"It's Me Fraud"

by Jeff Sovern

Those of us at the University of Houston Teaching Consumer Law Conference last week were treated to a report on a type of fraud I personally had never heard of and that is so new, it goes under several names, including it's me fraud and grandparent fraud.  Basically, someone calls a grandparent (or sometimes a parent) claiming to be his or her grandchild facing an emergency and in need of funds.  The con artist then persuades the grandparent to wire money.  Jeff Gelles has a column about the practice here. 

Some Tidbits on the Constitutionality of the Health Care Legislation's "Tax" or "Penalty" or "Fee" for Not Participating

As many of you know, the health care legislation's so-called mandate on participation and its tax (or penalty or fee) for not participating has raised a constitutional ruckus. Most (but not all) of that debate has centered on whether the "mandate" is within Congress's Commerce Power. I thought I'd share two recent pieces on the topic: an op-ed by Harvard law professor (and former Reagan Administration SG) Charles Fried, who says that the provision is constitutional and that it's not a close call, and a response from Professor Ilya Somin.

It's critical to know that Professor Fried (pictured to the right) is so sure of himself that he told CNN reporter Greta Van Susteren that he'd eat a kangaroo skin hat (pictured to the left) if the Supreme Court disagrees with him:

FRIED: So, the question is, is it constitutional? And it seems to me, though there are a lot of things to object in this, and I would be the first to say so, the constitution is not one of them. If you don't like it, repeal it or amend it. But don't ask the courts to do the job for you, because they won't. [...]

VAN SUSTEREN: The issue that will confront the federal judge, and the Supreme Court if it goes on, is whether or not the Commerce Clause gives the federal government the power to do this....And does the constitution in your opinion, sir, enable them?

FRIED: It certainly does. The statute which I have in front of me, I bothered to read it, says that the health insurance industry is an $854 billion dollar industry. That sounds like commerce. The Supreme Court just five years ago with Justice Scalia in the majority said that it is all right under the Commerce Clause to make it illegal for California for residents in California to grow pot for their own use, because that has effect on interstate commerce. Well, if that has effect on interstate commerce, what happens in an $854 billion national industry certainly does.

VAN SUSTEREN: Is there any possibility, in your mind, or any thought that you could be wrong?

FRIED: Well, I suppose I could. But I'll tell you what, I would be happy to come on this program and eat a hat which I bought in Australia last month made of kangaroo skin.

This almost makes me want the Supremes to strike down the law!

Nature Conservancy Took Millions from BP

Why do we care that politicians take money from big corporations or their executives? Why are we concerned when scientists take money for research from the companies whose products they are testing for safety or efficacy? Well, to state the obvious, we fear that the politicians or the scientists might act to please their benefactors to the detriment of good public policy or scientific truth. The idea is that big donors hold a lot of sway, and that even when the politicians or scientists think they are acting independently, they may not be. And, besides, appearances are important. We want the public to trust politicians and believe in scientific research.

This article in yesterday's Washington Post explains that the Nature Conservancy, the large environmental non-profit, is a "business partner" with BP and has taken about $10 million in cash and land from the oil giant and its corporate affiliates. The article explains that, in the wake of the environmental disaster in the Gulf, some of the Nature Conservancy's (former) supporters are livid that the Conservancy's partnership with BP partnership "has lent BP an Earth-friendly image." The article notes the Conservancy's position as well: that taking money from BP and forging a relationship helps reform bad environmental practices from within. Others disagree:

Nate Swick, a blogger and dedicated bird watcher from Chapel Hill, N.C., chastised [Conservancy Chief Executive Mark] Tercek on the [Conservancy's website] for not adequately disclosing the Conservancy's connections to BP and for not working to hold the company accountable. Swick said in an interview that he considered BP's payments to the organization to be an obvious attempt at "greenwashing" its image. "You have to wonder whether the higher-ups in the Nature Conservancy are pulling their punches," said Swick, who added that he admires the work the Conservancy does in the field.

The article notes that other environmental non-profits take money from the companies whose practices they seek to control or reform. I'd be curious to hear from others about non-profits of all political persuasions that take money from for-profit companies or from government.

Brownback Motion Succeeds

Senator Brownback's motion to instruct the Senate conferees on the CFPA/B bill to exclude auto dealers from the bill passed by a vote of 60-30.  The breakdown is here.

