Should Bank Regulation Be Up To One Federal Regulator?

In this New York Times op-ed, Sheila Bair (pictured to the right), the Chair of the Federal Deposit Insurance Corporation, explains why she supports a new Consumer Financial Protection Agency but thinks it would be a mistake to create one federal agency with complete regulatory authority over state and federally chartered banks. Over at Credit Slips, Angie Littwin comments.

August 2009 CPSC Recalls

Go here for the August 2009 product safety recalls from the Consumer Product Safety Commission.

Busted, the Book

by Jeff Sovern
I've been listening to the audio version of New York Times reporter Edmund Andrews' memoir, Busted: Life Inside the Great Mortgage Meltdown (a portion of the book was published in the Sunday Times magazine under the title My Personal Credit Crisis; we blogged about it here).

Lots of books have been written about the foreclosure fiasco from the perspective of the economy as a whole or the lenders who made the loans, but this is the first book I've seen written from the perspective of a borrower.  Despite his expertise as an economics reporter, Andrews accumulated excessive debt and ended up defaulting on his mortgage.  For those of us who do not deal regularly with consumers snared in the subprime meltdown, this book helps explain how even sophisticated people became trapped, though I suppose it can be dangerous to generalize too much from the account of a single person, espcially one who may not be typical of such borrowers.  Andrews weaves his personal story  together with a look at what was going on in the broader economy. 

The book has been criticized for not disclosing that Andrews' wife had previously filed for bankruptcy, and perhaps we can infer from that that Andrews may not have disclosed other information that would put at least his wife in a bad light.  Nevertheless, I'm finding the book useful in gaining a real world perspective on the travails of consumers who borrowed more than they could repay. 

One note relevant to the proposal to transfer the Fed's jurisdiction over consumer protection matters to the proposed new Consumer Financial Protection Agency: Andrews observes that the Fed Governors consider the Fed's consumer affairs committee "a backwater."  Andrews doesn't cite a source for that proposition, but if it is true, it underlines again why the Fed is not the right agency to protect consumers, and perhaps why the Fed waited so long to use its HOEPA authority to prohibit bad mortgage practices.

American Council On Consumer Interests Conference and Call for Papers

The American Council on Consumer Interests will hold its 2010 conference in partnership with the Federal Reserve Bank of Atlanta on April 14-16, 2010. Deadlines for submissions begin October
15, 2009. More information, including the Call for Papers can be found here.

A Solution to Incomprehensible Contracts?

Back on August 20, the Times published John Aloysius Cogan's op-ed piece, Plain English Is the Best Policy about the unintelligibility of health insurance policies.  My letter appeared on Friday, under the heading "No More Gobbledygook:

To the Editor:

Re “Plain English Is the Best Policy” (Op-Ed, Aug. 20):

John Aloysius Cogan Jr. complains that insurance policies are incomprehensible, but many other consumer contracts suffer from the same defect. Ever try to read a credit card contract?

We should require companies using consumer contracts longer than, say, four pages to test what percentage of consumers understand them, and then post their scores in their ads. Maybe businesses would compete for better comprehension scores by using easier-to-understand terms.

Jeff Sovern
Jamaica, Queens, Aug. 20, 2009

The writer is a professor of law at St. John’s University and co-coordinator of the Consumer Law and Policy Blog.

 

Chrysler Assumes Post-Bankruptcy Product-Liability Claims

by Adina Rosenbaum

In a reversal of its position in the bankruptcy proceeding, Chrysler has agreed to assume liability for people injured after the Chrysler bankruptcy by vehicles sold before the bankruptcy.

As background, in late May and early June, Public Citizen represented a bunch of consumer organizations in objecting to the Chrysler bankruptcy sale because the sale documents purported to sell Chrysler "free and clear" of product liability claims. We particularly got involved to represent the interests of future claimants -- that is, the claims of people who would be injured or killed in accidents that occurred after the bankruptcy but were caused by defects in Chrysler vehicles sold before the bankruptcy. The bankruptcy court approved the sale free and clear of such future claims, and I argued the issue in front of the Second Circuit. Within minutes after that argument ended, the Court announced that it was upholding the sale for substantially the same reasons as the bankruptcy court and that opinions would be forthcoming. Four days later, we filed a petition for certiorari.

