supreme Court Nominee Cause the Court to be More Protective of Consumers?

Maybe not, according to this NY Times article. Excerpt:

[S]ome argue that the Supreme Court under Chief Justice John G. Roberts Jr. has become perhaps the most business-friendly court in recent history. A 2013 study by Lee Epstein of Washington University in St. Louis, William M. Landes of the University of Chicago Law School and Judge Richard A. Posner of the federal appeals court in Chicago ranked justices according to their rulings in cases involving business. The findings, which Ms. Epstein and Mr. Landes updated through the 2014-15 term for this article, show that six of the 10 most business-friendly justices since 1946 sat on the Supreme Court at the time of Justice Scalia’s death.

President Obama has given little indication that he is likely to reverse this trend. Both of his previous nominees, Sonia Sotomayor and Elena Kagan, have been relative moderates on matters involving business, despite some progressive opinions in specific cases.

“They are not Hugo Black or William Douglas or Earl Warren,” said Arthur R. Miller of the New York University School of Law, who has written about the court’s friendliness toward business, referring to three prominent liberal justices.

Alaska Supreme Court holds that foreclosure is "debt collection" covered under the FDCPA

Joining a growing consensus of appellate courts that have addressed this issue in recent years, the Alaska Supreme Court held last week that foreclosure counts as "debt collection" and therefore firms in the business of foreclosing on homeowners are "debt collectors" subject to the restrictions of the FDCPA. As the court explained, "foreclosing on property, selling it, and applying the proceeds to the underlying indebtedness constitute one way of collecting a debt." This is an important victory for consumers; a contrary interpretation would leave a gap in the FDCPA's coverage. (The case was litigated by the firm of our blog's own Deepak Gupta.)

You can read the decision here.

FCC describes proposed limits on government robocalls

The Hill reports:

Government debt collectors could only robocall a person three times per month and would have to stop calling when asked to do so, according to a draft proposal at the Federal Communications Commission. 

The FCC released more details of the draft proposal circulated among the commissioners last month. The new details were included in a series of letters to members of Congress, who opposed a new exemption for government debt collectors and urged the FCC to at least create strict limits on those robocalls.

The full article is here.

FCC chairman proposes new rule on internet choice, security, and privacy

Federal Communications Commission Chairman Tom Wheeler has circulated for consideration by the full Commission a Notice of Proposed Rulemaking "to ensure consumers have the tools they need to make informed choices about how and whether their data is used and shared by their broadband providers." The proposal would apply the privacy requirements of the Communications Act to broadband internet access service.

Chairman Wheeler's fact sheet explains that "Consumers should have effective control over how their personal information is used and shared by their broadband service providers. Telephone networks have had clear, enforceable privacy rules for decades, but broadband networks currently do not. Chairman Wheeler’s proposal to protect consumer privacy is built on three core principles – choice, transparency and security."

The Daily Dot has this summary and reactions.

The proposal will be voted on by the full Commission at the March 31 Open Meeting, and, if adopted, would be followed by a period of public comment.

DC Court of Appeals Holds That Winning Anti-SLAPP Defendant Presumptively Gets Attorney Fees

Resolving an ambiguity in the District of Columbia's Anti-SLAPP law, the DC Court of Appeals held today in Doe No. 1 v. Burke that a defendant who succeeds in a special motion to quash a subpoena for the defendant's identifying information is presumptively entitled to have attorney fees awarded, absent special circumstances rendering such an award unjust.

The issue arose because the fees provision of the anti-SLAPP law simply says that a court "may award" fees to a prevailing defendant, while specifying that a prevailing plaintiff who defeats a special motion can get an award of fees only if the filing of the anti-SLAPP motion was frivolous.  The superior court (whose denial of the Doe defendant's special motion to quash had been overturned by the court of appeals in 2014) denied fees, reasoning that it had broad discretion to award fees or not; indeed, its opinion seemed to suggest that only the plaintiff who had filed a frivolous claim over protected speech had filed a true "SLAPP" suit that could warrant an award of fees.  The court of appeals, however, concluded that the fee provision was modeled on many federal civil statutes whose fee provisions, although similarly permissive, have been construed as setting a norm of fee awards.

The decision should have a salutary effect by giving DC's anti-SLAPP law the same fiscal teeth as other strong anti-SLAPP laws around the country.  Plaintiffs may be deterred from filing lawsuits over speech on issues of public interest unless they are confident that they can present evidence in support of their claims at an early stage of the litigation.  By the same token, speakers will have an extra incentive to stand up for their rights, and lawyers will have a financial incentive to represent defendants whose speech appears to have been sufficiently justified that an anti-SLAPP motion is likely to be granted.  Lawyers handling such cases will have a reasonable expectation of being awarded their attorney fees, and thus being paid, even if the defendant cannot otherwise afford counsel.

Pew animation on the risks of mobile payment

Both cute and informative about the risks to consumers in the mobile economy. The takeaway: Federal regulations to protect consumers aren't evolving fast enough to keep up with technological advances. Watch it here.