Consumer Law & Policy Blog

Recent announcements of DOJ's Consumer Protection Branch

July 15, 2016 - District Court Enters Permanent Injunction Against Minnesota Food Manufacturer and Company’s Managers to Prevent Distribution of Adulterated Food Products

July 12, 2016 - Residents of Three States Charged with Unlawful Sale of Dietary Supplements

July 11, 2016 - Southern California Man Pleads Guilty for His Role as Sales Manager in Fraudulent Mortgage Modification Scheme

July 11, 2016 - Salesman Pleads Guilty to Defrauding Consumers Through Debt Relief Firms

July 6, 2016 - New Jersey Medical Device Manufacturer Admits Selling Contaminated Ultrasound Gel; Court Orders Permanent Injunction

July 6, 2016 - District Court Enters Permanent Injunction Against Alabama Seafood Manufacturer and Company’s Co-Owners to Prevent Distribution of Adulterated and Misbranded Seafood Products

June 27, 2016 - Former Attorney Pleads Guilty to Participating in Fraudulent Mortgage Modification Scheme

June 27, 2016 - District Court Enters Permanent Injunction Against Sacramento Tofu Company and Senior Officers to Stop Distribution of Adulterated and Misbranded Products

June 23, 2016 - Captured Fugitive Pleads Guilty in Odometer Tampering Scheme That Defrauded Hundreds of Car Buyers

June 22, 2016 - Woman Pleads Guilty for Impersonating FBI Agent in Connection with Lottery Fraud Scheme Based in Jamaica

June 21, 2016 - Two Pharmacists Sentenced to Prison for Adulteration of Drugs in Connection with Alabama-Based Compounding Pharmacy

When Is a Threat to Litigate Not a Threat to Litigate? Sometimes in a Debt Collection Letter

by Jeff Sovern

Last week, I posted the abstract for our article, Are Validation Notices Valid? An Empirical Evaluation of Consumer Understanding of Debt Collection Validation Notices. In this post, I wanted to write about something that didn’t appear in the abstract: the extent to which respondents thought a collection letter said the collector would sue when the letter actually said the company had not yet decided whether to sue.

Collectors may not want to threaten litigation for fear of violating 15 U.S.C. § 1692e(5), which prohibits collectors from threatening to “take any action that cannot legally be taken or that is not intended to be taken.” On the other hand, collectors may want consumers to think that a failure to pay will result in litigation, because if consumers believe that, consumers may be quicker to pay the debt in question. In other words, collectors who don’t want to sue or can’t sue may want the benefits of threatening litigation without incurring the legal penalties for doing so. Would the letter that we tested, which the Seventh Circuit found did not violate the FDCPA in Zemeckis v. Global Credit & Collection Corp., 679 F.3d 632 (7th Cir.), cert. denied, 133 S.Ct. 584 (2012), enable collectors to have their cake and eat it too? The Zemeckis letter made three references of one sort or another to litigation. Thus, the collector alluded to a lawsuit (“XYZ Credit Card Company has not yet made a decision to file a lawsuit”) legal action (“If we cannot get this matter resolved soon and your account charges off, XYZ Credit Card Company may be forced to take legal action.”), and their outcome, a judgment (“This could result in a judgment against you”).

We asked our respondents this question:

What, if anything, did the letter say about XYZ’s intention to sue if you don’t pay the debt?       (If you wish to see the letter again, please click here for the first page and here for the second. If the letter is too small for comfortable reading, please use your browser control to zoom in. You also have the option of hitting the back button to review the earlier presentation of the letter.)     

The letter did not say anything about either XYZ suing. [Unfortunately, the word “either” was left over from an earlier version of the question and should have been omitted]

The letter said XYZ would sue if I don’t pay the debt.

The letter said XYZ has not yet made a decision to sue.

The letter said XYZ would not sue.

I don’t know.

Nearly a third of the respondents who saw the letter the Seventh Circuit approved (we called that Condition A) thought the letter said the company would sue. That seems like a lot of people who might feel pressure that Congress didn’t want them to feel, especially for a statute that courts, depending on the circuit, interpret as intended to protect the least sophisticated or unsophisticated consumer. When we showed the letter without the validation notice to another group of consumers (that was Condition C), half of them thought the letter said the company would sue. When we showed a third group of consumers a version of the letter with the validation notice but without the sentences about litigation quoted above (Condition D), only 11% of the respondents thought that the letter said the company would sue. The differences between A and D were not large enough to be statistically significant at the .05 level, but the differences between C and D were. Put another way, we can’t be certain that the references to litigation made a difference in a letter which included a validation notice, but we can be certain they did as to a letter that didn’t have a validation notice. Perhaps the key takeaway is that many respondents thought the letter said the company would sue even when it said the company hadn’t made a decision. Collectors who want to have the benefits of consumers thinking they will get sued if they don’t pay, but who don’t want to be liable under the FDCPA, will probably call that a victory.

