The Health Care Debate: Yes, Congress Can Make You Buy Vegetables!

Some folks claiming that Congress's passage of the health insurance mandate in the Affordable Care Act exceeded Congress's Commerce Clause powers have argued that if Congress can make you buy insurance (or pay a tax or fine) as part of health care reform, it can also make you buy veggies (or pay a tax or fine) as part of national nutritional reform.

So what, says former Reagan Administration Solicitor General Charles Fried. Fried thinks that it's complete nonsense that Congress lacked authority to pass the insurance mandate, and he's got a view on forced vegetable puchases as well. Testifying before Congress on Wednesday, Fried said:

As for the veggies, I suppose ... forced feeding would indeed be an invasion of personal liberty, but making you pay for them would not, just as making you pay for a gym membership which you can afford but do not use would not.

Fried pointed to a 1905 case, Jacobson v. Massachusetts, where the Supreme Court upheld a Massachusetts law requiring citizens to get a smallpox vaccine or pay a $5 fine. Watch Fried's testimony here:

 

Fried's full written testimony is here.

Consumer Financial Protection Bureau launches website and social networking presence

The Consumer Financial Protection Bureau has launched its spiffy new website -- located at  http://www.consumerfinance.gov/ and already equipped to receive suggestions and consumer complaints.  The site's design immediately sends the message that the CFPB, as the first major federal agency created in the 21st century, will be more responsive and less, well, bureaucratic. The use of the prominent badge logo visually conveys the concept that there's a new cop on the beat, a new sheriff in town. Highlighting the agency's commitment to transparency, the website posts Elizabeth Warren's complete calendar of meetings.

The site the contains the following animated video, explaining the agency's genesis and mission in a simple, accessible way:

And here's Warren's welcome video:

Below is a letter from Warren, announcing the website's launch and providing links to the Bureau's presence on Twitter and Facebook.  She invites consumers to post their YouTube videos in response to the welcome video, "Like" the agency or post on its wall on Facebook, or tweet suggestions.

The message: There's a new sheriff in town. We're open to suggestions. This is not your grandfather's federal agency.

HAMP Paperwork Blizzard

by Alan White

Those of us in the upper Midwest have blizzards on the brain.  On Monday the Treasury Department released its loan-level data files on the more than 2.5 million mortgage borrowers who have sought help from the Home Affordable Modification program.  Not surprisingly, the data confirm that homeowners are being done in by paperwork.  For example, of the 1.2 million homeowners who were non-accepted (Treasuryspeak for rejected), only 6% were turned down because they failed the net present value test, i.e. because a modification wouldn't make economic sense for the investor.  Much more common were denials because the homeowner was not considered to be payment-stressed (20%), not in imminent danger of default (11%), couldn't meet paperwork requirements (21%) or had the misfortune to have an ineligible mortgage (18%).  Many of those identified as having withdrawn applications (8%) could also have fallen victim to the paperwork shuffle.

As for the 600,000 who were approved for trial modifications, but then were denied conversion to permanent modifications, only about 25%, i.e. about 13% of all trial modifications, failed to make payments.  The dreaded "incomplete request", "request withdrawn" and income-too-high categories account for more than half of the trial modification fallouts.  Particularly unjustifiable are the tens of thousands whose permanent modifications were denied based on eligibility or NPV determinations that should have been made before they started a trial modification.

The failure of HAMP is not inevitable.  While it may have resulted in fewer than a half a million successful permanent modifications, two and a half million homeowners have sought help.  Most of those who fail initially or at the conversion stage are not failing because their cases are hopeless.  On the contrary, many are rejected for reasons that suggest workouts are possible (such as those whose debt ratio is not high enough for HAMP.)  The program suffers seriously from lack of enforcement, from needlessly detailed and prescriptive rules, and from the Administration's unwillingness to confront the principal reduction issue.

Lessons from the Texas Downloading Dismissal - Why Due Process Matters

by Paul Alan Levy

Apparently out of the blue, a copyright lawsuit filed in federal court in Dallas by a German pornographer against 670 anonymous Internet users, who were charged with infringing the copyright in the film by making it available for download, has been dismissed.  The back story holds lessons for judges confronted with demands to discover the identify of anonymous Internet users.

Evan Stone, the lawyer for plaintiff Mick Haig Productions, has built a legal practice around representing the makers of pornographic movies – many of them, apparently, based abroad with no evident connection to Dallas other than that he is their lawyer – in mass copyright lawsuits against anonymous Internet users whom he accuses of using BitTorrent software to obtain and distribute his clients’ wares.  His hiring pitch — that under Fifth Circuit law, unlike many other circuits, the plaintiff may sue after filing an application to register its copyright, without having actually received action on the application. Armed with the strong statutory remedies, including statutory damages and attorney fees, that are available against those who commit infringement after a work is registered, Stone uses early discovery to obtain the names of the Doe defendants, and then threatens to throw the book at them unless they quickly pay $1500 or $2500 in settlements, amounts that are deliberately set so low that it is rarely cost-effective to hire an attorney to fight him.  And he takes advantage of their anxiety not to be publicly identified as having been involved with his clients’ products.

