AARP Financial Reform Bill Music

Here.

R.J. Reynolds Test Marketing Nicotine "Pez," Trying to Lure Kids

by Brian Wolfman

It seems that the tobacco industry is still trying to hook kids. As the New York Time explains here: "A research study and editorial to be published Monday in the medical journal Pediatrics takes direct aim at a novel tobacco product that some critics say too closely resembles Tic Tac breath mints. R. J. Reynolds Tobacco, the nation’s second-largest cigarette maker behind Philip Morris, is test marketing the product, Camel Orbs, along with other dissolvable tobacco products, in three cities. It is part of a broad industry trend to create smokeless products in response to declining cigarette use and the rise of smoke-free air laws."

Compare the Orbs container with the Tic Tac container:  

And read Jon Wolfman's blog on the topic at salon.com.

Arbitration clause naming NAF as arbitrator is unenforceable.

The United States District Court for the Southern District of Texas has held that an arbitration agreement naming NAF as the arbitrator was unenforceable. In light of the substantial number of contract containing similar clauses, this may be just one of many opinions dealing with this issue.

The question before the court in Ranzy v. Extra Cash of Texas was whether section 5 of the Federal Arbitration Act authorizes the court to name a substitute arbitrator.  The court noted,

Although the FAA was designed "to overrule the judiciary's long-standing refusal to enforce agreements to arbitrate," it "does not require parties to arbitrate when they have not agreed to do so." Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478, 109 S. Ct. 1248, 103 L. Ed. 2d 488 (1989) (citations  omitted). The FAA "simply requires courts to enforce private negotiated agreements to arbitrate, like other contracts, in accordance to their terms." Id. The FAA does, however, provide for the court to appoint an arbitrator under certain circumstances. Section 5 of the FAA provides:

If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed; but if no method be provided therein, or if a method be provided and any party thereto shall fail to avail himself of such method, or if for any other reason there shall be a lapse in the naming of an arbitrator or arbitrators or umpire, or infilling a vacancy, then upon the application of either party to the controversy the court shall designate and appoint an arbitrator or arbitrators or umpire, as the case may require, who shall act under the said agreement with the same force and effect as if he or they had been specifically named therein; and unless otherwise provided in the agreement the arbitration shall be by a single arbitrator.

 

The court concluded that:

In the present case, the court need not determine whether § 5 is applicable when a chosen arbitrator becomes unavailable because the NAF was clearly an integral part of the arbitration provision. "Arbitration agreements are subject to the same rules of construction used to interpret contracts." Harvey v. Joyce, 199 F.3d 790, 794 (5th Cir. 2000). However, any ambiguities must be resolved in favor of arbitration. Id. To determine whether a named arbitrator is an integral part of the arbitration agreement, the court must look to the "essence" of the arbitration agreement. Grant, 678 S.E.2d at 439 (citations omitted). In this case, the plain language of the arbitration provision in both the Note and the Arbitration Agreement explicitly states that all disputes "shall be resolved . . . by and under the Code of Procedure of the [NAF]." Dkt. 15, Exs. 1, 2. Additionally, "all claims shall be filed at any NAF office," or on the NAF web site. Id. This is mandatory, not permissive language and evinces a specific intent of the parties to arbitrate before the NAF. See Reddam, 457 F.3d at 1059-61 (outlining criteria for courts to use in determining whether the selection of a specific arbitrator is integral to the arbitration clause and noting, that at a minimum, the arbitrator must be expressly named); Carideo v. Dell, No. C06-1772JLR, 2009 U.S. Dist. LEXIS 104600, 2009 WL 3485933, *4 (W.D. Wash. Oct. 26, 2009)  (arbitration provision that provided that disputes "shall be resolved exclusively and finally by binding arbitration administered by the NAF" was sufficient to find the NAF as integral to the arbitration clause) (emphasis added); but see Adler v. Dell, No. 08-cv-13170, 2009 U.S. Dist. LEXIS 112204, 2009 WL 4580739, *4 (E.D. Mich. Dec 3., 2009) (same language as Carideo insufficient to show NAF integral to the arbitration clause). In light of the plain meaning of the arbitration provision, the court cannot appoint another arbitrator even though the NAF is an unavailable forum-the parties "cannot be compelled to arbitrate a dispute if [they have] not agreed to do so." Nat'l Iranian Oil, 817 F.2d at 335 (citations omitted). The motion to compel arbitration is, therefore, denied.

The Transportation Department's $16.4 Million Fine Against Toyota and the Need for a Vibrant Civil Justice System

by Brian Wolfman

Today's news reports bring word that, after mulling its options for weeks, Toyota is expected to agree to pay a $16.4 million fine levied by the U.S. Department of Transportation (DOT), which charged Toyota with hiding information related to the company's recall of cars with sticking gas pedals. As the the New York Times explains, the amount of the fine is an all-time record and "the maximum amount allowed by law." That tells you something unsettling about the law. The record fine is just a bit over 7 bucks for each of the 2.3 million cars recalled because of the accelerator problem, and, in total, that's not even pocket change for a behemoth like Toyota.

