Consumer Law & Policy Blog

FCC warns of risks to consumers of "zero-rating" cellphone programs

The Washington Post reports:

If you've used or heard of programs such as T-Mobile's Binge On or Music Freedom, then you're familiar with an increasingly common business tactic known as zero rating: the decision by a cellphone carrier to let you stretch your data plan by exempting some services, such as Spotify or Netflix, from your monthly data cap.

But now, federal regulators are raising concerns about two such programs operated by AT&T and Verizon, saying that although they potentially help customers get more out of their plans, the programs pose “significant risks to consumers and competition” and may even violate a key part of the government's net neutrality rules.

The full article is here. The Federal Communications Commission white paper discussed in the article is here.

West Publishes New Version of Consumer Protection in a Nutshell, Co-Authored by Pridgen and Marsh

by Jeff Sovern

My co-author, Dee Pridgen, has co-authored with Gene A. Marsh a new version of Consumer Protection Law in a Nutshell (disclosure: I read and commented on some chapters in draft).  One of the problems with teaching the course in recent years has been the lack of an updated companion volume that students could use to supplement the casebook and classes.  This book solves that problem.  The book would also be useful to someone seeking a compact treatment of and introduction to the subject.  Dee, of course, is an expert in consumer law as she has not only co-authored our casebook on the subject, but also has two consumer law treatises to her credit, among other writings. Quoting now from Dee's summary of the contents:

Federal and state law dealing with consumer transactions is covered, including cases, statutes and regulations.  The volume begins with an overview of public (both FTC and CFPB) and private enforcement actions to regulate the marketplace.  The remaining chapters track the legal aspects of consumer transactions in a roughly chronological fashion, starting with advertising and marketing, consumer privacy, credit reports and identity theft, and equal access to credit.   The discussion continues with coverage of mandated disclosures as well as substantive protections for consumers under the federal credit laws, especially the Truth in Lending Act (TILA), including installment sales, credit cards and real estate related financing.  Special issues relating to TILA enforcement, as well as a discussion of related federal statutes, and regulation of the cost of credit are also covered. Post-transaction issues such as raising claims and defenses against third party financers (Holder in Due Course), warranties, default and debt collection, are included.  Last but not least, there is a chapter on the law affecting various forms of payment for consumer transactions, including credit and debit cards. 

Professors and instructors can obtain complimentary copies from West. 

FTC: Mortgage Relief Defendant Banned from Debt Relief Business

The Federal Trade Commission announced today:

Damian Kutzner, one of the operators of a mortgage relief scheme that bilked millions of dollars from financially distressed homeowners, has agreed to a court order banning him from the debt relief business.

The stipulated order resolves the [FTC's] complaint and the contempt charges against Kutzner. It also bans him from providing certain financial products and services, and from making misrepresentations about any products or services. In addition, the order imposes a judgment of more than $18.3 million, representing the amount of consumer harm.

The settlement resolves FTC charges filed in May 2016 against Kutzner and four attorneys operating as Brookstone Law and Advantis Law. The FTC alleged that the defendants told homeowners they were likely to obtain “at least $75,000” or their homes “free and clear” through so-called “mass joinder” lawsuits, when in fact no consumer ever achieved, or was likely to achieve, any mortgage relief. ....

The promise of a mass joinder lawsuit is a ruse that some mortgage relief scammers use to bilk money from struggling homeowners. Unlike class-action lawsuits, in the event of trial each plaintiff in a mass joinder suit would have to prove his or her case separately.

In Kutzner’s case, he and the other defendants did not win any such cases, and most were dismissed by the courts because the defendants did not pursue them. Following the filing of the Commission’s complaint, a judge halted the operation on June 1, 2016, pending the outcome of this litigation.

Under a separate order announced today, Jonathan Tarkowski, an attorney, will be banned from the debt relief business, and prohibited from making misrepresentations about financial and other products and services. The order imposes a judgment of more than $1.1 million, which will be suspended upon payment of essentially all of his assets, valued at $5,307. ....

