Consumer Law & Policy Blog

My Bloomberg piece about the CFPB's FDCPA proposed rules and consumer privacy

by Jeff Sovern

Link here

Excerpt:

[T]the bureau proposal would invade consumer privacy by allowing collectors to bombard consumers with demands for payment. Under the proposal, debt collectors could try the consumer’s phone number seven times a week and leave voicemails each time. That may not sound too bad, but the CFPB reports that nearly 75% of consumers with a debt in collection also have other debts in collection, meaning that such consumers could be overwhelmed with calls from multiple collectors. * * *

Add in that the proposal does not limit the number of texts and emails individual collectors could send, and the result might be that consumers, far from receiving occasional reminders that they owe a debt, flinch when their phone vibrates with a call, text, or email.

Study shows businesses benefit from using unenforceable contract terms

Meirav Furth-Matzkin and Roseanna Sommers, both of Chicago, have written Consumer Psychology and the Problem of Fine Print Fraud, 72 STANFORD LAW REVIEW___ (Forthcoming). Here's the abstract:

This Article investigates how laypeople respond to consumer contracts that are formed as a result of fraud. Across four studies, we show that contrary to the prevailing wisdom in contract law scholarship, fine print is not simply white noise. Rather, it has a significant and detrimental effect on lay consumers. We demonstrate that clauses that consumers neglect to read ex ante, at the time of signing, have a significant psychological effect ex post, when consumers discover that they were deceived about the terms of the transaction. Consumers who would otherwise complain about being cheated are demoralized by contractual fine print, and consequently decline to seek redress. This is because they erroneously assume that all contracts—even contracts induced by fraud—are binding. Our studies presented participants with cases in which a seller induces a consumer to buy a product or service by making a false representation. The false representation is directly contradicted by the written terms of the contract, which the consumer signs without reading. Our findings reveal that laypeople, unlike legally trained individuals, mistakenly believe that such agreements are consented to, and will be enforced as written, despite the seller’s material deception. Importantly, the presence of fine print discourages consumers from wanting to take legal action, initiate a complaint, or damage the firm’s reputation by telling others what happened, even when the contract contradicts what they were told. At the same time, the fact that the seller lied makes little difference to laypeople’s intuitions about whether the contract will be, or should be, enforced as written. Finally, we show that informing consumers about Anti-Deception Consumer Protection Laws alters their perceptions about the legal and moral status of contracts induced by fraud, although such information does not completely counteract their formalistic intuition that whatever the contract says is the final word. The implications of our study, we argue, are that prevailing methods for addressing deceptive business practices are inadequate because they fail to take account of consumer psychology.

 

Some big problems with the CFPB's proposal to allow debt collectors to leave limited-content messages over the phone

by Jeff Sovern

The more I think about the CFPB's recent proposal to allow debt collectors to leave limited-content messages over the phone, the more I think the proposal has real problems. The proposal would allow debt collectors to leave voicemails or oral messages with whomever answered the phone. To qualify as a limited-content message, the message must contain a few items--such as the collector's name and number--may contain certain other items--such as that the person is calling about an account--but can't contain still other items, such as that the person is trying to collect a debt.  These limited-content messages would not count as "communications" within the meaning of the FDCPA, and so wouldn't trigger disclosures that would tell third parties who happened to hear the message that a debt collector is pursuing the consumer. But I don't think they will work, at least not as currently proposed. First I'm going to discuss messages left with a human being, and then voicemails.

Messages left with people

Suppose a collector calls to speak to a consumer, let's call him Stan, and someone else, call her Marina, answers. The collector delivers the message: "Please have Stan call me, Ryan, at [number]." So far there's not a problem. But what happens when Marina asks, as people taking messages often do, "What's this about?" Ryan could reply that it's about an account, which is permitted under the proposal. But of course Marina is then likely to ask an account with whom.  And Ryan can't answer because if Ryan goes beyond the items listed in the definition of a limited-content message, he's no longer delivering a limited-content message, and anything he says risks violating the FDCPA.

