Fourth Circuit issues useful Freedom of Information Act decision

Many of our readers are interested in using and benefitting from federal and state freedom of information laws. With that in mind, you may want to read the Fourth Circuit's recent decision in Coleman v. DEA, which has a buch of good things to say about two federal FOIA topics: exhaustion of administrative remedies and the obligation (or not) to pay fees for processing a FOIA request and copying responsive documents.

A good deal for Facebook, a bad deal for privacy and for kids

Today Public Citizen filed objections to the proposed class action settlement in Fraley v. Facebook, which concerns Facebook's practice of using the images of their millions of users, without their knowledge or consent, to sell advertising. Specifically, through Facebook's "Sponsored Stories" program, whenever a user clicks the “Like” button, Facebook may use that interaction to create an advertisement that is then broadcast that user’s “Friends” on Facebook –- effectively turning every user into a potential spokesperson on behalf of one of Facebook’s advertisers. Minors are not exempt from the program, even though several state laws prohibit the use of a minor's likeness without parental consent.

In early 2011, the class action complaint was filed (here's the amended complaint) seeking damages under California law for Facebook's practice. Facebook's motion to dismiss based on standing and various other grounds was denied. So far, so good.

But now the plaintiff class and Facebook have proposed to settle the case on terms that are great for Facebook and pretty weak for the 70-million-plus estimated members of the class. Facebook has promised to pay $10 per class member -- a paltry amount as compared with the $750 statutory damages plaintiffs could recover if successful -- and even the $10 payment is unlikely to reach class members because if more than 2% of the class members make claims, the settlement fund does not contain enough money to pay all claims. Meanwhile, the plaintiffs' lawyers stand to receive $7.5 million. Facebook has also promised to create a mechanism for users to opt out of Sponsored Stories, but the opt-out right is limited in key respects -- for instance, it does not appear that users will have the ability to opt-out of all Sponsored Stories on a categorical basis -- and Facebook has agreed to abide by opt-out preferences for only two years. Worst of all, the settlement allows Facebook, in violation of numerous state laws, to continue to use minors’ likenesses without their parents’ consent.

We filed our objections on behalf of several parents and their children, aged 13 to 16, from around the country. The district court will hold a settlement approval hearing on June 28.

Why a Longstanding Legal Doctrine Supports Limiting Bank Overdraft Fees

Over the past decade, overdraft fees and abuses have spiraled out of control, snaring millions of consumers while generating billions in profits for banks. In 2011, consumers paid $29.5 billion in overdraft fees.

A new white paper by the National Consumer Law Center explores why overdraft fees should be subject to a “reasonable and proportional" standard, how overdraft fees are currently excessive and unreasonable, and why the ability to charge excessive overdraft fees encourages banks to engage in abusive practices to maximize overdrafts.  The white paper also describes how excessive overdraft fees are contrary to a centuries-old legal doctrine that prohibits punitive damage clauses in contracts. 

 The Consumer Financial Protection Bureau (CFPB) has legal avenues to restore the standard of “reasonableness” to overdraft fees. One venue is through the Credit Card Accountability, Responsibility, and Disclosures (CARD) Act of 2009, by treating debit cards as “credit cards” for which penalty fees must be “reasonable and proportional.”  Another avenue for the CFPB is to use its authority to prevent unfair, deceptive, or abusive practices.

Download a three-page issue brief with key points and solutions:
Common Sense from the Common Law: Why a Longstanding Legal Doctrine Supports Limiting Bank Overdraft Fees to a “Reasonable and Proportional” Standard at:
http://www.nclc.org/images/pdf/high_cost_small_loans/ib-common-sense-common-law.pdf

Download the white paper at:
http://www.nclc.org/images/pdf/high_cost_small_loans/common-law-overdraft-fees.pdf

American Banker: How to CFPB-Proof New Financial Products

by Jeff Sovern

Here (behind a paywall, unfortunately). But here's the part that's not behind the paywall:

To avoid unwanted scrutiny from the Consumer Financial Protection Bureau and other regulators, banks need to start thinking about "what is fair, not just what is legal," banking attorneys say.

And isn't that one of the reasons we needed a CFPB?  Because lenders ignored what is fair? 

One point that the article makes is that disclosures don't save an objectionable product, especially if they're confusing.  That's the direction the FTC has been going in with privacy, but it seems a (welcome) departure from the idea of the duty to read.  The article also claims that the Bureau believes that if products generate enormous profits, they had better generate similarly large benefits for consumers.

The article also notes that the Bureau has not defined what it considers unfair, deceptive or abusive practices ("UDAAP") beyond the statutory definitions.  I can understand why lenders would want the Bureau to do so, because that would enable them to predict when they might fall afoul of those rules.  On the other hand, such a definition might hem the Bureau in too much at a time when it is still finding its way in this area.  My own opinion is that the Bureau should resist calls to offer greater specificity about how it will use its UDAAP powers until it is more experienced.  It would be unfortunate if the Bureau said it would not use its powers to prohibit certain conduct, and then lenders found a way to engage in that conduct inappropriately. 

