Senate Passes Credit Card Bill

The Times story is here.

Plaintiffs Win Important Consumer Protection Case in California Supreme Court

by Brian Wolfman

The California Supreme Court today decided In re Tobacco II, an important case under California's Unfair Competition Law (UCL), Cal. Bus. & Prof. Code 17200 et seq. Early in the opinion, the Court described the issues in the case and its holdings:

On review, we address two questions: First, who in a UCL class action must comply with Proposition 64’s standing requirements, the class representatives or all unnamed class members, in order for the class action to proceed? We conclude that standing requirements are applicable only to the class representatives, and not all absent class members. Second, what is the causation requirement for purposes of establishing standing under the UCL, and in particular what is the meaning of the phrase “as a result of” in section 17204? We conclude that a class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions. Those same principles, however, do not require the class representative to plead or prove an unrealistic degree of specificity that the plaintiff relied on particular advertisements or statements when the unfair practice is a fraudulent advertising campaign.

Both holdings are favorable to consumer plaintiffs. On the second question -- reliance -- the opinion indicates that reliance can be presumed in many circumstances where a plaintiff class alleges consumer fraud.

The Court agreed with many of the arguments advanced by amici Public Citizen and the Center for Auto Safety. For more detailed descriptions of the case and the views expressed by those amici, see earlier posts here and here.

Times Sunday Magazine Money Issue

Yesterday's Sunday Times Magazine was devoted to money.  The entire issue was worth reading, but two articles in particular were striking.  One, written by Times economics reporter Edmund Andrews and titled My Personal Credit Crisis, was excerpted from his forthcoming book, Busted: Life Inside the Great Mortgage Meltdown.  A divorce and child support obligations left Andrews with take-home pay of $2,777.  Nevertheless, he and his second wife were able to qualify for a substantial mortgage that didn't require him to disclose his income, alimony or child support obligations.  The only problem was that his monthly payments exceeded $2,500 for the first five years, after which his payments would rise still higher.  Eventually, he ran out of money and despite refinancing, stopped making payments on the mortgage.  Here's a revealing passage in which he quotes Bob Andrews, a loan officer at the now-defunct American Home Mortgage Corporation:

“I am here to enable dreams,” he explained to me long afterward. Bob’s view was that if I’d been unemployed for seven years and didn’t have a dime to my name but I wanted a house, he wouldn’t question my prudence. “Who am I to tell you that you shouldn’t do what you want to do? I am here to sell money and to help you do what you want to do. At the end of the day, it’s your signature on the mortgage — not mine.”

The other article is titled What Does Your Credit-Card Company Know About You? and is about how credit card companies have discovered that consumers who charge some items, like chrome skull accessories, are more likely to default than consumers who charge other items, like premium wild birdseed.  That, of course, is relevant to who gets a credit card and the rates they get charged.  The article also explores how credit card companies have learned which strategies are more likely to help in collections than others, based on what they know about the particular consumer.  An excerpt:

[C]redit-card companies are becoming much more interested in understanding their customers’ lives and psyches, because, the theory goes, knowing what makes cardholders tick will help firms determine who is a good bet and who should be shown the door as quickly as possible.

Luckily for the industry, small groups of executives at most of the large firms have spent the last decade studying cardholders from almost every angle, and collection agencies have developed more sophisticated dunning techniques. They have sought to draw psychological and behavioral lessons from the enormous amounts of data the credit-card companies collect every day. They’ve run thousands of tests and crunched the numbers on millions of accounts. One result of all that labor is the conversation between [credit card employee] Santana — a former bouncer whose higher education consists solely of corporate-sponsored classes like “the Psychology of Collections” — and the [consumer] from Massachusetts. When Santana contacted the [consumer] last month, he was armed with detailed information about his life and trained in which psychological approaches were most likely to succeed.

Are SEC Employees Trading on the Agency's Inside Information or Otherwise Abusing Their Power?

This front page story in today's Washington Post concerns a report on the alleged conduct of employees of the Securities and Exchange Commission. Here's a brief excerpt to give you a sense of the story:

A Securities and Exchange Commission official attempted "to intimidate and influence" a family member's broker on multiple occasions by invoking her position, potentially violating agency rules, according to the agency's inspector general.* * * Another investigation found that some of the agency's enforcement lawyers may have traded the stocks of Citigroup, United Health Group and other firms around the time the agency opened investigations into the companies.

