Article on deficiencies in dietary supplement regulation

Law professor Diana Sax has written Dietary Supplements Are Not All Safe and Not All Food: How the Low Cost of Dietary Supplements Preys on the Consumer. Here is the abstract:

Dietary supplements are regulated as food, even though the safety and efficacy of some supplements are unknown. These products are often promoted as ‘natural’. This leads many consumers to fail to question the supplements’ safety, and some consumers even equate ‘natural’ with safe. But, ‘natural’ does not mean safe. For example, many wild berries and mushrooms are dangerous although they are natural. Another example is tobacco — a key ingredient in cigarettes — it is natural, but overwhelming studies have established the harm of cigarette smoke. The Food and Drug Administration (FDA) requires safety and efficacy testing prior to market entry for drugs. In contrast, the FDA only has limited ability to regulate the entry of new dietary supplements into the marketplace because supplements are treated as food. Two main arguments support the current regulatory structure of dietary supplements: (1) cost and (2) access. Lower cost and increased access to dietary supplements do not necessary have any relationship to safety and efficacy. Manufacturers’ marketing techniques tout the health benefits of their supplements. Meanwhile, consumers are ingesting supplements without scientific studies indicating whether or not they are harmful. The Food Safety and Modernization Act, signed into law on January 4, 2011, did not address the safety concerns regarding dietary supplements. This article discusses the regulatory deficiencies concerning dietary supplements and proposes novel solutions to address this specific sector of the food supply. This article advocates for the use of scientific data to support a multi-tiered classification system to ensure that dietary supplements on the market are safe.

Can Grocery Carts Steer Consumers To Healthier Purchases?

...is the title of an NPR report this morning discussing what happens what experimenters taped off a portion of consumers' grocery carts and labeled it "fruits and vegetables." The results tell us as much about marketing and the power of suggestion as they do about how health-conscious grocery stores might try to nudge their consumers.

Listen here.

CFPB acts against deceptive tactics by large debt buyers

The Consumer Financial Protection Bureau announced yesterday:

Today the Consumer Financial Protection Bureau (CFPB) took action against the nation’s two largest debt buyers and collectors for using deceptive tactics to collect bad debts. The Bureau found that Encore Capital Group and Portfolio Recovery Associates bought debts that were potentially inaccurate, lacking documentation, or unenforceable. Without verifying the debt, the companies collected payments by pressuring consumers with false statements and churning out lawsuits using robo-signed court documents. The CFPB has ordered the companies to overhaul their debt collection and litigation practices and to stop reselling debts to third parties. Encore must pay up to $42 million in consumer refunds and a $10 million penalty, and stop collection on over $125 million worth of debts. Portfolio Recovery Associates must pay $19 million in consumer refunds and an $8 million penalty, and stop collecting on over $3 million worth of debts.

The CFPB's full press release is here.

Gelles' Final Blog Post: "Sometimes, government actually is the solution"

On Saturday, we linked to Jeff Gelles's final consumer column for the Philadelphia Inquirer. Here is his final blog post.

Recent announcements from DOJ's Consumer Protection Branch

Below are recent announcements about the work of the Department of Justice Consumer Protection Branch:

September 3, 2015 - Genzyme Corporation to Pay $32.5 Million to Resolve Criminal Liability Relating to Seprafilm

August 27, 2015 - Peruvian Man Charged with Leading Conspiracy to Defraud and Extort Spanish-Speaking Consumers through Call Centers

August 17, 2015 - District Court Enters Permanent Injunction against Iowa Dietary Supplement Company and its Principals to Stop Distribution of Adulterated Dietary Supplements

August 12, 2015 - U.S. Citizen Sentenced in Connection with Costa Rica-Based Business Opportunity Fraud Ventures

August 4, 2015 - District Court Enters Permanent Injunction against California Soy Food Producer and Three Individuals to Stop Distribution of Adulterated Foods

July 31, 2015 - United States Files Complaint against Three Wisconsin Dietary Supplement Manufacturers

July 29, 2015 - United States Seeks Criminal Penalties for Man Selling Dietary Supplements Online in Violation of Court Orders

July 16, 2015 - California Payment Processing Company Owner Pleads Guilty to Fraud

July 16, 2015 - Two New York Salesmen Sentenced to Prison in Business Opportunity Fraud Scheme

July 10, 2015 - District Court Enters Permanent Injunction against Nevada Animal Drug Manufacturer to Prevent Distribution of Adulterated Drug

July 10, 2015 - United States Files Enforcement Action against Iowa Dietary Supplement Company and Principals to Stop Distribution of Adulterated and Misbranded Dietary Supplements

'Tain't natural

Well, a judge has refused to certify an injunctive class based on “natural” deception where the company changed its practices in response to a CLRA notice letter, prior to the lawsuit. 

 

Most courts will hold that this moots an injunctive relief claim (incorrectly, in my opinion, because I don’t trust food companies not to return to a deceptive practice).

 

In this case, the court refused to certify an injunctive class based mostly on the “won’t get fooled again” theory—that the class rep certainly knows better than to buy something that she knows is fraudulent, and thus has lost Article III standing.

 

This creates a situation where anyone smart enough to be a class rep is deemed to be too smart to get fooled again.

 

Courts are split between those judges take this approach and those that—correctly—note that if this were the case, then no deceptive labeling class action could be brought.

 

Of course, industry lawyers use opinions like this to decry all food cases as “baseless” (as one does in a story reporting on this decision). 