So maybe Ryan doesn't want to use the word "account" to avoid getting the question about whom the account is with.  Should Ryan answer that it's a "personal business matter"?  That choice has two problems. First, it violates the prohibition on saying anything not listed in the definition of limited-content messages.  Second, that was the language the collector used in Foti v. NCO Fin. Sys., Inc., 424 F. Supp. 2d 643 (S.D.N.Y. 2006), the case that created the so-called Foti problem.  Not only did Foti say that the message left there violated the FDCPA (though some courts have not agreed as to similar messages), but the Bureau's decision not to include such language within the limited-content messages safe harbor when the Bureau proposal cited Foti indicates that the Bureau is not comfortable with limited-content messages being left that include that language. What if Ryan says it's private or some other such formulation? I don't think that's different enough from "personal business matter" to give me confidence that it will work. Any debt collector saying the matter is private risks paying for litigation to determine if the message is no longer a limited-content message.

Another option for Ryan is to say "I can't answer any questions." But again, who knows if that will take the message out of being a limited-content message? Even saying that is saying something. Still another option is for Ryan to hang up quickly when the consumer asks a question. That will probably work once or even twice per debtor.  But if Ryan calls a third time, and hangs up on the same person taking the message a third time, is that harassment?  Harassment also violates the FDCPA. Maybe Ryan could try to hang up quickly before the person taking the call gets to ask a question, but that's going to be hard to time when Ryan probably wants to verify that the person has written down the phone number correctly. At the end of the day, debt collectors might be better off not leaving messages with live people. Otherwise, they risk funding a law suit to defend their conduct, and maybe losing it.

Voicemails

The collector doesn't have to worry about being asked questions when leaving voicemails, so that's not a problem.  But there are two other issues (and these are also true of messages left with live people): first, it won't take long before everyone knows that a voicemail that refers to an account but doesn't say who it's with is a call from a debt collector.  I will have more to say about that in an upcoming piece in Bloomberg Law, so I will leave that alone for the moment.

But even a limited-content voicemail that doesn't use the word "account" is going to tip off anyone who hears it that the call is from a debt collector.  I'm pretty sure that these days, almost no one leaves voicemails of the sort debt collectors would be permitted to leave under the proposal.  Back in the eighties and nineties, they did, but today almost everyone communicates via text or email. The only people I get voicemails from are older folks who never took up texting--and anyone who hears one of their messages knows who it's from; doctors' offices--and they always identify themselves; and robocallers--and they're pretty easy to identify.  Maybe that isn't true of everyone, but I've been asking people I know, and they say much the same.  I never get a voicemail like the one debt collectors will be permitted to leave (if you do, please so indicate in the comments).  About a third of adult Americans have a debt in collection, which means a lot of people could receive debt collector voicemails, and if they later hear  other people getting the same kind of message, they will know what it is. That will violate the consumer's privacy.  This proposal would have made a lot more sense before everyone learned to text or use email.  But I don't think it will work today. 

It's ironic: for years, I thought that debt collectors should be able to leave voice messages for consumers. But now I don't think that can be done with violating the FDCPA's goal of protecting consumer privacy. The ship of phone messages has sailed.

Will New York catch up to Mississippi in protecting consumers?

by Jeff Sovern

Many states allow their consumers to sue misbehaving companies for unfair practices, including red and purple states like Mississippi, Georgia, North Carolina, Tennessee and West Virginia, states that we normally don't think of as being in the vanguard of consumer protection.  This power can be important in protecting consumers. For example, the CFPB used its own ability to stop unfair practices when it pursued Wells Fargo for opening unauthorized accounts, rather than its power to block deception. But New York has lagged behind these states, as well as its neighbors like Connecticut, Pennsylvania, and Massachusetts, in leaving unfairness out of its UDAP statute. Thus, New Yorkers could not have sued Wells Fargo for unfair conduct in opening unauthorized accounts.

But now that may change. The New York legislature is considering a bill to put the U in its UDAP statute.  The bill would also eliminate New York's requirement that plaintiffs in UDAP cases demonstrate that the offending conduct is "consumer-oriented," a requirement that no other state has adopted and that does not even appear in New York's statute; instead it was added by a court that evidently eschewed textualism as a method of statutory interpretation.

Unfortunately, but predictably, the bill is encountering heavy industry opposition. One argument made against the bill is that it "will open the flood gates for litigation."  But many other states permit consumers to sue for unfair conduct and don't require consumer-oriented conduct and have not experienced a flood of litigation (even assuming there is something wrong with a flood of litigation against bad actors). The items I have listed merely bring the statute into conformity with other states.