Supreme Court Agrees to Hear Class-Action Ban Issue

by Deepak Gupta

  Back in May 2008, I wrote a blog post that began like this:

A cutting-edge issue in the world of consumer law--and one that this blog has discussed many times before . . . is the extent to which corporations can enforce class-action bans placed in consumer adhesion contracts. Class-action bans are clauses that purport to strip consumers of the right to seek any classwide relief, whether through class-action litigation or classwide arbitration. 

The question matters because class actions are often the only thing stopping companies like cell phone or cable providers from getting away with practices that cheat large numbers of consumers out of small amounts of money. As Judge Posner has put it, "[t]he realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30." 

This morning, the Supreme Court granted certiorari in AT&T Mobility v. Concepcion, which presents the question whether the Federal Arbitration Act preempts rulings that particular class-action bans are unconscionable under generally applicable state contract law.  We are counsel for the respondents, Californians who seek to sue AT&T over violations of state consumer-protection law in connection with the sale of cellular phones.

You can read the briefs, including the cert petition and our brief in opposition, here.

Maryland Nursing Home Arbitration Victory

In a really nice opinion, the Maryland Court of Appeals has held that a nursing home could not force the estate of a man allegedly killed by the nursing home's gross negligence to arbitrate claims based on a contract signed by one of the man's relatives when he was admitted to the nursing home. The court held that under common-law agency principles the relative could not bind the man (or, therefore, his estate). The case will now be litigated in Maryland state court. Because the court ruled on agency grounds (effectively rendering the contract for arbitration invalid), it did not reach the other issue in the appeal --- that a provision allowing the nursing home to choose the arbitrator rendered the arbitration clause unconscionable and,therefore, unenforceable. Public Citizen, Georgetown Law's Institute for Public Representation, and D.C. lawyer Stefan Shaiban represented the estate.

Credit Card Contract Collection

by Jeff Sovern

The Credit CARD Act required the Fed to post online copies of credit card contracts.  The Fed has now posted more than 1200 such contracts from 276 issuers (including large issuers like Chase, Citibank, and Capitol One) in a searchable database here. It may be of considerable value to academic researchers; I hope that consumer groups go through the contracts and comment on which offer the best terms.  It will be interesting to see if such an effort leads to competition on credit card terms.

The Financial Reform's Effect on Consumers: Debit and Credit Cards, The Consumer Financial Protection Agency, Mortgages, Brokers' Duty to Consumers, and Credit Scores

This New York Times article explains the financial reform legislation's provisions having a direct effect on consumers. Some are in the House bill; some in the Senate bill; some in both. The House bill requires brokers to act as fiduciaries when dealing with consumers; the Senate bill does not. The Senate bill says that whenever someone uses a credit score to take adverse action against a consumer, the consumer must be given her credit score for free. The House bill is silent on that issue. A number of provisions in the Senate bill concern credit and debit cards. Here's an explanation of one on debit cards:

One last-minute Senate addition would lower the fees that merchants pay to process many debit card transactions. If banks lose revenue as a result, they could make up for it by adding fees to checking accounts or cutting back on rewards programs. Retailers say that once card costs fall, they will hire more workers and hold the line on prices. There is a fair bit of disagreement about who has the better argument.

Hard to see how consumers will benefit from this provision in the long run. If it is adopted by the conference committee, I suppose we'll find out. This article is worth reading in full.

Financial Reform Legislation -- Comparing the House and Senate Bills

Today's New York Times has this informative piece explaining the major differences between the House and Senate financial reform bills that will have to be reconciled before the legislation is enacted. And here's a chart on the major provisions of the bill and how the they differ from House to Senate. The chart's third column lists provisions that were championed by some legislators and/or consumer advocates but never made it into the legislation.

Foreclosures: Not Getting any Better

While most of the media covered the monthly Realtytrac numbers released last week, the more reliable quarterly Mortgage Bankers National Delinquency Survey was released Wednesday, and the news is all bad.  The seasonally-adjusted total of mortgages in foreclosure or default is approaching 15%, and remains at record high levels.  Foreclosures remain at quadruple their pre-crisis levels, and more than double the rate experienced in any prior recession since the Depression.  Meanwhile the Administration's HAMP program is mostly offering homeowners false hopes.  For my summaries of publicly available foreclosure data, go here.  We have not turned the corner on foreclosures, and as a result the shadow inventory of unsold homes, at around 7 million, will continue to depress home prices, construction and the economic recovery generally, while the unresolved $10 trillion in residential mortgage debt will continue to depress consumer spending.