Consumer Law & Policy Blog

Consumer Reports article on expansion of forced arbitration into consumer products

Arbitration clauses, ubiquitous in financial and telecom services, are increasingly used by sellers of consumer products such as dishwashers and televisions. To get a sense of how often, Consumer Reports looked at the top-selling brands in the 10 product categories receiving the most traffic on its website, plus two types of products designed for safety: bike helmets and child car seats.

The results were striking. Of the 117 brand/category combinations examined, 71—more than half—incorporate arbitration clauses. When looking at only the most popular product categories, more than two-thirds had arbitration clauses.

The Consumer Reports article is here.

Brady Williams Paper on Why Consumers Should be Able to Use Unconscionability as a Sword, Not Just a Shield

Brady Williams has written Unconscionability as a Sword: The Case for an Affirmative Cause of Action, 107 Calif. L. Rev. 2015 (2019).  Here's the abstract:

Consumers are drowning in a sea of one-sided fine print. To combat contractual overreach, consumers need an arsenal of effective remedies. To that end, the doctrine of unconscionability provides a crucial defense against the inequities of rigid contract enforcement. However, the prevailing view that unconscionability operates merely as a “shield” and not a “sword” leaves countless victims of oppressive contracts unable to assert the doctrine as an affirmative claim. This crippling interpretation betrays unconscionability’s equitable roots and absolves merchants who have already obtained their ill-gotten gains. But this need not be so.

Using California consumer credit law as a backdrop, this Note argues that the doctrine of unconscionability must be recrafted into an offensive sword that provides affirmative relief to victims of unconscionable contracts. While some consumers may already assert unconscionability under California’s Consumers Legal Remedies Act, courts have narrowly construed the Act to exempt many forms of consumer credit. As a result, thousands of debtors have remained powerless to challenge their credit terms as unconscionable unless first sued by a creditor. However, this Note explains how a recent landmark ruling by the California Supreme Court has confirmed a novel legal theory that broadly empowers consumers—including debtors—to assert unconscionability under the State’s Unfair Competition Law. Finally, this Note argues that unconscionability’s historical roots in courts of equity—as well as its treatment by the Uniform Commercial Code and the Restatements—reveal that courts already possess an inherent equitable power to fashion affirmative remedies against unconscionable contracts under the common law, even absent statutory authorization 

The effect of ALL CAPS in consumer contracts

Take a look at All-Caps by law profs Yonathan Arbel and Andrew Toler. Here is the abstract:

A hallmark of consumer contracts is long blocks of capitalized text. Courts and legislators believe that such “all-caps” clauses improve the quality of consumer consent and thus they will often require the capitalization of certain key terms in consumer contracts. Some of the most important terms in consumer contracts — warranty disclaimers, liability releases, arbitration clauses, and automatic subscriptions — will be enforced only because they appeared in all-caps in the contract.

This Article is the first to empirically examine the effectiveness of all-caps with respect to the quality of consumer consent. Using an experimental methodology, the Article finds that all-caps is significantly harmful to older readers while failing to show any appreciable improvement over regular print for others. We collect evidence from standard form agreements used by America’s largest companies and find that, despite — and perhaps because — all-caps is ineffective, it is widely used in nearly three-quarters of consumer contracts. Based on these findings and other evidence reported here, this Article lays out the dangers and risks of continued reliance on all-caps and calls for abandoning all-caps.

Becher & Benoliel Paper on Sneak In Contracts

Shmuel I. Becher of the Victoria University of Wellington and Uri Benoliel of the College of Law and Business - Ramat Gan Law School have written Sneak in Contracts: An Empirical Perspective. Here's the abstract:

Consumer contracts are a pervasive legal tool that governs much of our daily activities. In spite of – or perhaps due to – their ubiquity, consumer contracts are routinely modified by businesses after being accepted by consumers. Common modifications include, for example, a change in fees, alteration of a dispute resolution clause, or a revision to the firm’s privacy policy. In fact, unilateral modifications can address virtually every aspect of a contract.

While the literature widely discusses the problem of ex ante consent to consumer contracts, it does not properly recognize the problem of ex post consent to unilateral modification. Yet, the practice of unilateral change in consumer form contracts comes with significant detriments and social costs. In spite of these costs, there are no systematic empirical studies exploring this phenomenon. The Article aims to fill this gap by empirically examining the frequency, the mechanics and the degree of transparency of unilateral change mechanisms in consumer contracts.