In short, the fine is not remotely enough, on its own, to have any deterrent effect. Sure, the recall and the fine may have some negative effect on consumers' attitudes toward Toyota, and, sure, the SEC and the Department of Justice are still contemplating their own prosecutions. But why do you think Toyota took its time deciding whether to pay up or fight the fine in court? I'm guessing, at least in part, because of the effect paying the fine might have in pending civil litigation, which holds out the promise of deterring future bad behavior far more than the puny $16.4 million fine.

This post has assumed that Toyota engaged in wrong doing. I know only what I've read in the papers, and, certainly, Toyota is entitled to its day in court. But assuming that Toyota broke the law, as the government obviously thinks it did, putting lives at stake in the process, at least until DOT sanctions have some real bite, we need a vibrant civil justice system to punish wrong doers and deter future illegal behavior.

Report on the American Council on Consumer Interests Conference

by Jeff Sovern

Some comments on the Annual Conference of the American Council on Consumer Interests (ACCI), which I attended last week:

ACCI seems to be made up largely of people who study consumer matters, including something called consumer science, financial planning, consumer behavior, and consumer education.  Its members include academics, economists, financial planning people and others.  But it includes few law professors. Norm Silber of Hofstra is a longtime ACCI leader (it was Norm who told me about ACCI and urged me to come), but I didn't see any other law professors there, and saw only a couple of lawyers. It strikes me as a conference from which consumer law professors might benefit, though I was told that the topics of the conference vary widely from year to year and it was just happenstance that I attended a conference with a lot of discussions that I found of interest. 

The conference was presented in partnership with the Federal Reserve Bank of Atlanta, at their conference center.  I have never before written on this blog about a facility, but I have to write about this one, in part because I wonder if it has consequences for policy judgments, crazy as that may sound. I have never been in a more palatial place for meetings, or classes for that matter.  I say that as someone who has at one time or another been in numerous schools (including Ivy League schools), law firms, and hotel conference centers,  The Fed's conference center was extremely comfortable, with reclining chairs in the meeting rooms.  Of course it had state-of-the-art technology, including smart boards.  The facilities were beautifully appointed, with wide corridors, elegant furniture, and artwork on the walls. 

I started to wish that all the conferences I attend (not to mention my classes) could be conducted in such lavish surroundings.  But of course the cost of such a facility would preclude that.  Then I began to wonder who paid that cost.  It seems unlikely that the facilities were a gift to the Fed.  If not, that means the money ultimately came from the taxpayers.  While the Fed has income from its investments, and so could have funded the facility from that income, presumably any excess income belongs to the government and so could be used to reduce the burden on taxpayers.  Personally, even though I benefited from the facility, I'm not enthusiastic about having the government pay for such sumptuous facilities.

I'm also curious about the impact of working in such surroundings.  Perhaps the Atlanta Fed is unique among the Fed's facilities (though another conference attendee said he had been in a different Fed facility and that it too was elegantly furnished).  Maybe this seems a bit far-fetched, but somehow it seems like it would be hard to worry about the problems of the poor while in such a place.  Unfair and deceptive practices seem like less of a possibility when you're that comfortable.  How can you identify with those who have been victimized by predatory lenders when you're surrounded by beauty?  If the Consumer Financial Protection Agency (or Bureau) ends up in the Fed, I hope their offices are a little bit less nice.

I also hope to find time to blog in the next few days about some of the content of the conference.

Moralizing Bankers

By Alan White

Last week the chief executives of JP Morgan Chase, Bank of America and Wells Fargo home lending wrote to Congress, and decried the danger and immorality of forgiving debts.  Specifically, they protested that any effort to compel them to reduce the principal owing on mortgages that exceed home values would strike at the heart of the sanctity of contract, and furthermore, discourage bankers from ever making any future mortgage loans. 

Moral hazard in money lending, of course, runs both ways.  The more we condemn the debtor, imprison her, and flog her for breaching her promise, the more reckless the lender can become in making loans that cannot possibly be repaid.  Rigid enforcement of loans creates moral hazard for lenders, while fair and realistic bankruptcy relief and debt jubilees cause banks to lend prudently and fairly.  Chase is now the owner of billions in reckless loans made by Washington Mutual, and Bank of America now has the Countrywide portfolio, both of which are fattened with the infamous “option ARMs,” loans so hopelessly unrepayable that the borrowers were not asked to pay even the full interest due every month. 

In various faith traditions, the moralizing is more likely to condemn the lender than the borrower.  Isaiah railed:  “ye have eaten up the vineyard; the spoil of the poor is in your houses.”  The Q’uran and the Dhamappada are to the same effect.  Saint Thomas Aquinas urged the restoration of all interest as essentially the fruit of theft.