The statute currently provides for only $50 in statutory damages. As a number of studies have demonstrated, consumers almost never bring claims for $50.  It just isn't worth it to them.  So preserving $50 as the amount of statutory damages would be essentially the same as having no statutory damages.  The bill addresses this problem by increasing the amount of statutory damages to $2,000, an amount which is more likely to be enough to cause consumers to enforce the statute, though still less than the red state of Kansas, which allows statutory damages of fives times as much, or 200 times what the New York statute currently provides. Of course, businesses object to this too: they prefer that the amount be so low as to render private enforcement virtually nonexistent in the absence of large actual damages.

New York has a chance to offer its consumers not just the protection they need, but that they deserve. It should leap at the opportunity. 

Senators ask CFPB to reconsider debt collection proposal

More than 20 U.S. senators are calling on the Consumer Financial Protection Bureau to reconsider a proposal to allow debt collectors to send unlimited texts and emails to consumers, and to call consumers seven times a week per debt, USA Today reports. “By allowing debt collectors to send consumers unlimited text messages and emails without first receiving affirmative consent for such a method of communication, the proposed rule permits collectors to overwhelm consumers with intrusive communications,” the senators wrote.

The full article (which quotes the full text of the letter) is here.

New challenges for Mathew Higbee and his clients

by Paul Alan Levy

About a month ago, I blogged about a new variant in Matthew Higbee’s high-volume copyright enforcement practice on behalf of photographers, in which he was pursuing the hosts of online forums where users had posted copyrighted photographs or deep links to copyrighted photographs, taking advantage of those hosts who had failed to preserve their DMCA immunity by not registering a DMCA agent. (Note his response in the comment section, which does not merit a reply).  I gave Higbee a chance to withdraw his client’s claims; however, Higbee had previously told me that my arguments about non-liability for infringement in an identical case were “delusional,” so we decided to give Higbee a chance to explain to a judge in what way these defenses were delusional, that is, in response to an action for a declaratory judgment.

I confess that, in filing that lawsuit, I wondered whether Higbee had ever warned Luong that he would not necessarily get to make the final decision whether his demand would end up in litigation, in that the very aggressiveness of Higbee’s demand letters, coupled with persistent nagging from paralegals to offer a settlement or face immediate litigation, sets up his clients to be sued for a declaratory judgment of non-infringement. That speculation proved prescient, because Higbee’s immediate response to the lawsuit was to offer to have his client covenant not to sue Schlossberg for infringement. Higbee also told me that he had offered to defend Luong against the declaratory judgment action for free.  It appears, however, that even such a generous offer was not enough to hold onto Luong as a copyright infringement claimant in this case. A settlement agreement has been signed; because there is no longer a case or controversy, the lawsuit has now been dismissed.  Many thanks to Phil Malone and to Stanford third-year law student Alyssa Picard for their work on this case; and thanks for Kevin Schlossberg for having the gumption to stand up to Higbee's bullying.

John Oliver on our failure to properly regulate medical devices

View it here or click on the embedded video below.

 

Linda Fisher & Judith Fox Book: The Foreclosure Echo: How the Hardest Hit Have Been Left Out of the Economic Recovery

It's to be published next month by Cambridge and sounds like an important contribution. Here's a description:

The Foreclosure Echo tells the story of the ordinary people whose quest for the American dream was crushed in the foreclosure crisis when they were threatened with losing their homes. The authors, Linda E. Fisher and Judith Fox - each with decades of experience defending low-to-moderate-income people from foreclosure and predatory lending practices - have employed a range of legal, economic, and social-science research to document these stories, showing not only how people experienced the crisis, but also how lenders and public institutions failed to protect them. The book also describes the ongoing effects of the crisis - including vacant land and abandoned buildings - and how these conditions have exacerbated the economic plight of millions of people who lost their homes and have increased inequality across the country. This book should be read by anyone who wants to understand the fallout of the last financial crisis and learn what we can do now to avoid another one.

• Provides specific examples, through stories, of how the law affects real people
• Illustrates the implications of law and policy to help readers see and feel the implications
• Makes concrete policy and legal recommendations, based on evidence, legal experience and clients' situations

More information here.

Colorado Adopts an Anti-SLAPP Law

by Paul Alan Levy

Considering that it was the Colorado Supreme Court that pioneered the concept of the SLAPP suit with its path-breaking decision in Protect Our Mountain Environment, and that it was University of Denver professors Penelope Canan and George Pring whose scholarship developed the concept, it is astonishing that Colorado took so long to adopt anti-SLAPP legislation, but finally it has happened: Colorado has joined the many states that have such laws, and Colorado's new statute is a robust one.

We are still waiting for a federal statute.