Philadelphia Inquirer's Jeff Gelles Compares NJ & PA Consumer Protection Laws . . .

. . . and finds Pennsylvania's law wanting in his column, N.J. wrong to consider weakening consumer protection. An interesting natural experiment.

Our Study Finds Widespread Consumer Misconceptions About the Arbitration Clauses

by Jeff Sovern

Elayne Greenberg, Paul Kirgis, Yuxiang Liu, and I have posted a draft of our article, "Whimsy Little Contracts" with Unexpected Consequences: An Empirical Analysis of Consumer Understanding of Arbitration Agreements, to the web.  Here's the abstract:

Arbitration clauses have become ubiquitous in consumer contracts. These arbitration clauses require consumers to waive the constitutional right to a civil jury, access to court, and, increasingly, the procedural remedy of class representation. Because those rights cannot be divested without consent, the validity of arbitration agreements rests on the premise of consent. Consumers who do not want to arbitrate or waive their class rights can simply decline to purchase the products or services covered by an arbitration agreement. But the premise of consent is undermined if consumers do not understand the effect on their procedural rights of clicking a box or accepting a product. 

This article reports on an empirical study exploring the extent to which consumers are aware of and understand the effect of arbitration clauses in consumer contracts.  We conducted an online survey of 668 consumers, approximately reflecting the population of adult Americans with respect to race/ethnicity, level of education, amount of family income, and age.  Respondents were shown a typical credit card contract with an arbitration clause containing a class action waiver and printed in bold and with portions in italics and ALLCAPS. Respondents were then asked questions about the sample contract as well as about a hypothetical contract containing what was described as a “properly-worded” arbitration clause. Finally, respondents were asked about their own experiences with actual consumer contracts. 

The survey results suggest a profound lack of understanding about the existence and effect of arbitration agreements among consumers. While 43% of the respondents recognized that the sample contract included an arbitration clause, 61% of those believed that consumers would, nevertheless, have a right to have a court decide a dispute too large for a small claims court. Less than 9% realized both that the contract had an arbitration clause and that it would prevent consumers from proceeding in court. With respect to the class waiver, four times as many respondents thought the contract did not block them from participating in a class action as realized that it did, even though the class action waiver was printed twice in bold in the sample contract, including one time in italics and ALLCAPS. Overall, of the more than 5,000 answers we recorded to questions offering right and wrong answers, only a quarter were correct. 

Turning to respondents’ own lives, the survey asked if they had ever entered into contracts with arbitration clauses.  Of the 303 respondents who claimed never to have done so and who also answered a question asking whether they had accounts with certain companies that include arbitration clauses in their contracts, 264, or 87%, did indeed have at least one account subject to an arbitration clause. 

These and other findings reported in this Article should cause concern among judges and policy-makers considering mandatory pre-dispute consumer arbitration agreements. Our results suggest that many citizens assume that they have a right to judicial process that they cannot lose as a result of their acquiescence in a form consumer contract. They believe that this right to judicial process will outweigh what one respondent referred to as a “whimsy little contract.” Our results suggest further that citizens are giving up these rights unknowingly, either because they do not realize they have entered into an arbitration agreement or because they do not understand the legal consequences of doing so. Given the degree of misunderstanding the results demonstrate, we question whether meaningful consent is possible in the consumer arbitration context.

To the extent my schedule permits, I will post more about our findings in the days to come.

NYT expose: lobbyist money influencing state attorneys general to drop investigations and enforcement

Attorneys general are now the object of aggressive pursuit by lobbyists and lawyers who use campaign contributions, personal appeals at lavish corporate-sponsored conferences and other means to push them to drop investigations, change policies, negotiate favorable settlements or pressure federal regulators, an investigation by The New York Times has found.

For instance, the Times reports:

In Georgia, the attorney general, after receiving a request from a former attorney general who had become a lobbyist, disregarded written advice from the state’s environmental regulators, the emails show. In Utah, the attorney general dismissed a case pending against Bank of America over the objections of his staff after secretly meeting with a former attorney general working as a Bank of America lobbyist.

Read the full story here.

Times Op-Ed: Are Banks Too Expensive to Use?

Here. New School professor Lisa Servon, based on her forthcoming book.

Preston Paper on Clickwrap and Browsewrap

Cheryl B. Preston of Brigham Young has written 'Please Note: You Have Waived Everything': Can Notice Redeem Online Contracts? Forthcoming in the American University Law Review.  Here is the abstract:

Online consumers are largely unaware of the extent to which their actions are governed by legal terms in the form of clickwraps or browsewraps. These contracts are enforced without any evidence of knowing assent to the terms, but only if the consumer has some notice that a contract exists. The standards for notice are low and consumers routinely click and browse without forming a single thought relative to the legal obligations that arise with online conduct – legal obligations that frequently would not arise with procuring the same goods and services in the real world. Commentators have been hopelessly scrambling to propose various schemes for bringing home to consumers the fact that they are entering enforceable contracts.