Kutzner and Tarkowski are prohibited from selling or otherwise benefitting from customers’ personal information and failing to dispose of it properly. Litigation continues against the remaining defendants.

CFPB acts against two law firms for misrepresenting attorney involvement to collect on debts

The Consumer Financial Protection Bureau this week took action against two medical debt collection law firms and their president for falsely representing that letters and calls were from attorneys attempting to collect on a debt when no attorney had yet reviewed the account. The law firms also did not ensure the accuracy of the consumer information they furnished to credit reporting companies and used improperly notarized affidavits in lawsuits filed against consumers. The practices affected thousands of individuals. The CFPB is ordering Works and Lentz, Inc., Works and Lentz of Tulsa, Inc., and their president, Harry A. Lentz, Jr., to provide $577,135 in relief to harmed consumers, correct their business practices, and pay a $78,800 penalty.

The CFPB's press release, with a link to the consent order, is here.

AmBanker: CFPB's Arbitration Plan Is Likely Dead on Arrival

Here (behind paywall).  The article lists various possible industry strategies for blocking the rule: fire CFPB Director Cordray before he can adopt the new rule or after it is adopted and appoint a new director who will rescind it; Congress could preempt the rule from taking effect through the Congressional Review Act or the Financial Choice Act; challenge a rule through litigation.  In one interesting passage, an opponent of a CFPB arbitration rule, Virginia law professor Jason Johnston, seemingly acknowledges that arbitration prevents consumers from asserting small claims:

Currently, a wide range of consumer finance firms have been shielded from billions in potential liability, especially over small-dollar disputes that might lead to class actions but are bound by mandatory arbitration. Filing an arbitration claim costs about $200, so any dispute for less than $200 likely does not get filed.

The average $200 fee "is a barrier to filing an arbitration claim," Johnston said.

He suggests that institutions take care of many small-dollar disputes because companies refund billions in consumer fees and charges every year. But there is no data repository to determine how many refunds stem from disputed charges. 

 

Does the Access to Justice Restoration Act Offer a Way Around Arbitration Clauses?

Stanford Law Professor Janet Cooper Alexander believes that it does.  The basic idea is that states and localities would empower private attorneys general to bring actions on behalf of the governmental entity (which would not be subject to arbitration clauses) for injured consumers, etc.

Here's an excerpt from the web page at the link above:

The Access to Justice Restoration Act works by:

1. Allowing people who have been harmed by unlawful behavior to report that behavior to the state’s attorney general or city attorney;
2. Upon receiving a report, granting the state or city itself a claim for relief over violations of antitrust, civil rights, consumer, or employment protections available to its residents;
3. Authorizing people who have reported misconduct to file a civil lawsuit on behalf of the state or city to collect any money owed to the government, and to ask for other appropriate court orders, if the state attorney general or city attorney does not have the resources or desire to file a case himself or herself;
4. Reducing the need for taxes while supporting public services by providing half of any money to the state or city;
5. Assisting all of the people who have been harmed by violations by providing half of any collected money to them; and
6. Allowing the courts discretion in each case to provide punitive damages of up to 100% of the actual damages caused by the wrongful behavior.

HT: Gregory Gauthier

ABA Webinar: Consumer Protection in a Trump Administration

by Jeff Sovern

Announcement here.  January 17 at 1, Eastern Time.

Speakers: 

David S. Evans, David S. Evans, Chairman, Global Economics Group
Norman I. Silber, Senior Research Scholar
Yale University, Professor of Law, Maurice A. Deane School of Law at Hofstra University
Deborah Goldstein, Center for Responsible Lending
Daniel D. Sokol, Professor of Law, University of Florida Levin College of Law
Jeff Sovern, Professor of Law, St. John’s University School of Law

 

"Dear Mr. Trump: Please Don't Destroy the CFPB"

We have seen a lot of articles and columns lately about the future of the Consumer Financial Protection Bureau and its director Richard Cordray. Jeff posted one such piece below.