 

Some Final Comments on the Book, Chain of Title

by Jeff Sovern

I have now finished the audio version of David Dayen's book, Chain of Title. With two caveats, I think it's an excellent book. The caveats: first, I don't know enough about the events it describes to know how accurate it is, and second, I lose some comprehension with audiobooks, as opposed to reading the text. Nevertheless, it would be an excellent book for folks interested in consumer law to read.  It reads like a novel about consumer protection, but unfortunately, it's not fiction.  I am tempted to assign it as background reading the next time I teach consumer law, in part to make up for the fact that we don't devote class time to foreclosure fraud and robo-signing (I wish we could cover everything!), and in part to teach something about where consumer protection fits in today's landscape.  Unfortunately, where consumer protection fits in the landscape is largely out of sight.

(Spoiler alert) The book is ultimately upsetting on several levels. First, consumers were treated badly. Many lost their homes to banks that couldn't prove that they were entitled to foreclose, and sometimes the bank clearly did not have a right to foreclose, as with people who were current on their mortgage payments or didn't even have a mortgage and were still foreclosed upon.  Second, rather than regulators or consumer lawyers, according to the book, it was ordinary people who got the ball rolling, though regulators and consumer lawyers later played key roles.  Third, while banks ultimately paid significant amounts in the national settlement, the author makes a strong case that the remedy wasn't nearly enough.  Fourth, regulators and pro-industry government officials appear to have done more to protect banks than consumers.  Florida Attorney General Bondi comes off as particularly terrible, but the Obama administration also failed to cover itself with glory.  The book makes a strong argument that the law, including consumer protections, failed consumers. 

Update: a consumer advocate who knows more about the AG settlement than I do says that while the settlement wasn't perfect, it also had a lot to recommend it, and that the AGs may well have gotten as good a deal as possible.

CFPB Announces Debt Collection Field Hearing July 28; Sneak Peak at the New Rules?

Here.  The Bureau is likely to announce the Small Business Regulatory Fairness Enforcement Act (SBREFA) proceeding that day, which will entail giving some information about what its proposed debt collection rules are likely to look like.

American Banker Story: Pence's Statements on the CFPB and Other Banking Issues

The story is headlined Pence VP Pick Could Shape Trump's Banking Policy (free content).  Here is what the article says about Pence's view of the CFPB:

When the Consumer Financial Protection Bureau was just a legislative proposal, Pence objected to giving a new agency so much power; he would likely support efforts to reform the structure of the agency. Republicans have been pushing to replace the bureau's single director with a five-person commission and to require that the bureau consider credit availability as well as consumer protection.

"The bill allows bureaucrats to determine the types and terms of credit products offered to consumers, through the establishment of the so-called Consumer Financial Protection Agency," Pence said in the speech to the New York Hedge Fund Roundtable.

"An unelected 'credit czar' would be empowered to dictate what financial products could be offered and at what terms, drastically reducing the number of financial products available and driving up the cost of credit generally, at a time when families and small businesses can least afford it," Pence added. "Agencies need the ability to consider safety and soundness and consumer protection together to ensure that a balance is achieved and neither responsibility is neglected."

CFPB Orders Santander Bank to Pay $10 Million Fine for Illegal Overdraft Practices

The Consumer Financial Protection Bureau announced yesterday that it has ordered Santander Bank, N.A. to pay a $10 million fine for illegal overdraft service practices.

Santander’s telemarketing vendor deceptively marketed the overdraft service and signed certain bank customers up for the service without their consent. In addition to paying the civil money penalty to the CFPB, Santander Bank must go back and give consumers the opportunity to provide their affirmative consent to overdraft service, not use a vendor to telemarket its overdraft service, and it must increase oversight of vendors it uses to telemarket consumer financial products or services.

“Santander tricked consumers into signing up for an overdraft service they didn’t want and charged them fees,” said CFPB Director Richard Cordray. “Santander’s telemarketer used deceptive sales pitches to mislead customers into enrolling in overdraft service. We will put a stop to any such unlawful practices that harm consumers.”

Santander is a national bank based in Wilmington, Del. Santander Bank operates a network of nearly 700 retail branch offices in Connecticut, Delaware, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, and Rhode Island.

The CFPB's full press release is here.

Congress passes GMO-labeling bill

The Hill reports on the new federal GMO-labeling bill, which has drawn praise and criticism.

