Supreme Court to Hear Credit Card Case Tomorrow Morning

Tomorrow morning, the Supreme Court will hear Chase Bank USA v. James A. McCoy, a case involving the interpretation of consumer notice requirements imposed on banks under the federal Truth-in-Lending Act. Public Citizen attorney Greg Beck will argue on behalf of California resident James McCoy and others who were surprised to find their credit card interest rates increased without warning despite paying their credit card bills on time.

The case is about Chase Bank’s prior practice of increasing its credit card holders’ annual percentage rate (APR) without giving notice to customers. Chase erroneously claimed that notice was not required because its consumer credit card agreements stipulated that Chase “may” increase the initial rate “up to” a specified maximum rate if its monthly customer credit review showed that a cardholder was late in making payments - to anyone.

Chase argues that a single late payment on an electricity or phone bill, for example, authorized Chase to increase the cardholder’s interest rate, even if payments to Chase were all on time. When he was hit with the increased APR, McCoy had already cancelled his credit card with Chase. He was paying off the balance on his closed account - on time - when he defaulted on a payment to a different creditor. 
 
The Chase contract was both unfair and prohibited by the terms of the Truth-in-Lending Act of 1968, Beck will tell the court. “The problem with the bank’s argument is that it is in direct conflict with the purposes of TILA, which is to require disclosure of the specific interest rate that applies to their accounts,” Beck said. “To allow banks to change the disclosed rate without notice would mean that many consumers would not know the rate at which they are accumulating debt.”
 
The act was strengthened last year when Congress passed the Credit Card Accountability, Responsibility and Disclosure Act (CARD) Act. In circumstances like McCoy’s, the new law requires the bank to provide 45 days’ notice of an APR increase. The CARD Act further bolsters truth in lending by improving the transparency of credit card agreements so that consumers are better informed about the details of their contracts before they sign on the dotted line.  

Letter to the Times on Consumer Class Actions

The Times recently published my letter to the editor.

Class-Action Lawsuits

To the Editor:

Re "The Arbitration War" (editorial, Nov. 27):

The legal issues before the Supreme Court in AT&T v. Concepcion may seem complex, but what's really at stake is the ability of people to band together and challenge fraud, discrimination and other wrongful practices.

AT&T wants the court to allow corporations to ban class actions through their contracts with consumers and employees. As your editorial correctly explains, AT&T is asking the court to second-guess state contract law, which protects the state's residents from such overreaching.

Although not without abuses, class actions have become an essential tool for resolving the common legal grievances of large groups of people. Brown v. Board of Education was a class action. The fate of class actions should be decided by our elected representatives, not by private legislation tucked into the fine print of take-it-or-leave-it contracts.

Deepak Gupta

Washington, Nov. 29, 2010

The writer, a lawyer with the advocacy group Public Citizen, recently argued on behalf of the consumers before the Supreme Court in AT&T v. Concepcion.

Does Anybody Read Disclosures?

by Jeff Sovern

More and more anecdotal information is surfacing to supplement the empirical data indicating that consumers don't read disclosures.  According to Above the Law and Josh Blackman's blog, 7th Circuit Judge and former Chicago Law Professor Easterbrook stated at a Federalist Society event that he didn't read the RESPA disclosures when he recently bought a home.  His colleague at both Chicago and the court, Judge Posner, has been quoted to similar effect.  All this raises a number of questions, including: do disclosures serve any societal purpose at all?  If leading judges don't read them, is it fair to say that the reasonable person doesn't read them either?  Should we replace disclosures with something that actually provides consumer protection?  Does the so-called duty to read make sense when we know that people don't read?  (Hat tip: Dee Pridgen and her student, John Alexander Brodie)

Why Rosetta Stone’s Attack on Google’s Keyword Advertising Program Should Be Rejected

by Paul Alan Levy

In a brief filed today, Public Citizen argues to the United States Court of Appeals for the Fourth Circuit that trademark law does not prevent Google from selling keyword advertising for display when Internet users conduct a search using the words “Rosetta Stone” as a search term.  We became involved in the case because Rosetta Stone and its supporters seek to deprive consumers of valuable information about Rosetta Stone and its competitors.

Keyword advertising provides a means for those who have things to say about trademarked terms to call their communications to public attention.  Because both keyword advertising, and the "sale" of keywords, are commercial speech, the regulation of this practice must be consistent with the First Amendment.  Moreover, the only sound objective of trademark law is to protect consumers against confusion about whether goods and services emanate from the trademark holder.

Supreme Court Grants Cert in Major Class-Action Case, Rewrites Question

by Deepak Gupta

This morning, the Supreme Court granted certiorari in a closely watched class-action case from the Ninth Circuit, Wal-Mart v. Dukes.  Although Dukes is an employment case, involving allegations of gender discrimination -- it's been called the largest class action in history -- the case is likely to have major implications for consumer class actions as well.

Dukes has already been the subject of a lot of press attention. In fact, I can't remember the last time a dispute between private parties garnered as much press at the cert stage, before the Court had even considered it.  The chatter increased even more when the Court emerged from a recent conference without granting or denying the petition. As some observers had predicted, the Court took the additional time to tinker with the two questions presented in Wal-Mart's petition:

I. Whether claims for monetary relief can be certified under Federal Rule of Civil Procedure 23(b)(2)--which by its terms is limited to injunctive or corresponding declaratory relief--and, if so, under what circumstances.

II. Whether the certification order conforms to the requirements of Title VII, the Due Process Clause, the Seventh Amendment, the Rules Enabling Act, and Federal Rule of Civil Procedure 23.

