Another challenge to debtors' prison practice, this time in Ferguson

Two weeks ago, we told you about a lawsuit challenging a Georgia county's practice of imprisoning individuals who could not pay court fees.

Now, another lawsuit has been filed in the same vein. The location happens to be Ferguson, Mo., which in 2013 "collected $2.6 million in court fines and fees, mainly on traffic violations and other low-level municipal offenses. That was the city's second-largest source of income, or about 21 percent of its total budget," according to NPR.

Listen to the whole story here.

Paper on Food and Beverage Marketing to Youth

Andrew Cheyne, Pamela Mejia, Laura Nixon, and Lori Dorfman, all of the Berkeley Media Studies Group, have written Food and Beverage Marketing to Youth, Current Obesity Reports, September 2014. Here's the abstract:

After nearly a decade of concern over the role of food and beverage marketing to youth in the childhood obesity epidemic, American children and adolescents — especially those from communities of color — are still immersed in advertising and marketing environments that primarily pro- mote unhealthy foods and beverages. Despite some positive steps, the evidence shows that the food and beverage industry self-regulation alone is not likely to significantly reduce marketing of unhealthy foods and beverages to youth. A variety of research is needed to monitor industry marketing of unhealthy products to young people, and identify the most promising approaches to improve children’s food marketing environments. The continued presence of unhealthy marketing toward children despite years of industry self-regulation suggests it is time for stronger action by policymakers to protect young people from harmful marketing practices.

Ronald Mann on Whether Payday Loan Defaults Matter

Ronald J. Mann of Columbia has written Do Defaults on Payday Loans Matter?  Here's the abstract:

This essay examines the effect on a borrower’s financial health of failure to repay a payday loan. Recent regulatory initiatives suggest an inclination to add an “ability to pay” requirement to payday-loan underwriting that would be fundamentally inconsistent with the nature of the product. Because the premise of that regulation would be that borrowers suffer harm when they fail to repay such a loan, it is timely to examine the after-effects of such a default empirically. This essay examines that question using a dataset that combines payday borrowing histories with credit bureau information.

The essay uses a difference-in-difference approach, comparing the credit-score change over time of those who default to the credit score change over the same period of those who do not default. The essay presents three principal findings. First, credit score changes for borrowers who default on payday loans differ immaterially from changes for borrowers who do not default on payday loans. Second, the fall in the year of the default plainly overstates the net effect of the default, because the credit scores of those who default on payday loans experience disproportionately large increases for at least two years after the year of the default. Third, the payday loan default cannot be regarded as the cause of the borrower’s financial distress; borrowers who default on payday loans have experienced disproportionately large drops in their credit scores for at least two years before their default.

Pretzel logic in Arkansas

Yesterday, a federal court in Arkansas issued an opinion that misinterprets federal food labeling law, preemption law, and the use of logic. The case is Craig v. Twinings North America, Inc. Download Opinion Craig v. Twinings Doc 29.

Twinings claimed that its tea was a “natural source” of antioxidants. The plaintiff alleged (but I have not confirmed) that there were not enough antioxidants in the tea to qualify for a “source” claim under the FDCA (the product must have at least 10% of the daily value or RDI). 

The court went through intellectual backflips to find preemption.

The court decided that “natural source” was not a source claim at all, rejecting an FDA opinion that “finest source” was a source claim. The court reasoned that “finest” implied an amount but “natural” did not. This misses the boat, for a few reasons. First, the word “source” is there either way. And if the antioxidants were in the tea so minimally as not to meet the very minimal 10% requirement, the claim is deceptive anyway. Second, a source is a source (of course, of course). Third, how in the world does “finest” imply amount? If the FDA letter had been about a “mostest source,” that logic might have had legs.

Regardless, that’s what the court decided to decide, from which it then decided that Twinings had not violated federal law and, completely casting aside the limited NLEA express preemption rules, the court then held that allowing Arkansas law to stop a practice that wasn’t barred by federal law would conflict with the FDCA.

That killed the case, but the court went on to discuss Arkansas UDAP law. Plaintiff pleaded both that she would not have bought the tea at all if she’d known the truth, and that Twinings charged a price premium.

The court held that neither established damages under Arkansas law because the Plaintiff “paid for tea and received tea.”

I don’t know Arkansas UDAP law, so I don’t know if the court correctly summarized it (extrapolating from its interpretation of federal law, the odds are against that), but many states do use this logic. It’s completely incorrect in every way—economically and behaviorally. If consumers were only shopping for a generic product, then all products would be generic. Marketing is all about selling the sizzle as well as the steak. Nonetheless, this is the law in some states.

Another reason California courts get it right. As the California Supreme Court held in the Kwikset case (where a company sold a lock claiming it was “Made in the USA,” but it wasn’t), there are many factors that go into a purchasing decision.

Consumers should be able to rely on the sizzle and not just the steak.

In Arkansas, consumers will only get the steak, if that.

Arbitration Statistics: About One Consumer in a Thousand Opts Out

by Jeff Sovern

Some arbitration clauses provide that consumers can opt out of arbitration if the consumer writes to the company within a certain period of time of entering into the agreement, typically 30-60 days after opening the account. In our arbitration study, we observed that we didn't know how many consumers had taken advantage of such opt-outs. Gregory J. Gauthier has emailed me to point out, among other things, that some information about opt-out rates is available.  In Ross v. American Express, the Discover defendants submitted proposed findings of fact which stated (at ¶ 78) that "Since Discover added its opt-out clause, at least 6,500 cardholders have successfully opted out of the arbitration provision."  Plaintiffs also submitted proposed findings of fact, and at ¶659, they acknowledged that, as they put it, " 6,500 [or] some 0.1% of Discover Cardholders" had opted out. If those figures are accurate and continue to reflect opt-out rates today, they indicate that about one consumer in a thousand opts out of arbitration clauses.

