Whataburger Brings Seemingly Novel FDCPA Case

The burger chain Whataburger has sued a debt collector called NCO Financial Systems. Whataburger says that NCO is harrassing its employees by trying to collect their alleged debts while they are at work and has persisted even after receiving a cease-and-desist letter from Whataburger. So, Whataburger sued NCO under the federal Fair Debt Collection Practices Act seeking $1,000 for every violation. It has also sued under a Texas debt collection law. I've never seen an employer bring an FDCPA case to protect its employees from harrassment, but it's a nice thing to see. This Houston Chronicle story describes the case and says:

H. Anthony Hervol, a San Antonio lawyer who defends individuals in debt-collection disputes, called Whataburger's action "very unusual." "I guess the word I would use is refreshing," Hervol said when asked for a reaction. "It's good to see that an employer would step in, rather than blame the employee - which is what debt collectors want them to do."

I'm going to try to get a copy of the complaint and will update this post down the road if I do.

Executive Pay and the Corporate Income Tax

David Lazarus explains here that 25 of the 100 top-paid U.S. CEOs were paid more by their companies than their companies paid in U.S. corporate income taxes.

More Commentary on the CFPB's Proposed Mortgage Disclosure Forms

by Jeff Sovern

In last Sunday's Times, Richard H. Thaler, a leading behavioral economist at Chicago, published A Chance to Make Mortgage Shopping Easier, about the CFPB's proposed mortgage disclosure forms.  Thaler suggested that the CFPB should require that the forms be machine-readable so that borrowers could use web site "choice engines" to compare mortgage terms.  A good idea, but in my letter, I noted "the column also pointed out that many people spend little time shopping for mortgages, and that they often could save much money if they applied to just one more lender. Is it realistic to expect such borrowers to use choice engines?"  It remains my opinion that compulsory mortgage counseling is the way to go for many borrowers.

More on the DC Circuit decision declaring FDA's tobacco warnings unconstitutional

By Greg Beck

As Brian Wolfman noted, the DC Circuit this morning held that the FDA's required tobacco warnings violate the First Amendment. In a 2-1 decision, the court rejected the FDA's argument that the graphic images were subject to a lower standard of review because they communicated impotant information to consumers, holding that the information conveyed by the warnings was not "purely factual and uncontroversial."

The court wrote: 

[M]any of the images chosen by FDA could be misinterpreted by consumers.  For example, the image of a man smoking through a tracheotomy hole might be misinterpreted as suggesting that such a procedure is a common consequence of smoking—a more logical interpretation than FDA’s contention that it symbolizes “the addictive nature of cigarettes,” which requires significant extrapolation on the part of the consumers.  Id. at 36,649.  Moreover, the graphic warnings are not “purely” factual because—as FDA tacitly admits—they are primarily intended to evoke an emotional response, or, at most, shock the viewer into retaining the information in the text warning. 

Subjecting the warnings to intermediate scrutiny, the court held that the government had failed to prove that the warnings would reduce smoking. 

The silver lining to the decision is that the court did not apply strict scrutiny, as the district court did. The court's application of intermediate scrutiny makes the decision a very fact-based one. That being said, the court gave little credit to the facts in the record--in particular, the overwhelming evidence from other countries that have adopted similar graphic warnings showing that such warnings are effective both at informing consumers and reducing smoking. If the DC Circuit were correct that the FDA's evidentiary showing doesn't satisfy the intermediate scrutiny standard here, it's unclear how the government could ever satisfy that standard, especially given that it could take years for the warnings to achieve a measurable effect.  

In any event, the fact that the court struck down an act of Congress and, in doing so, acknowledged disagreement with other circuits on the standard of scrutiny to apply, means that the Supreme Court will almost certainly have the last word on the question.

D.C. Circuit Strikes Down FDA's Graphic Cigarette Labels on First Amendment Grounds

Wow. Read about it here. It's a 2-to-1 decision written by Judge Janice Rogers Brown, joined by Senior Judge Raymond Randolph. Judge Judith Rogers dissented. This earlier post contains all the labels. And this one discusses the permanent injunction issued by the district court. If the government seeks cert -- would that depend on whether the petitioner is the Obama or Romney Admistration? -- the Supreme Court is sure to take the case. More later.

Car loans in the Commonwealth

An illuminating article in this week's Washington Post highlights the problems of car loans in Virginia, where business -- and interest rates -- are up.

Virginia’s car title-lending business is booming, but consumer advocates say it’s nothing to celebrate. Since a change in Virginia law last year, the commonwealth has become a magnet for people who need cash but live in the District, Maryland or another neighboring jurisdiction where laws capping interest rates have effectively driven such lenders out of business. . . . Since then, the number of licensed car-title lenders has almost doubled in Virginia, along with complaints about high costs and collection tactics.