Debate on Forced Arbitration With Alan Kaplinsky

by Deepak Gupta

This week, the Legal Talk Network hosted a debate over mandatory arbtiration between me and Alan Kaplinsky, a corporate defense lawyer known for pioneering the use of arbtiration clauses by banks and lenders. 

I was surprised by how open Alan was about the real purpose of forced arbitration: to foreclose any possibility of class actions alleging that his clients have violated consumer protection laws, and to avoid being held accountable by juries. You can listen to a podcast of the debate at at this link, or download it as an MP3.  (Coincidentally, in another one of this week's podcasts, you can hear U.S. District Judge William Young of Boston, a well-regarded trial judge, discuss the implications of mandatory arbtiration for the future of the civil jury trial.)

Alan's repeated attempt in our discussion to use empirical studies to prove the legitimacy of forced arbtiration reminded me of a really excellent law review article that I've been meaning to plug here.  It's a piece called Mandatory Arbitration and Fairness, by David Schwartz of the University of Wisconsin, and it appeared earlier this year in the Notre Dame Law Review. Professor Schwartz makes a persuasive case for the view that the empirical question is the wrong question to be asking in the first place, and that it's a mistake for consumer and civil rights advocates to get bogged down in the empirical debate. It gets the "burden of proof" wrong, and it stands in the way of more meaningful and fundamental questions about fairness. "Interposing [the] empirical question as a hurdle to legislative reform would be a strategic victory for mandatory arbitration supporters," Schwartz writes, "because there is a good likelihood that a definitive answer is years away, and perhaps unattainable."

Ten Practice Implications of NAF Withdrawal from Consumer Arbitrations

by Bob Hobbs

The Minnesota consent order requiring the National Arbitration Forum (NAF) to cease by July 24 all new consumer arbitrations has ten dramatic practice implications, detailed in NCLC Reports, Deceptive Practices & Warranties Edition (July/August 2009).

1. Arbitration clauses naming NAF as the sole forum may now be unenforceable.

2. If a court decides instead to select the arbitrator, then the court will have to determine the arbitration rules and make sure the cost of arbitration to the consumer is no more expensive than what NAF arbitration was advertised to cost.

3. New life for class arbitrations (no longer under NAF rules) and class actions (corporations may even prefer court actions rather than class arb before court-appointed arbitrator).

4. Bank of America has dropped its arbitration requirement for all consumer transactions (auto, credit cards, banking).

5. Companies will not be able to amend many of their arb agreements to substitute AAA.

6. Collection via arbitration is dead for the foreseeable future.

7. There is now a powerful defense to confirmation of existing awards.

8. Consumers may be able to unwind even confirmed NAF arb awards.

9. Private parties, AGs, or state courts may be able to vacate NAF arb awards on a class basis.

10. There will be many reasons for attorneys with individual clients to monitor new class actions against NAF, Mann Bracken, and Creditors.

Call for Papers

We've received the following Call for Papers:  Papers are invited for the 5th edition of the Consumer Journal, a publication of the Consumer Awareness Organisation, a non-governmental organisation based in Nigeria. Interested contributors should send their papers to the address below for assessment and possible publication.

Wyoming Food Safety, Security, and Sources Conference

Food Safety, Security and Sources, A Recipe for Tough Times is the theme for the 9th annual Consumer Issues Conference at the University of Wyoming in Laramie, Wyoming, to be held September 24th and 25th. An exciting program is being planned for this year’s conference, and will include subthemes of “Food Sustainability and Security Practices,” “Food Safety v. Food Freedom,” and “Food Fight: Nutrition and Health Choices.” Speakers will include Donna Byrne, Food Law Professor from William Mitchell Law School; Sandra Eskin, a Food Safety Policy Attorney for the Produce Safety Project, an initiative of the Pew Charitable Trusts at Georgetown University; Devin Koontz of the Federal Food and Drug Administration’s Denver District Office; and my co-author Dee Pridgen, Carl M. Williams Professor of Law and Social Responsibility and Associate Dean, UW College of Law, a noted author on consumer law issues.