Is CARS a Good Idea?

The Consumer Assistance to Recycle and Save Act of 2009 (CARS) is meant to encourage people to trade in their gas guzzlers and buy new "fuel efficient" cars. You trade in the gas guzzler and the federal government funds a $3,500 to $4,500 credit toward the new car. And the car dealer is required to scrap the gas guzzler, so that it doesn't continue its gas-guzzling ways. The idea is that the consumer saves money, new car purchases increase, and the environment is benefited.

But in a column entitled "One Lemon of a Law," the Washington Post's Michelle Singletary really takes after CARS. She says that "in truth, this is welfare for the limping auto industry. The National Highway Traffic Safety Administration (NHTSA) has been given $1 billion to fund the program. But the law does not apply to the purchase of used cars, encourages people to take on more debt and doesn't require the new cars to get substantially better gas mileage." On this latter point, under CARS, new passenger cars can get as little as 22 combined city/highway miles per gallon (mpg) and SUVs, small and medium pickup trucks, and small and medium passenger and cargo vans can get has little as 18 combined mpg. Check out the government's CARS website for all the details.

Senator Chambliss Lifts "Hold" on Cass Sunstein for OIRA Position

Quite a while back, President Obama nominated Cass Sunstein, a famous law professor, to head the Office of Information and Regulatory Affairs (OIRA) in the Office of Management and Budget. In the past, OIRA has had a lot of power over federal agencies' regulatory agendas. Sunstein's nomination stalled after Senator Saxby Chambliss of Georgia placed a "hold" on the nomination because Sunstein had supported animal rights and, specifically, the right of animals to sue (with humans as surrogates of course). Now, according to a news report, Chambliss has lifted his hold because Sunstein has pledged in a letter not to "'take any steps to promote litigation on behalf of animals' and agree[d] the law does not give animals ... rights. Sunstein in the letter also says he believes the Second Amendment protects the right of individuals to bear arms."

The Obama's Administration Consumer Financial Protection Agency Bill and Abusive Practices

by Jeff Sovern

Subtitle C of the Obama administration's bill to create a Consumer Financial Protection Agency would give the CFPA the power to promulgate rules "identifying as unlawful unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service."  The bill would also permit the agency to take action to prevent someone from engaging in such a practice.  The phrase "unfair and deceptive" has a long history in litigation under the Federal Trade Commission Act, and in fact the bill copies the FTC Act's definition of unfair, drawn in turn from a 1980 FTC Policy Statement, that acts cannot be declared unfair unless "the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers and such substantial injury is not outweighed by countervailing benefits to consumers ot to competition."  So those phrases seem relatively well understood.  But what are abusive practices?  The Fair Debt Collection Practices Act bars abuse in debt collection, § 1692d, but presumably the CFPA's authority to ban abusive practices would extend beyond debt collection.  For example, suppose the CFPA declared that it is an abusive practice to provide for a balloon payment in a mortgage in which the borrower has no real expectation of a substantially higher income when the balloon payment comes due (as might be true of a medical student, for example).  Should courts uphold such a determination?  Here's a definition of abusive from dictionary.com:

1.	using, containing, or characterized by harshly or coarsely insulting language: an abusive author; abusive remarks.

2.	treating badly or injuriously; mistreating, esp. physically: his abusive handling of the horse.

3.	wrongly used; corrupt: an abusive exercise of power.

It seems unlikely that the word as used in the bill should be confined to use of bad language, and obviously it isn't directed to physical abuse.  That third definition--wrongly used; corrupt--seems more relevant.  Most practices that satisfy that definition would also seem unfair.  But abusive must mean something that is neither unfair nor deceptive; otherwise, why include it?  And it should also mean something different from unconscionable, because the drafters didn't use that term either.  My own guess is that it would give the CFPA the power to ban clauses that permit a business to take advantage of a consumer because the business has power the consumer doesn't, perhaps because of information asymmetries.  But it's just a guess.

Check out Wal-Mart Watch

If you're interested in all things Wal-Mart, check out Wal-Mart Watch, a (largely) critical website devoted to discussion of the world's largest retailer. There's an emphasis on efforts to improve wages and benefits for Wal-Mart workers. Today's top story is about venomous snakes causing serious injury to customers in Wal-Mart garden centers.

Consent Decree in Minnesota v. NAF

Here's the consent decree that Richard mentions in the post below.  And here's the text of the press release from the Minnesota Attorney General's office:

Minnesota Attorney General Lori Swanson and the National Arbitration Forum—the country’s largest administrator of credit card and consumer collections arbitrations—have reached an agreement that the company would get out of the business of arbitrating credit card and other consumer collection disputes.

“I am very pleased with the settlement. To consumers, the company said it was impartial, but behind the scenes, it worked alongside credit card companies to get them to put unfair arbitration clauses in the fine print of their contracts and to appoint the Forum as the arbitrator. Now the company is out of this business,” said Swanson.