I don't want to summarize the whole piece, but it's definitely worth a look.

Should parties be able to settle a class action that cannot be litigated as a class action?

Law professor Howard Erichson says no in his new article "The Problem of Settlement Class Actions." Here is the abstract:

This article argues that class actions should never be certified solely for purposes of settlement. Contrary to the widespread “settlement class action” practice that has emerged in recent decades, contrary to current case law permitting settlement class certification, and contrary to recent proposals that would extend and facilitate settlement class actions, this article contends that settlement class actions are ill-advised as a matter of litigation policy and illegitimate as a matter of judicial authority. This is not to say that disputes should not be resolved on a classwide basis, or that class actions should not be resolved by negotiated resolutions. Rather, this article contends that if a dispute is to be resolved on a classwide basis, then the resolution should occur after a court has found the matter suitable for classwide adjudication regardless of settlement.

Jimenez Paper: Illegality in Consumer Debt Contracts and What to Do About it

Dalie Jimenez of Connecticut has written Illegality in Consumer Debt Contracts and What to Do About it.  Here's the abstract:

Many of the contracts for the sale of consumer debts that are publically available contain “quitclaim” language disclaiming all warranties about the underlying debts sold or the information transferred, generally referring to the debts as being sold “as is” and “with all faults.” Some of the contracts contain even more specific language, disclaiming any representations as to the “validity, enforceability, or collectability” of the debts sold as well as “the accuracy or completeness of any information provided by the seller to the buyer, including ... current balance or accrued interest.”   

This paper argues that the collection of a consumer debt that was sold or assigned through a contract containing this quitclaim language is a per se violation of the Fair Debt Collection Practices Act's prohibition against using false, deceptive, or misleading representations in connection with the collection of a debt. The paper argues that collectors make a misleading representation when they seek to collect from a consumer when they state that the consumer owes a particular dollar amount on the debt or a particular amount in interest. The paper also argues  that where the underlying debt was sold subject to quitclaim language, collectors who seek to collect by bringing a lawsuit are not only violating the FDCPA, they are also materially misrepresenting facts to the court and potentially violating state analogs to Fed. R. Civ. P. 11.

Given the high likelihood that any given attempt at collection by a debt buyer to collect a consumer debt is based on a contract that contains quitclaim language, the Article proposes steps that could be taken by various actors in the collection system to ameliorate this issue. The first solution focuses on federal or state regulators using their enforcement and supervisory powers to stop the collection of debts based on underlying contracts with this language. The second focuses on courts, state legislators, and the consumer attorney bar, and urges them to require or request the production of the underlying contracts. The third recommendation is a novel proposal for a national debt registry system that I argue would go a long way towards solving this (and other problems) going forward.

Sen. Franken urges SEC to prohibit mandatory arbitration clauses in customer service agreements

Senator Franken today sent a letter to the Securities and Exchange Commission urging it to "promptly exercise its authority under Section 921 of the Dodd-Frank Wall Street Reform and Consumer Protection Act to prohibit the use of mandatory arbitration provisions in customer service agreements." His letter and press release are posted here.

More on McBurney decision

We posted yesterday on the Supreme Court's decision upholding Virginia's FOIA provision that allows Virginia government agencies to withhold from non-Virginians the same public records it provides to Virginians. The press is weighing in on the decision, including this piece by Cyrus Farivar that argues that "[t]he unanimous decision is a significant setback to journalists and researchers who use the tool to gather information from public agencies. Ars and dozens of media organizations—including the Associated Press, Bloomberg News, The New Yorker, The New York Times, National Public Radio, The Washington Post, etc.—filed an amicus brief in favor of the two men who challenged the restriction." Lyle Denniston and Garrett Epps have also posted on the ruling.

States consider limits on loans to finance lawsuits

According to this article in today's Wall Street Journal, several states are considering whether to limit the business of lending money to plaintiffs to fund litigation and collecting if the plaintiffs' suits are successful. “At the heart of many of the bills are proposals to subject the lawsuit-funding industry to existing state laws that regulate the interest rates banks and other lenders can charge,” the article explains. The companies respond that they are not making traditional loans; they are funding suits and taking on risk of not receviing any payment if a suit is not successful. The lobbying effort in support of state restrictions is being headed up by the U.S. Chamber of Commerce.

Supreme Court decides "citizens-only" FOIA case

This morning the Supreme Court decided McBurney v. Young, which presented the question whether under the Privileges and Immunities Clause of Article IV and the dormant Commerce Clause of the United States Constitution a state may limit the right of access to the state's public records to its own citizens. The Court held unanimously that neither constitutional provision is violated by a citizens-only restriction.

We have posted about the case before, including here and here.