This Article examines 500 sign-in-wrap contracts of the most popular websites in the U.S. that use such agreements. We find that the vast majority of consumer contracts in our sample are "sneak in" contracts. That is, they allow firms a unilateral and broad discretion to covertly change consumers' rights and obligations after being accepted by consumers. The findings of this study raise concerns as to whether sneak in contracts are aligned with some of the prominent core values and principles of contract law, such as consent, promise, reliance, consideration, freedom, choice, empowerment and community. The study thus calls for the introduction of an underdeveloped principle in the law that governs the modification of consumer contracts: the principle of transparency. It then offers a set of concrete recommendations, which will allow policymakers and courts to exhibit a more developed, sound and effective approach to the problem of sneak in contracts.

How Facebook stalks you — even when you’re not using Facebook

A column in the Washington Post today explains Facebook's new "Off-Facebook Activity" tool and suggests privacy settings you can change.

Ever suspect the Facebook app is listening to you? What we now know is even creepier. Facebook is giving us a new way to glimpse just how much it knows about us: On Tuesday, the social network made a long-delayed “Off-Facebook Activity” tracker available to its 2 billion members. It shows Facebook and sister apps Instagram and Messenger don’t need a microphone to target you with those eerily specific ads and posts — they’re all up in your business countless other ways.

Even with Facebook closed on my phone, the social network gets notified when I use the Peet’s Coffee app. It knows when I read the website of presidential candidate Pete Buttigieg or view articles from The Atlantic. Facebook knows when I click on my Home Depot shopping cart and when I open the Ring app to answer my video doorbell. It uses all this information from my not-on-Facebook, real-world life to shape the messages I see from businesses and politicians alike.

You can see how Facebook is stalking you, too. The “Off-Facebook Activity” tracker will show you 180 days’ worth of the data Facebook collects about you from the many organizations and advertisers in cahoots with it. ...

Facebook’s new tool isn’t nearly as useful as your Web browser’s clear-history button — it doesn’t let you reset your entire relationship with Facebook. But along with the transparency, it does give you a way to unlink some of its surveillance from your Facebook account.

The full article is here.

Seventh Circuit rules on a court's authority to issue notice to members of an FLSA collective action subject to contested arbitration agreements

Take a look at the Seventh Circuit's January 24 decision in Bigger v. Facebook, Inc., No. 19-1944. The Seventh Circuit succinctly sets out the dispute and its holding:

This case presents the question whether a court may authorize notice to individuals [who are putative members of a Fair Labor Standards Act "collective" action and] who allegedly entered mutual arbitration agreements, [purportedly] waiving their right to join the action.

Facebook employee Susie Bigger sued Facebook for violations of the FLSA overtime-pay requirements. She brought the action on behalf of herself and all other similarly situated employees. The district court authorized notice of the action to be sent to the entire group of employees Bigger proposed. Facebook argued this authorization was improper because many of the proposed notice recipients had entered arbitration agreements precluding them from joining the action.***  

We hold that when a defendant opposing the issuance of notice alleges that proposed recipients entered arbitration agreements waiving the right to participate in the action, a court may authorize notice to those individuals unless (1) no plaintiff contests the existence or validity of the alleged arbitration agreements, or (2) after the court allows discovery on the alleged agreements’ existence and validity, the defendant establishes by a preponderance of the evidence the existence of a valid arbitration agreement for each employee it seeks to exclude from receiving notice.

The Seventh Circuit's decision could assist advocates seeking to bring large numbers of individual arbitration claims by similarly-situated workers. For more info, see this article by Erin Mulvaney (possibly behind a paywall).

The CFPB's Disappointing Abusiveness Policy Statement

by Jeff Sovern

On Friday, the CFPB issued a Policy Statement on Abusive Acts or Practices. The Policy Statement is disappointing in several respects. First, it is intended to address a problem that has never been shown to exist. The Bureau explained that the Policy Statement is designed to ensure that “uncertainty does not impede or deter the provision of otherwise lawful financial products or services that could be beneficial to consumers.”  Industry representatives had long expressed concern that companies might forego offering new products for fear that the Bureau would find the products abusive.  But as far as I know, no one has ever identified a product that a company has declined to offer because of such a fear. See Jeff Sovern, Take the Abusiveness Challenge: Identify a Valuable Consumer Financial Product Not Offered Because of Uncertainty About Whether It Is Abusive, Consumer Law & Policy Blog  (Sept. 7, 2019). If the industry and the Bureau's anxiety is justified, we should see the industry supplying many new products which might otherwise have been considered abusive now that the Bureau has issued its Policy Statement. It will interesting to see if the industry does so. 

