Second Circuit Rejects Class Certification in "Light" Tobacco Litigation

Last Thursday, the Second Circuit issued McLaughlin v. American Tobacco Company, No. 06-4666 (2d Cir. Apr. 3, 2008), reversing Judge Jack Weinstein's certification of a class including virtually all Americans who had purchased cigarettes labeled as "light" or "lights." Plaintiffs alleged that they were deceived into believing that “light” cigarettes are healthier than “full-flavored” cigarettes. The court of appeals held that the class could not meet Federal Rule of Civil Procedure 23(b)(3)'s requirement that the common questions predominate over the individual questions for a number of reasons, including the need for each plaintiff to show that he or she relied on defendants' deceptions. The court of appeals acknowledged that a district court may partially certify a case on common issues (even where individual questions predominate on other issues) under Rule 23(c)(4), but held that use of that Rule was impermissible in this case because it would not “reduce the range of issues in dispute and promote judicial economy.”

Note that the Supreme Court has granted review in another "light" tobacco case, Altria v. Good, 07-562. That case presents the question whether the plaintiffs' claims are preempted by federal law.

The Ninth Circuit Decides Roommates.com -- Is It the Right Decision for Consumers?

by Greg Beck and Paul Alan Levy

The en banc Ninth Circuit yesterday decided an issue of great importance to consumers on the Internet. The issue: In what circumstances can web site operators that pose discriminatory questions that violate anti-discrimination laws be immune from liability when those who sell or rent housing express discriminatory preferences in response? Cutting back on  his own more expansive opinion for a three-judge panel, and largely following the useful amicus brief submitted by the ACLU in support of neither party, Judge Kozinski's opinion walks a careful line and reaches a decision that protects consumers from unlawful discrimination while at the same preserving the broad protections granted web sites that host consumer criticisms against  suits – and threats of suit  – that seek to shut them down.

Consumer Lawyer on ABC News

ABC News has put together a web page to accompany last night's story featuring Jessica Attie, a legal services lawyer fighting foreclosures in Brooklyn. The message to homeowners -- if you have legal claims, get a lawyer -- has been missing from most of the media coverage of the crisis, which has focused instead either on homeowners choosing to walk away from overmortgaged homes, or on the frustrations of homeowners trying to work with their lenders or through the HOPE NOW servicer consortium. In many subprime foreclosure cases that appear hopeless on the financial side, there can be significant fraud, deceptive practices or Truth in Lending claims that will permit homeowners to restructure (and reduce) their mortgage debt.

Nifty Subprime Data Maps

For state and county-level data, derived from LPI's rich database, on easy-to-use maps, check out the New York Fed's interactive page. You can find information on the percentage of households with subprime mortgages (designated here by the industry-preferred term "nonprime"), the percentage in foreclosure, the number of REO units (foreclosed properties owned by lenders) and more. The data are from December 2007. Hat tip to Lauren Willis.

Texas Supreme Court limits uninsured motorist coverage.

In what I find to be a very interesting opinion, but not that surprising, the Texas Supreme Court has supported the insurance industry's position that uninsured motorist coverage doesn’t cover a collision with just part of a motor vehicle. In Nationwide Insurance Co. v. Elchehimi, the court found no liability under an uninsured motorists provision because there was no contact with a “vehicle.”

The case involved a driver who hit an axel-wheel assembly that had separated from an unidentified semi-trailer truck. The court held that contact with a piece of a motor vehicle that comes off of the motor vehicle, is not contact with a motor vehicle for purposes of the uninsured motorist statute. In other words, if an uninsured vehicle is in an accident and your car runs into it, your uninsured motorist coverage will apply. On the other hand, if the car’s bumper comes off during the accident and damages your car or injures you, uninsured motorist coverage will not apply. I guess a law professor could play with this and query what happens if the vehicle splits in half during the collision. Is each half a “vehicle,” or neither? I am not an expert in insurance law, but it seems to me that this is just another example of a big insurance company prevailing in a consumer lawsuit.

