Cuomo Case Great News for State Attorneys General

by Christopher Peterson

The Supreme Court has issued an opinion striking down the federal banking regulatory preemption of state fair lending enforcement lawsuits. The Court confronted whether ambiguity in the National Bank Act left the Office of the Comptroller of the Currency free to preempt state fair lending litigation originally brought by former New York Attorney General Eliot Spitzer. In applying the administrative deference standard of Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., the Court explained:

[T]he presence of some uncertainty does not expand Chevron deference to cover virtually any interpretation of the National Bank Act. We can discern the outer limits of the term “visitorial powers” even through the clouded lens of history. They do not include, as the Comptroller’s expansive regulation would provide, ordinary enforcement of the law. Evidence from the time of the statute’s enactment, a long line of our own cases, and application of normal principles of construction to the National Bank Act make that clear.

Cuomo v. Clearing House Association, LLC.,  No. 08-453, slip. op. at 3 (U.S. June 29, 2009).

The decision reverses the trend in recent years, discussed here and here, of giving free reign to federal banking regulators to squelch the consumer protection efforts of state attorneys general. While the long-term impact of the decision is yet to be clear, the opinion is likely to embolden some state AGs in litigation against national banks and their subsidiaries over the subprime mortgage debacle.

Read the GM Bankruptcy Objection Filed by Consumer Groups

Earlier today, we posted materials concerning the amendments to the GM bankruptcy sale that will save future product liability and lemon law claims. That post neglected to say that these amendments largely redress objections in the bankruptcy case made by national consumer groups, including Public Citizen and the Center for Auto Safety. Read the the Consumer Groups' Objection.  

GM Bankruptcy Sale Agreement Amended to Cover Product Liability Claims

A number of news sources are reporting that the GM bankruptcy sale agreement has been amended to assure that the new company emerging from bankruptcy will be liable for product liability claims. As the New York Times story puts it:  "General Motors and the Obama administration have reached a deal for the carmaker to assume responsibility for product liability claims filed after it emerges from bankruptcy as a new company, even those claims involving vehicles made by the old company, according to documents filed in bankruptcy court late Friday."

UPDATE:  Read the amended sales agreement. The changes are in red and blue.

NHTSA Recalls for May 2009

Check out the the auto safety recalls from the National Highway Traffic Safety Administration for May 2009.

The Role of Predatory Lending in the Collapse of Detroit

by Laura MacCleery

After listening to a stirring speech by Professor Elizabeth Warren of the Senate Congressional Oversight Committee on the bailout last Saturday at the American Constitution Society convention, I was struck by the many similarities between credit card company practices in moving the profitability of financial products towards the “back end” penalties and fees, and those I uncovered several years ago in the automobile lending context.

The coverage of the auto bailout and the collapse of the domestic auto industry has lacked real understanding of how risk was fed into the auto purchase marketplace. The same full range of predatory practices affecting home mortgages were widely used – and perhaps even to a greater extent – by the automobile industry to sell vehicles. 

In general, Detroit has been inattentive to the serious problem of oil dependency for its profitability model, pushing far larger SUVs and pickups on consumers than was justified by transportation needs. It has also been hostile to safety advances, and managerially backwards. These problems are well known. Less well understood is that, through predatory lending practices, they’ve been taking their customers to the poorhouse with them.

When I was at Public Citizen, we wrote a report in 2003, entitled Rip-Off Nation, detailing many of the fraudulent and misleading aspects of auto purchases. We worked closely with a whistleblower who had been an auto dealership employee and was familiar with many of the tricks and traps then being used to saddle consumers with overpriced auto loans, and published real examples of actual auto lending documents demonstrating the scams. Without the mortgage lending example to illustrate the problem and its potential economic costs, our work to raise the issues largely fell on deaf ears.

Yet the situation has only worsened since, and the number of consumers who are underwater in their loans continues to climb. In December 2008, as The Denver Post reported, both the number of “upside-down” new vehicle purchases and the amount that consumers owe on auto loans have ballooned:

Ninth Circuit Cleans Up Its Own Section 230 Mess — Motions to Dismiss Are Allowed Again

by Paul Levy

The Ninth Circuit has retracted some of the dangerous dictum in its recent decision in Barnes v. Yahoo!, discussed in this blog last month here and here. The panel opinion had asserted – in dictum which, under Ninth Circuit procedure, actually constituted binding precedent – that Internet Service Providers’ section 230 immunity from suit cannot be raised on a motion to dismiss.  In response to a petition for rehearing filed by Yahoo!, and to an amicus brief filed by Public Citizen along with several other organizations, the court issued an amendment that simply deleted that part of its opinion.  The court also attempted, a bit grudgingly, to clean up some text and a footnote of its previous opinion, which had apparently stated that section 230 immunity applies only to state law claims, even though courts generally (including a Ninth Circuit en banc opinion last year) had held that it extends to federal law claims as well.   The cleanup is not ideal — the text of the opinion still states “[S]ubsection (c)(1) only protects from liability . . . a provider or user . . . whom a plaintiff seeks to treat, under a state law cause of action⁴ as a publisher or speaker.”  But the new footnote 4 plainly recognizes that 230(c)(1) extends to federal law causes of action, albeit rather in contradiction to the text which retains the word "only."  It is fair to assume that other courts will recognize what the panel’s intent was.  Props to Eric Goldman for calling attention to this second flaw in the opinion.

House Financial Services Committee Holds Hearing on New Consumer Financial Protection Agency

The Financial Services Committee of the U.S. House of Representatives held a hearing regarding the establishment of a new Consumer Financial Protection Agency. Go here to see a webcast of the hearing and the written testimony of a range of experts such as Elizabeth Warren, Ed Mierzwinski, and Kathleen Keest.

Judge Sotomayor's Record in Business and Consumer Cases

by Deepak Gupta

The Alliance for Justice has issued a report on Judge Sonia Sotomayor's record in business and consumer cases. It covers several topics several likely to be of interest to this blog's readers, including arbitration, deceptive and unfair trade practices, debt collection practices, bankruptcy, and intellectual property. There's nothing earthshattering in the report -- which is designed to support her confirmation by describing her as a mainstream judge who merely "follows precedent" -- but it does provide a useful summary of her opinions in those areas.

FTC Chair Jon Leibowitz Calls for Ban on "Pay-for-Delay" Drug Settlements

In a speech yesterday, FTC Chair Jon Leibowitz explained that a study done by his agency shows that ending so-called “pay-for-delay” settlements between brand-name and generic drug companies would save consumers $3.5 billion a year. He called for Congress to ban or restrict those settlements. In pay-for-delay settlements, the brand-name company pays a generic company that has challenged the brand-name company's patent to stay out of the market.

For a quick synopsis, check out the FTC's press release, or, for more details, read Leibowitz's speech in full.

Foreclosure Crisis Growing?

This article in today's Washington Post explains that mortgages on about 1 million U.S. homes are seriously delinquent, meaning that the home foreclosure crisis is likely to get worse before it gets better.