This article debunks the idea that notice of the existence of a contract should be the measure of enforceability. The concept of notice relies on the purely fictional notion that a reasonable consumer with notice of legal provisions will stop, read them, understand the terminology, appreciate their legal significance, and decide to proceed or not. The relish for notice is irreconcilable with our knowledge that consumers do not, and cannot, read and comprehend even a fraction of the wrap contracts they encounter. Moreover, the law punishes those few who read because any hope for persuading a court to undertake an unconscionability analysis of a contract is lost to parties who admit to having read the contract. Thus, the law does not offer consumers a reasonable option for making better decisions about legal commitments online. Wrap contracts are merely the means for the powerful drafters to legislate legal results.

This Article contains a review of cases addressing clickwraps and browsewraps in the last decade, which amply illustrates that courts are enforcing them without much, if any, discussion of the length, print, density, or sophistication of the language or the parties, in part, because no one expects consumers to read them. This article then reviews the duty to read rule, and its meager exceptions, as well as the status of the unconscionability doctrine. This analysis supports little hope that courts will begin to police wrap contract excesses. This Article then reviews and evaluates various proposals for addressing the problem of wrap contracts and concludes that, while most are some improvement, none hold any significant promise for real change. Finally, this Article concludes with several examples of the kind of notice that would be required to give meaning to the theoretical concept that the market will adjust as actors make informed choices. 

Truth in Lending Act recission case set for oral argument on Tuesday

In light of our post earlier today, I'm reminding our readers that Jesinoski v. Countrywide Home Loan is scheduled for oral argument in the Supreme Court next Tuesday, November 4. Here's the question presented:

Does a borrower exercise his right to rescind a transaction in satisfaction of the requirements of Section 1635 by “notifying the creditor” in writing within three years of the consummation of the transaction, as the Third, Fourth, and Eleventh Circuits have held, or must a borrower file a lawsuit within three years of the consummation of the transaction, as the First, Sixth, Eighth, Ninth, and Tenth Circuits have held?

How does a consumer exercise her right to recission under the Truth in Lending Act?

The Truth in Lending Act gives consumers the right to rescind many (but not all) consumer-credit transactions under specified circumstances. The courts have disagreed over how a consumer must notify the lender that she is exercising her recission right. That's the topic of Avoiding the Nuclear Option: Balancing Borrower and Lender Rights Under the Truth in Lending Act's Right of Rescission by Jonathan Caulder. Here is the abstract:

The Truth in Lending Act (TILA) represents a major piece of consumer credit legislation passed by Congress to protect consumers from unfair credit practices. In the context of loans, TILA gives consumers a right of rescission under four conditions: (1) the consumer is a natural person; (2) the loan is for personal, household, or family purposes; (3) the loan is secured by the consumer’s principal dwelling; and (4) the loan is not a residential mortgage transaction. Nonpurchase transactions, such as refinancing or home equity loans, will usually meet all four conditions. A consumer can exercise TILA’s right of rescission within three business days of the latest of the following: (1) consummation of the transaction; (2) delivery of the right to rescind notice; or (3) delivery of all required material disclosures. Examples of material disclosures required by TILA include terms of the loan and finance charges. If the creditor fails to deliver either the right to rescind notice or the required material disclosures, then the consumer’s right of rescission extends to three years after either the consummation of the transaction or sale of the property, whichever occurs first. The consumer’s extended right of rescission under TILA is the focus of this Note. The U.S. Supreme Court addressed TILA’s extended right of rescission in Beach v. Ocwen Federal Bank. However, the Court never explicitly stated how a consumer exercises TILA’s extended right of rescission. As a result, the Circuit Courts of Appeals have split over the issue. Recently, the Eighth, Ninth, and Tenth Circuits have determined that consumers validly exercise TILA’s extended right of rescission by providing creditors with written notice and filing suit within the three-year period -- the "Notice-and-Filing Approach." However, the Third and Fourth Circuits have determined that consumers only have to provide creditors with written notice -- the "Notice-Only Approach." Under this latter approach, a consumer can provide a creditor with written notice within TILA’s three-year period then file suit after the three-year period expires. The Consumer Financial Protection Bureau, the federal agency given authority to interpret TILA’s provisions, has endorsed the Notice-Only Approach. This paper evaluates the arguments and counterarguments for the Notice-and-Filing Approach and the Notice-Only Approach. Then, this paper argues that the Notice-and-Filing Approach serves as a better option to resolve the circuit split.

American Banker Report on Campaign Contributions by the Financial Industry

Here. An excerpt:

There's been a concerted move to the right by the banking industry since the passage of the Dodd-Frank Act in 2010. The industry already tilted slightly Republican for years, but there's been a more distinctive shift over the past two election cycles. Employees and PACs representing the financial sector have given 62% to Republicans and just 38% to Democrats so far this term, and the split for commercial banks is even more apparent, with 70% of their money going to the GOP.

If Republicans Take the Senate, What Happens to the CFPB?

Bloomberg story here, and here is one from InsideArm.com.

States weaken interest-rate protections for consumers

The NYT reports:

Over the last two years, lawmakers in at least eight states have voted to increase the fees or the interest rates that lenders can charge on certain personal loans used by millions of borrowers with subpar credit.

The overhaul of the state lending laws comes after a lobbying push by the consumer loan industry and a wave of campaign donations to state lawmakers.

Some of the strongest opposition to the changes came from military commanders who feared that their troops would be hard hit, according to the Times. Read the full story here.