 

Fact is, they are not baseless, even when unsuccessful. 

 

This company, and far too many others, cheat consumers by promising them a “natural” product that isn’t, in this case because it had GMO ingredients.

  

Ninth Circuit: no private right of action to enforce video privacy law's bar on data retention

In Rodriguez v. Sony Computer, a consumer sued Sony for keeping his personal information that he entered on his PlayStation past the one-year limit provided in the federal Video Privacy Protection Act, and sharing that information between Sony entities. (The Ninth Circuit provides interesting historical context for the VPPA: "The Act was promulgated in 1988 after the Washington City Paper published Judge Robert Bork's video rental history during his failed Supreme Court confirmation proceedings.")

Last Friday, the Ninth Circuit upheld dismissal of the complaint. First, the court held that the VPPA cannot be privately enforced by consumers as to unlawful retention of information, only unlawful disclosure. In this regard, the court joined the Sixth and Seventh Circuits. Second, as to the unlawful disclosure claim, the court held that Rodriguez's claim failed because Sony's sharing across its various entities because it occurred in the "ordinary course of business," which includes the transfer of ownership. When Sony took over the PlayStation network, the Ninth Circuit ruled, it could acquire Rodriguez's information.

The decision is here.

Is the Durbin Amendment working?

The Durbin Amendment to the Dodd-Frank Act, as implemented by a Federal Reserve Board regulation, limits debit card interchange fees in many debit-card transactions. Interchange fees are per-transaction fees imposed by debit-card issuing banks on merchants each time a consumer uses a debit card. The regulation went into effect in October 2011.

The idea of the Durbin Amendment was that interchange fees were excessive. (Excessiveness was blamed on the market power of the two large card networks, Visa and MasterCard.) The proponents claimed that fees harmed merchants, which in turn harmed consumers, because the merchants passed on some or all of the excessive fees to consumers. On average, for covered transactions -- there are exclusions -- the Durbin Amendment has reduced fees by about half to roughly 21 cents per transaction.

But has the Durbin Amendment benefited merchants in increasing their net revenues and consumers in the form of lower prices for goods and services?

A survey study of merchants -- written by Zhu Wang, Scarlett Schwartz, and Neil Mitchell of the Federal Reserve Bank of Richmond -- indicates that, in general, the Amendment has benefited neither merchants nor consumers. The authors stress that their findings are preliminary, based on a small sample of merchants, and more in-depth study is needed. 

New York City bans credit checks in hiring

Consumer reporter Michele Singletary has penned this article entitled In New York, good riddance to a questionable hiring practice.

Singletary explains that "[f]ederal law allows employment credit checks under the Fair Credit Reporting Act. It requires employers to get an applicant’s or employee’s permission before pulling his or her history. But really, if you want the job, how likely are you to refuse such a request?"

And then, she asks:

How does the fact that you once couldn’t pay your credit card bill correlate to job performance? Or if someone is a poor money manager, does that mean she’s more likely to commit fraud? We don’t really know the answers to those questions, yet many employers are allowed to screen folks on the assumption that their character is related to their credit history. As I’ve seen in my own work with people, a bad credit record can be the result of a host of problems not linked to irresponsible financial behavior. The think tank Demos and other advocates have found that many people’s credit was brought down by periods of unemployment or medical debt. Some were the victims of predatory lending practices.

Singletary then goes on to explain that"[e]leven states limit employers’ access to or use of [job] applicants’ credit information — California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington. And 28 bills are pending in statehouses across the nation. And then she describes a new law in New York City that proponents say is the toughest in the country.

More details on the NYC law can be found here and here.

Critique of the Consumer Financial Protection Bureau's arbitration study

The Dodd-Frank Wall Street Reform and Consumer Protection Act mandates that the CFPB conduct a study on the use of pre-dispute arbitration clauses in consumer financial markets. The Dodd-Frank Act specifically prohibits the use of arbitration clauses in mortgage contracts. And it gives the Bureau the power to issue regulations on the use of arbitration clauses in other consumer finance markets if the Bureau finds that doing so is in the public interest and for the protection of consumers, and if findings in the agency's regulation are consistent with the results of the Bureau’s study.

In March, the CFPB issued its study, which found that mandatory pre-dispute arbitration clauses unfairly undermine consumers' rights to bring and be members of class actions. Go here to read the study and see what the CFPB said at the time.

But some people don't like the CFPB study. Our readers may be interested in reading The Consumer Financial Protection Bureau's Arbitration Study: A Summary and Critique by law professors Jason Johnston and Todd Zywicki. Here is the abstract:

The Consumer Financial Protection Bureau’s Arbitration Study: Report to Congress 2015 does not support the case for ex ante regulation of mandatory consumer arbitration clauses. It contains no data on the typical arbitration outcome - a settlement - and it is these arbitral settlements, and not arbitral awards, that should be compared to class action settlements. It does not address the public policy question of whether, by resolving disputes more accurately on the merits, arbitration may prevent class action settlements induced solely by defendants’ incentive to avoid massive discovery costs. It shows that in arbitration consumers often get settlements or awards, are typically represented by counsel, and achieve good results even when they are unrepresented. In class action settlements, the Consumer Financial Protection Bureau reports surprisingly high payout rates to class members and low attorneys’ fees relative to total class payout. These aggregated average numbers reflect the results in a very small number of massive class action settlements. Many class action settlements have much lower payout rates and higher attorneys’ fees.