The Policy Statement described several limits to how the Bureau plans to use its abusiveness power. The Bureau explained that it would challenge “conduct as abusive [only] if the Bureau concludes that the harms to consumers from the conduct outweigh its benefits to consumers.” In this respect, the Bureau’s interpretation of abusiveness implies the use of cost-benefit analysis.  If I recall correctly, during the Bureau's symposium on abusiveness, Pat McCoy pointed out that Congress did not include such a cost-benefit test when it enacted the abusiveness power. Chris Peterson made the same point Friday in a tweet. Congress plainly had cost-benefit analysis on its mind when it gave the Bureau the power to pursue abusive acts, because it included a cost-benefit test in the very section, § 5531, conferring upon the Bureau the ability to address abusive practices. That appears in the provisions giving the Bureau the power to act against unfair practices. § 5531(c)(1). Elsewhere in the statute, Congress directed the Bureau to consider costs and benefits when issuing rules. § 5512(b)(2). It thus seems fairly clear that Congress knew about cost benefit analysis and chose not to have it be a factor in enforcement and supervisory actions based on abusiveness. Accordingly, the Bureau's statement seems unjustifiable as a matter of statutory interpretation of the text and seems more rooted in its own policy views than what Congress wrote or intended.

The Bureau also reported that it would “generally avoid challenging conduct as abusive that relies on all or nearly all of the same facts that the Bureau alleges are unfair or deceptive.” The Policy Statement notes that the Bureau had brought 32 actions using the abusive standard. In all but two of these, the Bureau also rested its case on either its power to prohibit deceptive practices or unfair practices, or both. In other words, the Policy Statement represents a departure from the Bureau's use of the abusive standard. One risk in refraining from using its abusiveness power in tandem with other powers is that if courts reject the claim that particular conduct is unfair or deceptive, and the Bureau has eschewed use of its abusiveness power, the Bureau might be powerless to stop behavior that it finds objectionable. Both the FTC and the CFPB have charged that conduct is both unfair and deceptive in the past, thus demonstrating their view that invoking two powers at the same time is not objectionable.

In addition, the CFPB stated that it “generally does not intend to seek certain types of monetary relief for abusiveness violations where the covered person was making a good-faith effort to comply with the abusiveness standard.” This seems designed to avoid deterring companies from offering new products in good faith that might violate the abusive standard. Again, whether any such products exist remains unclear.  

I want to suggest another reason the industry pressed the Bureau to limit the use of its abusiveness power: the more the Bureau foregoes use of its abusiveness power, the more the industry can engage in abusive conduct to generate revenue. It is not a coincidence that Congress gave the Bureau the power to block abusive behavior in the wake of the subprime lending that led to the Great Recession.

The Bureau would have done better to wait until it had accumulated far more experience with its abusiveness power, exactly as the FTC did before issuing its Policy Statements on deception and unfairness.

 

Call for papers on consumer law

The Montana Law Review is seeking papers on consumer law for a symposium to be held next September:

The Montana Law Review invites submissions for the 2020 biennial Browning Symposium at the University of Montana’s Blewett School of Law. The symposium will take place September 24 and 25 in Missoula, Montana. The topic this biennium is consumer law in the 21^st century, and Richard Cordray, the first director of the Consumer Financial Protection Bureau and former Ohio attorney general, will give the keynote address.

The Montana Law Review is seeking panelists to share their expertise on cutting edge consumer issues during the symposium and to publish papers in a special symposium edition of the Montana Law Review. Potential topics include, but are not limited to, cryptocurrency, social media influencers, challenges to disclosures, student loans, credit card debt, debt collection, healthcare fraud, pharmaceutical litigation, and data privacy.

Western Montana in the fall is a beautiful place to consider these important issues, and the Montana Law Review will reimburse reasonable travel expenses for selected participants. Missoula offers unmatched outdoor recreation opportunities, including world-class fishing and hiking, and is located only hours from Glacier National Park. 

Interested participants should submit a short abstract for an unpublished paper, along with institutional affiliation and contact information, to symposium editor Kelsey Dayton at kelsey1.dayton@umontana.edu. The Montana Law Review will select participants on a rolling basis beginning in April.

Briefing on the constitutionality of the CFPB

The briefing is almost complete in Seila Law. v. Consumer Financial Protection Agency. In that case, the Supreme Court will consider whether the structure of the CFPB, which was established by the Dodd-Frank Wall Street Reform Act of 2010, violates the separation of powers because the agency has a single direct who is removable by the president only for cause.

The parties' briefs and a slew of amicus briefs on both sides (including Public Citizen's brief arguing that the CFPB's structure is constitutional) are available here. The petitioner's reply brief is due in a few weeks, and oral argument is set for March 3.

Update on the claims process in the Equifax data breach litigation

Yesterday, Tara Siegel Bernard of the New York Times published a story providing an update on the claims process in the Equifax data breach litigation. The deadline to file initial claims was January 22, 2020.

She reports that as of December 1, 2019, “just more than 10 percent of the consumers affected had filed for some type of compensation.” More than 4.1 million people opted for the cash payment, which would work out to less than $7 per person (the settlement included $31 million to pay those claims). About 3.3 million people opted for credit monitoring services.

The full story is available here.