Article on Supreme Court's Decision in Wyeth v. Levine

Check out my new article on the Supreme Court's recent decision in Wyeth v. Levine. It describes the Court's decision in detail and discusses its implications for future litigation. Wyeth held that FDA approval of a prescription drug and its labeling does not preempt a state-law suit seeking damages based on injuries caused by the failure of the drug's manufacturer to warn about the drug's dangers. The decision represented an empathic repudiation of the pro-preemption position taken by the Bush Administration.

Consumer Law Wedding Toast

by Jeff Sovern

Recently I was asked to speak briefly at an upcoming wedding but was admonished not to mention consumer law.  So that made me wonder: what would a consumer law wedding toast look like?  My effort follows:

The groom is a reporter, and so can be analogized to the Truth in Lending Act (TILA), a disclosure statute.  The bride is a doctor who travels to Africa regularly to provide services to underserved patients, analogous to the Community Revinvestment Act (CRA), which seeks to insure that underserved consumers are provided with access to loans.  The CRA is unusual among consumer lending statutes in that it, unlike TILA, is not included within the umbrella Consumer Credit Protection Act.  But now the CRA and TILA will be brought together!

Maybe the original plan to stay away from consumer law was a good one.

Judge Posner Blames Himself, Among Others, for Economic Crisis

This article explains that champion of deregulation Judge Richard Posner blames himself, among others such as Alan Greenspan, for the current economic crisis. He says that although deregulation is good for virtually every sector of the economy, he failed to appreciate that it is not good for the banking sector. Judge Posner's views are expressed in detail in his new book, "A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression."  He has also written some interesting posts on the economic situation and the crisis of the modern conservative movement on the Becker-Posner Blog, and he is updating his book on the economic crisis in regular commentary on TheAtlantic.com called "A Failure of Capitalism."

Comments in Times on Cuomo Case

by Jeff Sovern

Back on April 27, the Times published an editorial titled When Banks Discriminate about Cuomo v. The Clearinghouse Association, the pending Supreme Court case addressing whether state officials can investigate discriminatory lending by national banks, or whether such investigations are preempted by federal law (my co-blogger Deepak Gupta blogged about it here, and collected various links).  The Times argued against preemption. Earlier this week the Times posted my letter on the editorial:

Investigating Banks

Published: May 11, 2009

To the Editor:

Re “When Banks Discriminate” (editorial, April 28):

You argue that the Supreme Court should rule that states can investigate whether nationally chartered banks have discriminated in making loans because the states are more willing to enforce such laws than federal authorities.

To this may be added that it is difficult and expensive for wronged individuals to win on such claims, so that if the states cannot act and federal regulators refuse to, lending discrimination laws are not likely to be enforced at all.

Jeff Sovern
Jamaica, Queens, April 28, 2009

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

I think that's the first reference to the Blog in the Times.

American Banker Piece on Truth in Lending

by Jeff Sovern

The American Banker ran a piece I wrote in their Viewpoints section today titled "Borrowers Must Understand Their Obligations" (the American Banker's content is available only to subscribers but they offer a free two-week trial subscription if you want to read the piece).  The essay argues that Truth in Lending failed to convey to too many consumers what their payment obligations would be, thereby leading consumers to take out loans they didn't understand they would not be able to repay.  Here's how it ends:

What should we do? Policymakers have already begun revising disclosure forms to increase the likelihood that those who can learn from written disclosures will be able to determine whether a particular loan is right for them. This process should continue. But we should also recognize that some consumers are unlikely to learn from written disclosures and adopt measures that will communicate to them what they need to know. Such borrowers may need a disinterested counselor - not a mortgage broker who will profit if the loan is made - to walk them through loan terms and explain what they need to know. Perhaps we should administer tests to loan applicants to see whether they understand their loan terms; those who fail should not be permitted to borrow unless a neutral counselor certifies that they understand the terms. And it may be that some loan terms should be outlawed because they are too confusing. We need to install additional checks on lending, and one way to do this is to insure that borrowers understand their loan obligations.

More on the Credit Card Bill Before the U.S. Senate

The National Consumer Law Center has just issued this fact sheet explaining why the credit card reform bill currently being debated in the U.S. Senate is needed to protect consumers from retroactive rate hikes, which would not be regulated under new rules issued by the Federal Reserve. Read more on the bill at U.S. PIRG's Consumer Blog.