Consumer Law & Policy Blog

Let's get real about Munger Tolles's mandatory arbitration controversy. Or, put differently, will we see Munger Tolles partners lobbying for passage of the Arbitration Fairness Act?

As you may know, the Munger Tolles law firm has backtracked on its effort to force summer associates to sign mandatory, pre-dispute arbitration agreements with the firm. Given the "me too" movement, the firm certainly had a PR problem on its hands. As this article by Meghan Tribe explains:

Munger, Tolles & Olson reacted swiftly Sunday afternoon after news of the inclusion of a mandatory arbitration agreement for its summer associates emerged via Twitter less than 24 hours before. “In this case, we were wrong, and we are fixing it,” said a March 25 statement from Munger Tolles posted to the firm’s Twitter account. ... The leaked agreement required that Munger Tolles summer associates arbitrate all employment-related claims, including those that fall under Title VII of the Civil Rights Act of 1964, which includes sexual harassment.

Munger Tolles says the firm was “wrong” to shove mandatory pre-dispute arbitration down the throats of its employees. No question.

So, why isn’t it similarly wrong (or far worse) for MT's corporate clients, who presumably MT would defend in shoving mandatory pre-dispute arbitration down the throats of low-wage workers and consumers –- all of whom have less bargaining power than law students who get offers from MT? 

Presumably MT's lawyers, like other corporate lawyers, advise their clients to take advantage of favorable Supreme Court case law by employing mandatory, pre-dispute arbitration clauses.

So let's be clear about what's going on here. MT said what it had done was “wrong,” and, by that, the firm meant morally “wrong.”  But MT's corporate clients think mandatory arbitration is a good thing when it's forced on poor people and others with little bargaining power.

So, does MT think that mandatory arbitration is a bad thing for some of us, and a good thing for others of us? Or does it think that mandatory arbitration is a bad thing for everyone, but would help support its use against consumers and law-wage workers only when the firm's clients insist? If the latter, will MT partners, as private citizens, lobby Congress to pass the Arbitration Fairness Act? 

Op-ed by corporate attorneys explains importance of accountability through the civil justice system

In today's New York Times, two lawyers from the large corporate law firm Paul, Weiss, Rifkind, Wharton & Garrison argue for repeal of the law that immunizes gun manufacturers from liability and explain the importance of law allowing individuals to hold industry accountable for wrongdoing. A nice piece, available here.

Article on When Consumers Trust and Seek Advice from Sellers

Justin Sevier and Kelli Alces Williams, both of Florida State, have written Consumers, Seller-Advisors, and the Psychology of Trust, Boston College Law Review, Forthcoming.  Here is the abstract:

Every day, consumers ask sellers for advice. Because they do not or cannot know better, consumers rely on that advice in making financial decisions of varying significance. Sellers, motivated by strong and often conflicting self-interests, are well-positioned to lead consumers to make decisions that are profitable for sellers and may be harmful to the consumers themselves. Short of imposing fraud liability in extreme situations, the law neither protects the trust consumers place in “seller-advisors,” nor alerts them to the incentives motivating the advice that sellers give. 

This Article makes several contributions to the literature. First, it identifies and defines the seller-advisor. Sellers and advisors are usually regarded separately by the law; therefore, consumers interacting with them are protected by different rules. As a result, a false dichotomy has arisen between (1) a doctrine of caveat emptor, subject to liability for fraud and applying to consumers interacting with sellers, and (2) fiduciary duties protecting consumers interacting with advisors. This Article is the first attempt to study consumer trust in the many common transactions that fall somewhere in the space between. Second, in reporting the results of an original psychology experiment, this Article offers empirical evidence of how consumers’ decision making is influenced by the trust they place in seller-advisors. Finally, it explores how consumer trust in seller-advisors arises and how it can be manipulated in an effort to understand how legal policy should respond to both the ubiquity of seller-advisors and the consequences of consumer reliance on, and vulnerability to, their advice.

"Trump official quietly drops payday loan case, mulls others"

Reuters reports: "The top cop for U.S. consumer finance has decided not to sue a payday loan collector and is weighing whether to drop cases against three payday lenders, said five people with direct knowledge of the matter."

The full article is here.

FTC and CFPB issue annual report on activities to combat illegal debt collection

Today, the Federal Trade Commission and Consumer Financial Protection Bureau issued a joint report on their 2017 activities to combat illegal debt collection practices. The annual report to Congress on the administration of the Fair Debt Collection Practices Act details the agencies’ efforts to stop unlawful debt collection practices, including vigorous law enforcement, education and public outreach, and policy initiatives.

The report is here.

It will be interesting, next year, to compare the CFPB's report on work in 2017, under former Director Cordray, with its report on work in 2018, under acting Director Mulvaney. No one has yet been nominated to the director position.

Sales that don't offer genuine discounts

Kevin Brasler of Washington Consumer Checkbook has an interesting column in last week’s Washington Post detailing the findings of a study of consistently deceptive advertising of ”big ticket items” that are supposedly on sale, even though the supposed regular price was never applicable during the ten month period of the study. The complete study is linked here.