The American Banker yesterday posted this defense of the CFPB  by Jeannette Quick, who has served as senior counsel to the Senate Banking Committee and counsel at the Office of the Comptroller of the Currency.

The Wall Street Journal expressed its opposite view in this editorial, entitled "Firing Mr. Cordray."

GOP Senator Sasse: "It's time to fire King Richard" Cordray of CFPB

by Jeff Sovern

Senator Sasse joined with Senator Lee in a letter to President-Elect Trump; The Hill has the story here.  The letter doesn't mention that the Bureau has secured nearly $12 billion in relief for more than 27 million consumers, among other significant accomplishments. 

Zywicki et al. Critique Use of Behavioral Law & Economics in Consumer Protection SCOTUS Case

Todd J. Zywicki of George Mason, and Geoffrey A. Manne and Kristian Stout, both of the International Center for Law and Economics, have written Behavioral Law & Economics Goes to Court: The Fundamental Flaws in the Behavioral Law & Economics Arguments Against No-Surcharge Laws.  Here is the abstract:

During the past decade, academics — predominantly scholars of behavioral law and economics — have increasingly turned to the claimed insights of behavioral economics in order to craft novel policy proposals in many fields, most significantly consumer credit regulation. Over the same period, these ideas have also gained traction with policymakers, resulting in a variety of legislative efforts, such as the creation of the Consumer Financial Protection Bureau. Most recently, the efforts of behavioral law and economics scholars have been directed toward challenging a number of state laws that regulate retailers’ use of surcharge fees for consumer credit card payments. In part as a result of these efforts, the issue has come before multiple courts, with varying outcomes.

In 2016 the issue reached the Supreme Court, which granted certiorari in Expressions Hair Design v. New York for the October 2016 term. The case, which centers on a decades-old New York state law that prohibits merchants from imposing surcharge fees for credit card purchases, represents the first major effort to ground constitutional law (here, First Amendment law) in the claims of behavioral economics.

In this article we examine the merits of that effort. Claims about the real-world application of behavioral economic theories should not be uncritically accepted — especially when advanced to challenge a state’s commercial regulation on constitutional grounds. And courts should be especially careful before relying on such claims where the available evidence fails to support them, where the underlying theories are so poorly developed that they have actually been employed elsewhere to support precisely opposite arguments, and where alternative theories grounded in more traditional economic reasoning are consistent with both the history of the challenged laws and the evidence of actual consumer behavior.

The Petitioners in the case (five New York businesses) and their amici (scholars of both behavioral law and economics and First Amendment law) argue that New York’s ban on surcharge fees but not discounts for cash payments violates the free speech clause of the First Amendment. The argument relies on a claim derived from behavioral economics: namely, that a surcharge and a discount are mathematically equivalent, but that, because of behavioral biases, a price adjustment framed as a surcharge is more effective than one framed as a discount in inducing customers to pay with cash in lieu of credit. Because, Petitioners and amici claim, the only difference between the two is how they are labeled, the prohibition on surcharging is an impermissible restriction on commercial speech (and not a permissible regulation of conduct).

Assessing the merits of the underlying economic arguments (but not the ultimate First Amendment claim), we conclude that, in this case, neither the behavioral economic theory, nor the evidence adduced to support it, justifies the Petitioners’ claims. The indeterminacy of the behavioral economics underlying the claims makes for a behavioral law and economics “just-so story” — an unsupported hypothesis about the relative effect of surcharges and discounts on consumer behavior adduced to achieve a desired legal result, but that happens to lack any empirical support. And not only does the evidence not support the contention that consumer welfare is increased by permitting card surcharge fees, it strongly suggests that, in fact, consumer welfare would be harmed by such fees, as they expose consumers to potential opportunistic holdup and rent extraction.

As far as we know, this is the first time the Supreme Court has been expressly asked to consider arguments rooted in behavioral law and economics in reaching its decision. It should decline the offer.