Swanson sued the National Arbitration Forum on Tuesday, alleging that the company--which is named as the arbitrator of consumer disputes in tens of millions of credit card agreements--hid from the public its extensive ties to the collection industry. The lawsuit alleged that the Forum told consumers and the public that it is independent and neutral, operates like an impartial court system, and is not affiliated with and does not take sides between the parties. The lawsuit alleged that the Forum worked behind the scenes, however, to convince credit card companies and other creditors to insert arbitration provisions in their customer agreements and then appoint the Forum to decide the disputes. The suit also alleged that the Forum has financial ties to the collection industry. The suit alleged that the company arbitrated 214,000 consumer arbitration claims in 2006, nearly 60 percent of which were filed by laws firms with which the Forum is linked through ties to a New York hedge fund.

Under the settlement, the National Arbitration Forum will, by the end of the week, stop accepting any new consumer arbitrations or in any manner participate in the processing or administering of new consumer arbitrations. The company will permanently stop administering arbitrations involving consumer debt, including credit cards, consumer loans, telecommunications, utilities, health care, and consumer leases.

NAF Exits Consumer Arbitrations

by Richard Alderman

In a major victory for consumers, the nation’s largest arbitration firm involved in adjudicating delinquent credit-card debt has agreed to pull out of the business. As reported by BusinessWeek, the move was announced today by Minnesota Attorney General Lori Swanson, who had filed suit against the National Arbitration Forum, alleging fraud, deceptive trade practices, and false advertising.

Under the terms of the consent decree, signed by the AG and NAF officials, the arbitration firm by the end of this week will stop accepting new consumer arbitrations of any sort. These include arbitrations over disputed credit-card debt as well as new lines of business the NAF has moved into, such as arbitrating consumer debts in healthcare, telecommunications, utilities, mortgages, and consumer leases. The only business NAF can now be involved with is in arbitrating Internet domain disputes, a business it has long been in.

The question now is where will all these arbitrations go, and will more lawsuits follow them.

John Infranca on Protecting Exempt Social Security Payments from Freezes and Garnishment

John Infranca of NYU has written Safer than the Mattress? Protecting Social Security Benefits from Bank Freezes and Garnishments, 83 St. Johnb's Law Review (2009). Here's the abstract:

This Article analyzes the tensions between the anti-assignment provision of the Social Security Act-which exempts benefits from garnishment by creditors seeking payment for outstanding debts-and state-law garnishment procedures. Although federal law explicitly prohibits the garnishment of Social Security and other federal benefits, recipients routinely discover that these funds, which they believed were safely deposited in a bank account, have been temporarily frozen or, even worse, permanently garnished at the behest of a judgment creditor. The problem has been exacerbated in recent years as the collection industry has grown and changes in state laws have made it easier for creditors to garnish bank accounts. At the same time, increasing numbers of benefit recipients are receiving direct electronic deposits, further complicating matters.

Banks, seeking to avoid liability under state law, typically comply with garnishment orders and automatically freeze accounts. This often causes substantial hardship for low-income benefit recipients, who can be left for weeks without access to funds they rely upon for subsistence. A few states have attempted to remedy the problem through legislative and administrative solutions, with mixed success. Congress has also recently held hearings on the issue and federal agencies have proposed a possible response. This Article analyzes these efforts and discusses their limitations before urging a federal legislative response in the form of a five-part policy proposal.

Australia limits all bank fees

by Richard Alderman

I just finished teaching a course on American Consumer Law at Latrobe University in Australia. Part of the fun of teaching in another country is comparing consumer issues. One common problem is unreasonably high bank and credit card fees. It looks like Australian consumers also face excessive fees for services, such as NSF checks, late payments or overdrafts. The Australian government has proposed broad unfair contracts rules to deal with this problem. Last week, a recent newspaper headline read, "New law puts $1B in bank fees at risk." It discusses the new law, which goes into effect in January, allowing consumers to challenge any bank fee believed to be "unreasonable." If a fee is challenged, the bank must reveal the actual costs involved with such fee to establish that the fee was reasonable. It is expected that the law will have the effect of substantially lowering fees for every type of bank account, credit card, personal loan or mortgage, which have been a large profit center for banks. Looks like when it comes to banks, consumers are a worldwide profit center.

Elizabeth Warren on the Consumer Financial Protection Agency

In this Business Week column, Prof. Elizabeth Warren lays out why she thinks Congress ought to establish a Consumer Financial Protection Agency. She stresses the need for simple disclosures regarding financial products. She says in that regard that "[m]illions of consumers who qualified for traditional market-rate mortgages were pushed toward . . . subprime loans because they weren't able to compare products and make real choices." She also says that having one regulator and simple disclosures would cut regulatory costs for lenders.

More on Efforts to Reform Pay-for-Delay Drug Settlements

by Brian Wolfman

Last month, I blogged here about FTC Chair Jon Leibowitz's call to eliminate or narrow "pay-for-delay" drug settlements. In pay-for-delay settlements, a brand-name drug company pays a generic company that has challenged the brand-name company's patent to stay out of the market. Today, in this editorial, the Washington Post endorses legislation to ban most of these settlements.