A bill to create a federal labeling standard for foods with genetically modified ingredients and block states from issuing their own laws sailed through the House on Thursday.

The bill, which passed by a 306 to 117 vote, directs the U.S. Department of Agriculture to create a national labeling standard that allows food producers to choose how they want to disclose the presence of genetically modified ingredients.

Under the legislation, manufacturers will be able to use text, symbols or a QR code that consumers must scan with a smartphone to relay the information.

The bill passed the Senate last week and now heads to President Obama's desk.

Democrats slammed the measure, calling it anti-consumer. Critics say the bill will roll back tougher state standards and deny consumers information on their foods.

The Hill's story is here.

New air travel law called "an amazing win for consumers"

The Washington Post reports:

After months of debate over the Federal Aviation Administration reauthorization bill, and at an apparent impasse over privatizing air traffic control, Congress has settled on a compromise — with some unexpected benefits for the average air traveler.

The House and Senate have agreed on an extension that would fund the agency at current levels through September 2017. Among other things, it would also require airlines to seat families with children together without charging them more, accelerate the security screening process and issue prompt refunds for baggage fees when luggage is lost for more than 12 hours.

The legislation surprised consumer advocates, who had expected a far less ambitious extension bill.

The Post's full story is here.

"Road Seems Dark to You? New Tests Blame Your Headlights"

Of the dozens of vehicles — small S.U.V.s and midsize cars — whose headlights the Insurance Institute for Highway Safety has tested this year, only one has been rated “good.” That was a 2016 Toyota Prius V. The best any others could muster was merely “acceptable,’’ and many fared much worse. There’s at least one reason for the shortcomings. The federal standard for headlights became effective in 1968. Some revisions have been made, but the actual testing procedure has not changed much. And despite decades of improvement in lighting technology since then, the government still tests headlamps only in a laboratory setting, not in actual cars on dark, winding roads. Nor does the federal standard specify how far the headlights must illuminate the path ahead. Hoping to shame the auto industry to do better, the insurance group is setting a de facto safety standard for carmakers to meet.

The New York Times has the story.

Australian Financier's Abuse of Trademark Law to Suppress a Critical Blog: A Perpetual Problem in the N.D. Cal.

by Paul Alan Levy

There is somebody on the other side of the Pacific Ocean who has a strongly negative perspective on Nicholas Assef, the head honcho at an Australian financial services firm called Lincoln Crowne – or at least, somebody held such views nine years ago.   We know at least that much because, in 2007, an anonymous individual created a small Google blog, using the URL lincolncrowne.blogspot.com, and posted a “warning” urging people who were considering doing business with  Assef and his company to do their due diligence first.  And even though the blog is buried deep in the Google search results for someone entering a search using lincoln crowne as the search string (currently, it is on the tenth page of results), Assef is plainly rankled by this criticism.  We know that first of all because seven years later, after Google refused to take down the blog, Lincoln Crowne sued Google for defamation in Australia (which lacks the US protection for online hosts that section 230 affords).  Google initially responded to the lawsuit by taking down the blog, but later restored the blog to its DOT.COM domain.  It is not clear to me whether Lincoln Crowne ever pursued the suit against Google to judgment.  The company’s papers do not make reference to any judgment, so I assume there was none.

We have a sense of how upset Assef must be because last year, Lincoln Crowne and its principal filed a lawsuit against the anonymous blogger in the Northern District of California, claiming both defamation and trademark infringement.  They are represented by Mitchell Silberberg, a large law firm whose services do not come cheap (this hyperlink is to a years-old fee application by Marc Mayer, the more senior of Assef's lawyers in this case).

The Apparent Flaws in Plaintiffs’ Lawsuit

The trademark claim is based on the proposition that use of the company name in the third-level domain for the blog constitutes infringement.  The complaint asks the court to exercise supplemental jurisdiction over the defamation claim, which is based on the allegation that everything written in the blog is a lie (does that include “and” and “the”?).  The defamation claim is a bit odd because the statute of limitations for defamation is only one year, and the suit was filed eight years after publication.  And the trademark claim is even worse – the blog is simple criticism, without selling any rival products. and there is a Ninth Circuit decision on point: Bosley Medical v. Kremer (a case that I handled), saying that non-commercial gripe sites are outside the scope of the Lanham Act.  And even if the site had some commercial aspect, what likelihood of confusion about source could be caused by a blog that is headlined  BEWARE LINCOLN CROWNE & COMPANY and then “Warning Warning Warning - Nick Assef"?.  It was only a few years ago that Charles Carreon was hit with a Lanham Act  attorney fee award in the Northern District of California for his litigation against Christopher Recouvreur over the use of Carreon’s name as the domain name of a satirical blog about Carreon.