GOP Senator Tilles Opposes Laws Requiring Restaurant Employees to Wash Hands

by Jeff Sovern

So MSNBC reports here. Here's a quote:

Tillis replied: “I don’t have any problem with Starbucks if they choose to opt out of [the hand-washing] policy as long as they post a sign that says ‘We don’t require our employees to wash their hands after leaving the restroom.’” 

Instead, Tillis believes that full disclosure of such lax hygiene policies would be a strong enough deterrent on its own to put the store out of business. “The market would take care of that,” he said.

So let me get this straight: he wants regulation, because he wants Starbucks to be required to disclose their policies. He just doesn't want restaurants forced to direct employees to wash their hands.  I invite restaurateurs who prefer making the disclosure that their employees are not obliged to wash their hands over existing law to so state in the comments below. 

Rent-to-Own Now Available at Kiosks

by Jeff Sovern

RTO kiosks are, as far as I know, a new way to buy/rent goods. In the past, stores specialized in rent-to-own financing/renting, where consumers could agree to rent an item and make payments (typically weekly) for the item until they had purchased it, or alternatively chose to surrender it.  RTO businesses, unregulated by Truth in Lending, though subject to state regulation, typically charge extraordinarily high interest rates. Consumers who pay the full amount usually end up paying much more than they would have if they had, say, charged the item on a credit card and paid it off over time.  But RTO kiosks are a bit different. As my co-author Dee Pridgen explains: "when a customer selects some goods but doesn’t qualify for credit at a participating retail store, [the retailer] send[s] him or her to the RTO kiosk inside the store where they lease them the same goods.  The RTO company just buys the stuff from the retailer and then leases it to the consumer."  In Dee's view, this is problematic because such transactions are "more likely to be confused with a credit sale than if a consumer went to a dedicated RTO store." And that makes the failure to give the TILA disclosures, with the APR, which might enable the consumer to realize how expensive RTO is when used as a form of credit, especially troubling. For more on this, see The Capitol Forum, Rent-To-Own Industry: A Closer Look at the Implications of Expansion of RTO Kiosk Model (The link takes readers to a brief email confirmation, and then to a viewer where the story can be seen as a pdf.); Senator Casey Letter to CFPB and FTC on RTOs here.

Business groups push for loosening of telemarketing rules

Business groups such as the Chamber of Commerce are pushing the Federal Communications Commission to loosen standards under the Telephone Consumer Protection Act -- the law that bars unwanted telemarketing calls and junk faxes. If the groups are successful, the result, say consumer advocates, would be more robocalls calls coupled with more difficultly suing for TCPA violations. For Reuter's, reporter Alison Frankel has the story.

Regulation of Uber and other "sharing" services

The Washington Post has two articles today about regulation (or lack of regulation) of sharing services like Uber and Airbnb.

In an article entitled "Uber might actually want regulation. Here’s why," the Post reports:

Though they are loath to admit it, ridesharing outfits like Uber and Lyft have profited in no small part from dodging regulations.

.... They have outpaced the law in many locales, saving them money on registration fees, inspections, and background checks.

.... Indiana is the latest place to consider a law that would treat ridesharing drivers a bit more like cabbies. [Indiana State Senator] Yoder’s bill calls for background checks and mandatory insurance. It bars sex offenders, and people who have been convicted of a felony in the past seven years.

Here’s the twist: Yoder, a Republican, said that Uber actually wants these regulations to pass.

A second article, on the Post's Wonkblog, is entitled "What happens when Uber and Airbnb become their own regulators."

Airbnb recently announced it would collect and remit hotel taxes from its users in Washington, D.C., as part of a broader move to resolve tax conflicts — should hosts pay them? how do they pay them? — in some of the company's largest markets. The move highlights a larger shift in the the "sharing economy," where thousands of people are now earning income off their second bedrooms, personal cars or spare time.

Namely: Companies like Airbnb and Uber are increasingly taking on some of the roles that have traditionally belonged to government.

Airbnb plans to collect taxes on behalf of individual users on the platform, and it will lump all that money into a single big tax payment to local governments (whether that's quarterly or monthly depends on the city). ... To protect the privacy of its users, the company is effectively serving as the tax collector for them.

Harvard law professor explains dangers of Congress's decision to repeal a Dodd-Frank protection

When Congress, as part of a government-funding deal during the lame-duck session in 2014, repealed a key provision of the 2010 Dodd-Frank Wall Street reform bill, it removed an important protection against the consolidation of power in too-big-to-fail financial entities. What, precisely, did it do? Professor Mark Roe of Harvard Law (who, incidentally, taught my Corporations class when I was a student there) offers this fairly accessible explanation:

The Dodd-Frank rule that Congress just repealed, known as the “swaps push-out rule,” would have required that most derivatives-trading activities occur outside of government-insured banks. If a bank fails, the government stands behind most deposits. Though it does not formally guarantee anything else, it usually finds it easiest and quickest to bail out the entire bank – including its derivatives facility. If, however, derivatives are no longer embedded in the guaranteed bank, the government could more easily bail out a bank, while leaving the derivatives subsidiary to fend for itself.

This sub rosa government indemnification of major banks’ derivatives portfolios undermines financial stability. If a major bank defaults on its derivative trades, the banks with which it has traded could also fail. If several large, interconnected derivatives-trading banks collapse simultaneously, the financial system could be paralyzed, damaging the real economy – again.

His whole op-ed is worth a read.