A disappointing note about the politics of this issue: readers might assume that it's conservative big business lawmakers who are behind this trend. But it's state senator Dick Saslaw, a Northern Virginia Democrat and the minority leader in the state senate, who just happens to have received more funding from the consumer finance industry than anyone else in the state legislature, reports the Post.

WP's partner Slate published this follow-up tidbit warning consumers about predatory car loan. The more public education on this subject, the better.

Modern-Day Debtors' Prisons

by Professor Eboni Nelson, University of South Carolina School of Law

In our country, we generally don’t put people in jail for failing to pay private debt, right? Wrong, according to recent articles published in the ABA Journal and the St. Louis Post-Dispatch. The articles discuss some Missouri creditors’ practices of petitioning the court to obtain “body attachments,” whereby a debtor can be arrested and held until he/she posts bond or has a court hearing. While it is unclear how widespread the practice is, the fact that it is being used by some creditors, including payday lenders, to incarcerate consumers is troubling.

[CL&P Blog thanks professor Nelson for blogging on this important subject.]

Lawyers Who Sued Tobacco Companies Now Suing Food Companies

The last decade has seen a substantial uptick in suits against food sellers maintaining that the claims about food products are false or deceptive. Co-blogger Steve Gardner is one of the leading lawyers representing consumers who bring those claims. He recently blogged here about sellers' claims that their products are "natural." Now, this article by Stephanie Strom asserts that there's a new wave of food claims filed by lawyers who were prime movers in the litigation against the tobacco industry. As the article puts it, "[w]hile there has been a barrage of litigation against the industry in recent years, the tobacco lawyers are moving particularly aggressively. [For instance, t]hey are asking a federal court in California to halt ConAgra’s sales of Pam cooking spray, Swiss Miss cocoa products and some Hunt’s canned tomatoes."

Times Report on E-Scores

Here.  An excerpt:

These digital scores, known broadly as consumer valuation or buying-power scores, measure our potential value as customers. What’s your e-score? You’ll probably never know. That’s because they are largely invisible to the public. But they are highly valuable to companies that want — or in some cases, don’t want — to have you as their customer.

[E-scores] can take into account facts like occupation, salary and home value to spending on luxury goods or pet food, and do it all with algorithms that their creators say accurately predict spending.

A growing number of companies, including banks, credit and debit card providers, insurers and online educational institutions are using these scores to choose whom to woo on the Web. These scores can determine whether someone is pitched a platinum credit card or a plain one, a full-service cable plan or none at all. They can determine whether a customer is routed promptly to an attentive service agent or relegated to an overflow call center.

Federal regulators and consumer advocates worry that these scores could eventually put some consumers at a disadvantage, particularly those under financial stress. In effect, they say, the scores could create a new subprime class: people who are bypassed by companies online without even knowing it. Financial institutions, in particular, might avoid people with low scores, reducing those people’s access to home loans, credit cards and insurance.

Will e-scores lead to discrimination?  Should they be regulated under the Fair Credit Reporting Act or a similar statute?  The article notes that USPIRG's Ed Mierzwinski and Jeffrey Chester of the Center for Digital Democracy have a forthcoming article in the Suffolk University Law Review that may shed more light on how they should be regulated.

CFPB's Head of Regulations Joins Morrison & Foerster

The Consumer Financial Protection Bureau's chief rulewriter, Leonard Chanin, is leaving the Bureau next month to join the law firm of Morrison & Foerster, where he previously practiced for many years. Because of Chanin's background in private practice and the Fed, he has strong industry contacts and a deep understanding of banks' perspectives on regulation. For the past year and a half, he oversaw the Bureau's Office of Regulations, which now has a staff of 40 or so attorneys dedicated to writing new regulations across the spectrum of consumer finance markets. When I was at the CFPB, those attorneys always seemed like the busiest people in a busy place. And they continue to have their work cut out for them, particularly given the Dodd-Frank Act's imminent deadlines for new mortgage rules.

The American Banker breaks the news of Chanin's departure and quotes Alan Kaplinsky. "He's going to be a hard person to replace," says Kaplinsky, an attorney for Ballard Spahr who knows Chanin from his current job and his previous work overseeing financial protection regulations as a deputy director of the Federal Reserve Board. "There was a level of comfort the banking industry had with Leonard, because they dealt with him for many years during his tenure at the Fed. . . . I think this would be a setback for the CFPB because they're right in the midst of an avalanche of mortgage lending regulations." (The American Banker article also mentions my new law firm, which it describes as a "consumer advocacy law firm"; actually, we're doing appellate and policy work more broadly, including consumer protection.)

Here's a recent interview with Chanin.