Mortgage broker compensation

The incentives created by mortgage broker compensation structures, such as yield spread premiums, have been blamed for contributing to the reckless lending in the subprime mortgage market. The Treasury Department and Federal Reserve proposals, as well as various bills in Congress, are all taking aim at broker compensation and supervision. To find out what is going on in the market right now, check out this interesting discussion among brokers over at the Implode-o-Meter about Countrywide's decision, announced yesterday, to limit total broker compensation to 4% of loan amounts.

Blueprint for Regulating Financial Services Released

The Bush Administration's Blueprint for Modernized Financial Regulatory Structure, released today, includes a proposal to consolidate consumer protection into a single federal agency. The press release provides a link to the full 218-page Blueprint. Although I have not digested the entire document, consumer protection strikes me as a bit of an afterthought in the overall scheme. The new agency, intended to consolidate functions now served to some extent by the FTC, Federal Reserve, HUD and banking regulators, would take charge of "business conduct" rules, including disclosure law, unfair and deceptive practices rules (including Section 5 of the FTC Act) and anti-discrimination laws like the Equal Credit Opportunity Act. Not surprisingly, the Blueprint is filled with free-market rhetoric ("price controls always result in inefficient outcomes"). Although unfair practice regulation is mentioned, one gets the sense that disclosure and nondiscrimination are the touchstones of the Treasury Department's vision for consumer protection.

While the Blueprint seems to preserve a role for state financial institutions regulators, it would impose federal oversight of the quality of state licensing for mortgage originators. More significantly, it calls for the Federal Reserve to take sole responsibility for regulating lender conduct in the mortgage market. Although it is not explicit, there seems to be a call for federal preemption of state mortgage regulation. This proposal is troubling, given the activity at the state level in regulating predatory mortgage practices (with North Carolina often cited as a model) during a time when Congress took virtually no action to curb mortgage abuses. In the enforcement arena, state regulators have been far more active than the FTC, HUD or the Fed in taking strong action against subprime market leaders, like UC Lending, First Alliance Mortgage, Household Finance, and Ameriquest. Consumer advocates have been understandably concerned about proposals that limit or preempt states' roles in writing and enforcing rules for the marketplace.

Fed Hearings on Countrywide merger

The Federal Reserve has announced public hearings in Chicago and Los Angeles on Bank of America's acquisition of Countrywide. The Fed will consider the public benefits and adverse effects of the merger as well as the Community Reinvestment Act performance of the two institutions, before deciding whether to approve the merger under the Bank Holding Company Act. Community groups are likely to appear and raise issues regarding Countrywide's efforts to prevent foreclosures. In many local jurisdictions Countrywide is the single servicer filing the largest number of foreclosures.

PIRG Report on On-Campus Credit Card Marketing

Over at U.S. PIRG's Consumer blog check out this comprehensive post about PIRG's new report on marketing of credit cards on college campuses. The post links to a number of useful items, including the report itself, which you can also find here.

Fitch Ratings: HOPE NOW not working

In a report dated March 25, 2008 (login required), Fitch Ratings has again revised (upward) its estimates of foreclosures and losses for subprime mortgages made in 2006 and 2007. The news is not good. Fitch reports that fewer homeowners who are behind are successfully catching up on payments ("rolling current") and far fewer are able to sell or refinance their homes to avoid foreclosure. Fitch predicts that 44% to 50% of 2006 subprime mortgages, and 40% to 45% of the 2007 subprime mortgages, will end in foreclosure and sale. It further predicts that loss severities will range from 56% to 64%. In other words, investors will recover 36% to 44% of the principal, interest and fees owed after foreclosure.

Their comment on the HOPE NOW Alliance and its efforts to reach out to borrowers: "Fitch has seen little evidence to date that these alternatives have helped mitigate foreclosure rates." Perhaps after being repeatedly accused of painting rosy scenarios to support its ratings, Fitch now is erring on the side of being too pessimistic. Let's hope so.

HT to Kevin B.