This case turned out a bit differently. 

Another Federal District Court Holds That Congress Lacked Authority to Pass the Health Care Mandate

Read about it here and here. The 78-page opinion is the second federal district court ruling finding that Congress lacked constitutional authority to pass the Affordable Care Act's insurance mandate. Unlike the first ruling from Virginia, yesterday's decision, issued by Judge Roger Vinson of Florida, invalidated not only the insurance mandate but the entire Act. Two district courts have upheld the mandate, and many other challenges are pending.

Kwikset v. Superior Court: Victory, Made in California

by Ted Mermin

  In a closely watched case, the California Supreme Court on Thursday issued a decision preserving the broad availability of the state’s principal consumer protection laws in cases involving mislabeled goods.

The question at issue in Kwikset v. Superior Court (Benson) was whether a consumer who has bought a product that was mislabeled -- a “union-made” shirt that was in fact manufactured in a sweatshop, “organic” produce that was grown with pesticides, or (as in this case) a “Made in the USA” lockset that had actually been partly manufactured in Taiwan and Mexico -- may bring suit under the Unfair Competition Law (UCL) and the False Advertising Law (FAL). 

Proposition 64, passed by referendum in 2004, inserted in both laws a requirement that a private plaintiff have “lost money or property.”  But what if the product the customer received was perfectly functional even if it wasn't what the customer had ordered?  Was there still a loss of money or property?  The Court of Appeal thought not: since the item received was of equal value, plaintiffs had not “lost money” and therefore could not bring a claim under the UCL or FAL.
 
  The California Supreme Court, however, disagreed. 
 
The Supreme Court held that neither the language nor the logic of Prop 64 precluded suits by consumers who did not get what they paid for. “Plaintiffs who can truthfully allege they were deceived by a product’s label into spending money to purchase the product, and would not have purchased it otherwise, have ‘lost money or property’ within the meaning of Proposition 64 and have standing to sue.”  It doesn't matter that to some other people, or by some objective measure, the mislabeled product is worth as much as the one the consumer expected.  What matters is the consumer’s subjective valuation.

Paper on the Relationship Between Payday Loan Size and Default Probability

Will Dobbie of Harvard and Paige Marta Skiba of Vanderbilt have written Information Asymmetries in Consumer Lending: Evidence from Two Payday Lending Firms.  Here's the abstract:

This paper tests for incentive and selection effects in a subprime consumer credit market using sharp discontinuities in loan eligibility rules. We find evidence of advantageous incentives and adverse selection. For a given borrower, we estimate that a $100 increase in loan size decreases the probability of default by 3.7 to 4.2 percentage points, a 20 to 23 percent decrease from the mean default rate. Borrowers who choose $100 larger loans are 6.9 to 8.0 percentage points more likely to default than borrowers who choose smaller loans.

Bank Walkaways

  The Woodstock Institute in Chicago has issued a report carefully documenting the ownership status of the vacant properties in Chicago.  About 15% are bank-owned homes after foreclosure, and another 10% are apparent walkaways, cases where a foreclosure was initiated but has not been pursued.  Nearly three quarters of these "red flag" properties are in African-American neighborhoods.  

The GAO report on bank walkaways concludes that the nationwide total is relatively small, fewer than 50,000 of the millions of homes in foreclosure, but recognized that walkaways are concentrated in certain cities that are especially hard hit.  While walkaways may be a small portion of foreclosed homes, they can be a large contributor to vacancy and abandonment, imposing significant external costs on cities that at present are not in the best position to absorb these costs.  Professor Kathleen Engel's paper suggests that cities may have legal standing to pursue lenders to recover these costs, and the City of Buffalo, at least, is pursuing a bevy of banks on that theory.

Financial Crisis Inquiry Commission Attributes Crisis in Part to Consumer Protection Failures

The Financial Crisis Inquiry Commission Report is now available.  I haven't had time to read it completely, but based on a quick look it seems to attribute the crisis in part to failures of consumer protection.  For example, here's a quote from page 101:

Regulators failed to rein in risky home mortgage lending. In particular, the Federal Reserve failed to meet its statutory obligation to establish and maintain prudent mortgage lending standards and to protect against predatory lending.

And from page 126:

Not only did the federal banking supervisors fail to rein in risky mortgage lending practices, but the Office of the Comptroller of the Currency and the Office of Thrift Supervision preempted the applicability of state laws and regulatory efforts to national banks and thrifts, thus preventing adequate protection for borrowers and weakening constraints on this segment of the mortgage market.

New Adjustable-Mortgage Disclosures To Go Into Effect Sunday

The new Interim Rules implement the Mortgage Disclosure Improvement Act and require disclosure of the maximum monthly the borrower may have to make in the first five years of the loan as well as during the life of the loan.  The Interim Rules appear here, and here's an article in the Times.