One might also note that Washington Mutual, unable to keep its promises to bondholders and depositors, relied on Chapter 11 bankruptcy and the FDIC to cancel its promises or fulfill them in its stead, and Bank of America compromised with bondholders on $36 billion in promises made by Countrywide.

Yes, homeowners made promises, nearly eleven trillion dollars of promises.  But these obligations were placed on them by moneylenders who should have known better, and whose imprudence has now cost millions of people their homes, their jobs and their life savings.  If forgiveness of debt today will make lenders more reluctant tomorrow, then let us forgive our debtors.

New Studies on the Effect of Federal Preemption of State Lending Laws on the Foreclosure Crisis

by Deepak Gupta

A new study, The Preemption Effect: The Impact of Federal Preemption of State Anti-Predatory Lending Laws on the Foreclosure Crisis (PDF), conducted by UNC-Chapel Hill's Center for Community Capital, concludes that federal action to exempt large national banks from state consumer protection laws led to increased numbers of home foreclosures and risky lending practices. The study analyzes data from 2.5 million mortgages before and after federal preemption in states with and without anti-predatory lending laws, controlling for other factors to isolate the impact of preemption. 

In a companion study, The APL Effect: The Impacts of State Anti-Predatory Lending Laws on Foreclosures, the researchers demonstrate the effectiveness of state laws by studying the quality of loans, from both the loan level and neighborhood level, in states with and without state anti-predatory lending laws. "Our research confirms that state consumer protection laws work, but that when one group of lenders is handed a regulatory free pass, they are going to take advantage of it," says Center for Community Capital Director Roberto G. Quercia. "In this scenario, unfortunately, we see preemption shifting the activities of federally insured banks to riskier activities than they would otherwise have pursued."

The research “proves that that vigorous state consumer protection laws make a positive difference for consumers throughout the country,” said Jim Tierney of Columbia Law School's National State Attorneys General Program, which funded the study. Contrary to the claims of two Comptrollers of the Currency last week, federal preemption of stricter state consumer protection laws has worsened the effects of the housing crisis on homeowners, according to the study.

A summary of both reports is provided below the jump.

Texas Consumer Laws Prevented Banking Crisis

by Richard Alderman

Paul Krugman's editorial in the New York Times today compares the results of the financial crisis in Georgia with Texas, noting that Texas did not face similar problems. He states, "Why didn’t the same thing happen in Texas? The most likely answer, surprisingly, is that Texas had strong consumer-protection regulation. In particular, Texas law made it difficult for homeowners to treat their homes as piggybanks, extracting cash by increasing the size of their mortgages. Georgia lacked any similar protections (and the Bush administration blocked the state’s efforts to restrict subprime lending directly). And Georgia suffered from the difference."

Krugman is correct that throughout the 1990s, Texas law prohibited home equity loans and made it difficult for consumers to get over their heads in what appeared to be low interest rate debt. What he doesn't note, however, is that Texas has since amended its law to permit home equity loans. Although the Texas law does have some consumer protections, I don't think we will fare as well in the next economic crisis.

American Bankers Association Predicts Tougher Federal Rules Will Reduce Availability of Credit

by Jeff Sovern

The rules in question extended the HOEPA loan protections to more subprime loans. The thing is, they were adopted by the Fed in 2000, over objections by the ABA that they would reduce the availability of credit. See Sandra Fleishman, Fed Favors Tougher Loan Rules: Abuses in Subprime Lending Are Targeted, Washington Post, Dec. 14, 2000, at E01. Yet the volume of subprime lending skyrocketed after adoption of the rules, ultimately leading to the subprime crisis and the Great Recession. So if the ABA's predictions were so wrong back then, how much credibility do they have now when making similar claims?

NCLC Practice Tools

by Jon Sheldon

This monthly update lists news re new NCLC practice tools, including a consumer attorney fee survey, free webinars, new case summaries, and other aids: 

A consumer attorney fee survey showing hourly rates and other  firm characteristics is now available on NCLC's website (thanks to Ron Burdge). A must for LSC funded offices now authorized to seek fees!

Free webinars:  

• Consumer  Fraud  Targeting  Seniors  (April 14);  
• Repo Madness  (April 15); and
  
• Credit Reporting and Repair for Domestic Violence Survivors (April 27) .  

Go here for the 2010 schedule and free downloads of past webinars, or contact jhiemenz@nclc.org.

FDCPA case summaries from the last 12 months are now on the companion website to NCLC's Fair Debt Collection treatise.  This password protected site is free to those subscribing to the treatise.

Four manufactured home policy guides are now available on NCLC's website: (1) promoting resident ownership of parks, (2) protecting  fundamental freedoms, (3) advocacy at the local level, and (4) weatherization and replacement of homes.  

Disability discharges for some private student loans are described on NCLC's very helpful website for all things student loans, www.studentloanborrowerassistance.org

 

NCLC's new report, Repo Madness, is now available. An excellent piece not only for law reform, but also to argue for strict construction of breach of the peace.