House Financial Services Committee Passes Troubling Bill to Exempt Lawyers Engaged in "Litigation Activities" from the Fair Debt Collection Practices Act

by Jeff Sovern

H.R. 5802 passed the House Financial Services Committee today, on a 35-25 vote. The bill would exempt from the FDCPA any lawyer to the extent that the lawyer "is engaged in litigation activities in connection with a legal action in a court of law to collect a  debt . .  ." If the attorney sues the consumer on the debt, the bill excludes from the FDCPA "any other activities engaged in as part of the practice of law . . . ." I'm not sure exactly what that would cover, but it presumably means that attorneys can do things normally prohibited by the FDCPA as long as it is part of the practice of law. For example, the FDCPA prohibits collectors from disclosing to third parties the existence of the debt. Will lawyers now be able to tell consumers' employers that they are being sued on a debt and therefore their wages may be garnished at some point in the future? Is that "part of the practice of law"? Will lawyers be able to call consumer-debtors at times normally forbidden to collectors under the FDCPA? Will attorneys be able to make abusive statements to consumers in communications about the law suit?  

Commission Structure for CFPB Seems Even Less Likely as Some Republicans Retreat From Calls for It--Though Subjecting CFPB to the Appropriations Process Still a Risk

by Jeff Sovern

Kate Berry has a report at the American Banker, A CFPB commission will never fly, chock full of interesting quotes.  The gist of it is that the Senate Democrats who voted for the bank bill oppose changes in the CFPB and so say they will not support a revised bill if the House were to insist on converting the CFPB to a commission. Meanwhile, some Republicans who formerly supported a commission have cooled to the idea now that a President Trump will get to nominate the next director.  The industry seemingly is steadfast in its support for a commission, though. But efforts to weaken the Bureau by subjecting it to the congressional appropriations process are still alive; that goal could be accomplished by adding a provision to the pending appropriations bill. 

Supreme Court says class actions under Securities Act of 1933 are for state courts

The result today in Cyan v. Beaver County Employees Retirement Fund is interesting, particularly given the legislative trend to provide forum choice to defendants in aggregate litigation (which usually means federal court, because big companies generally prefer federal court). The issues and the Supreme Court's unanimous holding are crisply stated in the first paragraph of Justice Kagan's opinion:

This case presents two questions about the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 112 Stat. 3227. First, did SLUSA strip state courts of jurisdiction over class actions alleging violations of only the Securities Act of 1933 (1933 Act), 48 Stat. 74, as amended, 15 U. S. C. §77a et seq.? And second, even if not, did SLUSA empower defendants to remove such actions from state to federal court? We answer both questions no.

At oral argument, Justice Alito complained that the relevant statutory language was "gibberish" -- which then caused other people to use the word, for nine total uses of "gibberish." I'm guessing that's the record for use of the word "gibberish" in a Supreme Court oral argument. In any case, Justice Kagan's opinion indicates that she thought the relevant language was pretty clear.

Defendants will seek a legislative overrule. Will Congress give it to them?

Colin Marks Paper: Online Terms as In Terrorem Devices

Colin P. Marks of St. Mary's has written Online Terms as In Terrorem Devices.  Here's the abstract:

Online shopping has quickly replaced the brick-and-mortar experience for a large portion of the consuming public. The online transaction itself is rote: browse items, add them to your cart, and checkout. Somewhere along the way, the consumer is likely made aware of (or at least exposed to) the merchant’s terms and conditions, via either a link or a pop-up box. Such terms and conditions have become so ubiquitous that most consumers would be hard-pressed to find a merchant that doesn’t try to impose them somewhere on their website. Though such terms and conditions are pervasive, most consumers do not bother to read them before checking-out. Consumers might be surprised at what they would find if they did read the terms and conditions as many retailers include clauses limiting liability, disclaiming warranties as well as choice of law, forum selection, arbitration, jury waiver, and class action waiver clauses. Many of these clauses are grounded in a practical concern over limiting liability and lowering transaction costs. However, the fact that retailers do not include such clauses as part of their in-store transactions raises the question of whether the retailers are actually concerned with binding consumers to such terms. The apparent lack of importance of these terms is further highlighted by the fact that most retailers use “browsewrap” terms and conditions to bind their customers, despite browsewrap being one of the least effective methods of making consumers aware of the terms. While these terms and conditions may provide some utility to the companies attempting to impose them, the main benefit may in fact be their in terrorem effect. This is especially true in instances where companies have failed to adequately notify their consumers about the terms’ existence. This article examines the various methods that are used in online contracting to bind consumers, as well as the enforceability of the most common terms. The article concludes that the primary incentive sellers have to include such terms on their websites is their in terrorem effect. Though the use of online terms and conditions as in terrorem devices may be appealing economically, the use of browsewrap as the primary notification device ex ante presents moral and ethical issues.