The second question, to which most of Wal-Mart's petition was devoted, reflected an unusual kitchen-sink approach by Wal-Mart's lawyers. The Court did not grant certiorari on that unmanageably broad question. Instead, the Justices agreed to hear the first question and posed a second question of their own: "Whether the class certification ordered under Rule 23(b)(2) was consistent with Rule 23(a)."

This morning's grant, together with Concepcion and Shady Grove, may reflect a growing interest among the Justices in class actions--a subject with which the Court has previously had relatively little involvement.  Lyle Denniston has more at SCOTUSblog, here.

Marotta-Wurlgler Asks if Disclosure Matters

Florencia Marotta-Wurgler of NYU has written Does Disclosure Matter?  Here's the abstract:

Disclosure has long been the preferred regulatory approach to curtail one-sided standard form contract terms. Examples include the Truth in Lending Act, the new "ALI Principles of the Law of Software Contracts," and many other proposals which await Congressional approval. The appeal of disclosure is that it is relatively low cost, improves consumer decision-making and preserves consumer choice. For disclosure to be effective, however, it must increase readership and understanding of contracts to a meaningful rate, and, conditional on readership, contract content must be relevant to purchase decisions. This paper tests both these necessary conditions. We follow the clickstream of 47,399 households to 81 Internet software retailers to measure contract readership as a function of disclosure. We find that making contracts more prominently available does not increase readership in any significant way. In addition, the purchasing behavior of those few consumers who read contracts is unaffected by the one-sidedness of their terms. The results suggest that mandating disclosure online should not on its own be expected to have large effects on contract content.

Indiana closes debtors' prison

A while back I reported on the revival of debtor's prison in a southern Indiana county court.  The Indiana Court of Appeals has now struck down the local county court rule that imposed contempt sanctions, including imprisonment, for debtors who failed to pay small claims judgments on ordinary civil debts.  The county court rule provided for a "personal order of garnishment,"  which, unlike ordinary garnishment orders directed at third parties like banks and employers, would order the debtor herself to turn over any non-exempt funds in the debtor's possession, regardless of whether such funds actually existed.  The disabled and indigent defendant in the case at issue was found in contempt and ordered to serve 30 days in jail for failing to pay $10 monthly on a $445 judgment, despite not having any non-exempt assets or income.

The Court of Appeals cited the Indiana Constitution's provision that "there shall be no imprisonment for debt, except in case of fraud, " and voided the local court procedures.  Congratulations to John Brengle and Katherine Rybak of Indiana Legal Services on achieving simple justice in this case.

Highlights from Mobile Payments: Global Markets, Empowered Consumers and New Rules

by Colin Hector & Liz Eraker

Last month,the University of Washington, School of Law and the Samuelson Law, Technology & Public Policy Clinic at U.C. Berkeley Law School convened representatives from regulatory, academic, industry, and public interest communities for a day-long conference exploring the growth of mobile payment, or m-payment, systems. Experts discussed the promises and pitfalls of mobile payment systems in developed and developing markets, and evaluated various regulatory approaches to protecting consumers while ensuring continued innovation in the industry.

Although the conference covered a wide spectrum of topics, three basic questions provided a foundation for much of the discussion. First, to what extent will mobile payment systems develop as an independent payment system? Second, what are the consumer expectations concerning the security and integrity of m-payment systems? Finally, what regulatory models appropriately reflect these expectations while ensuring the continued development of this burgeoning technology?

Detailed highlights of the participants' discussion of these questions after the break.

Continue reading "Highlights from Mobile Payments: Global Markets, Empowered Consumers and New Rules"

Continuing issues of redactions of the judicial records in the Rosetta Stone trademark appeal

by Paul Alan Levy

Last month, I discussed the appellate brief filed by Rosetta Stone in its appeal from a trial court’s dismissal of its trademark lawsuit over Google’s practice of allowing advertisers to pay for ads directed to Google users who express an interest in trademarked terms.  The redactions were not based on any objective determination of the need for secrecy, but instead on unilateral stamping of discovery materials as “confidential” coupled with the parties’ consent to allow such restriction son public access because neither had any interest in contesting even the flimsiest of the other side’s claims of need for secrecy.   Public Citizen told the parties that, unless the brief were filed in unredacted form, it would seek leave to intervene to seek unsealing.

CL&P Roundup

by Deepak Gupta

Arbitration and Class Actions: On Saturday, The New York Times ran an editorial entitled "The Arbitration War," supporting consumers and state law in AT&T v. Concepcion. The Wall Street Journal's ed board, allowing its antipathy to class actions to trump core federalism principles, has taken the opposite side of the debate. You can watch me attempt to defend our side on Fox Business:

For a much broader perspective on the Supreme Court's FAA jurisprudence, check out the recent posts by Lawrence Cunningham of George Washington Law at Concurring Opinions (here, here, and here), discussing Concepcion and previewing his forthcoming law review article on the uneasy relationship between the Court's cases and traditional notions of contract law.

The Fed and Foreclosures: That's the title of a Times editorial from yesterday's paper, taking aim at a a troubling proposal by the Federal Reserve Board that would, as PIRG's Ed Mierzwinski puts it, effectively "rescind the homeowner's right to rescind" -- a key protection under the Truth in Lending Act -- just when consumers need it most. Hundreds of consumer, civil rights, legal services, community and labor groups and private and public interest attorneys representing homeowners, along with the coalition Americans for Financial Reform, have urged the Board to withdraw the proposed rule.

Elizabeth Warren, the CFPB, and the White House: At the Huffington Post, Simon Johnson of MIT defends "The Economics and Politics of Elizabeth Warren" and Shahien Nasiripour looks at Warren's pivotal role in getting President Obama to veto an under-the-radar bill on foreclosure documentation that had somehow passed both houses of Congress without public attention. The WSJ and Bloomberg pick through Professor Warren's schedule and focus on her meetings with bankers.